2010 ANNUAL REPORT

2010 ANNUAL REPORT
2010 Annual Report
TABLE OF CONTENTS
Page
Management Discussion and Analysis
Lottomatica Group S.p.A. Profile ............................................................................ 4
Lottomatica Group ................................................................................................... 6
Management Report .................................................................................................. 8
Significant Business Developments ........................................................................ 29
Risks and Uncertainties ........................................................................................... 32
Predictable Developments ...................................................................................... 35
Lottomatica Stock Information .............................................................................. 36
Business Overview
Italian Operations Segment .......................................................... 38
GTECH Lottery Segment .............................................................. 41
Gaming Solutions Segment ........................................................... 46
GTECH G2 Segment ..................................................................... 47
Environmental Commitments........................................................ 48
Significant Contract Developments............................................... 52
Tables of Customer Contracts ...................................................... 55
Long Term Incentive Plans ..................................................................................... 72
Processing of Personal Data ................................................................................... 75
Consolidated Financial Statements and Footnotes
Statements of Financial Position .................................................. 77
Income Statements ........................................................................ 78
Statements of Comprehensive Income ......................................... 79
Statements of Cash Flows ............................................................ 80
Statements of Changes in Equity .................................................. 81
Notes to Financial Statements ...................................................... 83
Report of Reconta Ernst & Young S.p.A., Independent Public Accounting Firm............. 196
Audit Firm Fees ................................................................................................................ 198
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2010 Annual Report
Summary Schedule of Essential Data of Consolidated Companies Pursuant to
Article 2429 of Italian Civil Code ..................................................................................... 199
Additional Required Disclosures
Certification Pursuant to Law 262 ........................................................................ 206
Nevada Gaming Regulation .................................................................................. 207
List of Subsidiaries and Affiliates ........................................................................ 209
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2010 Annual Report
LOTTOMATICA GROUP S.p.A. Profile
Company subject to the direction and coordination of De Agostini S.p.A.
Company Name
Lottomatica Group - Società per Azioni
Fiscal Code, VAT no. and no. of enrollment
with the Register of enterprises of Rome
08028081001
Share Capital
As of December 31, 2010: €182,682,847 authorized
ordinary shares, €1.00 par value per share;
172,015,373 shares paid and subscribed
Registered Office
Roma - Viale del Campo Boario 56/d
Board of Directors (1)
Chairman
Lorenzo PELLICIOLI
Vice Chairman
Robert DEWEY Jr. *
Managing Director and C.E.O.
Marco SALA
Board Members
Pietro BOROLI
Paolo CERETTI
Marco DRAGO
Jeremy HANLEY, KCMG*
James MCCANN *
Jaymin PATEL
Anthony RUYS *
Severino SALVEMINI *
Gianmario TONDATO DA RUOS **
William Bruce TURNER
* Denotes Independent Directors
** Denotes Lead Independent Director
General Manager (2)
Renato ASCOLI
Board of Statutory Auditors : (1)
Chairman
Sergio DUCA
Regular Members
Angelo GAVIANI
Francesco MARTINELLI
Substitute Members
Gian Piero BALDUCCI
Giulio GASLOLI
Umile Sebastiano IACOVINO
Guido MARTINELLI
Marco SGUAZZINI VISCONTINI
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2010 Annual Report
Independent Auditors
Reconta Ernst & Young S.p.A.
Members of the Executive Committee (3)
Lorenzo PELLICIOLI (Chairman)
Pietro BOROLI
Paolo CERETTI
Marco DRAGO
Jaymin PATEL
Marco SALA
Members of the Internal Audit and Compliance
Committee (3)
Severino SALVEMINI (Chairman)
Jeremy HANLEY, KCMG
Anthony RUYS
Members of the Remuneration Committee (3)
Gianmario TONDATO DA RUOS (Chairman)
Robert DEWEY Jr.
James MCCANN
Note:
(1) As enacted by the shareholders at a meeting held on April 15, 2008.
(2) As enacted by the Board of Directors at a meeting held on April 28, 2009.
(3) As enacted by the Board of Directors at a meeting held on April 15, 2008.
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2010 Annual Report
LOTTOMATICA GROUP
Lottomatica Group S.p.A. is one of the leading gaming operators in the world based on total wagers and,
through its subsidiaries, including GTECH Corporation, is a leading provider of lottery and gaming
technology solutions worldwide. It is the goal of Lottomatica Group to be the leading commercial
operator and provider of technology in the regulated worldwide gaming markets, by delivering market
leading products and services, with a steadfast commitment to the highest levels of integrity,
responsibility and growth. Lottomatica is listed on the Stock Exchange of Milan under the trading symbol
"LTO" and has a Sponsored Level 1 American Depository Receipt (ADR) program listed on the United
States over the counter market under the trading symbol "LTTOY".
In this report, the term "Lottomatica" refers to Lottomatica Group S.p.A., the parent entity, and its
subsidiaries excluding GTECH; the term "GTECH" refers to GTECH Corporation and its subsidiaries;
and the terms "Group", "we", "our" and "us" refer to Lottomatica and all subsidiaries included in this
report.
As further described in the Business Overview section of this report, the Group operates in the publicly
regulated gaming market consisting of online, instant and traditional lotteries, sports pools, fixed-odds
and pari-mutuel betting, machine gaming and interactive gaming.
Lottomatica, the principal Italian operating entity of the Group, has built an extensive distribution
network in Italy, with approximately 265,300 terminals in about 116,500 points of sale (including
approximately 31,300 points of sale where Lottomatica provides processing services for third parties),
comprised of tobacconists, bars, petrol stations, newspaper stands and motorway restaurants. Since 1993,
Lottomatica has been the sole concessionaire for the Italian Lotto game. Since 2004, Lottomatica has
operated instant and traditional lottery games, which in recent years has been a high growth area. In 2006,
Lottomatica received authorization to distribute online instant lottery games. In 2007, Lottomatica began
operating fixed odds sports betting and sports pools through a retail network. Prior to this license,
Lottomatica had operated only sports pools with a concession that began in 2003 and expired in
December 2007. Lottomatica, in order to develop the Italian sports betting/interactive market, has
continued to acquire further points of sale. As of December 31, 2010, 1,813 points of sale have been
acquired.
GTECH is the world's leading operator of highly-secure online lottery transaction processing systems,
doing business in approximately 60 countries worldwide. GTECH designs, sells and operates a complete
suite of lottery-enabled point-of-sale terminals that are electronically linked with a centralized transaction
processing system that reconciles lottery funds between the retailer, where a transaction is enabled, and
the lottery authority. GTECH currently operates, provides online equipment and services to, or has been
awarded and/or has entered into, contracts to operate or provide equipment and services in the future to,
24 of the 44 lottery authorities in the United States, and 52 non-U.S. lottery authorities.
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2010 Annual Report
The Group operates in the gaming machine market through Lottomatica's Italian subsidiary Lottomatica
Videolot Rete S.p.A., its Canadian subsidiary Spielo Manufacturing, ULC (“Spielo”), a leading provider
of video lottery terminals (“VLTs”) and related products and services to the global gaming industry, and
its Atronic group of companies ("Atronic"). Lottomatica Videolot Rete operates amusement with prize
machines (“AWPs”) on its networks. Spielo holds 106 gaming licenses in jurisdictions throughout North
America and Europe. Atronic, a leading video gaming machine provider in Europe, Asia and Latin
America, operates in the United States and is licensed in approximately 207 worldwide gaming
jurisdictions.
The Group provides technology, games and a full suite of e-commerce services to government sponsored
lottery markets and regulated commercial sports betting and Internet gaming markets through GTECH
G2, a division of GTECH comprised of its Finsoft, Boss Media and St. Minver groups of subsidiaries.
Additionally, the Group has leveraged its distribution and transaction processing competence to expand
its activities to include commercial services through its networks worldwide.
For management purposes, the Group‟s operating segments are organized and managed separately
according to the nature of the products and services provided, with each segment representing a strategic
business unit. The Group‟s reportable segments are as follows:
The Italian Operations segment operates and provides a full range of gaming services, including
online, instant and traditional lotteries, scratch and win, sports betting, machine gaming,
interactive skill games and non-lottery commercial transactions;
The GTECH Lottery segment operates and provides a full range of services, technology and
products to government sponsored online, instant and traditional lotteries;
The Gaming Solutions segment operates and provides solutions, products and services relating to
VLTs and associated systems for the government sponsored market and video and traditional
mechanical reel slot machines and systems for the commercial gaming markets; and
The GTECH G2 segment provides digitally-distributed, multi-channel gaming entertainment
products and services, including sports betting, lottery, bingo, poker, casino games and quick
games, as well as retail solutions for real-time transaction processing and information systems for
the sports-betting market.
The Group has operations in approximately 60 countries worldwide on six continents and had 7,602
employees as of December 31, 2010. For additional information on the Group, please go to its website at:
www.gruppolottomatica.it/eng/aboutus/index.htm.
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2010 Annual Report
MANAGEMENT REPORT
The following management report is provided as a supplement to, and should be read in conjunction with,
the Group‟s financial statements and accompanying notes.
Overall, the Group had a successful year in 2010. Revenues, EBITDA and operating income experienced
solid, single-digit growth over 2009 and we achieved growth across all of our business segments.
This growth was highlighted by significant contributions from Machine Gaming in Italy (which benefited
from the increased placement of AWP machines and the deployment of VLTs) and foreign exchange,
which was partially tempered by lower profits from Sports Betting in Italy due to a higher payout
percentage in 2010 compared to 2009.
Net income attributable to the owners of the parent was nearly break-even in 2010 compared to
approximately €68 million in 2009 due to pre-tax impairment losses primarily related to the GTECH G2
segment; costs associated with the refinancing of €2.65 billion of Group debt that began in December
2009; and foreign exchange losses principally associated with the settlement of option structures which
hedged a portion of the Group‟s US dollar denominated debt. Detailed financial information is provided
later in this report.
By refinancing €2.65 billion of Group debt, we extended our weighted average debt maturity to over five
years and diversified our sources of capital, while improving terms and conditions. As a result, we have
no significant debt payments due until 2015. We also have a solid business profile, and our capital
structure can support our investment grade credit ratings, which remains a top priority of the Group‟s
plan.
Our Board of Directors has agreed to recommend to the shareholders a new dividend policy as part of a
new set of cash flow priorities under which we will allocate no more than 50% of the levered free cash
flow for the payment of dividends. In order to transition to the new policy, in 2011 the Board of Directors
recommended that the 2010 dividend be a distribution of treasury shares in the ratio of one share of stock
for every 50 shares owned.
2010 was a critically important year for achieving our primary objectives of defending and growing the
business, along with exploiting and pursuing operator opportunities. We successfully retained our largest
contract, Scratch & Win in Italy, and we defended two of our largest US and international contracts in
Texas and Poland. Further, we won the Illinois private manager bid that will introduce an entirely new
business model to the US lottery industry, and began to fully deploy our new retail network in Spain.
During 2010, we also concluded a major rebid cycle which began in 2008. During that time, we had
approximately €6 billion of our revenues up for rebid and we retained 90% of those revenues. As we look
out to the next five years, we will contend with only a limited amount of bids. The significant investments
that were required to fund the rebid cycle and the strategic acquisitions we made have been completed.
Accordingly, our capital requirements over the next five years will be diminishing and stabilizing. The
end of this three-year rebid cycle was a major milestone for the Group.
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2010 Annual Report
Our business segments had some notable achievements during the year. Overall, the fundamentals of our
business were solid. Our Italian Operations segment had another very good year largely driven by game
innovation and cost control. The Lotto options game, “10 and Lotto” was relaunched in September 2010
and is rapidly growing, reversing Lotto trends. Working cooperatively with our Gaming Solutions
businesses, Spielo and Atronic, we had successfully deployed approximately 4,000 VLTs by December
2010. We were the first to market with a system and machines and are pleased with player acceptance.
After a major effort for the renewal process, the new Scratch & Win concession started October 1, 2010.
A comprehensive marketing plan was initiated to sustain and grow wagers.
Same store sales in the GTECH Lottery segment were relatively flat with mixed performance in the US
and some softness in Europe. In general, there are more and more instances of governments adopting best
practices to grow same store sales. We drove efforts to authorize the cross selling of Powerball and Mega
Millions and our efforts to reform prize payouts in California supported sales in the last few months of
2010.
The Gaming Solutions segment performed well due to good operational performance and the continuing
integration efforts between Spielo and Atronic. Intersegment sales of VLTs to the Italian Operations
segment for the launch of VLTs in Italy was the primary driver of this segment‟s increased revenue in
2010. We were also successful in Quebec, securing the video central system and slightly less than half of
the allotted gaming machines.
The GTECH G2 segment continued its integration programs, leveraging off Spielo‟s and GTECH‟s
presence in Canada, by supporting the launch of a Canadian poker network offered by two provincial
lotteries. This segment also had a part in GTECH deliveries and supported our Italian interactive
operations.
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2010 Annual Report
Presented below are the Group‟s key performance indicators (in thousands of euros, except per share
amounts).
For the year ended
December 31,
Increase (decrease)
2010
2009
€
%
Revenue
2,314,063
2,176,857
137,206
6.3
EBITDA
812,273
783,682
28,591
3.6
Operating income
385,978
366,421
19,557
5.3
EBIT
282,463
336,246
(53,783)
(16.0)
45,358
112,354
(66,996)
(59.6)
0.45
(0.45)
(100.0)
Net income
Diluted earnings per share
-
Consolidated revenue in 2010 increased 6.3% over 2009. Service revenue grew 6.4% to €2.15 billion and
product sales grew 4.5% to €168.6 million. Revenue grew across all business segments, highlighted by
growth in Machine Gaming in Italy, primarily due to the increased placement of AWP machines and the
deployment of VLTs. Service revenue in the GTECH Lottery segment benefited from fluctuations in
foreign currency exchange rates against the euro and contractual and effective rate changes
internationally.
EBITDA increased €28.6 million driven by higher revenues and profits from Machine Gaming in Italy
and the weakening of the euro against the US dollar. These increases were partially offset by lower profits
from Sports Betting in Italy due to a higher payout percentage in 2010 compared to 2009.
The decrease in EBIT was primarily due to costs associated with the refinancing of €2.65 billion of Group
debt that began in December 2009.
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2010 Annual Report
EBITDA AND EBIT
EBITDA and EBIT are considered alternative performance measures that are not defined measures under
International Financial Reporting Standards (“IFRS”) and may not take into account the recognition,
measurement and presentation requirements associated with IFRS. We believe that EBITDA and EBIT
assist in explaining trends in our operating performance, provide useful information about our ability to
incur and service indebtedness and are commonly used measures of performance by securities analysts
and investors in the gaming industry. EBITDA and EBIT should not be considered as alternatives to
operating income as indicators of our performance or to cash flows as measures of our liquidity. As we
define them, EBITDA and EBIT may not be comparable to other similarly titled measures used by other
companies.
EBITDA and EBIT are computed as follows:
(thousands of euros)
For the year ended
December 31,
Increase (decrease)
2010
2009
€
%
Operating income
Depreciation
Amortization
Impairment loss, net of recovery
Other
EBITDA
385,978
246,921
117,215
48,412
13,747
812,273
366,421
236,601
94,400
76,025
10,235
783,682
19,557
10,320
22,815
(27,613)
3,512
28,591
5.3
4.4
24.2
(36.3)
34.3
3.6
Operating income
Equity loss
Other income
Other expense
Foreign exchange loss, net
EBIT
385,978
(386)
2,819
(64,519)
(41,429)
282,463
366,421
(1,833)
4,172
(16,690)
(15,824)
336,246
19,557
1,447
(1,353)
(47,829)
(25,605)
(53,783)
5.3
78.9
(32.4)
>200.0
(161.8)
(16.0)
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2010 Annual Report
COMPARISON OF 2010 WITH 2009
Consolidated revenue in 2010 increased 6.3% over 2009 as detailed by operating segment below.
(thousands of euros)
For the year ended
December 31,
Increase (decrease)
2010
2009
€
%
Italian Operations
GTECH Lottery
Gaming Solutions
GTECH G2
1,254,521
842,072
190,212
74,506
2,361,311
1,176,091
783,066
152,549
71,132
2,182,838
78,430
59,006
37,663
3,374
178,473
6.7
7.5
24.7
4.7
8.2
Elimination of intersegment revenue
Other
Total revenue
(47,590)
342
2,314,063
(6,305)
324
2,176,857
(41,285)
18
137,206
>200.0
5.6
6.3
Italian Operations segment
Consolidated revenue includes the following amounts for the Italian Operations segment:
(thousands of euros)
For the year ended
December 31,
Increase (decrease)
2010
2009
€
%
Lotto
Instant tickets
Other
Lottery
337,513
337,918
1,928
677,359
364,124
329,088
2,473
695,685
(26,611)
8,830
(545)
(18,326)
(7.3)
2.7
(22.0)
(2.6)
172,305
255,095
46,999
102,763
1,254,521
186,461
160,883
38,937
94,125
1,176,091
(14,156)
94,212
8,062
8,638
78,430
(7.6)
58.6
20.7
9.2
6.7
Sports Betting
Machine Gaming
Interactive
Commercial Services
Total revenue
The Italian Operations segment comprises all Italian licenses related activities including our exclusive
concessionaires (lotteries) and multi-provider concessionaires such as sports betting and pools, horse-race
betting and pools, gaming machines, online poker and other skill games, and transaction processing of
non-lottery commercial transactions.
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2010 Annual Report
A portion of revenue from the Italian Operations segment is derived from the Lotto concession under
which Lottomatica manages all of the activities along the lottery value chain including collecting wagers,
paying out prizes, managing all accounting and other back-office functions, running advertising and
promotions, operating data transmission networks and processing centers, training staff, providing
retailers with assistance and supplying materials for the game. Revenues are typically based on a
percentage of wagers. For the Lotto game, this percentage of wagers decreases as the total wagers
increase during an annual period.
A detailed analysis of the 2010 performance for each product line and service reported within the Italian
Operations segment as compared to 2009 is described below.
Lotto
Lotto revenue declined 7.3% in 2010 compared to 2009 due to a corresponding decline in Lotto wagers as
detailed below. The decline in core wagers was partially offset by an increase in wagers from the Lotto
options game “10 and Lotto”, which was relaunched in September 2010.
