<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                              ====================

                                    FORM 10-K

(MARK ONE)

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

      FOR THE FISCAL YEAR ENDED: FEBRUARY 26, 2005

                                       OR

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

      FOR THE TRANSITION PERIOD FROM ___________________ TO ___________________.

                         COMMISSION FILE NUMBER 1-11250

                              =====================

                           GTECH HOLDINGS CORPORATION
             (Exact name of registrant as specified in its charter)

          DELAWARE                                     05-0450121
(State or other jurisdiction             (I.R.S. Employer Identification Number)
of incorporation or organization)

              55 TECHNOLOGY WAY, WEST GREENWICH, RHODE ISLAND 02817
                    (Address of Principal Executive Offices)

       Registrant's telephone number, including area code: (401) 392-1000

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

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

         Securities registered pursuant to Section 12(g) of the Act:  None
                                                                      ----
                             =======================

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. YES [X] NO [ ]
<PAGE>

Indicate by check mark if disclosure of delinquent filers pursuant to Item 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. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2.
        YES [X] NO [ ]

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of August 28, 2004 was approximately $2.6
billion.

On April 15, 2005, there were 114,911,459 outstanding shares of the registrant's
Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

<TABLE>
<CAPTION>
                Document                               Location in Form 10-K
                --------                               ---------------------
<S>                                                    <C>
Portions of Registrant's Proxy Statement
For its 2005 Annual Meeting of Shareholders                  Part III
</TABLE>

================================================================================
                                    =========

                           GTECH HOLDINGS CORPORATION

                                    FORM 10-K

                   FOR THE FISCAL YEAR ENDED FEBRUARY 26, 2005

                                      INDEX

<TABLE>
<CAPTION>
                                                                      Page
                                                                      ----
<S>                                                                   <C>
                                     PART I

Item 1.  Business                                                       4
Item 2.  Properties                                                    40
Item 3.  Legal Proceedings                                             41
Item 4.  Submission of Matters to a Vote of Security Holders           48
Additional Information - Executive Officers                            48

                                    PART II

Item 5.  Market For Registrant's Common Equity, Related Stockholder
         Matters and Issuer Purchases of Equity Securities             51
Item 6.  Selected Financial Data                                       53
Item 7.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                           54
Item 7A. Quantitative and Qualitative Disclosures About Market Risk    83
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                      Page
                                                                      ----
<S>                                                                   <C>
Item 8.  Financial Statements and Supplementary Data                   84
Item 9.  Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosures                         150
Item 9A. Controls and Procedures                                      151
Item 9B. Other Information                                            153

                                    PART III

Item 10. Directors and Executive Officers of the Registrant           154
Item 11. Executive Compensation                                       154
Item 12. Security Ownership of Certain Beneficial Owners and
         Management and Related Stockholder Matters                   154
Item 13. Certain Relationships and Related Transactions               154
Item 14. Principal Accountant Fees and Services                       154

                                    PART IV

Item 15. Exhibits and Financial Statement Schedules                   155
</TABLE>

<PAGE>

                                     PART I

      When used in this report, the terms "Company", "we", "our" and "us" refer
to GTECH Holdings Corporation ("Holdings") and its consolidated subsidiaries,
including GTECH Corporation ("GTECH").

ITEM 1. BUSINESS

GENERAL

We are a leading provider of gaming and technology solutions worldwide with over
$1.25 billion in revenues and more than 5,300 employees on six continents. We
leverage our global lottery experience and capabilities to offer a full range of
game content and solutions and financial transaction processing services.

We are the world's leading operator of highly-secure online lottery transaction
processing systems, doing business in 53 countries worldwide, and we have a
growing presence in commercial gaming technology and financial services
transaction processing. Our core market is the lottery industry, for which we
design, sell and operate a complete suite of lottery-enabled point-of-sale
terminals that are electronically linked with a centralized transaction
processing system which mediates lottery funds between the retailer, where a
transaction is enabled, and the lottery authority. We currently operate, provide
equipment and services to, or have entered into contracts to operate or provide
equipment and services in the future to, 26 of the 41 online lottery authorities
in the United States, and 65 of the 121 international online lottery
authorities.

We provide integrated online lottery transaction processing solutions, services
and products to governmental lottery authorities and governmental licensees
worldwide. We offer our customers a full range of lottery technology services,
including the design, assembly, installation, operation, maintenance and
marketing of online lottery systems and instant-ticket support systems. Our
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 our lottery customers in the United States have
entered into long-term service contracts (typically at least five to seven years
in duration) pursuant to which we provide, operate and maintain the customers'
online lottery systems in return for a transaction processing fee typically
expressed as an agreed percentage of the gross lottery sales. Many of our
international lottery customers have purchased their online lottery systems,
although some, especially lottery authorities in Eastern Europe, Latin America
and Asia, have entered into long-term service contracts with us.

<PAGE>

In recent years, lottery authorities have recognized that by offering new games
or products, they often are able to generate significant additional revenues. An
important part of our strategy is to develop new products and services for our
customers in order to increase their lottery revenues. For example, during
fiscal 2005, we expanded our lottery game offerings by entering into licensing
agreements with Hasbro Properties, Inc. (granting us rights to develop and
distribute select lottery products featuring Hasbro Inc.'s Monopoly(R) and
Battleship(R) brands), and New Vision Gaming (granting us exclusive rights to
offer the flagship games Players Choice(R) and Worldwide Poker(R)). During
fiscal 2005, we also developed and introduced HotTrax,(R) an exciting new
lottery monitor game that creates the illusion of an auto race that is taking
place in three dimensions; received an award, following a competitive
procurement, from the Multi-State Lottery Association to support the development
of the first ever system that permits the sale of video lottery products across
jurisdictions and over equipment supplied by numerous vendors; and announced the
development of GamePoint,(TM), our lottery vending machine that permits the sale
both of online and instant tickets.

Other indicative online products and services introduced in recent years to
increase lottery revenues for our customers include Aladdin(TM), the
Doubletake(TM) game, e-scratch(TM) and our family of self-service terminals,
including Instant Ticket Vending Machines (also known as Lottery Product Vending
Machines or Instant Ticket Dispensing Machines; "ITVMs") designed, manufactured
and marketed by Interlott Technologies, Inc. ("Interlott"), which we acquired
during fiscal 2004, and, our Altura(R) family of terminals, the Altura
Self-Service Terminal or Altura SST(TM). Aladdin is a credit-card sized lottery
ticket, that, through the use of magnetic strip and thermal printing technology,
can be reused up to 500 times, and which also can be employed in various
non-lottery commercial contexts. The Doubletake game is an online lottery game
that permits players to purchase an additional game with instant-ticket
features, thus enhancing wagering interest. Our e-scratch product is a web-based
interactive suite of scratch and reveal games that combines the security and
convenience of online play with the entertainment, branded content and immediate
gratification of instant-tickets. Interlott's EDS-Q family of ITVMs offers
flexibility and expandability (from a four to 24 game capacity) as well as the
industry's first transaction processing connectivity to in-store lottery
terminals and lottery authority central systems. Our Altura SST combines the
functionality of ITVMs with the capability of selling online lottery products
through a touch screen interface. In recent years, we have also introduced
various instant-ticket support services, products and systems to assist our
lottery customers in increasing revenue.

In appropriate circumstances, we have extended our online and video lottery
product offerings through acquisitions. During fiscal 2005, we completed the
acquisition of Spielo Manufacturing, Inc. ("Spielo"), a leading provider of
video lottery terminals and related products and services to the global gaming
industry. See "Significant Developments Since The Start of Fiscal 2005", and
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations", below.

In recent years, we have taken steps to broaden our offerings of transaction
processing services outside of our core market of providing online lottery
services into the gaming

<PAGE>

technology and financial services markets. During fiscal 2005, we entered into
an agreement with the owners of the privately-held Gauselmann Group
("Gauselmann") to acquire a 50 percent controlling equity interest in the
Atronic group of companies ("Atronic") owned by Gauselmann. Atronic, the leading
video slot provider in Europe, Russia and Latin America, has a growing presence
in the United States and is licensed in 196 worldwide gaming jurisdictions.
Subject to obtaining required regulatory and gaming license approvals and the
satisfaction of other closing conditions, we expect that the closing of this
acquisition will take place in December 2006. In addition, during fiscal 2005,
our majority-owned commercial services subsidiary, PolCard S.A., completed the
acquisition of BillBird S.A., the leading provider of electronic bill payment
services in Poland. See "Significant Developments Since The Start of Fiscal
2005", and Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations", below.

GTECH Corporation was founded in 1980. GTECH Holdings Corporation acquired GTECH
Corporation in a leveraged buy-out in February 1990.

Our World Headquarters is located at 55 Technology Way, West Greenwich, Rhode
Island 02817, and our telephone number is (401) 392-1000.

Our Internet address is www.gtech.com. We make available free of charge through
our Internet address our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the SEC. In addition, we review our financial results and
business prospects on quarterly earnings conference calls, and from time-to-time
on other conference call presentations, to which we invite the public to listen.
We typically announce by press release the date and time of, and dial-in and
Internet-access information respecting, such conference calls several days in
advance, and make materials respecting matters discussed on such conference
calls available free of charge through our Internet address.

<PAGE>

FORWARD-LOOKING INFORMATION

Certain statements contained or incorporated by reference in this report are
forward-looking statements within the meaning of the United States Private
Litigation Reform Act of 1995. We identify forward-looking statements by words
such as "may", "will", "should", "could", "expect", "plan", "anticipate",
"intend", "believe", "estimate", "continue", "project" or similar terms that
refer to the future. Such statements include, without limitation, statements
relating to:

      -     the future prospects for and stability of the lottery industry and
            other businesses in which we are engaged or expect to be engaged;

      -     our future operating and financial performance (including, without
            limitation, expected future growth in revenues, profit margins and
            earnings per share);

      -     our ability to secure and protect trademarks and other intellectual
            property rights;

      -     our ability to retain existing contracts and to obtain and retain
            new contracts;

      -     competition in the online lottery industry and other businesses in
            which we are engaged or may engage and the impact of competition on
            our revenues and profitability;

      -     our ability to realize the anticipated benefits of our acquisitions;
            and

      -     the results and effects of legal proceedings and investigations.

These forward-looking statements reflect management's assessment based on
information currently available, but are not guarantees and are subject to risks
and uncertainties that could cause actual results to differ materially from
those contemplated in the forward-looking statements. These risks and
uncertainties include, among other things, the matters described in this report
under "Certain Factors That May Affect Future Performance" below.

CERTAIN FACTORS THAT MAY AFFECT FUTURE PERFORMANCE

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

GOVERNMENT REGULATIONS AND OTHER ACTIONS AFFECTING THE ONLINE LOTTERY INDUSTRY
COULD HAVE A NEGATIVE EFFECT ON OUR BUSINESS AND SALES.

In the United States and in many international jurisdictions where we currently
operate or seek to do business, online lotteries are not permitted unless
expressly authorized by law. The successful implementation of our growth
strategy and our business could be materially adversely affected if
jurisdictions that do not currently authorize lotteries do not approve online
lotteries or if those jurisdictions that currently authorize lotteries do not
continue to permit such activities.

<PAGE>

Once authorized, the ongoing operations of lotteries and lottery operators are
typically subject to extensive and evolving regulation. Lottery authorities
generally conduct an intensive investigation of the winning vendor and its
employees prior to and after the award of a lottery contract. Lottery
authorities with which we do business may require the removal of any of our
employees deemed to be unsuitable and are generally empowered to disqualify us
from receiving a lottery contract or operating a lottery system as a result of
any such investigation. Some jurisdictions also require extensive personal and
financial disclosure and background checks from persons and entities
beneficially owning a specified percentage (typically five percent or more) of
our securities. The failure of these beneficial owners to submit to such
background checks and provide required disclosure could jeopardize the award of
a lottery contract to us or provide grounds for termination of an existing
lottery contract. Additional restrictions are often imposed by international
jurisdictions in which we market our lottery systems upon foreign corporations,
such as us, seeking to do business there.

Further, there have been and may 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. In light of the
fact that such investigations frequently are conducted in secret, we may not
necessarily know of the existence of an investigation which might involve us.
Because our reputation for integrity is an important factor in our business
dealings with lottery and other governmental agencies, a governmental allegation
or a finding of improper conduct on our part or attributable to us in any manner
could have a material adverse effect on our business, including our ability to
retain existing contracts or to obtain new or renewal contracts. In addition,
continuing adverse publicity resulting from these investigations and related
matters could have a material adverse effect on our reputation and business. See
Item 3, "Legal Proceedings - Brazilian Legal Proceedings - The CEF Contract
Proceedings," and Item 8, Note 14 to Notes to Consolidated Financial Statements,
below, for a discussion of a civil action initiated by federal attorneys with
Brazil's Public Ministry against GTECH Brasil Ltda., our Brazilian subsidiary,
("GTECH Brazil"), and two of our former employees, among others; a criminal
action recommended by federal attorneys with Brazil's Public Ministry alleging
employee misconduct against one of our current and one of our former employees,
among others, and a related SEC investigation; and other legal proceedings
involving our contractual relationship with Caixa Economica Federal, the
Brazilian bank and operator of Brazil's National Lottery ("CEF").

Finally, sales generated by online lottery games are dependent upon decisions
over which we have no control made by lottery authorities with respect to the
operation of these games, such as matters relating to the marketing and prize
payout features of online lottery games. Because we are typically compensated in
whole or in part based on a jurisdiction's gross online lottery sales, lower
than anticipated sales due to these factors could have a material adverse effect
on our revenues.

<PAGE>

WE MAY BE SUBJECT TO ADVERSE DETERMINATIONS IN LEGAL PROCEEDINGS (INCLUDING
PREVIOUSLY ANNOUNCED LEGAL PROCEEDINGS IN BRAZIL) WHICH COULD RESULT IN
SUBSTANTIAL MONETARY JUDGMENTS OR REPUTATIONAL DAMAGE.

We are presently involved in a civil action that was initiated by federal
attorneys with Brazil's Public Ministry against our subsidiary, GTECH Brazil,
and two of our former employees, among others; a criminal action recommended by
federal attorneys with Brazil's Public Ministry alleging employee misconduct by
one of our current and one of our former employees, among others, and a related
SEC investigation; and other legal proceedings involving our contractual
relationship with CEF. We refer you to Item 3, "Legal Proceedings - Brazilian
Legal Proceedings - the CEF Contract Proceedings," below for a more detailed
discussion of these matters. We are also subject to other legal proceedings
which are described more fully in this report in Item 3 under "Legal
Proceedings." We may not prevail in any of these legal proceedings. If we are
not successful in defending these legal proceedings, we could incur substantial
monetary judgments or penalties. If we are not successful in defending these
proceedings, we may also suffer damage to our reputation, and whether or not we
are successful, the proceedings may occupy the time and attention of our senior
management.

OUR LOTTERY OPERATIONS ARE DEPENDENT UPON OUR CONTINUED ABILITY TO RETAIN AND
EXTEND OUR EXISTING CONTRACTS AND WIN NEW CONTRACTS.

We derive the majority of our revenues and cash flow from our portfolio of
long-term facilities management contracts. Upon the expiration of a contract,
lottery authorities may award new contracts through a competitive procurement
process. In addition, our lottery contracts typically permit a lottery authority
to terminate the contract at any time for failure to perform and for other
specified reasons, and many of our contracts permit the lottery authority to
terminate the contract at will with limited notice and do not specify the
compensation, if any, to which we would be entitled were such termination to
occur.

In addition, in the event that we are unable or unwilling to perform, some of
our lottery contracts permit the lottery authority to acquire title to our
system-related equipment and software during the term of the contract or upon
the expiration or earlier termination of the contract, in some cases without
paying us any compensation related to the transfer of that equipment and
software to the lottery authority.

The termination of or failure to renew or extend one or more lottery contracts,
the renewal or extension of one or more lottery contracts on materially altered
terms or the loss of our assets without compensation could, depending upon the
circumstances, have a material adverse effect on our business, financial
condition, results and prospects.

<PAGE>

SLOW GROWTH OR DECLINES IN SALES OF ONLINE LOTTERY GOODS AND SERVICES COULD LEAD
TO LOWER REVENUES AND CASH FLOWS.

In recent years, as the United States lottery industry has matured, the rate of
lottery sales growth has moderated and certain of our customers have from
time-to-time experienced a downward trend in sales. These developments may in
part reflect increased competition that the lottery industry has experienced in
recent years for the consumers' entertainment dollar, including by virtue of a
proliferation of destination gaming venues, and an increased availability of
Internet gaming opportunities, as well as the relative difficulty of attracting
younger consumers to playing online lottery games. Our future success will
depend, in part, on the success of the lottery industry, as a whole, in
attracting and retaining players in the face of such increased competition for
the consumers' entertainment dollar (which competition may well increase further
in the future), as well as our own success in developing innovative products and
systems to achieve this goal. Our future success also will depend, in part, on
our ability to develop innovative products and services to permit us to
successfully market transaction processing goods and services outside of the
lottery industry. Our failure to achieve these goals could have a material
adverse effect on our business, financial condition and results and prospects.

WE DERIVE OVER HALF OF OUR REVENUES FROM FOREIGN JURISDICTIONS (INCLUDING OVER
7.4% IN FISCAL 2005 FROM BRAZILIAN OPERATIONS) AND ARE SUBJECT TO THE ECONOMIC,
POLITICAL AND SOCIAL INSTABILITY RISKS OF DOING BUSINESS IN FOREIGN
JURISDICTIONS.

We are a global business and derive a substantial portion of our revenue from
our operations outside the United States. In particular, in fiscal 2005, we
derived approximately 52% of our revenues from our international operations and
approximately 7.4% of our revenues from our Brazilian operations alone
(including 7.2% of our revenues from the National Lottery of Brazil, our second
largest customer in fiscal 2005 based on annual revenues). In addition, a
substantial portion of our assets are held outside of the United States and
could be prevented by a foreign jurisdiction from leaving that country. On June
25, 2004 the judge hearing the civil action initiated by the public ministry
attorneys in the Federal Court of Brasilia against GTECH Brazil and two of our
former employees, among others, granted a procedural injunction ordering that
30% of payments due to GTECH Brazil from CEF under its current contract be
withheld and deposited into an account maintained by the court. The court also
ordered that assets of GTECH Brazil, with certain exceptions, be identified to
the court so as to prevent their transfer or disposition. We filed an appeal of
this procedural injunction, and on March 22, 2005, a panel of judges of the
Brazilian Federal Court of Appeals issued an order discontinuing the withholding
of payments due to GTECH Brazil from CEF, removing the restrictions on the
transfer or sale of our Brazilian assets, and requiring the return to us of
amounts in excess of 40 million Brazilian reals that had been held in escrow
pursuant to the procedural injunction, thereby permitting the return to us of
approximately $11 million of the approximately $26 million held in escrow as of
February 26, 2005. This order of the Brazilian Federal Court of Appeals may be
appealed by the Brazilian Public Attorneys. See Item 3, "Legal Proceedings -
Brazilian Legal

<PAGE>

Proceedings - The CEF Contract Proceedings" for a more detailed discussion of
this matter.

We are also exposed to more general risks of international operations, including
increased governmental regulation of the online lottery industry in the markets
where we operate; exchange controls or other currency restrictions; and
significant political instability. Other economic risks that our international
activity subjects us to might include inflation, foreign exchange risks (both
depreciation and devaluation), illiquid foreign exchange markets, high interest
rates, debt default, unstable capital markets and foreign direct investment
restrictions. Political risks include change of leadership, change of
governmental policies, new foreign exchange controls regulating the flow of
money into or out of a country, failure of a government to honor existing
contracts, changes in tax laws and corruption, as well as global risk aversion
driven by political unrest, war and terrorism. Finally, social instability risks
include high crime in the countries in which we operate due to poor economic and
political conditions, riots, unemployment and poor health conditions. These
factors may affect our work force as well as the general business environment in
a country. See Item 8, Note 25 to Notes to Consolidated Financial Statements
included in this report, for additional financial information respecting
geographic areas where we conduct business.

The occurrence of any of these events in the markets where we operate could
jeopardize or limit our ability to transact business in those markets in the
manner we expect and could have a material adverse effect on our business,
financial condition, results and prospects.

OUR RESULTS OF OPERATIONS ARE EXPOSED TO FOREIGN CURRENCY EXCHANGE RATE
FLUCTUATIONS WHICH COULD RESULT IN LOWER REVENUES, NET INCOME AND CASH FLOWS
WHEN SUCH RESULTS ARE TRANSLATED INTO U.S. DOLLAR ACCOUNTS.

Our consolidated financial results are significantly affected by foreign
currency exchange rate fluctuations. Foreign currency exchange rate exposures
arise from current transactions and anticipated transactions denominated in
currencies other than United States dollars and from the translation of foreign
currency balance sheet accounts into United States dollar balance sheet
accounts. We are exposed to currency exchange rate fluctuations because a
significant portion of our revenues is denominated in currencies other than the
United States dollar. These exchange rate fluctuations have in the past
adversely affected our operating results and may continue to adversely affect
our results of operations and the value of our assets outside the United States.
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," below.

WE HAVE A CONCENTRATED CUSTOMER BASE AND THE LOSS OF ANY OF OUR LARGER CUSTOMERS
(OR LOWER SALES FROM ANY OF THESE CUSTOMERS) COULD LEAD TO LOWER REVENUE.

<PAGE>

Revenue from our top ten customers accounted for approximately 46% of our total
revenues in fiscal 2005. If we were to lose any of these larger customers, or if
these larger customers experience slow lottery ticket sales and consequently
reduced lottery revenue, our business, financial condition, results and
prospects could suffer. Revenue under our contract with CEF attributable to the
National Lottery of Brazil accounted for 7.2% of our revenues in fiscal 2005. We
are currently involved in negotiations with CEF respecting the possible
extension of the term of our contract beyond its May 2005 scheduled termination
date, or the execution of a new contract with CEF for the provision of goods and
services by us after this date.

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.

We have experienced and may continue to experience significant fluctuations in
our 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 our revenue) and expenses incurred in
connection with lottery start-ups. Fluctuations in our operating results from
quarter to quarter may cause our operating results to be below the expectations
of securities analysts and investors.

WE OPERATE IN A HIGHLY COMPETITIVE ENVIRONMENT AND INCREASED COMPETITION MAY
CAUSE US TO EXPERIENCE LOWER NET CASH FLOWS OR TO LOSE CONTRACTS.

The online lottery industry has faced increased competition in recent years for
the consumers' entertainment dollar, including from a proliferation of
destination gaming venues, and an increased availability of Internet gaming
opportunities. In addition, in recent years there has been increased competition
among domestic and international participants in the online lottery industry,
which could adversely affect our ability to win renewals of contracts from our
existing customers or to win contract awards from other lottery authorities. In
addition, awards of contracts to us are, from time to time, challenged by our
competitors. Increased competition also may have a material adverse effect on
the profitability of contracts which we do obtain. See "Competition" below. Over
the past several fiscal years, we have experienced and may continue to
experience a reduction in the percentage of lottery ticket sales that we receive
from certain customers resulting from contract rebids, extensions and renewals
due to a number of factors, including the substantial growth of lottery sales,
reductions in the cost of technology and telecommunications services and general
and competitive dynamics. We are unable to determine at this time the likely
effect of this trend on our business. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Result of Operations" below.

WE ARE SUBJECT TO SUBSTANTIAL PENALTIES FOR FAILURE TO PERFORM UNDER OUR
CONTRACTS.

Our lottery contracts typically permit termination of the contract at any time
for failure by us to perform and for other specified reasons and generally
contain demanding implementation and performance schedules. Failure to perform
under these contracts

<PAGE>

may result in substantial monetary liquidated damages, as well as contract
termination. These provisions in our lottery contracts present an ongoing
potential for substantial expense.

Lottery contracts also generally require us to post a performance bond, which in
some cases may be substantial, to secure our performance under such contracts.
We paid or incurred liquidated damages with respect to our contracts in an
amount equal to 0.18%, 0.50%, 0.47%, 0.14%, and 0.47% of our annual revenues in
fiscal 2005, 2004, 2003, 2002 and 2001, respectively. If we incur substantial
liquidated damages in the future, it could significantly reduce the amount of
funds that we have available for other uses in our business and may delay or
prevent us from pursuing and achieving our growth strategy, which could have a
material adverse effect on our business, financial condition, results and
prospects.

WE MAY NOT BE ABLE TO RESPOND TO TECHNOLOGICAL CHANGES OR TO SATISFY FUTURE
TECHNOLOGY DEMANDS OF OUR CUSTOMERS IN WHICH CASE WE COULD FALL BEHIND OUR
COMPETITORS.

Most of our software and hardware products are based on proprietary
technologies. While we believe that certain of our technologies, such as our
Enterprise Series(TM) open-architecture software platform, provides an industry
standard, if we were to fail to develop our product and service offerings to
take advantage of technological developments, we may fall behind our competitors
and our business, financial condition, results and prospects could suffer.

IF WE ARE UNABLE TO MANAGE POTENTIAL RISKS RELATED TO ACQUISITIONS, OUR BUSINESS
AND GROWTH PROSPECTS COULD SUFFER.

Part of our growth strategy involves acquisitions designed to extend our product
offerings and customer base. During fiscal 2004, we acquired Interlott
Technologies, Inc., a leading provider of instant ticket vending machines for
the worldwide lottery industry, and a controlling equity position in PolCard
S.A., a leading debit and credit card merchant transaction acquirer and
processor in Poland ("PolCard"). During fiscal 2005, we acquired Spielo
Manufacturing Incorporated, a leading provider of video lottery terminals and
related products and services to the global gaming industry, and Leeward Islands
Lottery Holding Company, Inc. ("LILHCo"), a lottery holding company
headquartered on the Caribbean islands of Antigua and St. Croix. In September
2004, PolCard acquired privately-held BillBird S.A., a leading provider of
electronic bill payment services in Poland. Finally, in December 2004 we
announced that we had signed an agreement to acquire a 50% controlling equity
position in the Atronic group of companies ("Atronic") from the owners of the
Gauselmann Group, in a transaction which we expect to close in December 2006.
Atronic is a video slot manufacturer that is a market leader in Europe, Russia,
and Latin America, with a presence in the United States. See "Significant
Developments Since Start of Fiscal 2005" and Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operation," below.

<PAGE>

Our ability to continue to expand successfully through acquisitions depends on
many factors, including our ability to identify acquisition prospects and
negotiate and close transactions. Even if we complete an acquisition, the
integration of an acquired business into our operations involves numerous risks,
including difficulties in integrating an acquired company's hardware and
software products and services with our own; the diversion of our resources and
management's attention from other business concerns; the potential loss of key
employees; risks associated with entering markets in which we may have little
experience; and the day-to-day management of a substantially larger and more
geographically diverse combined company.

We may not realize the synergies, operating efficiencies, market position or
revenue growth we anticipate from acquisitions and our failure to effectively
manage the above risks and other problems associated with acquisitions could
have a material adverse effect on our business, growth prospects and financial
performance.

Acquisitions outside of our core lottery market may subject us to enhanced
competition. For example, with the completion of our acquisition of Spielo and
our announced acquisition of a 50% controlling equity interest in Atronic, we
have entered the broader gaming technology and services industry, where we
expect to encounter significant competition.

Acquisitions also pose the risk that we may be exposed to successor liability
relating to actions by an acquired company and its management before the
acquisition. The due diligence we conduct in connection with an acquisition, and
any contractual indemnities we may receive from sellers of acquired companies,
may not be sufficient to protect us from, or compensate us for, actual
liabilities. A material liability associated with an acquisition could also
adversely affect our financial position and reduce the anticipated benefits of
the acquisition.

EXPANSION OF THE GAMING INDUSTRY FACES OPPOSITION WHICH COULD LIMIT OUR ACCESS
TO SOME MARKETS.

Gaming opponents continue to persist in efforts to curtail the expansion of
legalized gaming. We can give no assurance that this opposition will not be
successful in preventing the legalization of online gaming in jurisdictions
where these activities are presently prohibited or prohibiting or limiting the
expansion of online gaming where it is currently permitted, in either case to
the detriment of our business, financial condition, results and prospects.

<PAGE>

OUR BUSINESS PROSPECTS AND FUTURE SUCCESS DEPEND UPON OUR ABILITY TO ATTRACT AND
RETAIN QUALIFIED EMPLOYEES.

Our business prospects and future success depend, in part, upon our ability to
attract and to retain qualified managerial, marketing and technical employees.
Competition for such employees is sometimes intense, and we may not succeed in
hiring and retaining the executives and other employees that we need. Our loss
of or inability to hire key employees could have a material adverse effect on
our business, financial condition, results and prospects.

OUR BUSINESS PROSPECTS AND FUTURE SUCCESS RELY HEAVILY UPON THE INTEGRITY OF OUR
EMPLOYEES AND EXECUTIVES AND THE SECURITY OF OUR SYSTEMS.

The real and perceived integrity and security of a lottery is critical to its
ability to attract players. We strive to set exacting standards of personal
integrity for our employees and system security for the systems that we provide
to our customers, and our reputation in this regard is an important factor in
our business dealings with lottery and other governmental agencies. For this
reason, an allegation or a finding of improper conduct on our part, or on the
part of one or more of our employees that is attributable to us, or an actual or
alleged system security defect or failure attributable to us, could have a
material adverse effect upon our business, financial condition, results and
prospects, including our ability to retain existing contracts or obtain new or
renewal contracts. See Item 3, "Legal Proceedings - "Brazilian Legal Proceedings
- The CEF Contract Proceedings" for a discussion of a civil action initiated by
federal attorneys with Brazil's Public Ministry against GTECH Brazil and two of
our former employees, among others; a criminal action recommended by federal
attorneys with Brazil's Public Ministry alleging employee misconduct by two of
our former employees, among others, and a related SEC investigation; and other
legal proceedings involving our contractual relationship with CEF.

OUR DEPENDENCE ON CERTAIN SUPPLIERS CREATES A RISK OF IMPLEMENTATION DELAYS IF
THE SUPPLY CONTRACT IS TERMINATED OR BREACHED, AND ANY DELAYS MAY RESULT IN
SUBSTANTIAL PENALTIES.

We purchase most of the parts, components and subassemblies necessary for our
terminals from outside sources. We assemble these parts, components and
subassemblies into finished products in our manufacturing facility. While most
of the parts, components and subassemblies can be purchased through more than
one supplier, we currently have approximately three material sole source
vendors. We believe that if a supply contract with one of these vendors were to
be terminated or breached, we would be able to replace the vendor. However, it
may take time to replace the vendor under some circumstances and any replacement
parts, components or subassemblies may be more expensive, which could reduce our
margins. Depending on a number of factors, including the level of the related
part, component or subassembly in our inventory, the time it takes to replace a
vendor may result in a delay in our implementation of a lottery system for a
customer.

<PAGE>

Generally, if we fail to meet our performance schedules under our contracts, we
may be subject to substantial penalties or liquidated damages, or even contract
termination.

OUR NON-LOTTERY VENTURES, WHICH ARE AN INCREASINGLY IMPORTANT ASPECT OF OUR
BUSINESS, MAY FAIL.

Our business prospects and future success depend, in part, upon our ability to
expand our transaction processing services into complementary and parallel
markets outside of our core lottery market. In fiscal 2005, commercial services
transaction processing represented approximately 7% of our total revenues and
non-lottery gaming represented approximately 6% of our total revenues. By way of
comparison, in fiscal 2003, approximately 5% of our total revenues were derived
from commercial services transaction processing, and approximately 2% of our
total revenues were derived from non-lottery gaming. With our acquisition in May
2003 of a controlling equity interest in PolCard, S.A. ("PolCard"), a leading
debit and credit card merchant transaction acquirer and processor company in
Poland; our acquisition in September 2004 by PolCard of BillBird S.A., a leading
provider of electronic bill payment services in Poland; and our December 2004
agreement to acquire a 50% controlling equity position in Atronic, a video slot
manufacturer that is a market lender in Europe, Russia, and Latin America, with
a presence in the United States, we expect non-lottery ventures to become
increasingly significant to our overall financial performance. Because we have
less experience in non-lottery markets than we have in our core lottery market,
our non-lottery ventures present an enhanced element of risk for us. Our
non-lottery ventures outside the United States are particularly sensitive to the
economic and political risks of doing business in these countries, including
foreign currency exchange risks. In addition, our ability to complete the
acquisition of a 50% controlling equity interest in Atronic, and otherwise to
expand into non-lottery gaming markets, is dependent upon our success in
obtaining required non-lottery gaming licenses in numerous jurisdictions. As
non-lottery services start to represent a more significant portion of our
operations, the failure of one or more of our non-lottery ventures could have a
material effect on our business, financial condition, results and prospects.

             SIGNIFICANT DEVELOPMENT SINCE THE START OF FISCAL 2005

                             LOTTERY CONTRACT AWARDS

Since the start of fiscal 2005 (which ended on February 26, 2005), we received a
number of contract awards and extensions from lottery authorities.

NEW ONLINE CUSTOMERS. During fiscal 2005, we acquired nine new online customers.

In May 2004, we acquired eight new online lottery customers upon completion of
our acquisition of all of the shares of privately-held Leeward Islands Lottery
Holding Company, Inc. ("LILHCo"), a lottery operating company headquartered on
the Caribbean Islands of Antigua and St. Croix. The enterprise purchase price
that we paid in cash for LILHCo was approximately $40 million. LILHCo holds
long-term licenses to operate

<PAGE>

lotteries in Antigua and Barbuda; Anguilla; St. Kitts/Nevis; St. Maarten, Saba
and St. Eustatius; and Turks and Caicos, and operates lotteries in Barbados,
Bermuda and the U.S. Virgin Islands. In addition, LILHCo holds a video lottery
terminal ("VLT") license in Turks and Caicos, and has received confirmation that
its existing license in St. Kitts/Nevis allows for the installation of video
lottery gaming. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

In September 2004 the Government Lottery Office of Thailand announced that
Loxley GTECH Technology Co. Ltd. ("LGT") had been chosen, following a
competitive procurement, as the preferred bidder to provide equipment and
services for a national online lottery in Thailand. LGT is a company that we
formed in joint venture with Loxley Public Company Limited, a leading trading
and telecommunications conglomerate in Thailand. We own a 49 percent equity
interest in LGT and Loxley Public Company Limited owns the remaining 51 percent
equity interest in LGT. We will be the principal provider of technology and
services to LGT. The Thailand lottery authority and LGT remain in contract
negotiations to finalize the terms and conditions of this award.

NEW CONTRACTS WITH, AND EXTENSIONS AND ORDERS BY, EXISTING CUSTOMERS. Since the
start of fiscal 2005, we have also been awarded new contracts by, or have
received contract extensions or orders from, a number of our existing customers.

In September 2004, following a competitive procurement, we entered into a
six-year integrated services contract with Pronosticos para la Asistencia
Publica ("Pronosticos"), the Mexican lottery authority, to provide equipment and
services for a new online lottery system and an associated telecommunications
network. Under the terms of the new contract, we will replace Pronosticos's
existing lottery system with new central system hardware and add our ES
Connect(TM) software, which provides IP message routing, translation and
terminal management. We will also provide Pronosticos with approximately 4,800
Altura(R) terminals, 3,200 Altura(R) LVT Plus Terminals, and ongoing services.
Implementation of this contract has been suspended pending resolution of
administrative and legal challenges by two of our competitors to Pronosticos'
award of this contract.

In December 2004, following a competitive procurement, we entered into a
seven-year facilities management agreement with the Missouri lottery authority
to provide a new online lottery central system and ongoing services. Under the
terms of this contract, we will provide the Missouri lottery authority with our
Enterprise Series(TM) architecture, and approximately 6,000 Altura(R) terminals,
a communications network and comprehensive services. We expect sales to commence
under the Missouri lottery authority's new system in July 2005.

Several of our fiscal 2005 contract developments were in respect to product
sales. In June and July 2004, we announced that Organizaciun Nacional de Ciegos
Espanoles ("ONCE") had exercised options under its existing agreement with us to
purchase a total of 12,000 additional handheld lottery terminals. ONCE, also
known as the Spanish

<PAGE>

National Organization for the Blind, is authorized by the Spanish government to
administer lottery and wagering games in Spain.

In November 2004, following a competitive procurement, we were selected as the
preferred bidder by Societe de la Loterie de la Suisse Romande, the Swiss
lottery authority, to provide a new integrated online and instant-ticket lottery
system, terminals, and communications network. We are currently finalizing the
terms of the product sale agreement documenting this award.

In December 2004, we entered into a product sale agreement with the German
lottery authority Lotterie-Treuhandgesellschaft mbH Thuringen ("Thuringen
Lottery") pursuant to which we will provide a new online and instant-ticket
lottery central system, and terminals. We have also agreed to provide to
Thuringen Lottery ongoing services (including central system and terminal
maintenance, retailer training and field services) as part of these
arrangements.

In December 2004 we also entered into a five year product sale agreement with
Veikkaus Oy, the operator of the Finnish national lottery, to replace the
Finnish lottery authority's existing gaming system with an integrated system
featuring our Enterprise Series(TM) architecture and Altura(R) terminals. The
new integrated system that we are providing will include an interactive gaming
solution as well as online and instant ticket lottery systems. We will provide
ongoing services to the Finnish lottery authority over the term of the
agreement. This contract award followed a competitive procurement.

In February 2005, following a competitive procurement, we were selected as the
lead bidder by the New Zealand Lotteries Commission to begin negotiations of the
terms of a product sale agreement under which we would provide the New Zealand
lottery authority with a new integrated online and instant lottery system,
including new terminals. We expect to finalize this agreement with the New
Zealand lottery authority by June 2005.

During fiscal 2005, we received several awards to provide instant-ticket vending
machines, which are also known as instant ticket dispensing machines and lottery
product vending machines ("ITVMs"), to our existing customers. In June 2004, we
entered into a three-year contract to provide the Washington State lottery
authority with ITVMs and ongoing maintenance and support services. In June 2004,
the Virginia lottery authority awarded a seven-year contract to Oberthur Gaming
Technologies Corporation ("OGT") to provide lottery goods and services to the
Virginia lottery authority commencing in June 2005. We have subcontracted with
OGT to provide to the Virginia lottery authority new ITVMs and to manage the
warehousing and distribution of instant tickets. In July 2004 we entered into a
five-year contract to provide to the Illinois lottery authority new ITVMs and
ongoing maintenance and support services. Finally, in September 2004, we entered
into a three-year contract to provide the Maine lottery authority with ITVMs.
Each of these awards followed a competitive procurement.

During fiscal 2005, the lottery authorities of Oregon, Minnesota and South
Australia and Milli Piyango and Oeuvre Nationale de Secours Grande-Duchesse
Charlotte, our lottery customers in Turkey and Luxembourg, respectively,
exercised options to extend the terms

<PAGE>

of their online contracts with us. Moreover, the Colorado lottery authority,
which, following a competitive procurement, had selected another vendor in
October 2002 to provide equipment and services for a new lottery system to
become operational upon the termination of our online contract in October 2004,
twice exercised its right to extend our contract for a total of 180 days in
order to provide the other vendor additional time beyond the previously
established deadline to convert the system. In addition, we entered into
contract extensions with the lottery authorities of Arizona and New Mexico to
provide new products and continued services for the lotteries' ITVMs.

In May 2004, we were notified by our customer, Loteria Electronica de Puerto
Rico, of its intent to negotiate a contract to provide a new online lottery
system and an associated telecommunications network with another vendor to take
effect upon the expiration of our contract in March 2005.

OTHER PRODUCTS AND SERVICES

Since the start of fiscal 2005, we entered into a number of agreements, and
announced a number of other developments, respecting products and services
outside of our traditional online lottery product offerings.

VIDEO LOTTERY AND GAMING. In April 2004, we completed the acquisition of
privately-held Spielo Manufacturing, Inc. ("Spielo"), a leading provider of
video lottery terminals ("VLTs") and related products and services to the global
gaming industry for an all-cash purchase price of approximately $150 million. In
addition, we paid Spielo shareholders approximately $10.7 million out of a
potential maximum earn-out of up to $35 million which the former Spielo
shareholders are entitled to receive in the 18 months following the closing,
based upon Spielo achieving certain VLT installation objectives in New York, and
separately, a working capital adjustment of approximately $1.5 million. We
believe that by acquiring Spielo we will be better able to deliver a complete,
integrated VLT solution to our existing and potential customers with a single
point of contact and accountability.

In July 2004, we signed a new integrated services contract to provide a complete
video lottery solution, including a central system, VLTs, and a communications
network, and related services to Supreme Ventures Limited in Jamaica. Under the
term of this new contract, we will provide Supreme Ventures with our Enterprise
Series(TM) video lottery central system solution, an initial installation of
approximately 125 VLTs, and such additional terminals as Supreme Ventures may
elect to order over the life of the contract. This contract is coterminous with
our existing online lottery contract with Supreme Ventures, which is scheduled
to expire in January 2011.

In October 2004, following a competitive procurement, and subject to the
negotiation and execution of a definitive product sale agreement, we were
selected by Atlantic Lottery, the Canadian lottery authority ("ALC") to replace
ALC's existing video lottery central system, currently provided by another
vendor, with our Enterprise Series(TM) video central

<PAGE>

system. The new system will monitor the integrity and security of over 9,000
VLTs currently installed in age-controlled establishments throughout New
Brunswick, Prince Edward Island, Nova Scotia, Newfoundland and Labrador. We
continue to negotiate with the ALC the terms and conditions of the definitive
product sale agreement reflecting the ALC award.

In December 2004, we entered into an agreement with the owners of the
privately-held Gauselmann Group ("Gauselmann"), to acquire a 50 percent
controlling equity interest in the Atronic group of companies ("Atronic") owned
by Gauselmann. Atronic is a video slot manufacturer that is a market leader in
Europe, Russia and Latin America with a presence in the United States.
Completion of this transaction, which is contingent upon obtaining required
regulatory and gaming license approvals and the satisfaction of other closing
conditions, is expected to take place in December 2006. The acquisition
agreement provides that the purchase price payable by us at the closing shall be
equal to eight times Atronic's earnings before interest, tax, depreciation, and
amortization for its fiscal year ending December 31, 2006. In addition, during
the twelve months following the closing, we may be obligated to pay additional
amounts with respect to our acquisition of a 50 percent controlling interest in
Atronic if Atronic's performance during calendar 2007 exceeds specified
thresholds. The acquisition agreement also provides that we have the option to
purchase from Gauselmann and Gauselmann has the right to sell to us, its
remaining 50 percent interest in Atronic commencing in 2012, and under certain
circumstances prior to 2012. We believe that our alliance with Gauselmann will
create a strong new competitor in world gaming markets, and will, in addition,
broaden our government-sponsored game and systems offerings and strengthen our
Spielo subsidiary. We believe that the Atronic transaction represents the next
logical step for us towards achieving our long-term strategic objectives within
the gaming markets that we have targeted.

In February 2005, AB Svenska Spel, the Swedish lottery authority, agreed to
purchase from Spielo 2,000 next generation wide area VLTs to be deployed
commencing in September 2005.

During fiscal 2005, Spielo was also selected to provide the Oregon lottery
authority with approximately 2,000 PowerStation5(TM) VLTs.

COMMERCIAL SERVICES. In September 2004, our majority-owned commercial services
subsidiary, PolCard S.A., completed the acquisition of all of the shares of
privately-held BillBird S.A., the leading provider of electronic bill payment
services in Poland, for a total purchase price of approximately $6 million. This
acquisition advances our commercial services market objective of offering a full
product suite, including debit and credit transaction processing, card services,
electronic bill payments, and prepaid mobile phone top-ups.

In addition, during fiscal 2005 we commenced the sale of mobile phone top-ups
through lottery terminals in Barbados, Trinidad and Tobago and Lithuania.
Lottery terminals that

<PAGE>

went into service during fiscal 2005 in Trinidad and Tobago permit bill payment
transactions, as well as the sale of mobile phone top-ups.

NEW PRODUCT OFFERINGS AND DEVELOPMENTS. In March 2004, we expanded our lottery
game offerings by entering into separate licensing agreements with Hasbro
Properties Group, the intellectual property arm of Hasbro, Inc. (granting us
rights to develop and distribute in the United States, Canada and Mexico, select
lottery products featuring Hasbro's Monopoly(R) and Battleship(R) brands), and
New Vision Gaming (granting us exclusive rights to offer the flagship games
Players Choice Poker(R) and Worldwide Poker.(R)) Both agreements permit the
development and distribution of the licensed games through various sales
channels in addition to traditional online and instant ticket lottery.

In May 2004, HotTrax,(R) a new three dimensional lottery game that we developed,
debuted in Rhode Island. This race-based monitor game provides players with an
opportunity to place every four or five minutes a variety of wagers on the
finishing order of racecars. In February 2005, we obtained a five-year exclusive
licensing agreement giving us the right to utilize the names, likenesses, and
signatures of premier racecar drivers in connection with our HotTrax(R) game.

In July 2004, we announced the development of GamePoint,(TM) our all-in-one
instant and online lottery terminal solution. The GamePoint terminal, which
dispenses both instant and online tickets, is completely self-contained and
provides a secure and player-friendly opportunity for the sale of instant and
online lottery products.

In September 2004, Spielo introduced new multi-denomination and low-denomination
games for its Aura(R) upright and slant top VLTs.

In December 2004, the Multi-State Lottery Association ("MUSL") selected us,
following a competitive procurement involving four other bidders, to supply
equipment, software, services and a communications network for the first ever
multi-vendor, multi-state video lottery wide area progressive solution. Our
unique and patent-pending multi-vendor concept allows VLTs from multiple vendors
to be linked in a single progressive game, and affords MUSL great flexibility in
providing players with their favorite games within a professional environment.
We anticipate that the MUSL wide area progressive solution will commence
operations in nine facilities in Rhode Island, Delaware and West Virginia. MUSL
is a non-profit, government-benefit association owned and operated by its member
lotteries and has responsibility for PowerBall(R).

LOTTERY INDUSTRY

We base statements relating to the lottery industry contained in this report on
information compiled by us, or derived from independent public sources which we
believe 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.

<PAGE>

Lotteries are operated by state and foreign governmental authorities and their
licensees in over 200 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 into two principal groups: online
lotteries and off-line lotteries. An online lottery is conducted through a
computerized lottery system in which lottery terminals are connected to a
central computer system. An online 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, online lotteries generate significantly greater revenues than both
traditional off-line lottery games and instant-ticket games. In addition, there
are several other advantages to online lotteries as compared to traditional
off-line lotteries. Unlike traditional off-line lottery games, wagers can be
accepted and processed by an online 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. Online 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 percent of the gross revenues of an online lottery
in the United States is returned to the public in the form of prizes.
Approximately 35 percent is used by the state to support specific public
programs or as a contribution to the state's general funds. The remaining 15
percent 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 us.

According to La Fleur's 2003 and 2005 World Lottery Almanacs, from 1972 through
2004, total annual lottery ticket sales in the United States grew from
approximately $295.0 million to approximately $44.9 billion, although, in recent
years, as the United States lottery industry has matured, the rate of lottery
sales growth has moderated and certain of our customers have from time-to-time
experienced a downward trend in sales. See "Certain Factors That May Affect
Future Performance - Slow growth or declines in

<PAGE>

sales of online lottery goods and services could lead to lower revenues and cash
flow," above.

There are currently 41 jurisdictions operating online 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, many of
which are off-line, have a long history. The international online lottery
industry has experienced significant growth. Since 1977, when there were no
online lotteries operating outside of the United States, 122 international
jurisdictions have implemented online lottery systems. A number of other
international jurisdictions, principally in Europe, Asia-Pacific, and Latin
America, are currently considering the implementation of online lotteries.

ONLINE LOTTERY BUSINESS

                            ONLINE LOTTERY CONTRACTS

OVERVIEW. We generally conduct business under one of two types of contractual
arrangements which are described in more detail below: Facilities Management
Contracts and Product Sales Contracts. Under a typical Facilities Management
Contract, we construct, install and operate the lottery system and retain
ownership of the lottery system. These contracts generally provide for a
variable amount of monthly or weekly service fees to be paid to us directly from
the lottery authority based on a percentage of a lottery's gross online and
instant ticket sales. Under Product Sales Contracts, we construct, sell, deliver
and install a turnkey online lottery system or lottery equipment and license the
computer software for a fixed price, and the lottery authority subsequently
operates 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 we operate a lottery. The United Kingdom's National
Lottery, Taiwan's Public Welfare Lottery and the South African National Lottery
provide important exceptions to the general rule, in that in each case a
licensee to whom we supply goods and services (rather than the lottery
authority) operates all aspects of the respective lottery with the exception of
proceeds allocation.

