May 23, 1997

Securities and Exchange Commission
450 Fifth Street
Washington, DC 20549

Re: GTECH Holdings Corporation Annual Report on Form 10-K

Gentlemen:

On behalf of GTECH Holdings Corporation (the "Company"), I enclose for filing
via the EDGAR System, the Company's Annual Report on Form 10-K (including
Exhibits) for fiscal 1997, which ended on February 22, 1997.

The required filing fee of $250.00 has been paid by wire transfer in accordance
with the procedures set forth in Instructions for Filing Fees--Rule 3(a) of the
Commission's Informal and Other Procedures.

Please note that the financial statements contained in the Form 10-K do not
reflect a change from the preceding year in any accounting principles or
practices or the method of applying such principles or practices.

Sincerely,

 
s/Brendan J. Radigan
_______________________
Brendan J. Radigan
Assistant General Counsel


cc: New York Stock Exchange (w/enclosures)

<PAGE>

                                                FORM 10-K

                                   SECURITIES AND EXCHANGE COMMISSION
                                            Washington, DC 20549

                           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                                      SECURITIES EXCHANGE ACT OF 1934

                              For the fiscal year ended: February 22, 1997
                                        Commission File No: 1-11250

                                      GTECH Holdings Corporation

Delaware                                                    05-0450121
(State or other jurisdiction                          (IRS Employer ID Number)
of incorporation or organization)


                   55 Technology Way, West Greenwich, Rhode Island 02817
                                       (401) 392-1000
                 (Address and telephone number of Principal Executive Offices)


                 Securities  registered  pursuant to Section 12(b) of the Act:

Title of Each Class:                              Common Stock $.01 par value
                              -------------------
        Name of Each Exchange on which Registered:  New York Stock Exchange


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 twelve 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]

Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K.  [X]

The  aggregate  market value of the  registrant's  Common Stock (its only voting
stock)  held  by  non-affiliates  of the  registrant  as of  May  14,  1997  was
$1,553,452,940  (Reference  is made to Page 41  herein  for a  statement  of the
assumptions upon which this calculation is based.)

On May 14, 1997,  there were outstanding  42,022,920  shares of the registrant's
Common Stock.

Documents  Incorporated By Reference:  Certain portions of the registrant's 1997
definitive proxy statement relating to its scheduled July 1997 Annual Meeting of
Shareholders  (which proxy statement is expected to be filed with the Commission
not later than 120 days after the end of the registrant's  last fiscal year) are
incorporated by reference into Part III of this report.

<PAGE>

                                     PART I
         ITEM 1.  BUSINESS

General

GTECH  Corporation   ("GTECH")  is  the  world's  leading  operator  of
computerized  on-line lottery  systems and the wholly owned  subsidiary of GTECH
Holdings  Corporation  ("Holdings";  collectively  with its direct and  indirect
subsidiaries,  including GTECH, the "Company").  The Company currently  operates
on-line  lottery  systems for 29 of the 38 on-line  lottery  authorities  in the
United States and has supplied or currently operates on-line lottery systems for
50 of the 77 international on-line lottery authorities.  The Company, seeking to
develop  growth  opportunities  outside  of the  on-line  lottery  industry,  is
actively involved in the emerging  electronic benefits delivery industry and the
pursuit of gaming  opportunities  other than on-line lottery such as destination
gaming and video lottery.

Since the  establishment  of the first  on-line  lottery  in 1975,  the
on-line lottery industry has experienced substantial growth, as governments have
increasingly relied on lotteries as a non-tax source of revenue. In 1996, ticket
sales in the on-line lottery  industry were  approximately  $20.6 billion in the
United States.  The Company  believes the on-line lottery industry will continue
to grow, assuming, as anticipated,  that additional international  jurisdictions
implement on-line  lotteries and  international and United States  jurisdictions
with existing  on-line  lotteries expand their lottery systems and introduce new
lottery products and games.

The  Company's  core  business  consists of providing  on-line  lottery
services and  products to  governmental  lottery  authorities  and  governmental
licensees  worldwide.  The Company  offers its customers a full range of lottery
services, including the design, assembly,  installation,  operation, maintenance
and marketing of on-line  lottery systems and instant ticket support systems and
services.  The Company's  lottery systems consist of numerous lottery  terminals
located in retail outlets,  central computer systems,  systems software and game
software,  and  communications  equipment  which  connects the terminals and the
central computer systems.

Historically,  the majority of the Company's  lottery  customers in the
United States have entered into long-term  service  contracts  pursuant to which
the Company  provides,  operates and maintains the  customers'  on-line  lottery
systems in return for a percentage  of the gross lottery  revenues.  Many of the
Company's  international  lottery customers have purchased their on-line lottery
systems,  although some,  especially  lottery  authorities in Eastern Europe and
Latin America,  have entered into long-term  service contracts with the Company.
Although product sales increased in fiscal year 1997 over fiscal 1996 levels, in
recent  years there has been an industry  movement  away from  product  sales in
favor of long-term service contracts.  In fiscal 1993,  approximately 70% of the
Company's  lottery revenues were derived from its portfolio of long-term on-line
lottery service contracts with  substantially all of the remainder being derived
from lottery product sales. In fiscal 1997,  approximately  87% of the Company's
lottery  revenues  were derived  from on-line  lottery  service  contracts.  The
Company  believes that revenues  attributable to product  purchases by lotteries
during fiscal 1998 are likely to remain closer to the percentage  level realized
in fiscal 1997 than to the fiscal 1993 level.

In recent years,  lottery  authorities have recognized that by offering
new games or products,  lotteries  are able to generate  significant  additional
revenues. An important part of the Company's strategy is to develop new products
and services for its customers in order to increase their lottery revenues.  The
Company's  principal  on-line  products and services  introduced in recent years
consist  of  keno,   instant   ticket   support   systems   and   services   and
BingoVision(TM).  Keno, an on-line lottery game which features drawings as often
as every five  minutes,  was first  introduced  by the Company and the Lotteries
Commission  of South  Australia  in 1990 and  subsequently  has been  introduced
successfully   by  the  Company  and  lottery   authorities   in  17  additional
jurisdictions on four continents.  The Company currently provides instant ticket
support  services,  products  and  systems in 23 domestic  jurisdictions  and 11
jurisdictions  outside  of  the  United  States.  BingoVision(TM),  a  televised
bingo-based  lottery game developed by the Company,  has been implemented by the
Company in six jurisdictions.  In fiscal 1997, the Company organized  GameScape,
Inc.  ("GameScape") as a vehicle to develop,  test,  package,  and introduce new
games targeted to the marketing  needs of its lottery  customers.  See "Products
and Services Introduced in Recent Years."

The Company also has  broadened  its product  lines outside of its core
business of providing on-line lottery services and products. In August 1993, the
Company acquired a benefits  delivery business as part of its acquisition of the
parimutuel wagering business of General Instrument Corporation which the Company
conducted through its AmTote  International,  Inc.  subsidiary  ("AmTote").  The
Company  divested  AmTote  during  fiscal 1996 but  continues  to build upon the
benefits delivery  operations.  The Company's  benefits delivery systems provide
secure, high volume transaction  processing of food stamps, Aid to Families with
Dependent Children and other benefits on behalf of governmental authorities. The
Company,   principally   through  its   wholly-owned   subsidiary,   Transactive
Corporation ("Transactive"), currently provides to the State of Texas and to the
State of  Illinois  Department  of Public  Aid  benefits  delivery  systems  and
services.  The State of  Texas,  through  Transactive,  currently  operates  the
largest   electronic   benefits  delivery  system  in  the  United  States.  See
"Significant Developments Since the Start of Fiscal 1997."

In November  1994,  the Company  announced  the formation of its Gaming
Group, later  incorporated as Dreamport,  Inc.  ("Dreamport"),  to pursue gaming
opportunities   other  than  on-line   lottery,   including  video  lottery  and
destination  gaming.  In May 1995, the Company  announced an agreement with Full
House Resorts,  Inc.  ("Full House") to finance and develop Native  American and
casino gaming opportunities.  One such opportunity,  a casino on Native American
lands in Coos Bay,  Oregon,  became  operational  in May 1995.  In addition,  in
February 1996, the Company and Full House entered into  agreements with Delaware
State  Fair  and  Harrington   Raceway,   Inc.   respecting  the  financing  and
construction of a gaming facility at the Delaware State Fairground, Kent County,
Delaware,  and other  opportunities  are being developed by the Company and Full
House.  The Harrington  Raceway  facility opened under the name Midway Slots and
Racebook during fiscal 1997. See  "Significant  Developments  Since the Start of
Fiscal 1997" below.

In fiscal 1996, the Company formed a subsidiary,  GTECH Worldserv, Inc.
to provide network  communications  services to private sector  clientele.  This
business is still in its start-up phase. See "Significant Developments Since the
Start of Fiscal 1997" and  "Products  and Services  Introduced  in Recent Years"
below.

GTECH was  founded  in 1980.  Holdings  acquired  GTECH in a  leveraged
buy-out, in which members of senior management of GTECH  participated,  that was
completed on February 1, 1990.

The Company's  principal executive offices are located at 55 Technology
Way,  West  Greenwich,  Rhode Island 02817,  and its  telephone  number is (401)
392-1000.

<PAGE>
         Factors That May Affect Future Performance

The future  performance  of the  Company's  business  is subject to the
factors set forth below, as well as the other considerations described elsewhere
herein.

Certain  statements  contained  in  this  Report  are  forward  looking
statements  within the meaning of Section 27A of the  Securities Act and Section
21E of the Securities  Exchange Act of 1934.  Such statements  include,  without
limitation, statements relating to (i) the future prospects for and stability of
the lottery  industry and other businesses in which the Company is or expects to
be engaged,  (ii) the future operating and financial performance of the Company,
(iii) the ability of the Company to retain  existing  business and to obtain and
retain new business,  and (iv) the results and effects of legal  proceedings and
investigations.  Such forward looking statements reflect management's assessment
based on information currently available, but are not guarantees and are subject
to risks and uncertainties which could cause actual results to differ materially
from those  contemplated  in the  forward  looking  statements.  These risks and
uncertainties  include but are not limited to those set forth  herein and in the
Company's   press   releases  and  filings  with  the  Securities  and  Exchange
Commission.

                             Governmental Regulation

In the United  States,  lotteries  are not  permitted  in a  particular
jurisdiction  unless  expressly  authorized  by law in such  jurisdiction.  Once
authorized,  the ongoing  operation  of a lottery is highly  regulated.  Lottery
authorities generally conduct an intensive  investigation of the Company and its
employees  prior to and after the award of a lottery  contract  and may  require
removal of any employees deemed to be unsuitable. To date, the Company has never
been  disqualified  from  receiving a lottery  contract  or  operating a lottery
system as a result of any such investigation. Certain jurisdictions also require
extensive  personal and financial  disclosure and background checks from persons
and entities  beneficially owning a specified percentage  (typically 5% or more)
of the Company's securities.  The failure of such beneficial owners to submit to
such background checks and provide such disclosure could jeopardize the award of
a lottery  contract to the  Company or provide  grounds  for  termination  of an
existing lottery contract.  Transactive, which is engaged primarily in providing
computerized  networks  and  services to  governments  for  electronic  benefits
transfers,  is also  subject to  extensive  state as well as federal  regulatory
requirements.

The  international  jurisdictions  in which  the  Company  markets  its
lottery systems also usually have legislation and regulations  governing lottery
operations.  The  regulation of lotteries in these  international  jurisdictions
typically  varies from the  regulation  of  lotteries in the United  States.  In
addition,  restrictions are often imposed on foreign  corporations seeking to do
business in such jurisdictions.  As a result, the Company has found it desirable
in a number of  instances  to ally itself as a  subcontractor  or joint  venture
partner with a local company in seeking international lottery contracts.


<PAGE>

            Maintenance of Business Relationships and Certain Legal Matters

A  significant  portion  of the  Company's  revenues  and cash  flow is
derived from its portfolio of long-term on-line lottery service  contracts.  The
Company's  on-line lottery service  contracts  typically have an initial term of
five years and usually  provide the customer with options to extend the contract
under the same terms and  conditions for additional  periods  generally  ranging
from one to five years.  The Company's  customers have  generally  exercised the
extension  options under their  contracts or negotiated  extensions on different
terms and conditions. Upon the expiration of a contract, lottery authorities may
award new contracts through a competitive  procurement process.  There can be no
assurance that, in the future, the Company's  contracts will be extended or that
it  will be  awarded  new  contracts  as a  result  of  competitive  procurement
processes.  The Company's lottery contracts typically permit a lottery authority
to terminate the contract at any time for failure to perform and other specified
reasons,  and many of such contracts  permit the lottery  authority to terminate
the contract at will and do not specify the  compensation,  if any, to which the
Company would be entitled were such  termination  to occur.  To date, no lottery
authority has ever exercised its option to terminate at will during the contract
term or has ever  terminated a contract with the Company for failure to perform.
The  termination  of or failure to renew one or more  lottery  contracts  could,
depending  upon  the  circumstances,  have  a  material  adverse  effect  on the
Company's business and prospects.

The Company regularly engages public affairs and governmental relations
advisors,  including lobbyists,  in various  jurisdictions to advise legislators
and the public in  connection  with lottery  legislation,  to monitor  potential
lottery  legislation  and to advise the Company in connection with the Company's
lottery  and  benefits  delivery  contract  proposals.  The  Company  also makes
contributions  to various  political  parties and associations but does not make
contributions to individual candidates or their campaigns.

It has not been uncommon in the lottery industry for  investigations of
various types,  including grand jury investigations,  to be conducted by federal
or state law  enforcement  and other  officials into possible  undue  influence,
bribery or other  improprieties  or  wrongdoing  in  connection  with efforts to
obtain  or  the  awarding  of  lottery  contracts  and  related  matters.   Such
investigations  often are called for by disappointed  competitors or politicians
(who may  include  those  opposed  to  gaming  or the  lottery  business).  Some
investigations  in the past  have  involved  the  Company,  or its  consultants,
lobbyists or representatives,  directly or indirectly,  and the Company is aware
of federal  grand jury  investigations  currently  being  conducted  by the U.S.
Attorneys in New Jersey and Texas.

As previously  publicly reported,  in October 1994, the U.S. Attorney's
Offices for the Western  District of Kentucky and for the District of New Jersey
announced that separate indictments had been returned by federal grand juries in
those  jurisdictions  against J. David Smith,  the former  sales  manager of the
Company (who resigned in early 1994 for reasons  unrelated to the  indictments),
and several  other  individuals  who served as  consultants  or suppliers to the
Company.  The indictments alleged essentially that,  unbeknownst to the Company,
Mr. Smith had received  kickbacks from the consultants and suppliers for his own
benefit. The indictments did not charge the Company with any wrongdoing, and the
actions  complained  of did not  affect  the  Company's  Kentucky  or New Jersey
lottery operations. In January 1995, at the conclusion of the Government's case,
the U.S.  District  Court for the Western  District of  Kentucky  dismissed  all
charges against Mr. Smith and the other  defendant,  a GTECH  supplier.  The New
Jersey trial of Mr. Smith and two consultants commenced in September 1996 in the
U.S. District Court for New Jersey, and in October 1996 Mr. Smith and one of the
two consultants were found guilty of all charges. The other consultant was found
not guilty.  Mr. Smith has moved for a new trial.  In the midst of these events,
the New Jersey Lottery Commission awarded GTECH a contract to continue operating
the state lottery.

Subsequent to the Smith trial, the New Jersey U.S.  Attorney  announced
in a press  release  that a grand jury  investigation  in that  jurisdiction  is
continuing but did not specify the scope of such investigation.  Thereafter, the
New Jersey U.S.  Attorney's  Office issued  subpoenas to GTECH,  one of which is
being disputed by GTECH. The Texas U.S.  Attorney's  Office in the past has also
issued subpoenas to GTECH. GTECH is cooperating with these investigations.

As previously publicly reported, the United States Attorney's Office in
Georgia  recently  advised  GTECH's  counsel that its grand jury  investigation,
which GTECH previously reported, has terminated. No charges were brought against
GTECH.

No charges of  wrongdoing  have ever been brought  against GTECH or the
Company by any grand jury or other governmental  authority.  On two occasions in
the past,  charges of wrongdoing  were brought  against  non-employee  lobbyists
retained  by GTECH,  but neither  lobbyist  was found  guilty of any  activities
relating to GTECH.

The Company does not believe that it has engaged in any  wrongdoing  in
connection with these matters.  However,  since the current  investigations  are
still underway and are conducted largely in secret, the Company lacks sufficient
information  to determine  with  certainty  their ultimate scope and whether the
government  authorities  will  assert  claims  resulting  from  these  or  other
investigations  that could  implicate  or reflect  adversely  upon the  Company.
Because the Company's  reputation  for  integrity is an important  factor in its
business dealings with lottery and other  governmental  agencies,  if government
authorities  were to make an allegation of, or if there were to be a finding of,
improper  conduct on the part of or  attributable  to the Company in any matter,
such an  allegation  or  finding  could have a  material  adverse  effect on the
Company's  business,  including its ability to retain existing  contracts and to
obtain new or renewal  contracts.  In  addition,  continuing  adverse  publicity
resulting  from  these  investigations  and  related  matters  could have such a
material adverse effect.

As widely reported in the Texas media, the Texas Lottery  Commission is
inquiring of GTECH  regarding its business  relationships  relating to the Texas
Lottery and GTECH has  cooperated  with that inquiry.  The Texas Lottery is also
inquiring about several other matters which could have material negative 
implications with respect to GTECH's business in Texas, including the following:

  - GTECH's consulting contracts with Ben Barnes,  former
    Lieutenant  Governor of Texas,  which  contracts  were entered
    into in 1991 and were bought out and terminated by the Company
    in February 1997;

  - GTECH's   retention   in  October  1992  of  Michael
    Moeller, a friend of Nora Linares, the then Executive Director
    of the Texas Lottery, as a consultant regarding New Mexico;

  - Mr. Barnes' gift in December 1992 of a $100 paperweight to then Governor of
    Texas, Ann Richards;

  - Any other instances in which GTECH  entertained or gave a gift
    to a state official (without reimbursement).

In addition,  the Texas State Auditor has issued to GTECH a Request for
Information, and GTECH is complying with that request.

In March  1997,  the Texas  Lottery  Commission  directed  its staff to
prepare and circulate by June 30, 1997, a request for proposals  with respect to
the entire Texas Lottery  contract  currently held by GTECH, as well as requests
for proposals for various  portions of that contract.  However,  the Chairman of
the  Commission has declared that this action is not and should not be deemed an
exercise by the Texas Lottery of the termination  provision of GTECH's contract,
without  cause,  upon 30 days prior  notice.  The Texas Lottery  Commission  has
further asserted that it has no obligation to deal with GTECH in good faith with
respect to the  termination  of its contract  with the Company,  a position with
which GTECH strongly  disagrees.  Pursuant to the amendment to GTECH's  contract
executed in April 1996 which  extended  the term of the contract for five years,
the Company is making major capital investments of more than $20 million and has
incurred  significant  related expenses.  (See Note E to Consolidated  Financial
Statements  and Item  7--"Management's  Discussion  and  Analysis  of  Financial
Condition  and Results of  Operations"  herein.) The Texas  Lottery  contract is
GTECH's largest,  accounting for  approximately 16% of GTECH's total revenues in
fiscal 1997 and a significant  percentage of operating income. GTECH is pursuing
all  available  options to ensure that its contract,  amended to extend  through
August 2002 and negotiated in good faith with the Texas Lottery, is honored.

In April 1997, Nora Linares, the former Executive Director of the Texas
Lottery  Commission,  filed suit against GTECH and James  Hosker,  the Company's
Texas Site Director  (captioned  Nora Alicia  Linares v. GTECH  Corporation  and
James Hosker,  et al.),  in the District  Court of Travis  County,  Texas (261st
Judicial District).  Ms. Linares,  who had been terminated as Executive Director
of the Texas  Lottery  Commission  in  January  1997,  alleges  that  GTECH,  in
violation of Texas State Law and its lottery  contract  with the State of Texas,
tortiously interfered with her employment  relationship with her former employer
by,  among  other  things,   hiring  Michael   Moeller  as  a  consultant,   and
intentionally  inflicted  emotional  distress upon her. Ms. Linares seeks both a
declaratory judgment setting forth the rights, duties and responsibilities which
GTECH  owes to public  officials  such as Ms.  Linares,  as well as  actual  and
exemplary damages from GTECH.  GTECH believes that this lawsuit is without merit
and is defending itself (and Mr. Hosker) vigorously. On May 2, 1997, GTECH filed
a notice of removal in the Austin  Division of the United States  District Court
for the Western District of Texas, seeking to have the case transferred from the
state court to the federal court.

As previously publicly reported, in December 1995, Richard Branson filed suit in
the United Kingdom's High Court of Justice (Queen's Bench Division) against
GTECH U.K. Corporation, a subsidiary of the Company, and Robert Rendine, its
press spokesman (captioned Richard Branson v. GTECH U.K. Corporation and Robert
Rendine), and in January 1996, Mr. Branson filed suit in this same court against
the Company's Chairman, Guy B. Snowden (captioned Richard Branson v. Guy
Snowden), alleging in both cases that the defendants had libeled Mr. Branson in
responding to certain allegations which had been made by Mr. Branson.  Mr.
Branson, whose consortium in 1994 lost the bid to operate the United Kingdom
National Lottery, had alleged in a television program broadcast in the U.K.
in December 1995 that Mr. Snowden had offered him an inducement in September
1993 not to bid for the U.K. lottery contract.  Mr. Snowden and the Company have
categorically denied Mr. Branson's allegations.  In addition, Mr. Snowden filed
suit in January 1996 in the U.K. against Mr. Branson alleging that Mr. Branson's
televised allegations libeled Mr. Snowden.  The Director General of the U.K.
Lottery subsequently appointed Anne Rafferty Q.C. to conduct an inquiry into
Mr. Branson's allegations that Mr. Snowden had attempted to bribe him. In July,
1996 a report setting forth the results of Ms. Rafferty's inquiry was made
public.  That report found no evidence supporting Mr. Branson's
allegations that Mr. Snowden had attempted to bribe him.  The trial on these
matters currently is scheduled to commence in January 1998, and the Company
intends to defend its Chairman, subsidiary and press spokesman vigorously
against Mr. Branson's claims.  Moreover, Mr. Snowden intends to pursue his claim
against Mr. Branson.

                     Investments in Racimec and Transactive

The  Company  has   substantial   investments   in  its   subsidiaries,
Transactive and Racimec Informatica  Brasileira S.A.  ("Racimec") which were not
profitable in fiscal 1997. See Item 7--"Management's  Discussion and Analysis of
Financial Condition and Results of Operations" herein and Note E to Consolidated
Financial  Statements for  information  concerning the Company's  investments in
Transactive and Racimec.

The prospects for the Company's  electronic  benefits  transfer ("EBT")
business may be adversely affected by recently enacted federal legislation which
endorses  efforts of the U.S.  Department  of Treasury  to permit  only  certain
large, federally-insured banks to participate in the procurement process for EBT
systems  and  services.  In March 1995,  the  Department  of Treasury  issued an
Invitation to Express Interest ("IEI") by which it solicited a full range of EBT
services on behalf of a coalition of states  known as the  Southern  Alliance of
States (the "SAS").  In March 1995,  Transactive  sued the United States and the
Department of Treasury in the U.S.  District  Court for the District of Columbia
in connection  with this IEI because the only  "financial  agents"  permitted to
respond to the IEI were certain large, federally-insured financial institutions.
Transactive appealed an adverse  determination by the U.S. District Court to the
U.S. Court of Appeals for the District of Columbia Circuit which ruled in August
1996 that  Treasury's  use of the IEI  process in which  only  federally-insured
banks may  participate  to select an EBT vendor for the SAS states was  unlawful
under the federal Administrative  Procedure Act. In September 1996, however, the
President  signed into law an  "omnibus  appropriations  bill" which  appears to
nullify the U.S.  Court of Appeals'  August 1996  decision.  The law purports to
authorize  Treasury  to  continue  with  the  existing  EBT  pilot  for the SAS,
including its  designation of a Transactive  competitor as a financial  agent of
the  Government,  and  appears to  insulate  many  aspects of the EBT pilot from
judicial review. More importantly, the bill authorizes Treasury prospectively to
procure EBT services,  including the distribution of state administered benefits
subject  to  applicable  state  consents,  by  financial  agents  determined  in
accordance with any process the Secretary of the Treasury deems appropriate.  To
date,  Treasury has not acted under this legislation to procure EBT services for
state-administered benefits.

In  addition,  the  prospects  for the  Company's  EBT  business may be
adversely affected by federal welfare reform, and similar  initiatives of states
to reduce the rolls of those  eligible to receive  government  benefits.  To the
extent such efforts are  successful,  compensation  received by providers of EBT
systems and services, which is typically calculated on a per-recipient basis, is
likely to be reduced.

                   Fluctuation of Quarterly Operating Results

The Company has experienced and may continue to experience  significant
fluctuations in operating results from quarter to quarter due to such factors as
the amount and timing of product  sales,  the  occurrence  of large  jackpots in
lotteries  (which  increase the amount  wagered and the  Company's  revenue) and
expenses incurred in connection with lottery start- ups and other new ventures.