(millions of euros)
Core wagers
Wagers for late numbers
For the year ended
December 31,
Decrease
2010
2009
Wagers
%
4,487.4
744.2
5,231.6
4,620.1
1,043.7
5,663.8
(132.7)
(299.5)
(432.2)
(2.9)
(28.7)
(7.6)
Instant tickets
Instant ticket revenue in 2010 increased 2.7% compared to 2009 principally due to an increase in the
Scratch & Win concession fee which was partially offset by lower instant ticket sales as detailed below.
For the year ended
December 31,
Increase (decrease)
2010
2009
Amount
%
Total tickets sold (in millions)
Total sales (in millions)
Average price point
2,404.8
2,413.0
(8.2)
(0.3)
€ 9,316.9
€ 9,371.9
(€ 55.0)
(0.6)
€ 3.87
€ 3.88
(€ 0.01)
(0.2)
In 2010, Amministrazione Autonoma dei Monopoli di Stato (“AAMS”) awarded Lotterie Nazionali S.r.l.
(“LN”), a majority-owned Lottomatica subsidiary, a nine year concession to operate the national instant
lotteries in Italy (Scratch & Win concession).
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2010 Annual Report
In connection with the award, LN paid AAMS an upfront fee of €800 million, of which €288 million was
contributed by the non-controlling shareholders in LN (our “partners”). In addition, in December 2010,
UniCredit Merchant S.p.A. (the “investor”) indirectly invested €100 million in the Scratch & Win
concession operated by LN. As a result of this investment, Lottomatica owns, directly and indirectly
through Lotterie Nazionali Holding S.p.A., a 51.5% interest in LN.
The total capital contributions of €388 million, net of €2.1 million of investor costs, were recorded as a
capital increase from non-controlling interests in the consolidated statement of changes in equity.
Sports Betting
Sports betting revenue in 2010 decreased 7.6% from 2009 due to a higher payout percentage in 2010
compared to 2009, partially offset by a 9.9% increase in wagers as detailed below. As of December 31,
2010, our market share (in terms of total wagers) with respect to fixed odds sports betting operations was
20.6% (20.3% during 2009) with 1,198 fixed odds sports betting and 454 sports pool points of sale
locations operational.
(millions of euros)
Fixed odds sports and horse betting wagers
Sports pool wagers
For the year ended
December 31,
Increase (decrease)
2010
2009
Wagers
%
941.9
84.2
1,026.1
819.5
113.8
933.3
122.4
(29.6)
92.8
14.9
(26.0)
9.9
Machine Gaming
Machine Gaming revenue in 2010 increased 58.6% over 2009 driven by a 17.1% increase in wagers, the
increased placement of AWP machines, and the deployment of VLTs (beginning in July 2010), as
detailed below.
For the year ended
December 31,
Increase
2010
2009
Amount
Wagers (in millions)
AWP machines installed (end of December)
VLTs installed (end of December)
%
€ 4,697.4
€ 4,011.3
€ 686.1
17.1
55,487
48,226
7,261
15.1
3,974
-
3,974
-
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2010 Annual Report
Interactive
Interactive revenue in 2010 increased 20.7% over 2009 principally driven by an increase in skill game
wagers (such as poker, backgammon and blackjack) as detailed below.
(millions of euros)
Skill game wagers
For the year ended
December 31,
Increase
2010
2009
Wagers
410.9
354.9
%
56.0
15.8
Commercial Services
Commercial Services revenue in 2010 increased 9.2% over 2009 principally due to an increase in bill
payment services, electronic top-up services for prepaid mobile, and ticketing services for sporting and
musical events.
GTECH Lottery segment
Consolidated revenue includes the following amounts for the GTECH Lottery segment:
(thousands of euros)
For the year ended
December 31,
Increase
2010
2009
€
United States
International
Service revenue
444,671
317,588
762,259
440,408
278,028
718,436
4,263
39,560
43,823
1.0
14.2
6.1
United States
International
Product sales
12,841
66,972
79,813
11,961
52,669
64,630
880
14,303
15,183
7.4
27.2
23.5
United States
International
Total revenue
457,512
384,560
842,072
452,369
330,697
783,066
5,143
53,863
59,006
1.1
16.3
7.5
%
GTECH Lottery revenue is principally comprised of service revenue from long-term lottery service
contracts. These contracts generally provide compensation to GTECH 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. GTECH Lottery product sale revenue is derived
primarily 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. GTECH‟s
product sale revenue from period to period may not be comparable due to the size and timing of product
sale transactions.
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2010 Annual Report
GTECH has developed and continues to develop new lottery games, licenses new game brands and
installs a range of new lottery distribution devices, all of which are designed to maintain a strong level of
same store sales growth for its customers.
Service Revenue
United States lottery service revenue in 2010 increased 1.0% over 2009 primarily due to the weakening
euro against the US dollar which was partially offset by net contract losses.
International lottery service revenue in 2010 increased 14.2% over 2009 primarily due to fluctuations in
foreign currency exchange rates against the euro, along with contractual and effective rate changes.
Product Sales
Product sale revenue from year to year fluctuates due to the mix, volume and timing of product sale
transactions. International lottery product sale revenue in 2010 increased €14.3 million over 2009.
Product sales during 2010 included the sale of lottery terminals and project implementation services to
our customer in Spain and the sale of a new central system and lottery terminals to our customer in South
Australia. Product sales in 2009 included the sale of new lottery terminals to our customer in Denmark
and a new online lottery system to our customer in Belarus.
Gaming Solutions segment
Consolidated revenue includes the following amounts for the Gaming Solutions segment:
For the year ended
(thousands of euros)
December 31,
2010
2009
€
Service Revenue
Product Sales
Total revenue
64,502
125,710
190,212
6,495
31,168
37,663
58,007
94,542
152,549
Increase
%
11.2
33.0
24.7
Gaming Solutions product sale revenue in 2010 increased €31.2 million over 2009 principally due to
intersegment sales of VLTs to the Italian Operations segment.
GTECH G2 segment
Consolidated revenue includes the following amounts for the GTECH G2 segment:
(thousands of euros)
Service Revenue
Product Sales
Total revenue
For the year ended
December 31,
Increase
2010
2009
€
69,756
4,750
74,506
66,502
4,630
71,132
3,254
120
3,374
%
4.9
2.6
4.7
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2010 Annual Report
Consolidated operating costs
For the year ended
December 31,
Increase (decrease)
2010
2009
€
%
(thousands of euros)
Raw materials, services and other costs
Personnel
Depreciation
Amortization
Impairment loss, net of recovery
Capitalization of internal construction costs labor and overhead
Total operating costs
1,151,688
450,388
246,921
117,215
48,412
1,052,429
428,305
236,601
94,400
76,025
99,259
22,083
10,320
22,815
(27,613)
9.4
5.2
4.4
24.2
(36.3)
(86,539)
1,928,085
(77,324)
1,810,436
(9,215)
117,649
(11.9)
6.5
83.3%
83.2%
Percentage of total revenue
Consolidated operating costs during 2010 increased €117.6 million over 2009 principally due to higher
costs related to the 6.3% increase in revenue and higher costs related to the weakening euro against the
US dollar. The higher costs were partially offset by lower impairment losses.
Impairment loss, net of recovery, of €48.4 million and €76.0 million in 2010 and 2009, respectively,
principally relates to the GTECH G2 segment. The industry that GTECH G2 operates in is undergoing a
transition from mainly cross-border online gaming operators to highly regulated nationally licensed
businesses known as Nationally Regulated Gaming Markets (“NRM‟s”). NRM‟s are expected to erode
growth of cross-border businesses, especially in Europe. This transition has various implications, which
include accelerating the blocking of cross-border online gaming business and delaying the approval to
launch locally licensed business in some markets that adopted national regulations, all of which combined
are impacting current revenue streams as well as delaying revenue opportunities for the GTECH G2
segment.
The Group devotes substantial resources to enhance our present products and systems and develop new
products. The aggregate amount of research and development expenditures recognized as expense during
2010 and 2009 was €54.8 million and €62.4 million, respectively.
The Group‟s worldwide employees are comprised of the following personnel:
Personnel Description
Executives
Middle Management
All Other Permanent Employees
Employees with Temporary Employment Contracts
Number of employees
As of December 31,
2010
2010
2009
Average
413
1,015
5,836
338
7,602
400
977
6,131
164
7,672
407
993
5,920
371
7,691
17
2010 Annual Report
Other expense
(thousands of euros)
For the year ended
December 31,
Increase (decrease)
2010
2009
€
%
Non-cash loss on interest rate swaps
Debt issuance costs
Other fees
Termination of interest rate swaps
Debt extinguishment costs
(47,384)
(8,296)
(58)
(55,738)
(5,391)
(3,936)
(9,327)
47,384
2,905
58
(3,936)
46,411
53.9
100.0
>200.0
(1,058)
-
1,058
-
305
(8,028)
(64,519)
(7,363)
(16,690)
(305)
665
47,829
Cash paid on interest rate swaps
Mark to market adjustments on interest rate
swaps
Other
9.0
>200.0
Debt extinguishment costs
For the year ended December 31, 2010
On December 20, 2010, we completed the refinancing of €2.65 billion of Group debt (that began in
December 2009), extending the weighted average debt maturity to over five years and diversifying our
sources of capital, while improving terms and conditions. As part of the refinancing, Lottomatica issued
7-year, €500 million of guaranteed notes (the "2010 Notes"), GTECH entered into a $700 million 5-year
term loan facility and Lottomatica and GTECH entered into €400 million and €500 million, respectively,
of committed revolver facilities (together, the "Facilities").
The proceeds of the 2010 Notes and borrowings under the Facilities, net of associated fees and costs,
were used to repay a portion of the Lottomatica Revolving Credit Facility (the “LTO Facility”) and to
prepay the outstanding balance of the GTECH Senior Credit Facilities (the “Old Facility”). Upon
prepayment, the Old Facility was cancelled. We determined that the terms of the Facilities were
substantially different from the Old Facility and accounted for the refinancing as an extinguishment of the
Old Facility.
Immediately prior to the prepayment and cancellation, unamortized debt issuance costs for the LTO
Facility and Old Facility were €1.0 million and $9.8 million (€7.3 million at the December 31, 2010
exchange rate), respectively. GTECH also held $1.3 billion notional amount of interest rate swaps with an
aggregate fair value loss of $63.8 million (€47.4 million) recorded in other comprehensive income.
Upon completion of the refinancing, the €8.3 million of unamortized debt issuance costs and €0.1 million
of other fees were written off as a cost of the debt extinguishment. In addition, we concluded that the
interest rate swaps no longer qualified for cash flow hedge accounting since there was no longer a
hedging relationship and the €47.4 million aggregate fair value loss recorded in other comprehensive
income was also written off.
18
2010 Annual Report
The interest rate swaps were not terminated at the time of refinancing and are expected to be held through
their original expiration date of June 30, 2012. Mark to market adjustments on the interest rate swaps
subsequent to December 20, 2010 were recorded directly to other expense in the consolidated income
statement.
For the year ended December 31, 2009
In December 2009, Lottomatica issued €750 million of guaranteed notes due December 5, 2016 (the
“2009 Notes”), the proceeds of which, net of associated fees and costs, were used to reimburse
Lottomatica‟s €360 million senior unsecured term loan facility, a portion of the GTECH Senior Credit
Facilities and other debt. As a result, unamortized debt issuance costs and interest rate swaps associated
with the reimbursed debt were written off.
Foreign exchange loss, net
Foreign exchange gains and losses are classified as realized (cash) or unrealized (non-cash) as follows:
(thousands of euros)
Cash foreign exchange loss
Non-cash foreign exchange gain (loss)
For the year ended
December 31,
Increase
2010
2009
€
%
(32,756)
(8,673)
(41,429)
72.7
>200.0
161.8
(18,970)
3,146
(15,824)
13,786
11,819
25,605
Cash foreign exchange loss
Cash foreign exchange loss was comprised of the following:
(thousands of euros)
Cash paid on derivative instruments
GTECH euro denominated debt
Other
For the year ended
December 31,
Increase (decrease)
2010
2009
€
%
(36,439)
3,683
(32,756)
(16,583)
(2,387)
(18,970)
36,439
(16,583)
(6,070)
13,786
(100.0)
>200.0
72.7
Cash paid on derivative instruments
In December 2010, we completed the refinancing of €2.65 billion of Group debt that began in December
2009. Prior to the refinancing, approximately 45% of the Group‟s debt was denominated in US dollars
and therefore exposed to fluctuations in the euro versus the US dollar exchange rate. In order to mitigate
the risk of higher Group debt from the weakening euro versus the US dollar, at varying times during
2010, the Group entered into derivative instruments with notional amounts approximating €600 million.
In December 2010, we settled these derivative instruments, resulting in a cash foreign exchange loss. No
further exposure exists at December 31, 2010.
19
2010 Annual Report
GTECH euro denominated debt
In 2009, GTECH borrowed in euro under the GTECH Senior Credit Facilities in order to better match
future cash flows with the Group‟s revenue concentration from European countries (which has increased
in recent years). These euro denominated borrowings resulted in a cash foreign exchange loss when in
December 2009, a portion of the proceeds from the 2009 Notes were used to reimburse the outstanding
euro borrowings under the GTECH Senior Credit Facilities.
Non-cash foreign exchange gain (loss)
Non-cash foreign exchange gain (loss) was comprised of the following:
(thousands of euros)
GTECH euro denominated debt
Other
For the year ended
December 31,
Increase
2010
2009
€
(7,146)
(1,527)
(8,673)
3,146
3,146
7,146
4,673
11,819
%
148.5
>200.0
GTECH euro denominated debt
GTECH‟s outstanding borrowings under its €500 million revolver facility resulted in a non-cash foreign
exchange loss during 2010 due to fluctuations in the US dollar to euro exchange rate.
Interest expense
(thousands of euros)
Capital Securities
GTECH Senior Credit Facilities
2009 Notes (due 2016)
Interest Accretion on Swap Liability
LTO Term and Revolving Credit Facilities
2010 Notes (due 2018)
Facilities
Other
For the year ended
December 31,
Increase (decrease)
2010
2009
€
%
(64,531)
(54,046)
(38,288)
(3,041)
(2,834)
(2,299)
(555)
(6,419)
(172,013)
(64,658)
(57,139)
(3,030)
(591)
(14,984)
(11,116)
(151,518)
(127)
(3,093)
35,258
2,450
(12,150)
2,299
555
(4,697)
20,495
(0.2)
(5.4)
>200.0
>200.0
(81.1)
(42.3)
13.5
The increase in interest expense was principally due to higher weighted average interest rates resulting
from a different mix of our debt given the issuance of €750 million of guaranteed notes in December
2009, along with higher average debt balances.
20
2010 Annual Report
Weighted Average Diluted Shares
Weighted average diluted shares during 2010 totaled 168.1 million shares, an increase of 17.7 million
shares over 2009 primarily due to the issuance of 19.7 million shares in November 2009, the proceeds of
which were used to support the renewal of the Italian Scratch & Win concession and the purchase of VLT
rights.
Income Taxes
The Group's effective income tax rate during 2010 was 60.0% compared to 40.3% during 2009. The rate
increase was primarily due to comparatively higher operating losses in certain foreign subsidiaries and
goodwill impairments without any associated tax benefit.
21
2010 Annual Report
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL POSITION
The Group‟s objective is to maintain adequate liquidity and flexibility through the use of cash generated
from operating activities and bank facilities. We believe our ability to generate excess cash from
operations to reinvest in our business is one of our fundamental financial strengths and combined with our
committed borrowing capacity, we expect to meet our financial obligations and operating needs in the
foreseeable future. We expect to use cash generated primarily from operating activities to meet
contractual obligations. Our growth is expected to be financed through a combination of cash generated
from operating activities, existing sources of committed liquidity, access to capital markets, and other
sources of capital. Our corporate debt ratings of Baa3 from Moody‟s Investors Service and BBB- from
Standard and Poor‟s Rating Service contribute to our ability to access capital markets at attractive prices.
Maintaining our investment-grade credit rating remains a top priority of the Group‟s plan.
Summary Statements of Cash Flows
(thousands of euros)
Net cash flows from operating activities
For the year ended
December 31,
2010
2009
768,302
695,442
Purchases of intangible assets
Purchases of systems, equipment and other assets related to contracts
Medströms Invest AB put right payment
Purchases of property, plant and equipment
Acquisitions, net of cash acquired
Other investing activities, net
Net cash flows used in investing activities
(903,017)
(249,934)
(20,415)
(10,434)
(9,009)
(12,176)
(1,204,985)
(102,775)
(253,059)
(15,848)
(40,109)
(5,393)
(417,184)
Proceeds from issuance of Facilities
Proceeds from issuance of Notes
Capital increases - non-controlling interest
Net proceeds from (repayment of) short-term borrowings
Debt and share issuance costs
Cash paid on derivative instruments
Dividends paid - non-controlling interest
Dividends paid
Interest paid
Principal payments on long-term debt
Proceeds from issuance of ordinary share capital
Other financing activities, net
Net cash flows from financing activities
908,873
500,000
388,305
1,642
(22,941)
(36,439)
(45,638)
(124,815)
(190,582)
(1,245,426)
(1,926)
131,053
750,000
(49,124)
(12,976)
(43,560)
(100,940)
(153,776)
(653,887)
350,000
(1,535)
84,202
(305,630)
362,460
Net cash flows
22
2010 Annual Report
Analysis of Cash Flows
During 2010, we generated €768.3 million of net cash flows from operating activities, an increase of
€72.9 million over 2009, primarily due to changes in net working capital and lower income tax paid.
Investing activities
Intangible asset additions of €903.0 million were principally related to the €800 million and €80.7 million
payments for the Italian Scratch & Win license and the final 50% of 10,761 VLT rights in Italy,
respectively. The €249.9 million of capital additions for systems, equipment and other assets were
principally related to spending in Italy (for Lotto and VLTs), New York, Kentucky, Spain, Texas, and
California. The €20.4 million put right payment increased our ownership interest in GEMed (the
shareholder of Boss Media AB) to 100%. We paid €9.0 million for acquisitions of entities engaged in the
Sports Betting and Machine Gaming markets within our Italian Operations segment.