With respect to fiscal 2005, approximately 72% of our revenues were service
revenues earned under our Facilities Management Contracts; approximately 15% of
our revenues were product sales revenues earned under Product Sales Contracts;
and approximately 13% of our revenues were attributable to the provision of
nonlottery goods and services.

FACILITIES MANAGEMENT CONTRACTS. Our Facilities Management Contracts typically
require us to construct, install and operate the lottery system for an initial
term, which is

<PAGE>

typically at least five to seven 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 from one to five years. In
addition, our customers occasionally renegotiate extensions on different terms
and conditions.

Our revenues under Facilities Management Contracts are generally a variable
amount of monthly or weekly service fees which are paid to us directly from the
lottery authority based on a percentage of such lottery's gross online and
instant 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 online lottery system has been in operation.

Under our Facilities Management Contracts, we typically retain title to the
lottery system and typically provide our customers with the services necessary
to operate and manage the lottery system. We install and commence operations of
a lottery system after being awarded a Facilities Management Contract and,
following the start-up of the lottery system, we are responsible for all aspects
of the system's operations. We typically operate 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 have shared the same central system. In addition, in most
jurisdictions we employ a work force consisting of a site director, marketing
personnel, computer operators, communications specialists and customer service
representatives who service and maintain most aspects of the system.

Under certain of our Facilities Management Contracts the lottery authority has
the right to purchase our lottery system during the contract term at a
predetermined price, which is calculated so that it exceeds the net book value
of the system at the time the right is exercisable. In addition, some of our
lottery contracts permit the lottery authority to acquire title to our
system-related equipment and software during the term of the contract or upon
the expiration or earlier termination of the contract, in some cases (i.e., were
we to materially breach or be unable to perform under certain circumstances)
without paying us any compensation related to the transfer of that equipment and
software to the lottery authority. Our role, if any, with respect to the
continued operation of a lottery system in the event of the exercise of such a
purchase option generally is not specified in such contracts and thus would be
subject to negotiation. Under many of our Facilities Management Contracts, the
lottery authority also has the option to require us to install additional
terminals and/or add new lottery games. Such installations may require
significant expenditures by us. However, since our 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 our lottery contracts, in addition to constructing, installing
and operating the online lottery systems in these jurisdictions, we are
providing a wide range

<PAGE>

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 we receive fees based upon a percentage of the
sales of the instant-ticket games.

Revenues from Facilities Management Contracts are accounted for as Service
Revenue in our Consolidated Income Statements.

Unless otherwise indicated, the table below sets forth the lottery authorities
with which we had Facilities Management Contracts and fully installed,
operational lottery systems as of February 26, 2005, and as to which we are the
sole supplier of central computers and terminals and material services. The
table also sets forth information regarding the term of each contract and, as of
February 26, 2005, the approximate number of terminals installed in each
jurisdiction.

<PAGE>

<TABLE>
<CAPTION>
                       Approximate             Date of                                  Current
                    Number of Lottery      Commencement of    Date of Expiration of    Extension
 Jurisdiction    Terminals Installed (1)   Current Contract   Current Contract Term     Options*
--------------   -----------------------   ----------------   ---------------------    ---------
<S>              <C>                       <C>                <C>                      <C>
United States:
Arizona                    2,500                   9/99                9/06                -
California                19,800                  10/03               10/09            4 one-year
Colorado (2)               2,450                   3/95                4/05                -
D.C. (3)                     600                   6/99               11/09                -
Florida                   11,250                   1/05                3/11            2 two-year
Georgia                    8,150                   9/03                9/10                -
Idaho                        750                   2/99                2/07                -
Illinois                   7,100                   4/00               10/07            1 one-year
Kansas                     1,950                   7/02                6/08                -
Kentucky                   2,800                   4/97                6/08                -
Louisiana                  2,750                   6/97                6/10                -
Michigan                   9,250                   1/98                1/09                -
Minnesota                  3,150                   2/03                2/11            2 one-year
Missouri                   3,900                  12/04                6/05               (5)
New Jersey                 6,050                   6/96                6/06                -
New Mexico                 1,100                   6/96               11/08                -
New York                  15,950                   3/02                3/07            3 one-year
Ohio                       7,350                   6/01                6/05            2 two-year
Oregon                     2,750                   6/98                6/08                -
Rhode Island               1,050                   7/03                6/23                -
Tennessee                  4,400                   1/04                4/11                -
Texas                     16,750                   8/02                8/11                -
Washington                 2,800                   9/95                6/06                -
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                 Approximate            Date of                               Current
                                              Number of Lottery     Commencement of   Date of Expiration of  Extension
 Jurisdiction                              Terminals Installed (1)  Current Contract  Current Contract Term   Options*
--------------                             -----------------------  ----------------  ---------------------  ---------
<S>                                        <C>                      <C>               <C>                    <C>
Wisconsin                                           3,100                 6/04                  6/11          2 one-year

International:
Anguilla
-LILHCo                                                 9                10/97                 10/07          1 ten-year

Antigua/Barbuda
-LILHCo                                                54                 1/00                  1/10          1 ten-year

Argentina
-Loteria National Sociedad del Estado(4)              800                 11/93                 1/07               -
-Boldt IPLC (4)                                     2,950                 11/99                11/09               -

Barbados
-T.L. Lotteries (6)                                   200                10/94                  5/05               -
-LILHCo (6)                                           103                12/01                 12/11          1 ten-year

Bermuda                                                                                                        automatic
-LILHCo                                                 1                    -                     -         annual renewal

Brazil
-National
 Lottery (7)                                       21,600                 5/00                  5/05               -
-Minas Gerais                                         800                10/94                 11/06               -
-Santa Catarina                                       100                 4/02                  4/06          1 one-year

China
-Beijing Welfare Lottery                            1,650                 4/04                 12/12               -

Colombia
-ETESA (8)                                          4,100                12/99                  1/11          1 five-year

Czech Republic
-SAZKA                                              6,900                10/92                 12/17               -

Ireland
-An Post Nat'l Lottery Company                      2,050                 6/02                 12/08              (9)

Jamaica
-Supreme Ventures Limited                             900                11/00                 01/11          1 ten-year

Luxembourg (10)
-Loterie Nationale                                    350                 6/01                 10/12               -
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                 Approximate            Date of                               Current
                                              Number of Lottery     Commencement of   Date of Expiration of  Extension
 Jurisdiction                              Terminals Installed (1)  Current Contract  Current Contract Term   Options*
--------------                             -----------------------  ----------------  ---------------------  ---------
<S>                                        <C>                      <C>               <C>                    <C>
Mexico
-Pronosticos Para La Assistencia Publica            7,450                  (11)                  (11)             (11)

Morocco
-La Societe de Gestion de la Loterie
Nationale and La Marocaine des Jeux et
Les Sports                                          1,400                 8/99                  4/09          1 one-year

Poland
-Totalizator Sportowy                              10,800                 5/01                  5/11          1 six-month

Puerto Rico
-Loteria Electronica de Puerto Rico                 1,850                 3/99                  3/05              (12)

Slovak Republic
-TIPOS a.s.                                         1,500                 3/96                 12/11               -

South Africa (13)
-National Lottery                                   7,850                 7/99                  4/07          1 one-year

Spain
-L'Entitat Autonoma de Jocs I Apostes
de la Generalitat de Catalunya                      2,500                 4/04             10/05 (14)              -

Sri Lanka
-Mahapola Higher Education Scholarship
Trust Fund                                            300                 6/04                  6/14          1 five-year

St. Kitts/Nevis
-LILHCo                                                50                 4/96                  4/06          1 ten-year

St. Maarten/Saba/St. Eustatius
-LILHCo                                                40                 1/97                  1/07          1 ten-year

Taiwan
-Taipei Bank (15)                                   6,800                11/01                 12/06               -
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                 Approximate            Date of                               Current
                                              Number of Lottery     Commencement of   Date of Expiration of  Extension
 Jurisdiction                              Terminals Installed (1)  Current Contract  Current Contract Term   Options*
--------------                             -----------------------  ----------------  ---------------------  ---------
<S>                                        <C>                      <C>               <C>                    <C>
Trinidad & Tobago
-National Lotteries Control Board                     550                12/93                  7/06          1 three-year

Turkey
-Turkish National Lottery (4)                       3,900                 2/96                 11/05             (16)

Turks & Caicos
-LILHCo                                                 -                10/04                 10/14          1 ten-year

United Kingdom
-The National Lottery (17)                         26,850                 1/02                  1/09               -

Ukraine
-Ukrainian National Lottery                         2,600                 8/00                 12/10               -

U.S. Virgin Islands
-LILHCo                                                81                 1/02                  1/12          2 five-year
</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 or instant
      ticket vending machines.

(2)   The Colorado lottery authority selected another vendor to provide
      equipment and services after the Colorado lottery authority's contract
      expired in October 2004. Two extensions to the contract have extended the
      term through April 2005.

(3)   Operated by Lottery Technology Enterprises, a joint venture in which we
      have a 1% interest, and to which we supply lottery goods and services.

(4)   Under these contractual arrangements (which we formerly referred to as
      "Operating Contracts"), the lottery authorities purchased the lottery
      system and related software license from us at the respective start of the
      contracts.

(5)   A seven year contract extension has been signed that will, upon
      termination of the current term, extend the term of the contract through
      June 2012.

(6)   The entities operating the Barbados lotteries are in the process of
      consolidation. Upon completion of the consolidation, GTECH will enter into
      a contract to provide lottery services with the consolidated entity which
      is expected to occur in May 2005.

(7)   Operated by GTECH Brasil Ltda. Holdings, S.A., a Brazilian company in
      which we own all voting stock. The term of our contract runs until May
      2005, with Caixa Economica Federal, the operator of the National Lottery,
      having the right to extend the term until May 2006 upon its existing terms
      and conditions. We are currently negotiating an extension to the contract.
      See "Item 3, "Legal Proceedings" below.

(8)   Our contract with the Colombia lottery authority is not a true facilities
      management contract in that title to the equipment vests in the Colombia
      lottery authority at the end of the term.

(9)   Our contract with the Ireland lottery authority may be extended for any
      period mutually acceptable to us and the Ireland lottery authority.

<PAGE>

(10)  The Luxembourg lottery authority can extend the software license granted
      by us for up to 10 years after the end of the initial term and any
      extensions of the contract.

(11)  Our contract with the Mexico lottery authority is not a true facilities
      management contract. Title to all equipment, which initially had been
      supplied under lease, has passed to the lottery authority pursuant to the
      terms of our agreement. We provide maintenance and other services if
      requested by the lottery authority. In September 2004, GTECH signed a
      contract with Pronosticos para la Asistencia Publica to provide equipment
      and services to a new online lottery system and associated
      telecommunications network in Mexico. Implementation of this contract has
      been suspended pending resolution of administrative and legal challenges
      by two of our competitors to Pronosticos's award to us of this contract.

(12)  The Puerto Rico lottery authority selected another vendor to provide
      equipment and services after the Puerto Rico lottery authority's contract
      with us terminates in March 2005.

(13)  Operated by Uthingo consortium, in which we are a 10 percent equity owner.

(14)  We have been advised that this lottery authority has selected another
      vendor to supply lottery goods and services upon the termination of our
      contract in October 2005.

(15)  Lottery Technology Services Corporation ("LTSC"), a consortium in which we
      own a 44% indirect interest, entered into a Commission Agreement with the
      Bank of Taipei to operate the Taiwan Public Welfare Lottery. ACER, Inc.
      indirectly owns the other 56% of LTSC. We supply terminals to LTSC and
      provide to LTSC central system maintenance, software support and
      consulting services pursuant to service and supply agreements.

(16)  The term of the contract with the Turkey lottery authority renews for
      successive one-year extension terms unless either party gives timely
      notice of non-renewal. In addition, the Turkey 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.

(17)  Operated by Camelot Group plc, a consortium, on a facilities management
      basis.

PRODUCT SALES CONTRACTS. Under Product Sale Contracts, we construct, sell,
deliver and install turnkey lottery systems or lottery equipment and license the
computer software for a fixed price, and the lottery authority subsequently
operates the lottery system. We also sell additional terminals and central
computers to expand existing systems and/or replace existing equipment under
Product Sales Contracts.

In connection with our Product Sales Contracts, we generally design the lottery
system, train the lottery authority's personnel and provide other services
required to make and keep the system operational. We also generally license our
software to our customers for a fixed additional fee.

Historically, product sales revenues have been derived from the installation of
new online lottery systems, installation of new software 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 Condition and Results of
Operations."

The table below lists certain of our direct and indirect customers that since
March 1, 2000 have purchased (or have agreed to purchase) from us new online or
video lottery systems, software and/or terminals and equipment in connection
with the expansion or replacement of existing lottery systems.

<TABLE>
<S>                   <C>
Australia             --Lotteries Commission of New South Wales
Australia             --Western Australia Lotteries Commission
</TABLE>

<PAGE>

<TABLE>
<S>                   <C>
Belgium               --Loterie Nationale de Belgique
California            --California State Lottery
Canada                --Alberta Gaming & Liquor Commission
                      --British Columbia Lottery Corporation
                      --Western Canada Lottery Corporation
China                 --Beijing Welfare Lottery Center
Finland               --Veikkus Oy
France                --La Francaise des Jeux
Germany               --WestLotto
                      --Sachsische Lotto - Gmbh
                      --Lotterie Treuhandgesellschaft mbH Thuringen
Israel                --Mifal Hapayis
Luxembourg            --Loterie Nationale
Massachusetts         --Massachusetts State Lottery Commission
Netherlands           --Stichting de Nationale Sport Totalisator
Pennsylvania          --IGT OES Online Entertainment Systems, Inc.
Poland                --Totalizator Sportowy Sp. Zo.o
Portugal              --Santa Casa de Misericordia de Lisboa
Singapore             --Singapore Pools (Pte) Ltd.
South Africa          --Uthingo
Spain                 --Sistemas Tecnicos de Loterias del Estado
                      --Organizacion Nacional de Ciegos Espanoles
Sweden                --AB Svenska Spel
Switzerland           --Loterie de la Suisse Romande
Taiwan                --Lottery Technology Services Corporation
United Kingdom        --The National Lottery
Virginia              --Virginia Lottery
</TABLE>

VIDEO LOTTERY CONTRACTS. On April 30, 2004, we acquired Spielo Manufacturing
Incorporated ("Spielo"), a leading provider of video lottery terminals ("VLTs")
and related products and services to the global gaming industry. Spielo supplies
video lottery terminals on a product sales basis to various lottery authorities
and gaming establishments throughout the world.
<PAGE>

                INSTANT TICKET VENDING MACHINE LOTTERY CONTRACTS

OVERVIEW: During fiscal 2004 we acquired Interlott Technologies, Inc.
("Interlott"), a leading provider of instant ticket vending machines ("ITVMs")
for the lottery industry worldwide. Similar to our online business, our ITVM
business is generally conducted under one of two types of contractual
arrangements which are described in more detail below: Facilities Management
Contracts and Product Sales Contracts.

FACILITIES MANAGEMENT CONTRACTS: Under a typical ITVM Facilities Management
Contract with a lottery authority, we build to specification, install, and
service ITVMs for an initial term which typically is four years. These contracts
usually contain options permitting the relevant lottery authority to extend the
contract under the same terms and conditions for additional periods, generally
ranging from one to three years. In addition, our ITVM customers occasionally
renegotiate extensions on different terms and conditions.

Historically, the majority of Interlott's Facilities Management Contracts have
been based on a compensation structure involving fixed monthly lease payments
paid directly by the lottery authorities. However, our recent ITVM Facilities
Management Contracts feature a compensation structure based upon a negotiated
percentage of the ITVM instant tickets sales revenues. Under our ITVM Facilities
Management Contracts, we retain title to the ITVMs, while providing our
customers with necessary support services. In most of our ITVM jurisdictions we
employ a dedicated work force, consisting of a Regional Service Manager,
marketing personnel, and customer service representatives who help service and
maintain most aspects of the ITVM program.

PRODUCT SALES CONTRACTS: Under a typical ITVM Product Sales Contract, for a
fixed price we construct, sell, deliver and install a turnkey ITVM system that
the lottery jurisdiction subsequently operates.

The table below sets forth the lottery authorities with which we currently have
ITVM Facilities Management Contracts ("FMCs"). This table also provides (except
where noted by footnote) historical information respecting the number of ITVMs
that are currently in service, under various ITVM Product Sales Contracts
("PSCs"). Finally, the table below sets forth information regarding the term of
each FMC, as well as the approximate number of ITVMs installed in each FMC
jurisdiction, as of the date hereof.

<PAGE>

<TABLE>
<CAPTION>
                                          DATE OF         DATE OF
               FMC    APPROXIMATE     COMMENCEMENT OF  EXPIRATION OF     CURRENT
               OR      NUMBER OF        CURRENT FMC     CURRENT FMC     EXTENSION
JURISDICTION   PSC  ITVMS IN SERVICE     CONTRACT      CONTRACT TERM     OPTIONS
------------   ---  ----------------  ---------------  -------------  -------------
<S>            <C>  <C>               <C>              <C>            <C>
Arizona        FMC         420             7/03             7/08           --
California     PSC       3,900              N/A              N/A          N/A
D.C.           FMC         100            12/01            12/05       1 one-year
Idaho          PSC         195              N/A              N/A          N/A
Illinois       FMC       3,245             6/04             9/10      1 three-year
Indiana        FMC       1,385             1/01             3/05           --
Iowa           FMC         400             1/01             3/05           --
Kentucky       PSC       1,250              N/A              N/A          N/A
Maine          FMC         150             9/04             8/07           --
Maryland       PSC         910              N/A              N/A           --
Massachusetts  PSC       1,575              N/A              N/A          N/A
Minnesota      (2)         110              N/A              N/A          N/A
Missouri       FMC         630             6/01             6/08       4 one-year
New Hampshire  FMC         220             7/00             6/05           --
New Jersey     (2)         210              N/A              N/A          N/A
New Mexico     FMC         160             5/97             6/07           --
New York       FMC       4,380             5/02             7/05           --
Ohio           FMC       1,500             7/03             6/05       2 two-year
Oregon         PSC         500              N/A              N/A          N/A
Pennsylvania   PSC       3,050              N/A              N/A          N/A
Rhode Island   (2)         100              N/A              N/A          N/A
Texas          FMC       1,400             9/03             9/06        2 one-year
Virginia (1)   PSC       1,600              N/A              N/A          N/A
Washington     FMC       1,010            11/04            11/07      1 three-year
West Virginia  PSC         110              N/A              N/A          N/A
Wisconsin      PSC         500              N/A              N/A          N/A
</TABLE>

<PAGE>

----------
(1)   The Virginia Lottery entered into a seven-year contract with Oberthur
      Gaming Technologies Corporation (OGT) under which GTECH has subcontracted
      to provide new ITVMs and management of warehousing and distribution of
      instant tickets.

(2)   Represents ITVMs installed under a GTECH Facilities Management Contract.
      See Facilities Management Contracts table above for additional
      information.

                             CONTRACT AWARD PROCESS

In the United States, lottery authorities generally commence the contract award
process by issuing a request inviting proposals from various lottery vendors.
The request for proposals usually indicates certain requirements specific to the
jurisdiction, such as the number of terminals and breadth of services desired,
the 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.

Our marketing efforts for our lottery products and services frequently involve
top management in addition to our 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 our lottery products and services to lottery authorities outside of
the United States is often performed in conjunction with licensees and
consultants with whom we contract for representation in specific market areas.
Although generally neither a condition of their contracts with us nor a
condition of their contracts with lottery authorities, such licensees and
consultants often agree with us to provide on-site services after installation
of the online lottery system.

After the expiration of the initial or extended contract term, a lottery
authority in the United States generally may either seek to 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.

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

                          ONLINE PRODUCTS AND SERVICES

A significant portion of our revenues and cash flow is derived from our
portfolio of long-term online lottery service contracts, each of which in the
ordinary course of our business periodically is the subject of competitive
procurement or renegotiation. Our lottery operations are dependent upon our
continued ability to retain and extend our existing contracts and win new
contracts.

Our 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

<PAGE>

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.

Our online 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 auditing 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 on redundant systems; 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 basic functions of our systems, which are 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

We design, manufacture and provide the point-of-sale terminals used in our
online lottery systems. Our model GT-101TF terminals, introduced in 1985, and
our model GT-401/OI terminals, introduced in 1989, are installed in numerous
jurisdictions. Our Spectra(R) terminal series (GT-401/0M, 402/0M and 403/OM),
first introduced in 1989, is distinguished by its modular internal and external
architecture.

Our ISYS terminal series (GT-501, 502 and 503), 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.

During fiscal 1999, we announced the introduction of the PlayerExpress(TM)
terminal, which was designed specifically for large retail environments, such as
grocery stores, with numerous checkout lanes.

During fiscal 1999, we also announced the launch of our Altura family of
terminals. Altura, which represents the initial offering of our ninth generation
of online lottery terminal, permits applications to be written in the Java
programming language, enabling the rapid development of a wide variety of games
that are compatible with numerous software environments. We have supplied Altura
terminals to a number of our customers.

The Altura LVT and Altura SST terminals are the newest additions to our Altura
family of terminals. The Altura LVT, which features a compact platform, touch
screen interface and expandable configuration, is designed to meet the needs of
retailers with low volumes of transactions. The Altura SST, a self-service
terminal, combines the functionality of instant ticket vending machines
("ITVMs") with the capability of selling online lottery products through a touch
screen interface.

<PAGE>

During fiscal 2004, we expanded our self-service terminal offerings with the
completion of our acquisition of Interlott Technologies, Inc. ("Interlott"), a
leading provider of ITVMs for the worldwide lottery industry. Interlott's EDS-Q
family of ITVMs offers flexibility and expandability (from a four to 24 game
capacity) as well as the industry's first transaction processing connectivity to
in-store lottery terminals and lottery authority central systems. We have
received our first order for a hybrid self-service product that we have
developed which we believe will combine the functionality of the ITVM and Altura
SST, enabling the sale of both instant tickets and online games.

During fiscal 2005, we completed the acquisition of Spielo Manufacturing
Incorporated ("Spielo"), a leading provider of video lottery terminals and
related products and services to the global gaming industry. We believe that
this acquisition will further expand our terminal offerings. The Spielo family
of terminals includes the Aura,(TM) a video lottery terminal that features a
high-resolution 18" flat screen color monitor, 16-bit digital stereo sound,
ergonomic design and powerful processor, and the Power Station 5,(TM) a video
lottery terminal that is designed to meet the needs of bar and restaurant
venues.

During fiscal 2005, we announced the development of GamePoint,(TM) our
all-in-one instant and online lottery terminal solution. The GamePoint terminal,
which dispenses both instant and online tickets, is completely self-contained
and provides a secure and player-friendly opportunity for the sale of instant
and online lottery products.

We are not dependent upon the use of our proprietary terminals and have the
ability to integrate into our online lottery systems qualified third party
terminals.

SOFTWARE. We design and provide, or license from third parties, all applications
solutions for our lottery systems. Our 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. Our ProSys(R) software system 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.

Our latest generation software system, the Enterprise Series(TM) , is a unique,
fully-open architecture that we believe provides a new industry standard for the
development, deployment, integration and support of next-generation online
lottery solutions, including those which permit sales of lottery products via a
secure infrastructure over the Internet, without compromising the integrity of
the games. The open system architecture of the Enterprise Series(TM) allows
lotteries the flexibility to continuously upgrade their lottery systems, and
integrate a broad spectrum of third party hardware and software solutions to
achieve greater performance. In March 2003 we announced the launch of a
certification process whereby third party technology vendors can be approved for
integration with the Enterprise Series platform. Under our Enterprise Series
certification process we have certified 4 third party vendors and 3 third party
vendors are pending review.

CENTRAL COMPUTERS. Each of our lottery systems contains one or more central
computer sites to which the lottery terminals are connected. Our central
computer systems are manufactured by Hewlett-Packard Company, Stratus Computer,
Inc. and IBM Corporation. The specifications for the configuration of our

<PAGE>

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
back-up power suppliers), which are all manufactured by third parties, and a
microcomputer-based communication and switching subsystem. In addition, we
supply management information systems that provide lottery personnel access to
important financial and operational data without compromising the security of
the online system. Based upon our development of our Enterprise Series(TM), we
will be able to integrate qualified third party software applications.

COMMUNICATIONS. Our 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, we have
developed the capability to utilize and interface with a wide range of
communications technologies to provide a data communications pathway between the
lottery terminals and the central computers, 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.

According to industry sources that we regard as reliable, we are the largest
global provider of wireless point-of-sale devices.

GAMES. An important factor in maintaining and increasing public interest in
lottery games is innovation in game design that aims to catch the eye and
interest of potential players. In conjunction with lottery authorities, we
utilize principles of demographics, sociology, psychology, mathematics and
computer technology to design customized lottery games which are intended to
appeal to the populations served by our lottery systems. The principal
characteristics of game design include: frequency of drawing, size of pool, cost
per play and setting of appropriate odds. We believe that our expertise in game
design has enhanced the marketing of our lottery systems and has contributed to
increases in the revenues of some of our customers.

Keno(TM), an online game which we, together with the Lotteries Commission of
South Australia, first introduced in 1990, exemplifies how innovative lottery
games can help our lottery customers maintain or increase public interest in
lottery games and thereby generate additional revenues. Keno(TM), features
online drawings as often as every four minutes and is currently offered by 24 of
our customers.

We currently have a substantial number of variations of lottery games in our
software library and new games under development. We believe that this game
library and the "know how" and experience accumulated by our professionals since
our inception make it possible for us to meet the requirements of our customers
for specifically tailored games on a timely and comprehensive basis.

During fiscal 2005, we entered into agreements with Hasbro Properties Group, the
intellectual property development arm of Hasbro, Inc. ("Hasbro"), and New Vision
Gaming, a company with extensive casino game development experience ("New
Vision"), that we believe will further strengthen our lottery game content
library. Under the Hasbro agreement, Hasbro grants to us a license to develop
and distribute select lottery products featuring Hasbro's Monopoly(TM) and
Battleship(TM) brands in the United States,

<PAGE>

Canada and Mexico, while our agreement with New Vision permits us to offer on an
exclusive basis two of New Vision's flagship games.

In February 2005, we obtained a five-year exclusive licensing agreement giving
us the right to utilize the names, likenesses, and signatures of premium racecar
drivers in connection with the HotTrax game.

During fiscal 2005, we introduced HotTrax,(R) a new three dimensional lottery
game that we developed, in Rhode Island. This race-based monitor game provides
players with an exciting opportunity to place every four or five minutes a
variety of wagers on the finishing order of racecars.

MARKETING. In United States jurisdictions in which we have been awarded a
lottery contract, we are 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,
we developed "GMark," a computerized marketing analysis system used to determine
favorable locations for new lottery terminals. The lottery authorities of
California, Florida, Georgia, Illinois, Kansas, Missouri, New York, Ohio, Rhode
Island, Texas and Washington currently utilize GMark systems, and many customers
contact the Market Research Group from time to time to obtain GMark services.

WARRANTY. We offer a product warranty on all of our manufactured products
(primarily terminals and related peripherals) sold to our customers. Although we
do not have a standard product warranty, our typical warranty provides that we
will repair or replace defective products for a period of time (usually a
minimum of 90 days) from the date revenue is recognized or from the date a
product is delivered and tested. We estimate product warranty costs that we
expect to incur during the warranty period and we record a charge to costs of
sales for the estimated warranty cost at the time the product sale is recorded.
In determining the appropriate warranty provision, consideration is given to
historical warranty cost information, the status of the terminal model in its
life cycle and current terminal performance. We periodically assess the adequacy
of our product warranty reserves and adjust them as necessary in the period when
the information necessary to make the adjustment becomes available.

We typically do not provide a product warranty on purchased products sold to our
customers but attempt to pass the manufacturer's warranty, if any, on to them.

NON-LOTTERY COMMERCIAL SERVICES

While transaction processing services for the online lottery industry remains
our core service offering, we have in recent years undertaken to capitalize on
the investments that we have made in secure, high-volume transaction processing
technology through development of additional applications, such as financial or
retail transaction processing. During fiscal 2005, revenues from non-lottery
commercial services accounted for approximately 7% of our consolidated revenues.

In May 2000, we signed a contract with Caixa Economica Federal, the operator of
Brazil's National Lottery, to include additional financial transaction services
(including bill and tax payment, social security contribution and traditional
banking transaction services) over our dedicated network infrastructure. See
Item 3, "Legal Proceedings - Brazilian Legal Proceedings," below. We are party
to

<PAGE>

agreements with more than 700 retailers in Chile to provide electronic bill
payment services at retail outlets throughout the country.

During fiscal 2003, we entered into an agreement with Supreme Ventures Limited,
a licensee operating certain online games in Jamaica, and Mossel Jamaica
Limited, a cellular telephone service provider in Jamaica ("Digicel") to provide
Digicel with a non-exclusive distribution network for the electronic sale of
personal identification numbers for cellular phone usage in Jamaica, thus
providing customers in Jamaica with the ability to place cellular telephone
calls using purchased minutes. During fiscal 2004, we acquired a controlling
equity position in PolCard S.A., a leading debit and credit card merchant
transaction acquirer and processor in Poland, and were awarded a two-year
contract extension by the Idaho Department of Fish and Game to continue to
provide products and services to operate Idaho's fish and game licensing system
through December 31, 2006. During fiscal 2005, PolCard completed the acquisition
of BillBird S.A., a leading provider of electronic bill payment services in
Poland.

PRODUCT DEVELOPMENT

We devote substantial resources in order to enhance our present products and
systems and develop new products. In fiscal 2005, we spent approximately $52.6
million on research and development, as compared to $57.3 million in fiscal
2004, and $42.9 million in fiscal 2003.

INTELLECTUAL PROPERTY

Historically, we generally have not sought to obtain patents on our products,
believing that our technical "know-how," trade secrets and the creative skills
of our personnel would be of substantially more importance to our success than
the benefit which patent protection ordinarily would afford. As we continue to
advance the development of new technological solutions, we have decided to
pursue comprehensive intellectual property protection, including patents where
appropriate, for these solutions. We are currently pursuing protection of some
of our newest advances in technology and gaming, including our Enterprise
Series(TM), a unique, fully-open, integrated solution which includes the ability
to distribute lottery games via a secure infrastructure over the Internet,
without compromising the integrity of the games. We have obtained patent
protection in certain of our key business methods in the areas of infrastructure
systems, terminal improvements and creative game design. These use-related
patents will provide legal protection in the U.S. for the next 18 to 20 years.

PRODUCTION, ASSEMBLY AND COMPONENTS

We purchase most of the parts, components and subassemblies necessary for our
terminals and other products from outside sources. We assemble these parts,
components and subassemblies into finished products in our manufacturing
facility where we also conduct all of our quality testing. We offer central
systems manufactured by Hewlett-Packard Company, Stratus Computer, Inc. and IBM
Corporation for our lottery systems. We do not manufacture any central system
components. We have approximately three material sole source vendors. The loss
of any of those vendors might result in material additional costs and/or
manufacturing delays.

<PAGE>

BACKLOG

The backlog of our orders for sales of our products, which are supported by
signed contracts with our customers and which are believed by us to be firm,
amounted to approximately $143.7 million as of February 26, 2005, as compared to
a backlog of approximately $166.7 million as of February 28, 2004. The decrease
in the backlog is due to a lower level of product sales expected to be
consummated in fiscal year 2006. Approximately $79.5 million, or 55.3% of the
backlog at February 26, 2005, is expected to be filled during fiscal 2006.

COMPETITION

The online lottery industry has faced increased competition in recent years for
the consumers' entertainment dollar, including from a proliferation of
destination gaming venues, and an increased availability of Internet gaming
opportunities. In addition, in recent years, there has been increased
competition among domestic and international participants in the online lottery
industry. The online lottery business is highly competitive in the United States
and internationally. Both in the United States and internationally, price is an
increasingly 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 2005, our principal competitors in the online lottery business
(and the number of online lottery contracts serviced worldwide by such
competitors) were as follows: Scientific Games Corporation (including the
business formerly known as Automated Wagering International, Inc., and IGT
Online Entertainment Systems, Inc.) (33); Essnet (22); and Intralot S.A. (20).

PERSONNEL

As of April 1, 2005, we had approximately 5,300 full-time employees worldwide.
The vast majority of our domestic employees is not represented by any labor
union. We believe that our relationship with our employees is satisfactory.

ITEM 2. PROPERTIES

Our world headquarters and research and development and main production facility
are located in our approximately 260,000 square foot building on approximately
26 acres in West Greenwich, Rhode Island, which we lease from West Greenwich
Technology Associates, L.P. Prior to February 1, 2005 we had a 50% limited
partnership interest in this partnership. On February 1, 2005, we acquired the
remaining 50% interest in, and presently own 100% of, West Greenwich Technology
Associates, L.P. We also own approximately 24 acres adjoining our headquarters
in West Greenwich, Rhode Island. In May 2003, we entered into a Master Contract
with the Rhode Island Lottery that, among other matters, relates to the
development of a new world headquarters facility containing at least 210,000
square feet in Providence, Rhode Island by December 31, 2006. See Note 8 to
Notes to Consolidated Financial

<PAGE>

Statements for further information respecting the planned relocation of our
World Headquarters to Providence, Rhode Island, and certain related matters.

We also own an approximately 140,000 square foot manufacturing and central
storage facility in Coventry, Rhode Island.

Except in New York State, where we own our back-up data center facility, we
lease, or are supplied by the relevant state authorities with, our data center
facilities in the various jurisdictions. We also lease office, depot maintenance
and warehouse space in a number of other locations.

In addition, our subsidiary, Spielo Manufacturing, Inc., owns an approximately
113,000 square foot office building in Moncton, Canada, and leases an
approximately 31,000 square foot manufacturing and warehouse facility in
Saint-Anne-des-Monts, Canada.

Our facilities are in good condition and are adequate for our present needs.

ITEM 3. LEGAL PROCEEDINGS

BRAZILIAN LEGAL PROCEEDINGS

                          THE CEF CONTRACT PROCEEDINGS

BACKGROUND. In January 1997, Caixa Economica Federal ("CEF"), the Brazilian bank
and operator of Brazil's National Lottery, and Racimec Information Brasileira
S.A. ("Racimec"), the predecessor of the Company's subsidiary GTECH Brasil Ltda.
("GTECH Brazil"), entered into a four-year contract pursuant to which GTECH
Brazil agreed to provide online lottery services and technology to CEF (the
"1997 Contract"). In May 2000, CEF and GTECH Brazil terminated the 1997 Contract
and entered into a new agreement (the "2000 Contract") obliging GTECH Brazil to
provide lottery goods and services and additional financial transaction services
to CEF for a contract term that, as subsequently extended, was scheduled to
expire in April 2003. In April 2003, GTECH Brazil entered into an agreement with
CEF (the "2003 Contract Extension") pursuant to which: (a) the term of the 2000
Contract was extended into May 2005, and (b) fees payable to GTECH Brazil under
the 2000 Contract were reduced by 15%.

CEF recently completed a procurement process for products and services to
replace those that we currently provide under the 2000 Contract. Based upon the
commodity auction nature of the procurement process and the revenue restrictions
that were then imposed on us by the courts, we elected not to participate in the
bid process. CEF has also announced that it is developing its central system
in-house. As provided in the 2000 Contract, CEF may elect to extend the 2000
Contract for one year beyond its scheduled May 2005 termination date on its
existing terms and conditions. In addition we are currently involved in
negotiations with CEF respecting the possible extension of the term of the 2000
Contract for the provision of goods and services by us after the scheduled
termination date of the 2000 Contract. There can be no assurance that CEF will
elect to extend the 2000 Contract for an additional year on its existing terms
and conditions, or that CEF and GTECH Brazil will reach agreement to extend the
term of the 2000 Contract on other terms.

Revenues from the 2000 Contract accounted for approximately 7.2% of our total
revenues for fiscal 2005, making CEF our second largest customer in fiscal 2005
based on revenues.

<PAGE>

CRIMINAL ALLEGATIONS AGAINST CERTAIN EMPLOYEES AND RELATED SEC INVESTIGATION. As
previously reported, in late March 2004 federal attorneys with Brazil's Public
Ministry (the "Public Ministry Attorneys") recommended that criminal charges be
brought against nine individuals, including four senior officers of CEF, Antonio
Carlos Rocha, the former Senior Vice President of Holdings and President of
GTECH Brazil; and Marcelo Rovai, GTECH Brazil's marketing director.

The Public Ministry Attorneys had recommended that Messrs. Rocha and Rovai be
charged with offering an improper inducement in connection with the negotiation
of the 2003 Contract Extension, and co-authoring, or aiding and abetting,
certain allegedly fraudulent or inappropriate management practices of the CEF
management who agreed to enter into the 2003 Contract Extension. No other
present or former employee of the Company or GTECH Brazil has been implicated by
the Public Ministry Attorneys. Neither the Company nor GTECH Brazil is the
subject of this criminal investigation, and under Brazilian law (which provides
that criminal charges may not be brought against corporations or other
entities), we cannot be subject to criminal charges in connection with this
matter.

As previously reported, during the second quarter of fiscal 2005, the judge
reviewing these charges prior to their being filed refused to initiate the
criminal charges against the nine individuals, including against Messrs. Rocha
and Rovai, but instead granted a request by the Brazilian Federal Police to
continue the investigation which had been suspended upon the recommendation of
the Public Ministry Attorneys that criminal charges be brought.

The Brazilian Federal Police subsequently ended their investigation and
presented a final report of their findings to the court. This final report does
not recommend that indictments be issued against Messrs. Rocha or Rovai, or
against any current or former employee of the Company.

As previously reported, we cooperated fully with the investigation by Brazilian
authorities respecting this matter, and encouraged Messrs. Rocha and Rovai to do
the same.

In addition, as previously reported, we conducted an internal investigation of
the 2003 Contract Extension under the supervision of the independent directors
of GTECH Holdings Corporation. Our investigation did not reveal any reason to
believe that any of our present or former employees had committed any criminal
offenses alleged by the Public Ministry Attorneys.

Notwithstanding the favorable resolution of the Brazilian Federal Police
investigation and the favorable results of our own internal investigation
respecting the 2003 Contract Extension, there can be no assurance that (a) the
Public Ministry Attorneys will not once again recommend to the judge hearing
this case that such criminal charges be initiated against Messrs. Rocha and
Rovai, (b) the Brazilian Federal Police will not broaden their investigation to
include the award of, and performance under, the 1997 Contract and 2000
Contract, or (c) new criminal charges will not be initiated against Messrs.
Rocha and Rovai or additional individuals.

As previously reported, the United States Securities and Exchange Commission
(the "SEC") is undertaking a formal investigation into the Brazilian criminal
allegations against Messrs. Rocha and Rovai and the Company's involvement in
this matter. The Company has been cooperating fully with the SEC.

<PAGE>

To date we have found no evidence that the Company, or any of its employees, has
violated any United States law, or is otherwise guilty of any wrongdoing in
connection with this matter.

In light of the fact that our reputation for integrity is an important factor in
our business dealings with lottery and other governmental agencies, an
allegation or finding of improper conduct that is attributable to us could have
a material adverse effect on our business, both within Brazil and elsewhere,
including our ability to retain existing contracts or to obtain new or renewal
contracts. See Item 1, "Certain Factors That May Affect Future Performance,"
above.

CIVIL ACTION BY THE PUBLIC MINISTRY ATTORNEYS. As previously reported, in April
2004 the Public Ministry Attorneys initiated a civil action in the Federal Court
of Brasilia against GTECH Brazil; 17 former officers and employees of CEF; the
former president of Racimec; Antonio Carlos Rocha; and Marcos Andrade, another
former officer of GTECH Brazil. The focus of this civil action is the
contractual relationship between CEF, GTECH Brazil and Racimec during the period
1994 to 2002. This civil action alleges that the defendants acted illegally in
entering into, amending and performing, the 1997 Contract, and the 2000
Contract, and seeks to invalidate the 2000 Contract, which, as extended by the
2003 Contract Extension, is still in force.

As previously reported, this lawsuit also seeks to impose damages equal to the
sum of all amounts paid to the Company under the 1997 Contract and the 2000
Contract, and certain other permitted amounts, minus our proven investment
costs. The applicable statute also permits the assessment of penalties, in the
discretion of the court, of up to three times the amount of the damages imposed.
We estimate that through the date of the lawsuit we received under the 1997
Contract and the 2000 Contract a total of 1.5 billion Brazilian reals (or
approximately 500 million United States dollars). In addition, although it is
unclear how investment costs would be determined for purposes of this lawsuit,
we estimate that our investment costs through the date of the lawsuit were
approximately between 1.2 billion and 1.4 billion Brazilian reals (or
approximately between 400 million and 465 million United States dollars) in
aggregate; however, these investment costs could be disputed by CEF, and are
ultimately subject to approval by the court.

As previously reported, we believe we have good and adequate defenses to the
claims made in this lawsuit. We intend to defend ourselves vigorously in these
proceedings, which, we have been advised by our Brazilian counsel, are likely to
take several years, and could take as long as 10 to 15 years in certain
circumstances, to litigate through the appellate process to final judgment. It
is our position that we were appropriately awarded the 1997 Contract by CEF
after a competitive procurement, and that at all times since 1997 we have been
appropriately compensated for services performed under valid contracts with the
CEF.

While we cannot rule out the possibility that the Company will ultimately be
held liable in this matter, or estimate the amount of such liability in such
event, we believe that the outcome of this lawsuit is not likely to have a
material impact on our financial statements or business.

As previously reported, in June 2004, the Federal Court of Brasilia granted a
procedural injunction in connection with this civil matter which ordered that
30% of payments made subsequent to the date of the injunction to GTECH Brazil by
CEF under the 2000 Contract be withheld and deposited into an account maintained
by the Court. As of February 26, 2005, the total amount withheld and deposited
into an account pursuant to this ruling was approximately 68 million Brazilian
reals, or 26 million United States

<PAGE>

dollars. This injunction also put in place restrictions that effectively
prevented the transfer or sale of the Company's Brazilian assets, including the
share capital of GTECH Brazil, with certain limited exceptions. The injunction
was granted as part of a confidential ex parte proceeding in which we were not
afforded an opportunity to participate.

We filed an appeal respecting the court's grant of this injunction in July 2004.
On March 22, 2005, a panel of judges of the Brazilian Federal Court of Appeals
heard our appeal of the procedural injunction granted by the Federal Court of
Brasilia and issued an order: (a) discontinuing the withholding of payments due
to GTECH Brazil from CEF that had been mandated by the procedural injunction,
(b) removing the procedural injunction's restrictions on the transfer or sale of
the Company's Brazilian assets, and (c) requiring the return to GTECH Brazil of
amounts in excess of 40 million Brazilian reals held in escrow pursuant to the
procedural injunction, thereby permitting the return to GTECH of approximately
11 million United States dollars of the 26 million United States dollars held in
escrow as of the end of fiscal 2005. The appeals court also ordered that 40
million Brazilian reals continue to be held in escrow, and that the procedural
injunction's requirements that defendants report assets to the court, and that
the Brazilian Central Bank report any transaction associated with these assets,
be maintained. This order of the Brazilian Federal Court of Appeals may be
appealed by the Brazilian Public Attorneys.

POPULAR CLAIM. As previously reported, in February 2004, Vincius Bijos, a
Brazilian, commenced a public class action lawsuit in Brazil's Brasilia District
Court of the Federal District against the Brazilian Federal government; CEF;
several former and current officers of CEF; the former president of Racimec; and
GTECH Brazil, seeking, among the relief requested of the Court, a preliminary
injunction prohibiting CEF from making further payments to GTECH Brazil under
the 2000 Contract, and an order that would terminate the 2000 Contract and
require the defendants, jointly and severally, to refund amounts received by
GTECH Brazil under the 1997 Contract and the 2000 Contract, together with
interest, appropriate monetary adjustments, court costs and expenses. This
public class action lawsuit bases its claims upon numerous alleged defects and
irregularities, which the suit asserts violate Brazilian law, in the 1997
Contract and the 2000 Contract, and the manner in which the procurement
processes that gave rise to the awards of these contracts were organized and
administered. We intend to mount a vigorous challenge to the far-reaching claims
that make up this lawsuit. We note that the Public Ministry Attorneys have filed
an opinion with the federal court disagreeing with the request that an
injunction enjoining payments from CEF to GTECH Brazil be entered and requesting
that this suit be consolidated with the Public Ministry Attorneys' civil action
described above.

While we cannot rule out the possibility that the Company will ultimately be
held liable in this matter, or estimate the amount of such liability in such
event, we believe that the outcome of this lawsuit is not likely to have a
material impact on our financial statements or business.

TCU AUDIT. As previously reported, in June 2003, the Federal Court of Accounts
("TCU"), the court charged with auditing agencies of the Brazilian federal
government and its subdivisions, summoned us, together with several current and
former employees of the CEF to appear before TCU's Brasilia court. The summons
required the defendants to show cause why they should not be required to jointly
pay a base amount determined on a preliminary basis by the TCU to be due of
R$91,974,625, duly indexed for inflation and interest as of May 26, 2000
(Decision No. 692/2003). We estimate that this claim, in aggregate, is for the
local currency equivalent of approximately 87.6 million United States dollars at
exchange rates in effect as of February 26, 2005. The allegations underlying
this summons are set forth

<PAGE>

in a report (the "Audit Report") issued by the TCU in May 2003 respecting an
audit conducted by the TCU of the 1997 Contract.

The central allegation of the Audit Report is that under the 1997 Contract we
were accorded certain payment increases, and we contracted to supply to CEF
certain services, that were not contemplated by the procurement process
respecting the 1997 Contract and that are not otherwise permitted under
applicable Brazilian law. The Audit Report alleges that as a result of this, CEF
overpaid us under the 1997 Contract for the period commencing in January 1997
through May 26, 2000, and that we are liable with respect to such alleged
overpayments as specified above. The Audit Report states that the TCU will refer
the Audit Report to, among others, the Public Ministry Attorneys and the Brazil
Federal Police (who, we have been advised, are conducting an investigation of
CEF's public procurement activities in general). See - "Criminal Allegations
Against Certain Employees and Related SEC Investigation" and "Civil Action by
Public Ministry Attorneys," above. The Audit Report does not allege that we have
acted improperly.

In November 2003, we presented our defense to the claims and preliminary
determination of the TCU that CEF had overpaid us. In light of our defense, in
September 2004, the TCU reduced its determination of the amount alleged to have
been overpaid to us by CEF under the 1997 Contract from R$91,974,625 to
R$30,317,721, or approximately 28.9 million United States dollars at exchange
rates in effect as of February 26, 2005. This determination by the TCU remains
subject to approval by TCU's judges.

We plan to continue to vigorously defend ourselves against the allegations made
by TCU in the Audit Report and the proceedings initiated by the TCU with respect
thereto. We believe that we have good defenses to the claims and determinations
of the TCU. We further believe that the claims and determinations of the Audit
Report have, in essence, been merged into the civil action instituted by the
Public Ministry Attorneys described above, and are accordingly unlikely to
represent an independent potential source of liability for us. While we are
unable to rule out the possibility that the Company will ultimately be held
liable in this matter, we believe that the outcome of this matter is not likely
to have a material impact on our financial statements or business.

                                  SERLOPAR SUIT

As previously reported, in April 2002 Serlopar, the lottery authority for the
Brazilian state of Parana, sued our subsidiaries Dreamport Brasil Ltda. and
GTECH Brazil in the 2nd Public Finance Court of the City of Curitiba, State of
Parana, under an agreement dated July 31, 1997, as amended (the "VLT
Agreement"). Pursuant to the VLT Agreement, we agreed to install and operate
video lottery terminals ("VLTs") in Parana. Serlopar alleges in its suit that we
installed only 450 of the 1,000 VLTs that we were allegedly obliged to install,
and that we were overpaid, and failed to reimburse Serlopar certain amounts
alleged to be due to Serlopar, under the VLT Agreement. Serlopar seeks payment
from us of approximately 40 million United States dollars (at exchange rates in
effect on February 26, 2005) with respect to these claims, together with
unspecified amounts alleged to be due from the defendants with respect to
general losses and damages (including loss of revenues) and court costs and
legal fees. We believe we have good defenses to the claims made by Serlopar in
this lawsuit, and we intend to continue

<PAGE>

to defend ourselves vigorously in these proceedings. We believe that the outcome
of this suit will not have a material impact on our financial statements or
business.