                       Liquidated Damages Under Contracts

The Company's lottery and EBT contracts typically permit termination of
the  contract  at any time for  failure of the  Company to perform and for other
specified reasons and generally contain demanding  implementation  schedules and
performance  schedules.  Failure to perform  under such  contracts may result in
substantial monetary liquidated damages, as well as contract  termination.  Many
of the Company's lottery contracts permit the lottery authority to terminate the
contract  at will and do not  specify  the  compensation,  if any,  to which the
Company  would  be  entitled  should  such  termination  occur.  Certain  of the
Company's  United States lottery  contracts have contained  provisions for up to
$700,000 a day in liquidated damages for late system start-up and provide for up
to $10,000 or more in  penalties  per minute for system  downtime in excess of a
stipulated grace period,  and certain of the Company's  international  customers
(most notably the United Kingdom's National Lottery) similarly reserve the right
to assess substantial  monetary damages in the event of contract  termination or
breach. Although such liquidated damages provisions are customary in the lottery
industry and the actual  liquidated  damages  imposed are  generally  subject to
negotiation,  such  provisions in the  Company's  lottery  contracts  present an
ongoing  potential for  substantial  expense.  Liquidated  damages are generally
deducted  directly  from  revenues  the  Company has  otherwise  earned from the
lottery authorities and are budgeted by the Company on an annual basis.  Lottery
contracts generally require the vendor (i.e., the Company) to post a performance
bond, which in some cases may be substantial,  securing the vendor's performance
under such contracts.

EBT contracts may also provide for significant  liquidated  damages and
termination  penalties to be assessed against vendors in certain  circumstances.
For example,  Transactive's  EBT  contract  with the Texas  Department  of Human
Services  provides for  liquidated  damages of up to $250,000 per day in certain
circumstances.

Liquidated  damages paid or incurred by the Company with respect to its
contracts  equaled 0.42%,  0.53%,  0.50%,  0.23% and 0.25% of annual revenues in
each of the five fiscal years ending February 1993 through 1997, respectively.


<PAGE>

Significant Developments Since the Start of Fiscal 1997

                          Lottery Awards and Contracts

Since the start of fiscal 1997 (which ended on February 22, 1997),  the
Company has received a number of service  contract  awards and  extensions  from
lottery authorities.

New On-Line Customers.  During fiscal 1997, the Company received awards
from two new on-line lottery  customers.  In January 1997, a contract to provide
on-line lottery services and technology to Caixa Economica Federal ("CEF"),  the
financial  institution  which runs  Brazil's  National  Lottery,  was awarded to
Racimec   Informatica   Brasileira  S.A.   ("Racimec"),   the  Company's  Brazil
subsidiary,  following  a  competitive  bid. It is  expected  that the  National
Lottery,  which  is to be  gradually  converted  from  CEF's  existing  off-line
lottery,  will upon full conversion be among the world's largest on-line lottery
systems with more than 10,000  terminals.  The four-year  facilities  management
contract may be extended by CEF for up to four  additional  years. In June 1996,
the New Mexico lottery  authority  selected the Company to provide equipment and
services  for the first  on-line  lottery  system in New Mexico.  The New Mexico
lottery represents the thirty-eighth government-authorized lottery in the United
States and the first new on-line  lottery  start-up in the United  States  since
1994. The New Mexico lottery commenced on-line lottery sales in October 1996 and
the Brazil  National  Lottery  commenced  on-line lottery sales in May 1997 with
approximately 400 terminals.

In addition,  in July 1996,  the  Washington  State  lottery  authority
commenced on-line sales under a lottery system provided under its September 1995
agreement  with the  Company.  In June 1995,  the Company  had been  selected to
provide on-line lottery  equipment and services to the Washington  State lottery
upon the  expiration of the lottery  authority's  then-existing  contract with a
competitor of the Company.

Other New On-Line  Contracts and Extensions.  Since the start of fiscal
1997,  the Company was awarded  new on-line  service  contracts  by, or received
contract extensions from, a number of its existing customers.  In June 1996, the
Company was selected by the New Jersey lottery authority to supply,  operate and
maintain  a new  on-line  lottery  system  for New  Jersey and signed a one-year
agreement to provide  equipment and services to the Arizona  lottery  authority.
The Arizona contract,  which was signed on an emergency basis,  became effective
upon early  termination  of the  lottery  authority's  contract  with its former
supplier,  and may be extended for an unlimited number of ninety-day  extensions
at the lottery  authority's  option.  The New Jersey lottery  commenced  on-line
sales on the new system in  November  1996,  and the Arizona  lottery  commenced
on-line sales on the new system in July 1996.

In addition,  during fiscal 1997,  the lottery  authorities  of Oregon,
Wisconsin,  Kansas and Rhode Island awarded new on-line lottery contracts to the
Company,  and the lottery  authorities of California  and Illinois  extended the
terms of their on-line lottery contracts with the Company. The Wisconsin lottery
commenced  on-line sales in May 1997. The Oregon lottery is currently  scheduled
to commence  on-line  sales in November  1997,  and the Kansas and Rhode  Island
lotteries  are both  currently  scheduled to commence  on-line  sales in October
1997.  In April 1996,  the Texas lottery  authority  agreed to amend its lottery
contract  with the  Company  so as to extend the term of the  contract  for five
additional  years (i.e.  through  August 2002).  Under the terms of the contract
amendment, the Company is required to replace the existing Texas lottery central
computer system,  upgrade the lottery's software,  construct a new satellite hub
and provide  additional  terminals.  The  amendment  annually  reduces  over its
five-year term the  percentage  rate of the Texas  Lottery's  revenues which the
Company is to receive as compensation under its agreement with the Texas lottery
authority.  The Texas Lottery  Commission  has  subsequently  voted to rebid the
Company's lottery contract and has announced its intention to circulate requests
for proposal by June 30, 1997. The Company is pursuing all available  options to
insure that its contract  extension  is honored.  See  "Maintenance  of Business
Relationships and Certain Legal Matters" herein.

After the close of fiscal 1997, the Kentucky lottery  authority entered
into a new  five-year  contract  with the Company  under which the Company  will
provide on-line  services and equipment.  The Company,  which has been providing
on-line services and equipment for the Kentucky lottery  authority  continuously
since 1989, was invited to negotiate a new contract  after the Kentucky  lottery
authority accepted a competitor's withdrawal of its proposal.

Product Sales Contracts.  During fiscal 1997, the Company also entered into
several new product sales contracts.

In June 1996, the Company  announced that it had been awarded a product
sales contract to replace the entire on-line  lottery  terminal  network for the
Lotteries Commission of Western Australia,  and that it had signed a contract to
sell  lottery  equipment,  including  terminals,  to Software  de Juegos,  which
supplies  on-line  lottery  products and services to the  provincial  lottery of
Buenos Aires,  Argentina. In December 1996, the Massachusetts lottery authority,
which has been  operating  its own on-line  system  since 1981,  entered into an
agreement with Digital  Equipment  Corporation,  with the Company as its primary
subcontractor, under which the Company provides on-line products and services to
the  Massachusetts  lottery  authority.  In  December  1996,  the  Company  also
announced that it had entered into a product sales agreement with AB Tipstjanst,
its  lottery  customer in Sweden,  under  which it will sell an on-line  central
system and related  software.  The contract also requires the Company to provide
software development and maintenance services to the Swedish lottery authority.

After the close of fiscal 1997, the Company  entered into a new product
sales  contract to provide  on-line  lottery  equipment and services for the New
Zealand  Lottery  Commission.  The contract also  includes a five-year  services
agreement under which GTECH will provide system and terminal maintenance.

                       Benefits Delivery Systems Awards and Contracts

The Company in recent  years has sought to build upon its  expertise in
providing secure,  high volume  transaction  processing systems and services for
governmental  authorities  through its  involvement  in the emerging  government
benefits delivery industry.  Through  Transactive,  the Company is active in the
business of providing government benefits delivery systems and services.

In November  1996,  the Company  announced  that  Transactive  had been
selected  to  negotiate  a contract  to supply  equipment  and  services  for an
electronic  benefit  transfer  ("EBT") system to the  Mississippi  Department of
Human Services.  When final,  the contract is expected to have a five-year term,
subject  to  extension  by  Mississippi  for up to two  additional  years.  Upon
statewide  implementation,  it is  presently  expected  that the EBT system will
serve  approximately   175,000  households  through  more  than  3,800  retailer
locations. The selection of Transactive has been protested by a competing bidder
for the contract award, and the protest was heard in April 1997, but no decision
has been rendered to date. As a result of the protest  proceedings,  Transactive
and the Mississippi  Department of Human Services have not yet begun negotiating
the EBT  contract.  Transactive  believes that its selection was proper and that
the protest will be rejected.

In December  1996,  the Company  announced  that  Transactive  had been
selected to  negotiate a contract to supply  equipment  and  services for an EBT
system to the Indiana Family and Social Services Administration.  Negotiation of
that  contract  is  ongoing.  When  final,  the  contract  is expected to have a
five-year  term,  subject  to  extension  by the State for up to two  additional
years.

The  Company  acquired  a contract  to  provide  an on-line  system and
services for the distribution of public assistance funds and food stamps for the
Human Resources  Administration  of the City of New York ("HRA") in August 1993.
Transactive  continues to provide this system and services to HRA pursuant to an
extension of its contract  which was  originally to expire on December 31, 1996.
Transactive  and HRA are  negotiating a new contract  pursuant to which it shall
continue to provide  such system and  services at least  through  June 30, 1998,
subject to extension by HRA through  December  1999.  The State of New York (the
lead state of the  Northeast  Coalition of States),  through its  Department  of
Social  Services  ("DSS")  entered  into an EBT contract  with a  competitor  of
Transactive  in April  1996 (the "DSS EBT  Contract").  As  previously  publicly
reported,  if this award  becomes  final,  HRA's  program of  delivering  public
assistance  funds and food stamps  will  likely be subsumed  within the New York
State  program and  Transactive's  contract,  which is  profitable,  will likely
terminate  as a result.  In June 1996,  Transactive  filed a petition in the New
York State  Supreme  Court against DSS, the  competitor  and others,  seeking to
overturn  award of the DSS EBT Contract.  In April 1997,  the Court annulled and
declared void the DSS EBT Contract (as well as all other contracts that resulted
from the RFP issued by DSS on behalf of the  Northeast  Coalition of States) and
in May 1997, both DSS and the contracting EBT system vendor appealed the Supreme
Court's  decision  to the New York  State  Court of  Appeals.  Transactive  will
vigorously defend the appeal of the Supreme Court's judgment.

                                    Dreamport

During  fiscal  1997,  Dreamport,   the  Company's  non-lottery  gaming
subsidiary,  announced that it had entered into two strategic  relationships  to
develop  and  exploit  markets  for video  lottery  products  and  services.  In
September 1996,  International Game Technology  ("IGT") and Dreamport  announced
the launch of IGDreamport, a joint venture that will pursue opportunities in the
emerging public video lottery gaming market.  IGDreamport will develop,  improve
and market video lottery  technology,  games and services designed to expand the
product offerings  available to government  sponsored  lotteries  worldwide.  In
addition,  in January 1997, Dreamport announced the formation of a joint venture
with  IGT  and  Sodak  Gaming,   Inc.  for  the  purposes  of  facilitating  the
development, support, supply and operation of video gaming operations in Brazil.
Under the joint venture  agreement,  the three  companies will conduct  business
through a Brazilian  entity and will share equally in the expenses,  profits and
investment funding of the joint venture.

In August 1996,  Dreamport and Full House Resorts,  Inc.  announced the
opening of Midway Slots and  Racebook,  a gaming and  entertainment  facility at
Harrington Raceway, Dover, Delaware, jointly developed by the two companies.

                                    Worldserv

In  October  1996,  Worldserv,  the  Company's  network  communications
subsidiary,  announced that it had signed a network installation and maintenance
services  contract with VeriFone,  Inc., the world's leading  provider of credit
and  debit  card  point of sale  systems.  Under  the  terms  of the  agreement,
Worldserv is to provide a variety of network communications  management services
supporting a new digital point-of-sale product developed by VeriFone.

                               Other Developments

The Company  strengthened  its  management  team with the  appointment,
announced in February  1997,  of Paul Daly as Vice  President,  Compliance.  Mr.
Daly,  who joined the  Company  after a  distinguished  30-year  career with the
Federal Bureau of Investigation,  is responsible for management of the Company's
worldwide  compliance  relationships,  overseeing  all  compliance  policies and
programs  and  insuring  that  the  Company's  legal  and  contractual  security
requirements are met.

Lottery Industry

Statements  relating to the lottery  industry  contained in this Report
are based on information  compiled by the Company,  or derived from  independent
public  sources which the Company  believes to be reliable.  No assurance can be
given, however,  regarding the accuracy of such statements. In general, there is
less   publicly-available   information  concerning  the  international  lottery
industry than the lottery industry in the United States.

Lotteries  are operated by state and foreign  governmental  authorities
and their licensees in approximately  170 jurisdictions  worldwide.  Governments
have authorized  lotteries  primarily as a means of generating non-tax revenues.
In the United States,  lottery revenues are frequently designated for particular
purposes, such as education, economic development, conservation,  transportation
and aid to the elderly. Many states have become increasingly  dependent on their
lotteries as revenues from lottery  ticket sales are often a significant  source
of funding for these programs.

Although  there are many types of lotteries in the world it is possible
to categorize government  authorized lotteries in two principal groups:  on-line
lotteries  and off-line  lotteries.  An on-line  lottery is conducted  through a
computerized  lottery  system in which  lottery  terminals  are  connected  to a
central  computer  system,  typically by dedicated  telephone  lines. An on-line
lottery system is generally utilized for conducting games such as lotto,  sports
pools,  keno and numbers,  in which players make their own selections.  Off-line
lotteries feature lottery games which are not computerized including traditional
off-line  lottery games and instant ticket games.  Traditional  off-line lottery
games,  in which players  purchase  tickets  which are manually  processed for a
future  drawing,  generally are conducted only in  international  jurisdictions.
Instant ticket games,  in which players scratch off a coating from a pre-printed
ticket  to  determine  if  it  is  a  winning   ticket,   are   conducted   both
internationally and in the United States.

In general,  on-line lotteries generate  significantly greater revenues
than both  traditional  off-line  lottery  games and instant  ticket  games.  In
addition, there are several other advantages to on-line lotteries as compared to
traditional  off-line  lotteries.  Unlike  traditional  off-line  lottery games,
wagers can be accepted and processed by an on-line  lottery system until minutes
before a drawing,  thereby  significantly  increasing  the lottery's  revenue in
cases  in which a large  prize  has  attracted  substantial  wagering  interest.
On-line lottery systems also provide greater  reliability and security,  allow a
wider variety of games to be offered and automate  accounting and administrative
procedures which are otherwise manually performed.

Typically,  approximately  50%  of the  gross  revenues  of an  on-line
lottery in the United  States is  returned  to the public in the form of prizes.
Approximately 35% is used by the state to support specific public programs or as
a contribution to the state's general funds. The remaining 15% is generally used
to fund the operations of the lottery, including the cost of advertising,  sales
commissions to  point-of-purchase  retailers and service fees to vendors such as
GTECH.

From 1971 through 1996, total annual lottery ticket sales in the United
States grew from  approximately  $147.5 million to approximately  $34.6 billion,
although the level of ticket sales in certain  jurisdictions has tended to level
off or  decrease  slightly  in the last few years.  Most of the growth in ticket
sales  has  occurred  in the  on-line  portion  of the  lottery  business  which
accounted for approximately 60% of total lottery ticket sales in 1996.

There are currently 38 jurisdictions operating on-line lotteries in the
United States.  Implementation of lotteries in other jurisdictions,  will depend
upon  successful  completion  of  legislative,   regulatory  and  administrative
processes.

Outside the United States,  government  operated or licensed  lotteries
have a long history, and many of the major countries in the world have some type
of  lottery,  most of which are  off-line.  The  international  on-line  lottery
industry has  experienced  significant  growth.  Since 1977,  when there were no
on-line  lotteries  operating  outside of the United  States,  77  international
jurisdictions  have  implemented  on-line  lottery  systems.  A number  of other
international  jurisdictions,  principally in Europe, Asia and Latin America are
currently considering the implementation of on-line lotteries.

On-Line Lottery Contracts

The Company  generally  conducts  business  under one of three types of
contractual arrangements:  Facilities Management Contracts,  Operating Contracts
and Product Sales Contracts. Under a typical Facilities Management Contract, the
Company  installs,  operates and  maintains a lottery  system,  while  retaining
ownership of the lottery system.  These contracts  generally provide for service
fees directly from the lottery authority to the Company based on a percentage of
on-line lottery ticket sales. Under an Operating Contract, the Company generally
provides the same services as under a Facilities Management Contract,  but sells
the lottery system and licenses the computer software to the lottery  authority.
Ongoing  service  fees to the Company  under an  Operating  Contract are usually
based on a percentage of lottery ticket sales.  Under a Product Sales  Contract,
the Company  sells,  delivers and installs a turnkey  lottery  system or lottery
equipment and licenses the computer  software for a fixed price, and the lottery
authority subsequently operates and maintains the lottery system.

The  collection  of lottery  monies,  the  selection  of  winners,  the
financial  responsibility  for the  payment of prizes and the  qualification  of
retail sales agents are usually the sole responsibility of the lottery authority
in each  jurisdiction  in which the  Company  operates  a  lottery.  The  United
Kingdom's National Lottery provides an important  exception to the general rule.
Camelot,  a  consortium  of  companies  of which the  Company  is a member,  was
licensed by the United Kingdom government to operate all aspects of the National
Lottery with the exception of proceeds allocation.

                           Facilities Management Contracts

The Company's  Facilities  Management  Contracts  generally require the
Company to  install,  operate  and  maintain  an on-line  lottery  system for an
initial term, which is typically at least five years and usually contain options
permitting the lottery authority to extend the contract under the same terms and
conditions for one or more additional periods generally ranging in the aggregate
from  two to six  years.  In  addition,  the  Company's  customers  occasionally
renegotiate  extensions  on  different  terms and  conditions.  See  "Liquidated
Damages Under Contracts" above.

The  Company's  revenues  under  Facilities  Management  Contracts  are
generally  based upon a percentage of gross on-line  lottery  ticket sales.  The
level of lottery ticket sales within a given  jurisdiction is determined by many
factors,  including population density, the types of games played and the games'
design, the number of terminals, the size and frequency of prizes, the nature of
the  lottery's  marketing  efforts  and the length of time the  on-line  lottery
system has been in operation.

Under its Facilities Management Contracts, the Company retains title to
the lottery  system and  typically  provides  its  customers  with the  services
necessary  to operate and manage the lottery  system.  The Company  installs and
commences operations of a lottery system generally within six months after being
awarded a Facilities  Management  Contract  and,  following  the start-up of the
lottery system, is responsible for all aspects of the system's  operations.  The
Company typically operates lottery systems in each jurisdiction on a stand-alone
basis  through  the  installation  of two or  more  dedicated  central  computer
systems,  although  in a few  instances  several  jurisdictions  share  the same
central system. In addition,  the Company employs a dedicated work force in each
jurisdiction,  consisting of a site director, marketing personnel,  computer and
hotline   operators,    communications    specialists   and   customer   service
representatives who service and maintain the system.

Under  certain of the  Company's  Facilities  Management  Contracts the
lottery  authority has the right to purchase the Company's lottery system during
the contract  term at a  predetermined  price,  which is  calculated  so that it
exceeds  the  Company's  net book  value of the  system at the time the right is
exercisable.  The Company's  role with respect to the  continued  operation of a
lottery  system in the event of the  exercise  of such a purchase  option is not
specified in such contracts and thus would be subject to negotiation. Under many
of the Company's Facilities Management Contracts, the lottery authority also has
the option to require the Company to install additional terminals and/or add new
lottery games. Such  installations may require  significant  expenditures by the
Company.  However,  since the Company's revenues under such contracts  generally
depend on the level of lottery ticket sales,  such  expenditures  have generally
been recovered  through the revenues  generated by the  additional  equipment or
games and revenues from existing equipment.

Under a  number  of the  Company's  lottery  contracts  (including  the
Georgia,  New  York,  Texas  and  United  Kingdom  contracts),  in  addition  to
providing,  operating  and  maintaining  the  on-line  lottery  system  in these
jurisdictions, GTECH is providing a wide range of support services and equipment
for the lottery's  instant  ticket games,  such as marketing,  distribution  and
automation  of  validation,  inventory  and  accounting  systems,  for  which it
receives  fees based upon a  percentage  of the  revenues of the instant  ticket
games.

Revenues  from  Facilities  Management  Contracts  are accounted for as
service revenues in the Company's Income Statements.


<PAGE>

The table  below  sets  forth the  lottery  authorities  with which the
Company had Facilities  Management Contracts as of May 5, 1997. Unless otherwise
indicated,  the Company is the sole supplier of central  computers and terminals
and services to each of the lottery  authorities  listed  below.  The table also
sets forth  information  regarding  the term of each  contract and, as of May 5,
1997, the approximate number of terminals installed in each jurisdiction.
<TABLE>
<CAPTION>

                                                   Facilities Management Contracts
                                                                                                                      Current
                     Approximate No. of Lottery      Date of Commencement of      Date of Expiration of Current      Extension
Jurisdiction           Terminals Installed(1)           Current Contract                  Contract Term               Options*
<S>                           <C>                           <C>                            <C>                     <C>    

United States:
Arizona (2)                    2,355                           5/96                             7/97                 --
California (3)                 7,057                          10/93                            10/03                 --
Colorado                       2,335                           3/95                            10/00                 2 two-year
D.C. (4)                         585                           5/95                            11/99                 --
Georgia                        5,739                           4/93                             9/98                 5 years
Illinois                       6,521                           2/89                            10/99                 1 one-year
Indiana                        3,875                           3/90                             6/98                 1 one-year
Iowa                           1,489                           4/91                             6/01                 1 two-year
Kansas (5)                     1,665                           1/88                             6/97
Louisiana                      2,672                          11/91                             1/98                 4 years
Maine(6)                       1,089                           7/90                             6/00                 --
Michigan                       6,037                           4/88                             1/99                 --
Missouri                       2,486                           7/96                             7/01                 1 two-year
Nebraska                         781                           4/94                             6/00                 1 four-year
New Hampshire(6)                 954                           7/90                             6/00                 --
New Jersey                     5,108                           6/96                             6/01                 5 years
New Mexico                     1,001                           6/96                            11/03                 5 one-year
New York                      11,924                           2/93                             2/99                 3 one-year
Ohio                           3,105                          10/93                             6/99                 1 two-year
Oregon                         2,861                          12/96                            10/04                 3 one-year
Rhode Island                     897                           1/97                             7/02                 5 one-year
Texas(6)                      14,282                           3/92                           8/02(6)                --
Vermont(7)                       460                           7/90                             6/00                 --

</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                                                                                                  Current
                       Approximate No. of Lottery      Date of Commencement of        Date of Expiration of       Extension
Jurisdiction             Terminals Installed(1)            Current Contract           Current Contract Term       Options*
------------             ----------------------            ----------------           ---------------------       --------
<S>                            <C>                           <C>                            <C>                 <C>    

Washington State                 2,188                           9/95                          6/01             3 years
West Virginia                    1,360                           2/92                          6/00             2 one-year
Wisconsin (8)                    3,095                           5/89                          5/97             --
                                 -----
    Subtotal                    91,921


International:
Barbados
-T.L. Lotteries                   194                           10/94                          1/00             2 one-year
Brazil (9)
-National
   Lottery (9)                    (9)                            (9)                           (9)              (9)
-Minas Gerais                     436                           10/94                         10/00             (9)
-Parana                           518                            8/94                          8/98             (9)
-Santa Caterina                   177                            5/95                          5/00             (9)
-FGFS Sports Club                  42                           11/94                         11/99             (9)
Chile
-Polla Chilena de                1,684                          12/93                          8/99             --
Beneficencia S.A.
Czech Republic
-SAZKA                           2,190                          10/92                          (10)             (10)
Estonia
-Ras Eesti Loto                   450                            1/94                          1/06             (11)
Ireland
-An Post Nat'l                   2,016                           3/93                          3/00             (12)
Lottery Company
Lithuania
-OLIFEJA                          467                           12/94                         12/09             (13)
Poland
-Totalizator                     3,591                           3/91                          3/98             (14)
Sportowy
Puerto Rico
-Loteria                         1,831                           4/90                         11/98             --
Electronica de
Puerto Rico
Slovakia
-TIPOS, a.s.                      901                            (15)                          (15)             --


</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                                                                                                                     Current
                        Approximate No. of Lottery    Date of Commencement of     Date of Expiration of Current     Extension
                          Terminals Installed(1)          Current Contract                Contract Term              Options*
<S>                            <C>                            <C>                           <C>                  <C>   

Jurisdiction
Spain
-Loto Catalunya                   1,501                        10/87                         10/97                     (12)
Trinidad & Tobago
-National Lotteries                 564                        12/93                          7/99               5 one-year
Control Board
United Kingdom
-The National                    23,750                        7/94                           9/01                   --
Lottery (16)
Venezuela (17)
-Loteria de Caracas                 494                        4/93                           4/98               1 five-year
-Loteria de Oriente                                            6/89                           6/99                     (12)
-Loteria de Zulia                                              12/90                         12/00                     (12)

                                 --------

Subtotal                         40,806

Total Terminals
Installed                       132,727

                      -------------------------------
</TABLE>

* Reflects  extensions  available to the lottery  authority under the same
  terms as the current contract.  Lottery authorities occasionally negotiate
  extensions on different terms and conditions.