Financing activities
In December 2010, we completed the refinancing of €2.65 billion of Group debt (that began in December
2009) by issuing €500 million of guaranteed notes (the "2010 Notes") and by entering into a $700 million
term loan facility and €900 million of committed revolver facilities (together, the "Facilities"). The
proceeds of the 2010 Notes and borrowings under the Facilities, net of associated fees and costs, were
used to repay a portion of the Lottomatica Revolving Credit Facility and to prepay the outstanding
balance of the GTECH Senior Credit Facilities.
Capital contributions of €388.3 million were principally received from our partners and an investor in the
Scratch & Win concession. Dividends of €124.8 million (€0.74 per share) were paid to our shareholders
for calendar 2009 results. Interest paid of €190.6 million principally relates to the Capital Securities,
GTECH Senior Credit Facilities and the 2010 Notes. At December 31, 2010, we had €152.4 million of
cash and cash equivalents on hand.
Our business is capital-intensive. We expect our principal sources of liquidity to be existing cash
balances, cash generated from operations and borrowings under the €900 million of committed revolver
facilities. At December 31, 2010, there was €515.0 million of committed undrawn capacity under the
revolver facilities. These facilities have covenants and restrictions including, among other things,
requirements relating to the maintenance of certain financial ratios, limitations on acquisitions and
dividends, none of which are expected to impact the Group‟s liquidity or capital resources. At December
31, 2010, we were in compliance with all applicable covenants.
We currently expect that our excess cash flow from operations, existing cash, undrawn capacity under
existing borrowing facilities and access to additional sources of capital will be sufficient, for the
foreseeable future, to fund our anticipated working capital and capital expenditure needs, to service our
debt obligations and to fund organic growth. Our strategy is to maintain committed undrawn capacity
under existing borrowing facilities to allow us the flexibility to fund unforeseen investment opportunities.
We do not anticipate any major acquisitions within the next three years.
In February 2011, Lottomatica Group‟s Board of Directors recommended a new dividend policy that will
allocate no more than 50% of annual levered free cash flow for the payment of dividends. In order to
transition to the new policy, in 2011 the Board recommended that the 2010 dividend be a distribution of
treasury shares in the ratio of one share of Lottomatica stock for every 50 shares owned as of May 23,
2011. If approved at the annual shareholders‟ meeting in April 2011, we will distribute our currentlyowned 3,167,552 treasury shares, and approximately 205,000 shares that are expected to be acquired over
the next several weeks for approximately €2.4 million based on the current stock price. We do not intend
to repurchase any other additional shares during 2011.
23
2010 Annual Report
Summary Statements of Financial Position
(thousands of euros)
December 31,
2010
2009
Increase (decrease)
€
%
Systems, equipment and other assets related
to contracts, net
Goodwill
Intangible assets, net
Other non-current assets
Total non-current assets
887,132
3,157,279
1,639,198
168,981
5,852,590
774,558
3,006,783
822,886
124,996
4,729,223
112,574
150,496
816,312
43,985
1,123,367
14.5
5.0
99.2
35.2
23.8
Inventories
Trade and other receivables
Cash and cash equivalents
Other current assets
Non-current assets classified as held for sale
165,314
712,239
152,405
53,369
27,000
134,080
791,803
469,335
74,258
5,890
31,234
(79,564)
(316,930)
(20,889)
21,110
23.3
(10.0)
(67.5)
(28.1)
>200.0
Total assets
6,962,917
6,204,589
758,328
12.2
Equity
2,358,885
1,896,807
462,078
24.4
Long-term debt, less current portion
Deferred income taxes
Non-current financial liabilities
Other non-current liabilities
Total non-current liabilities
2,825,412
133,578
113,619
77,086
3,149,695
2,621,990
134,127
142,317
78,154
2,976,588
203,422
(549)
(28,698)
(1,068)
173,107
7.8
(0.4)
(20.2)
(1.4)
5.8
978,509
7,458
69,200
118,822
19,410
260,938
905,677
5,079
59,885
67,186
20,945
272,422
72,832
2,379
9,315
51,636
(1,535)
(11,484)
8.0
46.8
15.6
76.9
(7.3)
(4.2)
6,962,917
6,204,589
758,328
12.2
Accounts payable
Short-term borrowings
Current financial liabilities
Current portion of long-term debt
Income taxes payable
Other current liabilities
Total equity and liabilities
The €112.6 million increase in systems, equipment and other assets related to contracts, net was
principally due to €297.4 million of capital additions and €51.8 million of foreign currency translation,
which was partially offset by €233.1 million of depreciation.
The €150.5 million increase in goodwill was primarily due to €179.4 million of foreign currency
translation, which was partially offset by €37.7 million of impairment loss related to the GTECH G2
segment.
24
2010 Annual Report
The €816.3 million increase in intangible assets, net was principally due to payment of €800 million for
the Italian Scratch & Win license, payment of €80.7 million for the final 50% of 10,761 VLT rights in
Italy, and €49.4 million of foreign currency translation. These increases were partially offset by €117.2
million of amortization.
The €79.6 million decrease in trade and other receivables was principally due to the timing of collections
in the Italian Operations and GTECH Lottery segments, partially offset by increased receivables related to
product sales recorded in the fourth quarter of 2010 in the Lottery segment.
The €462.1 million increase in equity was primarily due to €288.0 million and €100.0 million of capital
contributions from our partners and an investor in the Scratch & Win concession, respectively; €174.1
million of foreign currency translation; and €45.4 million of net income. These increases were partially
offset by €124.8 million of dividends paid to shareholders of the parent and €45.6 million of dividends
paid to non-controlling shareholders.
The €203.4 million increase in long-term debt, less current portion was principally due to €500 million
and €857 million of proceeds from the 2010 Notes and the Facilities, respectively, along with €94.9
million of foreign currency translation. The long-term debt proceeds were used to repay a portion of the
Lottomatica Revolving Credit Facility and to prepay the outstanding balance of the GTECH Senior Credit
Facilities.
The €72.8 million increase in accounts payable was principally due to the timing of payments to suppliers
in the Italian Operations and GTECH Lottery segments.
The €51.6 million increase in current portion of long-term debt primarily resulted from the principal
payment due in 2011 under the $700 million term loan facility.
25
2010 Annual Report
Consolidated Net Financial Position
The Group‟s consolidated net financial position at December 31, 2010 changed by €552.9 million when
compared to December 31, 2009. This change was principally due to the payment for the Scratch & Win
license, net of capital contributions from our partners and an investor, along with payment of the final
50% of 10,761 VLT rights in Italy. Consolidated net financial position is calculated as follows:
(thousands of euros)
Cash on hand
Cash at bank
Cash and cash equivalents
Current financial receivables
Current financial debt
Net current financial debt (cash)
Facilities
2009 Notes (due 2016)
Capital Securities
2010 Notes (due 2018)
Interest rate swaps
Swap Liability
GTECH Senior Credit Facilities
Other
Non current financial debt
Net financial position
December 31,
2010
2009
Change
430
151,975
152,405
453
468,882
469,335
(23)
(316,907)
(316,930)
6,673
4,613
2,060
195,480
132,150
63,330
36,402
(341,798)
378,200
848,888
746,016
735,836
493,797
47,414
29,953
37,127
2,939,031
740,821
733,180
53,094
56,391
1,145,100
35,721
2,764,307
848,888
5,195
2,656
493,797
(5,680)
(26,438)
(1,145,100)
1,406
174,724
2,975,433
2,422,509
552,924
26
2010 Annual Report
Reconciliation of Group Equity
The reconciliation of Lottomatica Group S.p.A. stand alone equity with the equity of the consolidated
Group is as follows:
Attributable to owners
of the parent
Lottomatica
All other
(thousands of euros)
Balance at January 1, 2010
Net income (loss) for the year
Fair value of interest rate swaps
Amortization of gain on interest rate swap on
discontinued cash flow hedge
Group S.p.A.
Non-Controlling
subsidiaries
interests
Consolidated
2,088,214
(250,480)
59,073
1,896,807
72,878
(72,386)
44,866
45,358
-
35,978
-
35,978
-
-
(570)
(570)
Unrecognized net loss on derivative instruments
Unrecognized net gain on available for sale
investment
-
(4,434)
-
(4,434)
-
19
-
19
Foreign currency translation
-
174,051
-
174,051
Dividend distribution
(124,815)
-
(45,638)
(170,453)
Share-based payment
(269)
-
-
(269)
(2,253)
-
-
(2,253)
-
1,987
-
1,987
Purchase of non-controlling interest
-
(3,078)
-
(3,078)
Capital increases
-
-
388,305
388,305
112,662
(112,662)
(2,114)
-
(2,114)
-
-
(449)
-
(449)
2,145,847
(231,454)
444,492
Share issuance costs, net of tax
Change in fair value of put/call option arising from
business combination
Scratch & Win investor costs, net of tax
Intragroup merger (a)
Other movements in equity
Balance at December 31, 2010
2,358,885
(a) Effective January 1, 2010, Lottomatica Sistemi S.p.A., Lottomatica International S.r.l. and
Lottomatica International Hungary kft were merged into Lottomatica Group S.p.A.
Transactions with Related Parties
During 2010 there were no significant transactions, including intragroup, with related parties which
qualified as unusual or atypical. Any related party transactions formed part of the normal business
activities of the companies in the Group. Such transactions were concluded at standard market terms for
the nature of goods and/or services offered.
Information on transactions with related parties, including specific disclosures required by CONSOB, is
provided in Footnote 38 to the Consolidated Financial Statements included herein.
27
2010 Annual Report
Events after the Reporting Period
Northstar Lottery Group LLC
In January 2011, the Northstar Lottery Group LLC ("Northstar"), a consortium in which GTECH holds an
80% controlling interest, signed a 10-year private management agreement with the Illinois Lottery (the
“State”). Under the agreement, Northstar, subject to the State's oversight, will manage the day-to-day
operations of the lottery and its core functions.
As compensation for its management services, Northstar will receive annual fees for reimbursement of
certain operating and lottery expenses. Northstar is also entitled to receive annual incentive compensation
payments should it achieve certain sales targets but is also subject to provide payments to the State if a
minimum, agreed-upon performance level is not achieved.
To the extent net income earned by the State each year exceeds the State established base net income
levels for such year, Northstar will earn incentive compensation that is awarded based on various levels of
performance, up to an annual maximum of 5% of the actual net income earned by the State.
Northstar‟s proposal guaranteed a minimum profit level for each of the first five years of the agreement,
commencing with the State‟s fiscal year ending June 30, 2012. The incentive compensation Northstar
may earn could be reduced by a shortfall payment in the event Northstar's performance does not achieve
the levels it has guaranteed. The annual shortfall payment may not exceed 5% of the net income for such
contract year. Given that this agreement is in its early stages, management is currently unable to estimate
the financial impact of the minimum profit level guarantee.
Czech Republic
According to publicly available information, GTECH‟s lottery customer in the Czech Republic is
experiencing financial difficulties that the Group is closely monitoring. GTECH has a long-term
relationship with this customer which began in1992. Under the terms of the current facility management
contract, which has over ten years remaining, GTECH provides facilities management services, including
approximately 7,000 terminals, central system hardware and software, ongoing lottery support services,
communication services and operational support to this customer. At December 31, 2010, trade
receivables from this customer were €10.5 million, €4.6 million of which was paid through March 10,
2011. The recoverability of outstanding trade receivables will depend on the resolution of certain future
events which are outside the Group‟s control, however, both GTECH and the Czech customer share a
common goal of continued generation of revenues. The Group also has approximately €13.6 million of
systems, equipment and other assets related to contracts and approximately €16.8 million of intangible
assets on its consolidated statement of financial position related to its contracts with this customer. Future
events will determine the recoverability of these assets, and therefore the financial impact to the Group is
not currently estimable.
28
2010 Annual Report
SIGNIFICANT BUSINESS DEVELOPMENTS
Since the start of 2010, the Group has reported a number of significant business developments, in addition
to significant contract developments discussed later in this report.
Developments During 2010
Scratch & Win
As previously disclosed, in October 2009, following a competitive procurement for a new Scratch & Win
concession in Italy, Consorzio Lotterie Nazionali (a consortium in which Lottomatica owns a 64%
interest) was the only party who submitted a proposal for the license to operate the national instant
lotteries in Italy for a period of nine (9) years. After a hearing held on March 9, 2010, the State Council
ruled that provisions of Italian law and of the tender related to the interim period during which Consorzio
Lotterie Nazionali would continue to manage the existing instant lotteries through January 2012 were null
and void, and referred the matter to AAMS for any subsequent and related decision.
On March 30, 2010, AAMS issued a decree to reopen the prior public tender for the new Scratch & Win
concession and removed from the tender documents the clauses the State Council had found null and void
in its March 9, 2010 ruling.
On May 10, 2010, the deadline for submitting the offers, Lottomatica was informed that the Consorzio
Lotterie Nazionali was the only bidder for the Scratch & Win tender. Consorzio Lotterie Nazionali was
notified of the temporary award of the tender on May 13, 2010 and of the final award of the tender on
July 5, 2010.
In June 2010, in order to assure continuity of Scratch & Win activity, AAMS extended the present
concession in favor of Consorzio Lotterie Nazionali for the temporary management of the Scratch & Win
instant lotteries, effective June 2010 and ending no later than September 2010.
Since October 1, 2010, the new Scratch & Win concession has been run by Lotterie Nazionali S.r.l.
("LN"), a Lottomatica subsidiary with substantially the same non-controlling shareholders as in the
Consorzio Lotterie Nazionale.
In addition, in December 2010, Lottomatica closed a deal in which UniCredit Merchant S.p.A.
("UniCredit") indirectly invested €100 million in the Scratch & Win concession operated by LN. The
investment was carried out through the subscription by UniCredit of 28.57% of the share capital of a
newly incorporated company, Lotterie Nazionali Holding S.p.A. ("LN Holding"), a subsidiary of
Lottomatica which in turn has a 43.75% interest of the share capital of LN, with Lottomatica retaining a
20.25% direct interest in LN. As a result of this investment, Lottomatica owns, directly and indirectly
through LN Holding, a 51.5% interest in LN.
29
2010 Annual Report
Other Developments
In 2008, GTECH Global Services Corporation (“GGSC”) and Medströms Invest AB (“Medströms),
through GEMed AB (a Swedish private limited liability company owned 87.454% and 12.546% by
GGSC and Medströms, respectively), acquired 100% of the issued shares of Boss Media AB. GGSC had
the option, which it could exercise between April 1, 2010 and June 30, 2010, to require Medströms to sell
its 12.546% interest in GEMed to GGSC. Medströms had an identical put right. On April 1, 2010,
Medströms exercised its put right and on April 12, 2010, GGSC paid Medströms SEK 200 million (€20.5
million at the transaction date) for the remaining 12.546% interest in GEMed.
In 2009, Lottomatica applied to the Amministrazione Autonoma Monopoli di Stato to buy up to 10,761
VLT rights in Italy and made a €80.7 million non-refundable payment representing 50% of the total cost
of such VLT rights. On April 30, 2010, Lottomatica elected to purchase all 10,761 VLT rights, payment
of which was completed on November 30, 2010 through the second installment of €80.7 million.
In May 2010, the Board of Directors approved the share buy-back plan which had been authorized at the
Shareholders‟ Meeting in April 2010. The plan, which the Board did not execute in 2010, allows the
Company to purchase, in bulk or in several stages, and on a revolving basis, a maximum number of
ordinary shares representing an interest not exceeding 20 percent of Lottomatica‟s share capital.
In April 2010, the Shareholders‟ Meeting approved the 2010-2014 stock allocation plan and the 20102016 stock option plan (the “Plans”), both reserved for employees of Lottomatica and/or its subsidiaries.
In July 2010, Lottomatica‟s Board of Directors approved the Regulations of the Plans; assigned options
and shares; resolved, in accordance with the authorization granted by the Extraordinary Shareholders
Meeting on October 18, 2006, to increase stock capital up to a nominal amount of €1,825,026 for use in
connection with the stock option plan; and determined the exercise price of the options granted at €10.89.
In November 2010, the Lottomatica Board of Directors approved a plan to finalize approximately €1.9
billion of committed bank facilities that mature in 2012. The approval provided that the refinancing be
completed through a combination of bank debt and capital market transactions that will strengthen the
Group's balance sheet and support its investment grade ratings. Also in November 2010, s Investor
Service and Standard and Poor's Rating Service announced confirmation of their respective Baa3 and
BBB- senior unsecured ratings of Lottomatica.
In December 2010, Lottomatica successfully concluded the placement of 7-year senior guaranteed notes
for an aggregate amount of approximately €500 million, exclusively with qualified investors outside of
the United States. The main conditions of the notes, which are guaranteed by GTECH Corporation,
GTECH Holdings Corporation, GTECH Rhode Island Corporation and Invest Games, S.A., all
subsidiaries of Lottomatica, are:
A denomination per note of €50,000;
A due date of February 2, 2018;
An annual coupon rate of 5.375%, payable in arrears on February 2 of each year,
commencing on February 2, 2012, except that the first payment of interest to be made on
February 2, 2012 shall be in respect of the period from and including December 2, 2010, but
excluding February 2, 2012; and
An issue price of 99.387%.
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2010 Annual Report
The proceeds from the issuance of the notes were used to repay existing indebtedness of the Group and
for general corporate purposes of the Group.
In December 2010, Lottomatica and GTECH entered into a 5-year loan agreement with a syndicate of
Italian and international banks led by Bofa Merrill Lynch, Banca IMI S.p.A. (Intesa Sanpaolo Group) and
Mediobanca – Banca di Credito Finanziario S.p.A. as Global Coordinators, Bookrunners and Mandated
Lead Arrangers. The new loan includes a US$700 million term loan facility with GTECH Corporation as
the borrower, and €900 million multicurrency revolving credit facilities with GTECH Corporation and
Lottomatica as borrowers for €500 million and €400 million, respectively. The loan bears a variable
interest rate based upon the ratio between Group net debt and EBITDA and has standard covenants and
restrictions. A part of the proceeds of the new loan were used to repay and cancel the GTECH Senior
Credit Facilities and Lottomatica Revolving Credit Facility, which therefore no longer exist.