OTHER LEGAL PROCEEDINGS

                         ARGENTINA MONEY TRANSFER MATTER

In February 2005, GTECH Foreign Holdings Corporation, Argentina Branch ("GFHC")
and our Argentina legal counsel, Dr. Jorge Perez of Perez, del Barba and
Rosenblum, received notification from the Central Bank of Argentina that they
were being indicted for alleged violations of Argentina's currency exchange
laws. The Argentina laws in question prohibit the transfer of foreign currency
from Argentina, subject to certain exceptions not here relevant. At issue is a
February 2002 agreement (the "BofA Agreement") between GFHC and Bank of America,
N.A., Buenos Aires Branch ("BofA") pursuant to which BofA assigned to GFHC a
certificate of deposit in the amount of 571,429 United States dollars (the
"CD"), issued by Bank of America, Charlotte, North Carolina Branch ("BofA-North
Carolina"), in consideration for the payment of 1.4 million Argentina pesos.
Upon maturity of the CD, the agreement provided for BofA-North Carolina to pay
571,429 United States dollars to a GFHC branch bank account in the United
States. We understand that the central claim of the Argentina Central Bank's
indictment will be that GFHC's agreement with BofA was a transaction in which
foreign currency was transferred, in essence, from Argentina to the United
States in violation of applicable Argentina law.

If GFHC is found guilty of violating applicable Argentina currency exchange
laws, as charged in the indictment, we would be liable to pay a fine of up to
approximately 5.7 million United States dollars (i.e., ten times the amount of
United States dollars allegedly transferred from Argentina) and could be
prohibited for up to ten years from importing goods into, or exporting goods
from, Argentina.

We note that BofA, which solicited GTECH to enter into the BofA Agreement, and
approximately 20 other customers of BofA including several subsidiaries of large
multi-national corporations, have been indicted in connection with transactions
similar to the transaction outlined in the BofA Agreement. BofA explicitly
represented to us in the BofA Agreement that the transaction described therein
did not violate any Argentina law or regulation, and we believe that we took
appropriate measures independent of this representation (including obtaining the
opinion of local counsel) in advance of entering into the BofA Agreement to
ascertain that this transaction was legal under applicable Argentina law.

We believe that we have good defenses to the claims made on the indictment, and
we intend to vigorously defend ourselves in these proceedings. We do not believe
that the outcome of this suit will have a material impact on our financial
statements or business.

                                   COHEN SUIT

As previously reported, on August 7, 2002 we terminated without cause the
employment of Howard S. Cohen, our former President and Chief Executive Officer.
In March 2003, Mr. Cohen attempted to exercise options granted by us in April
2002 to purchase (on a pre-split adjusted basis) 450,000 shares of our Common
Stock at a per-share exercise price of $23.30. The non-qualified stock option
agreement entered into between Mr. Cohen and us respecting the April 2002 grant
of options provides by its terms that, in the event that Mr. Cohen's employment
was terminated without cause, options remaining exercisable must be exercised
within six months from the date of termination (i.e., by February 7, 2003).

<PAGE>

Because Mr. Cohen had failed to exercise his April 2002 options within the term
provided in the applicable stock option agreement, we did not permit Mr. Cohen
to exercise these options. In May 2003, Mr. Cohen filed suit in Rhode Island
Superior Court against us and the attorneys who had advised him in connection
with the negotiation of his severance agreement, respecting his attempt to
exercise the April 2002 stock options. The suit, captioned Howard S. Cohen v.
GTECH Corporation, GTECH Holdings Corporation, Michael J. Tuchman, Levenfeld
Pearlstein, Charlene F. Marant and Marant Enterprises Holdings LLC, alleges
that: (i) we breached our agreements with Mr. Cohen in failing to allow him to
exercise his April 2002 options; (ii) through fraud by us, or the mutual mistake
of the parties, the April 2002 option grant does not reflect the intent of the
parties, and (iii) we had a duty to advise Mr. Cohen of his mistaken belief (if
such it was) as to the exercise term of the April 2002 options, and failed to so
advise Mr. Cohen. Mr. Cohen also alleges that his attorneys had failed in their
duty of care in misadvising him as to the correct period during which he could
exercise his options, and, in addition, had practiced law in Rhode Island
without a license in violation of applicable Rhode Island law. Mr. Cohen seeks
damages against us and the other defendants in an amount of not less than 4.0
million United States dollars, plus interest, costs and reasonable attorneys
fees. With respect to us, he also seeks an order reforming the terms of the
April 2002 option grant to reflect the alleged intent of the parties with
respect to the post-termination exercise term, and other equitable relief. Mr.
Cohen also asks for a declaratory judgment construing our 2000 Omnibus Stock
Option and Long Term Incentive Plan and Mr. Cohen's employment and severance
agreements, as to the relevant option exercise period. We believe that we have
good defenses to the claims made by Mr. Cohen in this lawsuit and we intend to
vigorously defend ourselves in these proceedings. Nevertheless, at the present
time we are unable to predict the outcome of this lawsuit.

For further information respecting legal proceedings, see Item 1, "Certain
Factors Affecting Future Performance" and Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," of this report, and
Item 8, Note 14 to Notes to Consolidated Financial Statements included in this
report. We also are subject to certain other legal proceedings and claims which
management believes, on the basis of information presently available to it, will
not materially adversely affect our consolidated financial position or results
of operations.

<PAGE>

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

No matters were submitted to a vote of the security holders of GTECH Holdings
Corporation ("Holdings") during the last quarter of fiscal 2005.

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

The Executive Officers of Holdings as of April 1, 2005 were:

<TABLE>
<CAPTION>
        Name        Age                  Position
------------------  ---  ----------------------------------------
<S>                 <C>  <C>
W. Bruce Turner      45  President and Chief Executive Officer
                         since August 2002. Mr. Turner, who is
                         also a Director of Holdings, was elected
                         the Chairman of Holdings by the Board in
                         July 2000, and subsequently served as
                         Holdings' acting Chief Executive Officer
                         from August 2000 through March 2001.
                         Previously, Mr. Turner was an
                         independent consultant and private
                         investor from February 1999 to July
                         2000. Mr. Turner was a Managing
                         Director, Equity Research, for Salomon
                         Smith Barney (formerly Salomon Brothers)
                         from January 1994 until February 1999;
                         and Director, Leisure Equity Research
                         for Raymond James & Associates from
                         October 1989 until January 1994.

Marc A. Crisafulli   36  Senior Vice President, Gaming Solutions
                         since December 2003; Senior Vice
                         President, General Counsel and Secretary
                         since March 2001 and Chief Compliance
                         Officer since September 2001.
                         Previously, Mr. Crisafulli was an
                         associate (from September 1994 through
                         June 2000) and a partner (from July 2000
                         through March 2001) of the
                         Providence-based law firm of Edwards &
                         Angell, LLP where he practiced as a
                         commercial trial lawyer.

Walter G. DeSocio    50  Senior Vice President, General Counsel
                         and Secretary since January 2005.
                         Previously, Mr. DeSocio served from September
                         2002 to December 2004 as Chief Administrative
                         Officer, General Counsel, and Corporate
                         Secretary at Internap Network Services
                         Corporation, the leading provider of
                         intelligent routing services over the
                         Internet. Prior to joining Internap, Mr.
                         DeSocio served from June 1999 to September
                         2002 as General Counsel and Senior Vice
                         President of Regulatory Affairs at
                         Concert B.V., the multi-billion dollar
                         global communications business owned by
                         AT&T and BT Group, and from June 1996 to
                         June 1999, as AT&T's Chief Regional
                         Counsel for Europe, Middle East, and
                         Africa.

Timothy B. Nyman     54  Senior Vice President of Global Services
                         since October 2002. Previously,
                         beginning in 1981, Mr. Nyman was
                         employed by the
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
        Name        Age                  Position
------------------  ---  ----------------------------------------
<S>                 <C>  <C>
                         Company in a series of
                         increasingly responsible positions
                         including, through September 2002, as
                         the Company's Vice President of Client
                         Services.

Jaymin B. Patel      37  Senior Vice President and Chief
                         Financial Officer since January 2000.
                         Previously, beginning in 1994, Mr. Patel
                         was employed by the Company in a series
                         of increasingly responsible positions
                         including, from April 1998 until January
                         2000, as GTECH's Vice President,
                         Financial Planning and Business
                         Evaluation. Prior to his arrival at the
                         Company, Mr. Patel served as a Chartered
                         Accountant with PriceWaterhouse in
                         London.

Donald R. Sweitzer   57  Senior Vice President, Global Business
                         Development & Public Affairs, since
                         February 2003. Mr. Sweitzer joined the
                         Company in July 1998 as its Senior Vice
                         President, Government Relations, and
                         later served as the Company's Senior
                         Vice President, Public Affairs, through
                         January 2003. Previously, Mr. Sweitzer
                         was President of the Dorset Resource and
                         Strategy Group, a government affairs
                         consultancy, from November 1996 through
                         June 1998, and President and Managing
                         Partner of Politics Inc., a political
                         consulting firm, from January 1995
                         through August 1996. Mr. Sweitzer also
                         served as the Political Director of the
                         Democratic National Committee from April
                         1993 through January 1995, and served as
                         the Finance Director of this same body
                         from April 1985 through January 1989.

Barbara Burns        55  Senior Vice President of Human Resources
                         from December 2004 until her resignation
                         in April 2005. Ms. Burns had previously
                         been employed by the Company since
                         December 2000 as a Vice President of
                         Human Resources. Prior to this, Ms. Burns
                         served as a Vice President of Human
                         Resources at Siemens, A.G., one of the
                         world's leading electrical engineering and
                         electronics companies (from 1999 to 2000);
                         and Ryder System, Inc., a leading provider
                         of transportation, logistics and supply
                         chain management (during 1999).
                         Previously Ms. Burns had been employed
                         in a human resources capacity by
                         computer companies Compaq Computer
                         Corporation and Digital Equipment
                         Corporation (from 1979 until 1998). In
                         April 2005, Ms. Burns resigned from the
                         Company effective April 22, 2005.

David J. Calabro     55  Executive Vice President and Chief
                         Operating Officer from October 2002
                         Executive Vice through May 15, 2005, the
                         announced date of his retirement. Mr.
                         Calabro previously served as the
                         Company's President, Global Operations,
                         from October 2001, and Senior Vice
                         President with responsibility for the
                         Company's worldwide facilities management
                         business, from March 1999. Prior to this
                         Previously, Mr. Calabro was employed by Unisys
                         Corporation, a leading provider of
                         information technology, from May 1995
                         through February 1999 as its Vice
                         President and General Manager of the
                         United States and Canada Public Sector
                         Market Group, and prior to that, was
                         Director of Business Operations
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
        Name        Age                  Position
------------------  ---  ----------------------------------------
<S>                 <C>  <C>
                         (Government Systems Group) from August
                         1987 through April 1995 for Digital
                         Equipment Corporation, a leading
                         supplier of computer goods and services.
                         On April 6, 2005, Holdings announced
                         that Mr. Calabro had elected to retire
                         from the Company with effect from May
                         15, 2005.
</TABLE>

Executive officers and other officers are elected or appointed by, and serve at
the pleasure of, the Board of Directors. Some are party to employment contracts
with the Company. The information set forth above reflects positions held with
Holdings except as expressly provided to the contrary.

<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
        ISSUER PURCHASES OF EQUITY SECURITIES

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.

All share prices set forth below reflect the 2-for-1 stock split of the Common
Stock effected in the form of a stock dividend distributed during the second
quarter of fiscal 2005.

<TABLE>
<CAPTION>
                      FISCAL 2005                        HIGH     LOW
------------------------------------------------------  ------  ------
<S>                                                     <C>     <C>
First Quarter (February 29 - May 29, 2004)              $31.49  $24.34
Second Quarter (May 30 - August 28, 2004)               $27.57  $19.65
Third Quarter (August 29 -  November 27, 2004)          $25.32  $22.26
Fourth Quarter (November 28, 2004 - February 26, 2005)  $28.42  $23.01
</TABLE>

<TABLE>
<CAPTION>
                      FISCAL 2004                        HIGH     LOW
------------------------------------------------------  ------  ------
<S>                                                     <C>     <C>
First Quarter (February 23 - May 24, 2003)              $18.48  $13.40
Second Quarter (May 25 - August 24, 2003)               $20.95  $16.65
Third Quarter (August 24 - November 22, 2003)           $24.55  $20.03
Fourth Quarter (November 23, 2003 - February 28, 2004)  $30.12  $23.71
</TABLE>

The closing price of the Common Stock on the New York Stock Exchange on April
15, 2005 was $23.77. As of April 15, 2005, there were approximately 745 holders
of record of the Common Stock.

Prior to July 2003, Holdings had never paid cash dividends on its Common Stock.
Commencing in July 2003 with respect to the second quarter of fiscal 2004,
Holdings has paid a quarterly cash dividend to its shareholders in the amount
(adjusted for the fiscal 2005 stock split) of $0.085 per share. Due to the fact
that Holdings is a holding company, and its operations are conducted through the
Company, the ability of Holdings to pay dividends on its Common Stock in the
future will be dependent on the earnings and cash flow of its subsidiaries, and
the availability of such cash flow to Holdings.

<PAGE>

The following table presents information regarding purchases by Holdings of
shares of its Common Stock, par value $.01 per share (the "Shares") made during
the three months ended February 26, 2005.

<TABLE>
<CAPTION>
                                                                                     (d) Approximate
                                                                                     Dollar Value of
                    (a) Total Number  (b) Average   (c) Total Number of Shares     Shares that May Yet
                       of Shares      Price Paid   Purchased as Part of Publicly    Be Purchased Under
      Period           Purchased       per Share    Announced Plans or Programs   the Plans or Programs
------------------  ----------------  -----------  -----------------------------  ---------------------
<S>                 <C>               <C>          <C>                            <C>
   November 28,           9,000         $23.63                 9,000                   $99,250,865
 2004 to January 1
      , 2005

January 2, 2005 to      406,500         $23.48               406,500                   $89,708,072
  January 29, 2005

 January 30, 2005       437,900         $23.67               437,900                   $79,342,319
  to February 26,
        2005
                        -------                              -------
       Total            853,400                              853,400
                        -------                              -------
</TABLE>

On November 2, 2004, we publicly announced that our Board of Directors
authorized a program for Holdings to purchase up to an aggregate of $100 million
of its outstanding Common Stock through February 25, 2006, pursuant to which
these Shares were purchased.

The remainder of the response to this Item incorporates by reference Item 8,
Note 18 to Notes to Consolidated Financial Statements. All securities reflected
in Note 18 are authorized for insurance under compensation plans previously
approved by Holdings' shareholders.
<PAGE>

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 in this report. With the exception of the number
of lottery customers at year end, the data in the table is derived from our
audited consolidated financial statements.

<TABLE>
<CAPTION>
                                                                                   Fiscal Year Ended
                                                       -------------------------------------------------------------------------
                                                       February 26,    February 28,   February 22,   February 23,   February 24,
                                                           2005          2004 (a)         2003           2002           2001
                                                       ------------   -------------   ------------   ------------   ------------
                                                                    (Dollars in thousands, except per share amounts)
<S>                                                    <C>            <C>             <C>            <C>            <C>
OPERATING DATA:
Revenues:
   Services                                            $  1,017,683   $     957,471   $    868,896   $    831,787   $    856,475
   Sales of products                                        239,552          93,859        109,894        177,914         80,068
                                                       ------------   -------------   ------------   ------------   ------------
      Total                                               1,257,235       1,051,330        978,790      1,009,701        936,543

Gross Profit:
   Services                                                 401,050         419,632        333,855        245,479        292,380
   Sales of products                                         81,578          34,633         30,951         41,462          5,224
                                                       ------------   -------------   ------------   ------------   ------------
      Total                                                 482,628         454,265        364,806        286,941        297,604

Special charges (credit) (b)                                     --              --         (1,121)            --         42,270
Operating income                                            312,816         287,855        226,945        134,350         81,905
Net income                                                  196,394         183,200        142,021         68,026         43,148

PER SHARE DATA: (C)
Basic                                                  $       1.68   $        1.57   $       1.24   $       0.58   $       0.31
Diluted (d)                                                    1.50            1.40           1.11           0.51           0.31

CASH DIVIDENDS DECLARED PER COMMON SHARE               $       0.34   $       0.255   $         --   $         --   $         --

DIVIDENDS PAID                                         $     39,830   $      29,977   $         --   $         --   $         --

BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents                              $     94,446   $     129,339   $    116,174   $     35,095   $     46,948
Investment securities available-for-sale                    196,825         221,850             --             --             --
Total assets                                              1,855,141       1,559,131        954,195        853,829        938,160
Long-term debt, less current portion                        726,329         463,215        287,088        329,715        316,961
Shareholders' equity                                        655,768         562,289        315,566        202,955        314,362

CASH FLOW DATA:
Net cash provided by operating activities              $    375,209   $     415,067   $    332,256   $    345,230   $    251,970
Net cash used for investing activities                     (429,582)       (612,459)      (158,608)      (164,726)      (162,566)
Net purchases (maturities) of available-for-sale
   investment securities                                    (25,025)        221,850             --             --             --
                                                       ------------   -------------   ------------   ------------   ------------
Free cash flow (e)                                     $    (79,398)  $      24,458   $    173,648   $    180,504   $     89,404
                                                       ============   =============   ============   ============   ============

Net cash provided by (used for) financing activities   $     17,505   $     206,206   $    (96,193)  $   (188,341)  $    (50,725)

OTHER DATA:
Income before income taxes                             $    306,386   $     290,794   $    229,066   $    109,720   $     70,735
Interest expense                                             19,213          10,919         11,267         22,876         27,165
Depreciation and amortization                               158,615         119,059        138,185        168,543        174,395
                                                       ------------   -------------   ------------   ------------   ------------
EBITDA (f)                                             $    484,214   $     420,772   $    378,518   $    301,139   $    272,295
                                                       ============   =============   ============   ============   ============

Number of lottery customers at year-end (g)                      92              84             84            82              83
</TABLE>
----------
(a)  53-week year.

(b)  The impact of the special charges (credit) on earnings per share on a
     diluted basis was ($0.01) and $0.19 in fiscal 2003 and 2001, respectively.

(c)  Per share data has been restated to reflect our 2-for-1 common stock split
     that occurred in July 2004.

(d)  We adopted EITF 04-8 in December 2004, which requires that all 12.7 million
     shares underlying our 1.75% Convertible Debentures be included in diluted
     earnings per share computations, if dilutive, regardless of whether the
     conversion requirements have been met. The adoption of EITF 04-8 resulted
     in a decrease to diluted earnings per share of $0.02, $0.10 and $0.06 in
     fiscal 2004, 2003 and 2002, respectively.

(e)  Free cash flow (net cash provided by operating activities less net cash
     used for investing activities, excluding the net purchases or maturities of
     available-for-sale investment securities), represents the excess cash flows
     generated over and above the investment of capital required to both
     maintain and grow our ongoing revenue streams. Based upon the long term
     contractual cycles in our business, we believe free cash flow trends
     represent a useful guide to help determine the amount of internally
     generated capital available for enhancing long-term shareholder value,
     through a balance of investing in new growth opportunities, the tax
     efficient return of capital to our shareholders and repayment of debt
     obligations. As we define it, free cash flow may not be comparable to other
     similarly titled measures used by other companies.

(f)  We believe that earnings before interest, taxes, depreciation and
     amortization, or EBITDA, assists in explaining trends in our operating
     performance, provides useful information about our ability to incur and
     service indebtedness and is a commonly used measure of performance by
     securities analysts and investors in the gaming industry. EBITDA should not
     be considered as an alternative to operating income as an indicator of our
     performance or to cash flows as a measure of our liquidity. As we define
     it, EBITDA may not be comparable to other similarly titled measures used by
     other companies.

(g)  A lottery customer is defined as a jurisdiction utilizing our systems or
     products for a traditional online lottery.

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

OVERVIEW

The following Management's Discussion and Analysis ("MD&A") is intended to help
the reader understand the financial results of GTECH Holdings Corporation. MD&A
is provided as a supplement to, and should be read in conjunction with, our
financial statements and the accompanying notes. This overview provides guidance
on the individual sections of MD&A as follows:

-    FORWARD-LOOKING STATEMENTS - cautionary information about forward-looking
     statements.

-    OUR BUSINESS - a general description of our business; Brazil matters;
     acquisitions; our common stock split and treasury stock retirement; and new
     accounting pronouncements.

-    APPLICATION OF CRITICAL ACCOUNTING POLICIES - a discussion of accounting
     policies that we believe are both most critical to our financial condition
     and results of operations, and require management's most difficult,
     subjective or complex judgments and estimates.

-    OPERATIONS REVIEW - an analysis of our consolidated results of operations
     for the three years presented in our financial statements. We operate in
     one business - Transaction Processing, and we have a single operating and
     reportable business segment. Therefore, our discussions are not quantified
     by segment results.

-    LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION - an analysis of cash
     flows, financial position, contractual obligations and commitments.

-    FINANCIAL RISK MANAGEMENT AND DIVIDEND POLICY - information about financial
     risk management; interest rate market risk; equity price risk; foreign
     currency exchange rate risk; and our dividend policy.

-    SUBSEQUENT EVENTS - information about material events that occurred
     subsequent to February 26, 2005.

Unless specified otherwise, we use the terms "Holdings," "the Company," "we,"
"our," and "us" in MD&A to refer to GTECH Holdings Corporation and its
consolidated subsidiaries included in the consolidated financial statements.

FORWARD-LOOKING STATEMENTS

Statements contained in this section and elsewhere in this report which are not
historical statements constitute "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934. Generally, the words "believe," "expect," "estimate," "anticipate,"
"will," "may," "could," "plan," "continue" and similar expressions identify
forward-looking statements. See Item 1 - "Forward-Looking Statements" and
"Certain Factors That May Affect Future Performance" for further information.
<PAGE>
OUR BUSINESS

GENERAL

We operate on a 52-week or 53-week fiscal year ending on the last Saturday in
February. Fiscal 2005 and 2003 were 52-week years. Fiscal 2004 was a 53-week
year and we included the extra week in our fourth quarter ended February 28,
2004.

We are a global gaming and technology company providing software, networks and
professional services that power high-performance, transaction processing
systems. We are the world's leading operator of highly-secure online lottery
transaction processing systems, doing business in 54 countries worldwide and we
have a growing presence in commercial gaming technology ("Gaming solutions") and
financial services transaction processing ("Commercial services"). A comparison
of our revenue concentration is as follows:

<TABLE>
<CAPTION>
                        Fiscal   Fiscal   Fiscal
Consolidated Revenues    2005     2004     2003
---------------------   ------   ------   ------
<S>                     <C>      <C>      <C>
Lottery                     87%      91%      93%
Commercial services          7%       7%       5%
Gaming solutions             6%       2%       2%
                        ------   ------   ------
                           100%     100%     100%
                        ======   ======   ======
</TABLE>

Being a global business, we derive a substantial portion of our revenue from our
operations outside of the United States. In particular, in fiscal 2005, we
derived 52.2% of our revenues from international operations, including 7.4% of
our revenues from our Brazilian operations alone (including 7.2% of our revenues
from Caixa Economica Federal, the operator of Brazil's National Lottery, our
second largest customer in fiscal 2005 based on annual revenues). In addition,
substantial portions of our assets, primarily consisting of equipment we use to
operate online lottery systems for our customers, are held outside of the United
States. We are also exposed to more general risks of international operations,
including increased governmental regulation of the online lottery industry in
the markets where we operate; exchange controls or other currency restrictions;
and significant political instability.

We have derived substantially all of our revenues from the rendering of services
and the sale or supply of computerized online lottery systems and components to
government-authorized lotteries. Our service revenues are derived primarily from
lottery service contracts, which are typically at least five to seven years in
duration, and generally provide compensation to us based upon a percentage of a
lottery's gross online and instant ticket sales. These percentages vary
depending on the size of the lottery and the scope of services provided to the
lottery. We primarily derive product sale revenues from the installation of new
online lottery systems, installation of new software and sales of lottery
terminals and equipment in connection with the expansion of existing lottery
systems. Our product margins fluctuate depending on the mix, volume and timing
of product sale contracts. Our product sale revenues from period to period may
not be comparable due to the size and timing of product sale transactions.
During fiscal 2006, we currently anticipate that product sales will be in the
range of $180 million to $210 million.
<PAGE>
Our compensation under lottery service contracts is typically based upon a
percentage of a lottery's gross online and instant ticket sales. Over the past
several fiscal years, we have experienced and may continue to experience a
reduction in the percentage of lottery ticket sales we receive from certain
customers resulting from contract rebids, extensions and renewals due to a
number of factors, including the substantial growth of lottery sales over the
last decade, reductions in the cost of technology and telecommunications
services, and general market and competitive dynamics. In anticipation and
response to these trends, beginning in fiscal 2001, we began the implementation
of our new Enterprise Series-led technology strategy combined with the
implementation of a number of ongoing cost savings initiatives and efficiency
improvement programs designed to enable us to maintain our market leadership in
the lottery industry. We are unable to determine at this time the likely effect
of this trend on our business.

Our business is highly regulated, and the competition to secure new government
contracts is often intense. In addition, our ability to consummate the
acquisition, which we announced in December 2004, of a 50 percent controlling
equity interest in the Atronic group of companies, one of the world's five
largest manufacturers of slot machines, and to otherwise expand our business in
non-lottery gaming markets, is contingent upon obtaining required gaming
licenses. From time to time, competitors challenge our contract awards and there
have been, and may continue to be, investigations of various types, including
grand jury investigations conducted by government authorities into possible
improprieties and wrongdoing in connection with efforts to obtain and/or the
awarding of lottery contracts and related matters. Because such investigations
frequently are conducted in secret, we may not necessarily know of the existence
of an investigation which might involve us. Because our reputation for integrity
is an important factor in our business dealings with lottery, gaming licensing,
and other governmental agencies, a governmental allegation or a finding of
improper conduct on our part or attributable to us in any manner could have a
material adverse effect on our business, including our ability to retain
existing contracts, obtain new or renewal contracts and to expand our business
in non-lottery gaming markets. In addition, continuing adverse publicity
resulting from these investigations and related matters could have a material
adverse effect on our reputation and business. See the following for further
information concerning these matters and other contingencies:

-    Part I, Item 1 - "Certain Factors That May Affect Future Performance -
     Government regulations and other actions affecting the online lottery
     industry could have a negative effect on our business and sales;"

-    Part I, Item 3 - "Legal Proceedings;"

-    Note 14 to the consolidated financial statements.
<PAGE>
BRAZIL MATTERS

Revenues from our lottery contract with Caixa Economica Federal ("CEF"), our
customer and the operator of Brazil's National Lottery, accounted for 7.2% of
our total fiscal 2005 revenues, making CEF our second largest customer in fiscal
2005 based upon annual revenues.

A June 25, 2004 ruling (the "Ruling") in a civil action initiated by federal
attorneys with Brazil's Public Ministry had the effect in fiscal 2005 of
materially reducing payments that we otherwise would have received from our
lottery contract with CEF which expires in May 2005. The Ruling ordered that 30%
of payments subsequent to the Ruling due to GTECH Brasil Ltda., our Brazilian
subsidiary ("GTECH Brazil") from CEF, be withheld and deposited in an account
maintained by the Court. As of February 26, 2005, the total amount withheld and
deposited in an account maintained by the Court was approximately 68 million
Brazilian reals, or $26 million. In fiscal 2005, we did not recognize service
revenues for the payments that were withheld from GTECH Brazil, as realization
of these amounts was not reasonably assured.

In July 2004 we filed an appeal of the Ruling and in March 2005 (after the close
of fiscal 2005), an appellate court decision ordered that the withholding be
discontinued and that all funds currently held in escrow in excess of 40 million
Brazilian reals be returned to us, which amounts to $11 million of the $26
million withheld as of February 26, 2005. We received and recognized these funds
as service revenue on April 13, 2005.

In addition, the Ruling ordered that all assets of GTECH Brazil be identified to
the Court so as to prevent their transfer or disposition, a requirement that was
also subsequently reversed by the appellate court decision in March 2005.

As of February 26, 2005, GTECH Brazil assets approximated $34.9 million as
follows (dollars in millions):

<TABLE>
<S>                                                              <C>
Cash                                                             $ 5.1
Systems, Equipment and Other Assets Relating to Contracts, net     5.7
                                                                 -----
   Assets restricted from transfer or disposition                $10.8
All other assets                                                  24.1
                                                                 -----
GTECH Brazil assets at February 26, 2005                         $34.9
                                                                 =====
</TABLE>

The restricted cash of $5.1 million is included in Other Assets in our
Consolidated Balance Sheet.

We are currently involved in negotiations with CEF respecting the possible
extension of the term of our current contract, which expires in May 2005, for
the provision of goods and services by us after the scheduled termination date
of our current contract. Foreign currency translation related to our operations
in Brazil of $59.5 million (which is recorded in Accumulated Other Comprehensive
Loss in our Consolidated Balance Sheet at February 26, 2005), would be recorded
as a charge to our consolidated income statement upon the expiration of our
contract with CEF should we determine that the expiration of the CEF contract
results in a substantial liquidation of our investment in Brazil.

Refer to Part I, Item 3, "Legal Proceedings - Brazilian Legal Proceedings, The
CEF Contract Proceedings," and Note 14 to the consolidated financial statements
for detailed disclosures regarding this matter.
<PAGE>
ACQUISITIONS

BILLBIRD S.A.

During the third quarter of fiscal 2005, our majority-owned subsidiary, PolCard
S.A. ("PolCard"), acquired privately-held BillBird S.A ("BillBird"), the leading
provider of electronic bill payment services in Poland, for an all-cash purchase
price of approximately $6.0 million. By combining BillBird and PolCard (which is
the leading debit and credit card merchant transaction acquirer and processor
company in Poland), we will enhance our market strategy of providing a product
suite including debit and credit transaction processing, card and ATM management
services, electronic bill payments, and prepaid mobile phone top-ups.

LEEWARD ISLANDS LOTTERY HOLDING COMPANY INC.

During the first quarter of fiscal 2005, we acquired privately-held Leeward
Islands Lottery Holding Company Inc. ("LILHCo"), a lottery operating company
headquartered on the Caribbean islands of Antigua and St. Croix, for an all-cash
purchase price of approximately $40 million. By acquiring Caribbean-based
LILHCo, we will enhance our strategic foothold in that region, as well as
provide significant growth opportunities in additional jurisdictions throughout
the Caribbean.

SPIELO MANUFACTURING INCORPORATED

During the first quarter of fiscal 2005, we acquired privately-held Spielo
Manufacturing Incorporated ("Spielo"), a leading provider of video lottery
terminals ("VLT's") and related products and services to the global gaming
industry, for an all-cash purchase price of approximately $150 million. In
addition, we paid Spielo shareholders approximately $10.7 million out of a
potential maximum earn-out amount of up to $35 million, which Spielo
shareholders are entitled to receive in the 18 months following the closing,
based upon Spielo achieving certain VLT installation objectives in New York and
separately, a working capital adjustment of approximately $1.5 million. By
acquiring Spielo, we will be better able to deliver a comprehensive, integrated
VLT solution to our existing and potential customers, with a single point of
contact and accountability. We currently do not expect to pay any significant
amounts remaining under the earn-out provision.

We continue to evaluate a variety of opportunities to broaden our offerings of
high-volume transaction processing services outside of our core market of
providing online lottery services, such as the processing and transmission of
commercial, non-lottery transactions including bill payments, electronic tax
payments, utility payments, prepaid cellular telephone recharges and
retail-based programs such as gift cards. Currently, our networks in Brazil,
Poland, Chile, the Czech Republic and Jamaica process bill payments and other
commercial service transactions. In the near term, we expect to concentrate our
efforts to grow commercial service revenues principally in Central and Eastern
Europe and other selected emerging economies. While our goal is to leverage our
technology, infrastructure and relationships to drive growth in commercial
services, if, in the course of pursuing these opportunities, we identify an
opportunity to gain access to certain markets through the acquisition of
existing businesses, we may consider making such acquisitions.
<PAGE>
COMMON STOCK SPLIT AND TREASURY STOCK RETIREMENT

On June 17, 2004, our Board of Directors approved a 2-for-1 common stock split,
payable in the form of a stock dividend, which entitled each shareholder of
record on July 1, 2004 to receive one share of common stock for each outstanding
share of common stock held on that date. The stock dividend was distributed on
July 30, 2004. All references to common shares and per share amounts herein have
been restated to reflect the stock split for all periods presented.

In connection with the declaration of the stock dividend, our Board of Directors
approved the retirement of 69.8 million shares of our common stock held in
treasury on July 29, 2004 (stated on a basis reflecting the stock split which
occurred subsequent to the retirement). The $528.8 million of treasury stock at
the time of the retirement was eliminated from treasury stock through a charge
to retained earnings and common stock.

NEW ACCOUNTING PRONOUNCEMENTS

FASB STATEMENT NO. 123R

In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based
Payment" ("SFAS 123R"), which is a revision of FASB Statement No. 123,
"Accounting for Stock-Based Compensation". SFAS 123R supersedes Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), and amends FASB Statement No. 95, "Statement of Cash Flows". SFAS
123R requires all share-based payments to employees, including grants of
employee stock options, be recognized in the financial statements based on their
fair values. Pro forma disclosure is no longer an alternative. SFAS 123R must be
adopted no later than the beginning of the first fiscal year beginning after
June 15, 2005 (our fiscal 2007 first quarter). Early adoption is permitted. We
plan to adopt SFAS 123R on the first day of fiscal 2007 (February 26, 2006).

SFAS 123R permits public companies to adopt its requirements using either the
modified prospective transition ("MPT") method or the modified retrospective
transition ("MRT") method. Under the MPT method, compensation cost for new
awards and modified awards are recognized beginning with the effective date and
the cost for awards that were granted prior to, but not vested as of the
effective date, will be based on the grant date fair value estimate used for
SFAS 123 pro forma disclosure purposes. The MRT method includes the requirements
of the MPT method but also permits restatement of all prior periods presented or
only the prior interim periods of the year of adoption. We plan to adopt SFAS
123R using the MPT method and we intend to use a lattice model to value stock
options granted after February 26, 2006.

We currently account for share-based payments to employees using the intrinsic
value method under APB 25 and related Interpretations, and as such, we generally
recognize no compensation cost for employee stock options. We currently estimate
the impact of adopting SFAS 123R will be in a range of $0.04 to $0.06 per
diluted share in fiscal 2007. SFAS 123R also requires the benefits of tax
deductions in excess of recognized compensation cost to be reported as a
financing cash flow, rather than as an operating cash flow as required under
current literature. This requirement will reduce net operating cash flows and
increase net financing cash flows in periods after adoption. While we cannot
estimate what those amounts will be in the future (because they depend on, among
other things, when employees exercise stock options), the amount of operating
cash flows recognized in prior periods for these excess tax deductions were
$11.3 million, $10.4 million and $8.0 million in fiscal 2005, 2004 and 2003,
respectively.
<PAGE>
FASB STAFF POSITION NO. 109-1

In December 2004, the FASB issued FASB Staff Position No. 109-1, "Application of
FASB Statement No. 109, `Accounting for Income Taxes', to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of
2004" ("FSP 109-1"). FSP 109-1 provides guidance on the application of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), to the provision of the American Jobs Creation Act of 2004 (the "Act")
that provides a tax deduction on qualified production activities. The FASB staff
believes that the deduction should be accounted for as a special deduction in
accordance with SFAS 109 as opposed to a tax rate reduction. FSP 109-1 is
effective immediately. Pursuant to the Act, we will be able to benefit from a
tax deduction for qualified production activities in fiscal 2006. We will follow
the provisions of this guidance when applicable. We have not yet determined the
impact this tax deduction will have on our results of operations or financial
position.

FASB STAFF POSITION NO. 109-2

In December 2004, the FASB issued FASB Staff Position No. 109-2, "Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision within the
American Jobs Creation Act of 2004" ("FSP 109-2"). FSP 109-2 provides for a
special one-time dividends received deduction on the repatriation of certain
foreign earnings to a U.S. taxpayer (repatriation provision). FSP 109-2 provides
accounting and disclosure guidance for the repatriation provision and is
effective immediately. While we continue to evaluate the Act, we do not plan to
elect the one-time provision because of the resulting loss of foreign tax
credits and because the vast majority of our permanently reinvested non-U.S.
earnings have been deployed in active non-U.S. business operations.

EITF 04-8

In October 2004, the FASB ratified the Emerging Issues Task Force's consensus on
Issue No. 04-8, "The Effect of Contingently Convertible Debt on Diluted Earnings
per Share" ("EITF 04-8"), which is effective for periods ending after December
15, 2004. Under current interpretations of FAS 128, "Earnings per Share",
issuers of contingently convertible debt instruments exclude the potential
common shares underlying the debt instrument from the calculation of diluted
earnings per share until the contingency is met. EITF 04-8 requires that
potential shares underlying the debt instrument be included in diluted earnings
per share computations, if dilutive, regardless of whether the contingency has
been met. We adopted EITF 04-8 in December 2004 and retroactively adjusted all
prior period diluted earnings per share amounts to conform to the guidance in
EITF 04-8. The adoption of EITF 04-8 resulted in a decrease to diluted earnings
per share of $0.02 and $0.10 in fiscal 2004 and 2003, respectively.
<PAGE>
APPLICATION OF CRITICAL ACCOUNTING POLICIES

We have identified the accounting policies listed below that we believe are both
most critical to our financial condition and results of operations, and require
management's most difficult, subjective or complex judgments in estimating the
effect of inherent uncertainties. This section should be read in conjunction
with Note 1 to the consolidated financial statements, which includes other
significant accounting policies.

REVENUE RECOGNITION

LOTTERY AND GAMING TRANSACTION PROCESSING SERVICES

We generally conduct our lottery and gaming business under two types of
contractual arrangements: Facilities Management Contracts and Product Sales
Contracts.

FACILITIES MANAGEMENT CONTRACTS

A majority of our revenues are derived from facilities management contracts,
under which we construct, install, operate and retain ownership of the online
lottery system ("lottery system"). These contracts generally provide for a
variable amount of monthly or weekly service fees paid to us directly from the
lottery authority based on a percentage of a lottery's gross online and instant
ticket sales or a percentage of net machine income. These fees are recognized as
revenue in the period earned and are classified as Service Revenue in our
Consolidated Income Statements when all of the following criteria are met:

-    Persuasive evidence of an arrangement exists, which is typically when a
     customer contract has been signed

-    Services have been rendered

-    Our fee is deemed to be fixed or determinable and free of contingencies or
     significant uncertainties

-    Collectibility is reasonably assured

In instances where customer acceptance of the product or system is required,
revenue is deferred until all the acceptance criteria have been met.

PRODUCT SALES CONTRACTS

Under product sales contracts, we construct, sell, deliver and install a turnkey
lottery system or deliver lottery equipment, and license the computer software
for a fixed price, and the lottery authority subsequently operates the lottery
system. Product sale contracts generally include customer acceptance provisions
and general customer rights to terminate the contract if we are in breach of the
contract.

Because product sales contracts include significant customization, modification
and other services prior to customer acceptance that are considered essential to
the lottery software inherent in our lottery systems, revenue is recognized
using contract accounting. Under contract accounting, amounts due to us, and
costs incurred by us in constructing the lottery system, prior to customer
acceptance, are deferred. Revenue attributable to the lottery system is
classified as Sales of Products in our Consolidated Income Statements and is
recognized upon customer acceptance as long as there are no substantial doubts
regarding collectibility.
<PAGE>
Whenever we enter into a product sale contract that involves the delivery or
performance of multiple products and services that include the development and
customization of software, implementation services, and licensed software and
support services, we apply the consensus of EITF 00-21 "Revenue Arrangements
with Multiple Deliverables", to determine whether the non-customization related
deliverables specified in the contract should be treated as separate units of
accounting for revenue recognition purposes. If the elements qualify as separate
units of accounting, and fair value exists for the elements of the contract that
are unrelated to the customization services, these elements are accounted for
separately, and the related revenue is recognized as the products are delivered
or the services are rendered.

The application of revenue recognition principles requires judgment, including
whether our product sales contracts include multiple elements, and if so,
whether fair value exists for those elements. As a result, contract
interpretation is sometimes required to determine the appropriate accounting,
including whether the deliverables in a multiple element arrangement should be
treated as separate units of accounting for revenue recognition purposes, and if
so, the relative fair value that should be allocated to each of the elements and
when to recognize revenue for each element. Our interpretation would not affect
the amount of revenue recognized but could impact the timing of revenue
recognition.

Revenues attributable to any ongoing services provided subsequent to customer
acceptance are classified as Service Revenue in our Consolidated Income
Statements in the period earned.

In certain product sale contracts (primarily the stand alone sale of lottery or
video lottery terminals and software deliverables that do not involve
significant customization of software), we are not responsible for installation.
In these cases, we recognize revenue when all of the following criteria are met:

-    Persuasive evidence of an arrangement exists, which is typically when a
     customer contract has been signed

-    The product has been delivered

-    Our fee is deemed to be fixed or determinable and free of contingencies or
     significant uncertainties

-    Collectibility is reasonably assured

In instances where installation and/or customer acceptance of the product is
required, revenue is deferred until installation is complete and any acceptance
criteria have been met.

Our typical payment terms under product sale contracts include customer progress
payments based on specific contract milestones with final payment due on or
shortly after customer acceptance. We do not generally offer our customers
payment terms that extend substantially beyond customer acceptance. In the rare
case that we provide a customer with extended payment terms, we defer revenue
equal to the amount of the extended payment until it is received.

NON-LOTTERY TRANSACTION PROCESSING SERVICES

We offer high-volume transaction processing services outside of our core market
of providing online lottery services that consist of the acquiring, processing
and transmission of commercial non-lottery transactions. Such transactions
include retail debit, credit and charge card transactions, bill payments,
electronic tax payments, utility payments, prepaid cellular telephone recharges
and retail-based programs.
<PAGE>
We earn a fee for processing commercial non-lottery transactions that is
transaction-based (a fixed fee per transaction or a fee based on a percentage of
dollar volume processed). We recognize these fees as service revenue at the time
a transaction is processed based on the net amount retained in accordance with
Emerging Issues Task Force Issue No. 99-19, "Reporting Revenue Gross as a
Principal Versus Net as an Agent."

DEFERRED REVENUE AND LIQUIDATED DAMAGE ASSESSMENTS

Amounts received from customers in advance of revenue recognition are recorded
in Advance Payments from Customers in our Consolidated Balance Sheets. We record
liquidated damage assessments, which are penalties incurred due to a failure to
meet specified deadlines or performance standards, as a reduction of revenue in
the period they become probable and estimable. Liquidated damage assessments
equaled 0.18%, 0.50% and 0.47% of our total revenues in fiscal 2005, 2004 and
2003, respectively.

INCOME TAX EXPENSE AND ACCRUALS

Our annual income tax rate is based upon our income, statutory tax rates and tax
planning opportunities available to us in the various jurisdictions in which we
operate. Significant judgment is required in determining our annual income tax
rate and in evaluating our tax positions. We establish reserves when, despite
our belief that our tax return positions are fully supportable, we believe that
certain positions are likely to be challenged and that we may not succeed. We
adjust these reserves in light of changing facts and circumstances, such as the
result of a tax audit. An estimated effective annual income tax rate is applied
to our quarterly operating results. In the event there is a significant or
unusual item recognized in our quarterly operating results, the tax attributable
to that item is separately calculated and recorded at the same time.

Tax law requires items to be included in the income tax return at different
times than the items are reflected in the financial statements. As a result, our
annual income tax rate reflected in our financial statements is different than
that reported in our tax return (our cash tax rate). Some of these differences
are permanent, such as expenses that are not deductible in our income tax
return, and some differences reverse over time, such as depreciation expense.
These timing differences create deferred tax assets and liabilities. Deferred
tax assets generally represent items that can be used as a tax deduction or
credit in our income tax return in future years for which we have recorded the
tax benefit in our income statement. We establish valuation allowances for our
deferred tax assets when we believe expected future taxable income is not likely
to support the use of a tax deduction or credit in that tax jurisdiction.
Deferred tax liabilities generally represent income tax expense recognized in
our financial statements for which payment has been deferred, or expense for
which we have taken a deduction in our income tax return but have not yet
recognized an expense in our financial statements. We have not recognized any
United States income tax expense on undistributed international earnings since
we intend to reinvest the earnings outside the United States for the foreseeable
future.

A number of years may elapse before a particular matter, for which we have
established a reserve, is ultimately resolved. The number of years with open tax
audits varies depending on the jurisdiction. While it is often difficult to
predict the final outcome or the timing of resolution of any particular matter,
we believe our reserves reflect the most probable outcome of known
contingencies.
<PAGE>
TRADE ACCOUNTS RECEIVABLE, NET AND SALES-TYPE LEASE RECEIVABLES

We evaluate the collectibility of trade accounts and sales-type lease
receivables on a customer-by-customer basis and we believe our reserves are
adequate; however, if economic circumstances change significantly resulting in a
major customer's inability or unwillingness to meet its financial obligations to
us, original estimates of the recoverability of amounts due to us could be
reduced by significant amounts requiring additional reserves.

INVENTORIES AND OBSOLESCENCE

Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories include amounts we manufacture or assemble for our long-term
service contracts, which are transferred to Systems, Equipment and Other Assets
Relating to Contracts upon shipment. Inventories also include amounts related to
product sales contracts, including product sales under long-term contracts. We
regularly review inventory quantities on hand and record provisions for
potentially obsolete or slow-moving inventory based primarily on our estimated
forecast of product demand and production requirements. We believe our reserves
are adequate; however, should future sales forecasts change, our original
estimates of obsolescence could increase by a significant amount requiring
additional reserves.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of purchase price and related costs over the
value assigned to the net tangible and identifiable intangible assets of
businesses acquired. Goodwill and other intangible assets determined to have
indefinite useful lives are not amortized but are reviewed for impairment
annually, or more frequently if events or circumstances indicate these assets
may be impaired. Other intangible assets determined to have definite lives are
amortized over their useful lives. We review other intangible assets with
definite lives for impairment to ensure they are appropriately valued if
conditions exist that may indicate the carrying value may not be recoverable.
Such conditions may include, among others, significant adverse changes in the
extent or manner in which an asset is being used or in legal factors or in the
business climate that could affect the value of an asset.

Because we have a single operating and reportable business segment (the
Transaction Processing Segment), we perform our goodwill impairment test by
comparing the fair value of the Transaction Processing Segment with its book
value, including goodwill. If the fair value of the Transaction Processing
Segment exceeds the book value, goodwill is not impaired. If the book value
exceeds the fair value, we would calculate the potential impairment loss by
comparing the implied fair value of goodwill with the book value. If the implied
goodwill is less than the book value, a write-down would be recorded.

IMPAIRMENT OF LONG-LIVED ASSETS

We periodically evaluate the recoverability of long-lived assets whenever
indicators of impairment are present. Indicators of impairment include such
items as declines in revenues, earnings or cash flows or material adverse
changes in the economic or political stability of a particular country, which
may indicate that the carrying amount of an asset is not recoverable. If facts
and circumstances indicate our long-lived assets may be impaired, the estimated
future undiscounted cash flows associated with these long-lived assets would be
compared to their carrying amounts to determine if a write-down to fair value is
necessary.
<PAGE>
OPERATIONS REVIEW

Refer to the Summary Financial Data table while reading the operations review
below.