  (1) Total does not include instant ticket validation terminals.

  (2) The Arizona lottery authority may renew its contract with the Company for
      ninety (90) day intervals

  (3) In  addition,  the  Company  is a  subcontractor  to High  Integrity
      Systems,  Inc.  ("HISI"),  which has a contract with the  California
      lottery  authority to install and  maintain  6,000  terminals  using
      HISI's proprietary dial-up technology for on-line and instant ticket
      sales and validation.

  (4) Operated by Lottery Technology Enterprises, a joint venture in which the
      Company has a 40% interest.

  (5) The Company has entered into a new contract with the Kansas lottery
      authority  that  commences  in July 1997 and  expires in June 2002.
      There  are two  different  extension  options  of  three-years  and
      two-years.

  (6) The Texas  lottery  authority,  which in April 1996 agreed to amend
      its lottery  contract  with the Company so as to extend the term of
      the contract through August 2002, has  subsequently  voted to rebid
      the Company's  contract.  See "Significant  Developments  Since the
      Start of Fiscal 1997" and  "Maintenance  of Business  Relationships
      and Certain Legal Matters" above.

  (7) The Maine, New Hampshire and Vermont lottery authorities share a central
      computer system.

  (8) The  Wisconsin  Lottery  Authority  has awarded a new contract to the
      Company  effective May 1997 for five (5) years with options to extend
      for two (2) one-year periods. The contract is in negotiation.

  (9) Operated by Racimec,  a Brazilian  company in which the Company owns
      all voting  stock.  In January  1997,  Racimec  signed a contract to
      provide  on-line  lottery  services and products to Caixa  Economica
      Federal ("CEF") Latin America's largest financial  institution which
      runs Brazil's National Lottery.  It is anticipated that the National
      Lottery will  eventually  become one of the world's  largest on-line
      systems with more than 10,000 terminals nationwide.  On-line lottery
      sales commenced in May 1997 with  approximately  400 terminals.  The
      Company's  contract with CEF has a four-year base term.  Each of the
      Brazilian  agreements  may  be  extended,   at  the  option  of  the
      respective lottery authority, for one or more extension terms not to
      exceed, in aggregate, the duration of the base term.

 (10) The contract with the Czech  Republic  lottery  authority runs until
      seven years after the  installation of the 2,500th terminal or three
      years  after the  installation  of any  terminals  after the 3,000th
      terminal, whichever is later.

 (11) The Company's contract with Ras Eesti Loto provides for an automatic
      three-year extension,  in certain  circumstances,  and an indefinite
      number of one-year extension options.

 (12) The contracts with the lottery  authorities of Ireland,  Spain (Loto
      Catalunya)  and Venezuela  (Loteria de Oriente and Loteria de Zulia)
      may either be extended  for any period  mutually  acceptable  to the
      Company   and  the   respective   lottery   authority   or  continue
      indefinitely until termination by the respective lottery authority.

 (13) The  Company's   contract  with  the  Lithuanian  lottery  authority
      automatically  extends from  year-to-year  unless either party gives
      timely notice of non-renewal.

 (14) The term of the Company's contract with the Polish lottery authority
      automatically  renews for an indefinite number of one-year extension
      periods  thereafter  unless  either  party  gives  timely  notice of
      non-renewal.

 (15) The Company's  agreement with  SPORTNIKE a.s.  expired in July 1995
      upon  termination  of  SPORTNIKE'S  license to conduct a lottery in
      Slovakia.  Since then,  the Company has been  operating  the system
      for, and in March 1996 entered  into a definitive  agreement  with,
      TIPOS a.s., the current license holder. The Company's contract with
      TIPOS  expires  seven years after the  installation  of the 1,000th
      terminal on the system.

 (16) Operated by Camelot  Group plc, a  consortium  in which the Company
      holds a 22.5% equity interest,  on a facilities  management  basis.
      The Company also sells  equipment  to Camelot  Group plc for use by
      The National Lottery.

 (17) The Venezuela lottery authorities share the same central computer system.

<PAGE>
                                  Operating Contracts

Under  an  Operating  Contract,  the  Company  generally  operates  and
maintains the lottery system and provides  on-going software support services in
the same  manner as under a  Facilities  Management  Contract,  except  that the
Company  sells the  lottery  system and  licenses  the  software  to the lottery
authority at the beginning of the contract  rather than  retaining  ownership of
the system.  Ongoing  service fees to the Company under its Operating  Contracts
are usually based on a percentage of lottery ticket sales.  The initial contract
term,  extensions,  rebidding  processes  and  termination  rights for Operating
Contracts  are  generally  substantially  the  same as  those  under  Facilities
Management Contracts.

Revenues from sales of lottery  systems and equipment  under  Operating
Contracts  are accounted for as product  sales  revenue,  and services  provided
under such  contracts  are  accounted  for as service  revenues on the Company's
Income Statements.

The table  below  sets  forth the  lottery  authorities  with which the
Company had Operating  Contracts as of May 5, 1997. Unless otherwise  indicated,
the Company is the sole  supplier of lottery  equipment  and services to each of
the lottery  authorities  listed  below.  The table also sets forth  information
regarding  the term of each  contract  and, as of May 5, 1997,  the  approximate
number of terminals installed in each jurisdiction.
<TABLE>
<CAPTION>

                                       Operating Contracts

                                        Approximate No. of     Date of Commencement   Date of Expiration of   Current Extension
                                        Lottery Terminals       of Current Contract   Current Contract Term       Options*
Jurisdiction                               Installed(1)
<S>                                          <C>                      <C>                       <C>               <C>    

United States:
Idaho                                             691                    3/90                   2/99              1 one-year
Kentucky(2)                                     2,774                  10/89(2)                  (2)                  --
                                                -----
  Subtotal                                      3,465

International:
Argentina
-Loteria National Sociedad del Estado             786                    11/93                  4/01              1 two-year
Denmark                                         2,816                    9/95                   1/00                  --
-Dansk Tipstjanst(3)

The Netherlands
-Stichting de Nationale                         3,113                    12/91                  12/98                 (5)
Sporttotalisator(4)
Turkey
-Turkish National Lottery                       1,330                    2/96                   11/01                 (6)
                                                -----
  Subtotal                                      8,045
                                                =====
Total Terminals Installed                      11,510


</TABLE>
<PAGE>

* Reflects extensions available to the lottery authority under the same
terms  as the  current  contract.  Lottery  authorities  occasionally  negotiate
extensions on different terms and conditions.

(1)     Total does not include instant ticket validation terminals.

(2)     In April 1997, the Company entered into a facilities management contract
        to provide a new lottery system to the Kentucky lottery  authority.  The
        new contract has an initial term of five years.

(3)     The Denmark lottery authority has exercised an option to assume
        responsibility for the operation and maintenance of the lottery system.

(4)     The Company has entered  into a  Memorandum  of  Understanding  with CGK
        Computer  Gesellschaft  Konstanz  mbH  which has the  contract  with the
        Netherlands   lottery  authority.   The  Netherlands  lottery  authority
        operates the system and maintains all  terminals.  The Company  performs
        all software maintenance,  except terminal application maintenance.  The
        Company also provides spare and repair parts.

(5)     The contract may either be extended for any period  mutually  acceptable
        to the Company and the lottery authority or continues indefinitely until
        termination by the lottery authority.

(6)     The  term of the  contract  with the  Turkish  lottery  authority  shall
        automatically  renew for  successive  one-year  extension  terms  unless
        either  party gives  timely  notice of  non-renewal.  In  addition,  the
        Turkish lottery  authority has the option to assume  responsibility  for
        the provision of certain  lottery  services at any time after the second
        anniversary of system start-up.

<PAGE>

                               Product Sales Contracts

      The Company sells,  delivers and installs on-line lottery systems for a
      fixed  price  under  Product  Sales  Contracts.  The  Company  also  sells
      additional  terminals  and central  computers to expand  existing  systems
      and/or replace existing equipment under Product Sales Contracts.

      In connection with its Product Sales Contracts,  the Company  generally
      designs the lottery system,  trains the lottery authority's  personnel and
      provides  other  services  required  to make the system  operational.  The
      Company also generally  licenses its software to its customers for a fixed
      additional fee.

      Historically,  product  sales  revenues  have  been  derived  from  the
      installation  of new  on-line  lottery  systems  and the sales of  lottery
      terminals  and  equipment  in  connection  with the  expansion of existing
      lottery  systems.  The size and timing of these  transactions at times has
      resulted in variability in product sales revenues from quarter to quarter.
      See Item 7--"Management's  Discussion and Analysis of Financial Conditions
      and Results of Operations."

      The table  below lists  certain of the  Company's  direct and  indirect
      customers that have purchased  lottery terminals and other on-line lottery
      equipment  from the Company since March 1, 1991. The Company has found the
      size and timing of  product  sales  often  difficult  to  predict  and has
      experienced variability in product sales revenues from period to period.

            Argentina            --National Lottery of Argentina
            Argentina            --Provincial Lottery of Buenos Aires
            Australia            --Lotteries Commission of South Australia
            Australia            --Lotteries Commission of Western Australia
            Australia            --Tattersall Sweep Consultation
            Australia            --Lotteries Commission of West Australia
            Austria              --Osterreichische Lotto Toto Gesmbh
            Belgium              --Loterie Nationale de Belgique
            Canada               --Atlantic Lottery Corporation
            Canada               --British Columbia Lottery Corporation
            Canada               --Ontario Lottery Corporation
            Canada               --Western Canada Lottery Corporation
            Canada               --Saskatchewan Gaming Commission
            Finland              --Oy Veikkaus AB
            Germany              --Sachsiche Lotto-GmbH
            Germany              --Lotterie Treuhandgesellschaft Mbh Thuringen
            Iceland              --Islensk Getspa
            Iceland              --Islenskar Getraunir
            Malaysia             --Pan Malaysian Pools
            Malaysia             --Lotteries Corporation (Sabah) Sdn. Bhd.
            Malaysia             --Sports Toto Malaysia Bhd.
            Massachusetts       -- Massachusetts State Lottery Commission
            New Zealand          --New Zealand Lotteries Commission
            Singapore            --Singapore Pools (Pte) Ltd.
            Spain                --Sistemas Tecnicos de Loterias del Estado
            Sweden               --AB Tipstjanst
            Switzerland          --Sport-Toto Gesellschaft
            Switzerland          --Loterie de la Suisse Romande
            United Kingdom       --The National Lottery

Contract Award Process

In the  United  States,  lottery  authorities  generally  commence  the
contract  award  process by issuing a request for proposals  inviting  proposals
from  various  lottery  vendors.  The request for  proposals  usually  indicates
certain  requirements  specific to the  jurisdiction,  such as particular  games
which will be required,  particular pricing mechanisms,  the experience required
of the vendor and the amount of any  performance  bonds that must be  furnished.
After  the bids have  been  evaluated  and a  particular  vendor's  bid has been
accepted, the lottery authority and the vendor generally negotiate a contract in
more detailed terms. Once the contract has been finalized,  the vendor begins to
install the lottery system.

After the  expiration of the initial  contract term and all  extensions
thereof, a lottery authority in the United States generally may either negotiate
further   extensions   or   commence   a  new   competitive   bidding   process.
Internationally,  lottery  authorities  do not  typically  utilize  as  formal a
bidding  process,  but rather  negotiate  proposals  with one or more  potential
vendors.

The Company's  marketing  efforts for its lottery products and services
frequently  involve top  management  in addition to the  Company's  professional
marketing staff.  These efforts consist primarily of marketing  presentations to
the lottery  authorities of  jurisdictions  in which requests for proposals have
been issued.

Marketing  of the  Company's  lottery  products and services to lottery
authorities  outside of the United States is often performed in conjunction with
licensees and consultants with whom the Company contracts for  representation in
specific market areas.  Although neither a condition of their contracts with the
Company  nor a condition  of their  contracts  with  lottery  authorities,  such
licensees  and  consultants  often  agree with the  Company  to provide  on-site
services after installation of the on-line lottery system.

Pursuant  to a 1990  Distributorship  and License  Agreement  (the "D&L
Agreement")  between the  Company and CGK  Computer  Gesellschaft  Konstanz  mbH
("CGK"),  a subsidiary  of Siemens AG, the Company  granted to CGK the exclusive
right to  distribute,  service,  sell and market the Company's  on-line  lottery
systems and  components  in Austria,  Belgium,  Germany,  the  Netherlands,  and
Switzerland.   Under  this  Agreement,  the  parties  entered  into  a  separate
Memorandum  of  Understanding  ("MOU") for each lottery to which CGK submitted a
proposal, setting forth each party's rights and obligations under such proposal.
As of the start of fiscal 1996,  CGK and the Company had entered into MOU's with
respect to lotteries in Austria,  Belgium, the Netherlands,  Switzerland and the
German State of Saxony.  The Company's role under such MOUs range from providing
terminals  and  terminal  application  software  (Austria and  Switzerland),  to
providing the entire lottery central system and terminals (Belgium),  to selling
the entire lottery system and terminal repair parts to CGK (the  Netherlands and
Saxony).

After the close of fiscal  1995,  the  Company  conducted  a  strategic
reassessment of its marketing plans for Europe. In light of this, and to provide
the Company with  greater  latitude in dealing  with  lottery  authorities,  the
Company  entered  into  discussions  with CGK to amend the D&L  Agreement.  As a
result of these  discussions,  CGK and the  Company  entered  into an  amendment
providing that the D&L Agreement would terminate  effective  August 1, 1995 with
respect to all regions except  Germany,  the  Netherlands and certain regions in
Switzerland,  and, effective December 31, 1995, the D&L Agreement  terminated as
to all remaining regions. However, the amendment required CGK and the Company to
fulfill their  respective  obligations  under certain  existing MOUs and related
agreements,  and with respect to certain proposals  submitted in accordance with
the D&L Agreement and outstanding at the time of its  termination.  Accordingly,
in  January,  1996,  the  Company  and CGK  entered  into  an  MOU,  and CGK and
Lotterie-Treuhandgesellschaft  mbH Thuringen  entered into a contract to provide
equipment  and  services  for an on-line  lottery  system in the German State of
Thuringen.

The  Company  generally  has a number of bids  outstanding  for various
contracts in the United States and internationally.

From time to time, there are challenges or other  proceedings  relating
to the awarding of lottery contracts.

Products and Services

The Company's  lottery  systems consist of lottery  terminals,  central
computer systems,  systems and  communications  software and game software,  and
communications  equipment which connects the terminals and the central  computer
systems.  The systems'  terminals are typically  located in high-traffic  retail
outlets, such as newsstands,  convenience stores, food stores, tobacco shops and
liquor stores.

The Company's on-line lottery systems control and perform the following
functions:  entry of wagers  using a terminal's  keyboard or a  fully-integrated
optical mark recognition reader; automatic editing of each wager for correctness
by the  originating  terminal;  encryption  and  transmission  of the  wager and
related data to the central computer  installation(s);  processing of each wager
by the  central  computers,  including  entry of the wager into  redundant  data
bases;  transmission of authorization for the originating terminal to accept the
wager  and  print  a  receipt  or  ticket,  winning  ticket  identification  and
validation; and administrative functions, including determination of prize pools
and generation of management information reports.

The  Company's  systems  are  capable of  handling in excess of 100,000
transactions  per minute,  which rate is in excess of the requirements of any of
its customers.  The basic functions listed above, as well as various optional or
custom-designed  functions,  are performed under internal  controls designed for
maximum security and minimum  processing  time.  Security is provided through an
integrated system of techniques,  procedures and controls supported by hardware,
software  and human  resources.  Individual  systems  generally  have  redundant
capacity  at multiple  levels and  sophisticated  software to ensure  continuous
service to the customer.

                                  Terminals

The  Company  designs,  manufactures  and  provides  the  point-of-sale
terminals used in its on-line lottery systems. Currently,  approximately 137,000
of its model  GT-101/FX  terminals,  introduced  in 1983,  its  model  GT-101/TF
terminals,  introduced in 1985, and its model GT-401/OI terminals, introduced in
1989,  are  installed  in numerous  jurisdictions.  All of these  terminals  use
advanced   microprocessors  and  software  programs  to  provide  the  increased
transaction processing performance levels and communications interfaces required
in  the  on-line  lottery  industry.  These  terminals  are  designed  to  allow
customization  of  application  functions  to  each  lottery's   specifications,
including optical mark recognition,  ticket graphics printing, user and customer
display  options  and  other  application  functions.  The  terminals'  hardware
facilitates independent development of applications programs by the Company. The
Company's  Spectra(TM)  terminal series (GT-401 and 402/OM) first  introduced in
1989, is distinguished by its modular  internal and external  architecture.  The
modular   design   provides  an  enhanced   level  of   flexibility  to  lottery
jurisdictions  by  permitting  them to choose  among a variety  of  options  and
terminal  subsystem  configurations,  including  readers,  printers,  keyboards,
displays,  and  communications  interfaces.  As of February 22, 1997, a total of
approximately  67,000  Spectra(TM)  terminals  had been  installed  in  numerous
international jurisdictions.

The Company's newest terminal series,  ISYS(TM),  (GT-502),  introduced
during fiscal 1996 is an integral,  single-unit  terminal which features modular
subassemblies,   high   performance   ticket   printer   and   playslip   reader
subassemblies,   an  easy-to-use   design,  and  a  host  of  new  features  and
technologies.  As of February 22, 1997,  approximately 14,000 ISYS(TM) terminals
had been  installed.  See  "Products  and Services  Introduced  in Recent Years"
below.

<PAGE>

                                   Software

The Company  designs and  provides  all  applications  software for its
lottery systems.  The Company's highly sophisticated and specialized software is
designed to provide the  following  system  characteristics:  rapid  processing,
storage  and  retrieval  of  transaction  data in high  volumes  and in multiple
applications;  the ability to down-line  load (i.e.,  to  reprogram  the lottery
terminals from the central computer  installation via the communications  system
to add new games);  a high degree of security and  redundancy  to guard  against
unauthorized  access and tampering and to ensure  continued  operations  without
data loss; and a comprehensive  management  information  and control system.  In
addition to featuring the aforementioned  characteristics,  the Company's latest
generation software system,  PRO:SYS(TM), is based on client server architecture
and provides  open  interfaces  which allow for the  integration  and support of
third-party and commercial modules and applications.  See "Products and Services
Introduced in Recent Years" below.

                                Central Computers

Each of the  Company's  lottery  systems  contains  one or more central
computer  sites to which the lottery  terminals  are  connected.  The  Company's
central  computer  systems are  manufactured by Digital  Equipment  Corporation,
Concurrent  Computer  Corporation and Stratus Computer,  Inc. The specifications
for the  configuration  of the  Company's  central  computer  installations  are
designed to provide continuous availability,  a high throughput rate and maximum
security.  Central computer installations typically include: redundant mainframe
computers,  various  peripheral  devices  (such  as  magnetic  storage  devices,
management terminals and hard copy printers), and various safety,  environmental
control and security  subsystems  (including a back-up power supply),  which are
all manufactured by third parties, and a  microcomputer-based  communication and
switching subsystem.  In addition,  the Company supplies management  information
systems  that  provide  lottery  personnel  access to  important  financial  and
operational data without compromising the security of the on-line system.

                                  Communications

The Company's lottery terminals are typically  connected to the central
computer  installations  by  dedicated  telephone  lines  owned or leased by the
jurisdiction  in which  the  system is  located.  Due to the  varying  nature of
telecommunications services available in lottery jurisdictions,  the Company has
developed  the  capability  to  interface  with a wide  range of  communications
technologies,  including UHF Radio capability (narrow-band and Spread Spectrum),
GSAT/VSAT,  Microwave,  Integrated Services Digital Networking (ISDN), Data Over
Voice (DOV), fiber optic and cellular telephone. In Argentina, Barbados, Brazil,
the  Spanish  province  of  Catalunya,   Chile,  The  Czech  Republic,  Estonia,
Lithuania,  Mexico,  New Mexico,  Poland,  Puerto Rico,  Slovakia,  Trinidad and
Tobago and Venezuela,  the Company  utilizes UHF Radio Data-Link  Communications
system  in lieu of  telephone  lines to  provide a data  communications  pathway
between the lottery terminals and the central  computers.  The Company also uses
this  technology  in the United  States to  supplement  the  existing  telephone
networks in Ohio, Oregon,  Rhode Island,  Texas,  Washington and the District of
Columbia.  The Company's  GSAT satellite  technology  makes it feasible to serve
large market areas where telephone lines are either  unavailable,  unreliable or
too costly.  GSAT currently operates in the United States in remote areas of New
Mexico,  Texas,  Washington,  Argentina,  Brazil,  Chile,  Poland and the United
Kingdom.  The Company has also implemented UHF radio in conjunction with GSAT to
further enhance reliability and cost savings in remote areas.

                                    Games

An important  factor in maintaining  and increasing  public interest in
lottery games is innovation in game design. The Company's  GameScape(TM)  group,
in conjunction with lottery  authorities,  utilizes  principles of demographics,
sociology, psychology,  mathematics and computer technology to design customized
lottery  games  which are  intended to appeal to the  populations  served by its
lottery systems. The principal characteristics of game design include: frequency
of drawing,  size of pool,  cost per play and setting of  appropriate  odds. The
Company believes that its expertise in game design has enhanced the marketing of
its lottery  systems and has  contributed  to  increases  in the revenues of the
Company's customers.

The Company's GameScape(TM) group currently has a substantial number of
variations of lottery games in its software  library.  The Company believes that
this  game  library  and  the  "know  how"  and  experience  accumulated  by its
professionals  since the Company's inception make it possible for the Company to
meet the  requirements  of its customers for  specifically  tailored  games on a
timely and comprehensive basis.

                                    Marketing

In United States  jurisdictions in which the Company has been awarded a
lottery  contract,  the  Company  is  frequently  asked to  assist  the  lottery
authority  in the  marketing  of lottery  games to the public.  Such  assistance
generally  includes  advice  with  respect to game  design,  and  promotion  and
development and distribution of terminals and advertising  programs.  As part of
such  assistance,  the  Company  developed  "GMark,"  a  computerized  marketing
analysis system used to determine favorable locations for new lottery terminals.
The lottery authorities of California, Georgia, Illinois, Indiana, Kentucky, New
York,  Ohio and Texas have  installed  GMark systems,  and most other  customers
contact the Market Research Group at  GameScape(TM)  from time to time to obtain
GMark services.

                                     Warranty

Because  the Company  retains  title to the system  under a  Facilities
Management Contract,  no warranty is provided on the Company's products supplied
under such  contracts.  The  Company  does  repair or replace  such  products as
necessary to fulfill its obligations  under such contract.  There is no standard
warranty on products  manufactured by the Company.  A typical warranty  provides
that the Company will repair or replace defective  products for a period of time
(usually  one year) from the date a product is  delivered  and  tested.  Product
warranty  expenses for the fiscal years 1997,  1996 and 1995 were not  material.
The Company  typically does not provide a warranty on products it sells that are
manufactured by third parties, but attempts to pass the manufacturer's warranty,
if any,  on to the  customer.  With  respect to computer  software,  the Company
typically  modifies its  software as necessary so that the software  conforms to
the specifications of the contract with the customer.

Products and Services Introduced in Recent Years

                                   On-Line Lottery

In recent years,  lottery  authorities have recognized that by offering
new games or products, the lotteries are able to generate significant additional
revenues. An important part of the Company's strategy is to develop new products
and services for its customers in order to increase their lottery revenues.  The
Company's  principal on-line lottery products and services  introduced in recent
years  are  keno,  instant  ticket  support  services  and  BingoVision(TM).  In
addition,  the Company has recently  introduced its ISYS(TM) series terminal and
PRO:SYS(TM)  software  system to  enhance  the  functionality  and appeal of its
existing software and terminal lines.

Keno. While new on-line  jurisdictions offer growth by providing access
to new players, more mature markets, such as the United States, rely principally
upon the  introduction of new games to provide growth.  One such game introduced
by the Company is keno. In keno,  players typically choose up to 10 numbers from
a field of 80 and attempt to match their  numbers  against any 20 numbers  which
are randomly  selected by a central computer system.  Alternatively,  the player
may choose up to 10 numbers and wager that none of such  numbers  will match the
20 numbers randomly selected. This game combines the multiple prize payouts of a
lotto-type game with the immediacy of an instant scratch-off lottery game. It is
also unique in its play-style and  distribution,  which  decreases the risk that
the game  will  cannibalize  existing  on-line  lottery  revenues.  Keno is more
interactive  than typical  on-line lottery games and is designed to be played in
the  company  of  others.  While  most  lotto  and  numbers  games  are found in
convenience  stores  and  supermarkets,  places  visited  frequently  and  often
individually, keno outlets are often located in restaurants, taverns and bowling
alleys and other social settings which tend to be visited by groups of people.