Developments After the Close of 2010
In January 2011, GGSC acquired the remaining 10% interest in St. Enodoc Holdings Limited and its
subsidiaries including St. Minver Limited (collectively "St. Minver"), increasing its ownership interest to
100%.
Under the terms of the 2008 sale agreement, 10% of St. Minver was to remain with Gary Shaw, Founder
and Chairman, until at least 2012, at which point both Mr. Shaw and GGSC had the right to cause GGSC
to acquire Mr. Shaw's shares at a price equal to fair value to be determined as of the date of exercise. In
January 2011, GGSC and Mr. Shaw entered into a new agreement (terminating the original sale
agreement) whereby GGSC agreed to (i) acquire the remaining 10% of St. Minver and (ii) sell its 30%
ownership in St. Endellion Limited ("St. Endellion") to Mr. Shaw (St. Endellion's 70% shareholder) for a
net cash purchase price of €1.9 million.
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2010 Annual Report
RISKS AND UNCERTAINTIES
We believe that a system of well defined policies, processes and controls are imperative to effectively
manage the various risks that we encounter. The main risks that the Group is managing are the following:
(i)
Market Risk: Market risk is the risk that changes in interest rates and foreign currency exchange
rates will negatively impact the value of assets and liabilities.
A portion of the Group‟s debt portfolio is exposed to changes in market interest rates. Changes in interest
rates generally will not significantly impact the fair market value of such indebtedness, but could have a
material effect on Lottomatica Group's results of operations, business, financial condition or prospects.
The Group is a global business and derives a substantial portion of its revenues from operations outside of
the European Union. Our financial statements could be materially different from period to period if there
is a significant movement in the euro versus other currencies.
(ii)
Credit Risk: Credit risk is the risk of a financial loss arising from a customer or counterparty not
meeting their contractual obligations. A significant portion of the Group‟s revenue is derived from
concessions with Amministrazione Autonoma dei Monopoli di Stato (AAMS), resulting in significant
concentration of credit risk exposure. Management believes that in the future, a significant portion of its
business and profitability will continue to depend upon concessions with AAMS.
(iii)
Liquidity Risk: Liquidity risk is the risk that suitable sources of funding for the Group‟s
operations may not be available. In recent years, certain concessions in Italy have required a significant
upfront payment. Further, GTECH contracts typically require upfront capital expenditures. The ability of
the Group to maintain existing contracts upon their renewal and invest in new contract opportunities
depends on the ability of the Group to access new sources of capital to fund these investments. There can
be no assurance that the Group will be able to access sources of capital on favourable or reasonable terms.
(iv)
Country Risk: Country risk is the risk that changes to regulations or laws, or in the economy of a
country in which we conduct business, will negatively impact expected returns. The Group is a global
business and derives a substantial portion of its revenues from operations outside of Italy. Risks
associated with the Group's international operations include increased governmental regulation of the
online lottery industry in the markets where it operates, exchange controls or other currency restrictions
and significant political instability. Other economic risks that the Group's international activity subjects it
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
honour 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 certain of the
countries in which the Group operates due to poor economic and political conditions, riots,
unemployment and poor health conditions. These factors may affect the Group's work force as well as
the general business environment in a country. The materialization of such risks could have a negative
impact on the Group's results of operations, business, financial condition or prospects.
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2010 Annual Report
(v)
Operational Risk: Operational risk is the risk that external events or internal factors will result in
losses. The Group's Italian concessions, lottery contracts in the United States and in other jurisdictions,
and other service contracts often require substantial performance bonds to secure its performance under
such contracts and require the Group to pay substantial monetary liquidated damages in the event of nonperformance by the Group. Claims on performance bonds, drawings on letters of credit and/or payment of
liquidated damages could have a material adverse effect on the Group's results of operations, business,
financial condition or prospects.
(vi)
Legal Proceedings: Due to the nature of its business, the Group is involved in a number of legal,
regulatory and arbitration proceedings regarding, among other matters, claims by and against it as well as
injunctions by third parties arising out of the ordinary course of its business and is subject to
investigations and compliance inquiries related to its ongoing operations. The outcome of these
proceedings and similar future proceedings cannot be predicted with certainty. It is difficult to accurately
estimate the outcome of any proceeding. As such, the amounts of the Group's provision for litigation risk,
which have been accrued on the basis of assessments made by external counsel, could vary significantly
from the amounts the Group would ultimately pay in any such proceeding. In addition, unfavourable
resolution of or significant delay in adjudicating such proceedings could require the Group to pay
substantial monetary damages or penalties and/or incur costs which may exceed any provision for
litigation risks or, under certain circumstances, cause the termination or revocation of the relevant
concession, license or authorization and thereby have a material adverse effect on the Group's results of
operations, business, financial condition or prospects.
(vii) Government Relations: The Group's activities are subject to extensive and complex
governmental regulation which varies from jurisdiction to jurisdiction where the Group operates, which
includes anti-money laundering compliance procedures. The Group believes that it has developed
procedures designed to comply with such regulatory requirements. However, any failure by the Group to
so comply or inability to obtain required suitability findings could lead regulatory authorities to seek to
restrict the Group's business in their jurisdictions.
In addition, the Group is subject to extensive background investigations in its lottery and gaming
businesses. Authorities generally conduct such investigations prior to or after the award of a lottery
contract or issuance of a gaming license. Such investigations frequently include individual suitability
standards for officers, directors, major shareholders and key employees. Authorities are generally
empowered to disqualify the Group from receiving a lottery contract or operating a lottery system as a
result of any such investigation. The Group's failure, or the failure of any of its personnel, systems or
machines, in obtaining or retaining a required license or approval in one jurisdiction could negatively
impact its ability to obtain or retain required licenses and approvals in other jurisdictions. Any such
failure would decrease the geographic areas where the Group may operate and as a result could have a
material adverse effect on the Group's results of operations, business, financial condition or prospects.
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2010 Annual Report
Further, there have been, are currently and may in the future continue to be, investigations of various
types, conducted by governmental authorities into possible improprieties and wrongdoing in connection
with the Group's efforts to obtain or the awarding of lottery contracts and related matters. Because such
investigations frequently are conducted in secret, the Group may not necessarily know of the existence of
an investigation in which it might be involved. Because the Group's reputation for integrity is an
important factor in its business dealings with lottery and other governmental agencies, a governmental
allegation or a finding of improper conduct by or attributable to the Group in any manner or the prolonged
investigation of these matters by governmental or regulatory authorities could have a material adverse
effect on the Group's results of operations, business, financial condition or prospects, including its ability
to retain existing contracts or to obtain new or renewal contracts. In addition, adverse publicity resulting
from any such proceedings could have a material adverse effect on the Group's reputation, results of
operations, business, financial condition or prospects.
34
2010 Annual Report
PREDICTABLE DEVELOPMENTS
The financial crisis and the consequential economic downturn have caused substantial changes around the
world. Although some signs of recovery have emerged, the economic rebound has proven to be
protracted.
During 2010, governments around the globe continued to support a strategy of increased liquidity to ease
credit conditions and avoid further perturbations; these policies, which have proven to be effective on the
financial markets, have left unresolved the issue of employment levels in several countries.
Notwithstanding these supporting policies, another wave of instability was created in 2010 by
developments in some European states that have severe deficits, and which require a tight financial
discipline by governments. Most recent developments in 2011 in northern African and Middle East
countries are creating concerns, especially for energy sources that could impact negatively economic
trends worldwide.
While markets remain unstable, current prevailing expectations are indicating a scenario of low interest
rates, very volatile currencies, and slowly growing inflation rates. The Group serves many customers
around the world (mostly governments or government-related entities) that are looking for opportunities
to grow their funding sources in times when tax income is substantially reduced, generating severe budget
shortfalls. In our traditional Italian market, new games have been launched (VLT), and a new nine-year
license for instant lottery has been awarded to our Group. As a result of these new licenses acquired, bids
successfully completed in the last couple of years and several extensions to existing contracts negotiated,
our weighted average contract length is approximately eight years (assuming all extension options are
exercised).
Recently the Group was awarded the operator role to run the Illinois Lottery for ten years. This
outsourcing of operations to a private entity (Northstar Lottery Group, LLC, which is 80% owned by the
Group) represents a major shift in the business model currently adopted in the U.S. by almost all
jurisdictions. We are confident that this new approach will result in a material improvement of lottery
performance, creating the foundation for other states to follow the same strategy.
The Group has the necessary resources, both in terms of capital and know-how, to play a leading role in
this evolving landscape. We believe the Group is very well placed to retain its position in all geographies
where we operate.
The Group‟s strategic goal is to maintain its global leadership position in the public gaming markets,
further developing the initiatives already identified.
The Group‟s strategy is summarized as follows:
Continue to promote same-store sales growth of current portfolio;
Bid for operator opportunities and win new jurisdictions;
Complete deployment of VLTs in Italy, while delivering turnkey solutions to other
concessionaires;
Roll out new distribution platforms, focusing particularly on interactive channels; and
Grow instant ticket printing capabilities.
We expect further growth of revenues and EBITDA and reduction of net debt in 2011.
35
2010 Annual Report
LOTTOMATICA STOCK INFORMATION
SHAREHOLDING STRUCTURE
Based on most recent information available to the Company as of December 31, 2010
Shareholder
Numbers of Shares
% of Outstanding Shares
Gruppo De Agostini
102,629,324
59.663
Mediobanca 1
21,918,941
12.742
Assicurazioni Generali
4,989,596
2.901
Lottomatica owns 3,167,552 treasury shares, equal to about 1.841% of share capital.
Underwritten and paid up share capital as of December 31, 2010 amounts to €172,015,373, composed of
172,015,373 ordinary shares with a nominal value of €1 each.
Authorized share capital amounts to €182,682,847, composed of 182,682,847 ordinary shares with a
nominal value of €1 each.
……………………………………………………………………………………………………………..
LOTTOMATICA STOCK PERFORMANCE FOR THE PERIOD ENDED DECEMBER 31, 2010
The average price of the stock for the year ended December 31, 2010 was €12.1. Over 195 million shares
were traded in 2010, with a daily exchange of approximately 762,053 shares.
Lottomatica‟s market capitalization was approximately €1.6 billion on December 31, 2010.
(1)
11.469% of Mediobanca‟s 12.742% share ownership is being held solely and exclusively to serve the conversion of certain
Mandatory Exchangeable Bonds issued by UBI Banca International SA in 2009. Mediobanca has relinquished all of the voting,
administrative, beneficial and economic rights related to that 11.469% interest.
36
2010 Annual Report
Ftse Eurotop 100 +2.7%
Dow Jones Industrial +9.4%
FTSE Italia All-share -12.6%
115
5,000,000
Lottomatica -34.5%
4,000,000
4 Jan 2010 =100
Volume
105
95
3,000,000
85
2,000,000
75
1,000,000
65
55
Jan-10
0
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
(Source: Bloomberg Borsa Italiana)
37
2010 Annual Report
BUSINESS OVERVIEW
The Group operates worldwide in the gaming market, proposing its range of products and know-how
according to the specific needs of each individual customer. The following is a description of the Group‟s
products and brands by the Group‟s four reportable operating segments: Italian Operations, GTECH Lottery,
Gaming Solutions and GTECH G2.
ITALIAN OPERATIONS SEGMENT
Since 1993, Lottomatica has been the sole concessionaire for the Italian Lotto game, a traditional game that
was played off-line for centuries. Lottomatica has gained substantial experience managing all the activities
along the lottery value chain, such as collecting wagers through its network, paying out prizes, managing all
accounting and other back office functions, running advertising and promotion, operating data transmission
networks and processing centers, training staff, providing retailers with assistance and supplying materials for
the game.
Lottomatica operates online lotteries and games, which are conducted through computerized systems in which
lottery or gaming terminals are connected to central computer systems with games where players select their
own numbers, such as Lotto, and off-line lotteries, with games involving preprinted paper tickets that are not
computerized (except for ticket distribution and validation purposes).
A list of Lottomatica‟s concessions in Italy is set forth on Table 1 of this report.
Online Lottery
Lotto is a traditional game that was played off-line for centuries and that originated roughly 500 years ago in
Genoa. In July 2006, Lottomatica introduced Lotto Istantaneo, a game that allows players an option to
participate in an instant draw game using the same numbers selected for the Lotto game.
As compensation for its management of Lotto, Lottomatica receives a fee equal to a percentage of the amount
wagered.
Lottomatica is required to provide a letter of credit in an amount equal to 0.3% of total wagers to the
Amministrazione Autonoma dei Monopoli di Stato (“AAMS”) to guarantee performance of Lottomatica‟s
obligations pursuant to the Lotto concession.
Upon termination of the Lotto concession, Lottomatica is required to transfer, free of charge, to the AAMS
upon its request, ownership of the entire automated systems which relate to the operation of the Lotto game. A
similar requirement exists with respect to the termination of the other concessions as well.
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2010 Annual Report
Instant and Traditional Lotteries
In October 2003, the Ministry of Economy and Finances granted to Consorzio Lotterie Nazionali, a consortium
63% owned by Lottomatica, the exclusive concession to operate instant and traditional Lotteries, which prior
to that time had been operated by AAMS. The remaining quotas of the consortium are held by Scientific
Games International, Inc. (20%), Arianna 2001 S.p.A. (15%) and others (2%). The traditional lotteries
concession expired in March 2010 and was replaced by a new concession. The instant lotteries concession was
extended through September 2010. Instant and traditional lotteries are available at over 54,916 points of sale
(of which approximately 31,600 are also Lotto points of sale), mainly consisting of tobacconists but also at
bars, motorway restaurants and newspaper stands. The Lotto, Sports Pools and Other Pari-Mutual Betting and
Services networks and terminals also support the instant and traditional lotteries, for which Lottomatica
provides a dedicated data processing center.
As compensation for its management of the traditional and instant lotteries, Lottomatica receives a fee equal to
a percentage of the amount wagered. As discussed under “Significant Business Developments –
Developments During 2010", following an open and competitive tender for a new Scratch & Win concession
in Italy, Consorzio Lotterie Nazionale (a consortium in which Lottomatica owns 63%) was awarded the tender
for a license to operate the national instant lotteries in Italy. Since October 1, 2010, the new Scratch & Win
concession has been run by Lotterie Nazionali S.r.l. ("LN"), a Lottomatica subsidiary with substantially the
same non-controlling shareholders as in the Consorzio Lotterie Nazionali.
In December 2010, Lottomatica closed a deal in which UniCredit Merchant S.p.A. ("UniCredit") indirectly
invested €100 million in the Scratch & Win concession operated by LN. The investment was carried out
through the subscription by UniCredit of 28.57% of the share capital of a newly incorporated company,
Lotterie Nazionali Holding S.p.A. ("LN Holding"), a subsidiary of Lottomatica which in turn has a 43.75%
interest of the share capital ofLN, with Lottomatica retaining a 20.25% direct interest in LN. As a result of this
investment, Lottomatica owns, directly and indirectly throughLN Holding., a 51.5% interest in LN.
Sports Betting
Following a competitive tender completed in the last quarter of 2006, Lottomatica has been awarded a nonexclusive concession by the AAMS to operate sports betting, and the right to operate sports betting over the
Internet.
Since 2007, Lottomatica has extended its presence in the sports betting market following several acquisitions
of domestic traditional sports betting operators. In particular, in 2008, Lottomatica acquired Totosi, the
leading Italian online sports betting operator, with the object of protecting its existing customer base and
acquiring new customers through the Internet. On the retail side, in 2009 Lottomatica entered the betting shop
market, to acquire locations fully dedicated to betting locations so that its betting competencies cover all types
of locations and cater to all customer needs. The betting shop deployment plan was completed during the
second quarter of 2010. This has allowed Lottomatica to further strengthen its leadership position in the Italian
market. The Lottomatica sports betting/interactive market is being developed by an acquisition of further
points of sale that currently have reached 1,813. Overall, in 2010 the Italian sports betting market reached
more than €4.4 billion in sales and is still growing, in terms of licensed operators becoming second worldwide
only to the United Kingdom market.
Lottomatica has also been granted rights to operate horse betting.
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2010 Annual Report
Interactive
Starting at the end of December 2008, Lottomatica entered into the Interactive business, providing poker online and skill games such as board games, soft games and fantacalcio.
Machine Gaming
Lottomatica was granted, in July 2004, a license by the AAMS to activate and operate a network in Italy that
links amusement and entertainment machines installed in outlets consisting of bars, licensed betting halls,
tobacconists and hotels to a central system. Lottomatica has agreements with approximately 383 operators
who have connected to approximately 59,461 machines.
In October 2009, Lottomatica applied to the AAMS to purchase up to 10,761 VLT rights in Italy, and made a
€80.7 million non-refundable payment representing 50% of the total cost of such VLT rights. On April 30,
2010, Lottomatica elected to purchase all 10,761 VLT rights, payment of which was completed on November
30, 2010 through the second installment of €80.7 million.
The Group has recently implemented a commercial strategy whereby it will offer VLT rights, machines and
systems to other operators in the Italian machine gaming market in return for a percentage of net sales. The
Company is in ongoing discussions with other operators in the Italian machine gaming market under which
these operators would purchase VLT rights held by the Company. The Company expects these transactions to
close in 2011 and has classified the related VLT rights as an asset held for sale in the Consolidated Statement
of Financial Position.
Commercial Services
Leveraging its distribution network and transaction processing experience, Lottomatica offers high-volume
transaction processing of non-lottery commercial transactions such as prepaid cellular telephone recharges, bill
payments, electronic tax payments, utility payments and retail-based programs.
Commercial Services. Lottomatica distributes services for commercial operators including electronic top-up
services for prepaid mobile and fixed-line telephone accounts, ticketing for sporting and musical events, and
collects payments from end-users for which it retains a fee.
Payment Services. Lottomatica provides collection and payment services in Italy for the payment of utility
bills, local fines and duties and also collects payments due on behalf of creditors.
Processing Services. Lottomatica provides a processing and network service on behalf of third parties, without
collecting amounts due. The most important of these services are telephone top-ups and digital Terrestrial TV
cards, payment of car road taxes, fidelity card services and stamp duties services.