<TABLE>
<CAPTION>
                                                         SUMMARY FINANCIAL DATA

                                                           Fiscal Year Ended
                                      ------------------------------------------------------------
                                         February 26,         February 28,        February 22,
                                             2005                 2004                2003
                                      ------------------   ------------------   ------------------
                                                        (Dollars in thousands)
<S>                                   <C>          <C>     <C>          <C>     <C>          <C>
Revenues:
   Services                           $1,017,683    80.9%  $  957,471    91.1%  $  868,896    88.8%
   Sales of products                     239,552    19.1       93,859     8.9      109,894    11.2
                                      ----------   -----   ----------   -----   ----------   -----
      Total                            1,257,235   100.0    1,051,330   100.0      978,790   100.0

Costs and expenses:
   Costs of services (a)                 616,633    60.6      537,839    56.2      535,041    61.6
   Costs of sales (a)                    157,974    65.9       59,226    63.1       78,943    71.8
                                      ----------   -----   ----------   -----   ----------   -----
      Total                              774,607    61.6      597,065    56.8      613,984    62.7
                                      ----------   -----   ----------   -----   ----------   -----

Gross profit                             482,628    38.4      454,265    43.2      364,806    37.3

Selling, general and administrative      117,253     9.3      109,092    10.4       96,130     9.8
Research and development                  52,559     4.2       57,318     5.4       42,852     4.4
Special credit                                --      --           --      --       (1,121)   (0.1)
                                      ----------   -----   ----------   -----   ----------   -----
   Operating expenses                    169,812    13.5      166,410    15.8      137,861    14.1

Operating income                         312,816    24.9      287,855    27.4      226,945    23.2

Other income (expense):
   Interest income                         4,615     0.4        5,733     0.5        3,837     0.4
   Equity in earnings of
      unconsolidated affiliates            2,812     0.2        6,236     0.6        7,376     0.8
   Other income                            5,356     0.4        1,889     0.2        2,175     0.2
   Interest expense                      (19,213)   (1.5)     (10,919)   (1.0)     (11,267)   (1.2)
                                      ----------   -----   ----------   -----   ----------   -----
                                          (6,430)   (0.5)       2,939     0.3        2,121     0.2
                                      ----------   -----   ----------   -----   ----------   -----

Income before income taxes               306,386    24.4      290,794    27.7      229,066    23.4

Income taxes                             109,992     8.8      107,594    10.3       87,045     8.9
                                      ----------   -----   ----------   -----   ----------   -----
Net income                            $  196,394    15.6%  $  183,200    17.4%  $  142,021    14.5%
                                      ==========   =====   ==========   =====   ==========   =====
</TABLE>

(a)  Percentages are computed based on cost as a percentage of related revenue.
<PAGE>
COMPARISON OF FISCAL 2005 WITH 2004

TOTAL REVENUES

<TABLE>
<CAPTION>
                                      Fiscal Year Ended
                        ---------------------------------------------
                                                           Change
                        February 26,   February 28,   ---------------
                            2005           2004          $        %
                        ------------   ------------   ------   ------
                                    (dollars in millions)
<S>                     <C>            <C>            <C>      <C>
Services                $    1,017.7   $      957.4   $ 60.3      6.3
Sales of products              239.5           93.9    145.6   >100.0
                        ------------   ------------   ------   ------
                        $    1,257.2   $    1,051.3   $205.9     19.6
                        ============   ============   ======   ======
</TABLE>

SERVICE REVENUES AND GROSS MARGIN

<TABLE>
<CAPTION>
                                      Fiscal Year Ended
                        ---------------------------------------------
                                                          Change
                        February 26,   February 28,   ---------------
                            2005           2004         $         %
                        ------------   ------------   ------     ----
                                    (dollars in millions)
<S>                     <C>            <C>            <C>        <C>
Domestic lottery        $      520.6   $      504.1   $ 16.5      3.3
International lottery          381.9          359.5     22.4      6.2
Commercial services             84.8           74.3     10.5     14.1
Gaming solutions                27.4           16.9     10.5     62.1
All other                        3.0            2.6      0.4     15.4
                        ------------   ------------   ------     ----
                        $    1,017.7   $      957.4   $ 60.3      6.3
                        ============   ============   ======     ====
</TABLE>

<TABLE>
<CAPTION>
                                      Fiscal Year Ended
                        ---------------------------------------------
                                                         Change
                        February 26,  February 28,  -----------------
                            2005          2004      Percentage Points
                        ------------  ------------  -----------------
<S>                     <C>           <C>           <C>
Service gross margin           39.4%         43.8%               (4.4)
</TABLE>

The 3.3% increase in domestic lottery service revenues was primarily due to
higher service revenues from an increase in sales by our domestic lottery
customers of approximately 6%, the launch of our new service contract in
Tennessee and the impact of the Interlott acquisition, partially offset by
contractual rate changes, lower jackpot activity and the extra week of service
revenues in fiscal 2004. While we are not able to quantify precisely the reasons
for increases in sales by our domestic lottery customers, we believe that in
general, such increases are attributable to enhanced marketing efforts by state
lottery authorities seeking to offset declining tax revenues and the successful
introduction by state lottery authorities of new games and products,
modifications to existing games (such as matrix changes and more frequent
drawings) and expanded distribution channels, such as Keno.

The 6.2% increase in international lottery service revenues includes higher
service revenues from an increase in sales by our international lottery
customers of approximately 2%, along with favorable foreign exchange rates and
higher jackpot activity, partially offset by lower revenues from Brazil related
to the court order to withhold 30% of our revenues. While we are not able to
quantify precisely the reasons for increases in sales by our international
lottery customers, we believe that in general, such increases are attributable
to more rapid growth rates typical of newer lottery jurisdictions, the
successful introduction of new games and modifications to existing games (such
as matrix changes and more frequent drawings).
<PAGE>
The 14.1% increase in commercial transaction processing service revenues
includes higher service revenues from an increase in sales by our commercial
transaction processing customers of approximately 14%, along with favorable
foreign exchange rates and the impact of the BillBird acquisition, partially
offset by lower revenues from Brazil related to the court order to withhold 30%
of our revenues.

The 62.1% increase in gaming solutions service revenues was primarily due to the
acquisition of Spielo and the installation of additional video lottery terminals
in the state of Rhode Island.

Our service margins were down 4.4 percentage points from last year primarily due
to lower margins from Brazil related to lower service revenues resulting from
the court order to withhold 30% of our revenues along with higher legal costs,
and the impact of higher depreciation and amortization related principally to
acquisitions, contract renewals and the implementation of new contracts.

PRODUCT REVENUES AND GROSS MARGIN

<TABLE>
<CAPTION>
                                      Fiscal Year Ended
                       -----------------------------------------------
                                                           Change
                       February 26,    February 28,    ---------------
                           2005            2004           $        %
                       ------------    ------------    ------   ------
                                    (dollars in millions)
<S>                    <C>             <C>             <C>      <C>
Sales of products      $      239.6    $       93.9    $145.7   >100.0
</TABLE>

<TABLE>
<CAPTION>
                                    Fiscal Year Ended
                       -----------------------------------------------
                                                           Change
                       February 26,   February 28,   -----------------
                           2005           2004       Percentage Points
                       ------------   ------------   -----------------
<S>                    <C>            <C>            <C>
Product gross margin          34.1%          36.9%               (2.8)
</TABLE>

Product sales were higher principally due to the sale of lottery terminals and a
communications network to our customer in Belgium, the sale of an Enterprise
Series central system to our customer in West Lotto, Germany, the sale of
lottery terminals to our customer in Spain, and the impact of the Spielo
acquisition. Our product margins fluctuate depending on the mix, volume and
timing of product sales contracts and our current year product margins were down
2.8 percentage points primarily due to lower margins associated with the Germany
central system sale.
<PAGE>
OPERATING EXPENSES

Operating expenses are comprised of selling, general and administrative (SG&A)
expenses and research and development (R&D) expenses.

<TABLE>
<CAPTION>
                                             Fiscal Year Ended
                               ---------------------------------------------
                                                                  Change
                               February 26,    February 28,    -------------
                                   2005            2004          $        %
                               ------------    ------------    -----    ----
                                           (dollars in millions)
<S>                            <C>             <C>             <C>      <C>
SG&A expenses                  $      117.2    $      109.1    $ 8.1     7.4
R&D expenses                           52.6            57.3     (4.7)   (8.2)
                               ------------    ------------    -----    ----
                               $      169.8    $      166.4    $ 3.4     2.0
                               ============    ============    =====    ====

PERCENTAGE OF TOTAL REVENUE

SG&A expenses                           9.3%           10.4%
R&D expenses                            4.2%            5.5%
</TABLE>

The $8.1 million increase in SG&A expenses was principally due to the current
year acquisition of Spielo, along with an acceleration in regulatory licensing
activity in worldwide commercial gaming markets, partially offset by lower
incentive compensation costs. The $4.7 million decrease in R&D expenses was
primarily due to the timing of development initiatives, partially offset by the
impact of the Spielo acquisition.

<TABLE>
<CAPTION>
EQUITY EARNINGS                              Fiscal Year Ended
                               ---------------------------------------------
                                                                   Change
                               February 26,    February 28,    -------------
                                   2005            2004          $       %
                               ------------    ------------    -----   -----
                                           (dollars in millions)
<S>                            <C>             <C>             <C>     <C>
Equity earnings                $        2.8    $        6.2    $(3.4)  (54.8)
</TABLE>

Equity earnings were down $3.4 million from last year, primarily due to the sale
in April 2004 of our 50% interest in Gaming Entertainment (Delaware) L.L.C. to
Harrington Raceway, Inc.

OTHER INCOME (EXPENSE)

The components of other income in fiscal 2005 and fiscal 2004 are as follows:

<TABLE>
<CAPTION>
                                             Fiscal Year Ended
                               ---------------------------------------------
                                                                  Change
                               February 26,   February 28,   ---------------
                                   2005           2004         $        %
                               ------------   ------------   -----   -------
                                           (dollars in millions)
<S>                            <C>            <C>            <C>     <C>
Gain on sale of investment     $       10.9   $         --   $10.9     100.0
Foreign exchange losses                (1.4)          (0.2)   (1.2)  (>100.0)
Minority interest in
   consolidated subsidiaries           (3.8)          (4.5)    0.7    >100.0
One-time, non-cash gain                  --            5.3    (5.3)   (100.0)
Other                                  (0.3)           1.3    (1.6)  (>100.0)
                               ------------   ------------   -----   -------
                               $        5.4   $        1.9   $ 3.5   (>100.0)
                               ============   ============   =====   =======
</TABLE>

The $10.9 million gain on sale of investment resulted from the sale in April
2004 of our 50% interest in Gaming Entertainment (Delaware) L.L.C. to Harrington
Raceway, Inc.
<PAGE>
Minority interest in consolidated subsidiaries principally relates to our
controlling interests in PolCard S.A ("PolCard") and Wireless Business Solutions
(Proprietary) Limited ("WBS"). PolCard is the leading debit and credit card
merchant transaction acquirer and processor in Poland. WBS is a
telecommunications provider in South Africa. In fiscal 2005, we determined that
we no longer had a controlling interest in WBS that would require consolidation
in our financial statements due principally to the expiration of our guarantee
of loans made by an unrelated commercial lender to WBS and we now account for
WBS using the equity method of accounting.

The $5.3 million one-time, non-cash, pre-tax gain in the prior fiscal year
resulted from the consolidation of the partnership that owns our world
headquarters facilities, which was recorded in compliance with Financial
Accounting Standards Board Interpretation No. 46, "Consolidation of Variable
Interest Entities".

INTEREST EXPENSE

<TABLE>
<CAPTION>
                               Fiscal Year Ended
                   -----------------------------------------
                                                    Change
                   February 26,   February 28,   -----------
                       2005           2004         $      %
                   ------------   ------------   ----   ----
                             (dollars in millions)
<S>                <C>            <C>            <C>    <C>
Interest expense   $       19.2   $       10.9   $8.3   76.1
</TABLE>

Interest expense was up $8.3 million over last year primarily due to higher debt
balances resulting from the issuance in November 2004 of $150 million of 4.50%
Senior Notes and $150 million of 5.25% Senior Notes.

INCOME TAXES

Our effective income tax rate was 35.9% in fiscal 2005, down from 37% in fiscal
2004. The decrease is primarily due to a larger percentage of international
profits taxed at rates that are lower than the U.S. statutory income tax rate
and increased tax benefits relating to export sales.

In October 2004, the American Jobs Creation Act of 2004 (the "Act") was signed
into law. Among its provisions, the Act provides for a one-time special
deduction for certain qualifying dividends from foreign subsidiaries. While we
continue to evaluate the Act, we do not plan to elect the one-time special
deduction because of the resulting loss of foreign tax credits and because the
vast majority of our permanently reinvested non-U.S. earnings have been deployed
in active non-U.S. business operations.

WEIGHTED AVERAGE DILUTED SHARES

Weighted average diluted shares in fiscal 2005 was comparable to fiscal 2004. We
adopted EITF 04-8 in December 2004, which requires the inclusion of all 12.7
million shares underlying our $175 million principal amount of 1.75% Convertible
Debentures in prior periods' diluted earnings per share computations, if
dilutive, regardless of whether the conversion requirements have been met. The
adoption of EITF 04-8 resulted in a decrease to diluted earnings per share of
$0.02 in fiscal 2004.
<PAGE>
COMPARISON OF FISCAL 2004 WITH 2003

TOTAL REVENUES

<TABLE>
<CAPTION>
                                     Fiscal Year Ended
                       ----------------------------------------------
                                                          Change
                       February 28,   February 22,   ----------------
                           2004           2003          $         %
                       ------------   ------------   ------     -----
                                   (dollars in millions)
<S>                    <C>            <C>            <C>        <C>
Services               $      957.4   $      868.9   $ 88.5      10.2
Sales of products              93.9          109.9    (16.0)    (14.6)
                       ------------   ------------   ------     -----
                       $    1,051.3   $      978.8   $ 72.5       7.4
                       ============   ============   ======     =====
</TABLE>

SERVICE REVENUES AND GROSS MARGIN

<TABLE>
<CAPTION>
                                     Fiscal Year Ended
                       ----------------------------------------------
                                                           Change
                       February 28,    February 22,    --------------
                           2004            2003          $         %
                       ------------    ------------    -----     ----
                                   (dollars in millions)
<S>                    <C>             <C>             <C>       <C>
Domestic lottery       $      504.1    $      477.4    $26.7      5.6
International lottery         359.5           324.1     35.4     10.9
Commercial services            74.3            48.9     25.4     51.9
Gaming solutions               16.9            15.8      1.1      7.0
All other                       2.6             2.7     (0.1)    (3.7)
                       ------------    ------------    -----     ----
                       $      957.4    $      868.9    $88.5     10.2
                       ============    ============    =====     ====
</TABLE>

<TABLE>
<CAPTION>
                                      Fiscal Year Ended
                       -----------------------------------------------
                       February 28,   February 22,         Change
                           2004           2003       Percentage Points
                       ------------   ------------   -----------------
<S>                    <C>            <C>            <C>
Service gross margin          43.8%          38.4%                 5.4
</TABLE>

The 5.6% increase in domestic lottery service revenues was primarily due to
higher service revenues from an increase in sales by our domestic lottery
customers of approximately 4% with the balance principally due to the combined
effect of an extra week of service revenues in fiscal 2004 and the acquisition
of Interlott. While we are not able to quantify precisely the reasons for
increases in sales by our domestic lottery customers, we believe that in
general, such increases are attributable to enhanced marketing efforts by state
lottery authorities seeking to offset declining tax revenues and the successful
introduction by state lottery authorities of new games and products,
modifications to existing games (such as matrix changes and more frequent
drawings) and expanded distribution channels, such as Keno.

The 10.9% increase in international lottery service revenues includes higher
service revenues from an increase in sales by our international lottery
customers of approximately 9%, along with the impact of the effect of an extra
week of service revenues in fiscal 2004 of approximately 1.5%, with the balance
of the increase due to the combined impact of favorable foreign exchange rates
partially offset by contractual rate changes. While we are not able to quantify
precisely the reasons for increases in sales by our international lottery
customers, we believe that in general, such increases are attributable to more
rapid growth rates typical of newer lottery jurisdictions, the successful
introduction of new games and modifications to existing games (such as matrix
changes and more frequent drawings).
<PAGE>
The 51.9% increase in commercial transaction processing services was primarily
due to the acquisition of PolCard, which contributed $21.4 million of service
revenues in fiscal 2004.

Our service margins were up 5.4 percentage points from last year, primarily due
to lower depreciation of approximately 2.0 percentage points, principally
related to fully depreciated assets associated with our contract with Caixa
Economica Federal in Brazil, with the balance of the increase primarily due to
the impact of higher service revenues.

PRODUCT REVENUES AND GROSS MARGIN

<TABLE>
<CAPTION>
                                      Fiscal Year Ended
                       ----------------------------------------------
                                                           Change
                       February 28,    February 22,    --------------
                           2004            2003           $       %
                       ------------    ------------    ------   -----
                                   (dollars in millions)
<S>                    <C>             <C>             <C>      <C>
Sales of products      $       93.9    $      109.9    $(16.0)  (14.6)
</TABLE>

<TABLE>
<CAPTION>
                                      Fiscal Year Ended
                       -----------------------------------------------
                       February 28,   February 22,         Change
                           2004           2003       Percentage Points
                       ------------   ------------   -----------------
<S>                    <C>            <C>            <C>
Product gross margin          36.9%          28.2%                 8.7
</TABLE>

Significant product sales in the prior year included the sale of a turnkey
system to our customer in Portugal, and significant product sales in the current
year included the sale of an interactive system to our customer in the United
Kingdom. Our product margins were up 8.7 percentage points over last year,
primarily due to the different mix of sales.

OPERATING EXPENSES

Operating expenses are comprised of selling, general and administrative (SG&A)
expenses, research and development (R&D) expenses and a special credit.

<TABLE>
<CAPTION>
                                      Fiscal Year Ended
                       -----------------------------------------------
                                                           Change
                       February 28,    February 22,    ---------------
                           2004            2003           $        %
                       ------------    ------------    ------    -----
                                    (dollars in millions)
<S>                    <C>             <C>             <C>       <C>
SG&A expenses          $      109.1    $      96.1      $13.0     13.5
R&D expenses                   57.3           42.9       14.4     33.6
Special credit                   --           (1.1)       1.1    100.0
                       ------------    -----------      -----    -----
                       $      166.4    $     137.9      $28.5     20.7
                       ============    ===========      =====    =====

PERCENTAGE OF TOTAL REVENUE

SG&A expenses                  10.4%           9.8%
R&D expenses                    5.5%           4.4%
</TABLE>

The $13.0 million increase in SG&A expenses was primarily driven by increased
business development activities in Poland and Mexico associated with our
commercial services business and the consolidation of PolCard and Interlott. The
$14.4 million increase in R&D expenses was primarily due to our continued
efforts to accelerate the development and deployment of Enterprise Series into
the marketplace.
<PAGE>
INTEREST INCOME

<TABLE>
<CAPTION>
                                                Fiscal Year Ended
                                  ---------------------------------------------
                                                                     Change
                                  February 28,    February 22,   --------------
                                      2004            2003         $         %
                                  ------------    ------------   ----      ----
                                              (dollars in millions)
<S>                               <C>             <C>            <C>       <C>
Interest income                   $        5.7    $        3.8   $1.9      50.0
</TABLE>

Interest income was up $1.9 million reflecting interest earned on the cash
proceeds from the $250 million of debt issued in the third quarter of fiscal
2004.

EQUITY EARNINGS

<TABLE>
<CAPTION>
                                                Fiscal Year Ended
                                  ---------------------------------------------
                                                                    Change
                                  February 28,   February 22,   ---------------
                                      2004           2003         $         %
                                  ------------   ------------   -----     -----
                                              (dollars in millions)
<S>                               <C>            <C>            <C>       <C>
Equity earnings                   $        6.2   $        7.4   $(1.2)    (16.2)
</TABLE>

Equity earnings were down $1.2 million due to lower equity income resulting
principally from lower revenues generated by our joint venture in Taiwan.

OTHER INCOME (EXPENSE)

The components of other income in fiscal 2004 and fiscal 2003 are as follows:

<TABLE>
<CAPTION>
                                                 Fiscal Year Ended
                                  ----------------------------------------------
                                                                     Change
                                  February 28,   February 22,   ----------------
                                      2004           2003         $         %
                                  ------------   ------------   -----   --------
                                               (dollars in millions)
<S>                               <C>            <C>            <C>     <C>
One-time, non-cash gain           $       5.3    $        --    $ 5.3     >100.0
Minority interest in
   consolidated subsidiaries             (4.5)          (0.6)    (3.9)   (>100.0)
Foreign exchange losses                  (0.2)           4.2     (4.4)   (>100.0)
Net charges associated with the
   early retirement of debt                --           (2.3)     2.3     >100.0
Other                                     1.3            0.9      0.4       44.4
                                  -----------    -----------    -----   --------
                                  $       1.9    $       2.2    $(0.3)     (13.6)
                                  ===========    ===========    =====   ========
</TABLE>

The $5.3 million one-time, non-cash, pre-tax gain resulting from the
consolidation of the partnership that owns our world headquarters facilities was
recorded in compliance with Financial Accounting Standards Board Interpretation
No. 46, "Consolidation of Variable Interest Entities".

INCOME TAXES

Our effective income tax rate decreased from 38% in fiscal 2003 to 37% in fiscal
2004 principally due to a larger percentage of international profits taxed at
rates that are lower than the U.S. statutory tax rate.
<PAGE>
WEIGHTED AVERAGE DILUTED SHARES

Weighted average diluted shares in fiscal 2004 increased by 3.1 million shares
to 132.6 million shares. We adopted EITF 04-8 in December 2004, which requires
the inclusion of all 12.7 million shares underlying our $175 million principal
amount of 1.75% Convertible Debentures in prior periods' diluted earnings per
share computations, if dilutive, regardless of whether the conversion
requirements have been met. The adoption of EITF 04-8 resulted in a decrease to
diluted earnings per share of $0.02 and $0.10 in fiscal 2004 and 2003,
respectively.

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION

We believe our ability to generate cash from operations to reinvest in our
business is one of our fundamental financial strengths and we expect to meet our
financial commitments and operating needs in the foreseeable future. We expect
to use cash generated from operating activities primarily for contractual
obligations and to pay dividends. We expect our growth to be financed through a
combination of cash generated from operating activities, existing sources of
liquidity, access to capital markets and other sources of capital. Our debt
ratings of Baa1 (stable outlook) from Moody's and BBB (stable outlook) from
Standard and Poor's contribute to our ability to access capital markets at
attractive prices.

ANALYSIS OF CASH FLOWS

During fiscal 2005, we generated $375.2 million of cash from operations. This
cash, along with cash generated by the sale of available-for-sale investment
securities, was principally used to fund the Spielo, LILHCo and BillBird
acquisitions of $200.7 million and to fund $245.6 million of systems, equipment
and other assets relating to contracts. In addition, we issued $300 million of
Senior Notes during the third quarter of fiscal 2005; repaid the remaining $90.0
million of our 7.87% Senior Notes; repurchased $120.7 million, or 5,262,900
shares of our common stock; and paid cash dividends of $39.8 million. At
February 26, 2005, we had $94.4 million of cash and cash equivalents and $196.8
million of short-term investment securities on hand.

Our business is capital-intensive. We currently estimate that net cash to be
used for investing activities in fiscal 2006 will be in the range of $240
million to $250 million. We expect our principal sources of liquidity to be
existing cash and short-term investment securities balances, along with cash we
generate from operations and borrowings under our revolving credit facility. Our
credit facility provides for an unsecured revolving line of credit of $500
million and matures in October 2009. There were no borrowings under the credit
facility as of February 26, 2005. Up to $100 million of the Credit Facility may
be used for the issuance of letters of credit. As of February 26, 2005, after
considering $7.8 million of letters of credit issued and outstanding, there was
$492.2 million available for borrowing under the credit facility. The credit
facility contains various covenants, including among other things, requirements
relating to the maintenance of certain financial ratios. None of these covenants
are expected to impact our liquidity or capital resources. There are no
covenants in our credit facility that restrict our ability to pay dividends. At
February 26, 2005 we were in compliance with all applicable covenants.
<PAGE>
We currently expect that our cash flow from operations, existing cash, available
borrowings under our credit facility and access to additional sources of capital
will be sufficient, for the foreseeable future, to fund our anticipated working
capital and ordinary capital expenditure needs, to service our debt obligations,
to fund anticipated internal growth, to fund all or a portion of the cash needed
for potential acquisitions, to pay dividends, to fund the capital requirements
under our Master Contract with the Rhode Island Lottery and to repurchase shares
of our common stock, from time to time, under our share repurchase programs. We
may also seek alternative sources of financing to fund certain of our
obligations under our Master Contract with the Rhode Island Lottery and to fund
future potential acquisitions and growth opportunities that are not currently
contemplated in the $240 million to $250 million we estimate we will need in
fiscal 2006 for the uses disclosed above.

FINANCIAL POSITION

Our balance sheet as of February 26, 2005, as compared to our balance sheet as
of February 28, 2004, was impacted by the acquisitions of Spielo, LILHCo and
BillBird. Drivers of the material changes in each specific balance sheet
category are described below.

Trade accounts receivable, net increased by $49.8 million, from $118.9 million
at February 28, 2004 to $168.7 million at February 26, 2005, primarily due to
current year receivables from product sale customers in Spain and Germany and
receivables at PolCard, Spielo and BillBird.

Inventories decreased by $15.7 million, from $76.8 million at February 28, 2004
to $61.1 million at February 26, 2005, primarily due to lower inventory related
to the sale of lottery terminals and a communications network to our customer in
Belgium, along with lower inventory related to the sale of an Enterprise Series
central system to our customer in West Lotto, Germany, partially offset by
inventory associated with the acquisition of Spielo.

Systems, equipment and other assets relating to contracts, net, increased by
$129.0 million, from $591.4 million at February 28, 2004 to $720.4 million at
February 26, 2005, primarily due to the purchase of $245.6 million of systems,
equipment and other assets relating to contracts (principally related to
spending in Florida, Wisconsin and Illinois, along with the acquisitions of
Spielo and LILHCo), partially offset by depreciation expense.

Goodwill, net, increased by $142.4 million, from $188.6 million at February 28,
2004 to $331.0 million at February 26, 2005 primarily due to the acquisitions of
Spielo, LILHCo and BillBird.

Intangible assets, net, increased by $42.6 million, from $28.2 million at
February 28, 2004 to $70.8 million at February 26, 2005 due to intangible assets
recorded as a result of our acquisitions of Spielo, LILHCo and BillBird.

Sales-type lease receivables decreased by $12.9 million, from $17.7 million at
February 28, 2004 to $4.8 million at February 26, 2005, primarily due to the
deconsolidation of our 40% interest in Wireless Business Solutions (Proprietary)
Limited ("WBS"). In fiscal 2005, we determined that we no longer had a
controlling interest in WBS that would require consolidation in our financial
statements due principally to the expiration of our guarantee of loans made by
an unrelated commercial lender to WBS and we now account for WBS using the
equity method of accounting.

Accounts payable increased by $19.2 million, from $80.0 million at February 28,
2004 to $99.2 million at February 26, 2005, primarily due to the acquisitions of
Spielo, LILHCo and BillBird.
<PAGE>

Employee compensation decreased by $12.1 million, from $34.0 million at February
28, 2004 to $21.9 million at February 26, 2005, primarily due to lower
provisions for incentive compensation, along with the elimination of profit
sharing.

Advance payments from customers decreased by $61.2 million, from $104.1 million
at February 28, 2004 to $42.9 million at February 26, 2005, primarily due to the
recognition of sales of lottery terminals and a communications network to our
customer in Belgium and Enterprise Series central system to our customer in West
Lotto, Germany.

Deferred revenue and advance billings increased by $15.2 million, from $14.5
million at February 28, 2004 to $29.7 million at February 26, 2005, primarily
due to deferred revenue related to a central system sale to our customer in West
Lotto, Germany, along with customer progress billings related to product sales
expected to be recorded in the first quarter of fiscal 2006.

Current portion of long-term debt decreased by $103.8 million, from $106.3
million at February 28, 2004 to $2.5 million at February 26, 2005, primarily due
to the repurchase in the first quarter of fiscal 2005 of the remaining $90.0
million of our 7.87% Senior Notes.

Long-term debt, less current portion increased by $263.1 million, from $463.2
million at February 28, 2004 to $726.3 million at February 26, 2005, primarily
due to proceeds from the issuance of $150 million of 4.50% Senior Notes and $150
million of 5.25% Senior Notes during the third quarter of fiscal 2005, partially
offset by the repayment of the $27.9 million loan on our world headquarters
facilities.

Other liabilities increased by $29.6 million, from $53.7 million at February 28,
2004 to $83.3 million at February 26, 2005, primarily due to an advance payment
we received from our customer in California.

Deferred income taxes increased by $44.3 million, from $61.7 million at February
28, 2004 to $106.0 million at February 26, 2005, primarily due to deferred taxes
associated with the Spielo, LILHCo and BillBird acquisitions, along with
accelerated tax deductions relating to depreciation on fiscal 2005 investments
in systems and equipment for new and existing customer contracts.

The cost of treasury shares decreased by $437.8 million, from $473.7 million at
February 28, 2004 to $35.9 million at February 26, 2005, primarily due to the
constructive retirement of 69.8 million treasury shares on July 29, 2004 (stated
on the basis reflecting the stock split which occurred subsequent to the
constructive retirement).
<PAGE>
CONTRACTUAL OBLIGATIONS

As of February 26, 2005, the Company's contractual obligations, including
payments due by period, are as follows (in millions):

<TABLE>
<CAPTION>
                                             Fiscal
                   ----------------------------------------------------------
                    2006    2007   2008   2009    2010    Thereafter    Total
                   -----   -----   ----   ----   ------   ----------   ------
<S>                <C>     <C>     <C>    <C>    <C>      <C>          <C>
Long-term debt     $ 2.5   $ 2.7   $ --   $ --   $149.3   $    574.3   $728.8
Operating leases    20.6    15.4    7.4    4.9      3.9          4.3     56.5
                   -----   -----   ----   ----   ------   ----------   ------
Total              $23.1   $18.1   $7.4   $4.9   $153.2   $    578.6   $785.3
                   =====   =====   ====   ====   ======   ==========   ======
</TABLE>

LONG-TERM DEBT

In December 2001, Holdings issued, in a private placement, $175 million
principal amount of 1.75% Convertible Debentures due December 15, 2021 (the
"Debentures"). On or after December 15, 2006, we may redeem for cash, all or
part of the Debentures at a redemption price equal to 100% of the principal
amount of the Debentures, plus accrued interest up to, but not including, the
date of redemption. Holders of the Debentures may require us to repurchase all
or part of their Debentures on December 15, 2004, December 15, 2006, December
15, 2011 and December 15, 2016 at a price equal to 100% of the principal amount
of the Debentures, plus accrued interest. We may choose to pay the purchase
price in cash, shares of our common stock, or a combination of both. If we elect
to pay any of the purchase price in shares, the number of shares we are required
to deliver is equal to the portion of the purchase price paid in shares divided
by 95% of the fair value of the shares at the time of settlement. In addition,
upon a change in control of our Company occurring on or before December 15,
2021, each Debenture holder may require us to repurchase all or a portion of
such holder's Debentures for cash. No Debentures were tendered for repurchase on
December 15, 2004.

Our scheduled debt maturities above assume holders of the Debentures do not
require us to repurchase all or a part of them on December 15, 2006 and also
assumes that we do not redeem them for cash on or after December 15, 2006.

OPERATING LEASES

We lease certain facilities, equipment and vehicles under noncancelable
operating leases that expire at various dates through fiscal 2015. Certain of
these leases have escalation clauses and renewal options. We are required to pay
all maintenance costs, taxes and insurance premiums relating to our leased
assets. The amounts included in the table above represent our future minimum
lease payments for noncancelable operating leases with initial lease terms in
excess of one year.
<PAGE>
COMMITMENTS

PERFORMANCE AND OTHER BONDS

In connection with certain contracts and procurements, we have been required to
deliver performance bonds for the benefit of our customers and bid and
litigation bonds for the benefit of potential customers, respectively. These
bonds give the beneficiary the right to obtain payment and/or performance from
the issuer of the bond if certain specified events occur. In the case of
performance bonds, which generally have a term of one year, such events include
our failure to perform our obligations under the applicable contract. To obtain
these bonds, we are required to indemnify the issuers against the costs they
incur if a beneficiary exercises its rights under a bond. Historically, our
customers have not exercised their rights under these bonds and we do not
currently anticipate they will do so. The following table provides information
related to potential commitments at February 26, 2005:

<TABLE>
<CAPTION>
                    Total Potential
                      Commitments
                    ---------------
                     (in millions)
<S>                 <C>
Performance bonds   $         208.1
Litigation bonds                6.8
All other bonds                 4.3
                    ---------------
                    $         219.2
                    ===============
</TABLE>

MASTER CONTRACT WITH THE RHODE ISLAND LOTTERY

In May 2003, we entered into a Master Contract with the Rhode Island Lottery
(the "Lottery") that amends our existing contracts with the Lottery and grants
us the right to be the exclusive provider of online, instant ticket and video
lottery central systems and services for the Lottery during the 20-year term of
the Master Contract for a $12.5 million up-front license fee which we paid in
July 2003. Under the terms of the Master Contract, we are to invest (or cause to
be invested) at least $100 million in the State of Rhode Island, in the
aggregate, by December 31, 2008. We currently plan to satisfy our obligation to
invest (or cause to be invested) at least $100 million in the State of Rhode
Island by December 31, 2008 as follows: (i) approximately $24 million that was
invested during fiscal 2004; (ii) approximately $15 million that was invested
during fiscal 2005; (iii) approximately $45 million that will be invested during
fiscal 2006; and (iv) the balance that will be invested during fiscal 2007. The
Lottery may terminate the Master Contract in the event that we fail to meet our
obligations as stated above.

In addition, in July 2003 we entered into a tax stabilization agreement with the
City of Providence (the "City"), whereby the City agreed to stabilize the real
estate and personal property taxes payable in connection with our new world
headquarters facility in the City for 20 years. We also agreed to complete and
occupy the facility by December 31, 2006, employ 500 employees at the facility
by 2009, and we made certain commitments regarding our employment, purchasing
and education activities in the City.
<PAGE>
ACQUISITION OF ATRONIC

In December 2004, we entered into an agreement to acquire a 50% controlling
equity position in the Atronic group of companies ("Atronic") owned by the
owners of the privately-held Gauselmann Group ("Gauselmann"). The remaining 50%
of Atronic will be retained by the owners of Gauselmann. Atronic is a video slot
machine manufacturer and develops slot machine games and customized solutions
for dynamic gaming operations.

The final purchase price for Atronic will be calculated through a
performance-based formula equal to eight times Atronic's EBITDA (earnings before
interest, taxes, depreciation and amortization) for its fiscal year ending
December 31, 2006. In addition, in the 12 months after the closing, Atronic will
also have the potential to receive an earn-out amount based on its 2007
performance above specified thresholds. We currently expect the all-cash
transaction will have a total value of approximately $100 million to $150
million, for our 50% share, including the assumption of debt.

Beginning in 2012, we have the option to purchase Gauselmann's interest in
Atronic and Gauselmann has a reciprocal right to sell its interest to us at a
value determined by independent appraisers. There are also mutual put/call
rights that may become effective before 2012, under certain circumstances. The
exercise price under these circumstances will be calculated through a
performance based formula. This transaction is contingent upon regulatory and
gaming license approvals and other closing conditions, and is expected to be
completed on December 31, 2006.

OPTION TO PURCHASE POLCARD OUTSTANDING EQUITY

In May 2003, we completed the acquisition of a controlling equity position in
PolCard S.A. ("PolCard"), for a purchase price, net of cash acquired, of $35.9
million. PolCard is the leading debit and credit card merchant transaction
acquirer and processor in Poland. In August 2003, PolCard's outstanding equity
was owned 66.5% by us, 33.2% by two funds managed by Innova Capital Sp. z o.o.
("Innova"), a Warsaw-based private equity investment advisor, and 0.3% by the
Polish Bank Association, one of PolCard's previous owners. In September 2003,
Innova exercised its rights under an option agreement to purchase from us, 3.7%
of PolCard's equity for a purchase price of $2.3 million. Following the exercise
of this right, we now own 62.8% of PolCard's outstanding equity, while the two
funds managed by Innova own, in aggregate, 36.9% of PolCard's outstanding
equity. The Polish Bank Association continues to own 0.3% of the outstanding
equity of PolCard. Approval of this transaction by our shareholders was not
required.

We have three fair value options to purchase Innova's interest in PolCard, and
Innova has the reciprocal right to sell its interest in PolCard to us at fair
value. Each fair value option has a duration of 90 days and is to be based on an
appraised value from at least two investment banks at the date of each option
period. We estimate that the buyout prices of each fair value option, based on
discounted cash flows, could be as follows:

<TABLE>
<CAPTION>
                               Buyout Percentage
                                 of the PolCard         Range of
Exercise Date Commencing In   Outstanding Equity      Buyout Price
---------------------------   ------------------   ------------------
<S>                           <C>                  <C>
May 2007                             18.5%         $29 to $44 million
May 2008                              9.2%         $16 to $25 million
May 2009                              9.2%         $18 to $28 million
</TABLE>
<PAGE>
FINANCIAL RISK MANAGEMENT AND DIVIDEND POLICY

FINANCIAL RISK MANAGEMENT

The primary market risk inherent in our financial instruments and exposures is
the potential loss arising from adverse changes in interest rates and foreign
currency exchange rates. Our exposure to commodity price changes is not
considered material and is managed through our procurement and sales practices.
We use various techniques to manage our market risks, including from time to
time, the use of derivative instruments. We manage our exposure to counterparty
credit risk by entering into financial instruments with major, financially sound
counterparties with high-grade credit ratings and by limiting exposure to any
one counterparty. We do not engage in currency or interest rate speculation.

INTEREST RATE MARKET RISK

Interest rate market risk is estimated as the potential change in the fair value
of our total debt or current earnings resulting from a hypothetical 10% adverse
change in interest rates.

The estimated fair value of our long-term debt and change in the estimated fair
value due to hypothetical changes in interest rates are as follows (dollars in
millions):

<TABLE>
<CAPTION>
                                                     Estimated Fair Value
                                     ---------------------------------------------------
                                     At February 26,   10% Increase in   10% Decrease in
                                           2005         Interest Rates    Interest Rates
                                     ---------------   ---------------   ---------------
<S>                                  <C>               <C>               <C>
$250 million of 4.75% Senior Notes   $         247.9   $         246.7   $         249.1

$150 million of 4.50% Senior Notes             149.0             146.8             151.2

$150 million of 5.25% Senior Notes             149.0             144.5             153.7

$175 million of 1.75% Convertible
   Debentures                                  304.5             304.2             304.9
</TABLE>

The estimated fair values above were determined by an independent investment
banker. The values of the Senior Notes were determined after taking into
consideration $225 million of interest rate swaps as follows:

<TABLE>
<CAPTION>
                                           Estimated Fair Value
                                     ---------------------------------
                                     Debt Fair         Interest Rate
                                       Value         Swaps Outstanding
                                     ---------       -----------------
<S>                                  <C>             <C>
$250 million of 4.75% Senior Notes   $   247.9       $           150.0

$150 million of 4.50% Senior Notes       149.0                    50.0

$150 million of 5.25% Senior Notes       149.0                    25.0
</TABLE>

A hypothetical 10% adverse or favorable change in interest rates applied to
variable rate debt would not have a material effect on current earnings.

We use various techniques to mitigate the risk associated with future changes in
interest rates, including entering into interest rate swap and treasury rate
lock agreements.
<PAGE>
INTEREST RATE SWAP AGREEMENTS

During the third quarter of fiscal 2005, in conjunction with the issuance of
$300 million of Senior Notes, we entered into interest rate swap agreements that
effectively convert $50 million of our Senior Notes from a fixed rate to a
floating rate for the period November 2004 to December 2009 and $25 million of
our Senior Notes from a fixed rate to a floating rate for the period November
2004 to December 2014.

TREASURY RATE LOCK AGREEMENTS

In the third quarter of fiscal 2005, we entered into agreements to lock in
interest rates to hedge against potential increases to interest rates prior to
the issuance of our 4.50% Senior Notes and 5.25% Senior Notes. We determined
that the treasury rate lock agreements were highly effective and qualified for
hedge accounting. All treasury rate lock agreements have matured. The related
gains of $2.0 million were deferred and recorded in Accumulated Other
Comprehensive Loss in our Consolidated Balance Sheet at February 26, 2005 and
are being amortized to interest expense over the life of the respective debt
instrument.

EQUITY PRICE RISK

The estimated fair value of our $175 million of 1.75% Convertible Debentures and
change in the estimated fair value due to hypothetical changes in the market
price of our common stock is as follows (dollars in millions):

<TABLE>
<CAPTION>
                                                    Estimated Fair Value
                                    ---------------------------------------------------
                                                      10% Increase in   10% Decrease in
                                    At February 26,   Market Price of   Market Price of
                                          2005          Common Stock      Common Stock
                                    ---------------   ---------------   ---------------
<S>                                 <C>               <C>               <C>
$175 million of 1.75% Convertible
   Debentures                       $         304.5   $         333.4   $         278.7
</TABLE>

The estimated fair values above were determined by an independent investment
banker and were based on a quoted market price of $1,740.00 per Debenture.

FOREIGN CURRENCY EXCHANGE RATE RISK

We are subject to foreign exchange exposures arising from current and
anticipated transactions denominated in currencies other than our functional
currency, which is United States dollars, and from the translation of foreign
currency balance sheet accounts into United States dollar balance sheet
accounts.

We seek to manage our foreign exchange risk by securing payment from our
customers in United States dollars, by sharing risk with our customers, by
utilizing foreign currency borrowings, by leading and lagging receipts and
payments, and by entering into foreign currency exchange and option contracts.
In addition, a significant portion of the costs attributable to our foreign
currency revenues are payable in the local currencies. In limited circumstances,
but whenever possible, we negotiate clauses into our contracts that allow for
price adjustments should a material change in foreign exchange rates occur.
<PAGE>
From time to time, we enter into foreign currency exchange and option contracts
to reduce the exposure associated with certain firm commitments, variable
service revenues and certain assets and liabilities denominated in foreign
currencies, but we do not engage in foreign currency speculation. These
contracts generally have maturities of 12 months or less and are regularly
renewed to provide continuing coverage throughout the year.

As of February 26, 2005, we had contracts for the sale of foreign currency of
approximately $49.0 million (primarily Euro and pounds sterling) and the
purchase of foreign currency of approximately $46.4 million (primarily Brazilian
real, pounds sterling, New Taiwan dollars and Canadian dollars). Comparatively,
as of February 28, 2004, we had contracts for the sale of foreign currency of
approximately $63.8 million (primarily Euro and pounds sterling) and the
purchase of foreign currency of approximately $45.3 million (primarily Brazilian
real, pounds sterling, Swedish krona, and New Taiwan dollars). Refer to Note 13
to the consolidated financial statements for additional information.

At February 26, 2005 and February 28, 2004, a hypothetical 10% adverse change in
foreign exchange rates would result in a translation loss of $24.2 million and
$22.6 million, respectively, that would be recorded in the equity section of our
balance sheet.

At February 26, 2005 and February 28, 2004, a hypothetical 10% adverse change in
foreign exchange rates would result in a net pre-tax transaction loss of $3.6
million and $2.0 million, respectively, that would be recorded in current
earnings after considering the effects of foreign exchange contracts currently
in place.

At February 26, 2005, a hypothetical 10% adverse change in foreign exchange
rates would result in a net reduction of cash flows from anticipatory
transactions in fiscal 2006 of $20.6 million, after considering the effects of
foreign exchange contracts currently in place. The percentage of fiscal 2005 and
2004 anticipatory cash flows that were hedged varied throughout each fiscal
year, but averaged 56% in fiscal 2005 compared to 63% in fiscal 2004.

DIVIDEND POLICY

We are committed to returning value to our shareholders. Beginning in the second
quarter of fiscal 2004, we commenced paying cash dividends on our common stock
of $0.085 per share, equivalent to a full-year dividend of $0.34 per share. We
currently plan to continue paying dividends in the foreseeable future.
<PAGE>
SUBSEQUENT EVENTS


DEVELOPMENTS IN BRAZIL

As described above, a June 25, 2004 ruling (the "Ruling") in a civil action
initiated by federal attorneys with Brazil's Public Ministry had the effect in
fiscal 2005 of materially reducing payments that we otherwise would have
received from our lottery contract with Caixa Economica Federal ("CEF"), our
customer and the operator of Brazil's National Lottery, which expires in May
2005.  The Ruling ordered that 30% of payments subsequent to the Ruling due to
GTECH Brasil Ltda., our Brazilian subsidiary ("GTECH Brazil") from CEF, be
withheld and deposited in an account maintained by the Court.  As of February
26, 2005, the total amount withheld and deposited in an account maintained by
the Court was approximately 68 million Brazilian reals, or $26 million.  In
fiscal 2005, we did not recognize service revenues for the payments that were
withheld from GTECH Brazil, as realization of these amounts was not reasonably
assured.

In July 2004 we filed an appeal of the Ruling and in March 2005 (after the close
of fiscal 2005), an appellate court decision ordered that the withholding be
discontinued and that all funds currently held in escrow in excess of 40 million
Brazilian reals be returned to us, which amounts to $11 million of the $26
million withheld as of February 26, 2005.  We received and recognized these
funds as service revenue on April 13, 2005.  In addition, the Ruling ordered
that all assets of GTECH Brazil be identified to the Court so as to prevent
their transfer or disposition, a requirement that was also subsequently reversed
by the appellate court decision in March 2005.  Refer to Part I, Item 3, "Legal
Proceedings - Brazilian Legal Proceedings, The CEF Contract Proceedings," and
Note 14 to the consolidated financial statements for detailed disclosures
regarding this matter.

ATRONIC

As described above, in December 2004, we entered into an agreement to acquire a
50% controlling equity position in the Atronic group of companies ("Atronic")
owned by the owners of the privately-held Gauselmann Group ("Gauselmann"). On
March 24, 2005, we guaranteed 50% of Atronic's obligations due under a Euro 50
million (approximately $65 million at the April 20, 2005 exchange rate) loan
made by an unrelated commercial lender to Atronic (the "Agreement"). Our maximum
liability under this guaranty is equal to the lesser of Euro 25 million
(approximately $33 million at the April 20, 2005 exchange rate) or 50% of
Atronic's outstanding obligations under the Agreement. The guarantee arose in
connection with our planned acquisition of Atronic on December 31, 2006. We
would be required to perform under the guaranty should Atronic fail to make any
interest or principal payments in accordance with the terms and conditions of
the Agreement. Our guarantee expires on April 26, 2010.

LOXLEY GTECH PRIVATE LIMITED

We have a 49% interest in Loxley GTECH Private Limited Co. ("LGT"), which is
accounted for using the equity method of accounting. LGT is a corporate joint
venture that is expected to provide the online lottery system in Thailand. On
March 29, 2005, in order to assist LGT with obtaining the financing they require
to enable them to perform under their anticipated obligation to operate the
online lottery system in Thailand, we guaranteed, along with the other 51%
shareholder in LGT, Baht 1.925 billion (approximately $49 million at the April
20, 2005 exchange rate) principal amount in loans and Baht 455 million
(approximately $12 million at the April 20, 2005 exchange rate) in performance
bonds and trade finance facilities made to LGT by an unrelated commercial lender
(collectively the "Facilities"). We are jointly and severally liable with the
other shareholder in LGT for this guarantee. We would be required to perform
under the guaranty should LGT fail to make interest or principal payments in
accordance with the terms and conditions of the Facilities. Our guarantee
obligations will not commence until LGT enters into a definitive agreement with
the government, which we currently expect will take place in the second quarter
of fiscal 2006, and will terminate upon the start-up of the online lottery
system in Thailand, which is currently expected to occur in the fourth quarter
of fiscal 2006.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk disclosures are included in Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" above.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Shareholders
GTECH Holdings Corp.

We have audited the accompanying consolidated balance sheets of GTECH Holdings
Corporation and subsidiaries as of February 26, 2005 and February 28, 2004, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the three years in the period ended February 26, 2005. Our
audits also included the financial statement schedule listed in the index at
item 15(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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 referred to above present fairly, in
all material respects, the consolidated financial position of GTECH Holdings
Corporation and subsidiaries at February 26, 2005 and February 28, 2004, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended February 26, 2005, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, in 2005 the
Company retroactively changed the manner in which it calculates diluted earnings
per share upon the adoption of Emerging Issues Task Force Issue No. 04-08, The
Effect of Contingently Convertible Debt on Diluted Earnings per Share.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of GTECH Holdings
Corporation and subsidiaries' internal control over financial reporting as of
February 26, 2005, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated April 22, 2005 expressed an unqualified opinion
thereon.