From the Company's introduction in April 1990 of the first on-line keno
game for the Lotteries  Commission of South Australia  through the end of fiscal
1997, the Company assisted lottery authorities in Belgium, Brazil (Parana, Minas
Gerais, Santa Caterina and Goias), California, Kansas, Lithuania, Massachusetts,
Oregon, Rhode Island,  Catalunya (Spain),  Switzerland (La Societe de la Loterie
de la Suisse  Romande),  West  Virginia  and  Venezuela  (Loteria de Caracas) in
implementing  on-line keno games.  In fiscal 1996, the Company  assisted the New
York and Georgia lottery  authorities in implementing  keno games.  Based on the
success  of keno in these  jurisdictions,  the  Company  believes  keno  will be
adopted in other jurisdictions in the next few years.

Keno  illustrates  the  impact  that  new  games  can  have on  lottery
revenues.  Since the United States  introduction of keno in 1991,  United States
keno revenues have grown  significantly,  exceeding  $1.7 billion and accounting
for more than 9% of total United States  on-line  lottery  revenues in 1996. The
popularity of keno has led the Company to explore the  development  of new games
based upon keno.  Most notably,  the Company has developed Keno Plus(TM),  a new
product that combines expanded keno game  characteristics  with new hardware and
enhanced product support.

Keno has been the subject of legal challenge in California and New York
in recent  years.  In June  1996,  the  California  Supreme  Court  unexpectedly
reversed trial and appellate  court decisions and found the California keno game
to be a banked game rather than a lottery  because it provides for a fixed prize
that is not dependent  upon the size of the prize pool.  Accordingly,  the Court
concluded that the keno game was not  authorized by the California  lottery law,
and the California  State Lottery  suspended  operation of the keno game in June
1996.  In  September  1996,  the Company  announced  the launch of a  parimutuel
monitor  game  designed  by the Company and the  California  State  Lottery as a
replacement for the suspended game.  Although the new game, like keno,  features
frequent  drawings,  its payouts are based upon a prize pool determined by sales
rather than by predetermined or fixed amounts.  In August 1995,  Donald J. Trump
filed suit in New York seeking declaratory and injunctive relief to prohibit the
New York lottery  authority's  Quick-Draw  Game. To date, Mr. Trump's efforts to
obtain such relief have been unsuccessful.  See Item 3--"Legal  Proceedings" and
Item 7--"Management's Discussion and Analysis of Financial Condition and Results
of Operations."  There can be no assurances  that legal  challenges to keno will
not be brought in the future in these or other  jurisdictions,  nor can there be
any assurances respecting the results of such legal challenges, if any, upon the
operations of keno in jurisdictions serviced by the Company.

Instant Ticket Support Services. The Company provides certain products,
systems and  services to the instant  ticket  lottery  industry.  The  Company's
on-line  support  systems  for  the  instant  ticket  lottery  business  provide
comprehensive  functionality,  including:  instant ticket  validation;  retailer
accounting;   inventory  control  and  tracking;   ticket  stock   distribution;
electronic  funds transfer;  finance and sales tracking  reports;  and marketing
support.

In order to  automate  and  increase  the  security  of instant  ticket
lotteries,  the Company  developed  the GTECH  Validation  Terminal  ("GVT"),  a
point-of-sale  device that  facilitates  instant ticket  validation and provides
access to the  Company's  on-line  instant  ticket  support  systems for instant
ticket  agents  who are not part of a  lottery's  on-line  lottery  system.  The
Company  also offers  add-on  validation  terminals  which attach to its on-line
lottery terminals and provide the same functionality as the GVT, while using the
existing communications network.

The Company is providing marketing,  distribution,  on-line validation,
inventory  control and  accounting  support  services and equipment (but not the
printing of the instant  tickets) for the Texas lottery's  instant ticket games.
In addition,  the Company currently  provides instant ticket support services to
lottery  authorities in  California,  Colorado,  District of Columbia,  Georgia,
Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Missouri,
New Hampshire,  New Jersey, New Mexico,  New York, Ohio,  Oregon,  Rhode Island,
Texas, Washington and Wisconsin. Internationally, the Company currently supplies
lottery authorities in Australia,  Belgium,  Chile, Denmark,  Finland,  Ireland,
Netherlands,  New Zealand,  Spain and the United  Kingdom  with  instant  ticket
support services.

BingoVision(TM).  The Company has recently developed BingoVision(TM), a
product line of televised  bingo-based  lottery games.  Players buy tickets from
on-line lottery  retailers and mark them while following a live,  televised game
show which includes a draw of numbers.

Through the use of proprietary  game-tracking  software, the Company is
able to display,  live, how many at-home  players are winners or about to become
winners, with each new numbers draw. The Company has implemented BingoVision(TM)
in Estonia, Lithuania, the Czech Republic, New Zealand, Slovakia and Belgium and
is actively marketing the game to other lottery authorities.

The PRO:SYS(TM)  Software  System.  PRO:SYS(TM) is the Company's latest
software  system.  Employing  a  user  friendly  interface,  lotteries  can  use
PRO:SYS(TM)  to  manage  all  aspects  of their  gaming  environment,  including
on-line,  instant ticket sales and accounting and video games.  Features such as
promotions  management and  information  analysis  allow lottery  authorities to
tailor the system to their individual needs.  PRO:SYS(TM) was first installed in
September,  1994 for  Societe de la Loterie de la Suisse  Romande,  Switzerland.
Since that time,  the Company has installed  PRO:SYS(TM)  in systems used by the
lottery  authorities of Washington,  D.C.;  Colorado;  Idaho;  Ontario,  Canada;
Sachsische Lotto-GmbH in Leipzig, Germany;  Washington State; Missouri; Denmark;
New  Mexico;  Massachusetts;  New Jersey and  Thuringen,  Germany  and is in the
process  of  installing  PRO:SYS(TM)  in  eight  additional  jurisdictions.   In
addition,  PRO:SYS(TM)  was used as the  base  architecture  for the EBT  system
installed  by the  Company  under  its  February  1994  contract  with the Texas
Department of Human Services.  See "Products and  Services--Software"  above and
"Benefits Delivery Systems and Services" below.

The  ISYS(TM)   Terminal  Series.   During  fiscal  1996,  the  Company
introduced its ISYS(TM)  terminal series.  ISYS(TM) is an integral,  single-unit
terminal which features modular  subassemblies,  high performance ticket printer
and playslip  reader  subassemblies,  an easy-to-use  design,  and a host of new
features and  technologies.  The Company  believes that  ISYS(TM)  improves upon
previous  terminal  designs by featuring  simplified  wager entry via  intuitive
keyboard and screen formats,  improved  system status  monitoring and the latest
instant  ticket  validator  technology.  The Company has  installed  ISYS(TM) in
systems used by the lottery authorities of Brazil, Massachusetts,  Missouri, New
Jersey, New Mexico,  Turkey,  Washington State, District of Columbia,  Wisconsin
and W. Australia. See "Products and Services--Terminals" above.

                       Benefits Delivery Systems and Services

The Company in recent  years has sought to build upon its  expertise in
providing secure,  high volume  transaction  processing systems and services for
governmental  authorities  through its involvement in the emerging EBT industry.
Through Transactive,  the Company is active in the business of providing systems
and services for the delivery of government benefits such as food stamps and Aid
to Families with Dependent  Children  benefits.  See  "Significant  Developments
Since the Start of Fiscal  1997--Benefits  Delivery  Systems and  Services"  and
"Factors That May Affect Future Performance" earlier in this Report.

                      Non-Lottery Gaming Products and Services

In November  1994,  the Company  announced  the formation of its Gaming
Group,  later   incorporated   under  the  name  Dreamport,   to  pursue  gaming
opportunities other than on-line lottery including video lottery and destination
gaming.  During fiscal 1996, the Company entered into agreements with Full House
to share in the financing and  development of Native  American and casino gaming
ventures.  Operations  with respect to one such  venture,  a casino in Coos Bay,
Oregon,  on Native American  lands,  featuring  approximately  850 video lottery
terminals,  assorted  table games,  bingo and keno,  commenced  in May 1995.  In
addition, the Company and Full House entered into agreements with Delaware State
Fair,  Inc.  and  Harrington  Raceway,  Inc.  in  February  1996 to finance  and
construct a gaming  facility at the  Delaware  State  Fairgrounds,  Kent County,
Delaware.  The  Harrington  Raceway  facility,  which  houses 500 video  lottery
terminals,  opened under the name Midway Slots and Racebook  during fiscal 1997.
During fiscal 1997,  Dreamport also entered into two strategic  relationships to
develop and  exploit  markets  for video  lottery  products  and  services.  See
"Significant Developments Since the Start of Fiscal 1997--Dreamport."

The Company's  video lottery systems combine the security and integrity
of the Company's  traditional  on-line lottery systems with  entertainment-based
video games.  The Company's video lottery systems include a controlling  central
computer  system,  multiple video lottery  terminals (which the Company acquires
from third-party manufacturers),  the Company's ticket validation terminals, and
a self-diagnostic  communications  network. Games offered by the Company's video
lottery systems include poker,  blackjack,  keno and bingo and other games.  The
Company  entered the video  lottery  business  during  fiscal 1991 and currently
provides  video  lottery  products  to  lottery  jurisdictions  in  Alberta  and
Saskatchewan,  Canada, Oregon and Rhode Island.  Currently,  video lotteries are
operated or are being  implemented or tested in six  jurisdictions in the United
States and ten international jurisdictions.  There can be no assurance as to how
many jurisdictions will eventually legalize video lottery systems.

                          Communications Network Services

During fiscal 1996,  the Company  formed its  wholly-owned  subsidiary,
GTECH Worldserv,  Inc., to offer network communications  services principally to
private sector customers.  This venture,  which is in its start-up phase, offers
wide area network design,  installation,  operation and maintenance services and
full local area  network  administration  services,  among other  services.  See
"Significant Developments Since the Start of Fiscal 1997--Worldserv" above.

<PAGE>

Product Development

The  Company  devotes  substantial  resources  in order to enhance  its
present  products  and  systems  and develop  new  products.  Products  recently
developed by GTECH include BingoVision(TM), the ISYS(TM) Terminal Series and the
PRO:SYS(TM) Software System.

In fiscal  1997,  the  Company  spent  approximately  $31.0  million on
research and development,  as compared to $29.5 million in fiscal 1996 and $28.0
million  in fiscal  1995.  As of  February  22,  1997,  the  Company  (including
subsidiaries)  had  approximately  400 full-time  employees,  including  certain
members of senior management, engaged in research and development.

Intellectual Property

Although the Company  occasionally  seeks patent  protection on certain
technological  developments,  the  Company  generally  has not  sought to obtain
patents on its products, and it is doubtful whether patents could be obtained in
many  instances.  The Company  believes  that its  technical  "know-how,"  trade
secrets and the  creative  skills of its  personnel  are of  substantially  more
importance  to  the  success  of the  Company  than  the  benefit  which  patent
protection  ordinarily would afford. The Company typically  requires  customers,
employees, licensees,  subcontractors and joint venture partners who have access
to  proprietary   information   concerning   the  Company's   products  to  sign
non-disclosure  agreements,  and the Company  relies on such  agreements,  other
security measures and trade secret law to protect such proprietary information.

Production, Assembly and Components

The Company and Transactive purchase most of the parts,  components and
subassemblies  (some of which are designed by the Company)  necessary  for their
terminals  and other  products  from  outside  sources and  assembles  them into
finished  products.  The Company offers central systems  manufactured by Digital
Equipment  Corporation,  Concurrent  Computer  Corporation and Stratus Computer,
Inc. for its lottery systems.

Backlog

The  backlog  of the  Company's  orders for sales of its  products  and
services believed by the Company to be firm and the fixed fee portion of service
contracts  amounted to approximately  $266.1 million as of February 22, 1997, as
compared to a backlog of  approximately  $213.2 million as of February 24, 1996.
Approximately  $138.1 million,  or 51.9% of the backlog at February 22, 1997, is
not expected to be filled during  fiscal 1998.  Not included in such backlog are
amounts which are payable to the Company under its lottery  contracts based on a
percentage of lottery ticket sales which amounts, historically, have represented
a  substantial  portion of the  Company's  revenues and revenues  related to the
Company's Transactive and Dreamport subsidiaries, which revenues are variable in
nature.

<PAGE>

Competition

The on-line lottery  business is highly  competitive in both the United
States and internationally. Both in the United States and internationally, price
is an  important,  but  usually  not the sole  criterion  for  selection.  Other
significant  factors  that  influence  the award of lottery  contracts  are: the
ability  to  optimize  lottery  revenues   through   technical   capability  and
applications knowledge; the quality, dependability and upgrade capability of the
system; the marketing and gaming experience,  financial condition and reputation
of the vendor;  and the satisfaction of other  requirements  and  qualifications
that the lottery authority may impose.

During fiscal 1997, the Company's principal  competitors in the on-line
lottery  business  (and the number of on-line  lottery  jurisdictions  currently
serviced  or under  contract  worldwide  by such  competitors)  are as  follows:
Automated Wagering International,  Inc. ("AWI"), a subsidiary of Video Lotteries
Technologies,  Inc.  ("VLT") (8);  Autotote  Corporation (8)  ("Autotote") (5 of
these on-line  jurisdictions  are jointly serviced by Autotote and International
des Jeux);  International  Totalizator Systems, Inc. (6); International des Jeux
(Lotto  France) (6) (5 of these on-line  jurisdictions  are jointly  serviced by
Autotote and International des Jeux); and Essnet/Alcatel (12).

Two additional  competitors for European  on-line lottery business have
emerged in recent years. During fiscal 1996, CGK Computer  Gesellschaft Konstanz
mbH  ("CGK"),  a subsidiary  of Siemens AG, and the Company  agreed to terminate
their 1990  Distributorship  and  License  Agreement  pursuant  to which CGK had
exclusive right to distribute,  service,  sell and market the Company's  on-line
lottery systems and components in specified European  jurisdictions.  Subsequent
to August  1995,  the  effect  date of this  termination,  CGK has been a direct
competitor of the Company in Europe.  Further, in April 1997 (after the close of
fiscal  1997)  Scientific  Games  Holdings   Corporation   ("Scientific  Games")
completed  the  purchase  of  TeleControl,  the  European  lottery  business  of
Autotote. Under the terms of the agreement, Scientific Games will have the right
to  license  and  purchase  Autotote's  wagering  terminals  for use in  lottery
applications.

The  emerging  government  benefits  delivery  industry  is also highly
competitive.  Among the  Company's  competitors  are banking  institutions  with
access  to larger  capital  resources  than the  Company  to invest in  benefits
delivery  projects and, in some cases,  with existing  automated  teller machine
infrastructures that can be utilized to deliver government benefits. The primary
competitors  of the  electronic  benefit  transfer  operations  of the Company's
Transactive subsidiary are Citibank EBT Services, Deluxe Data Systems, Inc., EDS
and First Security Processing Services, Inc.

Dreamport  faces  competition  from  numerous  companies  that  seek to
finance, develop and manage destination gaming facilities,  on and off of Native
American lands, as well as from technology providers.  The principal competitors
providing  video lottery  technology  in  competition  with the Company  include
Autotote Systems, Inc., Spielo Manufacturing,  Inc., Video Lottery Technologies,
Inc., WMS Gaming, Inc. and Bally Manufacturing, Inc. some of which have supplied
substantially more systems and terminals than the Company.

Personnel

As of May  2,  1997  the  Company  had  approximately  5,100  full-time
employees worldwide, including approximately 300 employees which are employed by
Transactive and approximately 480 employees  employed by Racimec.  The Company's
employees are not represented by any labor union.  The Company believes that its
relationship with its employees is satisfactory.

ITEM 2.  PROPERTIES

The Company's corporate  headquarters and main research and development
and  production  facility are located in its  approximately  260,000 square foot
building  located on  approximately  26 acres in West  Greenwich,  Rhode Island,
which the  Company  leases from West  Greenwich  Technology  Associates  Limited
Partnership.  The  Company  is a  limited  partner  in,  and owns  50% of,  this
partnership.  The  Company's  lease  term runs until  August  26,  2013 with two
five-year  options to extend the term and also  grants the  Company an option to
purchase the property.

The Company owns  approximately  24 acres adjoining its headquarters in
West Greenwich, Rhode Island.

The  Company  also owns an  approximately  23,000  square  foot  office
building  in  Coventry,  Rhode  Island,  which it uses for  electronic  benefits
delivery  and video  lottery  operations,  as well as an  approximately  140,000
square foot  manufacturing  and central  storage  facility  in  Coventry,  Rhode
Island.

The Company  leases two office  buildings of  approximately  46,000 and
43,000   square  feet  in  Boca  Raton,   Florida  which  it  uses  to  support,
respectively,   its  Latin  American   marketing  efforts  and  its  Transactive
operations. These agreements each provide for a base lease term which expires in
2003 and for one or more extension options thereafter.

In  addition,  except in New York  State,  where the  Company  owns its
back-up data center facility,  and in Austin,  Texas,  where the Company owns an
approximately  39,000 square foot  facility  which is used by  Transactive,  its
electronic benefits transfer  subsidiary,  the Company leases, or is supplied by
the relevant state  authorities  with, its data center facilities in the various
jurisdictions.  The Company also leases office,  depot maintenance and warehouse
space in various other locations.

The Company leases facilities in Watford and London, England from which
it bases its European  sales  efforts.  The Company also  maintains an office in
Brussels,  Belgium which provides a base of additional  support for its European
operations.

The Company's facilities are in good condition and are adequate for its
present needs.

ITEM 3.  LEGAL PROCEEDINGS

In September 1996, Jack M. Janis and Linda Janis, both individually and
on behalf of a class of  persons  similarly  situated,  filed suit  against  the
California State Lottery  Commission,  Southland  Corporation and the Company in
the Supreme Court of the State of California (County of Los Angeles).  This suit
alleges,  in light of the June 1996 decision of the  California  Supreme  Court,
Western Telcon,  Inc. et. al. v.  California  State Lottery (which held that the
California  State  Lottery's keno game as then structured was not a lottery game
and therefore was not authorized by California lottery law), that the defendants
were  unjustly  enriched  and were  guilty  of  unfair  business  practices  and
misleading  advertising in connection with the sale of keno tickets from January
1,  1992  through  suspension  of the keno  game in June  1996.  The suit  seeks
restitution of all amounts  realized by the defendants  through the sale of keno
tickets less funds paid to public  schools  pursuant to relevant  California law
and  proceeds  paid to holders of winning  keno  tickets,  together  with costs,
disbursements  and  prejudgment  interest.  The  Company  has  responded  with a
vigorous  defense.  In  February  1997 the Court  granted  the  Company  summary
judgment  but  granted the  plaintiffs  limited  leave to amend their  complaint
alleging  alternative  theories of  recovery.  The  plaintiffs  filed an amended
complaint  in March 1997.  The Company  believes  that these  claims are without
merit and intends to continue to defend itself vigorously in these proceedings.

For information  respecting certain other legal  proceedings,  refer to
Item  1,  "Factors   Affecting  Future   Performance--Maintenance   of  Business
Relationships  and Certain Legal Matters" and Item 7,  "Management's  Discussion
and Analysis of Financial  Condition and Results of Operations," of this Report,
and  Note H of Notes  to  Consolidated  Financial  Statements  included  in this
Report.  The Company  also is subject to certain  legal  proceedings  and claims
which management  believes,  on the basis of information  presently available to
it, will not materially  adversely affect the Company's  consolidated  financial
position or results of operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters  were  submitted  to a vote of  Holding's  security  holders
during the last quarter of fiscal 1997.

<PAGE>

Additional Information

The  following  information  is  furnished  in this Part I pursuant  to
Instruction 3 to Item 401(b) of Regulation S-K:

                               Executive Officers of the Company

The Executive Officers of the Company as of May 16, 1997 and during all
of fiscal 1997 are:
<TABLE>
<CAPTION>

Name                     Age        Position
<S>                     <C>         <C>   

Guy B. Snowden           51         Chairman of the Board and Chief Executive Officer.  Mr. Snowden was a co-founder
                                    of GTECH Corporation (the Company's chief operating subsidiary) and has been its
                                    Chief Executive Officer since its inception in 1980.  He served as Chairman from
                                    1987 to 1990 and was President from 1981 to 1987 and from 1989 through December
                                    1994.


Victor Markowicz         52         Vice Chairman of the Board.  Mr. Markowicz was a co-founder of GTECH Corporation
                                    and served as Co-Chairman from 1992 to 1996, Vice Chairman from 1987 to 1990,
                                    Senior Vice President from 1988 to 1989 and Executive Vice President and
                                    Secretary from 1981 to 1988.


William Y. O'Connor      52         President and Chief Operating Officer since December 1994, Member of the
                                    Executive Operating Committee of the Company and, since July 1995, Director.  Mr.
                                    O'Connor was the President and Chief Executive Officer of Ascom Timeplex, a
                                    telecommunications company, from 1992 to 1994 and prior to this was Corporate
                                    Senior Vice President and President of the Broadband Communications Group of
                                    Scientific-Atlanta, Inc. from 1987 to 1992.

Thomas J. Sauser         53         Senior Vice President, Treasurer and Chief Financial Officer since February 1,
                                    1996.  Mr. Sauser was Chief Financial Officer and Senior Vice President of EG&G,
                                    Inc. from 1994 through 1995.  Prior to this, Mr. Sauser was employed by IBM
                                    Corporation where, from 1991 to 1994, he was Assistant General Manager and Vice
                                    President, Finance.

Michael R. Chambrello    39         Executive  Vice  President since  September  1996  and  Member  of  the
                                    Executive Operating Committee since December 1994.  He  served as Vice  President  - U.S.
                                    Operations from 1991 to 1996. Prior to this, Mr.  Chambrello  served in various positions
                                    since joining the Company in 1982.
</TABLE>

Executive officers and other officers are elected or appointed by, and serve at
the pleasure of, the Board of Directors, and some are party to employment
contracts with the Company.  The information set forth above reflects  positions
held  with  Holdings  except  with  respect  to  employment histories for
periods prior to February 1, 1990,  which refer to positions  held with GTECH.
                                             ------------------------

For the  purposes of  calculating  the  aggregate  market value of the
shares of Common Stock of Holdings held by nonaffiliates,  as shown on the cover
page of this report,  it has been assumed that all the  outstanding  shares were
held by nonaffiliates  except for the shares beneficially owned by: directors of
Holdings,  officers,  and employees of and consultants to Holdings and GTECH and
related  trusts.  However,  this should not be deemed to constitute an admission
that all such persons or entities are, in fact,  affiliates of Holdings, or that
there are not other  persons  who may be deemed to be  affiliates  of  Holdings.
Further  information  concerning   shareholdings  of  officers,   directors  and
principal  shareholders  of Holdings is included in Holdings'  definitive  proxy
statement  relating to its scheduled July 1997 Annual Meeting of Shareholders to
be filed with the Securities and Exchange Commission.

<PAGE>

                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
         RELATED STOCKHOLDER MATTERS

The principal  United States market on which Holdings'  Common Stock is
traded is the New York Stock Exchange where it is traded under the symbol "GTK."

The  following  table sets forth on a per share  basis the high and low
sale prices of Common Stock for the fiscal  quarters  indicated,  as reported on
the New York Stock Exchange Composite Tape.

FISCAL 1996                                           HIGH              LOW

First Quarter (February 26-May 27, 1995)              $26             $18 3/8
Second Quarter (May 28-August 26, 1995)               $30 1/2         $23 1/8
Third Quarter (August 27-November 25, 1995)           $30 3/4         $23 3/8
Fourth Quarter (November 26-February 24, 1996)        $31 1/2         $24 1/8

FISCAL 1997

First Quarter (February 25-May 25, 1996)              $33 1/2         $26 3/4
Second Quarter (May 26-August 24, 1996)               $33 3/8         $25 1/2
Third Quarter (August 25-November 23, 1996)           $32 3/4         $27 1/8
Fourth Quarter (November 24-February 22, 1997)        $37 1/4         $29 3/8

FISCAL 1998

First Quarter (through May 2, 1997)                   $32 3/8         $28 3/8

The closing price of the Common Stock on the New York Stock Exchange on
May 2, 1997 was $32.25.  As of May 2, 1997, there were approximately 1,395
holders of record of the Common Stock.

During  fiscal 1997,  26,906  shares of Holdings'  unregistered  Common
Stock vested under stock award plans.  Pursuant to the terms of these plans, the
shares were issued with no cash consideration to Holdings.  Registration of such
shares was not  required  because the  transaction  did not  constitute a "sale"
under  Section  2(3)  of the  Securities  Act of  1933  or,  alternatively,  the
transaction  was exempt pursuant to the private  offering  provisions of the Act
and the rules thereunder.

Holdings has never paid cash dividends on its Common Stock and does not
plan to do so in the foreseeable  future.  The current policy of Holdings' Board
of  Directors  is to reinvest  earnings in the  operation  and  expansion of the
Company's business. Further, Holdings is a holding company and the operations of
the Company are conducted through its subsidiaries.  Accordingly, the ability of
Holdings to pay  dividends  on its Common Stock is dependent on the earnings and
cash  flow  of its  subsidiaries  and the  availability  of  such  cash  flow to
Holdings.
<PAGE>
<TABLE>
<CAPTION>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data below should be read in conjunction with Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations", the Consolidated Financial Statements and the other financial information included
herein. The operating, balance sheet and per share data in the table are derived from the consolidated financial statements of the 
Company which were audited by independent auditors.