In Italy, Lottomatica‟s services network comprises approximately 67,200 points of sale (including
approximately 26,700 points of sale ("POS") where Lottomatica provides only processing services for thirdparties and about 40,500 which overlap with Lotto points of sale) comprised of tobacconists, bars, petrol
stations, newspaper stands and motorway restaurants. Lottomatica has over 114,204 POS terminals installed at
these locations and approximately 32,600 Lis Printers installed at tobacconists. The Lis Printer is a proprietary
dedicated terminal for printing stamp duties. All services are provided through Lottomatica‟s own separate
services network (other than car road tax processing, which continues to be handled through the Lotto
terminals). Not all points of sale with a POS terminal offer all services provided by Lottomatica in Italy.
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2010 Annual Report
GTECH LOTTERY SEGMENT
GTECH delivers value added services and technology solutions to its customers worldwide. As a global
leader in the online lottery business, GTECH is a full service technology partner catering to all of the systems
and support needs of online lottery operators worldwide. GTECH also operates several lotteries in the
Caribbean through its LILHCo subsidiary. GTECH provides instant ticket management systems to securely
operate the instant ticket programs of more than 40 lottery jurisdictions. Although most lotteries look to
GTECH for online transaction processing of instant tickets, GTECH entered into the instant ticket printing
business in 2007 and continues to grow that business through its subsidiary GTECH Printing Corporation.
GTECH provides complete gaming systems technology to government-sponsored machine gaming venues.
GTECH also operates in the high growth interactive gaming and sports betting segments of the global gaming
market.
CONTRACT AWARD PROCESS
In the United States, lottery authorities generally commence the contract award process by issuing a request for
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.
GTECH‟s marketing efforts for its lottery products and services frequently involve senior management in
addition to its 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 GTECH‟s lottery products and services to lottery authorities outside the United States is often
performed in conjunction with licensees and consultants with whom GTECH contracts for representation in
specific market areas. Although generally neither a condition of their contracts with GTECH nor a condition
of their contracts with lottery authorities, such licensees and consultants often agree with GTECH 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 the lottery contracts.
GTECH’S LOTTERY CONTRACTS
GTECH serves online government sponsored lotteries under facilities management or product sales contractual
arrangements which are described in more detail below.
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2010 Annual Report
Facilities Management Contracts
GTECH‟s Facilities Management Contracts typically require GTECH to construct, install and operate the
lottery system for an initial term, which is 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, GTECH‟s customers occasionally
renegotiate extensions on different terms and conditions.
GTECH‟s revenues under Facilities Management Contracts are generally a variable amount of monthly or
weekly service fees which are paid to GTECH 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 GTECH‟s Facilities Management Contracts, GTECH typically retains title to the lottery system and
provides its customers with the services necessary to operate and manage the lottery system. GTECH installs
and commences operations of a lottery system after being awarded a Facilities Management Contract and,
following the start-up of the lottery system, GTECH is responsible for all aspects of the system‟s operations.
GTECH typically operates lottery systems in each jurisdiction on a stand-alone basis through the installation of
two or more dedicated central computer systems, although in a few instances several jurisdictions share the
same central system. In addition, in most jurisdictions GTECH employs 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 GTECH‟s Facilities Management Contracts the lottery authority has the right to purchase
GTECH‟s lottery system (including the central system, terminals, software and communications network)
during the contract term at a predetermined price, which is calculated so that it exceeds the net book value of
the lottery system at the time the right is exercisable. In addition, some of GTECH‟s lottery contracts permit
the lottery authority to acquire title to GTECH‟s 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 GTECH to
materially breach or be unable to perform under certain circumstances) without paying GTECH any
compensation related to the transfer of that equipment and software to the lottery authority. GTECH‟s 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
GTECH‟s Facilities Management Contracts, the lottery authority also has the option to require GTECH to
install additional terminals and/or add new lottery games. Such installations may require significant
expenditures by GTECH. However, since GTECH‟s revenues under such contracts generally depend on the
level of lottery ticket sales, such expenditures have generally been recovered through the revenues generated
by the additional equipment or games and revenues from existing equipment.
Under a number of GTECH‟s lottery contracts, in addition to constructing, installing and operating the lottery
systems in these jurisdictions, GTECH is providing a wide range of support services and equipment for the
lottery‟s instant-ticket games, such as marketing, distribution and automation of validation, inventory and
accounting systems, for which GTECH receives fees based upon a percentage of the sales of instant-ticket
games.
A list of GTECH‟s Facilities Management Contracts is set forth on Table 2 of this report.
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2010 Annual Report
Product Sales Contracts
Under Product Sales Contracts, GTECH constructs, sells, delivers and installs turnkey lottery systems or
lottery equipment and licenses the computer software for a fixed price, and the lottery authority subsequently
operates the lottery system. GTECH also sells additional terminals and central computers to expand existing
systems and/or replace existing equipment under Product Sales Contracts.
In connection with GTECH‟s Product Sales Contracts, GTECH generally designs the lottery system, trains the
lottery authority‟s personnel and provides other services required to make and keep the system operational.
GTECH also generally licenses its software to its customers for a fixed additional fee.
Historically, product sales revenues have been derived from the installation of new online lottery systems,
installation of new software and the sale of lottery terminals and equipment in connection with the expansion
of existing lottery systems. The size and timing of these transactions at times have resulted in variability in
product sales revenues from period to period.
A list of GTECH‟s direct or indirect customers that since January 2009 have purchased (or have agreed to
purchase) from GTECH new online lottery systems, software and/or terminals and equipment in connection
with the expansion or replacement of existing lottery systems is set forth on Table 3 of this report.
ONLINE PRODUCTS AND SERVICES
A Suite of Solutions for Lotteries Worldwide
GTECH‟s lottery systems consist of lottery terminals, central computer systems, communications and game
software, and communications equipment which connect the terminals and the central computer systems. The
systems‟ terminals are typically located in high-traffic retail outlets, such as newsstands, convenience stores,
food stores, tobacco shops and liquor stores. GTECH‟s broad spectrum of solutions enables it to support
lotteries at every stage of their development, from the smallest “start-up” to a fully matured operation.
Terminals. GTECH designs, manufactures, installs and in some cases maintains the point-of-sale terminals
used in its online lottery systems. GTECH‟s first model terminals were introduced in 1985. Since then,
GTECH has developed an entire suite of industry-leading flexible retail solutions that support the wide range
of retailer needs across a variety of retail trade channels. This includes a family of clerk-operated terminals,
player self-service terminals including instant ticket vending machines (ITVMs) and hand-held terminals, to
support each unique lottery sales environment. GTECH's terminals are characterized by four major attributes:
1.
Ergonomics and Ease of Use – Our terminals and retail solutions are designed to allow
retailers and players to interact with the devices with minimal training and in the most efficient
manner possible.
2.
Reliability and Maintainability – Since terminals may be installed in difficult retail locations
over extended contract periods, they are designed for extremely harsh environmental
conditions. In addition, they are extremely modular to facilitate in-store or depot servicing, in
the event it is required.
3.
Performance and Future Proofing – The terminals are equipped with the latest retail and IT
technologies, so they have substantial processing and performance now and for future
applications.
4.
Total Cost of Ownership – GTECH terminals provide the most effective total cost of
ownership for both Facilities Management and Product Sale opportunities.
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2010 Annual Report
A list of GTECH‟s ITVM contracts is set forth on Table 4 of this report.
Software. GTECH designs and provides, or licenses from third parties, all applications solutions for its lottery
systems. GTECH‟s highly sophisticated and specialized software is designed to provide the following
characteristics: rapid processing; storage and retrieval of transaction data in high volumes and in multiple
applications; the ability for centralized control of application down loads (i.e., to reprogram the lottery
terminals from the central computer installation via the communications system to add new games and other
software based functionality); 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. GTECH‟s market leading Enterprise Series lottery management software
suite has an open architecture that sets the industry standard for the development, deployment, integration and
support of next-generation online lottery solutions, including those which permit sales of lottery products via
secure infrastructure over the Internet, without compromising the integrity of the games. The open system
architecture of the Enterprise Series allows lotteries to upgrade their systems, and integrate a broad spectrum of
third-party hardware and software solutions to achieve greater performance.
Central Computers. Each of GTECH‟s lottery systems contains one or more central computer sites to which
the lottery terminals are connected. GTECH‟s central computer systems are primarily sourced from IBM
Corporation and Hewlett-Packard Company. The specifications for the configuration of its 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 supplies), which are all
manufactured by third parties, and a microcomputer-based communication and switching subsystem. In
addition, GTECH supplies management information systems that provide lottery personnel access to important
financial and operational data without compromising the security of the online system. Based upon the
development of its Enterprise Series, GTECH is able to integrate qualified third party software applications.
Communications. GTECH‟s lottery terminals are typically connected to the central computer installations by
dedicated communications channels. Due to the varying nature of telecommunications services available in
lottery jurisdictions, GTECH has developed the capability to utilize and interface with a wide range of
communications technologies to provide reliable and secure data communications pathways between the
lottery terminals and the central computers. These technologies include: VSAT, 2, 2.5 and 3G wireless, xDSL,
Frame Relay, Cable, ATM and MPLS. Internationally we have also deployed several wireless and wireline
IPVPN solutions over the Internet, including innovative mobile gaming solutions. Our strong relationships
with many of the world's leading network and technology providers enable us to have an up to date
understanding of existing and future access technologies, both terrestrial and wireless. GTECH designs,
delivers, monitors and maintains these communications networks for many of its customers using a
combination of custom tools and third party solutions. Retail hardware solutions range from satellite modems
and fully managed routers to low cost USB wireless devices, deployed inline with customer performance
expectations. We tailor our network designs to increase service availability and performance while minimizing
total cost of ownership. GTECH has also pioneered the innovation of Dual Comm Inside, which allows two
types of communications to be terminated at one of GTECH's lottery terminals. The terminal will intelligently
switch between communication types – which for these equipped retailers affords the lottery industry's highest
communications availability obtainable. According to industry sources that GTECH regards as reliable,
GTECH is also the largest single enterprise user of satellite technology for point-of-sale devices in the world.
GTECH fully understands the requirements of lotteries worldwide and the access technologies available at the
retail and data center entry points.
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2010 Annual Report
Games. An important factor in maintaining and increasing public interest in lottery games is the development
of innovative and compelling new game content. In conjunction with lottery authorities, GTECH utilizes
principles of demographics, sociology, psychology, mathematics and computer technology to design
customized lottery games which are intended to appeal to the populations served by its lottery systems. The
principal characteristics of game design include: frequency of drawing, size of pool, cost per play and setting
of appropriate odds. GTECH believes that its expertise in game design has enhanced the marketing of its
lottery systems and has contributed to increases in the revenues of many of its customers. GTECH currently
has a substantial number of variations of lottery games in its software library and new games under
development. GTECH believes that this game library and the “know how” and experience accumulated by its
professionals since its inception make it possible for GTECH to meet the requirements of its customers for
specifically tailored games on a timely and comprehensive basis. In 2010, GTECH introduced its GamePRO
market research service specifically for social space games, that allows players to wager with real money, on
real games in actual social settings, but in a very cost effective and timely manner compared with our research
or deployment options.
Marketing. In Facilities Management jurisdictions in which GTECH has been awarded a lottery contract,
GTECH is frequently asked to assist the lottery authority in the marketing of lottery games to the public.
Because GTECH revenues under Facilities Management Contracts are based on a percentage of the lottery‟s
gross online and/or instant ticket sales, the value of GTECH‟s marketing efforts can have an impact in driving
revenue for both GTECH and the lottery. The full breadth of marketing expertise and services are offered to
support lottery efforts. Marketing assistance generally includes:
Game Portfolio Management
Business Development
Marketing Development
Sales Development
Corporate Social Responsibility
Professional/Consulting Services
Retailer terminal distribution and optimization, including utilization of GTECH‟s “GMark”, a
computerized marketing analysis system used to determine optimal placement of lottery terminals in
retail locations
Market Research, including Focus Group Testing of new games and products, primary and secondary
research studies, Annual Worldwide Player Survey, and Annual Customer Satisfaction Survey
Retail Expansion and Development.
INSTANT TICKET PRINTING BUSINESS
GTECH Printing Corporation ("GPC") is a rapidly growing and technologically advanced instant game
supplier. GPC has 51 customers worldwide. GPC also currently employs approximately 145 employees. As
an end-to-end provider of instant tickets and related services, GPC specializes in the fast delivery of highquality instant ticket games. With the industry‟s largest, fastest, and highest quality press and the utmost
commitment to customer service, GPC seeks to provide customers with instant tickets as well as development
of initial marketing plans throughout the processes of entire graphic design, programming, production,
packaging, shipping and delivery.
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2010 Annual Report
The Facility & Press
GPC has invested over $45 million to create the most advanced instant game facility in the world. The facility
is located in Lakeland, Florida, with access to all major highways and international shipping ports in Florida.
GPC‟s Gallus press is capable of printing 48,000 tickets per minute and more than 11 billion tickets annually.
GPC has the capacity to package 90 million tickets per day. Engineered for maximum production flexibility,
precision, security and speed, the new press features 22 individually servo-controlled stations for high quality
registration, color control, and bar code imaging. GPC‟s in-line finishing technology is a multi-purpose system
that aims to improve efficiency, enhances design capabilities, and allows for new game ideas to be entered into
the market.
GPC also has a backup facility located in Plant City, Florida. With these two facilities, GPC now has
approximately 20% of the world‟s instant game printing capacity.
Instant tickets are sold at numerous types of retail outlets but most successfully in grocery and convenience
stores. GTECH anticipates that new methods of distribution and game play including Internet-based
promotions and games will provide additional growth opportunities. Government sponsored lotteries grant
printing contracts on both an exclusive and non-exclusive basis where there is typically one primary vendor
and one or more secondary vendors. A primary contract permits the vendor to supply the majority of the
lottery‟s ticket printing needs and includes the complete production process from concept development through
production and shipment. It also typically includes marketing and research support. A primary printing
contract can also include any or all of the following services: warehousing, distribution, telemarketing, and
sales/field support. A secondary printing contract includes providing back up printing services and alternate
product sources. It may or may not include a guarantee of a minimum or maximum number of games.
Instant ticket contracts are priced on a percent of instant ticket sales or on a price per unit basis and generally
range from 2-5 years with extension opportunities.
GAMING SOLUTIONS SEGMENT
The Group‟s Gaming Solutions segment operates and provides solutions, products, services, gaming machines
and content for the government sponsored and commercial gaming markets.
The Gaming Solutions segment includes Spielo, a global leader in the video lottery markets focused on North
America and Europe but with an emerging presence in the U.S. commercial gaming market, and the Atronic
group of companies, which specializes in the provision of gaming machines, systems and game content to
commercial gaming operators in Europe, Asia and the Americas.
Currently the world's leading provider of central systems for government sponsored machine gaming
programs, the Gaming Solutions segment is benefiting from the increasing convergence of the global gaming
spaces, allowing it to capture a better position in new geographical areas and segments, as it pursues the
integration of technology and content capabilities.
Compensation varies from the outright sale of product, or on a "participation" basis whereby the Group retains
title to the equipment and receives a percentage of the "net win per day" per machine.
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2010 Annual Report
GTECH G2 SEGMENT
Since the mid 1980‟s, GTECH has been providing certain customers with sports betting technology solutions.
Since 2002, GTECH has been delivering interactive solutions that allow its lottery customers to provide
Internet, mobile and interactive digital television access by their players.
In 2007 GTECH acquired 100% of Finsoft Limited (a leading sports betting technology provider in Europe),
and in 2008 acquired approximately 87.45% of Boss Media AB and its subsidiaries (a provider of digital
gaming software and services for poker, casino and bingo), and 90% of St. Enodoc Holdings Limited, the
parent of St. Minver Limited (a Gibraltar-based operator of white-label gaming services). In 2010, GTECH
acquired the remaining interest in Boss Media AB. In 2011, after the close of calendar year 2010, GTECH
acquired the remaining 10% interest in St. Enodoc Holdings Limited and its subsidiaries, including St. Minver
Limited, increasing its ownership interest to 100%. Collectively, these subsidiaries form GTECH G2, which
provides digitally-distributed, multi-channel gaming entertainment products and services, including sports
betting, lottery, bingo, poker, casino games and quick games, as well as retail solutions for real-time
transaction processing and information systems in the sports-betting market.
GTECH G2 has over 700 employees in Europe, Asia and North America. The segment has over 150 gaming
or media customers operating under license in various European jurisdictions. The business model varies by
product but is broadly a fixed upfront and recurring license fee for sports betting technology, which varies by
size (number of CPUs/Web Servers, seats per call center and retail POS), software integration and support fees
(per diem). For games, online casino, poker and end-to-end sports book trading/risk management services, a
revenue share based on the Gross Gaming Yield (or GGY) is charged to the gaming operator/media company.
GTECH G2 operates 4 poker networks in Europe with over 100,000 persons playing on these networks each
day. It has 32 sports betting customers and over 50 bingo customers on Europe‟s third largest bingo network.
Its online casino customers handled more than €3 billion through more than 800 million wagers in 2010. The
casino and games suite has also been leveraged to support leading server based machine gaming software,
currently operating on more than 11,000 gaming machines in Central and Eastern Europe.
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2010 Annual Report
ENVIRONMENTAL COMMITMENTS
During recent years, the Group has strongly enhanced its commitment to environmental policy in order to take
actions that could make its environmental commitments more structured year after year. The Group's
programs are primarily related to locations in Italy and the United States, where most of the workforce is
concentrated, but its commitments are relevant to all locations worldwide.
Lottomatica’s Environment Commitments in Italy
In the last years, the Company has focused on an analysis and monitoring activity that has become precise and
widened to cover all the Italian sites, which allowed the Company to get a detailed picture of its environmental
impact, verified also by an independent body.
The Environmental Initiatives of Lottomatica in Italy
During 2010, thanks to the establishment of a systematic and structured process of data collection, it has been
possible to make the measurement of environmental performance reliable and efficient, which enabled the
Company to start a process of saving not only environmental but also economical resources.
Specifically, the areas where consumption of resources is significantly high are in the use of energy and paper.
Regarding office paper, a consumption higher than the national average has been noticed, which prompted the
Company to promote actions aimed at a rationalization of its use. In particular, the Company started to
purchase unbleached recycled paper totalling 50% of the whole amount of paper consumed in its offices.