                                               /s/ Ernst & Young LLP


Boston, Massachusetts
April 22, 2005
<PAGE>
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                           February 26,   February 28,
                                                                                               2005           2004
                                                                                           ------------   ------------
                                                                                              (Dollars in thousands)
<S>                                                                                        <C>            <C>
ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                                                               $     94,446   $    129,339
   Investment securities available-for-sale                                                     196,825        221,850
   Trade accounts receivable, net                                                               168,706        118,902
   Sales-type lease receivables                                                                   3,461          7,705
   Refundable performance deposit                                                                 8,000             --
   Inventories                                                                                   61,135         76,784
   Deferred income taxes                                                                         31,435         34,396
   Other current assets                                                                          26,646         24,426
                                                                                           ------------   ------------
      TOTAL CURRENT ASSETS                                                                      590,654        613,402

SYSTEMS, EQUIPMENT AND OTHER ASSETS RELATING TO CONTRACTS, net                                  720,438        591,362
GOODWILL, net                                                                                   331,022        188,612
PROPERTY, PLANT AND EQUIPMENT, net                                                               74,558         57,576
INTANGIBLE ASSETS, net                                                                           70,839         28,231
REFUNDABLE PERFORMANCE DEPOSIT                                                                   12,000         20,000
SALES-TYPE LEASE RECEIVABLES                                                                      4,756         17,653
OTHER ASSETS                                                                                     50,874         42,295
                                                                                           ------------   ------------
      TOTAL ASSETS                                                                         $  1,855,141   $  1,559,131
                                                                                           ============   ============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
   Accounts payable                                                                        $     99,234   $     80,004
   Accrued expenses                                                                              54,227         47,428
   Employee compensation                                                                         21,862         33,981
   Advance payments from customers                                                               42,865        104,128
   Deferred revenue and advance billings                                                         29,705         14,459
   Income taxes payable                                                                          16,499         12,394
   Taxes other than income taxes                                                                 16,572         19,459
   Short-term borrowings                                                                            334             --
   Current portion of long-term debt                                                              2,476        106,319
                                                                                           ------------   ------------
      TOTAL CURRENT LIABILITIES                                                                 283,774        418,172

LONG-TERM DEBT, less current portion                                                            726,329        463,215
OTHER LIABILITIES                                                                                83,260         53,736
DEFERRED INCOME TAXES                                                                           106,010         61,719
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 - 200,000,000 shares authorized,
      116,551,144 and 184,590,808 shares issued; 115,006,751 and 118,395,168 shares
      outstanding at February 26, 2005 and February 28, 2004, respectively                        1,166            923
   Additional paid-in capital                                                                   278,204        266,320
   Accumulated other comprehensive loss                                                         (43,227)       (70,508)
   Retained earnings                                                                            455,537        839,270
                                                                                           ------------   ------------
                                                                                                691,680      1,036,005
   Less cost of 1,544,393 and 66,195,640 shares in treasury at February 26, 2005 and
      February 28, 2004, respectively                                                           (35,912)      (473,716)
                                                                                           ------------   ------------
                                                                                                655,768        562,289
                                                                                           ------------   ------------
      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                           $  1,855,141   $  1,559,131
                                                                                           ============   ============
</TABLE>

See Notes to Consolidated Financial Statements
<PAGE>
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

<TABLE>
<CAPTION>
                                                                 Fiscal Year Ended
                                                    -------------------------------------------
                                                    February 26,    February 28,   February 22,
                                                        2005            2004           2003
                                                    -------------   ------------   ------------
                                                           (Dollars in thousands, except
                                                                 per share amounts)
<S>                                                 <C>             <C>            <C>
Revenues:
   Services                                         $   1,017,683   $    957,471   $    868,896
   Sales of products                                      239,552         93,859        109,894
                                                    -------------   ------------   ------------
                                                        1,257,235      1,051,330        978,790

Costs and expenses:
   Costs of services                                      616,633        537,839        535,041
   Costs of sales                                         157,974         59,226         78,943
                                                    -------------   ------------   ------------
                                                          774,607        597,065        613,984
                                                    -------------   ------------   ------------

Gross profit                                              482,628        454,265        364,806

Selling, general and administrative                       117,253        109,092         96,130
Research and development                                   52,559         57,318         42,852
Special credit                                                 --             --         (1,121)
                                                    -------------   ------------   ------------
   Operating expenses                                     169,812        166,410        137,861
                                                    -------------   ------------   ------------

Operating income                                          312,816        287,855        226,945

Other income (expense):
   Interest income                                          4,615          5,733          3,837
   Equity in earnings of unconsolidated affiliates          2,812          6,236          7,376
   Other income                                             5,356          1,889          2,175
   Interest expense                                       (19,213)       (10,919)       (11,267)
                                                    -------------   ------------   ------------
                                                           (6,430)         2,939          2,121
                                                    -------------   ------------   ------------

Income before income taxes                                306,386        290,794        229,066

Income taxes                                              109,992        107,594         87,045
                                                    -------------   ------------   ------------
Net income                                          $     196,394   $    183,200   $    142,021
                                                    =============   ============   ============
Basic earnings per share                            $        1.68   $       1.57   $       1.24
                                                    =============   ============   ============
Diluted earnings per share                          $        1.50   $       1.40   $       1.11
                                                    =============   ============   ============
Weighted average shares outstanding - basic               116,739        116,464        114,162
                                                    =============   ============   ============
Weighted average shares outstanding - diluted             132,559        132,625        129,509
                                                    =============   ============   ============
Cash dividends declared per common share            $        0.34   $      0.255   $         --
                                                    =============   ============   ============
</TABLE>

See Notes to Consolidated Financial Statements
<PAGE>
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                 Fiscal Year Ended
                                                                                 --------------------------------------------------
                                                                                 February 26,       February 28,       February 22,
                                                                                     2005               2004               2003
                                                                                 ------------       ------------       ------------
                                                                                               (Dollars in thousands)
<S>                                                                              <C>                <C>                <C>
OPERATING ACTIVITIES
Net income                                                                       $    196,394       $    183,200       $    142,021
Adjustments to reconcile net income to net cash
   provided by operating activities:
      Depreciation                                                                    145,999            115,324            133,452
      Intangibles amortization                                                         12,616              3,735              4,733
      Deferred income taxes                                                            34,740             59,457             (1,567)
      Tax benefit related to stock award plans                                         11,254             10,432              8,037
      Minority interest                                                                 3,799              4,502                578
      Equity in earnings of unconsolidated
         affiliates, net of dividends received                                          3,461              1,672                316
      Gain on sale of investment                                                      (10,924)                --                 --
      Non-cash gain from consolidation of West
         Greenwich Technology Associates, L.P.                                             --             (5,292)                --
      Termination of interest rate swaps                                                   --                 --             11,357
      Other                                                                            16,438             10,726              2,740
      Changes in operating assets and liabilities:
         Trade accounts receivable                                                    (48,207)             3,788            (12,007)
         Inventories                                                                   28,522              3,030             14,387
         Accounts payable                                                              14,248              2,186             13,734
         Employee compensation                                                        (15,118)            (4,231)            (1,022)
         Advance payments from customers                                              (33,994)            51,601            (10,109)
         Deferred revenue and advance billings                                         15,037             (2,979)             6,954
         Income taxes payable                                                          11,484            (27,649)             5,590
         Other assets and liabilities                                                 (10,540)             5,565             13,062
                                                                                 ------------       ------------       ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                             375,209            415,067            332,256

INVESTING ACTIVITIES
Acquisitions (net of cash acquired)                                                  (200,730)           (74,442)                --
Purchases of systems, equipment and other assets
   relating to contracts                                                             (245,592)          (268,010)          (155,556)
Purchases of available-for-sale investment securities                                (246,975)          (242,050)                --
Maturities and sales of available-for-sale
   investment securities                                                              272,000             20,200                 --
Proceeds from sale of investments                                                      11,773                 --              2,560
Purchases of property, plant and equipment                                            (12,875)           (12,772)            (5,612)
Increase in restricted cash                                                            (5,112)                --                 --
Investments in and advances to unconsolidated
   subsidiaries                                                                        (2,071)            (2,885)                --
Refundable performance deposit                                                             --            (20,000)                --
License fee                                                                                --            (12,500)                --
                                                                                 ------------       ------------       ------------
NET CASH USED FOR INVESTING ACTIVITIES                                               (429,582)          (612,459)          (158,608)

FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt                                          343,254            252,588                 --
Principal payments on long-term debt                                                 (167,692)           (33,293)           (47,416)
Purchases of treasury stock                                                          (120,658)                --            (64,032)
Dividends paid                                                                        (39,830)           (29,977)                --
Premiums and fees paid in connection with the early
   retirement of debt                                                                 (10,610)              (731)            (3,434)
Proceeds from stock options                                                            13,546             23,943             16,867
Other                                                                                    (505)            (6,324)             1,822
                                                                                 ------------       ------------       ------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES                                   17,505            206,206            (96,193)

Effect of exchange rate changes on cash                                                 1,975              4,351              3,624
                                                                                 ------------       ------------       ------------
INCREASE (DECREASE) IN CASH AND CASH  EQUIVALENTS                                     (34,893)            13,165             81,079

Cash and cash equivalents at beginning of year                                        129,339            116,174             35,095
                                                                                 ------------       ------------       ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                         $     94,446       $    129,339       $    116,174
                                                                                 ============       ============       ============
</TABLE>

See Notes to Consolidated Financial Statements
<PAGE>
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                      Accumulated
                                                                         Additional      Other
                                                    Outstanding  Common    Paid-in   Comprehensive   Retained   Treasury
                                                       Shares     Stock    Capital        Loss       Earnings    Stock      Total
                                                    -----------  ------  ----------  -------------  ---------  ---------  ---------
                                                                                 (Dollars in thousands)
<S>                                                 <C>          <C>     <C>         <C>            <C>        <C>        <C>
Balance at February 23, 2002                        114,982,512  $  461  $  227,239  $    (100,815) $ 542,878  $(466,808) $ 202,955

Comprehensive income:
   Net income                                                --      --          --             --    142,021         --    142,021
   Other comprehensive income (loss), net of tax:
      Foreign currency translation, net of tax
         benefits of $13 million                             --      --          --          5,344         --         --      5,344
      Unrecognized net gain on derivative
         instruments                                         --      --          --             91         --         --         91
      Unrealized loss on investments                         --      --          --           (108)        --         --       (108)
                                                                                                                          ---------
Comprehensive income                                                                                                        147,348
Treasury shares purchased                            (4,760,000)     --          --             --         --    (64,032)   (64,032)
Shares issued under employee stock purchase
   and stock award plans                                497,250      --          --             --        906      3,485      4,391
Shares issued upon exercise of stock options          2,556,900      --         (10)            --       (690)    17,567     16,867
Tax benefits related to stock award plans                    --      --       8,037             --         --         --      8,037
May 2002 two-for-one stock split                             --     462          --             --       (462)        --         --
                                                    -----------  ------  ----------  -------------  ---------  ---------  ---------
Balance at February 22, 2003                        113,276,662  $  923  $  235,266  $     (95,488) $ 684,653  $(509,788) $ 315,566

Comprehensive income:
   Net income                                                --      --          --             --    183,200         --    183,200
   Other comprehensive income (loss), net of tax:
      Foreign currency translation, net of tax
         benefits of $13 million                             --      --          --         26,418         --         --     26,418
      Unrecognized net loss on derivative
         instruments                                         --      --          --         (1,423)        --         --     (1,423)
      Unrealized loss on investments                         --      --          --            (15)        --         --        (15)
                                                                                                                          ---------
Comprehensive income                                                                                                        208,180
Cash dividends on common stock ($0.255 per share)            --      --          --             --    (30,178)        --    (30,178)
Shares issued to acquire Interlott Technologies,
   Inc.                                               1,435,130      --      20,622             --         --     10,212     30,834
Shares issued under employee stock purchase
   and stock award plans                                424,024      --          --             --        843      2,669      3,512
Shares issued upon exercise of stock options          3,259,352      --          --             --        752     23,191     23,943
Tax benefits related to stock award plans                    --      --      10,432             --         --         --     10,432
                                                    -----------  ------  ----------  -------------  ---------  ---------  ---------
Balance at February 28, 2004                        118,395,168  $  923  $  266,320  $     (70,508) $ 839,270  $(473,716) $ 562,289

Comprehensive income:
   Net income                                                --      --          --             --    196,394         --    196,394
   Other comprehensive income (loss), net of tax:
      Foreign currency translation, net of tax
          benefits of $4 million                             --      --          --         24,618         --         --     24,618
      Unrecognized gain on interest rate locks               --      --          --          1,988         --         --      1,988
      Unrecognized net gain on derivative
         instruments                                         --      --          --            677         --         --        677
      Unrealized loss on investments                         --      --          --             (2)        --         --         (2)
                                                                                                                          ---------
Comprehensive income                                                                                                        223,675
Treasury stock purchased                             (5,262,900)     --          --             --         --   (120,658)  (120,658)
Cash dividends on common stock ($0.34 per share)             --      --          --             --    (40,101)        --    (40,101)
Shares issued under employee stock purchase
   and stock award plans                                356,699      --          --             --        724      4,409      5,133
Shares issued upon exercise of stock options          1,517,784      --          --             --    (11,320)    24,866     13,546
Stock option compensation                                    --      --         630             --         --         --        630
Tax benefits related to stock award plans                    --      --      11,254             --         --         --     11,254
Treasury stock retirement                                    --    (349)         --             --   (528,838)   529,187         --
July 2004 two-for-one stock split                            --     592          --             --       (592)        --         --
                                                    -----------  ------  ----------  -------------  ---------  ---------  ---------
Balance at February 26, 2005                        115,006,751  $1,166  $  278,204  $     (43,227) $ 455,537  $ (35,912) $ 655,768
                                                    ===========  ======  ==========  =============  =========  =========  =========
</TABLE>

See Notes to Consolidated Financial Statements
<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENSTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

GTECH Holdings Corporation ("Holdings") is a global gaming and technology
company providing software, networks and professional services that power
high-performance, transaction processing systems. We are the world's leading
operator of highly-secure online lottery transaction processing systems, doing
business in 54 countries worldwide and we have a growing presence in commercial
gaming technology and financial services transaction processing. We have a
single operating and reportable business segment, the Transaction Processing
segment. In these notes, the terms "Holdings," "Company," "we," "our," and "us"
refer to GTECH Holdings Corporation and all subsidiaries included in the
consolidated financial statements. Holdings conducts business through its
consolidated subsidiaries and unconsolidated affiliates and has, as its only
material asset, an investment in GTECH Corporation ("GTECH"), its wholly-owned
subsidiary.

BASIS OF PRESENTATION AND CONSOLIDATION

Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States and include the accounts of
Holdings, GTECH, and all majority-owned or controlled subsidiaries. We
consolidate all entities that we control as well as variable interest entities
for which we are the primary beneficiary.

We use the equity method to account for our investments in 20% to 50% owned
affiliates and investments in certain corporate joint ventures, providing we are
able to exercise significant influence over the investee's operating and
financial policies. Consolidated net income includes our share of the net
earnings of these companies. We account for our investments in less than 20%
owned affiliates under the cost method. All significant intercompany accounts
and transactions have been eliminated.

We operate on a 52-week or 53-week fiscal year ending on the last Saturday in
February. Fiscal 2005 and 2003 were 52-week years. Fiscal 2004 was a 53-week
year and we included the extra week in our fourth quarter ended February 28,
2004.

Certain amounts in the prior years' financial statements have been reclassified
to conform to the current year presentation.

REVENUE RECOGNITION

LOTTERY AND GAMING TRANSACTION PROCESSING SERVICES

We generally conduct our lottery and gaming business under two types of
contractual arrangements: Facilities Management Contracts and Product Sales
Contracts.

FACILITIES MANAGEMENT CONTRACTS

A majority of our revenues are derived from facilities management contracts,
under which we construct, install, operate and retain ownership of the online
lottery system ("lottery system"). These contracts generally provide for a
variable amount of monthly or weekly service fees paid to us directly from the
lottery authority based on a percentage of a lottery's gross online and instant
ticket sales or a percentage of net machine income. These fees are recognized as
revenue in the period earned and are classified as Service Revenue in our
Consolidated Income Statements when all of the following criteria are met:

-    Persuasive evidence of an arrangement exists, which is typically when a
     customer contract has been signed

-    Services have been rendered

-    Our fee is deemed to be fixed or determinable and free of contingencies or
     significant uncertainties

-    Collectibility is reasonably assured

In instances where customer acceptance of the product or system is required,
revenue is deferred until all the acceptance criteria have been met.

<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENSTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PRODUCT SALES CONTRACTS

Under product sales contracts, we construct, sell, deliver and install a turnkey
lottery system or deliver lottery equipment, and license the computer software
for a fixed price, and the lottery authority subsequently operates the lottery
system. Product sale contracts generally include customer acceptance provisions
and general customer rights to terminate the contract if we are in breach of the
contract.

Because product sales contracts include significant customization, modification
and other services prior to customer acceptance that are considered essential to
the lottery software inherent in our lottery systems, revenue is recognized
using contract accounting. Under contract accounting, amounts due to us, and
costs incurred by us in constructing the lottery system, prior to customer
acceptance, are deferred. Revenue attributable to the lottery system is
classified as Sales of Products in our Consolidated Income Statements and is
recognized upon customer acceptance as long as there are no substantial doubts
regarding collectibility.

Whenever we enter into a product sale contract that involves the delivery or
performance of multiple products and services that include the development and
customization of software, implementation services, and licensed software and
support services, we apply the consensus of EITF 00-21 "Revenue Arrangements
with Multiple Deliverables", to determine whether the non-customization related
deliverables specified in the contract should be treated as separate units of
accounting for revenue recognition purposes. If the elements qualify as separate
units of accounting, and fair value exists for the elements of the contract that
are unrelated to the customization services, these elements are accounted for
separately, and the related revenue is recognized as the products are delivered
or the services are rendered.

The application of revenue recognition principles requires judgment, including
whether our product sales contracts include multiple elements, and if so,
whether fair value exists for those elements. As a result, contract
interpretation is sometimes required to determine the appropriate accounting,
including whether the deliverables in a multiple element arrangement should be
treated as separate units of accounting for revenue recognition purposes, and if
so, the relative fair value that should be allocated to each of the elements and
when to recognize revenue for each element. Our interpretation would not affect
the amount of revenue recognized but could impact the timing of revenue
recognition.

Revenues attributable to any ongoing services provided subsequent to customer
acceptance are classified as Service Revenue in our Consolidated Income
Statements in the period earned.

In certain product sale contracts (primarily the stand alone sale of lottery or
video lottery terminals and software deliverables that do not involve
significant customization of software), we are not responsible for installation.
In these cases, we recognize revenue when all of the following criteria are met:

-    Persuasive evidence of an arrangement exists, which is typically when a
     customer contract has been signed

-    The product has been delivered

-    Our fee is deemed to be fixed or determinable and free of contingencies or
     significant uncertainties

-    Collectibility is reasonably assured

In instances where installation and/or customer acceptance of the product is
required, revenue is deferred until installation is complete and any acceptance
criteria have been met.

Our typical payment terms under product sale contracts include customer progress
payments based on specific contract milestones with final payment due on or
shortly after customer acceptance. We do not generally offer our customers
payment terms that extend substantially beyond customer acceptance. In the rare
case that we provide a customer with extended payment terms, we defer revenue
equal to the amount of the extended payment until it is received.
<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENSTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

NON-LOTTERY TRANSACTION PROCESSING SERVICES

We offer high-volume transaction processing services outside of our core market
of providing online lottery services that consist of the acquiring, processing
and transmission of commercial non-lottery transactions. Such transactions
include retail debit, credit and charge card transactions, bill payments,
electronic tax payments, utility payments, prepaid cellular telephone recharges
and retail-based programs.

We earn a fee for processing commercial non-lottery transactions that is
transaction-based (a fixed fee per transaction or a fee based on a percentage of
dollar volume processed). We recognize these fees as service revenue at the time
a transaction is processed based on the net amount retained in accordance with
Emerging Issues Task Force Issue No. 99-19, "Reporting Revenue Gross as a
Principal Versus Net as an Agent."

DEFERRED REVENUE AND LIQUIDATED DAMAGE ASSESSMENTS

Amounts received from customers in advance of revenue recognition are recorded
in Advance Payments from Customers in our Consolidated Balance Sheets. We record
liquidated damage assessments, which are penalties incurred due to a failure to
meet specified deadlines or performance standards, as a reduction of revenue in
the period they become probable and estimable. Liquidated damage assessments
equaled 0.18%, 0.50% and 0.47% of our total revenues in fiscal 2005, 2004 and
2003, respectively.

STOCK-BASED COMPENSATION

We have stock-based compensation plans which are described in detail in "Note 18
- Stock-Based Compensation Plans." We follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and related Interpretations
in accounting for our stock-based compensation plans and we have elected to
continue to use the intrinsic value-based method to account for stock option
grants. We have adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 148 ("SFAS 148"), "Accounting for Stock-Based
Compensation - Transition and Disclosure," an amendment of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"). Accordingly, no
compensation expense has been recognized for our stock-based compensation plans
other than for restricted stock.
<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENSTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Had we elected to recognize compensation expense based upon the fair value at
the grant dates for awards under these plans, net income and earnings per share
would have been reduced to the pro forma amounts listed in the table below. The
fair value of each grant is estimated on the date of grant using the
Black-Scholes option pricing model. Forfeitures are recognized as they occur.
Also disclosed in the table below are the principal weighted average assumptions
used to estimate the fair value of the grants.

<TABLE>
<CAPTION>
                                                                                             Fiscal Year Ended
                                                                         ---------------------------------------------------------
                                                                         February 26, 2005   February 28, 2004   February 22, 2003
                                                                         -----------------   -----------------   -----------------
                                                                              (Dollars in thousands, except per share amounts)
<S>                                                                      <C>                 <C>                 <C>
Net income, as reported                                                  $         196,394   $         183,200   $         142,021
Add: Stock-based compensation expense included
   in reported net income, net of related tax effects                                3,134               2,067               2,027
Deduct: Total stock-based compensation expense
   determined under the fair value method for all
   awards, net of related tax effects                                               (8,006)             (6,540)             (8,785)
                                                                         -----------------   -----------------   -----------------
Pro forma net income                                                     $         191,522   $         178,727   $         135,263
                                                                         =================   =================   =================

Basic earnings per share:
   As reported                                                           $            1.68   $            1.57   $            1.24
   Pro forma                                                                          1.64                1.53                1.18
Diluted earnings per share:
   As reported                                                           $            1.50   $            1.40   $            1.11
   Pro forma                                                                          1.46                1.36                1.06

Estimated weighted average fair value
   of options granted per share                                          $            9.00   $            5.00   $            4.00

Principal assumptions:
   Risk-free interest rate                                                             3.1%                2.4%                4.3%
   Expected life (in years)                                                            4.1                 3.8                 3.3
   Expected volatility                                                                37.6%               39.0%               40.0%
   Expected dividend yield                                                             1.1%                2.0%                 --
</TABLE>

USE OF ESTIMATES

In conformity with generally accepted accounting principles, the preparation of
our financial statements requires that we make estimates, judgments and
assumptions that affect the reported amounts in our financial statements and
accompanying notes. Some of our more significant estimates include estimates of
future cash flows associated with long-lived assets; allocation of revenues and
fair values in multiple-element arrangements; inventory obsolescence; allowance
for doubtful accounts; product warranty; depreciable lives of assets; and income
taxes. Our estimates are based on the facts and circumstances available at the
time estimates are made, historical experience, contract terms, risk of loss,
general economic conditions and trends, and our assessment of the probable
future outcome of these matters. Actual results may ultimately differ from
initial estimates and assumptions.
<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENSTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FOREIGN CURRENCY TRANSLATION

The functional currency for the majority of our foreign subsidiaries is the
applicable local currency. For those subsidiaries, we translate assets and
liabilities at exchange rates in effect at the balance sheet date, and income
and expense accounts at weighted average exchange rates. The resulting foreign
currency translation adjustments are recorded in Accumulated Other Comprehensive
Loss in our Consolidated Balance Sheets. Gains or losses resulting from foreign
currency transactions are recorded in our Consolidated Income Statements. We
recognized net foreign exchange gains (losses) as a component of Service Revenue
and Other Income (Expense) in our Consolidated Income Statements as follows:

<TABLE>
<CAPTION>
                                                                                       Fiscal Year Ended
                                                            -----------------------------------------------------------------------
                                                            February 26, 2005          February 28, 2004          February 22, 2003
                                                            -----------------          -----------------          -----------------
                                                                                     (Dollars in thousands)
<S>                                                         <C>                        <C>                        <C>
Service revenue                                             $          (2,357)         $          (3,601)         $          (3,247)
Other income (expense)                                                 (1,365)                      (185)                     4,237
                                                            -----------------          -----------------          -----------------
   Total net foreign exchange gains (losses)                $          (3,722)         $          (3,786)         $             990
                                                            =================          =================          =================
</TABLE>

For those foreign subsidiaries operating in a highly inflationary economy or
whose functional currency is the United States dollar, nonmonetary assets and
liabilities are translated at historical rates and monetary assets and
liabilities are translated at current rates. The resulting foreign currency
translation adjustments are recorded in Cost of Services in our Consolidated
Income Statements.

DERIVATIVES AND HEDGING TRANSACTIONS

We use derivative financial instruments principally to manage the risk of
foreign currency exchange rate and interest rate fluctuations and we account for
our derivative financial instruments in accordance with Statement of Financial
Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities," as amended. SFAS 133 requires that all
derivative instruments be reported on the balance sheet at fair value and
establishes criteria for the designation and the assessment of the effectiveness
of hedging relationships.

From time to time, we enter into foreign currency exchange and option contracts
to reduce the exposure associated with certain firm commitments, variable
service revenues and certain assets and liabilities denominated in foreign
currencies. These contracts generally have maturities of 12 months or less and
are regularly renewed to provide continuing coverage throughout the year. We do
not engage in foreign currency speculation.

We record certain contracts used to provide us with a degree of protection
against foreign currency exchange risk on our variable service revenues at fair
value in our Consolidated Balance Sheets. The related gains or losses on these
contracts are either deferred and included in Shareholders' Equity (Accumulated
Other Comprehensive Loss) or immediately recognized in earnings depending on
whether the contract qualifies for hedge accounting. The deferred gains and
losses are subsequently recognized in earnings in the period that the related
items being hedged are received and recognized in earnings. Contracts used to
hedge assets and liabilities denominated in foreign currencies are recorded in
our Consolidated Balance Sheets at fair value and the related gains or losses on
these contracts are immediately recognized in earnings as a component of Other
Income (Expense) in our Consolidated Income Statements.
<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENSTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INTEREST RATE SWAPS

From time to time, we enter into interest rate swap agreements to mitigate our
exposure to interest rate changes. The amount and term of each interest rate
swap agreement is matched with all or a portion of the then outstanding
principal balance and remaining term of a specific debt obligation. These
agreements involve the exchange of fixed interest rates for variable interest
rates over the term of the agreement without an exchange of the notional amount
upon which the payments are based. The differential to be received or paid as
interest rates change is accrued and recognized as an adjustment of interest
expense related to the debt. The related amount receivable from or payable to
counterparties is included as an asset or liability in our Consolidated Balance
Sheets.

Gains resulting from the early termination of interest rate swap agreements are
deferred as an adjustment to the carrying amount of the outstanding debt and
amortized as adjustments to interest expense over the remaining period
originally covered by the terminated swap agreements. In the event of the early
extinguishment of debt, any gain or loss from the swap would be recognized in
earnings as a component of Other Income (Expense) in our Consolidated Income
Statements in the same period as the extinguishment gain or loss.

RESEARCH AND DEVELOPMENT

We expense research and development costs as incurred.

ADVERTISING COSTS

Advertising costs are expensed as incurred and amounted to $9.3 million, $6.9
million and $10.4 million in fiscal 2005, 2004 and 2003, respectively.

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 are expected to be in
effect when the temporary differences are expected to reverse. Additionally,
deferred tax assets and liabilities are separated into current and noncurrent
amounts based on the classification of the related assets and liabilities for
financial reporting purposes. We establish valuation allowances for our deferred
tax assets when we believe expected future taxable income is not likely to
support the use of a tax deduction or credit in that tax jurisdiction.

CASH AND CASH EQUIVALENTS

We classify short-term, highly liquid investments with an original maturity of
three months or less at the date of purchase as cash equivalents.

INVESTMENT SECURITIES AVAILABLE-FOR-SALE

Investment securities, which primarily consist of state and municipal auction
rate securities and variable rate demand obligations, are classified as
"available for sale" under the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" and are recorded at fair value. We invest in short-term investments
that are generally highly liquid and are assigned a minimal credit rating of A-
or A3 from Standard and Poor's or Moody's Investor Service, respectively. Any
unrealized gains and losses, net of income tax effects, would be computed on the
basis of specific identification and reported as a component of Accumulated
Other Comprehensive Loss in our Consolidated Balance Sheets. Realized gains and
losses would be included in Other Income (Expense) in our Consolidated Income
Statements. We did not incur any unrealized or realized gains or losses in
fiscal years 2005 and 2004.
<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENSTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

TRADE ACCOUNTS RECEIVABLE, NET AND SALES-TYPE LEASE RECEIVABLES

Trade accounts receivable are reported net of allowances for doubtful accounts
and liquidated damages of $9.3 million and $10.7 million at February 26, 2005
and February 28, 2004, respectively. We evaluate the collectibility of trade
accounts and sales-type lease receivables on a customer-by-customer basis and we
believe our reserves are adequate; however, if economic circumstances change
significantly resulting in a major customer's inability or unwillingness to meet
its financial obligations to us, original estimates of the recoverability of
amounts due to us could be reduced by significant amounts requiring additional
reserves.

INVENTORIES AND OBSOLESCENCE

Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories include amounts we manufacture or assemble for our long-term
service contracts, which are transferred to Systems, Equipment and Other Assets
Relating to Contracts upon shipment. Inventories also include amounts related to
product sales contracts, including product sales under long-term contracts. We
regularly review inventory quantities on hand and record provisions for
potentially obsolete or slow-moving inventory based primarily on our estimated
forecast of product demand and production requirements. We believe our reserves
are adequate; however, should future sales forecasts change, our original
estimates of obsolescence could increase by a significant amount requiring
additional reserves.

SYSTEMS, EQUIPMENT AND OTHER ASSETS RELATING TO CONTRACTS, NET

Systems, equipment and other assets relating to contracts are stated on the
basis of cost. The cost, less any salvage value, is depreciated over the base
contract term, not to exceed 10 years, using the straight-line method for
financial reporting purposes and accelerated methods for income tax purposes.

PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment is stated on the basis of cost. The cost is
depreciated over the estimated useful life of the assets using the straight-line
method for financial reporting purposes and accelerated methods for income tax
purposes. The estimated useful lives are generally 10 to 30 years for buildings
and five to 10 years for furniture and equipment.
<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CAPITALIZED COMPUTER SOFTWARE COSTS

Capitalized computer software costs are comprised of amounts specific to
customer contracts and amounts related to software products that are, or are
anticipated to be, included in our product offerings.

SPECIFIC TO CUSTOMER CONTRACTS

Costs specific to customer contracts are capitalized and included in Systems,
Equipment and Other Assets Relating to Contracts, net. The cost, less any
salvage value, is depreciated over the base contract term, not to exceed 10
years, using the straight-line method for financial reporting purposes and
accelerated methods for income tax purposes.

PRODUCT OFFERINGS

Costs related to product offerings are charged to research and development
expense as incurred until such time as technological feasibility has been
established for the product. Thereafter, they are capitalized and included in
Intangible Assets, net in our Consolidated Balance Sheets and are generally
amortized over five years on a straight-line basis. We periodically evaluate
costs related to product offerings for impairment based on customer
requirements.

Unamortized computer software costs consist of the following:

<TABLE>
<CAPTION>
                                                               February 26, 2005       February 28, 2004
                                                               -----------------       -----------------
                                                                        (Dollars in thousands)
<S>                                                            <C>                     <C>
Specific to customer contracts                                 $          55,912       $          42,139
Product offerings                                                          7,627                   1,556
                                                               -----------------       -----------------
                                                               $          63,539       $          43,695
                                                               =================       =================
</TABLE>

Depreciation and amortization expense is included in Costs of Services or Costs
of Sales in our Consolidated Income Statements and consists of the following:

<TABLE>
<CAPTION>
                                                                                       Fiscal Year Ended
                                                               -----------------------------------------------------------------
                                                               February 26, 2005       February 28, 2004       February 22, 2003
                                                               -----------------       -----------------       -----------------
                                                                                     (Dollars in thousands)
<S>                                                            <C>                     <C>                     <C>
Specific to customer contracts                                 $          13,352       $          10,447       $          15,235
Product offerings                                                          2,447                   1,544                   2,729
                                                               -----------------       -----------------       -----------------
                                                               $          15,799       $          11,991       $          17,964
                                                               =================       =================       =================
</TABLE>

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of purchase price and related costs over the
value assigned to the net tangible and identifiable intangible assets of
businesses acquired. Goodwill and other intangible assets determined to have
indefinite useful lives are not amortized but are reviewed for impairment
annually, or more frequently if events or circumstances indicate these assets
may be impaired. Other intangible assets determined to have definite lives are
amortized over their useful lives. We review other intangible assets with
definite lives for impairment to ensure they are appropriately valued if
conditions exist that may indicate the carrying value may not be recoverable.
Such conditions may include, among others, significant adverse changes in the
extent or manner in which an asset is being used or in legal factors or in the
business climate that could affect the value of an asset.
<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Because we have a single operating and reportable business segment (the
Transaction Processing Segment), we perform our goodwill impairment test by
comparing the fair value of the Transaction Processing Segment with its book
value, including goodwill. If the fair value of the Transaction Processing
Segment exceeds the book value, goodwill is not impaired. If the book value
exceeds the fair value, we would calculate the potential impairment loss by
comparing the implied fair value of goodwill with the book value. If the implied
goodwill is less than the book value, a write-down would be recorded.

IMPAIRMENT OF LONG-LIVED ASSETS

We periodically evaluate the recoverability of long-lived assets whenever
indicators of impairment are present. Indicators of impairment include such
items as declines in revenues, earnings or cash flows or material adverse
changes in the economic or political stability of a particular country, which
may indicate that the carrying amount of an asset is not recoverable. If facts
and circumstances indicate our long-lived assets may be impaired, the estimated
future undiscounted cash flows associated with these long-lived assets would be
compared to their carrying amounts to determine if a write-down to fair value is
necessary.

NEW ACCOUNTING PRONOUNCEMENTS

FASB STATEMENT NO. 123R

In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based
Payment" ("SFAS 123R"), which is a revision of FASB Statement No. 123,
"Accounting for Stock-Based Compensation". SFAS 123R supersedes Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), and amends FASB Statement No. 95, "Statement of Cash Flows". SFAS
123R requires all share-based payments to employees, including grants of
employee stock options, be recognized in the financial statements based on their
fair values. Pro forma disclosure is no longer an alternative. SFAS 123R must be
adopted no later than the beginning of the first fiscal year beginning after
June 15, 2005 (our fiscal 2007 first quarter). Early adoption is permitted. We
plan to adopt SFAS 123R on the first day of fiscal 2007 (February 26, 2006).

SFAS 123R permits public companies to adopt its requirements using either the
modified prospective transition ("MPT") method or the modified retrospective
transition ("MRT") method. Under the MPT method, compensation cost for new
awards and modified awards are recognized beginning with the effective date and
the cost for awards that were granted prior to, but not vested as of the
effective date, will be based on the grant date fair value estimate used for
SFAS 123 pro forma disclosure purposes. The MRT method includes the requirements
of the MPT method but also permits restatement of all prior periods presented or
only the prior interim periods of the year of adoption. We plan to adopt SFAS
123R using the MPT method and we intend to use a lattice model to value stock
options granted after February 26, 2006.

We currently account for share-based payments to employees using the intrinsic
value method under APB 25 and related Interpretations, and as such, we generally
recognize no compensation cost for employee stock options. We currently estimate
the impact of adopting SFAS 123R will be in a range of $0.04 to $0.06 per
diluted share in fiscal 2007. SFAS 123R also requires the benefits of tax
deductions in excess of recognized compensation cost to be reported as a
financing cash flow, rather than as an operating cash flow as required under
current literature. This requirement will reduce net operating cash flows and
increase net financing cash flows in periods after adoption. While we cannot
estimate what those amounts will be in the future (because they depend on, among
other things, when employees exercise stock options), the amount of operating
cash flows recognized in prior periods for these excess tax deductions were
$11.3 million, $10.4 million and $8.0 million in fiscal 2005, 2004 and 2003,
respectively.
<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FASB STAFF POSITION NO. 109-1

In December 2004, the FASB issued FASB Staff Position No. 109-1, "Application of
FASB Statement No. 109, `Accounting for Income Taxes', to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of
2004" ("FSP 109-1"). FSP 109-1 provides guidance on the application of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), to the provision of the American Jobs Creation Act of 2004 (the "Act")
that provides a tax deduction on qualified production activities. The FASB staff
believes that the deduction should be accounted for as a special deduction in
accordance with SFAS 109 as opposed to a tax rate reduction. FSP 109-1 is
effective immediately. Pursuant to the Act, we will be able to benefit from a
tax deduction for qualified production activities in fiscal 2006. We will follow
the provisions of this guidance when applicable. We have not yet determined the
impact this tax deduction will have on our results of operations or financial
position.

FASB STAFF POSITION NO. 109-2

In December 2004, the FASB issued FASB Staff Position No. 109-2, "Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision within the
American Jobs Creation Act of 2004" ("FSP 109-2"). FSP 109-2 provides for a
special one-time dividends received deduction on the repatriation of certain
foreign earnings to a U.S. taxpayer (repatriation provision). FSP 109-2 provides
accounting and disclosure guidance for the repatriation provision and is
effective immediately. While we continue to evaluate the Act, we do not plan to
elect the one-time provision because of the resulting loss of foreign tax
credits and because the vast majority of our permanently reinvested non-U.S.
earnings have been deployed in active non-U.S. business operations.

EITF 04-8

In October 2004, the FASB ratified the Emerging Issues Task Force's consensus on
Issue No. 04-8, "The Effect of Contingently Convertible Debt on Diluted Earnings
per Share" ("EITF 04-8"), which is effective for periods ending after December
15, 2004. Under current interpretations of FAS 128, "Earnings per Share",
issuers of contingently convertible debt instruments exclude the potential
common shares underlying the debt instrument from the calculation of diluted
earnings per share until the contingency is met. EITF 04-8 requires that
potential shares underlying the debt instrument be included in diluted earnings
per share computations, if dilutive, regardless of whether the contingency has
been met. We adopted EITF 04-8 in December 2004 and retroactively adjusted all
prior period diluted earnings per share amounts to conform to the guidance in
EITF 04-8. The adoption of EITF 04-8 resulted in a decrease to diluted earnings
per share of $0.02 and $0.10 in fiscal 2004 and 2003, respectively.

NOTE 2 - COMMON STOCK SPLIT AND TREASURY STOCK RETIREMENT

On June 17, 2004, our Board of Directors approved a 2-for-1 common stock split,
payable in the form of a stock dividend, which entitled each shareholder of
record on July 1, 2004 to receive one share of common stock for each outstanding
share of common stock held on that date. The stock dividend was distributed on
July 30, 2004. All references to common shares and per share amounts herein have
been restated to reflect the stock splits for all periods presented.

In connection with the declaration of the stock dividend, our Board of Directors
approved the retirement of 69.8 million shares of our common stock held in
treasury on July 29, 2004 (stated on a basis reflecting the stock split which
occurred subsequent to the retirement). The $528.8 million of treasury stock at
the time of the retirement was eliminated from treasury stock through a charge
to retained earnings and common stock.
<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - BUSINESS ACQUISITIONS

BILLBIRD S.A.

On September 9, 2004, our majority-owned subsidiary, PolCard S.A, completed the
acquisition of privately-held BillBird S.A. ("BillBird"), the leading provider
of electronic bill payment services in Poland, for an all-cash purchase price of
approximately $6.0 million. The results of BillBird's operations have been
included in the consolidated financial statements since that date. Approval of
this transaction by our shareholders was not required.

LEEWARD ISLANDS LOTTERY HOLDING COMPANY INC.

On May 5, 2004, we completed the acquisition of privately-held Leeward Islands
Lottery Holding Company Inc. ("LILHCo"), a lottery operating company
headquartered on the Caribbean islands of Antigua and St. Croix, for an all-cash
purchase price of approximately $40 million. The results of LILHCo's operations
have been included in the consolidated financial statements since that date.
Approval of this transaction by our shareholders was not required.

SPIELO MANUFACTURING INCORPORATED

On April 30, 2004, we completed the acquisition of privately-held Spielo
Manufacturing Incorporated ("Spielo"), a leading provider of video lottery
terminals ("VLT's") and related products and services to the global gaming
industry, for an all-cash purchase price of approximately $150 million. In
addition, we paid Spielo shareholders approximately $10.7 million out of a
potential maximum earn-out amount of up to $35 million, which Spielo
shareholders are entitled to receive in the 18 months following the closing,
based upon Spielo achieving certain VLT installation objectives in New York and
separately, a working capital adjustment of approximately $1.5 million. The
results of Spielo's operations have been included in the consolidated financial
statements since April 30, 2004. This acquisition will enable us to deliver
complete, integrated VLT solutions to our existing and potential customers, with
a single point of contact and accountability. Approval of this transaction by
our shareholders was not required.

The following table summarizes the estimated fair values of Spielo's assets
acquired and liabilities assumed at the date of the acquisition:

<TABLE>
<CAPTION>
                                                                    Estimated
                                                                   Fair Values
                                                                 --------------
                                                                 (in thousands)
<S>                                                              <C>
Current Assets                                                   $       18,616
Systems, Equipment & Other Assets Relating
   to Contracts, net                                                     13,710
Goodwill, net                                                           112,917
Property, Plant & Equipment, net                                          5,646
Intangible Assets, net                                                   31,470
Sales-Type Lease Receivables                                                185
Deferred Income Taxes                                                     1,683
                                                                 --------------
   Total Assets Acquired                                                184,227

Current Liabilities                                                       8,056
Long-Term Debt, less current portion                                        280
Deferred Income Taxes                                                    12,644
                                                                 --------------
   Total Liabilities Assumed                                             20,980

Net Assets Acquired                                              $      163,247
                                                                 ==============
</TABLE>
<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - BUSINESS ACQUISITIONS (CONTINUED)

Acquired intangible assets of $31.5 million have a weighted average amortization
period of approximately 6 years at February 26, 2005 as follows:

<TABLE>
<CAPTION>
                                      Weighted Average        Gross
                                        Amortization        Carrying
                                           Period            Amount
                                      ----------------   --------------
                                                         (in thousands)
<S>                                   <C>                <C>
SUBJECT TO AMORTIZATION
Customer contracts                                   7   $       19,840
Computer software                                    4            8,200
Non-compete agreement                                5              370
Trademarks                                           4              160
                                                         --------------
                                                                 28,570

NOT SUBJECT TO AMORTIZATION
Trademarks                                                        2,900
                                                         --------------
                                                         $       31,470
                                                         ==============
</TABLE>

Goodwill of $112.9 million, which is not deductible for income tax purposes, was
assigned to our single operating and reportable business segment, the
Transaction Processing segment.

POLCARD S.A.

On May 28, 2003, we completed the acquisition of a controlling equity position
in PolCard S.A. ("PolCard"), for a purchase price, net of cash acquired, of
$35.9 million. PolCard is the leading debit and credit card merchant transaction
acquirer and processor in Poland. At August 23, 2003, PolCard's outstanding
equity was owned 66.5% by us, 33.2% by two funds managed by Innova Capital Sp. z
o.o. ("Innova"), a Warsaw-based private equity investment advisor, and 0.3% by
the Polish Bank Association, one of PolCard's previous owners. In September
2003, Innova exercised its rights under an option agreement to purchase from us,
3.7% of PolCard's equity for a purchase price of $2.3 million. Following the
exercise of this right, we now own 62.8% of PolCard's outstanding equity, while
the two funds managed by Innova own, in aggregate, 36.9% of PolCard's
outstanding equity. The Polish Bank Association continues to own 0.3% of the
outstanding equity of PolCard. Approval of this transaction by our shareholders
was not required.

We have three fair value options to purchase Innova's interest in PolCard, and
Innova has the reciprocal right to sell its interest in PolCard to us at fair
value. Each fair value option has a duration of 90 days and is to be based on an
appraised value from at least two investment banks at the date of each option
period. We estimate that the buyout prices of each fair value option, based on
discounted cash flows, could be as follows:

<TABLE>
<CAPTION>
                               Buyout Percentage
                                of the PolCard          Range of
Exercise Date Commencing In   Outstanding Equity      Buyout Price
---------------------------   ------------------   ------------------
<S>                           <C>                  <C>
May 2007                                   18.5%   $29 to $44 million
May 2008                                    9.2%   $16 to $25 million
May 2009                                    9.2%   $18 to $28 million
</TABLE>
<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - BUSINESS ACQUISITIONS (CONTINUED)

INTERLOTT TECHNOLOGIES, INC.

On September 18, 2003, we completed the acquisition of Interlott Technologies,
Inc. ("Interlott"), a leading provider of instant ticket vending machines for
the worldwide lottery industry. Interlott shareholders were given the
opportunity to elect to receive either $4.50 per share in cash or a number of
shares of Holdings common stock having a value of $4.50, or a combination of
both, subject to adjustment so that the aggregate consideration we paid was
48.5% in cash and 51.5% in Holdings common stock. The final exchange ratio of
0.2156 shares of Holdings common stock for every share of Interlott common stock
was determined based on the average closing price of $20.87 for Holdings common
stock for the 20 trading day period commencing August 14, 2003 through September
11, 2003. For purposes of purchase accounting, Holdings common stock was valued
at $21.49 per share using the average price of Holdings common stock two days
prior to the acquisition date in accordance with Emerging Issues Task Force
Issue No. 99-12, "Determination of the Measurement Date for the Market Price of
Acquirer Securities Issued in a Purchase Business Combination." The aggregate
purchase price, including assumed debt, was as follows:

<TABLE>
<CAPTION>
                                                                     Aggregate
                                                                  purchase price
                                                                  --------------
                                                                  (in thousands)
<S>                                                               <C>
Cash ($4.50 per share of Interlott common stock)                  $       28,211
Cash payment to cancel outstanding stock options
   relating to Interlott common stock                                      5,701
                                                                  --------------
   Cash purchase price                                                    33,912
Issuance of 1,435,130 shares of Holdings common stock                     30,834
                                                                  --------------
   Total aggregate purchase price                                         64,746
Cash payment to settle Interlott debt                                     22,759
                                                                  --------------
                                                                  $       87,505
                                                                  ==============
</TABLE>

Approval of this transaction by our shareholders was not required

EUROPRINT HOLDINGS LTD.

On July 1, 1998, we acquired 80% of the equity of Europrint Holdings Ltd.
("Europrint") and its wholly owned subsidiaries, including Interactive Games
International ("IGI"), for a net cash purchase price of $21.6 million, including
related acquisition costs. Europrint is a provider of media promotional games
and IGI has pioneered the development of interactive, televised lottery games.
On June 24, 2003 (our fiscal 2004 second quarter), we exercised our option to
acquire the remaining 20% of the equity of Europrint for approximately $5.1
million.

Refer to Note 7 for detailed disclosures regarding Goodwill and Other Intangible
Assets related to acquisitions.
<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
                                           February 26, 2005   February 28, 2004
                                           -----------------   -----------------
                                                   (Dollars in thousands)
<S>                                        <C>                 <C>
Raw materials                              $          29,622   $          14,540
Work in progress                                      15,492              60,470
Finished goods                                        16,021               1,774
                                           -----------------   -----------------
                                           $          61,135   $          76,784
                                           =================   =================
</TABLE>

Inventories include amounts we manufacture or assemble for our long-term service
contracts and amounts related to product sales contracts, including product
sales which are accounted for using SOP 81-1. Work in progress at February 26,
2005 and February 28, 2004, includes approximately $12.0 million and $54.9
million, respectively, related to product sale contracts.