GTECH HOLDINGS CORPORATION AND SUBSIDIARIES


                                                                                   Fiscal Year Ended
                                                        ------------------------------------------------------------------------
                                                        February 22,  February 24,   February 25,    February 26,   February 27,
                                                             1997          1996           1995            1994           1993
                                                        ------------  ------------   ------------    ------------   ------------
                                                                     (Dollars in thousands, except per share amounts)
<S>                                                     <C>           <C>            <C>             <C>            <C>    
Operating Data:                                                       
Revenues:
     Services (a) ....................................  $    789,534  $    686,043   $    547,767    $    457,529   $    343,213
     Sales of products ...............................       114,738        58,047        147,340         135,271        158,148
                                                        ------------  ------------   ------------    ------------   ------------
         Total .......................................       904,272       744,090        695,107         592,800        501,361

Gross Profit:
     Services (a) ....................................       237,872       244,139        194,097         152,845        112,404
     Sales of products ...............................        47,297        13,595         41,468          62,941         72,394
                                                        ------------  ------------   ------------    ------------   ------------
         Total .......................................       285,169       257,734        235,565         215,786        184,798

Operating income (a) .................................       127,091       117,983        104,481 (b)     119,206         82,039
Interest expense, net of interest income .............        16,388        12,107         13,065          11,756         16,126
Income from continuing operations before
     dividends on and accretion of Subsidiary
     Preferred Stock, extraordinary charge
     and cumulative effect of accounting change.......        77,803        66,627         52,319          66,473         40,400
Loss from operations of AmTote .......................          --            --           (6,583)        (10,323)          --
Loss on disposal of AmTote ...........................          --            --          (43,444)           --             --
Dividends on and accretion of Subsidiary Preferred 
     Stock  ..........................................          --            --             --              --           (2,604)
Extraordinary charge .................................          --            --           (1,420)           --          (18,534)(c)
Cumulative effect of accounting change ...............          --            --             --              --            2,432
Net income ...........................................        77,803        66,627            872          56,150         21,694

Per Share Data:
Earnings per common share from continuing operations .  $       1.81   $      1.54    $      1.20    $       1.53    $       .92
Earnings per common share ............................          1.81          1.54            .02 (d)        1.29 (e)        .53 (f)
Weighted average common
     shares outstanding (in thousands) ...............        42,976        43,236         43,451          43,588         41,080

Other Data:
Earnings before depreciation, amortization, interest,
     taxes and other non-cash charges (g) ............  $    326,054   $   273,570    $   221,832    $    213,756    $   162,211
Cumulative number of lottery terminals shipped (h) ...       316,614       280,897        261,287         221,254        164,180
Number of lottery terminals sold .....................        13,609         3,658         12,282          17,557         19,078
Number of lottery customers at year-end ..............            79            74             72              67             59

Balance Sheet Data (at end of period):
Working capital ......................................  $     36,914   $    21,414    $     6,086    $     25,364    $    47,458
Total assets .........................................       956,541       859,380        779,254         665,250        516,893
Long-term debt, less current portion .................       382,499       382,930        338,468         258,961        225,064
Shareholders' equity .................................       358,133       296,725        232,931         232,329        168,055

--------------------------------------------------------
(a) The results of Racimec (the Company's subsidiary in Brazil) prior to January 31, 1996 were included in the financial statements
    of the Company on the equity method of accounting.
(b) Includes an $11.1 million special charge consisting of a $6.1 million charge in connection with the reduction of the Company's
    workforce and relocation of certain operating functions and $5.0 million to write off its video gaming-related inventory.
(c) Represents an after-tax extraordinary charge on the early extinguishment of debt relating to the Company's July 1992 initial
    public offering of Common Stock.
(d) Includes the effect of operating losses of AmTote, $.15 per share, loss on disposal of AmTote, $1.00 per share, and 
    extraordinary loss relating to early extinguishment of debt, $.03 per share.
(e) Includes the effect of operating losses of AmTote, $.24 per share.
(f) Includes the after-tax extraordinary charge described in (c) and $2.4 million, or $.06 per share, of income relating to an 
    accounting change.
(g) Represents income before income taxes and (i) interest expense, (ii) depreciation and amortization, (iii) non-cash stock 
    compensation expense, (iv) certain purchase accounting adjustments relating to the acquisition of the Company in 1990 and (v) 
    certain other non-cash items.
(h) Terminals shipped represents lottery terminals sold under product sales contracts and lottery terminals supplied under service
    contracts.
</TABLE>
<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

General

The Company has derived substantially all of its revenues from the rendering of
services and the sale or supply of computerized on-line lottery systems and
components to government-authorized lotteries. Service revenues have been
derived primarily from service contracts, that are typically of at least five
years' duration, and are generally based upon a percentage of a lottery's gross
on-line lottery sales. These percentages typically fall within a range of 1.5%
to 5.0%. Product sale revenues have been derived primarily from the installation
of new on-line lottery systems and sales of lottery terminals and equipment in
connection with the expansion of existing lottery systems. The size and timing
of these transactions have resulted in variability in product sales revenues
from period to period. While the Company believes that product purchases by
lotteries during each of the next two years are likely to exceed the level
experienced in fiscal 1997, it is likely that the percentage of the Company's
revenues attributable to product sales will remain closer to the percentage
level realized in fiscal 1997 than in fiscal 1993.

The Company has taken steps to broaden its offerings of high volume transaction
processing services outside of its core business of providing on-line lottery
services. The Company's Transactive subsidiary ("Transactive") provides services
to governments to electronically distribute benefits, licenses, permits and
information to constituents. The Company's Dreamport subsidiary ("Dreamport")
provides gaming technology and a comprehensive array of management, development
and strategic services to the gaming and entertainment market. In addition, the
Company's WorldServ subsidiary ("WorldServ") specializes in the design,
implementation and maintenance of sophisticated communications networks.

The Company's business is highly regulated, and the competition to secure new
government contracts is often intense. Awards of contracts to the Company are,
from time to time, challenged by competitors. Further, there have been and
continue to be investigations of various types, including grand jury
investigations, conducted by governmental authorities into possible
improprieties and wrongdoing in connection with efforts to obtain and/or the
awarding of lottery contracts and related matters. Although the Company does not
believe that it has engaged in any wrongdoing in connection with these matters,
certain investigations that are conducted largely in secret are still underway.
Accordingly, the Company lacks sufficient information to determine with
certainty their ultimate scope and whether the government authorities will
assert claims resulting from these or other investigations that could implicate
or reflect adversely upon the Company. Because the Company's reputation for
integrity is an important factor in its business dealings with lottery and other
government agencies, if government authorities were to make an allegation of, or
if there were to be a finding of, improper conduct on the part of or
attributable to the Company in any matter, such an allegation or finding could
have a material adverse effect on the Company's business, including its ability
to retain existing contracts and to obtain new or renewal contracts. In
addition, continuing adverse publicity resulting from these investigations and
related matters could have such a material adverse effect. See Note H to the
Consolidated Financial Statements and Part I, Item 1, - "Factors That May Affect
Future Performance - Maintenance of Business Relationships and Certain Legal
Matters" for further information concerning these matters and other
contingencies.

Certain statements contained in this discussion are forward looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934. Such statements include, without limitation,
statements relating to (i) the future prospects for and stability of the lottery
industry and other businesses in which the Company is or expects to be engaged,
(ii) the future operating and financial performance of the Company, (iii) the
ability of the Company to retain existing business and to obtain and retain new
business, and (iv) the results and effects of legal proceedings and
investigations. Such forward looking statements reflect management's assessment
based on information currently available, but are not guarantees and are subject
to risks and uncertainties which could cause actual results to differ materially
from those contemplated in the forward looking statements. These risks and
uncertainties include but are not limited to those set forth herein and in the
Company's press releases and filings with the Securities and Exchange
Commission.

All references to years contained in this section refer to the Company's fiscal
year that ends on the last Saturday in February. Fiscal 1997 ended on February
22, 1997.

All references to the Consolidated Financial Statements of the Company and Notes
thereto, are to the Consolidated Financial Statements of the Company and Notes
thereto included in Item 8 herein.


<PAGE>

<TABLE>
<CAPTION>

The following discussion should be read in conjunction with the table below.


                                                                      SUMMARY FINANCIAL DATA


                                                                         Fiscal Year Ended
                                                    ---------------------------------------------------------------     
                                                      February 22,          February 24,            February 25,
                                                         1997                  1996                    1995
                                                    ---------------------------------------------------------------
                                                                      (Dollars in thousands)
<S>                                                 <C>         <C>        <C>         <C>        <C>         <C>                  
Revenues:
   Services ......................................  $ 789,534    87.3%     $ 686,043    92.2%     $ 547,767    78.8%
   Sales of products .............................    114,738    12.7         58,047     7.8        147,340    21.2
                                                    ---------   -----      ---------   -----      ---------   -----                 
       Total .....................................    904,272   100.0        744,090   100.0        695,107   100.0

Costs and expenses:
   Costs of services (a) .........................    551,662    69.9        441,904    64.4        353,670    64.6
   Costs of sales (a) ............................     67,441    58.8         44,452    76.6        105,872    71.9
                                                    ---------   -----      ---------   -----      ---------   -----
       Total .....................................    619,103    68.5        486,356    65.4        459,542    66.1
                                                    ---------   -----      ---------   -----      ---------   -----
Gross profit .....................................    285,169    31.5        257,734    34.6        235,565    33.9

Selling, general and administrative ..............    127,080    14.0        110,212    14.8         91,960    13.2
Research and development .........................     30,998     3.4         29,539     4.0         28,024     4.1
Special charge ...................................       --       --            --       --          11,100     1.6
                                                    ---------   -----      ---------   -----      ---------   -----                
Operating income .................................    127,091    14.1        117,983    15.8        104,481    15.0

Other income (expense):
   Interest income ...............................      4,424     0.5         12,124     1.6          5,120     0.7  
   Equity in earnings of unconsolidated affiliates     16,727     1.8          8,060     1.1          1,872     0.3
   Other income (expense) ........................      4,439     0.5            939     0.1           (689)   (0.1)
   Interest expense ..............................    (20,812)   (2.3)       (24,231)   (3.2)       (18,185)   (2.6)
                                                    ---------   -----      ---------   -----      ---------   -----
Income from continuing operations before income
   taxes and extraordinary charge ................    131,869    14.6        114,875    15.4         92,599    13.3
Income taxes .....................................     54,066     6.0         48,248     6.5         40,280     5.8
                                                    ---------   -----      ---------   -----      ---------   -----               
Income from continuing operations before 
   extraordinary charge ..........................     77,803     8.6         66,627     8.9         52,319     7.5

Loss from operations of AmTote, net of tax benefit       --       --            --       --          (6,583)   (1.0)
Loss on disposal of AmTote, net of tax benefit ...       --       --            --       --         (43,444)   (6.2)
Extraordinary charge, net of tax benefit .........       --       --            --       --          (1,420)   (0.2)
                                                    ---------   -----      ---------   -----      ---------   -----
Net income .......................................  $  77,803     8.6%     $  66,627     8.9%     $     872     0.1%
                                                    =========   =====      =========   =====      =========   =====


</TABLE>

(a)  Percentages are computed based on cost as a percentage of related revenue.


<PAGE>


Results of Operations

Comparison of Fiscal 1997 with 1996

Revenues for fiscal 1997 were $904.3 million, representing a $160.2 million, or
21.5%, increase over revenues of $744.1 million in fiscal 1996.

Service revenues in fiscal 1997 were $789.6 million, representing a $103.6
million, or 15.1%, increase over the $686.0 million of service revenues in
fiscal 1996. This increase resulted primarily from $51.4 million of higher
service revenues from Racimec (the Company's subsidiary in Brazil), a $33.5
million increase in service revenues from the Company's existing customer base,
$8.8 million of higher service revenues from Transactive and $7.8 million of
service revenues from new on-line lottery systems operated by the Company that
commenced operations in fiscal 1997. The results of Racimec for fiscal 1996 were
included in the financial statements of the Company on the equity method of
accounting through January 31, 1996. The results of Racimec for fiscal 1997 and
the month of February 1996 have been consolidated. See Note B to the
Consolidated Financial Statements.

Product sales for fiscal 1997 were $114.7 million, representing an increase of
$56.6 million, or 97.7%, over the $58.1 million of product sales in fiscal 1996.
This increase resulted primarily from higher lottery terminal sales in fiscal
1997 than in fiscal 1996, along with the sale of four new central systems in
fiscal 1997 as compared to the sale of two new central systems in fiscal 1996.
These increases were partially offset by lower sales of component parts and
equipment ("OEM equipment") to Camelot Group plc ("Camelot") and other members
of the U.K. lottery consortium.  The Company sold approximately 13,600 lottery
terminals during fiscal 1997, as compared to approximately 3,700 lottery
terminals during fiscal 1996.

Gross margins on service revenues decreased to 30.1% in fiscal 1997 from 35.6%
in fiscal 1996 due primarily to a small loss in fiscal 1997 at Racimec relating
to the start-up nature of the on-line lotteries serviced by Racimec, along with
lower margins experienced on new lottery contracts in the early stages of 
lottery operations. Also contributing to the reduction was a lack of significant
large jackpot activity in the domestic lottery jurisdictions serviced by the
Company in fiscal 1997, compared to a relatively high level of jackpot activity
during fiscal 1996.

The small loss incurred by Racimec during fiscal 1997 was in line with
management's expectations. This represents a substantial improvement over
results for fiscal 1996 and reflects the revenue enhancement and cost reduction
plan implemented by the Company during the fourth quarter of fiscal 1996. The
Company believes that it will be able to recover Racimec's investment in its
existing Brazilian state lottery contracts ($35.3 million at February 22, 1997)
and is monitoring its progress closely. In addition, in January 1997, Racimec
signed a contract to provide, operate and maintain an on-line lottery system for
Caixa Economica Federal ("Caixa"), Latin America's largest financial institution
that runs Brazil's National Lottery. The Caixa on-line lottery system became
operational in May 1997.

Also in line with management's expectations, Transactive continued to incur
operating losses during fiscal 1997, although at a lower rate than in fiscal
1996. The reduction in operating losses reflects the successful implementation
of the Company's 1996 plan that, among other things, focused on reductions in
operating costs. The Company is also considering alternatives to increase the
value of Transactive, including possibly joint venturing with another entity.
There can be no assurance that the Company's plans and efforts with regard to
Transactive will continue to be successful, and if they are not, the Company may
be required to recognize a loss on a portion of its investment in Transactive.

Gross margins on product sales fluctuate depending on the mix, volume and timing
of product sales contracts. The increase in gross margins on product sales from
23.4% in fiscal 1996 to 41.2% in fiscal 1997 resulted from the realization
of more traditional margins from the sale of central systems during fiscal 1997
than realized in fiscal 1996, along with a higher level of lottery terminal
sales in fiscal 1997 than fiscal 1996.

Selling, general and administrative expenses in fiscal 1997 were $127.1 million,
representing a $16.9 million, or 15.3%, increase over the $110.2 million
incurred in fiscal 1996. This increase was primarily attributable to higher
administrative costs that were necessary to support expanded operations
(including two of the Company's newly formed subsidiaries, Dreamport and
WorldServ), increased sales and marketing for existing and new lottery customers
and higher legal costs relating in large part to investigations and legal
proceedings. As a percentage of revenues, selling, general and administrative
expenses were 14.0% and 14.8% during fiscal 1997 and 1996, respectively.

Research and development expenses in fiscal 1997 were $31.0 million,
representing a $1.5 million, or 4.9%, increase over research and development
expenses of $29.5 million in fiscal 1996. This increase reflects increased
development activity for new lottery game design and for the Company's newest
generation of terminals. As a percentage of revenues, research and development
expenses were 3.4% and 4.0% during fiscal 1997 and 1996, respectively.
<PAGE>

Interest income in fiscal 1997 was $4.4 million, a decrease of $7.7 million from
interest income of $12.1 million earned during fiscal 1996. This decrease was
attributable largely to the consolidation of Racimec and the resulting absence
of interest on loans from the Company to Racimec.

Equity in earnings of unconsolidated affiliates in fiscal 1997 was $16.7
million, an increase of $8.6 million over the $8.1 million earned during fiscal
1996. This increase was due primarily to the consolidation of Racimec and the
resulting absence of equity losses from Racimec in fiscal 1997, along with
equity income from Dreamport investments, partially offset by lower equity
income from Camelot resulting from lower instant ticket sales.

Other income in fiscal 1997 was $4.4 million, an increase of $3.5 million over
the $1.0 million earned in fiscal 1996. This increase was due primarily to
the sale by the Company of its investment in Pacific Online Systems Corporation.

Interest expense in fiscal 1997 was $20.8 million, a decrease of $3.4 million
from interest expense of $24.2 million incurred during fiscal 1996. This
decrease was due primarily to a higher level of interest capitalized to on-line
lottery system projects in fiscal 1997, along with lower interest rates,
partially offset by higher average debt outstanding.

The Company's effective income tax rate decreased to 41% in fiscal 1997 from 42%
in fiscal 1996 due principally to a reduction in nondeductible expenditures, as
well as the restructuring of the financing of Brazil. The Company's effective
income tax rate of 41% for fiscal 1997 was greater than the statutory rate due
primarily to state income taxes and certain expenses that are not deductible for
income tax purposes.

In August 1995, the suit Donald J. Trump v. Jeffrey S. Perlee et. al. was filed
in the New York County Supreme Court against the New York State Lottery seeking
declaratory and injunctive relief to prohibit the Lottery's Quick-Draw Game. In
June 1996, the New York Supreme Court Appellate Division affirmed the trial
court's denial of Mr. Trump's motion for a preliminary injunction in this case.
It is unclear whether or not Mr. Trump will initiate further proceedings with
respect to this case. Reference also is made to Part I, Item 1, -- "Factors That
May Affect Future Performance - Maintenance of Business Relationships and
Certain Legal Matters" and Note H to the Consolidated Financial Statements 
herein for information concerning investigations recently instituted by the 
Texas Lottery Commission and the U.S. Attorney's Office in Austin concerning
certain of the Company's business relationships relating to the Texas lottery,
the ongoing grand jury investigation announced by the U.S. Attorney in New 
Jersey, and litigation in England with Richard Branson. As is the case with a
number of the Company's contracts (see Item 1 -- "Factors That May Affect Future
Performance - Maintenance of Business Relationships and Certain Legal Matters"),
the Texas Lottery Commission has the right to terminate its contract with the
Company without cause with 30 days prior notice. While the Texas Lottery
Commission has not exercised this right, as previously publicly reported, the
Texas Lottery Commission has expressed its intention to rebid the contract and
has directed its staff to prepare, and circulate by June 30, 1997, a request for
proposals with respect to the entire contract, as well as requests for proposals
for various portions of the contract. However, the Chairman of the Commission 
has declared that this action is not and should not be deemed a termination of
the Company's contract. In connection with the five-year extension of the
Company's contract that was awarded in April 1996, the Company committed to and
is making major capital investments of more than $20.0 million and has incurred
significant additional related expenses. A substantial portion of such 
investment, along with a substantial portion of the Company's existing
investment in its Texas lottery contract ($48.9 million at February 22, 1997) 
may be required to be written off should the Company lose all or a portion of  
the Texas lottery contract. See Note E to Consolidated Financial Statements
herein. The Company is pursuing all available options to ensure that its 
contract extension through August 2002, negotiated in good faith with the Texas
Lottery, is honored. In fiscal 1997, 1996 and 1995, the aggregate revenues from
the State of Texas (including lottery and electronic benefits transfer)
represented 18.6%, 19.6% and 16.1%, respectively, of the Company's consolidated
revenues. No other customer accounted for as much as 10% of the Company's 
consolidated revenues in such periods, although the Company's lottery contracts
in a number of jurisdictions, including California, Georgia, New York and the
United Kingdom, are important sources of revenues and earnings for the Company.


Comparison of Fiscal 1996 with 1995

Revenues for fiscal 1996 were $744.1 million, representing a $49.0 million, or
7.0%, increase over revenues of $695.1 million in fiscal 1995.

Service revenues in fiscal 1996 were $686.0 million, representing a $138.2
million, or 25.2%, increase over the $547.8 million of service revenues in
fiscal 1995. The increase resulted primarily from higher service revenues of
$82.6 million from the Company's existing customer base (due in part to higher
jackpot activity and expanded services), $31.7 million of higher service
revenues from the United Kingdom lottery that became operational in November
1994, $15.8 million of service revenues from Transactive, $4.3 million of
service revenues from Racimec for the month of February 1996 and $3.8 million of
service revenues from new on-line lottery systems operated by the Company that
commenced operations in fiscal 1996.

Product sales for fiscal 1996 were $58.1 million, representing an $89.2 million,
or 60.6%, decrease from product sales of $147.3 million in fiscal 1995. This
decrease resulted primarily from lower OEM equipment sales to Camelot (the
Company's U.K. operations began during fiscal 1995) along with lower lottery
terminal and central system sales. The Company sold approximately 3,700 lottery
terminals during fiscal 1996, as compared to approximately 12,300 terminals
during fiscal 1995.

Gross margins on service revenues increased to 35.6% in fiscal 1996 from 35.4%
in fiscal 1995 due principally to higher revenues earned from certain
jurisdictions (attributable primarily to higher jackpots and expanded services)
without a corresponding increase in the costs associated with operating those
lotteries. These higher margins were partially offset by a significant loss
incurred by Transactive.

Gross margins on product sales fluctuate depending primarily on the mix, volume
and timing of product sales contracts. Gross margins on product sales decreased
to 23.4% in fiscal 1996 from 28.1% in fiscal 1995. This decrease was due
primarily to a small loss incurred in connection with the sale of a central
system in fiscal 1996 that was more than offset in fiscal 1997 as the Company
completed the shipment of terminals under the contract. This reduction in margin
was partially offset by higher margins on terminal sales.

Selling, general and administrative expenses in fiscal 1996 were $110.2 million,
representing an $18.2 million, or 19.8%, increase over the $92.0 million
incurred in fiscal 1995. This increase was primarily attributable to higher
administrative costs that were necessary to support expanded operations
(including Transactive) and increased sales and marketing activity. In addition,
the Company continued to spend in the area of management information staff and
new systems as part of its efforts to improve its business information systems.
As a percentage of revenues, selling, general and administrative expenses were
14.8% and 13.2% during fiscal 1996 and fiscal 1995, respectively.

Research and development expenses in fiscal 1996 were $29.5 million,
representing a $1.5 million, or 5.4%, increase over research and development
expenses of $28.0 million in fiscal 1995. These increases in expenses were
attributable to increased development activity for new lottery equipment and
software and new lottery games for the Company's increased number of service
customers. In addition, a lower level of software engineering cost was
capitalized to new on-line lottery system projects. As a percentage of revenues,
research and development expenses were 4.0% and 4.1% during fiscal 1996 and
fiscal 1995, respectively.

Interest income in fiscal 1996 was $12.1 million, representing an increase of
$7.0 million over interest income of $5.1 million earned during fiscal 1995, due
primarily to interest earned on loans to Racimec.

Equity in earnings of unconsolidated affiliates in fiscal 1996 was $8.1 million,
representing an increase of $6.2 million over the $1.9 million earned during
fiscal 1995. This increase was due primarily to higher earnings from Camelot,
partially offset by losses from the Company's investment in Racimec.

Interest expense in fiscal 1996 was $24.2 million, an increase of $6.0 million,
or 33.3%, over interest expense of $18.2 million in fiscal 1995, due primarily
to higher average debt outstanding, along with higher average interest rates.

The Company's effective income tax rate decreased to 42% in fiscal 1996 from
43.5% in fiscal 1995 due principally to the increase in equity in earnings of
unconsolidated affiliates that is reported on an after-tax basis. The Company's
effective income tax rate of 42% in fiscal 1996 was greater than the statutory
rate due primarily to state income taxes and certain expenses that are not
deductible for income tax purposes.


Changes in Financial Position, Liquidity and Capital Resources

During fiscal 1997, the Company generated $219.1 million of cash from
operations. This cash was used primarily to fund the purchase of $192.0 million
of systems, equipment and other assets relating to contracts, along with the 
purchase of $12.3 million of property, plant and equipment. In addition, the 
Company repurchased $20.3 million of its common stock for the treasury.

The cost of systems, equipment and other assets relating to contracts increased
by $176.5 million from $887.2 million at February 24, 1996 to $1,063.7 million
at February 22, 1997. This increase reflects the installation of new lottery
networks in the states of New Jersey, Washington, New Mexico and Missouri, the
start of installation of a new lottery network for the Caixa in Brazil and the
expansion of lottery systems in several domestic and international locations.

Trade accounts receivable increased by $36.9 million from $73.8 million at
February 24, 1996 to $110.7 million at February 22, 1997 due primarily to the
high level of product sales in the fourth quarter of fiscal 1997, the Company's
expanded customer base and higher revenues from its existing customer base.

Other assets increased by $19.5 million from $62.0 million at February 24, 1996
to $81.5 million at February 22, 1997, due primarily to the February 1997 
payment to buyout the Company's contracts with its former consultant in the 
State of Texas (which will be amortized over the expected life of the Texas 
lottery contract), along with prepayments of central system equipment
maintenance for certain of the Company's U.S. lottery contracts. These increases
were partially offset by scheduled collections of long-term receivables.  