The high level of energy consumption has been attributed not only to ordinary office activities, but also and
especially to the hardware and software system that manages all the electronic transactions of the Company,
related both to game and services transactions.
EN 16001 Standard
In order to reduce its electric energy consumption, Lottomatica identified the EN 16001 standard compliance
as a fundamental means of obtaining a relevant improvement of its energy use in Italy, especially in the sites
where the energy consumption is significantly high.
The EN 16001 standard compliance requires specific actions for establishing, implementing, maintaining and
improving an energy management system. This standard requires continual improvement in more efficient and
more sustainable energy use, irrespective of the type of energy. This standard applies to the activities under
the control of an organization.
The implementation of an energy management system specified by this standard is intended to result in
improving energy efficiency. Therefore, this standard is based on the premise that the organization will
periodically review and evaluate is energy management system to identify opportunities for improvement and
their implementation. The rate, extent and time scale of this continual improvement process are determined by
the organization in light of economic and other circumstances. Improvements in the energy management
system are intended to result in improvements in energy performance.
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2010 Annual Report
The standards require the organization to:
a)
b)
c)
d)
e)
f)
Establish an appropriate energy policy;
Identify the energy aspects arising from the organization's activities;
Identify applicable legal requirements and other requirements to which the organization subscribes;
Identify priorities and set appropriate energy objectives and targets;
Establish a relevant structure and program(s) to implement the policy and achieve objectives and meet
targets; and
Facilitate planning, control, monitoring, preventive and corrective actions, auditing and review
activities to ensure both that the policy is complied with and that the energy management system
remains appropriate.
Thanks to the analyzing and monitoring of electricity consumption in the most significant sites, Lottomatica
took the following actions at the end of 2010:
Implementing lighting switch-off policies;
Implementing a fan-coil power supply switch-off system; and
Implementing policies to deactivate the air conditioning systems for offices.
Emissions
Lottomatica is continuing its policy of reduction of emissions.
At the end of 2010, the Company started a forestation and planting project in one of the most important
national parks of Italy, Parco del Cilento, where the local administrators started a new policy to guarantee the
environmental protection of the whole area in which the park is located. Under the Lottomatica project, 3,000
trees have been planted in the park.
Thanks to this project, it will be possible to offset CO2 created by the production of the 2010 Lotto game
playslips, for which approximately 2,049 tons of CO2 were produced.
This is the third forestation project that the Company has launched using funds from the Lotto game, in
partnership with Parks for Kyoto.
The first project, which is now finished, was the Protected Marine Area of Plemmirio in Sicily, involving the
planting of 3,500 trees. The second one was set in the Pollino National Park, where 2,200 small trees of native
pines were planted. Species that are native to the area and demonstrate good adaptation to local conditions
were chosen for the planting project, complying with biodiversity conservation criteria.
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2010 Annual Report
GTECH’s Environmental Commitments
Environmental Policy
GTECH is committed to conducting its business in an environmentally responsible manner. Fulfilling its
responsibility to protect the environment enhances its ability to provide competitive and profitable products
and services.
GTECH is committed to complying with accepted environmental practices, including the commitment to meet
or exceed applicable legal and other requirements, to strive for continual improvement in its environmental
management system, and to minimize the creation of wastes and pollution. It will, therefore, manage its
processes, its material and its people in order to reduce the environmental impacts associates with its work.
This policy will be communicated to all parties interested in the performance of its environmental management
system.
Minimizing Environmental Impact
GTECH is committed to minimizing its impact on the environment as it carries out its activities around the
world and continually strives to improve its environmental goals.
In a pledge to reduce waste and help protect the environment, GTECH began its “GTECH GREEN” corporate
initiative in October 2008. This program is intended to promote environmentally-friendly habits at all GTECH
sites and subsidiaries worldwide, and is undertaking to increase awareness by its employees on the best
practices of energy saving and resource conservation, recycling procedures and overall protection of the
environment.
In January 2011, after the close of calendar year 2010, GTECH received the International Organization for
Standardization (ISO) 14001:2004 certification for its Environmental Management System ("EMS") at its
Coventry, Rhode Island manufacturing facility and its Providence, Rhode Island headquarters. This
certification is an internationally-recognized benchmark for creating and maintaining an EMS, which is a set of
green practices and procedures for employees to follow. Through GTECH's EMS, the Company is committed
to reducing solid waste from its manufacturing facility by 5% and recycling 100% of all aerosol cans and ink
and toner cartridges throughout its Rhode Island facilities. The certification is effective through January 6,
2014. GTECH will seek to receive further ISO 1400:2004 certifications for its West Greenwich, Rhode Island
Technology Center, its National Response Center in Providence, and the GTECH Printing Corporation facility
in Lakeland, Florida.
In 2009, GTECH expanded its recycling program in its Rhode Island facilities. This expansion resulted in
substantial increases in recycling activities, specifically in paper, plastics, aluminum, mixed bottles and cans,
and batteries. In 2010, GTECH worked to streamline recycling operations among facilities to strengthen the
overall recycling effort and expand the recycling program to other GTECH facilities outside of Rhode Island.
Furthermore, GTECH Rhode Island facilities participated in a pilot program to include food composting in the
overall recycling initiative.
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2010 Annual Report
In its Rhode Island facilities, in addition to recycling efforts, the environmental measures that have been taken
by GTECH include the following:
Intelligent management of market fluctuations when purchasing energy used at its premises;
Reducing paper usage by programming all copy machines to print documents double-sided;
Reducing use of colored ink by printing in black and white where possible;
Distributing information to new employees via electronic media, as opposed to paper handouts;
Installing timers to shut down high-energy use areas overnight;
Applying automatic energy conservation settings to company desktop computers; the application to
laptop computers is anticipated to occur in the first quarter of 2011; and
Installation of a secure bike rack to encourage employees commuting by bicycle/scooter.
GTECH‟s manufacturing facilities comply with all applicable laws and regulations, including the European
Union Restriction of Hazardous Substances Directive (RoHS). They do not generate any harmful waste,
whether chemical or in the air. Further, GTECH has converted from non-biodegradable bubble wrap and
Styrofoam peanuts to biodegradable packaging material for shipment of certain equipment such as spare parts.
GTECH‟s instant ticket printing subsidiary, GTECH Printing Corporation (GPC), uses 100% recyclable paper,
none of which is designated as hazardous waste. The printing facility exceeds the compliance of all state and
federal air and water regulatory bodies, and the primary and backup facilities do not discharge any process
liquids. GPC has:
Eliminated the use of all solvent based overprint inks with the conversion to water-based systems;
Replaced all solvent-based graphic inks with Ultraviolet Cured graphic ink systems;
Developed and implemented the use of a 100% water based system for base coat and overprint coating
systems;
Replaced all solvent-based security seal and release varnishes with UV-curable systems;
Replaced its solvent-based plate making system with an all digital process; and
Entered into agreements to recycle 100% of its offset printing plates.
As a result, GPC has reduced its Volatile Organic Compounds (VOCs) emissions to less than 20% of the
current maximum operating limit allowed, and in fact has reduced its emitted VOCs even further with the
development of a water based black scratch off system. GPC has also significantly lowered its emissions of
CO2, SO2 and NO2 as a result of more energy efficient operating practices.
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2010 Annual Report
SIGNIFICANT CONTRACT DEVELOPMENTS
Developments During 2010
In January 2010, GTECH signed a five-year contract extension with SAZKA, a.s., the operator of lottery and
betting games in the Czech Republic, to continue providing online lottery products and services, as well as
install and operate a new IP-telecommunications network. The contract extension will commence on January
1, 2018.
In March 2010, GTECH Printing Corporation signed a contract with the New Mexico Lottery to serve as its
primary instant ticket vendor. The term of the contract, which was the result of a competitive procurement, is
four (4) years with four (4) one-year extension options available.
In April 2010, GTECH Foreign Holdings Corporation signed an eleven (11) year contract with Concesionaria
de Entretenimientos y Turismo S.A. (CET) to supply, operate and support the central system that will monitor
as many as 5,400 VLTs in the province of Cordoba in Argentina. CET is licensed by Loteria de la Provincia
de Cordoba Sociedad del Estado to operate slot machines in Cordoba. In a separate contract, CET will lease
up to 1,000 VLTs manufactured by Lottomatica‟s subsidiaries Atronic and Spielo.
In June 2010, GTECH signed a five (5) year contract extension with the California Lottery to provide online
and instant ticket central system enhancements, new lottery products and ongoing services. The five year
extension will commence on October 14, 2014.
In June 2010, Lottomatica announced that its subsidiary, Spielo Manufacturing ULC, had signed an exclusive
distribution agreement with American Gaming & Electronics, a wholly-owned subsidiary of Wells-Gardner
Electronics Corporation, to distribute Spielo‟s prodigy Vu™ Video Gaming Terminal (VLT) and game content
to licensed operators in the new Illinois VLT market.
In July 2010, Lottomatica announced that following a competitive procurement, a consortium of GTECH
companies was chosen by Totalizator Sportowy Sp. z o.o., a government-owned organization in Warsaw,
Poland, to provide a wide array of lottery technology and ongoing services. The contract is for a seven (7)
year period commencing on December 1, 2011, and includes the option for three (3) extension years.
In July 2010, GTECH signed a three (3) year contract with the Connecticut Lottery Corporation to provide
instant ticket vending machines. The contract allows for three (3) one-year extensions.
In August 2010, GTECH signed a contract with the Kentucky Lottery Corporation to provide a complete array
of online lottery products and services. The seven (7) year contract is expected to commence in June 2011 and
allows for eight (8) additional one-year extension options.
In August 2010, GTECH Printing Corporation signed a contract with Lotterywest, the official state lottery of
Western Australia, to serve as its primary instant ticket vendor. The five (5) year contract, which was the
result of a competitive procurement, commenced immediately and will allow for extension options for an
additional five (5) years.
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2010 Annual Report
In August 2010, GTECH signed a contract with Société de la Loterie de la Suisse Romande (“LoRo”) to
provide an end-to-end solution, including a core central system, terminals and ongoing support services, which
will allow LoRo to improve the management of several of its lottery games as well as replace its Electronic
Instants Lottery system.
In September 2010, Lottomatica‟s subsidiary, Spielo Manufacturing ULC, was awarded a contract by Société
des lotteries video du Québec, a subsidiary of Loto-Québec, to provide a new central system that will manage,
monitor and control its entire network of 12,000 video lottery terminals (“VLTs”). Spielo was also one of two
vendors selected to replace Loto-Québec‟s 12,000 VLTs.
In September 2010, GTECH signed a ten (10) year contract to provide a new lottery central system, terminals
and ongoing services to Pan Malaysian pools Sdn. Bhd. (“PMP”), following a competitive procurement. PMP
administers and operates lottery games in Malaysia, and has the option to extend the contract beyond its initial
ten year term in three-year periods triennially. The new system is expected to go live in August 2011.
In October 2010, GTECH signed a four (4) year contract extension with the Florida Lottery to continue
providing online lottery technology and ongoing services, as well as instant ticket vending machines. The
contract extension will commence in March 2011.
In October 2010, GTECH signed a contract to provide a new lottery system solution and ongoing support
services to La Française Des Jeux, the operator of the French National Lottery. The twelve (12) year contract
will run through June 2024.
In November 2010, Lottomatica announced that GTECH signed a contract to upgrade an existing Keno
system, commence selling online lottery games, increase the terminal base and provide ongoing software,
operations and marketing services for Shenzhen Welfare Lottery Center, which administers and operates
lottery games in Shenzhen, China. The ten (10) year contract, which is expected to go live in May 2011, will
run through April 2021, following which the contract will be automatically extended for up to two (2)
consecutive 18-month periods unless a party chooses to terminate.
In November 2010, GTECH signed three related contracts with a consortium of companies for the provision of
central system hardware, terminals and related equipment and ongoing support services to implement a new
online lottery in Madagascar. The consortium includes Lotwin Investments LTD and its subsidiaries Reel
Mada SA, Lottotech Management LTD, Damalot Technical Services LTD and Gamlot Technologies LTD.
Through contractual agreements with Société d'Exploitation de Loterie, Reel Mada and its affiliates have been
authorized to operate an online lottery in Madagascar. The system went live in February 2011, after the close
of calendar year 2010.
In November 2010, Lottomatica announced that GTECH received a two (2) year extension to continue
providing lottery products and ongoing support services to its customer in Mexico, Pronosticos Para La
Asistencia Publica (Pronosticos), through September 2014.
In December 2010, GTECH signed a new contract with the Nebraska Lottery to provide a unified
online/instant lottery system, terminals, an IP-communications network, full service instant ticket printing,
warehousing/distribution and ongoing services. The six (6) year contract, which was the result of a competitive
procurement, is expected to commence operations in July 2011, and includes four (4) one-year extension
options.
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2010 Annual Report
In December 2010, following a competitive procurement, GTECH signed a contract to provide Israel's
National Lottery operator, Mifal Hapayis, with a new online/instant ticket central system, online and selfservice terminals, multimedia displays and support services. The ten (10) year contract contains three (3) oneyear extension options.
In December 2010, GTECH signed a new lottery operator contract with the Texas Lottery to provide a wide
array of lottery products and solutions, including a new online/instants lottery system, more than 17,000 online
terminals, a variety of self-service offerings, an IP-communications network, a statewide sales force, and
ongoing support and marketing services. GTECH was selected following a competitive procurement. The
seven (7) year integrated services contract will commence in September 2011, and includes the execution of a
two-year extension option for a total of nine (9) years. The Lottery has the option to exercise three (3)
additional two-year extension options.
Developments After the Close of 2010
As previously disclosed, in September 2010, the Northstar Lottery Group LLC ("Northstar"), a consortium in
which GTECH holds an 80 percent controlling interest, was selected as private manager by the Illinois Lottery,
following a competitive procurement. In January 2011, Northstar signed a ten (10) year private management
agreement with the State of Illinois (the "Private Management Agreement"). Scientific Games International,
Inc., a wholly-owned subsidiary of Scientific Games Corporation, holds the remaining 20 percent interest in
the consortium. Under the Private Management Agreement, Northstar, subject to the State's oversight, will
manage the day-to-day operations of the Lottery and its core functions including, among other things, lottery
game development and portfolio management; retailer recruitment and training; call center operations; supply
of goods and services; subcontractor and vendor selection and management; advertising; branding; and overall
marketing strategy. Responsible gaming programs will be embedded throughout these operational processes
and core functions. As compensation for its management services, Northstar will receive annual fees for
reimbursement of certain operating and lottery expenses, including reimbursement of fees payable to GTECH
for GTECH's provision of facilities management services to Northstar. Northstar is also entitled to receive
annual incentive compensation payments should it achieve certain sales targets, or else must make payments to
the State if those targets are not met.
In January 2011, following the award of the Private Management Agreement to Northstar, the Illinois
Appellate Court held in Wirtz v. Quinn that the Illinois legislation that, among other things, specifically
authorized the private manager procurement process, violated the "single subject rule" of the Illinois
Constitution and was void. The ruling is being appealed to the Illinois Supreme Court, which issued a stay of
the Appellate Court decision in February 2011 pending final disposition of the Appellate Court decision.
Northstar is not a party to this lawsuit and the private manager procurement process was not expressly
challenged. Although the Company believes that the Private Management Agreement would remain valid
even if the Illinois Supreme Court affirms the Appellate Court's decision and without corrective legislation,
payment of any incentive compensation to Northstar, as described above, would require specific appropriation
by the General Assembly.
In January 2011, following a competitive procurement, GTECH entered into a contract with Loterie Nationale
in Luxembourg to provide a full range of solutions, including a new online/instants lottery system and
terminals, self-service vending machines, a digital multimedia system, new games and player/ongoing
services. The eight (8) year contract is expected to commence in November 2012 when the new system
becomes operational, and includes the option to extend for an additional five (5) years.
54
2010 Annual Report
Tables of Customer Contracts
55
2010 Annual Report
Table 1
Italian Concessions
The table below sets forth Lottomatica‟s Italian Concessions as of December 2010
Date of
Commencement
of Current
Holder
Purpose
Contract1
Lottomatica Activation and operation of March 1993
Group S.p.A. the network for the Lotto
Game
Lotterie
Nazionali
S.r.l.
Operation of the National
Instant Lotteries, also
through interactive
channels
October 2010
Lottomatica Activation and operation of July 2004
Videolot Rete the network for the
S.p.A.
telematic operation of
legalized amusement with
price machine (Video
Lotteries)
Date of Expiration
of Current
Current Extension
Contract
Options
June 20162
Not renewable
September 2019
Renewable
December 2011, or, Not renewable
if earlier, date of
execution of the
new concessions to
be granted by
AAMS with a new
tender to be issued
starting from May
2011.
June 2016
Not renewable
Lottomatica
Scommesse
S.r.l.
Activation and operation of March 2007
the network for sports
gaming, toto betting and
sports betting, operated
through interactive channel
also for the operation of
Skill Games. N. 4032
Lottomatica
Scommesse
S.r.l.
Activation and operation of March 2007
the new horse gaming, toto
betting and horse betting.
N. 4313.
June 2016
Not renewable
Lottomatica
Scommesse
S.r.l.
Activation and operation of August 2009
the new horse gaming, toto
betting and horse betting.
N. 4803.
June 2016
Not renewable
1
Reflects the date upon which the contract became effective
As discussed in Note 42 to the Notes to the Consolidated Financial Statements concerning litigation, the indicated
expiration date is under dispute with AAMS
2
56
2010 Annual Report
Lottomatica
Scommesse
S.r.l.
Activation and operation of From the date of
sports betting. Twentyexecution of each
three concessions3
concession
June 2012
Not renewable
Lottomatica
Scommesse
S.r.l.
Activation and operation of May 2009
horse betting. Concession
no. 1056.
June 2012
Not renewable
Toto
Carovigno
S.p.A.
Activation and operation of January 2007
horse betting. Concession
no. 1100.
June 2012
Not renewable
Toto
Carovigno
S.p.A.
Activation and operation of April and August
sports betting. Two
2007
concessions.4
June 2012
Not renewable
L.S. ALPHA
S.r.l.
Activation and operation of November 2008
sports betting. Nine
concessions.5
June 2012
Not renewable
LABET S.r.l.