Amounts received from customers in advance of revenue recognition (primarily
related to product sale contracts included in work in progress above) totaled
$42.9 million and $104.1 million at February 26, 2005 and February 28, 2004,
respectively. These amounts are included in Advance Payments from Customers in
our Consolidated Balance Sheets.

NOTE 5 - SYSTEMS, EQUIPMENT AND OTHER ASSETS RELATING TO CONTRACTS

Systems, equipment and other assets relating to contracts consist of the
following:

<TABLE>
<CAPTION>
                                           February 26, 2005   February 28, 2004
                                           -----------------   -----------------
                                                    (Dollars in thousands)
<S>                                        <C>                 <C>
Land and buildings                         $           1,182   $           1,182
Computer terminals and systems                     1,407,134           1,185,841
Furniture and equipment                              186,891             163,562
Contracts in progress                                 30,407              22,603
                                           -----------------   -----------------
                                                   1,625,614           1,373,188
Less accumulated depreciation
   and amortization                                  905,176             781,826
                                           -----------------   -----------------
                                           $         720,438   $         591,362
                                           =================   =================
</TABLE>
<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
                                           February 26, 2005   February 28, 2004
                                           -----------------   -----------------
                                                   (Dollars in thousands)
<S>                                        <C>                 <C>
Land and buildings                         $          43,667   $          37,155
Furniture and equipment                              124,562             114,103
Construction in progress                              14,300               4,649
                                           -----------------   -----------------
                                                     182,529             155,907
Less accumulated depreciation
   and amortization                                  107,971              98,331
                                           -----------------   -----------------
                                           $          74,558   $          57,576
                                           =================   =================
</TABLE>

As described further in Note 8 "License Fee" and Note 15 "Guarantees and
Indemnifications", under our Master Contract with the State of Rhode Island, we
are responsible for the development of a new world headquarters facility
("Facility") in Providence, Rhode Island by December 31, 2006. We have engaged
US Real Estate Limited Partnership (the "Developer") to build, own and operate
this Facility.

Under EITF Issue No. 97-10, "The Effect of Lessee Involvement in Asset
Construction", we are considered the owner of the Facility (for accounting
purposes only). Accordingly, during fiscal 2005, we capitalized approximately
$6.6 million of costs incurred by the Developer. These costs are included in
construction in progress within Property, Plant & Equipment, net and a
corresponding liability for the same amount is included in Other Liabilities in
our Consolidated Balance Sheet at February 26, 2005.

NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS

In accordance with Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"), goodwill and indefinite
lived intangible assets are no longer amortized but are reviewed for impairment
annually, or more frequently if events or circumstances indicate that these
assets may be impaired. Intangible assets deemed to have definite lives are
amortized over their useful lives.

The adoption of SFAS 142 required us to perform an initial impairment assessment
on all goodwill and indefinite lived intangible assets as of February 24, 2002
(the first day of fiscal 2003) and we determined that no impairment existed. In
connection with the adoption of the new standard, we determined that goodwill
with a net book value of $1.3 million met the standards' intangible asset
recognition criteria. Accordingly, we reclassified this amount during fiscal
2003 into intangible assets and we will continue to amortize it over its
remaining useful life.

A reconciliation of the net carrying amount of goodwill, which is not deductible
for income tax purposes, is as follows:

<TABLE>
<CAPTION>
                                            Net Carrying
                                               Amount
                                           --------------
                                           (in thousands)
<S>                                        <C>
Balance as of February 22, 2003            $      115,498
Goodwill acquired during the year                  73,114
                                           --------------
Balance as of February 28, 2004                   188,612
Goodwill acquired during the year                 144,532
Adjustments to purchase price
   allocations during the year                     (2,122)
                                           --------------
Balance as of February 26, 2005            $      331,022
                                           ==============
</TABLE>



<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)

The following tables present the information for intangible assets, which are
being amortized over their estimated useful lives, with no estimated residual
values.

<TABLE>
<CAPTION>
                                                                 As of February 26, 2005
                                                  -----------------------------------------------------
                                                  Weighted Average     Gross                      Net
                                                    Amortization     Carrying    Accumulated   Carrying
                                                       Period         Amount    Amortization    Amount
                                                  ----------------   --------   ------------   --------
                                                                  (Dollars in thousands)
<S>                                               <C>                <C>        <C>            <C>
SUBJECT TO AMORTIZATION

Customer contracts                                              10   $ 54,244   $      9,810   $ 44,434
Capitalized computer software                                    5     24,465         16,838      7,627
License fee                                                     20     12,500          1,038     11,462
Patents                                                          6      5,100          1,203      3,897
Non-compete agreement                                            4        669            275        394
Trademarks                                                       4        160             35        125
                                                                     --------   ------------   --------
                                                                       97,138         29,199     67,939
NOT SUBJECT TO AMORTIZATION

Trademarks                                                              2,900             --      2,900
                                                                     --------   ------------   --------
                                                                     $100,038   $     29,199   $ 70,839
                                                                     ========   ============   ========
</TABLE>

The weighted average amortization period in total for intangible assets as of
February 26, 2005 was 10 years.

<TABLE>
<CAPTION>
                                                                 As of February 28, 2004
                                                  -----------------------------------------------------
                                                  Weighted Average     Gross                      Net
                                                    Amortization     Carrying    Accumulated   Carrying
                                                       Period         Amount    Amortization    Amount
                                                  ----------------   --------   ------------   --------
                                                                  (Dollars in thousands)
<S>                                               <C>                <C>        <C>            <C>
SUBJECT TO AMORTIZATION

Capitalized computer software                                    5   $ 16,018   $     14,462   $   1,556
License fee                                                     20     12,500            413      12,087
Customer contracts                                               6     11,044          1,342       9,702
Patents                                                          6      5,100            353       4,747
Non-compete agreement                                            2        222             83         139
                                                                     --------   ------------   ---------
                                                                     $ 44,884   $     16,653   $  28,231
                                                                     ========   ============   =========
</TABLE>
<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)

A reconciliation of the net carrying amount of intangible assets is as follows:

<TABLE>
<CAPTION>
                                                         Fiscal Year Ended
                                               -------------------------------------
                                               February 26, 2005   February 28, 2004
                                               -----------------   -----------------
                                                        (Dollars in thousands)
<S>                                            <C>                 <C>
Balance at beginning of year                   $          28,231   $           2,190

Intangible assets acquired during the
   year: Purchase business combination
   related:
   Customer contracts                                     43,200              11,044
   Capitalized computer software                           8,447               1,241
   Trademarks                                              3,060                  --
   Non-compete agreement                                     447                 222
   Patents                                                    --               5,100
                                               -----------------   -----------------
                                                          55,154              17,607
License fee (see Note 8)                                      --              12,500
                                               -----------------   -----------------
      Total intangible assets acquired                    55,154              30,107

Capitalized computer software                                 --                (331)
Foreign currency translation                                  70                  --
Amortization expense                                     (12,616)             (3,735)
                                               -----------------   -----------------
Balance at end of year                         $          70,839   $          28,231
                                               =================   =================
</TABLE>

Purchase business combination intangible assets acquired during fiscal 2005
relate to the acquisitions of Spielo, LILHCo and BillBird (refer to Note 3 for
detailed disclosures).

Amortization expense for fiscal 2005, 2004 and 2003 is as follows:

<TABLE>
<CAPTION>
                                                                   Fiscal Year Ended
                                               ---------------------------------------------------------
                                               February 26, 2005   February 28, 2004   February 22, 2003
                                               -----------------   -----------------   -----------------
                                                                 (Dollars in thousands)
<S>                                            <C>                 <C>                 <C>
Customer contracts                             $           8,468   $           1,342   $           2,004
Capitalized computer software                              2,447               1,544               2,729
Patents                                                      850                 353                  --
License fee                                                  625                 413                  --
Non-compete agreement                                        191                  83                  --
Trademarks                                                    35                  --                  --
                                               -----------------   -----------------   -----------------
   Total intangibles amortization              $          12,616   $           3,735   $           4,733
                                               =================   =================   =================
</TABLE>

Amortization expense for the next five fiscal years and thereafter is estimated
to be as follows (in thousands):

<TABLE>
<CAPTION>
                                                    Amortization
 Fiscal Year                                           Expense
 -----------                                        ------------
 <S>                                                <C>
 2006                                               $     10,043
 2007                                                      9,397
 2008                                                      8,848
 2009                                                      6,074
 2010                                                      5,333
 Thereafter                                               28,244
                                                         -------
 Total                                              $     67,939
                                                         =======
</TABLE>
<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - LICENSE FEE

On May 12, 2003, we entered into a Master Contract with the Rhode Island Lottery
(the "Lottery") that amends our existing contracts with the Lottery and grants
us the right to be the exclusive provider of online, instant ticket and video
lottery central systems and services for the Lottery during the 20-year term of
the Master Contract for a $12.5 million up-front license fee which we paid in
July 2003. This license fee is included in Intangible Assets, net in our
Consolidated Balance Sheet at February 26, 2005 and will be amortized as a
reduction in service revenue on a straight-line basis over the 20-year term of
the Master Contract. (See Note 7).

The Master Contract is part of a comprehensive economic development package that
provides incentives for us to keep our world headquarters and manufacturing
operations in Rhode Island. Under the terms of the Master Contract, we are to
invest (or cause to be invested) at least $100 million in the State of Rhode
Island, in the aggregate, by December 31, 2008. This investment commitment
includes the $12.5 million up-front license fee; new online and video lottery
related hardware, software and services; the development of a new world
headquarters facility of at least 210,000 square feet in Providence, Rhode
Island by December 31, 2006; and improvements to our existing manufacturing
facility in West Greenwich, Rhode Island. We have agreed to employ at least
1,000 people full-time in Rhode Island by the end of calendar year 2005 and
maintain that level of employment thereafter. In the event the State of Rhode
Island takes certain actions which affect our financial performance, we will be
automatically released from the in-state employment obligation. We currently
plan to satisfy our obligation to invest (or cause to be invested) at least $100
million in the State of Rhode Island by December 31, 2008 as follows: (i)
approximately $24 million that was invested during fiscal 2004; (ii)
approximately $15 million that was invested during fiscal 2005; (iii)
approximately $45 million that will be invested during fiscal 2006; and (iv) the
balance that will be invested during fiscal 2007. In addition, in July 2003 we
entered into a tax stabilization agreement (the "Agreement") with the City of
Providence (the "City"), whereby the City agreed to stabilize the real estate
and personal property taxes payable in connection with our new world
headquarters facility in the City for 20 years. We also agreed to complete and
occupy the facility by December 31, 2006, employ 500 employees at the facility
by 2009, and we made certain commitments regarding our employment, purchasing
and education activities in the City. The Lottery may terminate the Master
Contract in the event that we fail to meet our obligations as stated above.

NOTE 9 - REFUNDABLE PERFORMANCE DEPOSIT

In September 2003 (our fiscal 2004 third quarter), we entered into a 12-year
contract extension to provide online lottery products and services to SAZKA,
a.s. ("SAZKA"), the operator of lottery and betting games in the Czech Republic.
The contract extension will commence on January 1, 2006 and expires on December
31, 2017. As part of the contract extension, we paid SAZKA a $20 million
performance deposit that SAZKA will repay upon the achievement of certain
milestones beginning in 2006. The performance deposit is scheduled to be repaid
as follows:

<TABLE>
<CAPTION>
                                                                  (in thousands)
                                                                  --------------
<S>                                                               <C>
On or before January 2, 2006                                      $        8,000
On or before January 2, 2007                                               8,000
On or before January 2, 2008                                               2,000
On or before January 2, 2009                                               1,000
On or before January 2, 2010                                               1,000
                                                                  --------------
                                                                  $       20,000
                                                                  ==============
</TABLE>
<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - RESTRICTED ASSETS

A June 25, 2004 ruling (the "Ruling") in a civil action initiated by federal
attorneys with Brazil's Public Ministry had the effect in fiscal 2005 of
materially reducing payments that we otherwise would have received from our
lottery contract with Caixa Economica Federal ("CEF"), our customer and the
operator of Brazil's National Lottery, which expires in May 2005. The Ruling
ordered that 30% of payments subsequent to the Ruling due to GTECH Brasil Ltda.,
our Brazilian subsidiary ("GTECH Brazil") from CEF, be withheld and deposited in
an account maintained by the Court. As of February 26, 2005, the total amount
withheld and deposited in an account maintained by the Court was approximately
68 million Brazilian reals, or $26 million. In fiscal 2005, we did not recognize
service revenues for the payments that were withheld from GTECH Brazil, as
realization of these amounts was not reasonably assured.

In July 2004 we filed an appeal of the Ruling and in March 2005 (after the close
of fiscal 2005), an appellate court decision ordered that the withholding be
discontinued and that all funds currently held in escrow in excess of 40 million
Brazilian reals be returned to us, which amounts to $11 million of the $26
million withheld as of February 26, 2005. We received and recognized these funds
as service revenue on April 13, 2005. Refer to Note 14 for detailed disclosures
regarding this matter.

In addition, the Ruling ordered that all assets of GTECH Brazil be identified to
the Court so as to prevent their transfer or disposition, a requirement that was
also subsequently reversed by the appellate court decision in March 2005.

As of February 26, 2005, GTECH Brazil assets were as follows (in thousands):

<TABLE>
<S>                                                              <C>
Cash                                                             $ 5,080
Systems, Equipment and Other Assets Relating to Contracts, net     5,669
                                                                 -------
   Assets restricted from transfer or disposition                $10,749
All other assets                                                  24,156
                                                                 -------
GTECH Brazil assets at February 26, 2005                         $34,905
                                                                 =======
</TABLE>

The restricted cash of $5.1 million is included in Other Assets in our
Consolidated Balance Sheet.
<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - PRODUCT WARRANTIES

We offer a product warranty on all of our manufactured products (primarily
terminals and related peripherals) sold to our customers. Although we do not
have a standard product warranty, our typical warranty provides that we will
repair or replace defective products for a period of time (usually a minimum of
90 days) from the date revenue is recognized or from the date a product is
delivered and tested. We estimate product warranty costs that we expect to incur
during the warranty period and we record a charge to costs of sales for the
estimated warranty cost at the time the product sale is recorded. In determining
the appropriate warranty provision, consideration is given to historical
warranty cost information, the status of the terminal model in its life cycle
and current terminal performance. We periodically assess the adequacy of our
product warranty reserves and adjust them as necessary in the period when the
information necessary to make the adjustment becomes available.

We typically do not provide a product warranty on purchased products sold to our
customers but attempt to pass the manufacturer's warranty, if any, on to them.

A summary of product warranty activity for the twelve months ended February 26,
2005 and February 28, 2004 is as follows:

<TABLE>
<CAPTION>
                                                                   Fiscal Year Ended
                                                       ------------------------------------------
                                                       February 26, 2005        February 28, 2004
                                                       -----------------        -----------------
                                                                 (Dollars in thousands)
<S>                                                    <C>                      <C>
Balance at beginning of year                           $             749        $             437
Opening reserve balance associated with
   acquisitions                                                    1,126                       --
Additional reserves                                                1,508                      405
Charges incurred                                                  (1,201)                     (51)
Change in estimate                                                  (603)                     (42)
Other                                                                 55                       --
                                                       -----------------        -----------------
Balance at end of year                                 $           1,634        $             749
                                                       =================        =================
</TABLE>

Our reserves for product warranty are included in Accrued Expenses in our
Consolidated Balance Sheets.
<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - LONG - TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                              February 26, 2005      February 28, 2004
                                                                              -----------------      -----------------
                                                                                       (Dollars in thousands)
<S>                                                                           <C>                    <C>
4.75% Senior Notes due October 2010                                           $         249,690      $         249,636
1.75% Convertible Debentures due December 2021                                          175,000                175,000
4.50% Senior Notes due December 2009                                                    149,604                     --
5.25% Senior Notes due December 2014                                                    148,704                     --
Fair value of interest rate swaps                                                           541                  4,893
7.87% Series B Guaranteed Senior Notes due May 2007                                          --                 90,000
World Headquarters loan due January 2007                                                     --                 27,933
Deferred interest rate swap gains                                                            --                 12,009
Other, due through October 2007                                                           5,266                 10,063
                                                                              -----------------      -----------------
                                                                                        728,805                569,534
Less current portion                                                                      2,476                106,319
                                                                              -----------------      -----------------
                                                                              $         726,329      $         463,215
                                                                              =================      =================
</TABLE>

At February 26, 2005, long-term debt matures as follows (in thousands):

<TABLE>
<CAPTION>
                                                                    Fiscal
                              ----------------------------------------------------------------------------------------
                                2006         2007         2008         2009         2010       Thereafter       Total
                              --------     --------     --------     --------     --------     ----------     --------
<S>                           <C>          <C>          <C>          <C>          <C>          <C>            <C>
Long-term debt                $  2,476     $  2,742     $     48     $     --     $149,255     $  574,284     $728,805
                              ========     ========     ========     ========     ========     ==========     ========
</TABLE>

4.75% SENIOR NOTES

In October 2003, Holdings issued, in a private placement, $250 million principal
amount of 4.75% Senior Notes due October 15, 2010, all of which were
subsequently exchanged for 4.75% Senior Notes due October 15, 2010 registered
under the Securities Act of 1933 (the "2010 Senior Notes"). The 2010 Senior
Notes are unsecured and unsubordinated obligations of Holdings that are fully
and unconditionally guaranteed by GTECH and certain of its subsidiaries.
Interest is payable semi-annually in arrears on April 15 and October 15 of each
year.

In conjunction with the 2010 Senior Notes offering, in October 2003, GTECH
entered into three interest rate swap contracts that effectively convert $150
million of the 2010 Senior Notes from a fixed rate debt to a floating rate debt
for the period October 15, 2003 to October 15, 2010.

1.75% CONVERTIBLE DEBENTURES

In December 2001, Holdings issued, in a private placement, $175 million
principal amount of 1.75% Convertible Debentures due December 15, 2021 (the
"Debentures"). The Debentures are unsecured and unsubordinated obligations of
Holdings that are fully and unconditionally guaranteed by GTECH and certain of
its subsidiaries. Interest on the Debentures is payable semi-annually in arrears
on June 15 and December 15 of each year and accrues at an initial rate of 1.75%
per year, subject to reset beginning December 15, 2006 under certain
circumstances. In no event will the interest rate be reset below 1.75% or above
2.5% per year.
<PAGE>
                   GETCH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - LONG - TERM DEBT (CONTINUED)

On or after December 15, 2006, we may redeem for cash, all or part of the
Debentures at a redemption price equal to 100% of the principal amount of the
Debentures, plus accrued interest up to, but not including, the date of
redemption. Holders of the Debentures may require us to repurchase all or part
of their Debentures on December 15, 2004, December 15, 2006, December 15, 2011
and December 15, 2016 at a price equal to 100% of the principal amount of the
Debentures, plus accrued interest. We may choose to pay the purchase price in
cash, shares of our common stock, or a combination of both. If we elect to pay
any of the purchase price in shares, the number of shares we are required to
deliver is equal to the portion of the purchase price paid in shares divided by
95% of the fair value of the shares at the time of settlement. In addition, upon
a change in control of our Company occurring on or before December 15, 2021,
each Debenture holder may require us to repurchase all or a portion of such
holder's Debentures for cash. No Debentures were tendered for repurchase on
December 15, 2004.

Our scheduled debt maturities assume holders of the Debentures do not require us
to repurchase all or a part of them on December 15, 2006 and also assumes that
we do not redeem them for cash on or after December 15, 2006.

The Debentures are convertible at the option of the holder into shares of our
common stock at an initial conversion rate of 72.7272 shares of common stock per
$1,000 principal amount of Debentures, which is equivalent to an initial
conversion price of approximately $13.75 per share, subject to certain
adjustments, in the following circumstances:

(i)  if the sale price of our common stock is more than 120% of the conversion
     price (approximately $16.50 per share) for at least 20 trading days in a 30
     trading-day period prior to the date of surrender for conversion;

(ii) during any period in which the credit ratings assigned to the Debentures by
     Moody's or Standard & Poor's are reduced to below Ba1 or BB, respectively,
     or in which the credit rating assigned to the Debentures is suspended or
     withdrawn by either rating agency;

(iii)if the Debentures have been called for redemption; or

(iv) upon the occurrence of specified corporate transactions.

Should the Debentures meet the conversion requirements, a total of 12.7 million
shares of our common stock would be issuable. The Debentures became convertible
on May 1, 2003 and remained convertible through the end of fiscal 2005 (February
26, 2005) because the sale price of our common stock was more than 120% of the
conversion price (approximately $16.50 per share) for at least 20 trading days
in a 30 trading-day period. However, no Debenture holders opted to convert them
into shares of our common stock.

4.50% SENIOR NOTES AND 5.25% SENIOR NOTES

In November 2004, Holdings issued, in a private placement, $150 million
principal amount of 4.50% Senior Notes due December 1, 2009, and $150 million
principal amount of 5.25% Senior Notes due December 1, 2014 (collectively, the
"Senior Notes"). The Senior Notes are unsecured and unsubordinated obligations
of Holdings that are fully and unconditionally guaranteed by GTECH and certain
of its subsidiaries. Interest is payable semi-annually in arrears on June 1 and
December 1 of each year, beginning on June 1, 2005. The proceeds from the
issuance of the Senior Notes will be used for general corporate purposes, which
may include funding future acquisitions. In connection with the private
placement, GTECH agreed to file a registration statement under the Securities
Act of 1933, as amended, under which GTECH would offer to exchange the Senior
Notes sold in the private placement for registered notes with otherwise
identical terms. This registration statement was initially filed on January 12,
2005 and was declared effective by the Securities and Exchange Commission on
April 18, 2005.

In conjunction with the Senior Notes offering, in November 2004, GTECH entered
into three interest rate swap contracts that effectively convert $50 million of
the Senior Notes from a fixed rate to a floating rate for the period November
2004 to December 2009 and $25 million of the Senior Notes from a fixed rate to a
floating rate for the period November 2004 to December 2014.

<PAGE>
                   GETCH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - LONG - TERM DEBT (CONTINUED)

7.87% SERIES B GUARANTEED SENIOR NOTES

In May 2004, GTECH repurchased $90 million aggregate principal amount of its
7.87% Series B Guaranteed Senior Notes due May 15, 2007 (the "2007 Senior
Notes") for approximately $100.6 million. The 2007 Senior Notes were unsecured
and unsubordinated obligations of GTECH that were fully and unconditionally
guaranteed by Holdings and certain of GTECH's subsidiaries. Interest was payable
semi-annually in arrears on May 15 and November 15 of each year. In connection
with this repurchase, we incurred a net charge of $0.8 million, principally
comprised of a redemption premium net of deferred interest rate swap gains which
we recorded in Other Income (Expense) in our Consolidated Income Statements.

WORLD HEADQUARTERS LOAN

Prior to February 1, 2005, we had a 50% limited partnership interest in West
Greenwich Technology Associates, L.P. (the "Partnership"), which owns our world
headquarters facilities and leases them to us. Beginning in the third quarter of
fiscal 2004, we consolidated the Partnership, which required us to record the
Partnership's $27.9 million loan as long-term debt (the "Loan") on our
Consolidated Balance Sheet at February 28, 2004. On February 1, 2005, we repaid
the Loan and acquired the remaining 50% interest in the Partnership from the
general partner.

CREDIT FACILITY

In October 2004, GTECH entered into a $500 million unsecured revolving credit
facility expiring on October 25, 2009 (the "New Credit Facility") to replace the
existing $300 million Senior Credit Facility (the "Old Credit Facility")
expiring on June 22, 2006.

The New Credit Facility is unsecured and unsubordinated and is fully and
unconditionally guaranteed by Holdings and certain of GTECH's subsidiaries.
Interest is generally payable monthly in arrears at rates determined by
reference to the LIBOR rate plus a margin based on GTECH Holdings Corporation's
senior unsecured long-term debt rating. At February 26, 2005 and February 28,
2004 there were no outstanding borrowings under the New Credit Facility or the
Old Credit Facility. At February 26, 2005, GTECH was required to pay a facility
fee of .125% per annum on the total revolving credit commitment. The New Credit
Facility includes a letter of credit facility of up to $100 million. At February
26, 2005, we had $7.8 million of letters of credit issued and outstanding under
the New Credit Facility and $38.2 million of letters of credit issued and
outstanding outside of the New Credit Facility. The total weighted average
annual cost for all letters of credit was 0.84%.

The credit agreement for the New Credit Facility has covenants including, among
other things, requirements relating to the maintenance of certain financial
ratios. There are no covenants in our New Credit Facility that restrict our
ability to pay dividends.

In the second quarter of fiscal 2004, we began paying annual cash dividends on
our common stock of $0.34 per share and we currently plan to continue paying
dividends in the foreseeable future. At February 26, 2005, we had $456 million
of retained earnings available for the payment of dividends.

At February 26, 2005 we were in compliance with all applicable covenants
contained in our debt agreements.

<PAGE>
                   GETCH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - FINANCIAL INSTRUMENTS

CREDIT RISK

We manage our exposure to counterparty credit risk by entering into financial
instruments with major, financially sound counterparties with high-grade credit
ratings and by limiting exposure to any one counterparty.

CASH AND CASH EQUIVALENTS

Cash equivalents are stated at cost, which approximates fair value.

INVESTMENT SECURITIES AVAILABLE-FOR-SALE

The carrying amounts and estimated fair values of our investment securities are
as follows:

<TABLE>
<CAPTION>
                                                February 26, 2005      February 28, 2004
                                              --------------------   --------------------
                                                         Estimated              Estimated
                                              Carrying      Fair     Carrying      Fair
                                                Value      Value      Value       Value
                                              --------   ---------   --------   ---------
                                                         (Dollars in thousands)
<S>                                           <C>        <C>         <C>        <C>
State and Municipal Auction Rate Securities   $196,825   $ 196,825   $116,450   $ 116,450
State and Municipal Variable Rate Demand
   Obligations                                      --          --     77,900      77,900
Corporate Auction Rate Preferred Securities         --          --     27,500      27,500
                                              --------   ---------   --------   ---------
                                              $196,825   $ 196,825   $221,850   $ 221,850
                                              ========   =========   ========   =========
</TABLE>

LONG-TERM DEBT

The carrying amounts and estimated fair values of our debt, as determined by an
independent investment banker, are as follows:

<TABLE>
<CAPTION>
                                                February 26, 2005      February 28, 2004
                                              --------------------   --------------------
                                                         Estimated              Estimated
                                              Carrying      Fair     Carrying      Fair
                                                Value      Value      Value       Value
                                              --------   ---------   --------   ---------
                                                         (Dollars in thousands)
<S>                                           <C>        <C>         <C>        <C>
4.75% Senior Notes due October 2010           $249,690   $ 248,565   $249,636   $ 255,960
1.75% Convertible Debentures due
   December 2021                               175,000     304,500    175,000     375,156
4.50% Senior Notes due December 2009           149,604     148,620         --          --
5.25% Senior Notes due December 2014           148,704     149,238         --          --
Fair value of interest rate swaps                  541         541      4,893       4,893
7.87% Series B Guaranteed Senior Notes
   due May 2007                                     --          --     90,000      99,976
World Headquarters loan due January 2007            --          --     27,933      27,933
Deferred interest rate swap gains                   --          --     12,009      12,009
Other, due through October 2007                  5,266       5,266     10,063      10,063
                                              --------   ---------   --------   ---------
                                              $728,805   $ 856,730   $569,534   $ 785,990
                                              ========   =========   ========   =========
</TABLE>
<PAGE>
                   GETCH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - FINANCIAL INSTRUMENTS (CONTINUED)

FOREIGN CURRENCY EXCHANGE CONTRACTS

The following table summarizes, by major currency, the contractual amounts of
our forward exchange and option contracts translated to United States dollars
using the exchange rate at the balance sheet date. The buy and sell amounts
represent the United States dollar equivalent of commitments to purchase and
sell foreign currencies.

<TABLE>
<CAPTION>
                                      February 26, 2005       February 28, 2004
                                    ---------------------   ---------------------
                                       Buy         Sell        Buy         Sell
                                    Contracts   Contracts   Contracts   Contracts
                                    ---------   ---------   ---------   ---------
                                                (Dollars in thousands)
<S>                                 <C>         <C>         <C>         <C>
Brazilian real                      $  10,100   $      --   $  10,100   $      --
Pounds sterling                         7,643      11,618       8,412      20,949
Taiwan dollar                           7,010          --       6,242          --
Canadian dollar                         6,491          --          --          --
Euro                                    6,195      24,876         642      26,329
Mexican peso                            3,929          --       5,375          --
Swedish krona                           3,705       1,250       7,400          --
Australian dollar                         620          --         780       2,011
Czech koruna                               --       3,108          --       6,957
Other                                     707       8,106       6,369       7,588
                                    ---------   ---------   ---------   ---------
   TOTAL                            $  46,400   $  48,958   $  45,320   $  63,834
                                    =========   =========   =========   =========
</TABLE>

The fair values of our foreign currency exchange contracts are estimated based
on quoted market prices of comparable contracts, adjusted through interpolation
when necessary for maturity differences.

The carrying amounts and estimated fair values of our foreign currency exchange
contracts, which are recorded in Accounts Payable in our consolidated financial
statements, are as follows:

<TABLE>
<CAPTION>
                                      February 26, 2005        February 28, 2004
                                    --------------------     --------------------
                                               Estimated                Estimated
                                    Carrying      Fair       Carrying      Fair
                                      Value      Value        Value       Value
                                    --------   ---------     --------   ---------
                                               (Dollars in thousands)
<S>                                 <C>        <C>           <C>        <C>
Foreign currency exchange contracts $    599   $     599     $  1,528   $   1,528
                                    ========   =========     ========   =========
</TABLE>
<PAGE>
                   GETCH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - FINANCIAL INSTRUMENTS (CONTINUED)

INTEREST RATE SWAPS

Interest rate swaps outstanding and the related debt instruments are as follows:

<TABLE>
<CAPTION>
                                           February 26, 2005          February 28, 2004
                                       ------------------------   ------------------------
                                         Debt     Interest Rate     Debt     Interest Rate
                                       Carrying       Swaps       Carrying       Swaps
                                         Value     Outstanding      Value     Outstanding
                                       --------   -------------   --------   -------------
                                                       (Dollars in thousands)
<S>                                    <C>        <C>             <C>        <C>
4.75% Senior Notes due October 2010    $249,690   $     150,000   $249,636   $     150,000
4.50% Senior Notes due December 2009    149,604          50,000         --              --
5.25% Senior Notes due December 2014    148,704          25,000         --              --
</TABLE>

These interest rate swaps exchange fixed interest rates for variable interest
rates through the due date of the related debt instrument. The fair value of the
interest rate swaps were recorded as assets and the carrying value of the
underlying debt was adjusted by an equal amount in accordance with SFAS 133.

During the third quarter of fiscal 2003, we sold $135 million notional amount of
interest rate swaps for $13.1 million. Approximately $10.0 million of those
proceeds were being amortized as a reduction of interest expense through the due
date of the 2007 Senior Notes. During the first quarter of fiscal 2005, in
connection with the repurchase of the $90 million of 2007 Senior Notes, we
recorded a net charge of $0.8 million, principally comprised of a redemption
premium net of deferred interest rate swap gains, which we recorded in Other
Income (Expense) in our Consolidated Income Statements.

TREASURY RATE LOCK AGREEMENTS

During the third quarter of fiscal 2005, we entered into agreements to lock in
interest rates to hedge against potential increases to interest rates prior to
the issuance of our Senior Notes due December 2009 and December 2014. We
determined that the treasury rate lock agreements were highly effective and
qualified for hedge accounting. All treasury rate lock agreements have matured.
The related gains of $2.0 million were deferred and recorded in Accumulated
Other Comprehensive Loss in our Consolidated Balance Sheet at February 26, 2005
and are being amortized to interest expense over the life of the respective debt
instruments.
<PAGE>
                  GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - COMMITMENTS AND CONTINGENCIES

CONTRACTS

Our contracts generally contain time schedules for, among other things,
commencement of system operations and the installation of terminals, as well as
detailed performance standards. We are typically required to furnish substantial
bonds to secure our performance under 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 our contracts permit the customer
to terminate the contract at will and do not specify the compensation, if any,
that we would be entitled to, were such a termination to occur. In fiscal 2005,
2004 and 2003, we paid or incurred liquidated damages (with respect to our
contracts) of $2.3 million, $5.2 million and $4.6 million, respectively.

ACQUISITION

In December 2004, we entered into an agreement to acquire a 50% controlling
equity position in the Atronic group of companies ("Atronic") owned by the
owners of the privately-held Gauselmann Group ("Gauselmann"). The remaining 50%
of Atronic will be retained by the owners of Gauselmann. Atronic is a video slot
machine manufacturer and also develops slot machine games and customized
solutions for dynamic gaming operations.

The final purchase price for Atronic will be calculated through a
performance-based formula equal to eight times Atronic's EBITDA (earnings before
interest, taxes, depreciation and amortization) for its fiscal year ending
December 31, 2006. In addition, in the 12 months after the closing, Atronic will
also have the potential to receive an earn-out amount based on its 2007
performance above specified thresholds. We currently expect the all-cash
transaction will have a total value of approximately $100 million to $150
million, for our 50% share, including the assumption of debt.

Beginning in 2012, we have the option to purchase Gauselmann's interest in
Atronic and Gauselmann has a reciprocal right to sell its interest to us at a
value determined by independent appraisers. There are also mutual put/call
rights that may become effective before 2012, under certain circumstances. The
exercise price under these circumstances will be calculated through a
performance based formula. This transaction is contingent upon regulatory and
gaming license approvals and other closing conditions, and is expected to be
completed on December 31, 2006.

On March 24, 2005 (after the close of fiscal 2005), we guaranteed 50% of
Atronic's obligations due under a Euro 50 million (approximately $65 million at
the April 20, 2005 exchange rate) loan made by an unrelated commercial lender to
Atronic (the "Agreement"). Our maximum liability under this guaranty is equal to
the lesser of Euro 25 million (approximately $33 million at the April 20, 2005
exchange rate) or 50% of Atronic's outstanding obligations under the Agreement.
The guarantee arose in connection with our planned acquisition of Atronic on
December 31, 2006. We would be required to perform under the guaranty should
Atronic fail to make any interest or principal payments in accordance with the
terms and conditions of the Agreement. Our guarantee expires on April 26, 2010.

<PAGE>
                  GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

LITIGATION

BRAZILIAN LEGAL PROCEEDINGS

THE CEF CONTRACT PROCEEDINGS

BACKGROUND. In January 1997, Caixa Economica Federal ("CEF"), the Brazilian bank
and operator of Brazil's National Lottery, and Racimec Information Brasileira
S.A. ("Racimec"), the predecessor of the Company's subsidiary GTECH Brasil Ltda.
("GTECH Brazil"), entered into a four-year contract pursuant to which GTECH
Brazil agreed to provide online lottery services and technology to CEF (the
"1997 Contract"). In May 2000, CEF and GTECH Brazil terminated the 1997 Contract
and entered into a new agreement (the "2000 Contract") obliging GTECH Brazil to
provide lottery goods and services and additional financial transaction services
to CEF for a contract term that, as subsequently extended, was scheduled to
expire in April 2003. In April 2003, GTECH Brazil entered into an agreement with
CEF (the "2003 Contract Extension") pursuant to which: (a) the term of the 2000
Contract was extended into May 2005, and (b) fees payable to GTECH Brazil under
the 2000 Contract were reduced by 15%.

CEF recently completed a procurement process for products and services to
replace those that we currently provide under the 2000 Contract. Based upon the
commodity auction nature of the procurement process and the revenue restrictions
that were then imposed on us by the courts, we elected not to participate in the
bid process. CEF has also announced that it is developing its central system
in-house. As provided in the 2000 Contract, CEF may elect to extend the 2000
Contract for one year beyond its scheduled May 2005 termination date on its
existing terms and conditions. In addition, we are currently involved in
negotiations with CEF respecting the possible extension of the term of the 2000
Contract for the provision of goods and services by us after the scheduled
termination date of the 2000 Contract. There can be no assurance that CEF will
elect to extend the 2000 Contract for an additional year on its existing terms
and conditions, or that CEF and GTECH Brazil will reach agreement to extend the
term of the 2000 Contract on other terms.

Revenues from the 2000 Contract accounted for approximately 7.2% of our total
revenues for fiscal 2005, making CEF our second largest customer in fiscal 2005
based on revenues.

CRIMINAL ALLEGATIONS AGAINST CERTAIN EMPLOYEES AND RELATED SEC INVESTIGATION. As
previously reported, in late March 2004 federal attorneys with Brazil's Public
Ministry (the "Public Ministry Attorneys") recommended that criminal charges be
brought against nine individuals, including four senior officers of CEF, Antonio
Carlos Rocha, the former Senior Vice President of Holdings and President of
GTECH Brazil; and Marcelo Rovai, GTECH Brazil's marketing director.

The Public Ministry Attorneys had recommended that Messrs. Rocha and Rovai be
charged with offering an improper inducement in connection with the negotiation
of the 2003 Contract Extension, and co-authoring, or aiding and abetting,
certain allegedly fraudulent or inappropriate management practices of the CEF
management who agreed to enter into the 2003 Contract Extension. No other
present or former employee of the Company or GTECH Brazil has been implicated by
the Public Ministry Attorneys. Neither the Company nor GTECH Brazil is the
subject of this criminal investigation, and under Brazilian law (which provides
that criminal charges may not be brought against corporations or other
entities), we cannot be subject to criminal charges in connection with this
matter.

As previously reported, during the second quarter of fiscal 2005, the judge
reviewing these charges prior to their being filed refused to initiate the
criminal charges against the nine individuals, including against Messrs. Rocha
and Rovai, but instead granted a request by the Brazilian Federal Police to
continue the investigation which had been suspended upon the recommendation of
the Public Ministry Attorneys that criminal charges be brought.

The Brazilian Federal Police subsequently ended their investigation and
presented a final report of their findings to the court. This final report does
not recommend that indictments be issued against Messrs. Rocha or Rovai, or
against any current or former employee of the Company.
<PAGE>
                  GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

As previously reported, we cooperated fully with the investigation by Brazilian
authorities respecting this matter, and encouraged Messrs. Rocha and Rovai to do
the same.

In addition, as previously reported, we conducted an internal investigation of
the 2003 Contract Extension under the supervision of the independent directors
of GTECH Holdings Corporation. Our investigation did not reveal any reason to
believe that any of our present or former employees had committed any of the
criminal offenses alleged by the Public Ministry Attorneys.

Notwithstanding the favorable resolution of the Brazilian Federal Police
investigation and the favorable results of our own internal investigation
respecting the 2003 Contract Extension, there can be no assurance that (a) the
Public Ministry Attorneys will not once again recommend to the judge hearing
this case that such criminal charges be initiated against Messrs. Rocha and
Rovai, (b) the Brazilian Federal Police will not broaden their investigation to
include the award of, and performance under, the 1997 Contract and 2000
Contract, or (c) new criminal charges will not be initiated against Messrs.
Rocha and Rovai or additional individuals.

As previously reported, the United States Securities and Exchange Commission
(the "SEC") is undertaking a formal investigation into the Brazilian criminal
allegations against Messrs. Rocha and Rovai and the Company's involvement in
this matter. The Company has been cooperating fully with the SEC.

To date we have found no evidence that the Company, or any of its employees, has
violated any United States law, or is otherwise guilty of any wrongdoing in
connection with this matter.

In light of the fact that our reputation for integrity is an important factor in
our business dealings with lottery and other governmental agencies, an
allegation or finding of improper conduct that is attributable to us could have
a material adverse effect on our business, both within Brazil and elsewhere,
including our ability to retain existing contracts or to obtain new or renewal
contracts.

CIVIL ACTION BY THE PUBLIC MINISTRY ATTORNEYS. As previously reported, in April
2004 the Public Ministry Attorneys initiated a civil action in the Federal Court
of Brasilia against GTECH Brazil; 17 former officers and employees of CEF; the
former president of Racimec; Antonio Carlos Rocha; and Marcos Andrade, another
former officer of GTECH Brazil. The focus of this civil action is the
contractual relationship between CEF, GTECH Brazil and Racimec during the period
1994 to 2002. This civil action alleges that the defendants acted illegally in
entering into, amending and performing, the 1997 Contract, and the 2000
Contract, and seeks to invalidate the 2000 Contract, which, as extended by the
2003 Contract Extension, is still in force.

As previously reported, this lawsuit also seeks to impose damages equal to the
sum of all amounts paid to the Company under the 1997 Contract and the 2000
Contract, and certain other permitted amounts, minus our proven investment
costs. The applicable statute also permits the assessment of penalties, in the
discretion of the court, of up to three times the amount of the damages imposed.
We estimate that through the date of the lawsuit we received under the 1997
Contract and the 2000 Contract a total of 1.5 billion Brazilian reals (or
approximately 500 million United States dollars). In addition, although it is
unclear how investment costs would be determined for purposes of this lawsuit,
we estimate that our investment costs through the date of the lawsuit were
approximately between 1.2 billion and 1.4 billion Brazilian reals (or
approximately between 400 million and 465 million United States dollars) in
aggregate; however, these investment costs could be disputed by CEF, and are
ultimately subject to approval by the court.
<PAGE>
                  GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

As previously reported, we believe we have good and adequate defenses to the
claims made in this lawsuit. We intend to defend ourselves vigorously in these
proceedings, which, we have been advised by our Brazilian counsel, are likely to
take several years, and could take as long as 10 to 15 years in certain
circumstances, to litigate through the appellate process to final judgment. It
is our position that we were appropriately awarded the 1997 Contract by CEF
after a competitive procurement, and that at all times since 1997 we have been
appropriately compensated for services performed under valid contracts with the
CEF.

While we cannot rule out the possibility that the Company will ultimately be
held liable in this matter, or estimate the amount of such liability in such
event, we believe that the outcome of this lawsuit is not likely to have a
material impact on our financial statements or business.

As previously reported, in June 2004, the Federal Court of Brasilia granted a
procedural injunction in connection with this civil matter which ordered that
30% of payments made subsequent to the date of the injunction to GTECH Brazil by
CEF under the 2000 Contract be withheld and deposited into an account maintained
by the Court. As of February 26, 2005, the total amount withheld and deposited
into an account pursuant to this ruling was approximately 68 million Brazilian
reals, or 26 million United States dollars. This injunction also put in place
restrictions that effectively prevented the transfer or sale of the Company's
Brazilian assets, including the share capital of GTECH Brazil, with certain
limited exceptions. The injunction was granted as part of a confidential ex
parte proceeding in which we were not afforded an opportunity to participate.

We filed an appeal respecting the court's grant of this injunction in July 2004.
On March 22, 2005, a panel of judges of the Brazilian Federal Court of Appeals
heard our appeal of the procedural injunction granted by the Federal Court of
Brasilia and issued an order: (a) discontinuing the withholding of payments due
to GTECH Brazil from CEF that had been mandated by the procedural injunction,
(b) removing the procedural injunction's restrictions on the transfer or sale of
the Company's Brazilian assets, and (c) requiring the return to GTECH Brazil of
amounts in excess of 40 million Brazilian reals held in escrow pursuant to the
procedural injunction, thereby permitting the return to GTECH of approximately
11 million United States dollars of the 26 million United States dollars held in
escrow as of the end of fiscal 2005. The appeals court also ordered that 40
million Brazilian reals continue to be held in escrow, and that the procedural
injunction's requirements that defendants report assets to the court, and that
the Brazilian Central Bank report any transaction associated with these assets,
be maintained. This order of the Brazilian Federal Court of Appeals may be
appealed by the Brazilian Public Attorneys.

POPULAR CLAIM. As previously reported, in February 2004, Vincius Bijos, a
Brazilian, commenced a public class action lawsuit in Brazil's Brasilia District
Court of the Federal District against the Brazilian Federal government; CEF;
several former and current officers of CEF; the former president of Racimec; and
GTECH Brazil, seeking, among the relief requested of the Court, a preliminary
injunction prohibiting CEF from making further payments to GTECH Brazil under
the 2000 Contract, and an order that would terminate the 2000 Contract and
require the defendants, jointly and severally, to refund amounts received by
GTECH Brazil under the 1997 Contract and the 2000 Contract, together with
interest, appropriate monetary adjustments, court costs and expenses. This
public class action lawsuit bases its claims upon numerous alleged defects and
irregularities, which the suit asserts violate Brazilian law, in the 1997
Contract and the 2000 Contract, and the manner in which the procurement
processes that gave rise to the awards of these contracts were organized and
administered. We intend to mount a vigorous challenge to the far-reaching claims
that make up this lawsuit. We note that the Public Ministry Attorneys have filed
an opinion with the federal court disagreeing with the request that an
injunction enjoining payments from CEF to GTECH Brazil be entered and requesting
that this suit be consolidated with the Public Ministry Attorneys' civil action
described above.
<PAGE>
                  GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

While we cannot rule out the possibility that the Company will ultimately be
held liable in this matter, or estimate the amount of such liability in such
event, we believe that the outcome of this lawsuit is not likely to have a
material impact on our financial statements or business.

TCU AUDIT. As previously reported, in June 2003, the Federal Court of Accounts
("TCU"), the court charged with auditing agencies of the Brazilian federal
government and its subdivisions, summoned us, together with several current and
former employees of the CEF to appear before TCU's Brasilia court. The summons
required the defendants to show cause why they should not be required to jointly
pay a base amount determined on a preliminary basis by the TCU to be due of
R$91,974,625, duly indexed for inflation and interest as of May 26, 2000
(Decision No. 692/2003). We estimate that this claim, in aggregate, is for the
local currency equivalent of approximately 87.6 million United States dollars
at exchange rates in effect as of February 26, 2005. The allegations underlying
this summons are set forth in a report (the "Audit Report") issued by the TCU in
May 2003 respecting an audit conducted by the TCU of the 1997 Contract.

The central allegation of the Audit Report is that under the 1997 Contract we
were accorded certain payment increases, and we contracted to supply to CEF
certain services, that were not contemplated by the procurement process
respecting the 1997 Contract and that are not otherwise permitted under
applicable Brazilian law. The Audit Report alleges that as a result of this, CEF
overpaid us under the 1997 Contract for the period commencing in January 1997
through May 26, 2000, and that we are liable with respect to such alleged
overpayments as specified above. The Audit Report states that the TCU will refer
the Audit Report to, among others, the Public Ministry Attorneys and the Brazil
Federal Police (who, we have been advised, are conducting an investigation of
CEF's public procurement activities in general). See - "Criminal Allegations
Against Certain Employees and Related SEC Investigation" and "Civil Action by
Public Ministry Attorneys," above. The Audit Report does not allege that we have
acted improperly.

In November 2003, we presented our defense to the claims and preliminary
determination of the TCU that CEF had overpaid us. In light of our defense, in
September 2004, the TCU reduced its determination of the amount alleged to have
been overpaid to us by CEF under the 1997 Contract from R$91,974,625 to
R$30,317,721, or approximately 28.9 million United States dollars at
exchange rates in effect as of February 26, 2005. This determination by the TCU
remains subject to approval by TCU's judges.

We plan to continue to vigorously defend ourselves against the allegations made
by TCU in the Audit Report and the proceedings initiated by the TCU with respect
thereto. We believe that we have good defenses to the claims and determinations
of the TCU. We further believe that the claims and determinations of the Audit
Report have, in essence, been merged into the civil action instituted by the
Public Ministry Attorneys described above, and are accordingly unlikely to
represent an independent potential source of liability for us. While we are
unable to rule out the possibility that the Company will ultimately be held
liable in this matter, we believe that the outcome of this matter is not likely
to have a material impact on our financial statements or business.
<PAGE>
                  GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

SERLOPAR SUIT

As previously reported, in April 2002 Serlopar, the lottery authority for the
Brazilian state of Parana, sued our subsidiaries Dreamport Brasil Ltda. and
GTECH Brazil in the 2nd Public Finance Court of the City of Curitiba, State of
Parana, under an agreement dated July 31, 1997, as amended (the "VLT
Agreement"). Pursuant to the VLT Agreement, we agreed to install and operate
video lottery terminals ("VLTs") in Parana. Serlopar alleges in its suit that we
installed only 450 of the 1,000 VLTs that we were allegedly obliged to install,
and that we were overpaid, and failed to reimburse Serlopar certain amounts
alleged to be due to Serlopar, under the VLT Agreement. Serlopar seeks payment
from us of approximately 40 million United States dollars (at exchange rates in
effect on February 26, 2005) with respect to these claims, together with
unspecified amounts alleged to be due from the defendants with respect to
general losses and damages (including loss of revenues) and court costs and
legal fees. We believe we have good defenses to the claims made by Serlopar in
this lawsuit, and we intend to continue to defend ourselves vigorously in these
proceedings. We believe that the outcome of this suit will not have a material
impact on our financial statements or business.