The Company's business is capital-intensive. Although it is not possible to
estimate precisely, due to the nature of the business, the Company currently
anticipates that the level of capital expenditures for systems, equipment and
other assets relating to contracts required during fiscal 1998 will be in a
range of $300.0 million to $350.0 million. Approximately $120.0 million of such
spending will be required to implement the on-line lottery system for the Caixa
in Brazil. In addition, the Company currently anticipates that the level of
capital expenditures for property, plant and equipment in fiscal 1998 will
approximate $18.4 million. The principal sources of liquidity for the Company
are expected to be cash generated from operations and borrowings under the
Company's Credit Facility. On April 26, 1997 there was approximately $432.0
million of borrowings outstanding and an additional $68.0 million available for
borrowing under the Credit Facility. The Company currently expects that its cash
flow from operations and available borrowings under its Credit Facility,
together with other sources of capital believed to be available, will be
sufficient to permit it to meet its anticipated working capital and ordinary
capital expenditure needs, to service its debt obligations and to permit it to
fund anticipated internal growth. The Company currently intends to refinance all
or a portion of its Credit Facility.


Inflation, Interest Rates and Foreign Exchange Fluctuation

The impact of inflation on the Company's operations has not been significant to
date. While the Company believes that its business is not highly sensitive to
inflation, there can be no assurance that a high rate of inflation in the future
would not have an adverse effect on the Company's operations.

The Company uses various interest rate hedging instruments to reduce the risk
associated with future increases in interest rates on its floating rate
long-term debt. In January 1996, the Company entered into three interest rate
swaps with an aggregate notional amount of $125.0 million that provided interest
rate protection over the period January 26, 1996 to April 28, 1997. The swaps
effectively entitled the Company to receive payments from the financial
institutions that were counterparties to the swaps should the three-month London
Interbank Offered Rates ("LIBOR") exceed approximately 5.05%. On April 28, 1997,
the Company received approximately $.2 million in connection with the settlement
of these swaps.

The Company attempts to manage its foreign exchange risk by securing payment
from its customers in U.S. dollars, by sharing risk with its customers, by
utilizing foreign currency borrowings, by leading and lagging receipts and
payments and by entering into foreign currency exchange contracts. In addition,
a significant portion of the costs attributable to the Company's foreign
currency revenues are incurred in the local currencies.

The Company, from time to time, enters into foreign currency exchange contracts
to hedge the risk associated with certain firm sales commitments, anticipated
revenue streams and certain assets and liabilities denominated in foreign
currencies. The Company does not engage in currency speculation. Gains and
losses on contracts that hedge specific foreign currency commitments are
deferred and accounted for as part of the transaction being hedged. Contracts
used to hedge anticipated revenue streams and certain assets and liabilities are
marked to market, and the resulting transaction gain or loss is included in the
determination of net income. As of April 26, 1997, the Company had approximately
$49.0 million of outstanding foreign currency exchange contracts to purchase
foreign currencies (primarily Japanese Yen) and approximately $57.1 million of
outstanding foreign currency exchange contracts to sell foreign currencies
(primarily Japanese Yen).

For further information on the above, see Note O to the Consolidated Financial
Statements.



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.  
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Report of Independent Auditors

Board of Directors and Shareholders
GTECH Holdings Corporation

We have audited the accompanying consolidated balance sheets of GTECH Holdings
Corporation and subsidiaries as of February 22, 1997 and February 24, 1996, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended February 22, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The financial statements of Camelot Group plc, (an entity in which
the Company has a 22.5% interest), have been audited by other auditors whose
report has been furnished to us; insofar as our opinion on the consolidated
financial statements of the Company relates to data included for Camelot Group
plc, it is based solely on their report. 

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits and the report of other auditors provide a reasonable
basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of GTECH Holdings Corporation and
subsidiaries at February 22, 1997 and February 24, 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended February 22, 1997, in conformity with generally accepted
accounting principles.




                                                               Ernst & Young LLP

Providence, Rhode Island
April 11, 1997
<PAGE>


REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Camelot Group plc

We have audited the financial statements and financial schedules of Camelot
Group plc on pages 3 to 19 which are expressed in pounds sterling. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United Kingdom and the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements audited by us referred to above present
fairly, in all material respects, the financial position of Camelot Group plc at
1 February 1997 and 3 February 1996 and the results of its operations, total
recognised gains and losses and cash flows for the years ended 1 February 1997
and 3 February 1996 and the ten months ended 4 February 1995 in conformity with
generally accepted accounting principles in the United Kingdom.

Accounting principles generally accepted in the United Kingdom vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination of
net income expressed in pounds sterling for the years ended 1 February 1997 and
3 February 1996 and the ten months ended 4 February 1995 and the determination
of shareholders' equity also expressed in pounds sterling at 1 February 1997 and
3 February 1996 to the extent summarised in the attached reconciliation.




Price Waterhouse
21 March 1997
<PAGE>



GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>


                                                                                February 22,    February 24,
                                                                                     1997           1996
                                                                                -----------     -----------
                                                                                   (Dollars in thousands)
<S>                                                                             <C>             <C>                
ASSETS                                                                                                  
CURRENT ASSETS:
    Cash and cash equivalents ................................................  $    11,985     $     8,519
    Trade accounts receivable ................................................      110,707          73,755
    Sales-type lease receivables .............................................       15,231           4,543
    Inventories ..............................................................       35,326          43,669
    Deferred income taxes ....................................................       20,237          25,661
    Other current assets .....................................................        9,743           8,058
                                                                                -----------     ----------- 
                          TOTAL CURRENT ASSETS ...............................      203,229         164,205

SYSTEMS, EQUIPMENT AND OTHER ASSETS RELATING TO CONTRACTS ....................      502,301         469,246

GOODWILL, net of accumulated amortization ....................................      112,853         114,843

INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES .....................       56,693          49,068

OTHER ASSETS .................................................................       81,465          62,018
                                                                                -----------     -----------                         
                          TOTAL ASSETS .......................................  $   956,541     $   859,380
                                                                                ===========     ===========


LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
    Accounts payable .........................................................  $    53,944     $    46,343
    Accrued expenses .........................................................       52,625          54,465
    Employee compensation ....................................................       27,991          24,929
    Advance payments from customers ..........................................       10,534          12,110
    Other current liabilities ................................................        1,395             951
    Income taxes payable .....................................................       13,777            --
    Current portion of long-term debt ........................................        6,049           3,993
                                                                                -----------     -----------
                          TOTAL CURRENT LIABILITIES ..........................      166,315         142,791

LONG-TERM DEBT, less current portion .........................................      382,499         382,930

OTHER LIABILITIES ............................................................       25,907          30,264

DEFERRED INCOME TAXES ........................................................       23,687           6,670

COMMITMENTS AND CONTINGENCIES ................................................         --              --

SHAREHOLDERS' EQUITY:
    Preferred Stock, par value $.01 per share--20,000,000 shares authorized,
       none issued ...........................................................         --              --
    Common Stock, par value $.01 per share--150,000,000 shares authorized,
      43,845,651 and 43,739,520 shares issued; 42,490,770 and 43,021,839 
      shares outstanding at February 22, 1997 and February 24, 1996, 
      respectively ...........................................................          438             437
    Additional paid-in capital ...............................................      169,705         167,758
    Equity carryover basis adjustment ........................................       (7,008)         (7,008)
    Cumulative translation adjustment ........................................        1,472            (463)
    Retained earnings ........................................................      228,741         150,938
                                                                                -----------     -----------
                                                                                    393,348         311,662
    Less cost of 1,354,881 and 717,681 shares in treasury at February 22, 1997
      and February 24, 1996, respectively ....................................      (35,215)        (14,937)
                                                                                -----------     -----------
                                                                                    358,133         296,725
                                                                                -----------     -----------
                          TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .........  $   956,541     $   859,380
                                                                                ===========     ===========

See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>

GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>


                                                                                             Fiscal Year Ended
                                                                               ------------------------------------------
                                                                               February 22,    February 24,   February 25,
                                                                                   1997            1996           1995
                                                                               -----------     -----------    -----------
                                                                             (Dollars in thousands, except per share amounts)
<S>                                                                            <C>             <C>            <C>            
Revenues:
    Services ..............................................................    $   789,534     $   686,043    $   547,767
    Sales of products .....................................................        114,738          58,047        147,340
                                                                               -----------     -----------    -----------
                                                                                   904,272         744,090        695,107
Costs and expenses:
    Costs of services .....................................................        551,662         441,904        353,670
    Costs of sales ........................................................         67,441          44,452        105,872
                                                                               -----------     -----------    -----------
                                                                                   619,103         486,356        459,542
                                                                               -----------     -----------    -----------
Gross profit ..............................................................        285,169         257,734        235,565

Selling, general and administrative .......................................        127,080         110,212         91,960
Research and development ..................................................         30,998          29,539         28,024
Special charge ............................................................           --              --           11,100
                                                                               -----------     -----------    -----------
Operating income ..........................................................        127,091         117,983        104,481

Other income (expense):
    Interest income .......................................................          4,424          12,124          5,120
    Equity in earnings of unconsolidated affiliates .......................         16,727           8,060          1,872
    Other income (expense) ................................................          4,439             939           (689)
    Interest expense ......................................................        (20,812)        (24,231)       (18,185)
                                                                               -----------     -----------    -----------
Income from continuing operations before income
    taxes and extraordinary charge ........................................        131,869         114,875         92,599

Income taxes ..............................................................         54,066          48,248         40,280
                                                                               -----------     -----------    -----------
Income from continuing operations before extraordinary charge .............         77,803          66,627         52,319

Discontinued operations:
    Loss from operations ..................................................           --              --           (6,583)
    Loss on disposal ......................................................           --              --          (43,444)
                                                                               -----------     -----------    -----------
Income before extraordinary charge ........................................         77,803          66,627          2,292

Extraordinary charge on early extinguishment of debt,
    net of income tax benefit of $1,093 ...................................           --              --           (1,420)
                                                                               -----------     -----------    -----------
Net income ................................................................    $    77,803     $    66,627    $       872
                                                                               ===========     ===========    ===========
Earnings per common share:
    Income from continuing operations before extraordinary charge .........    $      1.81     $      1.54    $      1.20
    Discontinued operations ...............................................           --              --            (1.15)
    Extraordinary charge ..................................................           --              --             (.03)
                                                                               -----------     -----------    -----------
                                                                               $      1.81     $      1.54    $       .02
                                                                               ===========     ===========    ===========

Weighted average common shares outstanding ................................     42,976,000      43,236,000     43,451,000
                                                                               ===========     ===========    ===========


See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>



GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>



                                                                           
                                                   Common Stock       Additional                                 
                                              ---------------------    Paid-in                   Retained    Treasury
                                                Shares      Amount     Capital       Other       Earnings     Stock        Total
                                              ----------   --------   ----------    --------    ----------  ----------   ---------
                                                                           (Dollars in thousands)
                                                                                
<S>                                           <C>          <C>        <C>           <C>         <C>         <C>          <C>
Balance at February 26, 1994 ..............   43,635,446   $    436   $  161,260    $ (8,091)   $   83,439  $   (4,715)  $ 232,329

Purchase of 167,038 shares of common stock          --         --           --          --            --        (2,889)     (2,889)
Common stock issued under stock award plans       36,430          1          736        --            --          --           737
Net income ................................         --         --           --          --             872        --           872
Foreign currency translation ..............         --         --           --         1,882          --          --         1,882
                                              ----------   --------   ----------    ---------    ---------  ----------   ---------
Balance at February 25, 1995 ..............   43,671,876   $    437   $  161,996    $ (6,209)    $  84,311  $   (7,604)  $ 232,931

Purchase of 294,000 shares of common stock          --         --           --          --            --        (7,333)     (7,333)
Common stock issued under stock award plans       67,644       --          1,334        --            --          --         1,334
Tax benefit from stock compensation .......         --         --          4,428        --            --          --         4,428
Net income ................................         --         --           --          --          66,627        --        66,627
Foreign currency translation ..............         --         --           --        (1,262)         --          --        (1,262)
                                              ----------   --------   ----------   ----------    ---------  ----------   ---------
Balance at February 24, 1996 ...........      43,739,520   $    437   $  167,758   $  (7,471)    $ 150,938  $  (14,937)  $ 296,725

Purchase of 637,200 shares of common stock          --         --           --          --            --       (20,278)    (20,278)
Common stock issued under stock award plans      106,131          1        1,947        --            --          --         1,948
Net income ................................         --         --           --          --          77,803        --        77,803
Foreign currency translation ..............         --         --           --         1,935          --          --         1,935
                                              ----------   --------   ----------   ----------    ---------  ----------   ---------
Balance at February 22, 1997 ...........      43,845,651   $    438   $  169,705   $  (5,536)    $ 228,741  $  (35,215)  $ 358,133
                                              ==========   ========   ==========   ==========    =========  ==========   =========



See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>



GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>


                                                                                                    Fiscal Year Ended
                                                                                        -------------------------------------------
                                                                                        February 22,    February 24,    February 25,
                                                                                            1997            1996            1995
                                                                                        -----------     -----------     -----------
                                                                                                   (Dollars in thousands)
<S>                                                                                     <C>             <C>             <C>       
OPERATING ACTIVITIES
Net income .........................................................................    $    77,803     $    66,627     $       872
Adjustments to reconcile net income to net cash provided by operating activities:
      Depreciation and amortization ................................................        172,630         132,550         114,254
      Loss on disposal of discontinued operations ..................................           --              --            59,640
      Extraordinary charge on early extinguishment of debt before income tax benefit           --              --             2,513
      Deferred income taxes ........................................................         22,441          16,412         (13,252)
      Equity in earnings of unconsolidated affiliates ..............................        (16,727)         (8,060)         (1,872)
      Other ........................................................................          7,207           4,316           3,308
      Changes in operating assets and liabilities, net of effects of acquisitions:
          Trade accounts receivable ................................................        (36,952)          3,400         (12,233)
          Inventories ..............................................................          8,307          (3,217)         10,306
          Other assets and liabilities .............................................        (11,820)          8,562          13,084
          Other assets and liabilities of discontinued operations ..................         (3,774)        (13,573)         (5,043)
                                                                                        -----------     -----------     -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..........................................        219,115         207,017         171,577


INVESTING ACTIVITIES
Purchases of systems, equipment and other assets relating to contracts .............       (191,970)       (183,986)       (134,230)
Purchases of property, plant and equipment .........................................        (12,341)        (10,265)        (13,712)
Investments in and advances to unconsolidated affiliates ...........................         (9,817)        (41,591)        (75,577)
Acquisitions (net of cash acquired) ................................................         (2,000)           (495)           (959)
Cash received from affiliates ......................................................         11,203           3,734             180
Proceeds from sale of investments ..................................................          5,895            --              --
                                                                                        -----------     -----------     -----------
NET CASH USED FOR INVESTING ACTIVITIES .............................................       (199,030)       (232,603)       (224,298)


FINANCING ACTIVITIES
Purchases of treasury stock ........................................................        (20,278)         (7,333)         (2,889)
Net proceeds from issuance of long-term debt .......................................          6,107          49,394         357,173
Net borrowings (payments) under short-term borrowing arrangements ..................            444          (3,788)        (27,414)
Principal payments on long-term debt ...............................................         (4,358)         (6,396)       (277,973)
Other ..............................................................................          1,358            (454)         (1,892)
                                                                                        -----------     -----------     -----------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES ...............................        (16,727)         31,423          47,005

Effect of exchange rate changes on cash ............................................            108            (750)          2,344
                                                                                        -----------     -----------     -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................................          3,466           5,087          (3,372)

Cash and cash equivalents at beginning of year .....................................          8,519           3,432           6,804
                                                                                        -----------     -----------     -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR ...........................................    $    11,985     $     8,519     $     3,432
                                                                                        ===========     ===========     ===========


SUPPLEMENTAL CASH FLOW INFORMATION:
    Interest payments (net of amounts capitalized) .................................    $    20,523     $    25,485     $    17,065
    Income tax payments ............................................................         30,045          30,830          35,813
    Income tax refunds .............................................................           (335)           (762)           (262)



See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>

GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: GTECH Holdings Corporation ("Holdings") conducts
business through its consolidated subsidiaries and unconsolidated affiliates and
has as its only asset an investment in GTECH Corporation ("GTECH"), its
wholly-owned subsidiary. The consolidated financial statements include the
accounts of Holdings, GTECH and all majority and wholly-owned subsidiaries 
(collectively referred to herein as the "Company"). Significant intercompany
accounts and transactions have been eliminated in preparing the Consolidated 
Financial Statements. Investments in 20% to 50% owned affiliates are accounted 
for using the equity method and investments in less than 20% owned affiliates
are accounted for using the cost method.

Certain reclassifications have been made to the prior years' financial
statements to conform with the current year presentation.

Industry Segment and Nature of Operations: The Company operates in one business
segment that provides on-line, high speed, highly-secured transaction processing
systems predominately to the lottery industry. The Company's lottery service
contracts are generally subject to a new competitive procurement process after
the expiration of the contract term and any extensions thereof. The Company's
business is highly regulated, and the competition to secure new government
contracts is often intense.

Fiscal Year: The Company's fiscal year ends on the last Saturday in February.

Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes.  Actual results could differ from those estimates.

Revenue Recognition: Service revenues are recognized as the services are 
performed. Liquidated damages are expensed as incurred.

Revenues from product sales or sales-type leases are recognized when
installation is complete and the product is accepted by the customer. In those
instances where the Company is not responsible for installation, revenue is
recognized when the product is shipped.

Foreign Currency Translation: The functional currency for the majority of the
Company's foreign operations is the applicable local currency. The translation
of the applicable foreign currencies into U.S. dollars is performed for balance
sheet accounts using current exchange rates in effect at the balance sheet date
and for revenue and expense accounts using a weighted average exchange rate
during the period. The gains or losses resulting from such translation are
accumulated as a separate component of shareholders' equity, whereas gains or
losses resulting from foreign currency transactions are included in results of
operations.

For those foreign subsidiaries operating in a highly inflationary economy or
having the U.S. dollar as their functional currency, net nonmonetary assets are
translated at historical rates and net monetary assets are translated at current
rates. Translation adjustments are included in the determination of net income.

Research and Development: Research and development expenses are charged to 
operations as incurred.

Stock-Based Compensation: The Company grants stock options for a fixed number of
shares of the common stock of Holdings ("Common Stock") to employees and
non-employee directors with an exercise price equal to the fair value of the
shares at the date of grant. The Company accounts for stock option grants in
accordance with Accounting Principle Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and, accordingly, recognizes no compensation expense for
the stock option grants.

Income Taxes: Deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted income tax rates and laws that will be in
effect when the temporary differences are expected to reverse. Additionally,
deferred tax assets and liabilities are separated into current and non-current
amounts based on the classification of the related assets and liabilities for
financial reporting purposes.

Earnings per Common Share: Earnings per common share are calculated by dividing
net income by weighted average common shares outstanding during each fiscal
year. The exercise of outstanding stock options would not result in a material
dilution of earnings per common share.
<PAGE>

NOTE A - SIGNIFICANT ACCOUNTING POLICIES - (continued)


In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share", that is required to be adopted by the Company in the
fourth quarter of fiscal 1998. At that time, the Company will be required to
change the method currently used to calculate earnings per share and to restate
all prior periods presented. Under the new requirements for calculating basic
earnings per share, the dilutive effect of stock options will be excluded. Had
the provisions of Statement No. 128 been used to calculate earnings per share
for the three fiscal years in the period ended February 22, 1997, earnings per
share would not have differed materially from the reported amounts.

Cash Equivalents: The Company considers short-term, highly liquid investments
with an original maturity of three months or less at the date of purchase to be
cash equivalents.

Inventories: Inventories are stated at the lower of cost (first-in, first-out 
method) or market.

Systems, Equipment and Other Assets Relating to Contracts: Systems, equipment
and other assets relating to contracts are stated on the basis of cost.
Depreciation is computed over the estimated useful lives of the assets using the
straight-line method for financial reporting purposes and accelerated methods
for income tax purposes. The estimated useful life is generally five years.

Impairment of Long-Lived Assets: The Company periodically reviews the
recoverability of its long-lived assets. If facts and circumstances indicate
that the Company's long-lived assets might be impaired, the estimated future
undiscounted cash flows associated with the long-lived asset would be compared
to its carrying amount to determine if a write-down to fair value is necessary.

Goodwill: Goodwill represents the excess of cost over the fair value of net
assets acquired and is amortized on a straight-line basis principally over 40
years. As of February 22, 1997 and February 24, 1996, accumulated amortization
was $19,498,000 and $15,509,000, respectively.



<PAGE>



NOTE B - BUSINESS ACQUISITIONS

On September 1, 1993, the Company acquired 41.5% of the voting common and 41.5%
of the non-voting preferred stock of Racimec Informatica Brasileira S.A.
("Racimec"), a Brazilian company engaged in the lottery business, for cash
consideration of approximately $6,900,000 plus related expenses. On January 31,
1996, the Company acquired the remaining voting common stock and 37.7% of
nonvoting preferred stock of Racimec for cash consideration of $4,600,000 plus
related expenses and the exchange by the Company of $9,400,000 of notes and
related accrued interest receivable from a shareholder of Racimec. In connection
with the acquisition, the Company recorded approximately $29,187,000 of
goodwill. The results of Racimec for fiscal 1996 are included in the financial
statements of the Company using the equity method of accounting through January
31, 1996. Subsequent to January 31, 1996, the accounts of Racimec have been
consolidated.

In February 1997, the Company acquired 100% of the voting common stock of SB
Industria E Comercio LTDA. ("SB Manaus"), a company located in Brazil for
$2,000,000. SB Manaus was the consortium partner of Racimec in connection with
the bid for the on-line lottery contract with Caixa Economica Federal ("Caixa"),
Latin America's largest financial institution that runs Brazil's National
Lottery. The Caixa contract was awarded to Racimec in January 1997. The Company
is obligated to purchase the remaining non-voting preferred stock of Racimec for
approximately $5,900,000 six months after the start-up of the Caixa on-line
lottery system.

The following summary presents on an unaudited pro forma basis, the combined
results of the Company and Racimec as if the January 31, 1996 acquisition had
taken place as of the beginning of fiscal 1996 and 1995. For purposes of this
pro forma presentation, the pre-acquisition results of operations have been
adjusted to give effect to interest costs of funds used to finance the
acquisition, intercompany transactions and amortization of goodwill.


                                                    (Unaudited)
                                                Fiscal Year Ended
                                      ---------------------------------------
                                      February 24, 1996     February 25, 1995  
                                      -----------------     -----------------
                                          (Dollars in thousands, except
                                               per share amounts)


Revenues ...........................  $         787,747     $         718,647

Income from continuing operations                
 before extraordinary charge .......             54,085                50,756

Income before extraordinary charge .             54,085                   729

Net income (loss) ..................             54,085                  (691)  

Earnings per common share:
   Income from continuing operations  
    before extraordinary charge ....  $            1.25     $            1.17   
   Discontinued operations .........               --                   (1.15)  
   Extraordinary charge ............               --                    (.03)
                                      -----------------     -----------------  
                                      $            1.25     $            (.01)  
                                      =================     =================  

The above pro forma information does not purport to represent the Company's
actual results of operations had the January 31, 1996 acquisition of Racimec
occurred at the beginning of the periods indicated or to project the Company's
results for any future periods.



<PAGE>


NOTE C - INVENTORIES

Inventories consist of:

                                      February 22, 1997      February 24, 1996  
                                      -----------------      -----------------
                                              (Dollars in thousands)

Purchased components ...............  $          11,483      $          20,341  
Finished subassemblies .............              1,993                  3,526
Work-in-progress ...................             16,106                 17,936
Finished goods .....................              5,744                  1,866
                                      -----------------      -----------------
                                      $          35,326      $          43,669
                                      =================      =================  





NOTE D  - DISCONTINUED OPERATIONS

In February 1995, the Board of Directors of the Company approved a plan to
dispose of the Company's AmTote subsidiary. AmTote was engaged in the parimutuel
on-track services and benefits delivery businesses. The Company retained the
benefits delivery business. In connection with the disposal of AmTote, the
Company recorded an after-tax charge of $43,444,000 in fiscal 1995. The results
of operations of AmTote for fiscal 1995 have been reported as losses from
discontinued operations, net of income tax benefit. In February 1996, the
Company sold AmTote to Mudge Acquisitions Group ("Mudge").


The following table sets forth summary information relating to AmTote:


                                                          Fiscal Year Ended
                                                          February 25, 1995
                                                          -----------------
                                                        (Dollars in thousands)
       Revenues ......................................    $          37,507
       Costs and expenses ............................               47,540 
                                                          -----------------  
          Operating loss before income tax benefit ...              (10,033)  
       Income tax benefit relating to operations .....                3,450
                                                          -----------------  
          Loss from operations .......................               (6,583) 
 
       Loss on disposal before income tax benefit ....              (59,640)  
       Income tax benefit relating to loss on disposal               16,196
                                                          -----------------
          Loss on disposal ...........................              (43,444)  
                                                          -----------------  
          Loss from discontinued operations ..........    $         (50,027)  
                                                          =================  

The accrual for discontinued operations at February 22, 1997, amounts to
$11,212,000, comprised of $2,602,000 in current liabilities and $8,610,000 in
other liabilities. These amounts represent estimates of pension and other
post-retirement liabilities that the Company has agreed to reimburse Mudge for
in connection with the sale of AmTote.