Activation and operation of June 2009
sports betting. Seventeen
concessions.6
June 2012
Not renewable
SIDERBET
S.r.l.
Activation and operation of August 2009
the new horse gaming, toto
betting and horse betting.
N. 4850.
June 2016
Not renewable
3
Concessions no. 3055, 3146, 3155, 3165, 3169, 3180, 3184, 3192, 3199, 3264, 3480, 3483, 3613, 3674, 3672, 3705, 3732, 3733,
3742, 3302, 3055, 3613 and 3483.
4
Concessions no. 3067 and 3673 also through interactive channel.
5
Concessions no. 3173, 3413, 3414, 3416, 3475, 3558, 3559, 3651 and 3751.
Concessions no. 3064, 3065, 3066, 3103, 3119, 3167, 3504, 3514, 3515, 3516, 3517, 3519, 3520, 3521, 3522, 3523 and
3621.
6
57
2010 Annual Report
Table 2
Facilities Management Contracts
Unless otherwise indicated, the table below sets forth the lottery authorities with which GTECH had Facilities
Management Contracts as of December 31, 2010 for the installation and operation of lottery systems, and as to
which GTECH is 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 December 31, 2010, the approximate
number of terminals installed in each jurisdiction.
Approximate
Date of
Number of Lottery
Commencement of
Terminals Installed (1) Current Contract*
Date of
Current
Expiration of Current Extension
Contract Term
Options**
Arizona (2)
California
Florida
Georgia
Illinois
Kansas
Kentucky
Louisiana
Michigan
Minnesota
Missouri
2,800
21,400
13,700
9,500
7,300
1,900
2,800
2,800
11,200
3,100
4,800
November 2005
October 2003
January 2005
September 2003
April 2000
July 2008
April 1997
June 1997
January 2009
June 2002
December 2004
August 2014
October 2019
March 2015
September 2013
June 2011 (4)
June 2018
June 2011 (5)
June 2010
January 2015
February 2016
June 2012
Nebraska
New Jersey
New York
North Carolina
Oregon (6)
Rhode Island
South Dakota
Tennessee
Texas
Virginia
1,250
6,200
17,900
6,350
3,650
1,200
620
5,000
17,300
5,000
December 2010
January 2009
September 2009
January 2006
October 2007
July 2003
August 2009
January 2004
October 2001
June 2006
June 2017
October 2017
August 2017
March 2017
November 2015
June 2023
August 2014
April 2015
August 2011 (7)
October 2014
Washington
West Virginia
Wisconsin
4,600
1,700
3,800
July 2006
June 2009
November 2003
June 2016
June 2014
June 2013 (8)
2 one-year
(3)
------------6 one-year
--3 one-year and
additional 5 years
4 one-year
Up to 3 years
Up to 3 years
--3 one-year
--5 one-year
----3 one-year or 1
three-year
--2 one-year
--- (8)
International:
Anguilla
-LILHCo
16
May 2007
May 2017
---
Jurisdiction
United States:
58
2010 Annual Report
Jurisdiction
Antigua/
Barbuda
-LILHCo
Argentina
-Boldt
S.A.(Buenos Aires
Lottery/IPLC) (9)
Approximate
Date of
Number of Lottery
Commencement of
Terminals Installed (1) Current Contract*
Date of
Current
Expiration of Current Extension
Contract Term
Options**
52
September 1996
September 2016
---
4,300
November 1999
November 2012
---
June 2005
June 2023
---
---
---
Automatic
annual renewal
Barbados
- LILHCo
255
Bermuda
- LILHCo
2
Chile
- Pollo Chilena de
Beneficencia
2,600
September 2008
August 2016
Up to 24 months
China
- Beijing Welfare
Lottery
2,180
February 2004
December 2015
Automatic 3 oneyear unless a party
gives at least 180
days notice before
end of initial or
extension term
188
July 2005
May 2011
---
1,500
July 2010
April 2021
Automatic 2
eighteen month
terms unless a
party gives at least
180 days notice
before the end of
the initial or
extension term.
5,000
December 1999
April 2012
---
3,000
March 2007
September 2012
---
- Shenzhen
Welfare Lottery
Colombia
- ETESA (10)
- Apuestas En
Linea, S.A.
59
2010 Annual Report
Jurisdiction
Czech Republic
- SAZKA
Dominican
Republic
- Loto Real Del
Cibao, C.X.A.
Approximate
Date of
Number of Lottery
Commencement of
Terminals Installed (1) Current Contract*
Date of
Current
Expiration of Current Extension
Contract Term
Options**
7,000
October 1992
December 2022
---
1,250
August 2008
August 2028
---
Ireland
-An Post Nat‟l
Lottery Company
3,700
June 2002
December 2011
---
Jamaica
-Supreme
Ventures Limited
1,100
November 2000
January 2016
---
June 2001
October 2012
---
9,400
September 2005
September 2014
---
3,500 (12)
November 2008
December 2016 (12) 10 years (12)
May 2001
December 2011 (13) 1 one-year
March 1996
August 2013
Luxembourg
-Loterie
Nationale (11)
Mexico
-Pronosticos Para
La Assistencia
Publica
Nigeria
-Secure Electronic
Technology plc.
Poland
-Totalizator
Sportowy
Slovak Republic
-TIPOS a.s.
530
11,700
2,250
---
60
2010 Annual Report
Jurisdiction
Spain
- Organizacion
Nacional de
Ciegos Espanoles
(ONCE) (14)
Approximate
Date of
Number of Lottery
Commencement of
Terminals Installed (1) Current Contract*
8,000
May 2010
Date of
Current
Expiration of Current Extension
Contract Term
Options**
December 2020
5 years and
subsequently for
biannual periods
unless either party
elects to terminate
St. Kitts/Nevis
-LILHCo
54
(15)
(15)
February 2004 (16) February 2014 (16)
--1 ten-year (16)
St. Maarten
-LILHCo
44
September 2007
September 2017
1 ten-year (17)
April 2008
December 2013
---
December 1993
September 2011
---
4,070
February 1996
(19)
(19)
29,000
February 2009
January 2019
---
December 2001
December 2011
2 five-year
Taiwan
- Taiwan Sport
Lottery Corp. (18)
Trinidad &
Tobago
-National
Lotteries Control
Board
Turkey
-Turkish
National Lottery
(19)
United Kingdom
- The National
Lottery (20)
U.S. Virgin
Islands
-LILHCo
1,080
800
84
______________________________________________________________________________
* Reflects the date upon which the contract became effective.
**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.
61
2010 Annual Report
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
In January 2010, GTECH and the Arizona Lottery entered into a separate contract for the provision of an
instant ticket management and distribution system and related services. The agreement will be for a 5
year term with 5 one-year extension options.
At the end of the final extension option period, the contract will remain in effect under the same terms
and conditions until either party provides at least 2 years notice of termination.
In January 2011, after the close of 2010, Northstar Lottery Group LLC, a consortium in which GTECH
holds an 80 percent controlling interest, signed a 10 year private management agreement with the State
of Illinois. Scientific Games International, Inc., a wholly-owned subsidiary of Scientific Games
Corporation, holds the remaining 20 percent interest in the consortium. Under the agreement, Northstar,
subject to the Illinois Lottery's oversight, will manage the day-to-day operations of the Lottery and its
core functions.
In August 2010 GTECH entered into a contract with the Kentucky Lottery Corporation for the provision
of online lottery products and services. The term of the contract is 7 years from the date of conversion to
the new system, which is expected to occur in June 2011, and allows for 8 one-year extension options.
In November 2010, GTECH entered into a separate contract with the Oregon State Lottery Commission
for the provision of a hosted player loyalty program, marketing and gaming management system
services. The contract is effective through December 2012 and may be extended by the parties' written
agreement.
In December 2010, GTECH signed a new lottery operator contract with the Texas Lottery for the
provision of lottery products and solutions. The contract will commence operations in September 2011
and continue through August 2020, with 3 additional two-year extension periods that may be exercised
by the Lottery.
Pursuant to a July 2009 amendment to contract between GTECH and the Wisconsin Department of
Revenue, Lottery Division, effective June 2012 the term of the contract will be extended to June 2013.
Under this contractual arrangement, Boldt, as operator for the lottery authorities, purchased the lottery
system and related software license from GTECH at the commencement of the contract.
GTECH‟s contract with the Colombia ETESA lottery authority is not a true facilities management
contract in that title to the equipment vests in ETESA at the end of the term.
In January 2011, after the close of 2010, GTECH entered into a contract with Loterie Nationale in
Luxumbourg to provide a full range of solutions, including a new online/instants lottery system and
terminals, self-service vending machines, a digital multimedia system, new games and player/ongoing
services. The 8 year contract is expected to commence in November 2012 when the new system
becomes operational, and includes the option to extend for an additional 5 years.
The terminals in use in this contract are not GTECH terminals, but are Secure Electronic Technology
plc's (SET) handheld terminals. GTECH‟s contract expires on the date of expiry of SET‟s license, which
is in December 2016 with an option to extend for 10 years.
In July 2010, a consortium of GTECH companies signed an agreement with Totalizator Sportowy Sp.
z o.o. to provide a wide array of lottery technology and services. The 7 year contract will commence in
December 2011 and includes the option for 3 extension years.
In October 2009, GTECH Global Lottery SLU, jointly with its Spanish partner Logista SA, created a
UTE (Temporary Union of Companies) called UTE Logista GTECH, Law 18/1982, No. 1, signed an
agreement with ONCE to create a complementary channel of non-blind ONCE retailers, which was
launched in May 2010.
The St. Kitts license contract is currently operating on an annual basis. A new 3 year contract has been
approved by the government and is expected to be finalized in the first quarter of 2011.
Due to a form of devolution within the political structure of the twin island federation of St. Kitts and
Nevis, there is a separate license term for the island of Nevis which is not synchronous with the term
applicable in St. Kitts.
The extension option for this contract may be exercised on mutual agreement of the parties.
62
2010 Annual Report
(18) Operated by Taiwan Sport Lottery Corporation, a joint venture in which GTECH has a 24.5% interest
and to which GTECH supplies lottery goods and services.
(19) 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.
(20) Operated by Camelot Group plc on a facilities management basis.
63
2010 Annual Report
Table 3
Product Sales Contracts
The table below lists certain of GTECH‟s direct and indirect customers that since January 2009 have
purchased (or have agreed to purchase) from GTECH new online systems, software and/or terminals
and equipment in connection with the expansion or replacement of existing lottery systems. It does not
include jurisdictions in which GTECH has a facilities management contract with the lottery authorities
unless the product sale is set forth in a separate contract.
Jurisdiction
Argentina
Australia
Belarus
Belgium
Canada
Czech Republic
Denmark
Finland
France
Georgia
Germany
Indiana
Israel
Lithuania
Luxembourg
Madagascar
Malaysia
Maryland
Massachusetts
Mauritius
New Zealand
Pennsylvania
Poland
Portugal
Russia
Singapore
Spain
Switzerland
Ukraine
United Kingdom
Virginia
Customer
Boldt – Instituto Provincial de Loterias y Casinos de la Provincia de
Buenos Aires
New South Wales Lotteries Corporation
Lotteries Commission of South Australia
Sport-Pari
Loterie Nationale de Belgique
Atlantic Lottery Corporation
British Columbia Lottery Corporation
Western Canada Lottery Corporation
SAZKA, a.s.
Danske Spil A/S
Veikkaus Oy
La Française des Jeux
Scientific Games Inc.
Sachsisch Lotto - GmbH
Westdeutsche Lotterie GmbH & Co.
Lotterietreuhandgesellschaft mbH Thüringen
Hoosier Lottery
Mifal Hapayis
UAB Olifėja
Loterie Nationale
Lotwin Investments LTD, Reel Mada SA, Lottotech Management LTD,
Damalot Technical Services LTD and Gamlot Technologies LTD
Pan Malaysian Pools
Maryland State Lottery Commission
Massachusetts State Lottery Commission
Lottotech Ltd.
New Zealand Lotteries Commission
Scientific Games OES Online Entertainment Systems, Inc.
Totalizator Sportowy Sp. z o.o.
Santa Casa de Misericordia de Lisboa
Russkoe Lotte
Singapore Pools (Pte) Ltd.
Organizacion Nacional de Ciegos Espanoles (ONCE)
UTE Logista GTECH, Law 18/1982, No. 1
Ibermatica S.A.
Loterie de la Suisse Romande
Ukraine National Lottery
Camelot Group plc.
Virginia Lottery
64
2010 Annual Report
Table 4
ITVM Contracts
The table below sets forth the lottery authorities with which GTECH has 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 December 31, 2010.
Jurisdiction
FMC
or
PSC
Approximate
Number of
ITVMs
In Service
Date of
Commencement
of Current
FMC Contract*
Date of
Expiration of
Current FMC
Contract Term
Current
Extension
Options**
Arizona
(1)
850
--
--
--
FMC (2)
--
(2)
(2)
(2)
20
--
--
--
Belgium
PSC
California
(1)
4,200
--
--
--
Connecticut
Florida
France
Georgia
Iceland
Illinois
Indiana
Italy
Kentucky
Luxembourg
Maine
Maryland
Massachusetts
Michigan
Minnesota
Missouri
New Jersey
New York
North Carolina
Oregon
Pennsylvania
Rhode Island
Singapore Pools
(3)
(1)
PSC
(1)
PSC
FMC
PSC
PSC
FMC
FMC
(5)
PSC
PSC
(1)
(1)
FMC
(1)
(7)
FMC
PSC
PSC
(1)
PSC
200
1,500
575
850
25
3,470
1,570
500
1,500
130
150
850
1,600
1,550
110
1,120
1,000
4,500
1,230
500
4,150
150
10
July 2010
----July 2004
--December 2007
September 2005
September 2004
----March 2007
-(7)
January 2006
-----
September 2013
----June 2011
--June 2011 (4)
October 2012
June 2011
----June 2012
-(7)
March 2017
-----
3 one-year
--------------(6)
--------
65
2010 Annual Report
Jurisdiction
FMC
or
PSC
Approximate
Number of
ITVMs
In Service
Date of
Commencement
of Current
FMC Contract*
South Dakota
(1)
50
-Switzerland
PSC
75
-Tennessee
(1)
600
-Texas
(1)
1,320
-Virginia
(8)
2,170
June 2004
Washington
(1)
960 (9)
-Wisconsin
(1)
500
-__________
* Reflects the date upon which the contract became effective.
Date of
Expiration of
Current FMC
Contract Term
Current
Extension
Options**
----June 2014
---
--------
**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)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Represents ITVMs installed under an on-line lottery Facilities Management Contract. See Facilities
Management Contracts table above for additional information.
See Footnote 2 of Table 2. By amendment to the instant ticket management and distribution contract
dated September 2009, the Arizona Lottery elected to exercise certain options, including the provision
by GTECH of ITVMs.
GTECH's contract with the Connecticut Lottery Corporation is not a traditional facilities management
contract, but rather is a lease agreement for a monthly fee in which GTECH provides related services.
The contract contains a different term for the lease of the equipment than for the contract term itself,
running from the date of acceptance of the equipment with 2 one-year extensions at the option of the
Kentucky Lottery Corporation. The equipment lease will expire in March 2011, at which time title to
the leased equipment will pass to the Lottery.
GTECH‟s contract with the Maine Department of Administrative & Financial Services, Bureau of
Alcoholic Beverages & Lottery Operations, is not a traditional facilities management contract, but rather
is a lease agreement for a monthly fee in which GTECH provides related services.
The contract is renewable on a year-to-year basis following the initial term on mutual agreement of the
parties.
GTECH provides maintenance services for ITVMs which are owned by the New York lottery authority.
The term of this agreement expired with regard to certain ITVMs in August 2010 when the new on-line
system was fully implemented, and will expire in June 2011 with regard to any non-interconnected
ITVMs owned by the New York Lottery. The agreement may be extended beyond June 2011 for any
non-interconnected ITVMs for a period of up to 1 year. Any such extensions are subject to the prior
approval of the New York State Attorney General and the State Comptroller.
The Virginia Lottery has contracted with Scientific Games International, Inc. (successor in interest to
Oberthur Gaming Technologies Corporation ), pursuant to which contract GTECH has subcontracted to
provide ITVMs and management of warehousing and distribution of instant tickets. Additionally, 200
ITVMs have been provided by GTECH under the Facilities Management Contract which is described in
Table 2.
66
2010 Annual Report
(9)
In December 2009 GTECH amended its Lottery Gaming System contract with Washington‟s Lottery to
provide for the supply of Gemini™ instant and online self-service lottery vending machines. The
ITVMs that had been installed in accordance with the 2004 Lottery Product Vending Machines contract,
which expired in November 2010, have been removed.
67
2010 Annual Report
Tables 5A – 5D
Gaming Solutions Contracts
The four tables below set forth the jurisdictions in which SPIELO, ATRONIC and GTECH have contracts to
provide customers with gaming products.
Table 5A
SPIELO Jurisdictions
The table below lists jurisdictions in which since January 2009, SPIELO‟s casino customers have purchased
(or have agreed to purchase) from SPIELO software and/or gaming machines.
Jurisdiction
Number of Casinos
Arizona
California
Connecticut
Florida
Indiana
Iowa
Maryland
Michigan
Minnesota
Mississippi
Missouri
New Brunswick
New Mexico
New Mexico Tracks
New York
North Carolina
Nova Scotia
Oregon
Pennsylvania
Prince Edward Island
South Dakota
Wisconsin
Table 5B
4
16
2
4
6
6
2
8
7
2
4
1
5
1
2
1
1
3
4
1
42
2
ATRONIC INTERNATIONAL Jurisdictions
The table below lists jurisdictions in which since January 2009, ATRONIC INTERNATIONAL‟S casino
customers have purchased (or have agreed to purchase) from ATRONIC INTERNATIONAL software and/or
gaming machines.
Jurisdiction
Africa
Asia
Europe
Latin America
North America
Number of Casinos
17
27
274
154
3
68
2010 Annual Report
Table 5C
ATRONIC AMERICAS Jurisdictions
The table below lists jurisdictions in which since January 2009, ATRONIC AMERICAS‟ casino customers
have purchased (or have agreed to purchase) from ATRONIC AMERICAS software and/or gaming machines.