OTHER LEGAL PROCEEDINGS

ARGENTINA MONEY TRANSFER MATTER

In February 2005, GTECH Foreign Holdings Corporation, Argentina Branch ("GFHC")
and our Argentina legal counsel, Dr. Jorge Perez of Perez, del Barba and
Rosenblum, received notification from the Central Bank of Argentina that they
were being indicted for alleged violations of Argentina's currency exchange
laws. The Argentina laws in question prohibit the transfer of foreign currency
from Argentina, subject to certain exceptions not here relevant. At issue is a
February 2002 agreement (the "BofA Agreement") between GFHC and Bank of America,
N.A., Buenos Aires Branch ("BofA") pursuant to which BofA assigned to GFHC a
certificate of deposit in the amount of 571,429 United States dollars (the
"CD"), issued by Bank of America, Charlotte, North Carolina Branch ("BofA-North
Carolina"), in consideration for the payment of 1.4 million Argentina pesos.
Upon maturity of the CD, the agreement provided for BofA-North Carolina to pay
571,429 United States dollars to a GFHC branch bank account in the United
States. We understand that the central claim of the Argentina Central Bank's
indictment will be that GFHC's agreement with BofA was a transaction in which
foreign currency was transferred, in essence, from Argentina to the United
States in violation of applicable Argentina law.

If GFHC is found guilty of violating applicable Argentina currency exchange
laws, as charged in the indictment, we would be liable to pay a fine of up to
approximately 5.7 million United States dollars (i.e., ten times the amount of
United States dollars allegedly transferred from Argentina) and could be
prohibited for up to ten years from importing goods into, or exporting goods
from, Argentina.

We note that BofA, which solicited GTECH to enter into the BofA Agreement, and
approximately 20 other customers of BofA including several subsidiaries of large
multi-national corporations, have been indicted in connection with transactions
similar to the transaction outlined in the BofA Agreement. BofA explicitly
represented to us in the BofA Agreement that the transaction described therein
did not violate any Argentina law or regulation, and we believe that we took
appropriate measures independent of this representation (including obtaining the
opinion of local counsel) in advance of entering into the BofA Agreement to
ascertain that this transaction was legal under applicable Argentina law.

We believe that we have good defenses to the claims made on the indictment, and
we intend to vigorously defend ourselves in these proceedings. We do not believe
that the outcome of this suit will have a material impact on our financial
statements or business.
<PAGE>
                  GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

COHEN SUIT

As previously reported, on August 7, 2002 we terminated without cause the
employment of Howard S. Cohen, our former President and Chief Executive Officer.
In March 2003, Mr. Cohen attempted to exercise options granted by us in April
2002 to purchase (on a pre-split adjusted basis) 450,000 shares of our Common
Stock at a per-share exercise price of $23.30. The non-qualified stock option
agreement entered into between Mr. Cohen and us respecting the April 2002 grant
of options provides by its terms that, in the event that Mr. Cohen's employment
was terminated without cause, options remaining exercisable must be exercised
within six months from the date of termination (i.e., by February 7, 2003).
Because Mr. Cohen had failed to exercise his April 2002 options within the term
provided in the applicable stock option agreement, we did not permit Mr. Cohen
to exercise these options. In May 2003, Mr. Cohen filed suit in Rhode Island
Superior Court against us and the attorneys who had advised him in connection
with the negotiation of his severance agreement, respecting his attempt to
exercise the April 2002 stock options. The suit, captioned Howard S. Cohen v.
GTECH Corporation, GTECH Holdings Corporation, Michael J. Tuchman, Levenfeld
Pearlstein, Charlene F. Marant and Marant Enterprises Holdings LLC, alleges
that: (i) we breached our agreements with Mr. Cohen in failing to allow him to
exercise his April 2002 options; (ii) through fraud by us, or the mutual mistake
of the parties, the April 2002 option grant does not reflect the intent of the
parties, and (iii) we had a duty to advise Mr. Cohen of his mistaken belief (if
such it was) as to the exercise term of the April 2002 options, and failed to so
advise Mr. Cohen. Mr. Cohen also alleges that his attorneys had failed in their
duty of care in misadvising him as to the correct period during which he could
exercise his options, and, in addition, had practiced law in Rhode Island
without a license in violation of applicable Rhode Island law. Mr. Cohen seeks
damages against us and the other defendants in an amount of not less than 4.0
million United States dollars, plus interest, costs and reasonable attorneys
fees. With respect to us, he also seeks an order reforming the terms of the
April 2002 option grant to reflect the alleged intent of the parties with
respect to the post-termination exercise term, and other equitable relief. Mr.
Cohen also asks for a declaratory judgment construing our 2000 Omnibus Stock
Option and Long Term Incentive Plan and Mr. Cohen's employment and severance
agreements, as to the relevant option exercise period. We believe that we have
good defenses to the claims made by Mr. Cohen in this lawsuit and we intend to
vigorously defend ourselves in these proceedings. Nevertheless, at the present
time we are unable to predict the outcome of this lawsuit.

We also are subject to certain other legal proceedings and claims which
management believes, on the basis of information presently available to it, will
not materially adversely affect our consolidated financial position or results
of operations.
<PAGE>
                  GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - GUARANTEES AND INDEMNIFICATIONS

PERFORMANCE AND OTHER BONDS

In connection with certain contracts and procurements, we have been required to
deliver performance bonds for the benefit of our customers and bid and
litigation bonds for the benefit of potential customers, respectively. These
bonds give the beneficiary the right to obtain payment and/or performance from
the issuer of the bond if certain specified events occur. In the case of
performance bonds, which generally have a term of one year, such events include
our failure to perform our obligations under the applicable contract. To obtain
these bonds, we are required to indemnify the issuers against the costs they
incur if a beneficiary exercises its rights under a bond. Historically, our
customers have not exercised their rights under these bonds and we do not
currently anticipate they will do so. The following table provides information
related to potential commitments at February 26, 2005:

<TABLE>
<CAPTION>
                    Total potential
                      commitments
                    ---------------
                     (in thousands)
<S>                 <C>
Performance bonds   $       208,144
Litigation bonds              6,782
All other bonds               4,302
                    ---------------
                    $       219,228
                    ===============
</TABLE>

LOTTERY TECHNOLOGY SERVICES INVESTMENT CORPORATION

We have a 44% interest in Lottery Technology Services Investment Corporation
(the "Holding Company"), which we account for using the equity method of
accounting. The Holding Company's wholly owned subsidiary, Lottery Technology
Services Corporation (the "Subsidiary"), provides equipment and services (which
we supplied to the Subsidiary), to the Bank of Taipei. The Bank of Taipei holds
the license to operate the Taiwan Public Welfare Lottery (the "Lottery"). On
November 29, 2004, the Holding Company merged with the Subsidiary and the
Subsidiary is the surviving company (the merged company is collectively referred
to as "LTSC"). (See Note 23.)

In fiscal 2002, in order to assist LTSC with the financing they required to
enable them to perform under their obligation to operate the Lottery, we
guaranteed loans made to LTSC by an unrelated commercial lender. We did not
receive any consideration in exchange for our guarantees on behalf of LTSC.
Rather, these guarantees were issued in connection with the formation of LTSC.
At February 28, 2004, the principal amount of loans that we guaranteed totaled
$4.6 million. LTSC repaid all borrowings under the guaranteed loans in September
2004 and our guarantee expired in October 2004.

We recognize 56% of gross profit on product sales to LTSC and defer the
remaining 44% as a result of our equity interest in LTSC. We recognize these
deferrals ratably over the life of our contract with LTSC. At February 26, 2005
and February 28, 2004, deferred product gross profit totaling $2.0 million and
$3.4 million, respectively, is included in Deferred Revenue and Advance Billings
and Other Liabilities in our Consolidated Balance Sheets.

In fiscal 2002, we signed an agreement with Acer, Inc. ("Acer"), the partner
that holds the remaining 56% interest in LTSC, which provides that in the event
a third party lender to LTSC requires the guarantee of GTECH or Acer as a
condition of making a loan to LTSC, we, along with Acer, will provide such a
guarantee on reasonable terms. This potential guarantee is limited to 44% of any
such third-party loan and would expire on December 31, 2006.

<PAGE>
                  GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - GUARANTEES AND INDEMNIFICATIONS (CONTINUED)

LOTTERY TECHNOLOGY ENTERPRISES

We have a 1% interest in Lottery Technology Enterprises ("LTE"), a joint venture
between us and District Enterprise for Lottery Technology Applications of
Washington, D.C. ("DELTA"). The joint venture agreement terminates on December
31, 2012. LTE holds a 10-year contract (which expires in November 2009) with the
District of Columbia Lottery and Charitable Games Control Board. Under
Washington, D.C. law, by virtue of our 1% interest in LTE, we may be jointly and
severally liable, with DELTA, for the obligations of the joint venture.

TIMES SQUARED INCORPORATED

In December 1998, we guaranteed outstanding lease obligations of Times Squared
Incorporated ("Times Squared") for which we received no monetary consideration.
Our guarantee terminated in December 2004. The amount outstanding under the
lease at February 28, 2004 was $2.3 million. Times Squared is a nonprofit
corporation established to provide, among other things, secondary and high
school level educational programs. Times Squared operates a Charter School for
Engineering, Mathematics, Science and Technology in Providence, Rhode Island
that serves inner city children who aspire to careers in the sciences and
technology.

DELAWARE LLC

At February 28, 2004, we held a 50% interest in Gaming Entertainment (Delaware)
L.L.C. ("GED"). GED is also owned 50% by a subsidiary of Full House Resorts,
Inc. ("FHRI"). Pursuant to a 1995 management agreement ("Agreement"), GED
manages a racino for Harrington Raceway, Inc. ("Harrington") and in return
receives a percentage of gross revenues and operating profits as defined in the
Agreement. Along with FHRI, we guaranteed the payment of all amounts due
Harrington under the Agreement. The consideration we received in exchange for
the guarantee was the equity earnings from our ownership in GED. During the
first quarter of fiscal 2005, we sold our 50% interest in GED to Harrington for
$11.8 million and recognized a gain of $10.9 million which was recorded in Other
Income (Expense) in our Consolidated Income Statements. Our guarantee expired
upon the sale of our 50% interest.

ATRONIC

In December 2004, we entered into an agreement to acquire a 50% controlling
equity position in the Atronic group of companies ("Atronic") owned by the
owners of the privately-held Gauselmann Group ("Gauselmann"). The remaining 50%
of Atronic will be retained by the owners of Gauselmann. Atronic is a video slot
machine manufacturer and also develops slot machine games and customized
solutions for dynamic gaming operations. This transaction is contingent upon
regulatory and gaming license approvals and other closing conditions, and is
expected to be completed on December 31, 2006.

On March 24, 2005 (after the close of fiscal 2005), we guaranteed 50% of
Atronic's obligations due under a Euro 50 million (approximately $65 million at
the April 20, 2005 exchange rate) loan made by an unrelated commercial lender to
Atronic (the "Agreement"). Our maximum liability under this guaranty is equal to
the lesser of Euro 25 million (approximately $33 million at the April 20, 2005
exchange rate) or 50% of Atronic's outstanding obligations under the Agreement.
The guarantee arose in connection with our planned acquisition of Atronic on
December 31, 2006. We would be required to perform under the guaranty should
Atronic fail to make any interest or principal payments in accordance with the
terms and conditions of the Agreement. Our guarantee expires on April 26, 2010.
<PAGE>
                  GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - GUARANTEES AND INDEMNIFICATIONS (CONTINUED)

LOXLEY GTECH PRIVATE LIMITED

We have a 49% interest in Loxley GTECH Private Limited Co. ("LGT"), which is
accounted for using the equity method of accounting. LGT is a corporate joint
venture that is expected to provide the online lottery system in Thailand. On
March 29, 2005 (after the close of fiscal 2005), in order to assist LGT with
obtaining the financing they require to enable them to perform under their
anticipated obligation to operate the online lottery system in Thailand, we
guaranteed, along with the other 51% shareholder in LGT, Baht 1.925 billion
(approximately $49 million at the April 20, 2005 exchange rate) principal amount
in loans and Baht 455 million (approximately $12 million at the April 20, 2005
exchange rate) in performance bonds and trade finance facilities made to LGT by
an unrelated commercial lender (collectively the "Facilities"). We are jointly
and severally liable with the other shareholder in LGT for this guarantee. We
would be required to perform under the guaranty should LGT fail to make interest
or principal payments in accordance with the terms and conditions of the
Facilities. Our guarantee obligations will not commence until LGT enters into a
definitive agreement with the government, which we currently expect will take
place in the second quarter of fiscal 2006, and will terminate upon the start-up
of the online lottery system in Thailand, which is currently expected to occur
in the fourth quarter of fiscal 2006.

WORLD HEADQUARTERS FACILITY

Under our Master Contract with the State of Rhode Island, we are to invest (or
cause to be invested) at least $100 million in the State of Rhode Island, in the
aggregate, by December 31, 2008. This investment commitment includes the
development of a new world headquarters facility in Providence, Rhode Island by
December 31, 2006. We have entered into (i) a development agreement with US Real
Estate Limited Partnership (the "Developer"), whereby the Developer will develop
and own the facility; and (ii) an office lease with the Developer, whereby we
will lease a portion of the facility from the Developer for 20 years. We also
entered into (i) a 149 year ground lease with Capital Properties, Inc. (the
"Ground Landlord") with respect to the land upon which the facility will be
constructed; and (ii) a completion guarantee in favor of the Ground Landlord
whereby we guaranteed the completion of the facility and the payment of the rent
and real estate taxes under the ground lease until the completion of the
facility. We have assigned the ground lease to the Developer but remain liable
under the ground lease and the completion guarantee. Rent payable under the
ground lease is currently $0.1 million per year. It is our position that our
liability under the ground lease will expire upon completion of the facility.
Upon completion of the facility, the Ground Landlord's recourse in the event of
a default by the Developer under the ground lease is limited to the facility.

<PAGE>
                  GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 - ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of, and changes in, other comprehensive loss are as follows:

<TABLE>
<CAPTION>
                                        Foreign     Net Gain (Loss)     Unrealized     Treasury
                                        Currency     on Derivative      Gain (Loss)      Rate
                                      Translation     Instruments     on Investments     Lock       Total
                                      -----------   ---------------   --------------   --------   ---------
                                                              (Dollars in thousands)
<S>                                   <C>           <C>               <C>              <C>        <C>
Balance at February 23, 2002          $  (101,039)  $           174   $           50   $     --   $(100,815)
Changes during the year, net of tax         5,344                91             (108)        --       5,327
                                      -----------   ---------------   --------------   --------   ---------
Balance at February 22, 2003              (95,695)              265              (58)        --     (95,488)

Changes during the year, net of tax        26,418            (1,423)             (15)        --      24,980
                                      -----------   ---------------   --------------   --------   ---------
Balance at February 28, 2004              (69,277)           (1,158)             (73)        --     (70,508)

Changes during the year, net of tax        24,618               677               (2)     1,988      27,281
                                      -----------   ---------------   --------------   --------   ---------
Balance at February 26, 2005          $   (44,659)  $          (481)  $          (75)  $  1,988   $ (43,227)
                                      ===========   ===============   ==============   ========   =========
</TABLE>

FOREIGN CURRENCY TRANSLATION

Our current contract with Caixa Economica Federal ("CEF"), the operator of
Brazil's National Lottery and our second largest customer in fiscal 2005 based
on annual revenues, is scheduled to expire in May 2005. We are currently
involved in negotiations with CEF respecting the possible extension of the term
of our current contract with CEF for the provision of goods and services by us
after the scheduled termination date of our current contract. Foreign currency
translation related to our operations in Brazil of $59.5 million (which is
included in the $44.7 million at February 26, 2005 above), would be recorded as
a charge to our consolidated income statement upon the expiration of our
contract with CEF should we determine that the expiration of the CEF contract
results in a substantial liquidation of our investment in Brazil. Refer to Note
14 for detailed disclosures regarding Brazilian legal proceedings.

NET GAIN (LOSS) ON DERIVATIVE INSTRUMENTS

The $0.5 million of net losses on derivative instruments at February 26, 2005 is
expected to be reclassified to earnings within the next 12 months as the
underlying transactions occur.

TREASURY RATE LOCK

The treasury rate lock of $2.0 million at February 26, 2005 represents the net
amount of deferred gains we realized related to our agreements to lock in
interest rates to hedge our 4.5% Senior Notes due December 2009 and our 5.25%
Senior Notes due December 2014, against potential increases to interest rates
prior to their issuance. The deferred gains are being amortized to interest
expense over the life of the respective debt instrument.
<PAGE>
                  GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 - CONSOLIDATION OF VARIABLE INTEREST ENTITIES

In December 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46 (revised December 2003), "Consolidation of Variable
Interest Entities" ("FIN 46"). We were required to apply FIN 46 in our
consolidated financial statements for periods ending after December 15, 2003
(our fiscal 2004 fourth quarter) for interests in variable interest entities
that were considered to be special-purpose entities and for periods ending after
March 15, 2004 (our fiscal 2005 first quarter) for all other types of variable
interest entities. Earlier application was permitted.

FIN 46 addresses the consolidation of entities to which the usual condition of
consolidation does not apply (ownership of a majority voting interest) and
focuses on controlling financial interests that may be achieved through
arrangements that do not involve voting interests. FIN 46 concludes that in the
absence of clear control through voting interests, a company's exposure
(variable interest) to the economic risks and potential rewards from the
variable interest entity's assets and activities are the best evidence of
control. If an enterprise holds a majority of the variable interests of an
entity, it would be considered the primary beneficiary. Upon consolidation, the
primary beneficiary is generally required to include assets, liabilities and
noncontrolling interests at fair value and subsequently account for the variable
interest as if it were consolidated based on majority voting interest.

We determined that we are the primary beneficiary of the following variable
interest entities and have consolidated these entities in accordance with FIN
46.

WEST GREENWICH TECHNOLOGY ASSOCIATES, L.P.

Prior to February 1, 2005, we had a 50% limited partnership interest in West
Greenwich Technology Associates, L.P. (the "Partnership"), which owns our world
headquarters facilities and leases them to us. The general partner of the
Partnership was an unrelated third party. Prior to the third quarter of fiscal
2004, we accounted for the Partnership using the equity method of accounting.
Beginning in the third quarter of fiscal 2004, we consolidated the Partnership
in accordance with FIN 46 and as a result, we recorded our world headquarters
facilities owned by the Partnership as an asset and the Partnership's loan as a
liability in our consolidated financial statements. The consolidation of the
Partnership increased balance sheet assets and liabilities by $30.0 million and
$26.7 million, respectively, and resulted in a one-time, non-cash, after-tax
gain of $3.3 million. The pre-tax gain of $5.3 million is recorded in Other
Income (Expense) in our Consolidated Income Statements and not as a
cumulative-effect adjustment because the gain is not material to our
consolidated financial statements.

On February 1, 2005, we repaid the Partnership's loan and acquired the remaining
50% interest in the Partnership from the general partner.

AITKEN SPENCE GTECH PRIVATE LIMITED

We have a 50% interest in Aitken Spence GTECH Private Limited ("ASG"), a
corporate joint venture that aids in the operation and management of the lottery
in Sri Lanka. The other partner is an unrelated third party. In accordance with
FIN 46, we consolidated ASG in the fourth quarter of fiscal 2005 which increased
balance sheet assets and liabilities by $7.7 million and $5.1M, respectively.
Our Company's investment in ASG (including loans) totaled approximately $4.0
million at February 26, 2005, representing our maximum exposure to loss. Any
creditors of ASG do not have recourse against the general credit of the Company
as a result of including ASG in our consolidated financial statements.
<PAGE>
                  GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 - STOCK-BASED COMPENSATION PLANS

We have various stock-based compensation plans whereby nonemployee members of
our Board of Directors, officers and other key employees may receive grants of
incentive stock options, nonqualified stock options, restricted stock, stock
appreciation rights and performance awards. We are authorized to grant up to
27,200,000 shares of common stock under these plans.

The stock options granted under these plans are to purchase our common stock at
a price not less than fair market value at the date of grant. Stock options
generally vest ratably over a four-year period from the date of grant and expire
10 years after the date of grant (unless an earlier expiration date is set at
the time of grant) and are subject to possible earlier exercise and termination
in certain circumstances. Beginning in fiscal 2005, stock options for Senior
Staff Officers of our Company generally vest ratably over a four-year period
beginning on the second anniversary date of the grant. Beginning in fiscal 2006,
all stock options will generally vest ratably over a four-year period beginning
on the second anniversary date of the grant.

We apply Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related Interpretations in accounting for our plans. We
have adopted the disclosure-only provisions of SFAS 148, an amendment of SFAS
123. Therefore, no compensation cost has been recognized for stock option grants
under the plans because the exercise price of all options granted was equal to
100% of the fair market value of our common stock on the respective date of each
grant.

A summary of stock option activity under the plans is as follows:

<TABLE>
<CAPTION>
                                                             Fiscal Year Ended
                                   ---------------------------------------------------------------------
                                     February 26, 2005       February 28, 2004       February 22, 2003
                                   ---------------------   ---------------------   ---------------------
                                                Weighted                Weighted                Weighted
                                     Shares      Average     Shares      Average     Shares      Average
                                      under     Exercise      under     Exercise      under     Exercise
                                     Options      Price      Options      Price      Options      Price
                                   ----------   --------   ----------   --------   ----------   --------
<S>                                <C>          <C>        <C>          <C>        <C>          <C>
Outstanding at beginning of year    8,675,900   $  10.52   10,703,852   $   8.32   10,420,752   $   6.78
Granted                             1,326,500      28.77    2,170,900      17.10    4,424,000      11.41
Exercised                          (1,517,784)      8.92   (3,259,352)      7.35   (2,556,900)      6.60
Forfeited                           (342,200)      17.28     (939,500)     11.68   (1,584,000)      9.62
                                   ----------              ----------              ----------
Outstanding at end of year          8,142,416      13.50    8,675,900      10.52   10,703,852       8.32
                                   ==========              ==========              ==========

Exercisable at end of year          4,448,240   $   9.23    3,927,000   $   8.60    5,100,852   $   8.19
                                   ==========              ==========              ==========
</TABLE>

Exercise prices for stock options outstanding under the plans as of February 26,
2005 are summarized as follows:

<TABLE>
<CAPTION>
                                                      Weighted Average
                                                  -----------------------                       Weighted
                                                    Remaining                                    Average
    Range of                        Options        Contractual   Exercise         Options       Exercise
 Exercise Prices                  Outstanding     Life (Years)     Price        Exercisable       Price
----------------                  -----------     ------------   --------       -----------     --------
<S>                               <C>             <C>            <C>            <C>             <C>
$ 4.30 - $ 6.33                       890,890              5.2   $   5.12           890,890     $   5.12
$ 6.70 - $ 9.65                     2,216,500              6.2       7.63         1,799,500         7.83
$ 9.68 - $14.91                     2,189,500              7.2      11.57         1,479,000        11.87
$16.70 - $23.55                     1,673,026              8.2      17.21           271,350        17.10
$24.15 - $29.53                     1,172,500              9.1      29.32             7,500        27.11
                                  -----------                                   -----------
                                    8,142,416                                     4,448,240
                                  ===========                                   ===========
</TABLE>

<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 - STOCK-BASED COMPENSATION PLANS (CONTINUED)

During fiscal 2005, 2004 and 2003, we awarded 219,350, 528,000 and 390,000
shares of restricted stock, respectively, to nonemployee members of our Board of
Directors, officers and certain other key employees of our Company. Such shares
had a weighted average fair value at the date of grant of $28, $18 and $11 per
share, respectively. Recipients of restricted stock do not pay us any cash
consideration for the shares. The fair value of the restricted stock award is
being charged to expense over the vesting period. We recorded noncash charges to
operations during fiscal 2005, 2004 and 2003 of $4.9 million, $3.3 million and
$3.3 million, respectively, as compensation expense related to restricted stock.

During fiscal 2004, our Board of Directors approved the Senior Staff Officer
Stock Ownership Plan (the "Plan"), whereby Senior Staff Officers of our Company
are required to maintain ownership of our common stock equivalent to a
percentage of their base salary. Fiscal 2004 was the first year of the Plan. By
the end of year five of their participation in the Plan, our Chief Executive
Officer will be required to attain common stock ownership equal to two times his
base salary and all other Senior Staff Officers will be required to attain
common stock ownership equal to one times their base salary. In order to satisfy
the common stock ownership requirements, the Plan participants must own and hold
vested and unencumbered shares of our common stock. At February 26, 2005, all
Senior Staff Officers were in compliance with the Plan.

NOTE 19 - EMPLOYEE STOCK PURCHASE PLAN

On August 2, 2004, shareholders approved the GTECH Holdings Corporation 2004
Employee Stock Purchase Plan (the "ESPP"), which replaces the July 1998 Employee
Stock Purchase Plan that expired on August 31, 2004. The ESPP provides that
eligible employees may purchase shares of our common stock, through regular
payroll deductions, of up to 10% of their base earnings. Substantially all
employees are eligible to participate in the ESPP, with the exception of those
employees who are 5% or more shareholders in our Company. The purchase price of
our common stock is equal to 85% of the fair market value of the stock on the
first or last trading day of the six-month offering period, whichever is lower.
Employees may purchase shares of our common stock having a fair market value of
up to $25,000 per calendar year. All shares of our common stock purchased must
be retained for a period of one year. No compensation expense is currently
recorded in connection with the ESPP. The ESPP expires upon the earlier of (i)
July 31, 2008; (ii) early termination by the Board of Directors or; (iii) the
date the treasury shares provided by the ESPP have been purchased. A total of
1,200,000 treasury shares were made available for purchase under the ESPP, of
which 1,140,355 shares remain available for future purchase as of February 26,
2005.



<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 - EMPLOYEE BENEFITS

At February 26, 2005, we had two defined contribution 401(k) retirement savings
and profit sharing plans (the "Plans") covering substantially all 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 each year.
We contribute this amount on the employee's behalf to the Plans and also make a
matching contribution.

For periods prior to March 1, 2003, our matching contributions were equal to
100% on the first 3% and 50% on the next 2% that the employee elected to defer,
up to a maximum matching contribution of 4% of the employee's base pay.
Effective March 1, 2003, the matching contribution was changed to 100% on the
first 3% that the employee elects to defer, up to a maximum matching
contribution of 3% of the employee's base pay. Employees are fully vested at all
times in the amounts they defer and in any earnings on these contributions.
Employees are fully vested in the Company's matching contributions, profit
sharing and any earnings on these contributions on the first anniversary of
their date of hire. Benefits under the Plans will generally be paid to
participants upon retirement or in certain other limited circumstances.

At our discretion, we have contributed additional amounts to the Plans on behalf
of employees based upon our profits for a given fiscal year. Beginning in fiscal
2005, we discontinued the payment of profit sharing contributions.

Prior to fiscal 2005, we had a defined contribution Supplemental Retirement Plan
(the "SRP") that provided additional retirement benefits to certain key
employees. At our discretion, we contributed additional amounts to the SRP on
behalf of such key employees equal to the percentage of profit sharing
contributions contributed to the Plans for the calendar year multiplied by the
key employees' compensation (as defined by the SRP) for such year. Beginning in
fiscal 2005, we discontinued the payment of additional retirement benefits.

In fiscal 2005, 2004, and 2003, we recorded expense under the plans and the SRP
of $3.4 million, $7.3 million and $9.6 million, respectively.



<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21 - EARNINGS PER SHARE

The following table shows the computation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>
                                                                         Fiscal Year Ended
                                                     ---------------------------------------------------------
                                                     February 26, 2005   February 28, 2004   February 22, 2003
                                                     -----------------   -----------------   -----------------
                                                              (In thousands, except per share amounts)
<S>                                                  <C>                 <C>                 <C>
NUMERATOR:
   Net income (Numerator for basic earnings
      per share)                                     $         196,394   $         183,200   $         142,021

Effect of dilutive securities:
   Interest expense on 1.75% Convertible
      Debentures, net of tax                                     2,125               2,126               2,056
                                                     -----------------   -----------------   -----------------
Numerator for diluted earnings per share             $         198,519   $         185,326   $         144,077
                                                     =================   =================   =================

DENOMINATOR:
   Denominator for basic earnings per share-
      weighted average shares                                  116,739             116,464             114,162

Effect of dilutive securities:
   1.75% Convertible Debentures                                 12,727              12,727              12,727
   Employee stock options                                        2,859               3,158               2,438
   Unvested stock awards and employee stock
      purchase plan shares                                         234                 276                 182
                                                     -----------------   -----------------   -----------------
         Dilutive potential common shares                       15,820              16,161              15,347

Denominator for diluted earnings per share-
   adjusted weighted-average shares and
   assumed conversions                                         132,559             132,625             129,509
                                                     =================   =================   =================

Basic earnings per share                             $            1.68   $            1.57   $            1.24
                                                     =================   =================   =================

Diluted earnings per share                           $            1.50   $            1.40   $            1.11
                                                     =================   =================   =================
</TABLE>

Our 1.75% Convertible Debentures ("Debentures") are convertible at the option of
the holder into shares of our common stock at an initial conversion rate of
72.7272 shares of common stock per $1,000 principal amount of Debentures, which
is equivalent to an initial conversion price of approximately $13.75 per share.
The Debentures become convertible when, among other circumstances, the closing
price of our common stock is more than 120% of the conversion price
(approximately $16.50 per share) for at least 20 out of 30 consecutive trading
days prior to the date of surrender for conversion. There are a total of 12.7
million shares issuable upon the conversion of the Debentures. The Debentures
were convertible for all 251 trading days in fiscal 2005, 209 out of 256 trading
days in fiscal 2004, and were not convertible for any trading days in fiscal
2003.

For all periods presented, we have adopted the provisions of EITF 04-8, which
requires the inclusion of all 12.7 million shares underlying our Debentures in
prior periods' diluted earnings per share computations, if dilutive, regardless
of whether the conversion requirements have been met. The adoption of EITF 04-8
resulted in a decrease to diluted earnings per share of $0.02 and $0.10 in
fiscal 2004 and 2003, respectively.



<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21 - EARNINGS PER SHARE (CONTINUED)

Included in stock options outstanding are options to purchase 1,286,000, 492,000
and 1,138,000 shares of common stock at February 26, 2005, February 28, 2004 and
February 22, 2003, respectively, that were not included in the computation of
diluted earnings per share because the options' exercise prices were greater
than the average market price of the common shares and, therefore, the effect
would be anti-dilutive.

NOTE 22 - INCOME TAXES

Income before income taxes is based on the geographical contract source of
income (rather than the location where the income is taxed) and consists of the
following:

<TABLE>
<CAPTION>
                                                                           Fiscal Year Ended
                                                       ---------------------------------------------------------
                                                       February 26, 2005   February 28, 2004   February 22, 2003
                                                       -----------------   -----------------   -----------------
                                                                         (Dollars in thousands)
<S>                                                    <C>                 <C>                 <C>
United States                                          $          24,466   $          37,355   $          34,506
Foreign                                                          281,920             253,439             194,560
                                                       -----------------   -----------------   -----------------
                                                       $         306,386   $         290,794   $         229,066
                                                       =================   =================   =================
</TABLE>

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

<TABLE>
<CAPTION>
                                                                            Fiscal Year Ended
                                                        ---------------------------------------------------------
                                                        February 26, 2005   February 28, 2004   February 22, 2003
                                                        -----------------   -----------------   -----------------
                                                                          (Dollars in thousands)
<S>                                                     <C>                 <C>                 <C>
Current:
   Federal                                              $          12,254   $          (4,145)  $          45,787
   State                                                            6,892               5,877               4,905
   Foreign                                                         56,106              46,405              37,920
                                                        -----------------   -----------------   -----------------
      Total Current                                                75,252              48,137              88,612
                                                        -----------------   -----------------   -----------------
Deferred:
   Federal                                              $          44,007   $          58,510   $           3,499
   State                                                            2,532               3,049                 398
   Foreign                                                        (11,799)             (2,102)             (5,464)
                                                        -----------------   -----------------   -----------------
      Total Deferred                                               34,740              59,457              (1,567)
                                                        -----------------   -----------------   -----------------
         Total Provision                                $         109,992   $         107,594   $          87,045
                                                        =================   =================   =================
</TABLE>



<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 22 - INCOME TAXES (CONTINUED)

The tax effects of temporary differences and carryforwards that give rise to
deferred tax assets and liabilities consist of the following:

<TABLE>
<CAPTION>
                                                        February 26, 2005   February 28, 2004
                                                        -----------------   -----------------
                                                                (Dollars in thousands)
<S>                                                     <C>                 <C>
Deferred tax assets:
   Accruals not currently deductible for tax purposes   $          21,933   $          24,681
   Tax credit carryforward                                         13,658                  --
   Cash collected in excess of revenue recognized                   9,952               8,846
   Depreciation                                                     7,832               7,543
   Inventory reserves                                               5,471               5,949
   Foreign net operating losses                                     1,682                  --
   Interest rate swap gain                                            736               3,955
   Other                                                            9,677              10,380
                                                        -----------------   -----------------
                                                                   70,941              61,354
   Valuation allowance for deferred tax assets                     (1,682)                 --
                                                        -----------------   -----------------
Deferred tax assets, net of valuation allowance                    69,259              61,354

Deferred tax liabilities:
   Depreciation                                                  (111,165)            (75,682)
   Acquired intangible assets                                     (15,333)                 --
   Contingent interest on convertible debt                        (11,371)             (7,310)
   Other                                                           (5,965)             (5,685)
                                                        -----------------   -----------------
                                                                 (143,834)            (88,677)
                                                        -----------------   -----------------
Net deferred tax liabilities                            $         (74,575)  $         (27,323)
                                                        =================   =================
</TABLE>

At February 26, 2005, we had non-U.S. net operating loss carryforwards for
income tax purposes of $4.9 million that expire at various dates through 2025.

A valuation allowance at February 26, 2005 of $1.7 million has been recognized
to offset the related deferred tax assets due to the uncertainty of realizing
the benefits of the deferred tax assets. The valuation allowance is related to
the non-U.S. net operating loss carryforwards.

Undistributed earnings of foreign subsidiaries amounted to $109.1 million at
February 26, 2005. If these earnings had been remitted, no additional tax cost
would have been incurred because of the availability of foreign tax credits. The
earnings reflect full provision for foreign income taxes and are intended to be
indefinitely reinvested in foreign operations.

The effective income tax rate on income before income taxes differed from the
statutory federal income tax rate for the following reasons:

<TABLE>
<CAPTION>
                                                                            Fiscal Year Ended
                                                        ---------------------------------------------------------
                                                        February 26, 2005   February 28, 2004   February 22, 2003
                                                        -----------------   -----------------   -----------------
<S>                                                     <C>                 <C>                 <C>
Federal income tax using statutory rate                              35.0%               35.0%               35.0%
State taxes, net of federal benefit                                   2.0                 2.0                 1.5
Nondeductible expenses                                                0.4                 0.4                 0.5
Tax credits                                                          (0.5)               (0.3)               (0.7)
Other                                                                (1.0)               (0.1)                1.7
                                                        -----------------   -----------------   -----------------
                                                                     35.9%               37.0%               38.0%
                                                        =================   =================   =================
</TABLE>

<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23 - TRANSACTIONS WITH RELATED PARTIES

Receivables from related parties, which are included in Trade Accounts
Receivable in our Consolidated Balance Sheets, are as follows:

<TABLE>
<CAPTION>
                                                           February 26, 2005           February 28, 2004
                                                           -----------------           -----------------
                                                                      (Dollars in thousands)
<S>                                                        <C>                         <C>
Lottery Technology Services Corporation                    $           2,693           $           2,699
Uthingo Management Proprietary Limited                                 1,641                       2,827
Lottery Technology Enterprises                                           298                         462
Wireless Business Solutions (Proprietary) Limited                         35                          --
                                                           -----------------           -----------------
                                                           $           4,667           $           5,988
                                                           =================           =================
</TABLE>

LOTTERY TECHNOLOGY SERVICES CORPORATION

We have a 44% interest in Lottery Technology Services Investment Corporation
(the "Holding Company"), which we account for using the equity method of
accounting. The Holding Company's wholly owned subsidiary, Lottery Technology
Services Corporation (the "Subsidiary"), provides equipment and services (which
we supplied to the Subsidiary), to the Bank of Taipei. The Bank of Taipei holds
the license to operate the Taiwan Public Welfare Lottery. On November 29, 2004,
the Holding Company merged with the Subsidiary and the Subsidiary is the
surviving company (the merged company is collectively referred to as "LTSC").

Sales of products to, and service revenues from LTSC were $27.8 million, $27.8
million and $8.5 million in fiscal 2005, 2004 and 2003 respectively. We
recognize 56% of gross profit on product sales to LTSC and defer the remaining
44% as a result of our equity interest in LTSC. We recognize these deferrals
ratably over the life of our contract with LTSC. At February 26, 2005 and
February 28, 2004, deferred product gross profit totaling $2.0 million and $3.4
million, respectively, is included in Deferred Revenue and Advance Billings and
Other Liabilities in our Consolidated Balance Sheets.

UTHINGO MANAGEMENT PROPRIETARY LIMITED

We have a 10% interest in Uthingo Management Proprietary Limited ("Uthingo"),
which is accounted for using the equity method of accounting. Uthingo is a
corporate joint venture that holds the license to operate the South African
National Lottery. Sales of products to, and service revenues from Uthingo were
$18.7 million, $19.8 million and $18.0 million in fiscal 2005, 2004 and 2003,
respectively.

LOTTERY TECHNOLOGY ENTERPRISES

We have a 1% interest in Lottery Technology Enterprises ("LTE"), a joint venture
between us and District Enterprise for Lottery Technology Applications of
Washington, D.C. LTE holds a 10-year contract (which expires in November 2009)
with the District of Columbia Lottery and Charitable Games Control Board.
Service revenues from LTE were $3.8 million, $3.4 million and $3.0 million in
fiscal 2005, 2004 and 2003, respectively.

WIRELESS BUSINESS SOLUTIONS (PROPRIETARY) LIMITED

We have a 40% interest in Wireless Business Solutions (Proprietary) Limited
("WBS"), an entity that holds a national mobile data telecommunications license
issued by the South African government and is the telecommunications provider to
Uthingo. In fiscal 2005, we determined that we no longer had a controlling
interest in WBS that would require consolidation in our financial statements due
principally to the expiration of our guarantee of loans made by an unrelated
commercial lender to WBS. In addition, we evaluated whether we should continue
to consolidate WBS in accordance with FIN 46 and concluded consolidation was not
appropriate because WBS meets the business exemption under FIN 46. Consequently,
we account for WBS using the equity method of accounting. Sales of products to,
and service revenues from WBS were $0.4 million in fiscal 2005.



<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23 - TRANSACTIONS WITH RELATED PARTIES (CONTINUED)

WEST GREENWICH TECHNOLOGY ASSOCIATES, L .P.

Prior to February 1, 2005, we had a 50% limited partnership interest in West
Greenwich Technology Associates, L.P. (the "Partnership"), which owns our world
headquarters facilities and leases them to us. The general partner of the
Partnership is an unrelated third party. Prior to the third quarter of fiscal
2004, we accounted for the Partnership using the equity method of accounting.
Beginning in the third quarter of fiscal 2004, we consolidated the Partnership
in accordance with FIN 46 and as a result, we recorded our world headquarters
facilities owned by the Partnership as an asset and the Partnership's loan as a
liability in our consolidated financial statements. On February 1, 2005, we
repaid the Partnership's loan and acquired the remaining 50% interest in the
Partnership from the general partner.

LOXLEY GTECH PRIVATE LIMITED

We have a 49% interest in Loxley GTECH Private Limited Co. ("LGT"), which is
accounted for using the equity method of accounting. LGT is a corporate joint
venture that is expected to provide the online lottery system in Thailand. There
were no sales of products to, or service revenues from LGT during fiscal 2005,
2004 or 2003.

SPELPARKEN

We have a 19% interest in Spelparken which is accounted for using the equity
method of accounting. Spelparken is a corporate joint venture that will provide
internet gaming related activities in Sweden. There were no sales of products
to, or service revenues from Spelparken during fiscal 2005, 2004 or 2003.

ITALY (COGETECH SPA)

We have a 35% interest in Cogetech SPA which is accounted for using the equity
method of accounting. Cogetech SPA is a corporate joint venture that operates a
communications network and related central computer system linking gaming
machines in Italy. There were no sales of products to Cogetech SPA during fiscal
2005, 2004 or 2003. We have deferred approximately $0.4 million of service
revenue during fiscal 2005, which will be recognized as collected in fiscal
2006.

DELAWARE LLC

At February 28, 2004, we held a 50% interest in Gaming Entertainment (Delaware)
L.L.C. ("GED"), an entity that manages a racino for Harrington Raceway, Inc.
("Harrington"). During the first quarter of fiscal 2005, we sold our 50%
interest in GED to Harrington for $11.8 million and recognized a gain of $10.9
million which was recorded in Other Income (Expense) in our Consolidated Income
Statements.



<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 24 - LEASES

We lease certain facilities, equipment and vehicles under noncancelable
operating leases that expire at various dates through fiscal 2015. Certain of
these leases have escalation clauses and renewal options. We are required to pay
all maintenance costs, taxes and insurance premiums relating to our leased
assets.

Future minimum lease payments for noncancelable operating leases with initial
lease terms in excess of one year at February 26, 2005 were as follows:

<TABLE>
<CAPTION>
                                    Lease
Fiscal Year                       Payments
-----------                    --------------
                               (in thousands)
<S>                            <C>
2006                           $       20,572
2007                                   15,362
2008                                    7,385
2009                                    4,956
2010                                    3,892
Thereafter                              4,326
                               --------------
Total minimum lease payments   $       56,493
                               ==============
</TABLE>

Rental expense for operating leases was $32.1 million, $27.9 million and $26.4
million for fiscal 2005, 2004, and 2003, respectively.



<PAGE>
                  GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 25 - BUSINESS SEGMENT AND GEOGRAPHIC DATA

We are a global technology services company providing software, networks and
professional services that power high-performance solutions. We have a single
operating and reportable business segment, the Transaction Processing segment,
with our core market being the lottery industry. The accounting policies of the
Transaction Processing segment are the same as those described in Note 1 -
"Organization and Summary of Significant Accounting Policies." Management
evaluates the performance of this segment based on operating income.

The Company's geographic data, based on the location of the customer, is
summarized below:

<TABLE>
<CAPTION>
                                                               Fiscal Year Ended
                                           ---------------------------------------------------------
                                           February 26, 2005   February 28, 2004   February 22, 2003
                                           -----------------   -----------------   -----------------
                                                            (Dollars in thousands)
<S>                                        <C>                 <C>                 <C>
Revenues from external sources:
   United States                           $         599,914   $         531,776   $         496,908
   Brazil                                             93,084             106,913             100,371
   United Kingdom                                     68,702              85,595              54,824
   Poland                                             68,499              47,116              23,766
   Other foreign                                     427,036             279,930             302,921
                                           -----------------   -----------------   -----------------
                                           $       1,257,235   $       1,051,330   $         978,790
                                           =================   =================   =================
</TABLE>

<TABLE>
<CAPTION>
                                                                Fiscal Year Ended
                                            ---------------------------------------------------------
                                            February 26, 2005   February 28, 2004   February 22, 2003
                                            -----------------   -----------------   -----------------
                                                             (Dollars in thousands)
<S>                                         <C>                 <C>                 <C>
Systems, equipment and other assets
   relating to contracts, net:
   United States                            $         587,595   $         482,118   $         298,732
   Poland                                              40,857              27,032              14,787
   Other foreign                                       91,986              82,212              97,392
                                            -----------------   -----------------   -----------------
                                            $         720,438   $         591,362   $         410,911
                                            =================   =================   =================
</TABLE>

There were no customers that accounted for more than 10% of our consolidated
revenues in fiscal 2005, 2004 or 2003.



<PAGE>
                  GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 26 - SUBSEQUENT EVENTS

DEVELOPMENTS IN BRAZIL

A June 25, 2004 ruling (the "Ruling") in a civil action initiated by federal
attorneys with Brazil's Public Ministry had the effect in fiscal 2005 of
materially reducing payments that we otherwise would have received from our
lottery contract with Caixa Economica Federal ("CEF"), our customer and the
operator of Brazil's National Lottery, which expires in May 2005. The Ruling
ordered that 30% of payments subsequent to the Ruling due to GTECH Brasil Ltda.,
our Brazilian subsidiary ("GTECH Brazil") from CEF, be withheld and deposited in
an account maintained by the Court. As of February 26, 2005, the total amount
withheld and deposited in an account maintained by the Court was approximately
68 million Brazilian reals, or $26 million. In fiscal 2005, we did not recognize
service revenues for the payments that were withheld from GTECH Brazil, as
realization of these amounts was not reasonably assured.

In July 2004 we filed an appeal of the Ruling and in March 2005 (after the close
of fiscal 2005), an appellate court decision ordered that the withholding be
discontinued and that all funds currently held in escrow in excess of 40 million
Brazilian reals be returned to us, which amounts to $11 million of the $26
million withheld as of February 26, 2005. We received and recognized these
funds as service revenue on April 13, 2005. In addition, the Ruling ordered that
all assets of GTECH Brazil be identified to the Court so as to prevent their
transfer or disposition, a requirement that was also subsequently reversed by
the appellate court decision in March 2005. Refer to Note 14 for detailed
disclosures regarding this matter.

ATRONIC

In December 2004, we entered into an agreement to acquire a 50% controlling
equity position in the Atronic group of companies ("Atronic") owned by the
owners of the privately-held Gauselmann Group ("Gauselmann"). The remaining 50%
of Atronic will be retained by the owners of Gauselmann. Atronic is a video slot
machine manufacturer and also develops slot machine games and customized
solutions for dynamic gaming operations. This transaction is contingent upon
regulatory and gaming license approvals and other closing conditions, and is
expected to be completed on December 31, 2006.

On March 24, 2005, we guaranteed 50% of Atronic's obligations due under a Euro
50 million (approximately $65 million at the April 20, 2005 exchange rate) loan
made by an unrelated commercial lender to Atronic (the "Agreement"). Our maximum
liability under this guaranty is equal to the lesser of Euro 25 million
(approximately $33 million at the April 20, 2005 exchange rate) or 50% of
Atronic's outstanding obligations under the Agreement. The guarantee arose in
connection with our planned acquisition of Atronic on December 31, 2006. We
would be required to perform under the guaranty should Atronic fail to make any
interest or principal payments in accordance with the terms and conditions of
the Agreement. Our guarantee expires on April 26, 2010.

LOXLEY GTECH PRIVATE LIMITED

We have a 49% interest in Loxley GTECH Private Limited Co. ("LGT"), which is
accounted for using the equity method of accounting. LGT is a corporate joint
venture that is expected to provide the online lottery system in Thailand. On
March 29, 2005, in order to assist LGT with obtaining the financing they require
to enable them to perform under their anticipated obligation to operate the
online lottery system in Thailand, we guaranteed, along with the other 51%
shareholder in LGT, Baht 1.925 billion (approximately $49 million at the April
20, 2005 exchange rate) principal amount in loans and Baht 455 million
(approximately $12 million at the April 20, 2005 exchange rate) in performance
bonds and trade finance facilities made to LGT by an unrelated commercial lender
(collectively the "Facilities"). We are jointly and severally liable with the
other shareholder in LGT for this guarantee. We would be required to perform
under the guaranty should LGT fail to make interest or principal payments in
accordance with the terms and conditions of the Facilities. Our guarantee
obligations will not commence until LGT enters into a definitive agreement with
the government, which we currently expect will take place in the second quarter
of fiscal 2006, and will terminate upon the start-up of the online lottery
system in Thailand, which is currently expected to occur in the fourth quarter
of fiscal 2006.