<PAGE>



NOTE E - SYSTEMS, EQUIPMENT AND OTHER ASSETS RELATING TO CONTRACTS

Systems, equipment and other assets relating to contracts consists of:


                                      February 22, 1997      February 24, 1996
                                      -----------------      -----------------
                                               (Dollars in thousands)

Land and buildings .................  $           5,881      $           5,870  
Computer terminals and systems .....            925,614                725,177
Furniture and equipment ............             95,284                 78,584
Contracts in progress ..............             36,872                 77,563
                                      -----------------      -----------------
                                              1,063,651                887,194
Less accumulated depreciation                   
  and amortization  ................            561,350                417,948
                                      -----------------      -----------------
                                      $         502,301      $         469,246  
                                      =================      =================  
                                                                        
                                                                             
The Company has made significant investments in systems, equipment and other
assets to establish infrastructure to support its current and future benefits
delivery business. At February 22, 1997, these assets had a carrying value of
approximately $62,233,000. In response to significant operating losses incurred
by Transactive during fiscal 1996, the Company, in the second half of fiscal
1996, implemented a plan that, among other things, focused on reductions in
operating costs. During fiscal 1997, although Transactive continued to incur
losses, such losses were reduced from the prior year and the Company achieved
the financial goals in its plan for such year. The Company plans continuing
focus on cost reduction. The Company is also considering alternatives to
increase the value of Transactive, including joint venturing with another
entity. There can be no assurance that the Company's plans and efforts with
regard to Transactive will continue to be successful, and if they are not, the
Company may be required to recognize a loss on a portion of its investment in
Transactive.

In connection with the five-year extension of the Company's Texas lottery
contract that was awarded in April 1996, the Company committed to and is making
major capital investments of more than $20,000,000 and has incurred significant
additional related expenses. A substantial portion of such investment, along
with a substantial portion of the Company's existing investment in its Texas
lottery contract ($48,915,000 at February 22, 1997) may be required to be
written off should the Company lose all or a portion of the Texas lottery 
contract (See Note H).



<PAGE>



NOTE F - UNCONSOLIDATED AFFILIATES

The Company's investments in unconsolidated affiliated companies over which it
exerts significant influence are accounted for using the equity method. The
Company has a 22.5% interest in Camelot Group plc ("Camelot"), a 40% interest in
Lottery Technology Enterprises ("LTE"), and a 50% interest in each of four joint
ventures with Full House Resorts, Inc. ("Full House"). In addition, through
January 31, 1996 the Company held a 41.5% interest in Racimec (See Note B) and
at February 24, 1996, the Company held a 20% interest in Pacific Online Systems
Corporation ("Pacific"). The Company sold its investment in Pacific in fiscal
1997 for $5,895,000.

Camelot is a consortium that operates the United Kingdom lottery and is the
largest of the Company's unconsolidated affiliates. The Company's investments in
and advances to Camelot amounted to $43,358,000 and $33,639,000 at February 22,
1997 and February 24, 1996, respectively.  In addition, the Company's equity in
the earnings of Camelot amounted to $14,394,000, $17,961,000 and $2,367,000 for
fiscal 1997, 1996 and 1995, respectively. LTE is a joint venture comprised of
the Company and District Enterprise for Lottery Technology Applications of 
Washington, D.C. that holds a contract with the District of Columbia Lottery and
Charitable Games Control Board. The joint ventures with Full House are engaged
in the financing and development of Native American and other casino gaming 
ventures. Pacific is a corporation that holds a contract with the Philippine 
Charity Sweepstakes Office.

The following is a summary of the combined financial condition of the Company's
unconsolidated affiliates along with their combined results of operations, used
as the basis for applying the equity method of accounting:


<TABLE>
<CAPTION>
                                                          Fiscal Year Ended
                                      ---------------------------------------------------------
                                      February 22, 1997   February 24, 1996   February 25, 1995
                                      -----------------   -----------------   -----------------
                                                        (Dollars in thousands)
<S>                                   <C>                 <C>                 <C>    
Earnings data:  
     Revenues ......................  $       7,319,017   $       7,919,759   $       1,121,956
     Gross profit ..................            235,610             261,445              83,313
     Net income ....................             65,743              65,587              10,937

Balance sheet data:
     Current assets ................  $         646,082   $         731,108   $         211,999
     Noncurrent assets .............            156,472             169,401             213,640
     Current liabilities ...........            556,011             716,951             302,900
     Noncurrent liabilities ........             55,798              29,919              23,919


</TABLE>


The Company's share of undistributed earnings of affiliated companies included 
in retained earnings was $29,496,000, $17,025,000 and $3,297,000 at February 22,
1997, February 24, 1996 and February 25, 1995, respectively. Dividends received
from an unconsolidated affiliate were $6,881,000 and $3,298,000 in fiscal 1997 
and 1996, respectively. No dividends were received in fiscal 1995.


<PAGE>



NOTE G  - LONG-TERM DEBT


Long-term debt consists of:


                                      February 22, 1997      February 24, 1996
                                      -----------------      -----------------
                                               (Dollars in thousands)

Revolving credit facility ..........  $         367,000      $         366,500
Other  .............................             21,548                 20,423
                                      -----------------      -----------------
                                                388,548                386,923
Less current maturities ............              6,049                  3,993
                                      -----------------      -----------------
                                      $         382,499      $         382,930
                                      =================      =================  


The Company has an unsecured revolving credit facility of $500,000,000 expiring
on September 15, 1999 (the "Credit Facility"). At February 22, 1997, the
weighted average interest rate for all outstanding borrowings under the Credit
Facility was 5.69%. The Company is required to pay a facility fee of .125% per
annum on the total revolving credit commitment. The restrictive provisions of
the Credit Facility include, among other things, requirements relating to the
maintenance of certain financial ratios, restrictions on additional indebtedness
and restrictions on the ability of the Company to make cash distributions on its
Common Stock under certain circumstances. At February 22, 1997, under the most
restrictive covenants, the Company had available $58,647,000 of retained
earnings for the payment of dividends. The Company has never paid cash dividends
on its Common Stock and does not plan to do so in the foreseeable future. The
current policy of the Company's Board of Directors is to reinvest earnings in
the operation and expansion of the business of the Company.

Up to $100,000,000 of the Credit Facility may be used for the issuance of
letters of credit. There were no letters of credit outstanding under the Credit
Facility as of February 22, 1997. The Company had outstanding at February 22,
1997, $103,143,000 of letters of credit issued outside of the Credit Facility.
The annual cost for these outstanding letters of credit is principally .5% of
the face amount.

Long-term debt at February 22, 1997 matures as follows:


                  Fiscal Year                  (Dollars in thousands)        
                  -----------                                                   
                  1998                                 $        6,049           
                  1999                                          4,160           
                  2000                                        378,339           

Interest costs incurred by the Company were $25,036,000, $24,548,000 and
$19,312,000 (of which $4,224,000, $317,000 and $1,127,000 were capitalized as
additional costs of qualifying property during the construction period) for
fiscal 1997, 1996 and 1995, respectively.



<PAGE>

NOTE  H - COMMITMENTS AND CONTINGENCIES

Contracts

Contracts generally contain time schedules for, among other things, commencement
of system operations and the installation of terminals, as well as detailed
performance standards.  The Company is typically required to furnish substantial
bonds to secure its performance under these contracts.  In addition to other
possible consequences, including contract termination, failure to meet specified
deadlines or performance standards, could trigger substantial penalties in the
form of liquidated damage assessments.  Many of the Company's contracts permit
the customer to terminate the contract at will and do not specify the
compensation, if any, to which the Company would be entitled were such a
termination to occur.


Legal Matters

It has not been uncommon in the lottery industry for investigations of various
types, including grand jury investigations, to be conducted by federal or state
law enforcement and other officials into possible undue influence, bribery or
other improprieties or wrongdoing in connection with efforts to obtain or the
awarding of lottery contracts and related matters. Such investigations often are
called for by disappointed competitors or politicians (who may include those
opposed to gaming or the lottery business). Some investigations in the past have
involved the Company, or its consultants, lobbyists or representatives, directly
or indirectly, and the Company is aware of federal grand jury investigations
currently being conducted by the U.S. Attorneys in New Jersey and Texas.

As previously publicly reported, in October 1994, the U.S. Attorney's Offices
for the Western District of Kentucky and for the District of New Jersey
announced that separate indictments had been returned by federal grand juries in
those jurisdictions against J. David Smith, the former sales manager of the
Company (who resigned in early 1994 for reasons unrelated to the indictments),
and several other individuals who served as consultants or suppliers to the
Company.  The indictments alleged essentially that, unbeknownst to the Company,
Mr. Smith had received kickbacks from the consultants and suppliers for his own
benefit. The indictments did not charge the Company with any wrongdoing, and the
actions complained of did not affect the Company's Kentucky or New Jersey
lottery operations. In January 1995, at the conclusion of the Government's case,
the U.S. District Court for the Western District of Kentucky dismissed all
charges against Mr. Smith and the other defendant, a GTECH supplier.  The New
Jersey trial of Mr. Smith and two consultants commenced in September 1996 in the
U.S. District Court for New Jersey, and in October 1996 Mr. Smith and one of the
two consultants were found guilty of all charges. The other consultant was found
not guilty.  Mr. Smith has moved for a new trial. In the midst of these events,
the New Jersey Lottery Commission awarded GTECH a contract to continue operating
the state lottery.

Subsequent to the Smith trial, the New Jersey U.S. Attorney announced in a press
release that a grand jury investigation in that jurisdiction is continuing but
did not specify the scope of such investigation. Thereafter, the New Jersey U.S.
Attorney's  Office issued subpoenas to GTECH, one of which is being disputed by
GTECH. The Texas U.S. Attorney's Office in the past has also issued subpoenas to
GTECH. GTECH is cooperating with these investigations.

As previously publicly reported, the United States Attorney's Office in Georgia
recently advised GTECH's counsel that its grand jury investigation, which GTECH
previously reported, has terminated. No charges were brought against GTECH.

No charges of wrongdoing have ever been brought against GTECH or the Company by
any grand jury or other governmental authority. On two occasions in the past,
charges of wrongdoing were brought against non-employee lobbyists retained by
GTECH, but neither lobbyist was found guilty of any activities relating to
GTECH.


The Company does not believe that it has engaged in any wrongdoing in connection
with these matters. However, since the current investigations are still underway
and are conducted largely in secret, the Company lacks sufficient information to
determine with certainty their ultimate scope and whether the government
authorities will assert claims resulting from these or other investigations that
could implicate or reflect adversely upon the Company.  Because the Company's
reputation for integrity is an important factor in its business dealings with
lottery and other governmental agencies, if government authorities were to make
an allegation of, or if there were to be a finding of, improper conduct on the
part of or attributable to the Company in any matter, such an allegation or
finding could have a material adverse effect on the Company's business,
including its ability to retain existing contracts and to obtain new or renewal
contracts. In addition, continuing adverse publicity resulting from these
investigations and related matters could have such a material adverse effect.
<PAGE>

NOTE  H - COMMITMENTS AND CONTINGENCIES - (continued)


As widely reported in the Texas media, the Texas Lottery Commission is inquiring
of GTECH regarding its business relationships relating to the Texas Lottery and
GTECH has cooperated with that inquiry. The Texas Lottery is also inquiring
about several other matters which could have material negative implications with
respect to GTECH's business in Texas, including the following:

     - GTECH's consulting contracts with Ben Barnes, former Lieutenant Governor
       of Texas, which contracts were entered into in 1991 and were bought out
       and terminated by the Company in February 1997;

     - GTECH's retention in October 1992 of Michael Moeller, a friend of Nora
       Linares, the then Executive Director of the Texas Lottery, as a
       consultant regarding New Mexico;

     - Mr. Barnes' gift in December 1992 of a $100 paperweight to then Governor
       of Texas, Ann Richards;

     - Any other instances in which GTECH entertained or gave a gift to a state
       official (without reimbursement).

In addition, the Texas State Auditor has issued to GTECH a Request for 
Information, and GTECH is complying with that request.

In March 1997, the Texas Lottery Commission directed its staff to prepare and
circulate by June 30, 1997, a request for proposals with respect to the entire
Texas Lottery contract currently held by  GTECH, as well as requests for
proposals for various portions of that contract.  However, the Chairman of the
Commission has declared that this action is not and should not be deemed an
exercise by the Texas Lottery of the termination  provision of GTECH's contract,
without cause, upon 30 days prior notice.  The Texas Lottery Commission has
further asserted that it has no obligation to deal with GTECH in good faith with
respect to the termination of its contract with the Company, a position with
which GTECH strongly disagrees.  Pursuant to the amendment to GTECH's contract
executed in April 1996 which extended the term of the contract for five years,
the Company is making major capital investments of more than $20 million and has
incurred significant related expenses (See Note E). The Texas Lottery contract
is GTECH's largest, accounting for approximately 16% of GTECH's total revenues
in fiscal 1997 and a significant percentage of operating income.  GTECH is
pursuing all available options to ensure that its contract, amended to extend
through August 2002 and negotiated in good faith with the Texas Lottery, is
honored.

In April 1997, Nora Linares, the former Executive Director of the Texas Lottery
Commission, filed suit against GTECH and James Hosker, the Company's Texas Site
Director (captioned Nora Alicia Linares v. GTECH Corporation and James Hosker,
et al.), in the District Court of Travis County, Texas (261st Judicial
District). Ms. Linares, who had been terminated as Executive  Director of the
Texas Lottery Commission in January 1997, alleges that GTECH, in violation of
Texas State Law and its lottery contract with the State of Texas, tortiously
interfered with her employment relationship with her former employer by, among
other things, hiring Michael Moeller as a consultant, and intentionally
inflicted emotional distress upon her. Ms. Linares seeks both a declaratory
judgment setting forth the rights, duties and responsibilities which GTECH owes
to public officials such as Ms. Linares, as well as actual and exemplary damages
from GTECH. GTECH believes that this lawsuit is without merit and is defending
itself (and Mr. Hosker) vigorously.  On May 2, 1997, GTECH filed a notice of
removal in the Austin  Division of the United States District Court for the
Western District of Texas, seeking to have the case transferred from the state
court to the federal court.

As previously publicly reported, in December 1995, Richard Branson filed suit in
the United Kingdom's High Court of Justice (Queen's Bench Division) against 
GTECH U.K. Corporation, a subsidiary of the Company, and Robert Rendine, its 
press spokesman (captioned Richard Branson v. GTECH U.K. Corporation and Robert
Rendine), and in January 1996, Mr. Branson filed suit in this same court against
the Company's Chairman, Guy B. Snowden (captioned Richard Branson v. Guy
Snowden), alleging in both cases that the defendants had libeled Mr. Branson in
responding to certain allegations which had been made by Mr. Branson.  Mr. 
Branson, whose consortium in 1994 lost the bid to operate the United Kingdom
National Lottery, had alleged in a television program broadcast in the U.K. in
December 1995 that Mr. Snowden had offered him an inducement in September 1993 
not to bid for the U.K. lottery contract.  Mr. Snowden and the Company have 
categorically denied Mr. Branson's allegations.  In addition, Mr. Snowden filed
suit in January 1996 in the U.K. against Mr. Branson alleging that Mr. Branson's
televised allegations libeled Mr. Snowden.  The Director General of the U.K. 
Lottery subsequently appointed Anne Rafferty Q.C. to conduct an inquiry into 
Mr. Branson's allegations that Mr. Snowden had attempted to bribe him. In July,
1996 a report setting forth the results of Ms. Rafferty's inquiry was made
public.  That report found no evidence supporting Mr. Branson's allegations that
Mr. Snowden had attempted to bribe him.  The trial on these matters currently is
scheduled to commence in January 1998, and the Company intends to defend its 
Chairman, subsidiary and press spokesman vigorously against Mr. Branson's
claims.  Moreover, Mr. Snowden intends to pursue his claim against Mr. Branson.
<PAGE>

NOTE  H - COMMITMENTS AND CONTINGENCIES - (continued)


In September 1996, Jack M. Janis and Linda Janis, both individually and on
behalf of a class of persons similarly situated, filed suit against the
California State Lottery Commission, Southland Corporation and the Company in
the Supreme Court of the State of California (County of Los Angeles). This suit
alleges, in light of the June 1996 decision of the California Supreme Court,
Western Telcon, Inc. et. al. v. California State Lottery (which held that the
California State Lottery's keno game as then structured was not a lottery game
and therefore was not authorized by California lottery law), that the defendants
were unjustly enriched and were guilty of unfair business practices and 
misleading advertising in connection with the sale of keno tickets from January
1, 1992 through suspension of the keno game in June 1996.  The suit seeks
restitution of all amounts realized by the defendants through the sale of keno
tickets less funds paid to public schools pursuant to relevant California law
and proceeds paid to holders of winning keno tickets, together with costs,
disbursements and prejudgment interest.  The Company has responded with a
vigorous defense.  In February 1997, the Court granted the Company summary
judgment but granted the plaintiffs limited leave to amend their complaint
alleging alternative theories of recovery.  The plaintiffs filed an amended
complaint in March 1997.  The Company believes that these claims are without
merit and intends to continue to defend itself vigorously in these proceedings.

The Company also is subject to certain legal proceedings and claims which
management believes, on the basis of information presently available to it, will
not materially adversely affect the Company's consolidated financial position or
results of operations.



<PAGE>


NOTE I - STOCK OPTION PLAN

The GTECH Holdings Corporation 1994 Stock Option Plan, as amended, (the "1994
Plan") authorizes up to an aggregate of 1,800,000 shares of Common Stock for the
granting of incentive stock options and nonqualified stock options to officers
and other key employees of the Company at a price not less than the fair market
value of a share of Common Stock on the date the option is granted. Options
expire ten years after date of grant (subject to acceleration in certain
circumstances) and generally become exercisable ratably over a four-year period
from date of grant.

The Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations in accounting for the 1994 Plan. Accordingly, no compensation
expense has been recognized. Had compensation expense for options granted under
the 1994 Plan after February 25, 1995 been determined based on the estimated
fair value at the grant dates for awards under the plan, the Company's pro forma
net income and earnings per share for fiscal 1997 and 1996 would have been
$76,331,000 and $1.78, respectively, and $66,295,000 and $1.53, respectively.
The effects on fiscal 1997 and 1996 pro forma net income and earnings per share
of expensing the estimated fair value of stock options are not necessarily
representative of the effects on reported net income for future years because of
the vesting period of the stock options and the potential for issuance of
additional stock options in future years.

The fair value of options granted after February 25, 1995 under the 1994 Plan
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions for fiscal 1997 and 1996,
respectively: risk-free interest rates of 5.59% and 5.78%; volatility factors of
the expected market price of the Company's common stock of .32 and .37; and a
weighted-average expected life of the option of 4.0 years and 7.2 years. The
Company did not assume a dividend yield for fiscal 1997 or 1996.

A summary of the Company's 1994 Plan stock option activity and related
information follows:
<TABLE>
<CAPTION>

                                                                                  Fiscal Year Ended
                                             --------------------------------------------------------------------------------------
                                                  February 22, 1997               February 24, 1996            February 25, 1995    
                                             ---------------------------     --------------------------   -------------------------
                                              Shares         Weighted         Shares        Weighted       Shares       Weighted
                                               under         Average           under        Average         under       Average
                                              Options     Exercise Price     Options     Exercise Price    Options   Exercise Price
                                             ---------    --------------     ---------   --------------   ---------  -------------- 
<S>                                          <C>          <C>                <C>         <C>              <C>        <C>
Outstanding at beginning of year........     1,214,150    $       21.964      793,500    $       17.532         --   $         --   
Granted ................................       195,500            28.656      567,500            26.844    796,500           17.530 
Exercised ..............................       (79,225)           17.433      (33,850)           16.875         --             --   
Forfeited ..............................       (24,250)           18.603     (113,000)           16.875     (3,000)          16.875
                                             ---------                       ---------                    ---------   
Outstanding at end of year .............     1,306,175    $       23.303     1,214,150   $       21.964    793,500   $       17.532 
                                             =========                       =========                    =========   
                                                                                                                                  
Exercisable at end of year .............       402,675    $       21.865       147,425   $       17.759
                                                                                                                     
Weighted-average fair value of options
granted during the year ................    $    9.675                       $  13.000

</TABLE>

Exercise prices for options outstanding under the 1994 Plan as of February 22, 
1997 ranged from $16.875 to $31.50. The weighted-average remaining contractual
life of those options is 8.42 years.


<PAGE>



NOTE J - INCOME TAXES


The components of income from continuing operations before income taxes and 
extraordinary charge were as follows:
<TABLE>
<CAPTION>


                                                                Fiscal Year Ended
                                          -----------------------------------------------------------
                                          February 22, 1997    February 24, 1996    February 25, 1995
                                          -----------------    -----------------    -----------------
                                                            (Dollars in thousands)
<S>                                       <C>                  <C>                  <C>       

United States ..........................  $          93,990    $          92,101    $          70,803
Foreign ................................             37,879               22,774               21,796
                                          -----------------    -----------------    -----------------
                                          $         131,869    $         114,875    $          92,599
                                          =================    =================    =================



Significant components of the provision for income taxes were as follows:

                                                               Fiscal Year Ended
                                          -----------------------------------------------------------
                                          February 22, 1997    February 24, 1996    February 25, 1995
                                          -----------------    -----------------    -----------------
                                                            (Dollars in thousands)
<S>                                       <C>                  <C>                  <C>    
Current:
     Federal ...........................  $          12,221    $          16,836    $          28,807
     State .............................              5,970                5,150                5,922
     Foreign ...........................             14,605               14,376                9,120
                                          -----------------    -----------------    -----------------
        Total Current ..................             32,796               36,362               43,849
                                          -----------------    -----------------    -----------------
Deferred:
     Federal ...........................             18,869                6,661               (2,986)
     State .............................              2,401                  797                 (583)
                                          -----------------    -----------------    -----------------
          Total Deferred ...............             21,270                7,458               (3,569)
                                          -----------------    -----------------    -----------------
Charge in lieu of income taxes .........               --                  4,428                 --
                                          -----------------    -----------------    -----------------
       Total from Continuing Operations              54,066               48,248               40,280

Discontinued Operations:
     Current ...........................             (1,171)              (8,954)              (9,963)
     Deferred ..........................              1,171                8,954               (9,683)
                                          -----------------    -----------------    -----------------
          Total Discontinued ...........               --                   --                (19,646)
                                          -----------------    -----------------    -----------------
Extraordinary charge ...................               --                   --                 (1,093)
                                          -----------------    -----------------    -----------------
       Total Provision .................  $         54,066     $          48,248     $         19,541
                                          =================    =================    =================
</TABLE>
                                                                                
Charge in lieu of income taxes represents the income tax benefit allocated to
shareholders' equity related to the excess of tax deductions over book expense 
for restricted stock plans.

<PAGE>



NOTE J - INCOME TAXES - (continued)

Significant components of the Company's deferred tax assets and liabilities were
as follows:
<TABLE>
<CAPTION>



                                                                   February 22, 1997    February 24, 1996 
                                                                   -----------------    -----------------
                                                                          (Dollars in thousands)
<S>                                                                <C>                  <C>   
Deferred tax assets:
   Accruals not currently deductible for tax purposes............  $          22,911    $          24,565
   Cash collected in excess of revenue recognized ...............              5,045                7,885
   Inventory reserves ...........................................              3,084                5,562
   Other ........................................................              2,128                2,358
                                                                   -----------------    -----------------
                                                                              33,168               40,370

Deferred tax liabilities:
   Depreciation .................................................            (26,306)             (17,799)
   Advance payments .............................................             (5,850)                --
   Other ........................................................             (4,462)              (3,580)
                                                                   -----------------     ----------------
                                                                             (36,618)             (21,379)
                                                                   -----------------     ----------------
       Net deferred tax assets (liabilities) ....................  $          (3,450)    $         18,991
                                                                   =================     ================

</TABLE>
                                                                              
                                                                           
The effective income tax rate on income from continuing operations differed from
the statutory federal income tax rate for the following reasons:
<TABLE>
<CAPTION>


                                                                        Fiscal Year Ended
                                                   -----------------------------------------------------------
                                                   February 22, 1997    February 24, 1996    February 25, 1995
                                                   -----------------    -----------------    -----------------
<S>                                                <C>                  <C>                  <C>    
Federal income tax using statutory rate .........              35.0%                35.0%                35.0%
State taxes, net of federal benefit .............               4.0                  4.0                  3.8
Equity in earnings of unconsolidated affiliates..              (2.7)                (3.1)                (0.8)
Nondeductible expenses ..........................               1.4                  2.0                  1.9
Goodwill ........................................               1.1                  0.9                  1.0
Other ...........................................               2.2                  3.2                  2.6
                                                   -----------------    -----------------     ----------------
                                                               41.0%                42.0%                43.5%
                                                   =================    =================     ================
</TABLE>
                                                                                
                                         
<PAGE>



NOTE K - TRANSACTIONS WITH RELATED PARTIES

Sales of products and services to Camelot and the other members of the U.K.
lottery consortium were $53,298,000, $56,451,000 and $59,415,000 in fiscal 1997,
1996 and 1995, respectively. At February 22, 1997 and February 24, 1996, the
Company had receivables net of advance payments of $7,035,000 and $9,908,000,
respectively, from Camelot and the other members of the consortium.

Sales of products and services to LTE were $3,714,000, $3,334,000 and $341,000
in fiscal 1997, 1996 and 1995, respectively. At February 22, 1997 and February
24, 1996, the Company had receivables of $265,000 and $855,000, respectively,
from LTE.

Sales of products to Racimec were $2,140,000 and $10,052,000 in fiscal 1996 and
1995, respectively.

At February 22, 1997 and February 24, 1996, the Company had a convertible note
receivable from Full House of $3,000,000. The note is interest free until
January 25, 1998 and interest bearing thereafter at the prime rate. Interest is
payable monthly. The principal balance of the note is due on January 25, 2001.
The Company has the right, at its option, to convert all or any part of the
principal balance of the note into common stock of Full House at a conversion
price of $5 principal amount of the note for one share of Full House common
stock. The conversion period expires on January 25, 1998. In addition, at
February 24, 1996 the Company had a loan receivable from one of its joint
ventures with Full House in the amount of $9,684,000. Interest on the loan was
payable monthly at the prime rate plus 2%. During fiscal 1997 the note was
repaid in full. In addition, at February 22, 1997 the Company had a loan
receivable from one of its joint ventures with Full House in the amount of
$6,336,000. Interest on the loan is payable monthly at the prime rate plus 1%.
The principal balance of the loan is repayable in 36 monthly installments with a
final payment due on September 10, 1999.

The Company has a loan program under its expired Restricted Stock Unit Plan that
assists employees in paying federal and state income tax withholdings associated
with stock awards that became taxable compensation to them. Current and future
loans and related interest are repayable on February 1, 1999. The loans are
evidenced by promissory notes that bear interest at the rate of 7.1% per annum.
Loans outstanding at February 22, 1997 and February 24, 1996, amounted to
$389,000 and $2,349,000, respectively.

The Company paid rent of $2,619,000, $2,612,000 and $2,655,000 to West Greenwich
Technology Associates Limited Partnership (that is 50% owned by the Company and
50% owned by an unrelated third party), in fiscal 1997, 1996 and 1995,
respectively, for the Company's West Greenwich, Rhode Island corporate
headquarters and research and development and main production facility. The
agreement calls for rent payments to escalate to $3,510,000 beginning March 1,
1999, and to $3,531,000 beginning March 1, 2004.

During fiscal 1995, the Company, pursuant to the terms of an employment
agreement with its President and Chief Operating Officer, made loans to him to
enable him to retire certain third-party indebtedness. The loans consisted of a
$400,000 loan under a line of credit arrangement that required no interest and
that was repaid during fiscal 1997 and a loan in the amount of $500,000 bearing
interest at the rate of 6.0% per annum that is repayable in full on or before
November 1, 1999. Loans outstanding, including interest, at February 22, 1997
and February 24, 1996, amounted to $536,000 and $797,000, respectively.

At February 25, 1995, the Company had notes receivable and related accrued
interest of $8,419,000 from Racipar Empreendimentos E Participacoes LTDA.
("Racipar"), an affiliate of Racimec. On January 31, 1996 the note and related
accrued interest were exchanged for shares of Racimec (See Note B).



<PAGE>



NOTE L - LEASES

The Company leases certain facilities, equipment and vehicles under
noncancelable operating leases that expire at various dates through fiscal 2014.
Certain of these leases have escalation clauses and renewal options ranging from
one to ten years. The Company is required to pay all maintenance, taxes and 
insurance relating to its leased assets.

Future minimum lease payments, by year and in the aggregate, under noncancelable
operating leases with initial terms greater than one year, consist of the
following at February 22, 1997:


     Fiscal Year                  (Dollars in thousands)
     -----------                                                 
     1998                                $        23,955                        
     1999                                         22,200                        
     2000                                         11,714                        
     2001                                         11,209                        
     2002                                         10,344                        
     Thereafter                                   60,839                        
                                         ---------------                        
     Total minimum lease payments        $       140,261
                                         ===============

Rental expense for all operating leases was $27,471,000, $23,285,000 and
$19,864,000 for fiscal 1997, 1996 and 1995, respectively.



NOTE M - EMPLOYEE BENEFITS

The Company has two defined contribution 401(k) retirement savings and profit
sharing plans (the "Plans") covering substantially all full-time employees in
the United States and the Commonwealth of Puerto Rico. Under these Plans, an
eligible employee may elect to defer receipt of a portion of base pay for each
year in which case the Company will contribute this amount on the employee's
behalf to the Plans and also will make a matching contribution equal to 50% of
the amount that the employee has elected to defer, up to a maximum matching
contribution of 2 1/2% of the employee's base pay. The Company, at its
discretion, may contribute additional amounts to the Plans on behalf of
employees based upon its profits for a given fiscal year. Participants are 100%
vested at all times in their entire account balance in the Plans. Benefits under
the Plans generally will be paid to participants upon retirement or in certain
other limited circumstances. In fiscal 1997, 1996 and 1995, the Company recorded
expense under these Plans of $7,010,000, $4,478,000 and $5,010,000,
respectively.

The Company has a Supplemental Retirement Plan, that is a defined contribution
plan that provides to certain key employees additional retirement benefits.
The Company, at its discretion, may contribute additional amounts to the plan on
behalf of such key employees' equal to the percentage of profit sharing
contributions contributed for the calendar year multiplied by the key employees'
compensation (as defined) for such year. In fiscal 1997, 1996 and 1995 the
Company recorded expense under this plan of $1,254,000, $804,000 and $772,000,
respectively.



<PAGE>



NOTE N - FOREIGN OPERATIONS
<TABLE>
<CAPTION>

The Company's geographic area data is summarized below:

                                                                                            Fiscal Year Ended
                                                                       -----------------------------------------------------------
                                                                       February 22, 1997    February 24, 1996    February 25, 1995
                                                                       -----------------    -----------------    -----------------
                                                                                         (Dollars in thousands)
<S>                                                                    <C>                  <C>                  <C>    
Service Revenues and Product Sales:
     United States ...............................................     $         670,090    $         585,258    $         599,915
     Brazil ......................................................                55,769                4,346                 --
     Other Foreign ...............................................               178,413              154,486               95,192
                                                                       -----------------    -----------------    -----------------
                                                                       $         904,272    $         744,090    $         695,107
                                                                       =================    =================    =================

Operating Profit:
     United States ...............................................     $        108,697     $        101,208    $          113,338
     Brazil ......................................................               (6,114)              (2,485)                 --
     Other Foreign ...............................................               46,026               36,645                 7,056
                                                                       ----------------     ----------------    ------------------
       Total Operating Profit ....................................              148,609              135,368               120,394
     General corporate expenses ..................................              (21,518)             (17,385)              (15,913)
     Interest expense ............................................              (20,812)             (24,231)              (18,185)
     Interest income .............................................                4,424               12,124                 5,120
     Equity in earnings of unconsolidated affiliates..............               16,727                8,060                 1,872
     Other income (expense) ......................................                4,439                  939                  (689)
                                                                       ----------------     ----------------    ------------------
Income from continuing operations before income taxes and           
     extraordinary charge ........................................     $        131,869     $        114,875    $           92,599 
                                                                       ================     ================    ================== 
                                                                                    

                                             
                                                                                            Fiscal Year Ended
                                                                       -----------------------------------------------------------
                                                                       February 22, 1997    February 24, 1996    February 25, 1995
                                                                       -----------------    -----------------    -----------------
                                                                                         (Dollars in thousands)
<S>                                                                    <C>                  <C>                  <C>    
Identifiable Assets:
     United States ...............................................     $         685,125    $        579,154     $         512,219
     Brazil ......................................................                96,544              94,754                  --
     Other Foreign ...............................................               131,608             135,314               134,096
                                                                       -----------------    ----------------     -----------------
                                                                                 913,277             809,222               646,315

Investments in and advances to
   unconsolidated affiliates .....................................                56,693              49,068                87,642
Assets of discontinued operations ................................                  --                  --                  10,591
Other corporate assets ...........................................                23,235              28,444                44,264
                                                                       -----------------    ----------------     -----------------
                                                                                 993,205             886,734               788,812
Eliminations .....................................................               (36,664)            (27,354)               (9,558)
                                                                       -----------------    ----------------     -----------------
  Total Assets ...................................................     $         956,541    $        859,380     $         779,254
                                                                       =================    ================     =================
</TABLE>
                                                                              

For fiscal 1997, 1996 and 1995, the Company's United States revenues included
export sales of $88,440,000, $54,969,000, and $145,016,000, respectively,
principally as follows: to Europe, the Far East and the United Kingdom in the
amounts of $54,166,000, $14,401,000 and $10,818,000, respectively, in fiscal
1997; to Europe and the United Kingdom in the amounts of $24,788,000 and
$16,896,000, respectively, in fiscal 1996; and to the United Kingdom, Latin
America and Europe in the amounts of $51,516,000, $35,607,000 and $35,164,000,
respectively, in fiscal 1995.

Foreign exchange gains (losses) amounted to $336,000, $30,000,and $(2,000) for
fiscal 1997, 1996 and 1995, respectively.

For fiscal 1997, 1996 and 1995, the aggregate revenues from the State of Texas
(including lottery and electronic benefits delivery) represented 18.6%, 19.6%
and 16.1% of the Company's consolidated revenues, respectively. No other
customer accounted for more than 10% of consolidated revenues in such years.
<PAGE>


NOTE O - FINANCIAL INSTRUMENTS

Cash and cash equivalents

Cash equivalents are stated at cost which approximates fair value.

Debt

The carrying amounts of the Company's borrowings under the Credit Facility and
other debt approximates fair value.

Forward Exchange Contracts

The Company, from time to time, enters into foreign currency exchange contracts
to hedge the risk associated with certain firm sales commitments, anticipated
revenue streams and certain assets and liabilities denominated in foreign
currencies. The Company does not engage in currency speculation. Gains and
losses on contracts that hedge specific foreign currency commitments are
deferred and accounted for as part of the transaction being hedged. Contracts
used to hedge anticipated revenue streams and certain assets and liabilities are
marked to market and the resulting transaction gain or loss is included in the
determination of net income. As of February 22, 1997 and February 24, 1996, the
Company had approximately $13,829,000 and $9,664,000, respectively, of
outstanding foreign currency exchange contracts to purchase foreign currencies
(primarily British Pounds and German Marks) and approximately $20,567,000 and
$28,566,000, respectively, of outstanding foreign currency exchange contracts to
sell foreign currencies (primarily British Pounds, German Marks, Irish Punts and
Canadian Dollars).  The fair values of the Company's foreign currency exchange
contracts are estimated based on quoted market prices of comparable contracts,
adjusted through interpolation when necessary for maturity differences. The fair
value of these contracts, in the aggregate, was not material at February 22,
1997 or February 24, 1996.

Interest Rate Hedges

On January 24, 1996, the Company entered into three interest rate swaps with an
aggregate notional amount of $125,000,000 that provide interest rate protection
over the period January 26, 1996 to April 28, 1997.  The related market values 
of these swaps as provided by the financial institutions that are counterparties
to the swaps was not material at February 22, 1997 or February 24, 1996. The 
swaps effectively entitle the Company to receive payments from the financial
institutions that are counterparties to the swaps should three-month London
Interbank Offered Rates ("LIBOR") exceed approximately 5.05%. At February 22,
1997 LIBOR was 5.47%.



<PAGE>



NOTE P - QUARTERLY RESULTS OF OPERATIONS - (Unaudited)
<TABLE>
<CAPTION>


The following is a summary of the quarterly results of operations for fiscal 1997 and 1996:

                                                     1st             2nd            3rd           4th
                                                   Quarter         Quarter        Quarter       Quarter
                                                 -----------     -----------    -----------   -----------
                                                      (Dollars in thousands, except per share amounts)
<S>                                              <C>             <C>            <C>           <C>   
Fiscal year ended February 22, 1997:
     Service revenues .......................    $   194,986     $   191,812    $   198,259   $   204,477
     Sales of products ......................         16,187          23,141         33,621        41,789
     Gross profit ...........................         70,304          66,469         71,963        76,433
     Net income .............................         18,203          17,501         19,080        23,019

     Earnings per common share ..............    $       .42     $       .41    $       .44   $       .54

Fiscal year ended February 24, 1996:
     Service revenues .......................    $   165,327     $   167,112    $   168,537   $   185,067
     Sales of products ......................         14,102          17,815         18,602         7,528
     Gross profit ...........................         66,348          66,143         61,944        63,299
     Net income .............................         18,310          16,496         15,972        15,849

     Earnings per common share ..............    $       .42     $       .38    $       .37   $       .37

                                                           
</TABLE>

The results of Racimec for fiscal 1996 are included in the financial statements
of the Company using the equity method of accounting through January 31, 1996. 
Subsequent to January 31, 1996, the accounts of Racimec have been consolidated
(See Note B).

<PAGE>

ITEM 9.  CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

<PAGE>

                                 PART III

Incorporated by Reference

The information called for by Item 10--"Directors and Executive Officers of the
Registrant" (other than the information concerning executive officers set forth
after Item 4 herein), Item 11--"Executive Compensation", Item
12--"Security Ownership of Certain Beneficial Owners and Management" and Item
13--"Certain Relationships and Related Transactions" of Form 10-K is
incorporated herein by reference Holding' definitive proxy statement for its
Annual Meeting of Shareholders scheduled to be held in July 1997, which
definitive proxy statement is expected to be filed with the Commission not later
than 120 days after the end of the fiscal year to which this report relates.


<PAGE>


                             PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
          FORM 8-K

(a)  Financial Statement Schedules and Exhibits:
                                                              
(1) Report of Ernst & Young LLP, Independent Auditors         

(2) Report of Price Waterhouse, Independent Accountants       

The following  consolidated  financial  statements of GTECH Holdings Corporation
and subsidiaries are included in Item 8:

Consolidated Balance Sheets at                                
February 22, 1997 and
February 24, 1996

Consolidated Income Statements-- 
Fiscal year ended February 22, 1997,
Fiscal year ended February 24, 1996 and
Fiscal year ended February 25, 1995

Consolidated Statements of Shareholders' Equity--
Fiscal year ended February 22, 1997,
Fiscal year ended February 24, 1996 and
Fiscal year ended February 25, 1995

Consolidated Statements of Cash Flows--
Fiscal year ended February 22, 1997,
Fiscal year ended February 24, 1996 and
Fiscal year ended February 25, 1995

Notes to Consolidated Financial Statements                    

<PAGE>

(3) Exhibits:

3.1           Restated Certificate of Incorporation of Holdings, as amended 
              (incorporated by reference to Exhibit 3.1 to the Form S-l of
              Holdings and GTECH Corporation ("GTECH"), Registration No.
              33-31867 (the "1990 S-1").

3.2           Certificate of Amendment to the Certificate of Incorporation of
              Holdings (incorporated by reference to Exhibit 3.2 to the Form
              S-1 of Holdings, Registration No. 33-48264 (the "July 1992 S-1")).

+3.3          Amended and Restated By-Laws of Holdings.

4.1           Credit Agreement, dated as of September 15, 1994, among GTECH,
              certain financial institutions and NationsBank of North Carolina,
              N.A., as Agent (incorporated by reference to Exhibit 4.1 of
              Holdings' 1995 10-K).

4.2           Amendment No. 1 to Credit Agreement, dated May 26, 1996, among
              GTECH, certain financial institutions and NationsBank of North
              Carolina, N.A., as Agent (incorporated by reference to Exhibit 4
              of Holdings' 10-Q for the quarterly period ended May 25, 1996).

4.3           Specimen Form of certificate for Common Stock (incorporated by
              reference to Exhibit 4.18 of the December 1992 S-1).

10.1          Employment Agreement dated as of January 23, 1990 between GTECH,
              Holdings and Victor Markowicz (incorporated by reference to
              Exhibit (b) (11) to the Schedule 13E.3 filed by GTECH Corporation,
              Holdings, GTEK Acquisition, Donaldson, Lufkin & Jenrette
              Securities Corporation ("DLJCC"), Victor Markowicz and Guy B.
              Snowden, File No. 0-12604).*

10.2          Amendment to the Employment Agreement dated as of January 23, 1990
              between  GTECH,  Holdings and Victor  Markowicz  (incorporated  by
              reference to Exhibit 10.2 to the July 1992 S-1).*

10.3          Confirmation  of  Waiver  respecting  certain  provisions  of  the
              Employment  Agreement  dated as of January 23, 1990 between GTECH,
              Holdings   and  Victor   Markowicz,   dated   February   13,  1996
              (incorporated  by  reference  to Exhibit  10.3 of  Holdings'  1996
              10-K).*

+10.4         Second Amendment to Employment Agreement dated February 12, 1997
              among GTECH, Holdings and Victor Markowicz.*

10.5          Employment Agreement dated as of January 23, 1990 between GTECH,
              Holdings and Guy B. Snowden (incorporated by reference to Exhibit
              (b) (12) to the Schedule 13E.3 filed by GTECH, Holdings, GTEK
              Acquisition, DLJCC, Victor Markowicz and Guy B. Snowden, file no.
              0-12604).*

10.6          Amendment to the Employment Agreement dated as of January 23, 1990
              between GTECH, Holdings and Guy B. Snowden (incorporated by
              reference to Exhibit 10.4 of the July 1992 S-1).*

10.7         Confirmation  of  Waiver  respecting  certain  provisions  of  the
              Employment  Agreement  dated as of January 23, 1990 between GTECH,
              the  Company  and  Guy  B.  Snowden,   dated   February  13,  1996
              (incorporated  by  reference  to Exhibit  10.6 of  Holdings'  1996
              10-K).*

+10.8         Second Amendment to Employment Agreement dated as of February 12,
              1997 among GTECH, Holdings and Guy B. Snowden.

10.9          Employment Agreement dated October 27, 1994 between Holdings and
              William Y. O'Connor (incorporated by reference to Exhibit 10.14 of
              Holdings' 1995 10-K).*

10.10         Amendment to Employment Agreement dated February 13, 1996 between
              Holdings and William Y. O'Connor (incorporated by reference to
              Exhibit 10.11 of the Holdings' 1996 10-K).*

10.11         Promissory Note dated February 2, 1995 of Guy B. Snowden to
              Holdings (incorporated by reference to Exhibit 10.18 of Holdings'
              1995 10-K).*

10.12         Promissory Note dated February 2, 1995 of Donald L. Stanford to
              LAC Corporation (incorporated by reference to Exhibit 10.19 of
              Holdings' 1995 10-K).*

10.13         Promissory Note dated February 2, 1995 of Michael R. Chambrello to
              LAC Corporation (incorporated by reference to Exhibit 10.22 of 
              Holdings' 1995 10-K).*

10.14         GTECH Corporation Executive Perquisites Program (incorporated by
              reference to Exhibit 10.8 of Holdings' 1993 10-K).*

10.15         Form of Indemnification Agreement (incorporated by reference as 
              Exhibit 10.14 of GTECH's 1992 10-K).

10.16         List of Indemnification Agreement signatories and dates
              (incorporated by reference to Exhibit 10.17 of Holdings'1996
              10-K).

10.17         Form of Executive  Separation Agreement and Schedule of Recipients
              (incorporated  by  reference to Exhibit  10.18 of  Holdings'  1996
              10-K).

10.18         Supplemental Retirement Plan effective January 1, 1992 and List of
              participants  (incorporated  by  reference  to  Exhibit  10.16  of
              GTECH's 1992 10-K).*

10.19         Contract  for the Texas  Lottery  Operator  for the State of Texas
              between    GTECH   and   the   Texas    Comptroller    of   Public
              Accounts--Lottery  Division,  dated March 7, 1992 (incorporated by
              reference to Exhibit 10.44 of GTECH's 1992 10-K).

10.20         Amendment to the Contract for the Texas  Lottery  Operator for the
              State of Texas between GTECH and the Texas  Comptroller  of Public
              Accounts--Lottery  Division,  dated June 1, 1994  (incorporated by
              reference to Exhibit 10 of Holdings' 10-Q for the quarterly period
              ended May 25, 1996).

10.21         Second  Amendment to the Contract for the Texas  Lottery  Operator
              for the State of Texas between GTECH and the Texas  Comptroller of
              Public   Accounts--Lottery    Division,   dated   May   28,   1996
              (incorporated  by  reference  to  Exhibit  10.1 to the Form S-3 of
              Holdings, Registration No. 333-3602).

10.22         Purchase and Sale Agreement  dated 8 February 1994 between Camelot
              Group plc and GTECH (incorporated by reference to Exhibit 10.31 of
              Holdings' 1995 10-K).

10.23         Terminals  Supply  Agreement  dated 8 February  1994 among Camelot
              Group plc, International Computers Limited and GTECH (incorporated
              by reference to Exhibit 10.32 of the Company's 1995 10-K).

10.24         Field Services Agreement dated 8 February 1994 among Camelot Group
              plc,  International  Computers Limited and GTECH  (incorporated by
              reference to Exhibit 10.33 of Holdings' 1995 10-K).

10.25         Lottery Technology Support Services Agreement dated 8 February
              1994 between Camelot Group plc and GTECH (incorporated by
              reference to Exhibit 10.34 of Holdings' 1995 10-K).

10.26         Amended and Restated Agreement of Limited Partnership by and among
              GTECH, GP Technology Associates, L.P. and GP Technology, Inc.
              dated August 26, 1993; Certificate of Limited Partnership of West
              Greenwich Technology Associates, L.P. dated August 26, 1993;
              Amended and Restated Indenture of Lease between GTECH and West
              Greenwich Technology Associates, L.P. dated August 26, 1993
              (incorporated by reference to Exhibit 10.24 of Holdings' 1994
              10-K).

10.27         Business   Agreement  dated  December  28,  1990  between  Digital
              Equipment  Corporation and GTECH;  Work Statement  Number NED91188
              dated March 11, 1991 to GTECH from Digital Equipment  Corporation;
              First  Addendum  dated  March 19, 1991 to Digital  Work  Statement
              Number  NED91188  dated  March  11,  1991 to  GTECH  from  Digital
              Equipment Corporation  (incorporated by reference to Exhibit 10.57
              of the July 1992 S-1).

10.28         Maintenance  Agreement Number 117A dated December 1, 1989, between
              GTECH  and  Concurrent  Computer   Corporation   (incorporated  by
              reference to Exhibit 10.58 of the July 1992 S-1).

10.29         Restricted Rights Arrangement between Holdings and Mr. O'Connor
              (incorporated by reference to Exhibit 10.44 of Holdings' 1995
              10-K).*

10.30         1992 Outside Directors' Director Stock Unit Plan (incorporated by
              reference to Exhibit 10.55 of Holdings' 1993 10-K).*

10.31         1994 Stock Option Plan, as amended (incorporated by reference to
              Exhibit 10.38 of Holdings' 1996 10-K).*

10.32         1996 Non-Employee Directors' Stock Option Plan (incorporated 
              herein by reference to the Appendix of Holdings' 1996 Notice of
              Annual Meeting and Proxy Statement).*

+11.          Computations of Earnings Per Share.

+21.1         Subsidiaries of the Company.

+23.1         Consent of Ernst & Young, LLP.

+23.2         Consent of Price Waterhouse.

+27           Financial Data Schedule.
----------------------------
+    Filed herewith.

* Indicates a management  contract or compensatory plan or arrangement  required
to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.

Certain  instruments  defining the rights of holders of long-term  debt
have not been filed pursuant to item  601(b)(4)(iii)(A) of Regulation SK. Copies
of such instruments will be furnished to the Commission upon request.

(b)  Reports on Form 8-K:

A  report  on Form 8-K was  filed by the  Holdings  during  the  second
quarter of the fiscal year covered by this report.

<PAGE>

                                 SIGNATURES

Pursuant to the  requirements of Section 13 of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in Amsterdam, Netherlands,
on May 21, 1997.

                           GTECH HOLDINGS CORPORATION


                           By: s/Guy B. Snowden
                              _____________________________
                           Guy B. Snowden, Chairman of the Board and CEO

Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

SIGNATURE                                             TITLE                                          DATE
<S>                                  <C>                                                           <C> 

s/Guy B. Snowden                     Director, Chairman of the Board, Chief Executive Officer      May 21, 1997 
______________________________       (principal executive officer)
Guy B. Snowden                       


s/William Y. O'Connor                Director, President & Chief Operating Officer                 May 21, 1997
______________________________
William Y. O'Connor


s/Thomas J. Sauser                   Senior Vice President & Chief Financial Officer               May 21, 1997
______________________________       (principal financial officer)
Thomas J. Sauser                     



s/Robert J. Plourde                  Vice President and Corporate Controller                       May 21, 1997
______________________________       (principal accounting officer)
Robert J. Plourde                    



s/Victor Markowicz                   Director, Vice Chairman of the Board                          May 21, 1997
______________________________
Victor Markowicz

</TABLE>
<PAGE>
<TABLE>
<CAPTION>

SIGNATURE                                                     TITLE                                   DATE
<S>                                                          <C>                                   <C>   


s/Robert M. Dewey, Jr.                                       Director                              May 21, 1997
________________________
Robert M. Dewey, Jr.



s/Burnett W. Donoho                                          Director                              May 21, 1997
________________________
Burnett W. Donoho



s/Carl H. Freyer                                             Director                              May 21, 1997
________________________
Carl H. Freyer



s/Moore                                                      Director                              May 21, 1997
________________________
The Rt. Hon. Lord Moore
 of Lower Marsh, P.C.

                                                             

s/Anthony Ruys                                               Director                              May 21, 1997
________________________
Anthony Ruys
</TABLE>