<PAGE>
                  GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 27 - SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information is summarized as follows:

<TABLE>
<CAPTION>
                                                                      Fiscal Year Ended
                                                  ---------------------------------------------------------
                                                  February 26, 2005   February 28, 2004   February 22, 2003
                                                  -----------------   -----------------   -----------------
                                                                    (Dollars in thousands)
<S>                                               <C>                 <C>                 <C>
Income taxes paid                                 $          67,677   $          66,729   $          76,944
Interest paid, net of
   amounts capitalized                                       16,412               5,725              11,266
Income tax refunds                                          (10,465)             (1,995)             (1,901)
</TABLE>

Non-cash investing and financing activities are excluded from the consolidated
statement of cash flows. Non-cash activities are summarized as follows:

<TABLE>
<CAPTION>
                                                                      Fiscal Year Ended
                                                  ---------------------------------------------------------
                                                  February 26, 2005   February 28, 2004   February 22, 2003
                                                  -----------------   -----------------   -----------------
                                                                    (Dollars in thousands)
<S>                                               <C>                 <C>                 <C>
Non-cash investment related to our new world
   headquarters facility in Providence, RI        $           6,604   $              --   $              --
Treasury shares issued under stock award plans                3,139               2,437               3,508
Issuance of 1,435,130 shares of Holding
   common stock in connection with the
   acquisition of Interlott Technologies, Inc.                   --              30,834                  --
</TABLE>

NOTE 28 - SUPPLEMENTAL GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION

On December 18, 2001, Holdings (the "Parent Company") issued, in a private
placement, $175 million principal amount of 1.75% Convertible Debentures due
December 15, 2021 (the "Debentures"). On October 9, 2003, the Parent Company
issued, in a private placement, $250 million principal amount of 4.75% Senior
Notes due October 15, 2010, all of which were subsequently exchanged for 4.75%
Senior Notes due October 15, 2010 registered under the Securities Act of 1933
and on November 16, 2004, the Parent Company issued $150 million principal
amount of 4.75% Senior Notes due December 1, 2009 and $150 million principal
amount of 5.75% Senior Notes due December 1, 2014 (collectively, the "Senior
Notes"). The Debentures and Senior Notes are unsecured and unsubordinated
obligations of the Parent Company that are jointly and severally, fully and
unconditionally guaranteed by GTECH and two of its wholly owned subsidiaries:
GTECH Rhode Island Corporation and GTECH Latin America Corporation (collectively
with GTECH, the "Guarantor Subsidiaries"). Condensed consolidating financial
information is presented below.

Selling, general and administrative costs and research and development costs are
allocated to each subsidiary based on the ratio of the subsidiaries' combined
service revenues and sales of products to consolidated revenues.

The Parent Company conducts business through its consolidated subsidiaries and
unconsolidated affiliates and has, as its only material asset, an investment in
GTECH. Equity in earnings of consolidated affiliates recorded by the Parent
Company includes the Parent Company's share of the after-tax earnings of GTECH.
Taxes payable and deferred income taxes are obligations of the subsidiaries.
Income tax expense related to both current and deferred income taxes are
allocated to each subsidiary based on our consolidated effective income tax
rates.



<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 28 - SUPPLEMENTAL GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Balance Sheets
February 26, 2005

<TABLE>
<CAPTION>
                                             Parent        Guarantor      Non-Guarantor     Eliminating
                                             Company     Subsidiaries      Subsidiaries       Entries       Consolidated
                                            --------     ------------     -------------     -----------     ------------
                                                                       (Dollars in thousands)
<S>                                         <C>          <C>              <C>               <C>             <C>
Assets
Current Assets:
   Cash and cash equivalents                $     --     $     23,020     $      71,426     $        --     $     94,446
   Investment securities
      available-for-sale                          --          196,825                --              --          196,825
   Trade accounts receivable, net                 --           82,212            86,494              --          168,706
   Due from subsidiaries and affiliates           --           53,345                --         (53,345)              --
   Sales-type lease receivables                   --            3,215               246              --            3,461
   Refundable performance deposit                 --               --             8,000              --            8,000
   Inventories                                    --           30,387            34,366          (3,618)          61,135
   Deferred income taxes                          --           14,030            17,405              --           31,435
   Other current assets                           --            6,669            19,977              --           26,646
                                            --------     ------------     -------------     -----------     ------------
      Total Current Assets                        --          409,703           237,914         (56,963)         590,654
Systems, Equipment and Other
   Assets Relating to Contracts, net              --          616,204           118,436         (14,202)         720,438
Investment in Subsidiaries and
   Affiliates                                655,768          448,499                --      (1,104,267)              --
Goodwill, net                                     --          115,981           215,041              --          331,022
Property, Plant and Equipment, net                --           40,120            34,438              --           74,558
Intangible Assets, net                            --           22,157            48,682              --           70,839
Refundable Performance Deposit                    --               --            12,000              --           12,000
Sales-Type Lease Receivables                      --            4,681                75              --            4,756
Other Assets                                      --           28,209            22,665              --           50,874
                                            --------     ------------     -------------     -----------     ------------
      Total Assets                          $655,768     $  1,685,554     $     689,251     $(1,175,432)    $  1,855,141
                                            ========     ============     =============     ===========     ============
Liabilities and Shareholders' Equity
Current Liabilities:
   Accounts payable                         $     --     $     41,525     $      57,709     $        --     $     99,234
   Due to subsidiaries and affiliates             --               --            53,345         (53,345)              --
   Accrued expenses                               --           29,277            24,950              --           54,227
   Employee compensation                          --           13,252             8,610              --           21,862
   Advance payments from customers                --            8,113            34,752              --           42,865
   Deferred revenue and advance billings          --           11,369            18,336              --           29,705
   Income taxes payable                           --           11,902             4,597              --           16,499
   Taxes other than income taxes                  --            7,688             8,884              --           16,572
   Short-term borrowings                          --               --               334              --              334
   Current portion of long-term debt              --               --             2,476              --            2,476
                                            --------     ------------     -------------     -----------     ------------
      Total Current Liabilities                   --          123,126           213,993         (53,345)         283,774
Long-Term Debt, less current
   portion                                        --          723,539             2,790              --          726,329
Other Liabilities                                 --           64,035            19,225              --           83,260
Deferred Income Taxes                             --          101,266             4,744              --          106,010
Shareholders' Equity                         655,768          673,588           448,499      (1,122,087)         655,768
                                            --------     ------------     -------------     -----------     ------------
      Total Liabilities and
         Shareholders' Equity               $655,768     $  1,685,554     $     689,251     $(1,175,432)    $  1,855,141
                                            ========     ============     =============     ===========     ============
</TABLE>



<PAGE>
                  GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 28 - SUPPLEMENTAL GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Balance Sheets
February 28, 2004

<TABLE>
<CAPTION>
                                           Parent        Guarantor      Non-Guarantor     Eliminating
                                           Company     Subsidiaries      Subsidiaries       Entries       Consolidated
                                          --------     ------------     -------------     -----------     ------------
                                                                     (Dollars in thousands)
<S>                                       <C>          <C>              <C>               <C>             <C>
Assets
Current Assets:
   Cash and cash equivalents              $     --     $     68,956     $      60,383     $        --     $    129,339
   Investment securities
      available-for-sale                        --          221,850                --              --          221,850
   Trade accounts receivable, net               --           75,590            43,312              --          118,902
   Due from subsidiaries and affiliates         --           49,168                --         (49,168)              --
   Sales-type lease receivables                 --            3,967             3,738              --            7,705
   Inventories                                  --           52,697            29,943          (5,856)          76,784
   Deferred income taxes                        --           30,254             4,142              --           34,396
   Other current assets                         --            5,481            18,945              --           24,426
                                          --------     ------------     -------------     -----------     ------------
      Total Current Assets                      --          507,963           160,463         (55,024)         613,402

Systems, Equipment and Other
   Assets Relating to Contracts, net            --          518,976            80,111          (7,725)         591,362
Investment in Subsidiaries and
   Affiliates                              562,289          162,788                --        (725,077)              --
Goodwill, net                                   --          115,965            72,647              --          188,612
Property, Plant and Equipment, net              --           28,543            29,033              --           57,576
Intangible Assets, net                          --           21,850             6,381              --           28,231
Refundable Performance Deposit                  --               --            20,000              --           20,000
Sales-Type Lease Receivables                    --            8,125             9,528              --           17,653
Other Assets                                    --           20,822            21,473              --           42,295
                                          --------     ------------     -------------     -----------     ------------
      Total Assets                        $562,289     $  1,385,032     $     399,636     $  (787,826)    $  1,559,131
                                          --------     ------------     -------------     -----------     ------------

Liabilities and Shareholders' Equity
Current Liabilities:
   Accounts payable                       $     --     $     54,967     $    $ 25,037     $        --     $     80,004
   Due to subsidiaries and affiliates           --               --            49,168         (49,168)              --
   Accrued expenses                             --           32,041            15,387              --           47,428
   Employee compensation                        --           29,256             4,725              --           33,981
   Advance payments from customers              --           45,648            58,480              --          104,128
   Deferred revenue and advance
      billings                                  --            8,282             6,177              --           14,459
   Income taxes payable                         --            4,419             7,975              --           12,394
   Taxes other than income taxes                --            8,643            10,816              --           19,459
   Current portion of long-term debt            --          100,886             5,433              --          106,319
                                          --------     ------------     -------------     -----------     ------------
      Total Current Liabilities                 --          284,142           183,198         (49,168)         418,172
Long-Term Debt, less current
   portion                                      --          430,652            32,563              --          463,215
Other Liabilities                               --           36,526            17,210              --           53,736
Deferred Income Taxes                           --           57,842             3,877              --           61,719
Shareholders' Equity                       562,289          575,870           162,788        (738,658)         562,289
                                          --------     ------------     -------------     -----------     ------------
      Total Liabilities and
         Shareholders' Equity             $562,289     $  1,385,032     $     399,636     $  (787,826)    $  1,559,131
                                          ========     ============     =============     ===========     ============
</TABLE>



<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 28 - SUPPLEMENTAL GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Income Statements
Fiscal Year Ended February 26, 2005

<TABLE>
<CAPTION>
                                      Parent        Guarantor      Non-Guarantor     Eliminating
                                      Company     Subsidiaries      Subsidiaries       Entries       Consolidated
                                     --------     ------------     -------------     -----------     ------------
                                                                (Dollars in thousands)
<S>                                  <C>          <C>              <C>               <C>             <C>
Revenues:
   Services                          $     --     $    718,920     $     298,763     $        --     $  1,017,683
   Sales of products                       --          105,848           133,704              --          239,552
   Intercompany sales and fees             --           95,463            63,651        (159,114)              --
                                     --------     ------------     -------------     -----------     ------------
                                           --          920,231           496,118        (159,114)       1,257,235
Costs and expenses:
   Costs of services                       --          417,553           202,522          (3,442)         616,633
   Costs of sales                          --           56,515           101,472             (13)         157,974
   Intercompany cost of sales
      and fees                             --          103,009            22,008        (125,017)              --
                                     --------     ------------     -------------     -----------     ------------
                                           --          577,077           326,002        (128,472)         774,607
                                     --------     ------------     -------------     -----------     ------------

Gross profit                               --          343,154           170,116         (30,642)         482,628

Selling, general & administrative          --           76,904            40,349              --          117,253
Research and development                   --           34,482            18,077              --           52,559
                                     --------     ------------     -------------     -----------     ------------
      Operating expenses                   --          111,386            58,426              --          169,812
                                     --------     ------------     -------------     -----------     ------------

Operating income                           --          231,768           111,690         (30,642)         312,816

Other income (expense):

      Interest income                      --            2,137             2,478              --            4,615
      Equity in earnings of
         unconsolidated affiliates         --            2,891               (79)             --            2,812
      Equity in earnings of
         consolidated affiliates      196,394           74,146                --        (270,540)              --
      Other income                         --            2,571             2,785              --            5,356
      Interest expense                     --          (17,922)           (1,291)             --          (19,213)
                                     --------     ------------     -------------     -----------     ------------
                                      196,394           63,823             3,893        (270,540)          (6,430)
                                     --------     ------------     -------------     -----------     ------------

Income before income taxes            196,394          295,591           115,583        (301,182)         306,386

Income taxes                               --          105,969            41,437         (37,414)         109,992
                                     --------     ------------     -------------     -----------     ------------
Net income                           $196,394     $    189,622     $      74,146     $  (263,768)    $    196,394
                                     ========     ============     =============     ===========     ============
</TABLE>



<PAGE>

                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 28 - SUPPLEMENTAL GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Income Statements
Fiscal Year Ended February 28, 2004

<TABLE>
<CAPTION>
                                      Parent      Guarantor    Non-Guarantor   Eliminating
                                      Company   Subsidiaries    Subsidiaries     Entries     Consolidated
                                     --------   ------------   -------------   -----------   ------------
                                                            (Dollars in thousands)
<S>                                  <C>        <C>            <C>             <C>           <C>
Revenues:
   Services                          $     --   $    684,299   $     273,172   $        --   $    957,471
   Sales of products                       --         40,643          53,216            --         93,859
   Intercompany sales and fees             --        101,932          47,881      (149,813)            --
                                     --------   ------------   -------------   -----------   ------------
                                           --        826,874         374,269      (149,813)     1,051,330
Costs and expenses:
   Costs of services                       --        372,109         169,451        (3,721)       537,839
   Costs of sales                          --         21,433          37,856           (63)        59,226
   Intercompany cost of sales
      and fees                             --        100,111          20,865      (120,976)            --
                                     --------   ------------   -------------   -----------   ------------
                                           --        493,653         228,172      (124,760)       597,065
                                     --------   ------------   -------------   -----------   ------------

Gross profit                               --        333,221         146,097       (25,053)       454,265

Selling, general & administrative          --         75,213          33,879            --        109,092
Research and development                   --         39,530          17,788            --         57,318
                                     --------   ------------   -------------   -----------   ------------
      Operating expenses                   --        114,743          51,667            --        166,410
                                     --------   ------------   -------------   -----------   ------------

Operating income                           --        218,478          94,430       (25,053)      287,855

Other income (expense):

      Interest income                      --          1,882           3,851            --          5,733
      Equity in earnings of
         unconsolidated affiliates         --          2,038           4,198            --          6,236
      Equity in earnings of
         consolidated affiliates      183,200         61,334              --      (244,534)            --
      Other income (expense)               --          5,817          (3,928)           --          1,889
      Interest expense                     --         (9,724)         (1,195)           --        (10,919)
                                     --------   ------------   -------------   -----------   ------------
                                      183,200         61,347           2,926      (244,534)         2,939
                                     --------   ------------   -------------   -----------   ------------

Income before income taxes            183,200        279,825          97,356      (269,587)       290,794

Income taxes                               --        103,535          36,022       (31,963)       107,594
                                     --------   ------------   -------------   -----------   ------------
Net income                           $183,200   $    176,290   $      61,334   $  (237,624)  $    183,200
                                     ========   ============   =============   ===========   ============
</TABLE>



<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 28 - SUPPLEMENTAL GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Income Statements
Fiscal Year Ended February 22, 2003

<TABLE>
<CAPTION>
                                     Parent      Guarantor    Non-Guarantor   Eliminating
                                     Company   Subsidiaries    Subsidiaries     Entries     Consolidated
                                    --------   ------------   -------------   -----------   ------------
                                                           (Dollars in thousands)
<S>                                 <C>        <C>            <C>             <C>           <C>
Revenues:
   Services                         $     --   $    658,815   $     210,081   $        --   $    868,896
   Sales of products                      --         58,310          51,584            --        109,894
   Intercompany sales and fees            --         96,058          58,756      (154,814)            --
                                    --------   ------------   -------------   -----------   ------------
                                          --        813,183         320,421      (154,814)       978,790
Costs and expenses:
   Costs of services                      --        383,256         177,663       (25,878)       535,041
   Costs of sales                         --         49,578          29,799          (434)        78,943
   Intercompany cost of sales
      and fees                            --         65,446          21,671       (87,117)            --
                                    --------   ------------   -------------   -----------   ------------
                                          --        498,280         229,133      (113,429)       613,984
                                    --------   ------------   -------------   -----------   ------------

Gross profit                              --        314,903          91,288       (41,385)       364,806

Selling, general & administrative         --         70,434          25,696            --         96,130
Research and development                  --         31,391          11,461            --         42,852
Special charge (credit)                   --         (1,121)             --            --         (1,121)
                                    --------   ------------   -------------   -----------   ------------
      Operating expenses                  --        100,704          37,157            --        137,861
                                    --------   ------------   -------------   -----------   ------------

Operating income                          --        214,199          54,131       (41,385)       226,945

Other income (expense):
      Interest income                     --          1,597           2,240            --          3,837
      Equity in earnings of
         unconsolidated affiliates        --          3,499           3,877            --          7,376
      Equity in earnings of
         consolidated affiliates     142,021         40,991              --      (183,012)            --
   Other income (expense)                 --         (5,930)          8,105            --          2,175
   Interest expense                       --         (9,028)         (2,239)           --        (11,267)
                                    --------   ------------   -------------   -----------   ------------
                                     142,021         31,129          11,983      (183,012)         2,121
                                    --------   ------------   -------------   -----------   ------------
Income before income taxes           142,021        245,328          66,114      (224,397)       229,066

Income taxes                              --         93,225          25,123       (31,303)        87,045
                                    --------   ------------   -------------   -----------   ------------
Net income                          $142,021   $    152,103   $      40,991   $  (193,094)  $    142,021
                                    ========   ============   =============   ===========   ============
</TABLE>



<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 28 - SUPPLEMENTAL GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Statements of Cash Flows
Fiscal Year Ended February 26, 2005

<TABLE>
<CAPTION>
                                           Parent      Guarantor    Non-Guarantor   Eliminating
                                          Company    Subsidiaries    Subsidiaries     Entries     Consolidated
                                         ---------   ------------   -------------   -----------   ------------
                                                                 (Dollars in thousands)
<S>                                      <C>         <C>            <C>             <C>           <C>
Net cash provided by operating
   activities                            $      --   $    262,868   $     122,821   $   (10,480)  $    375,209

Investing Activities
   Acquisitions (net of cash acquired)          --             --        (200,730)           --       (200,730)
   Purchases of systems, equipment
      and other assets relating to
      contracts                                 --       (204,163)        (51,909)       10,480       (245,592)
   Purchases of available-for-sale
      investment securities                     --       (246,975)             --            --       (246,975)
   Maturities and sales of
      available-for-sale investment
      securities                                --        272,000              --            --        272,000
   Proceeds from sale of investment             --             --          11,773            --         11,773
   Purchases of property, plant and
      equipment                                 --        (12,331)           (544)           --        (12,875)
   Increase in restricted cash                  --             --          (5,112)           --         (5,112)
   Investments in and advances to
      unconsolidated subsidiaries               --             --          (2,071)           --         (2,071)
                                         ---------   ------------   -------------   -----------   ------------
Net cash used for investing
      activities                                --       (191,469)       (248,593)       10,480       (429,582)

Financing Activities
   Net proceeds from issuance of
      long-term debt                            --        343,254              --            --        343,254
   Principal payments on long-term
      debt                                      --       (135,000)        (32,692)           --       (167,692)
   Purchases of treasury stock            (120,658)            --              --            --       (120,658)
   Dividends paid                          (39,830)            --              --            --        (39,830)
   Premiums and fees paid in
      connection with the early
      retirement of debt                        --        (10,610)             --            --        (10,610)
   Proceeds from stock options              13,546             --              --            --         13,546
   Intercompany capital transactions       144,948       (312,948)        168,000            --             --
   Other                                     1,994         (2,904)            405            --           (505)
                                         ---------   ------------   -------------   -----------   ------------
Net cash provided by (used for)
   financing activities                         --       (118,208)        135,713            --         17,505
Effect of exchange rate changes
   on cash                                      --            873           1,102            --          1,975
                                         ---------   ------------   -------------   -----------   ------------
Increase (decrease) in cash and
   cash equivalents                             --        (45,936)         11,043            --        (34,893)
Cash and cash equivalents at
   beginning of year                            --         68,956          60,383            --        129,339
                                         ---------   ------------   -------------   -----------   ------------
Cash and cash equivalents at end
   of year                               $      --   $     23,020   $      71,426   $        --   $     94,446
                                         =========   ============   =============   ===========   ============
</TABLE>



<PAGE>
                  GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 28 - SUPPLEMENTAL GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Statements of Cash Flows
Fiscal Year Ended February 28, 2004

<TABLE>
<CAPTION>
                                          Parent      Guarantor    Non-Guarantor   Eliminating
                                          Company   Subsidiaries    Subsidiaries     Entries     Consolidated
                                         --------   ------------   -------------   -----------   ------------
                                                                (Dollars in thousands)
<S>                                      <C>        <C>            <C>             <C>           <C>
Net cash provided by operating
   activities                            $     --   $    339,643   $      76,286   $      (862)  $    415,067

Investing Activities
   Purchases of systems, equipment
      and other assets relating to
      contracts                                --       (252,273)        (16,599)          862       (268,010)
   Purchases of available-for-sale
      investment securities                    --       (242,050)             --            --       (242,050)
   Acquisitions (net of cash acquired)         --        (40,691)        (33,751)           --        (74,442)
   Refundable performance deposit              --             --         (20,000)           --        (20,000)
   Purchases of property, plant and
      equipment                                --        (12,772)             --            --        (12,772)
   License fee                                 --        (12,500)             --            --        (12,500)
   Investments in and advances to
      unconsolidated subsidiaries              --         (1,185)         (1,700)           --         (2,885)
   Maturities and sales of
      available-for-sale investment
      securities                               --         20,200              --            --         20,200
                                         --------   ------------   -------------   -----------   ------------
Net cash used for investing
   activities                                  --       (541,271)        (72,050)          862       (612,459)

Financing Activities
   Net proceeds from issuance of
      long-term debt                           --        251,006           1,582            --        252,588
   Principal payments on long-term
      debt                                     --        (27,759)         (5,534)           --        (33,293)
   Proceeds from stock options             23,943             --              --            --         23,943
   Dividends paid                         (29,977)            --              --            --        (29,977)
   Premiums and fees paid in
      in connection with the early
      retirement of debt                       --           (731)             --            --           (731)
   Intercompany capital transactions        4,959        (38,710)         33,751            --             --
   Other                                    1,075         (2,125)         (5,274)           --         (6,324)
                                         --------   ------------   -------------   -----------   ------------
Net cash provided by financing
   activities                                  --        181,681          24,525            --        206,206
Effect of exchange rate changes
   on cash                                     --            164           4,187            --          4,351
                                         --------   ------------   -------------   -----------   ------------
Increase (decrease) in cash and
   cash equivalents                            --        (19,783)         32,948            --         13,165
Cash and cash equivalents at
   beginning of year                           --         88,739          27,435            --        116,174
                                         --------   ------------   -------------   -----------   ------------
Cash and cash equivalents at end
   of year                               $     --    $    68,956   $      60,383   $        --   $    129,339
                                         ========   ============   =============   ===========   ============
</TABLE>



<PAGE>
                  GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 28 - SUPPLEMENTAL GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (CONTINUED)

Condensed Consolidating Statements of Cash Flows
Fiscal Year Ended February 22, 2003

<TABLE>
<CAPTION>
                                          Parent      Guarantor    Non-Guarantor   Eliminating
                                          Company   Subsidiaries    Subsidiaries     Entries     Consolidated
                                         --------   ------------   -------------   -----------   ------------
                                                                (Dollars in thousands)
<S>                                      <C>        <C>            <C>             <C>           <C>
Net cash provided by operating
   activities                            $     --   $    294,549   $      39,497   $    (1,790)  $    332,256

Investing Activities
   Purchases of systems, equipment
      and other assets relating to
      contracts                                --       (135,465)        (21,881)        1,790       (155,556)
   Proceeds from sale of investments           --          2,560              --            --          2,560
   Purchases of property, plant and
      equipment                                --         (5,612)             --            --         (5,612)
                                         --------   ------------   -------------   -----------   ------------
Net cash used for investing
   activities                                  --       (138,517)        (21,881)        1,790       (158,608)

Financing Activities
   Principal payments on long-term
      debt                                     --        (43,571)         (3,845)           --        (47,416)
   Purchases of treasury stock            (64,032)            --              --            --        (64,032)
   Proceeds from stock options             16,867             --              --            --         16,867
   Intercompany capital transactions       46,282        (46,282)             --            --             --
   Premiums and fees paid in
      connection with the early
      retirement of debt                       --         (3,434)             --            --         (3,434)
   Other                                      883           (120)          1,059            --          1,822
                                         --------   ------------   -------------   -----------   ------------
Net cash used for financing
   activities                                  --        (93,407)         (2,786)           --        (96,193)

Effect of exchange rate changes
   on cash                                     --            249           3,375            --          3,624
                                         --------   ------------   -------------   -----------   ------------
Increase in cash and
   cash equivalents                            --         62,874          18,205            --         81,079
Cash and cash equivalents at
   beginning of year                           --         25,865           9,230            --         35,095
                                         --------   ------------   -------------   -----------   ------------
Cash and cash equivalents at end
   of year                               $     --   $     88,739   $      27,435   $        --   $    116,174
                                         ========   ============   =============   ===========   ============
</TABLE>

<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 29 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the unaudited quarterly results of operations for
fiscal 2005 and 2004:

<TABLE>
<CAPTION>
                                         First     Second      Third     Fourth
                                        Quarter    Quarter    Quarter    Quarter
                                       --------   --------   --------   --------
                                                 (Dollars in thousands,
                                               except per share amounts)
<S>                                    <C>        <C>        <C>        <C>
Fiscal year ended February 26, 2005:
   Service revenues                    $253,326   $248,114   $251,945   $264,298
   Sales of products                     26,879     75,401     63,702     73,570
   Gross profit                         116,995    131,160    115,498    118,975
   Net income                            53,615     53,081     45,855     43,843

   Basic earnings per share            $    .46   $    .45   $    .40   $    .38
   Diluted earnings per share               .40        .40        .35        .34

Fiscal year ended February 28, 2004:

   Service revenues                    $223,538   $238,019   $231,225   $264,689
   Sales of products                     16,047     39,228     23,697     14,887
   Gross profit                         104,159    115,632    109,837    124,637
   Net income                            41,026     48,476     45,867     47,831

   Basic earnings per share            $    .36   $    .42   $    .39   $    .40
   Diluted earnings per share               .32        .37        .35        .36
</TABLE>

We operate on a 52-week or 53-week fiscal year ending on the last Saturday in
February. Fiscal 2005 was a 52-week year. Fiscal 2004 was a 53-week year and we
included the extra week in our fourth quarter ending February 28, 2004.

Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly basic and diluted earnings per
share in fiscal 2005 does not equal the total computed for that year.

During the first quarter of fiscal 2005, we sold our 50% interest in Gaming
Entertainment (Delaware) L.L.C. for $11.8 million and recognized a gain of $10.9
million which was recorded in Other Income (Expense) in our Consolidated Income
Statements.

During the first quarter of fiscal 2005, we recorded a net charge of $0.8
million in connection with the repurchase of $90.0 million of our 7.87% Series B
Guaranteed Senior Notes due May 2007, which is included in Other Income
(Expense) in our Consolidated Income Statements.

During the third quarter of fiscal 2004, we recorded a pre-tax gain of $5.3
million in connection with the consolidation of our 50% limited partnership
interest in West Greenwich Technology Associates, L.P., which is included in
Other Income (Expense) in our Consolidated Income Statements. Refer to Note 17
for detailed disclosures.



<PAGE>
                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 29 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)

In October 2004, the FASB ratified the Emerging Issues Task Force's consensus on
Issue No. 04-8, "The Effect of Contingently Convertible Debt on Diluted Earnings
per Share" ("EITF 04-8"), which is effective for periods ending after December
15, 2004. Under current interpretations of FAS 128, "Earnings per Share",
issuers of contingently convertible debt instruments exclude the potential
common shares underlying the debt instrument from the calculation of diluted
earnings per share until the contingency is met. EITF 04-8 requires that
potential shares underlying the debt instrument be included in diluted earnings
per share computations, if dilutive, regardless of whether the contingency has
been met. We adopted EITF 04-8 in December 2004 and retroactively adjusted all
prior period diluted earnings per share amounts to conform to the guidance in
EITF 04-8. There were no changes to reported diluted earnings per share except
in the first quarter of fiscal 2004 where the diluted earnings per share
decreased from $0.34 to $0.32.



<PAGE>

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

Not applicable.

<PAGE>

ITEM 9A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES: We have established disclosure
controls and procedures to ensure that material information relating to the
Company, including its consolidated subsidiaries, is made known to the officers
who certify the Company's financial reports and to other members of senior
management and the Board of Directors.

Based on their evaluation as of February 26, 2005, the principal executive
officer and principal financial officer of the Company have concluded that the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) were effective as of
February 26, 2005.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING: Our management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f).
Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of our internal control over financial reporting
as of February 26, 2005 based on the framework in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based upon our evaluation under the framework in Internal
Control-Integrated Framework, our management concluded that our internal control
over financial reporting was effective as of February 26, 2005.

Management's assessment of the effectiveness of our internal control over
financial reporting as of February 26, 2005 has been audited by Ernst & Young,
LLP, an independent registered public accounting firm, as stated in their report
which follows.

<PAGE>
            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Shareholders
GTECH Holdings Corp.

We have audited management's assessment, included in the accompanying
Management's Report of Internal Control Over Financial Reporting that GTECH
Holdings Corporation and subsidiaries maintained effective internal control
over financial reporting as of February 26, 2005, based on criteria established
in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). GTECH Holdings
Corporation and subsidiaries' management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of the company's internal control over financial
reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the company's assets that could have a material effect on the financial
statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that GTECH Holdings Corporation and
subsidiaries maintained effective internal control over financial reporting as
of February 26, 2005, is fairly stated, in all material respects, based on the
COSO criteria. Also, in our opinion, GTECH Holdings Corporation and
subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of February 26, 2005, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
GTECH Holdings Corporation and subsidiaries as of February 26, 2005 and
February 28, 2004, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended February 26, 2005 and our report dated April 22, 2005 expressed an
unqualified opinion thereon.



                                       /s/ Ernst & Young LLP


Boston, Massachusetts
April 22, 2005
<PAGE>

ITEM 9B. OTHER INFORMATION

Not applicable.

<PAGE>

                                    PART III

INCORPORATED BY REFERENCE

The information called for by Part III (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
Related Stockholder Matters", Item 13 - "Certain Relationships and Related
Transactions" and Item 14 - "Principal Accountant Fees and Services") of Form
10-K is incorporated herein by reference to Holdings' definitive proxy statement
for its Annual Meeting of Shareholders scheduled to be held in August 2005,
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 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)
(1) Financial Statements:

<TABLE>
<CAPTION>
                                                                    Page(s)
                                                                    -------
<S>                                                                 <C>
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
</TABLE>

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

Consolidated Balance Sheets at
      February 26, 2005 and February 28, 2004

Consolidated Income Statements
      Fiscal year ended February 26, 2005
      Fiscal year ended February 28, 2004, and
      Fiscal year ended February 22, 2003

Consolidated Statements of Cash Flows
      Fiscal year ended February 26, 2005
      Fiscal year ended February 28, 2004, and
      Fiscal year ended February 22,2003

Consolidated Statements of Shareholders' Equity
      Fiscal year ended February 26, 2005
      Fiscal year ended February 28, 2004, and
      Fiscal year ended February 22, 2003

Notes to Consolidated Financial Statements

(2) FINANCIAL STATEMENT SCHEDULES TO GTECH HOLDINGS CORPORATION AND
SUBSIDIARIES:

Schedule II - Valuation and Qualifying Accounts

All other financial statement schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and, therefore,
have been omitted.

<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      Certificate of Amendment of the Certificate of Incorporation of
         Holdings (incorporated by reference to Appendix C of Holdings' 2004
         Notice of Annual Meeting and Proxy Statement).

3.4      Amended and Restated By-Laws of Holdings (incorporated by reference to
         Exhibit 3.3 of Holdings' Form 10-K for the fiscal year ended February
         28, 2004 (the "2004 10-K")).

4.1      Credit Agreement, dated June 22, 2001, by and among GTECH, as Borrower,
         Bank of America, N.A., as Administrative Agent and as Lender and the
         Lenders party thereto from time to time (incorporated by reference to
         Exhibit 10.1 of Holdings' 10-Q for the quarterly period ended May 26,
         2001).

4.2      Indenture, dated as of December 18, 2001, by and among Holdings, GTECH,
         GTECH Rhode Island Corporation, GTECH Latin America Corporation, and
         The Bank of New York (incorporated by reference to Exhibit 4.1 of
         Holdings' 10-Q for the quarterly period ended November 24, 2001).

4.3      Registration Rights Agreement, dated December 18, 2001, by and among
         Credit Suisse First Boston Corporation, Bank of America Securities LLC,
         and Merrill Lynch, Pierce Fenner & Smith Incorporated, as
         Representatives, and Holdings, GTECH, GTECH Rhode Island Corporation,
         and GTECH Latin America Corporation (incorporated by reference to
         Exhibit 4.2 of Holdings' 10-Q for the quarterly period ended November
         24, 2001).

4.4      Specimen Form of certificate of Common Stock (incorporated by reference
         to Exhibit 4.18 of the S-1 of Holdings, Registration No. 33-54236).

10.1     Agreement, dated as of August 9, 2000, between Holdings and W. Bruce
         Turner (incorporated by reference to Exhibit 10.3 of Holdings' 10-Q for
         the quarterly period ended August 26, 2000).*

10.2     Amendment, dated as of June 1, 2001, to the Agreement, dated as of
         August 9, 2000 by and between Holdings and W. Bruce Turner
         (incorporated by reference to Exhibit 10.3 of Holdings' 10-Q for the
         quarterly period ended May 26, 2001).*

10.3     Agreement, dated as of August 6, 2002, among Holdings, GTECH and W.
         Bruce Turner (incorporated by reference to Exhibit 10.1 of Holdings'
         10-Q for the Quarterly Period ended August 24, 2002).*

<PAGE>

10.4     Separation Agreement and Release, dated as of August 21, 2003, by and
         among Holdings, the Company and Antonio Carlos Rocha (incorporated by
         reference to Exhibit 10.8 of Holdings' 2004 10-K).*

10.5     Separation Agreement and Mutual Release, dated as of January 7, 2004,
         by and among Holdings, the Company and Larry Smith (incorporated by
         reference to Exhibit 10.9 of Holdings' 2004 10-K).*

+10.6    Severance Agreement and Release, dated as of November 24, 2004, by and
         among Holdings and Kathleen McKeough.*

10.7     Form of Agreement, relating to a potential change of control involving
         Holdings, entered into between Holdings and, respectively, certain
         members of senior management (incorporated by reference to Exhibit 10.5
         of Holdings' 2000 10-K).*

10.8     List of signatories to Agreement relating to potential change of
         control involving Holdings and certain members of senior management,
         with the respective dates of such Agreements (incorporated by reference
         to Exhibit 10.9 of Holdings' 2003 10-K).*

10.9     Form of Executive Separation Agreement (incorporated by reference to
         Exhibit 10.12 of Holdings' 2003 10-K).*

+10.10   Schedule of Recipients of Executive Separation Agreements.*

+10.11   Schedule of Recipients of Company Contributions to Income Deferral
         plan.

10.12    Contract for Lottery Operations and Services, dated October 10, 2001,
         by and between the Texas Lottery Commission and GTECH (incorporated by
         reference to Exhibit 10.1 of Holdings' 10-Q for the quarterly period
         ended November 24, 2001.)

10.13    Amendment No. 1 to Contract for Lottery Operations and Services, dated
         October 18, 2001, by and between the Texas Lottery Commission and GTECH
         (incorporated by reference to Exhibit 10.2 of Holdings' 10-Q for the
         quarterly period ended November 24, 2001).

<PAGE>

10.14    Agreement between Caixa Economica Federal and RACIMEC Informatica
         Brasileira S.A. (predecessor to GTECH Brasil Ltda.) dated May 26, 2000,
         respecting the provision of goods and services for the Brazil National
         Lottery (incorporated by reference to Exhibit 10.12 of Holdings' 2000
         10-K).

10.15    Amendment to Agreement between Caixa Economica Federal and RACIMEC
         Informatica Brasileira S.A. (predecessor to GTECH Brasil Ltda.)
         (incorporated by reference to Exhibit 10.21 of Holdings' 2001 10-K).

10.16    Amendment to Agreement between CEF and GTECH Brasil Ltda., dated
         September 14, 2001 (incorporated by reference to Exhibit 10.20 of
         Holdings' 2003 10-K).

10.17    Amendment to Agreement between CEF and GTECH Brasil Ltda., dated July
         1, 2002 (incorporated by reference to Exhibit 10.21 of Holdings' 2003
         10-K).

10.18    Amendment to Agreement between CEF and GTECH Brasil Ltda., dated
         January 14, 2003 (incorporated by reference to Exhibit 10.22 of
         Holdings' 2003 10-K).

10.19    Fifth Amendment to Agreement between CEF and GTECH Brasil Ltda., dated
         April 8, 2003 (incorporated by reference to Exhibit 10.23 of Holdings'
         2003 10-K).

10.20    Master Contract, dated as of May 12, 2003, by and between the Company
         and the Rhode Island Lottery (incorporated by reference to Exhibit 10.2
         of Holdings' 10-Q for the quarterly period ended May 24, 2003).

10.21    Participation Agreement, dated as of December 14, 2001, by and among
         GTECH, West Greenwich Technology Associates, L.P., Key Corporate
         Capital Inc., Post Office Square Funding Inc., Credit Lyonnais New York
         Branch, The Bank of Nova Scotia, and the Lenders described therein
         (incorporated by reference to Exhibit 10.24 of Holdings' 2002 10-K).

10.22    Second Amended and Restated Indenture of Lease, dated as of December
         14, 2001, by and between West Greenwich Technology Associates, L.P.,
         and GTECH (incorporated by reference to Exhibit 10.25 of Holdings' 2002
         10-K).

+10.23   Purchase Agreement, dated December 5, 2004, by and among Paul
         Gauselmann, Michael Gauselmann and GTECH Corporation.

+10.24   Master Agreement, dated December 5, 2004, by and among Paul Gauselmann,
         Michael Gauselmann and GTECH Corporation.

10.25    1994 Stock Option Plan, as amended and restated (incorporated by
         reference to Exhibit 10.1 of Holdings' 10-Q for the quarterly period
         ended May 31, 1997).*

10.26    1996 Non-Employee Directors' Stock Option Plan (incorporated by
         reference to Exhibit 10.2 of Holdings' 10-Q for the quarterly period
         ended May 31, 1997).*

<PAGE>

10.27    First Amendment to the 1996 Non-Employee Directors' Stock Option Plan
         (incorporated by reference to Exhibit 10.27 of Holdings' 2001 10-K).*

10.28    1997 Stock Option Plan (incorporated herein by reference to the
         Appendix of Holdings' 1997 Notice of Annual Meeting and Proxy
         Statement).*

10.29    Amendment to 1997 Stock Option Plan dated April 2, 2002 (incorporated
         by reference to Exhibit 10.32 of Holdings' 2002 10-K).*

10.30    Holdings' 1998 Non-Employee Directors' Stock Election Plan
         (incorporated by reference to Exhibit 4.2 to the Form S-8 of Holdings,
         Registration Number 333-5781).

10.31    Income Deferral Plan - 1998, as amended and restated (incorporated by
         reference to Exhibit 10.32 of Holdings' 2003 10-K).*

10.32    Holdings' 1998 Employee Stock Purchase Plan, as amended and restated as
         of November 1, 2001 (incorporated by reference to Exhibit 10.4 of
         Holdings' 10-Q for the quarterly period ended November 24, 2001).*

10.33    1999 Non-Employee Directors' Stock Option Plan (incorporated by
         reference to the Appendix of Holdings' 1999 Notice of Annual Meeting
         and Proxy Statement).*

10.34    First Amendment to the 1999 Non-Employee Directors' Stock Option Plan
         (incorporated by reference to Exhibit 10.32 of the Holdings' 2001
         10-K).*

10.35    Trust Agreement, dated December 18, 1998, by and between Holdings and
         The Bank of New York, as Trustee, respecting the Income Deferral Plan -
         1998 (incorporated by reference to Exhibit 10.1 of the Holdings' 10-Q
         for the quarterly period ended November 28, 1998).*

10.36    Holdings' 2000 Restricted Stock Plan and Form of Restricted Stock
         Agreement (incorporated by reference to Exhibit 10.4 of Holdings' 10-Q
         for the quarterly period ended August 26, 2000).*

10.37    Holdings' 2000 Omnibus Stock Option and Long-Term Incentive Plan
         (incorporated by reference to Holdings' Proxy Statement filed on
         September 22, 2000).*

10.38    Holdings' 2002 Omnibus Stock Option and Long-Term Incentive Plan
         (incorporated by reference to Holdings' Proxy Statement filed on June
         21, 2002).*

10.39    Holdings' 2004 Employee Stock Purchase Plan (incorporated by reference
         to Appendix B of Holdings' Proxy Statement filed on June 25, 2004).*

+10.40   Forms of Stock Option Agreement respecting awards under Holdings'
         plans.

+10.41   Forms of Restricted Stock Agreement respecting awards under Holdings'
         plans.

<PAGE>

10.42    Holdings' Management Stock Bonus Program (incorporated by reference to
         Exhibit 10.40 of Holdings' 2003 10-K).*

10.43    Senior Staff Officer Stock Ownership Plan, dated July 1, 2003
         (incorporated by reference to Exhibit 10.1 of Holdings' 10-Q for the
         quarterly period ended May 24, 2003).

10.44    OEM Purchase Agreement by and between GTECH and TransAct Technologies
         Incorporated, dated July 2, 2002 (incorporated by reference to Exhibit
         10.45 as Holdings' 2004 10-K).

10.45    OEM Purchase Agreement, by and between GTECH and Tokyo Magnetic
         Printing Co. Ltd, dated July 9, 1999 (incorporated by reference to
         Exhibit 10.46 as Holdings' 2004 10-K).

10.46    OEM Purchase Agreement, by and between GTECH and BCM Advanced Research,
         dated December 11, 2002 (incorporated by reference to Exhibit 10.47 as
         Holdings' 2004 10-K).

+12.1    Computation of Ratio of Earnings to Fixed Charges.

14.1     The Company's Code of Conduct applicable to, among others, its Chief
         Executive Officer, Chief Financial and principal accounting
         officer(incorporated by reference to Exhibit 14.1 of Holdings' 2003
         10-K).

+21.1    Subsidiaries of the Company.

+23.1    Consent of Ernst & Young, LLP.

+31.1    Certification, Pursuant to Section 302 of the Sarbanes-Oxley Act of
         2002, of W. Bruce Turner, President and Chief Executive Officer of the
         Company.

+31.2    Certification, Pursuant to Section 302 of the Sarbanes-Oxley Act of
         2002, of Jaymin B. Patel, Senior Vice President and Chief Financial
         Officer of the Company.

+32.1    Certification, Pursuant to 18 United States Code Section 1350, as
         Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of
         W. Bruce Turner, President and Chief Executive Officer of the Company.

+32.2    Certification, Pursuant to 18 United States Code Section 1350, as
         Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of
         Jaymin B. Patel, Senior Vice President and Chief Financial Officer of
         the Company.

------------
+     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.

<PAGE>

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.

<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 West Greenwich, Rhode Island, on
April 27, 2005.

                           GTECH HOLDINGS CORPORATION

                           By: /s/ W. Bruce Turner
                              ------------------------------------------------
                               W. Bruce Turner, Chief Executive Officer

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/ W. Bruce Turner          Chief Executive Officer (principal executive     April 27, 2005
------------------------     officer) and Director
W. Bruce Turner


/s/ Jaymin B. Patel          Senior Vice President & Chief Financial Officer  April 27, 2005
------------------------     (principal financial officer)
Jaymin B. Patel


/s/ Robert J. Plourde        Vice President, Corporate Controller, and Chief  April 27, 2005
------------------------     Accounting Officer (principal accounting
Robert J. Plourde            officer)


/s/ Robert M. Dewey, Jr.     Director, Chairman of the Board                  April 27, 2005
------------------------
Robert M. Dewey, Jr.

/s/ Christine M. Cournoyer   Director                                         April 27, 2005
--------------------------
 Christine M. Cournoyer
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
        SIGNATURE                                   TITLE                           DATE
--------------------------    -----------------------------------------------  --------------
<S>                           <C>                                              <C>

/s/ Paget L. Alves            Director                                         April 27, 2005
--------------------------
Paget L. Alves


/s/ Burnett W. Donoho         Director                                         April 27, 2005
--------------------------
Burnett W. Donoho


/s/ The Rt. Hon.              Director                                         April 27, 2005
--------------------------
The Rt. Hon.
Sir Jeremy Hanley KCMG


/s/ Philip R. Lochner, Jr.    Director                                         April 27, 2005
--------------------------
Philip R. Lochner, Jr.


/s/ James F. McCann           Director                                         April 27, 2005
--------------------------
James F. McCann


/s/ Anthony Ruys              Director                                         April 27, 2005
--------------------------
Anthony Ruys
</TABLE>
<PAGE>
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                   GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                          COLUMN A                              COLUMN B             COLUMN C              COLUMN D        COLUMN E
------------------------------------------------------------------------------------------------------------------------------------
                                                                                    Additions
                                                                            -------------------------
                                                               Balance at     Charged      Charged to                     Balance at
                                                                beginning     to costs        other                         end of
                         Description                             of year    and expenses    accounts      Deductions         year
------------------------------------------------------------   ----------   ------------   ----------     ----------      ----------
                                                                                       (Dollars in thousands)
<S>                                                            <C>          <C>            <C>            <C>             <C>
Valuation accounts deducted from assets to which they apply:

   Allowances for doubtful accounts                            $    5,410   $        254   $    (266) (a) $   (1,108) (d) $    4,290
   Allowances for liquidated damages                                5,283          2,276          33          (2,559) (e)      5,033
   Inventory allowances                                             8,120          3,407          (5)         (5,694) (f)      5,828
   Other                                                            2,474             --         148              --           2,622
                                                               ----------   ------------   ---------      ----------      ----------
      Total Fiscal Year Ended February 26, 2005                $   21,287   $      5,937   $     (90)     $   (9,361)     $   17,773
                                                               ==========   ============   =========      ==========      ==========

   Allowances for doubtful accounts                            $   18,508   $        227   $     944  (a) $  (14,269) (d) $    5,410
   Allowances for liquidated damages                                2,127          5,237         721          (2,802) (e)      5,283
   Inventory allowances                                            14,561           (379)      6,349  (b)    (12,411) (f)      8,120
   Sales-type lease allowances                                      1,060         (1,072)         --              12              --
   Other                                                            1,300             --       1,200  (c)        (26)          2,474
                                                               ----------   ------------   ---------      ----------      ----------
      Total Fiscal Year Ended February 28, 2004                $   37,556   $      4,013   $   9,214      $  (29,496)     $   21,287
                                                               ==========   ============   =========      ==========      ==========

   Allowances for doubtful accounts                            $   18,773   $         58   $   5,528  (a) $   (5,851) (d) $   18,508
   Allowances for liquidated damages                                1,614          4,587         807          (4,881) (e)      2,127
   Inventory allowances                                            14,225          1,833          --          (1,497) (f)     14,561
   Sales-type lease allowances                                      4,098           (566)         39          (2,511) (d)      1,060
   Other                                                              607            621       2,472  (c)     (2,400) (e)      1,300
                                                               ----------   ------------   ---------      ----------      ----------
      Total Fiscal Year Ended February 22, 2003                $   39,317   $      6,533   $   8,846      $  (17,140)     $   37,556
                                                               ==========   ============   =========      ==========      ==========
</TABLE>

(a)  Opening reserve balances associated with acquisitions or reserves for
     amounts billed to customers which were not recorded as revenues

(b)  Opening reserve balances associated with acquisitions

(c)  Reserves transferred from accrued expenses and/or other assets

(d)  Write-offs and recoveries of previous write-offs

(e)  Payments made directly to customers

(f)  Disposal of obsolete material