Jurisdiction
Alberta
Arizona
British Columbia
California
Colorado
Connecticut
Delaware
Florida
Iowa
Idaho
Illinois
Indiana
Kansas
Manitoba
Michigan
Minnesota
Missouri
Mississippi
Nebraska
North Carolina
North Dakota
New Jersey
New Mexico
Nova Scotia
Nevada
New York
Oklahoma
Ontario
Oregon
Pennsylvania
Puerto Rico
Quebec
South Dakota
Saskatchewan
Wisconsin
Wyoming
Number of Casinos
1
14
1
45
19
2
16
4
2
10
17
3
1
17
17
22
11
122
2
12
16
3
1
2
2
8
5
8
7
1
2
1
11
15
1
14
69
2010 Annual Report
Table 5D
GTECH Gaming Machine and/or Systems Jurisdictions
The table below lists jurisdictions in which GTECH has agreements to provide gaming machines and/or
systems. The table also provides information regarding the term of each fixed fee and participation contract
and, as of December 31, 2010, the approximate number of gaming machines installed by GTECH in each
gaming machine jurisdiction.
Jurisdiction
Nature of
Contract
Approximate
Number of
Gaming
Machines
Date of
Commencement
of Current
Contract*
Date of
Expiration of
Current
Contract
Current
Extension
Options**
Gaming
Machines
Delaware
Participation
633
May 2002
June 2011
--
New York
Participation
1,319
May 2003
December
2017
--
Rhode Island
Participation
2,897
July 2003
July 2023
--
Central
Systems
Maryland
Fixed Fee
--
January 2010
September
2015 (1)
1 five-year
Oregon
Fixed Fee
--
November 1995
October 2012
1 one-year
upon mutual
agreement
Argentina
Participation
--
March 2010
April 2021
2 two-year
Kansas
Participation
--
December 2009
December
2019
2 two-year
upon mutual
agreement
Louisiana
Product Sale
--
December 2005
December
2015
--
Multi-State
Lottery
Association
Participation
--
November 1995
July 2012 (2)
Pennsylvania
Participation
--
June 2006
June 2011
--
Rhode Island
Participation
--
July 2003
July 2023
--
2 two-year
70
2010 Annual Report
Jurisdiction
Sweden (AB
Svenska Spel)
Nature of
Contract
Product Sale
Approximate
Number of
Gaming
Machines
--
Date of
Commencement
of Current
Contract*
Date of
Expiration of
Current
Contract
May 2007
April 2016
(conditional upon
preliminary
acceptance in
April 2011)
Current
Extension
Options**
One year
automatic if
discussions by
parties
regarding
future of
system are in
progress. Two
year
extensions
upon 6 month
written notice.
Canada:
Alberta
Gaming &
Liquor
Commission
Product Sale
--
--
--
--
Atlantic
Lottery
Corporation
Product Sale
--
--
--
--
Manitoba
Lottery
Corporation
Product Sale
--
--
--
--
Western
Product Sale
----Canada
Lottery
Corporation
________________________________________________________________________________
* Reflects the date upon which the contract became effective.
**Reflects extensions available to the customer under the same terms as the current contract. Customers
occasionally negotiate extensions on different terms and conditions.
(1)
(2)
The operational period of the contract will be 5 years from the date when the first Video Lottery
Terminal facility commences live operations, and the contract expiration date will be adjusted
accordingly if necessary.
In March 2011, after the close of calendar year 2010, the Multi-State Lottery Association, the Video
Lottery Game Group of the Multi-State Lottery Association and GTECH Corporation agreed to
terminate the contract effective on the date which is 4 weeks after the date of the first win of the jackpot
prize following March 16, 2011.
71
2010 Annual Report
LONG TERM INCENTIVE PLANS
Long term incentive plans adopted by Lottomatica in favour of directors and/or employees of Lottomatica
and/or its direct or indirect subsidiaries provide for stock option grants and restricted stock awards to their
directors, executives and key employees. The principal purpose of granting long-term incentives is to assist the
Group in attracting and retaining directors, officers and other key employees, to provide a market competitive
total compensation package and to motivate recipients to increase shareholder value by enabling them to
participate in the value which has been created. Most of the plans are based upon three year performance
measurements, generally based upon Lottomatica‟s EBITDA. The following are summaries of the long term
incentive plans in force as of December 31, 2010.
Stock Option Plans
2006 – 2014 Plan
The Lottomatica Board of Directors‟ Meeting of October 18, 2006 resolved to increase the share capital by a
maximum amount of €1,500,000 by issuing up to 1,500,000 new ordinary shares with a par value of €1 each,
with ordinary rights, excluding the right of option under Article 2441, paragraph 4, second sentence of the
Italian Civil Code to be subscribed by December 31, 2014, serving the exercise of 1,188,600 options assigned
on the same date by the Board of Directors‟ Meeting and within the framework of the stock option plan 20062014 reserved for employees of Lottomatica and/or its subsidiaries. As of December 31, 2010 there are
678,986 options outstanding under the Plan.
2007 – 2015 Plan
The Lottomatica Board of Directors‟ Meeting of May 3, 2007 resolved to increase the share capital against
payments, in one or more tranches and in divisible form, by a maximum amount of €1,973,790 by issuing up
to 1,973,790 new ordinary shares with a par value of €1 each, with ordinary rights, excluding the right of
option under Article 2441, paragraph 4, second sentence of the Italian Civil Code, to be subscribed by
December 31, 2015, serving the exercise of 1,973,790 options assigned on the same date by the Board of
Directors‟ Meeting and not yet due within the framework of the stock option plan 2007-2015 reserved for
employees of Lottomatica and/or its subsidiaries, other than 115,200 options that may be exercised prior to the
vesting period pursuant to the resolution of the Lottomatica Board of Directors of December 11, 2007. As of
December 31, 2010 there are 115,200 options outstanding under the Plan. Please note the Group did not meet
the vesting criteria for this plan, as such all outstanding options with the exception of the 115,200 referenced
above were forfeited.
2008-2016 Plan
The Lottomatica Board of Directors' Meeting of April 22, 2008 resolved to increase the share capital against
payment, in one or more tranches and in divisible form, by a maximum amount of €2,318,045 by issuing up to
2,318,045 new ordinary shares with a par value of €1 each, with ordinary rights, excluding the right of option
under Article 2441, paragraph 4, second sentence of the Italian Civil Code, to be subscribed by December 31,
2016, serving the exercise of 2,318,045 options assigned on the same date by the Board of Directors' Meeting
and not yet due within the framework of the stock option plan 2008-2016 reserved for employees of
Lottomatica and/or its subsidiaries. As of December 31, 2010 there are 2,006,717 options outstanding under
the Plan.
72
2010 Annual Report
2009-2015 Plan
The Lottomatica Board of Directors' Meeting of July 30, 2009 resolved to increase the share capital against
payment, in one or more tranches and in divisible form, by a maximum amount of €1,850,510 by issuing up to
1,850,510 new ordinary shares with a par value of €1 each, with ordinary rights, excluding the right of option
under Article 2441, paragraph 4, second sentence of the Italian Civil Code, to be subscribed by December 31,
2015, serving the exercise of 1,850,510 options assigned on the same date by the Board of Directors' Meeting
and not yet due within the framework of the stock option plan 2009-2015 reserved for employees of
Lottomatica and/or its subsidiaries. As of December 31, 2010 there are 1,770,450 options outstanding under
the Plan.
2010-2016 Plan
The Lottomatica Board of Directors' Meeting of July 29, 2010 resolved to increase the share capital against
payment by up to a maximum of €1,825,026, divisible, through the issuance in one or more tranches of up to a
maximum of 1,825,026 new ordinary shares each of a nominal value €1.00, with ordinary rights, excluding the
right of option under Article 2441, paragraph 4, second sentence of the Italian Civil Code, to be subscribed by
December 31, 2016, serving the exercise of 1,825,026 options assigned on the same date by the Board of
Directors' Meeting reserved for employees of Lottomatica Group and/or its subsidiaries. As of December 31,
2010 there are 1,747,164 options outstanding under the Plan.
Restricted Stock
Share Allocation Plans (article 2349 of the Italian Civil Code)
- 2006-2011 Share Allocation Time Based Plan, Reserved for Employees of Lottomatica and/or its
subsidiaries, approved by the Shareholders‟ Meeting of Lottomatica of October 18, 2006;
- 2007-2010 Share Allocation Plan, Reserved for Employees of Lottomatica and/or its subsidiaries, approved
by the Shareholders‟ Meeting of Lottomatica Group of April 23, 2007 that, at the same time, empowered the
Board of Directors for five years to increase the share capital in one or more tranches by a maximum amount
of €3,200,000 by issuing up to 3,200,000 new ordinary shares, with a par value of €1 each;
- 2008-2011 Share Allocation Plan, Reserved for Employees of Lottomatica and/or its subsidiaries, approved
by the Shareholders' Meeting of Lottomatica of April 15, 2008 that, at the same time, empowered the Board of
Directors to purchase a maximum number of Company treasury shares equal to 10% of the share capital also
available for the implementation of the stock plans;
- 2009-2013 Share Allocation Plan, Reserved for Employees of Lottomatica and/or its subsidiaries;
- 2010-2014 Share Allocation Plan, Reserved for Employees of Lottomatica and/or its subsidiaries, approved
by the Shareholders' Meeting of Lottomatica of April 30, 2010.
73
2010 Annual Report
Originally Approved Grants
The Board of Directors‟ Meeting of Lottomatica of October 18, 2006 resolved to assign up to 733,125 of
ordinary shares within the framework of the time-based plan 2006-2011, of which the Board of Directors
resolved:
- On May 3 and December 11, 2007 an increase in share capital, for an overall maximum nominal amount of
€154,752 by issuing up to 154,752 new ordinary shares, with a par value of €1 each, with ordinary rights;
- On July 31, 2008 and on July 30, 2009, to assign an overall maximum amount of 192,645 Lottomatica
treasury shares;
- On September 9, 2010 to assign an overall maximum amount of 83,528 Lottomatica treasury shares.
The Board of Directors‟ Meeting of Lottomatica of May 3, 2007 resolved to assign up to 285,130 ordinary
shares within the framework of the 2007-2010 Share Allocation Plan, of which the Board of Directors
resolved:
- On December 11, 2007 and on April 22, 2008 an increase in share capital, for an overall maximum
nominal amount of €108,842 by issuing up to 108,842 new ordinary shares, with a par value of €1 each,
with ordinary rights;
- On April 28, 2009 to assign a maximum amount of 67,337 Lottomatica treasury shares;
- On June 8, 2010 to assign an overall maximum amount of 72,890 Lottomatica treasury shares.
The Board of Directors‟ Meeting of Lottomatica of April 22, 2008 resolved to assign up to 286,916 ordinary
shares within the framework of the 2008-2011 Share Allocation Plan, of which the Board of Directors
resolved:
- On April 28, 2009 to assign a maximum amount of 76,765 Lottomatica treasury shares;
- On June 8, 2010 to assign an overall maximum amount of 22,301 Lottomatica treasury shares.
The Board of Directors‟ Meeting of Lottomatica of July 30, 2009 resolved to assign up to 673,729 ordinary
shares within the framework of the 2009-2013 Share Allocation Plan.
The Board of Directors‟ Meeting of Lottomatica of July 29, 2010 resolved to assign up to 755,205 ordinary
shares within the framework of the 2010-2014 Share Allocation Plan.
Current Plan Balances
As of December 31, 2010, the following numbers of shares are outstanding in each plan: 114,472.00 in the
framework of the time-based 2006-2011 Plan, 159,659 ordinary shares in the framework of the 2008-2011
Plan and 644,525 ordinary shares in the framework of 2009-2013 Plan, 722,580 ordinary shares in the
framework of 2010-2014. There were no shares outstanding under the 2007-2010 Plan.
74
2010 Annual Report
PROCESSING OF PERSONAL DATA
Article 34 of Legislative Decree No. 196 of June 30, 2003, requires certain security measures to be taken in the
event of the electronic processing of personal data, according to the procedures set forth in the technical
specifications under Annex B to the law. Among these requirements is the one specified in letter (g) for “an
updated Security Policy Statement” (DPS, Documento Programmatico sulla Sicurezza).
DPS, in compliance with the law, specifies the technical and organizational security measures adopted on the
basis of risk analysis as well as task and responsibility distribution within the data processing structure in order
to protect personal data regarding their correct storage and handling.
Lottomatica Group S.p.A. regularly reviews and updates the DPS which it did most recently on March 31,
2010 in accordance with Legislative Decree No. 196/03.
75
2010 Annual Report
Consolidated
Financial Statements and
Footnotes
76
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(thousands of euros)
ASSETS
Non-current assets
Systems, equipment and other assets related to contracts, net
Property, plant and equipment, net
Goodwill
Intangible assets, net
Investments in associates
Other non-current assets
Non-current financial assets
Deferred income taxes
Total non-current assets
Current assets
Inventories
Trade and other receivables
Other current assets
Current financial assets
Income taxes receivable
Cash and cash equivalents
Total current assets
Non-current assets classified as held for sale
Notes
8
9
10
11
13
14
15
16
17
13
14
18
19
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Issued capital
Share premium
Treasury shares
Retained earnings (deficit)
Other reserves
20
Non-controlling interests
Total equity
Non-current liabilities
Long-term debt, less current portion
Deferred income taxes
Long-term provisions
Other non-current liabilities
Non-current financial liabilities
Total non-current liabilities
21
15
22
23
14
Current liabilities
Accounts payable
Short-term borrowings
Other current liabilities
Current financial liabilities
Current portion of long-term debt
Short-term provisions
Income taxes payable
Total current liabilities
21
23
14
21
22
TOTAL EQUITY AND LIABILITIES
December 31,
2010
2009
887,132
91,496
3,157,279
1,639,198
237
25,611
15,626
9,011
5,825,590
774,558
88,522
3,006,783
822,886
443
22,692
7,309
6,030
4,729,223
165,314
712,239
64,169
6,673
9,527
152,405
1,110,327
27,000
134,080
791,803
61,577
4,613
8,068
469,335
1,469,476
5,890
6,962,917
6,204,589
172,015
1,705,628
(60,113)
(56,287)
153,150
1,914,393
444,492
2,358,885
172,015
1,404,252
(63,502)
66,807
258,162
1,837,734
59,073
1,896,807
2,825,412
133,578
19,334
57,752
113,619
3,149,695
2,621,990
134,127
22,970
55,184
142,317
2,976,588
978,509
7,458
259,130
69,200
118,822
1,808
19,410
1,454,337
905,677
5,079
270,564
59,885
67,186
1,858
20,945
1,331,194
6,962,917
6,204,589
77
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(thousands of euros)
Service revenue
Product sales
Total revenue
Notes
For the year ended December 31
2010
2009
7
2,145,448
168,615
2,314,063
2,015,452
161,405
2,176,857
Raw materials, services and other costs
Personnel
Depreciation
Amortization
Impairment loss, net of recovery
Capitalization of internal construction costs - labor and overhead
Total costs
24
25
26
27
28
1,151,688
450,388
246,921
117,215
48,412
(86,539)
1,928,085
1,052,429
428,305
236,601
94,400
76,025
(77,324)
1,810,436
Operating income
7
385,978
366,421
3,066
(386)
2,819
(64,519)
(41,429)
(172,013)
(272,462)
3,468
(1,833)
4,172
(16,690)
(15,824)
(151,518)
(178,225)
113,516
188,196
68,158
75,842
45,358
112,354
492
44,866
45,358
68,149
44,205
112,354
Interest income
Equity loss
Other income
Other expense
Foreign exchange loss, net
Interest expense
29
30
31
Income before income tax expense
Income tax expense
15
Net income
Attributable to:
Owners of the parent
Non-controlling interests
Earnings per share/ADRs
Basic - net income attributable to owners of the parent
Diluted - net income attributable to owners of the parent
32
32
€
€
-
€
€
0.45
0.45
78
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(thousands of euros)
Notes
Net income
Other comprehensive income
Net gain on interest rate swaps (cash flow hedges)
Income tax expense
For the year ended December 31
2010
2009
45,358
33
112,354
56,469
(20,491)
35,978
20,859
(7,712)
13,147
(570)
(570)
(7,154)
2,720
(4,434)
(1,047)
315
(732)
19
(78)
173,836
215
174,051
(30,013)
7,514
(22,499)
Other comprehensive income (loss) for the year, net of tax
205,044
(10,732)
Total comprehensive income for the year, net of tax
250,402
101,622
205,536
44,866
250,402
57,417
44,205
101,622
Amortization of gain on interest rate swap on discontinued cash flow hedge
Net loss on derivative instruments (cash flow hedges)
Income tax benefit
33
Net gain (loss) on available-for-sale financial assets
Net gain (loss) on translation of foreign operations
Income tax benefit
Attributable to:
Owners of the parent
Non-controlling interests
33
79
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of euros)
Cash flows from operating activities
Income before income tax expense
Adjustments for:
Depreciation
Intangibles amortization
Other amortization
Impairment loss, net of recovery
Interest income
Interest expense
Non-cash foreign exchange loss (gain)
Share-based payment expense (contra-expense)
Non-cash loss on interest rate swaps
Termination of interest rate swaps
Other non-cash items
Cash loss on interest rate swaps
Cash foreign exchange loss, net
Income tax paid
Cash flows before changes in operating assets and liabilities
Changes in operating assets and liabilities:
Inventories
Trade and other receivables
Accounts payable
Accrued expenses
Advance payments from customers
Taxes other than income taxes
Current financial liabilities
Other assets and liabilities
Net cash flows from operating activities
Cash flows from investing activities
Purchases of intangible assets
Purchases of systems, equipment and other assets related to contracts
Medströms Invest AB put right payment
Purchases of property, plant and equipment
Other investments
Acquisitions
Acquisitions - cash acquired
Italian operations contingent consideration
Finsoft Limited contingent consideration
Realized gain (loss) on net investment hedge
Dynamite Design and Marketing Limited contingent consideration
St Enodoc Holdings Limited contingent consideration
Net cash proceeds from sale of property
Cash proceeds related to impairment recovery
Interest received
Toto Carovigno S.p.A. advance and escrow refund
Loans receivable, net of repayments
Other
Net cash flows used in investing activities
Notes
26
27
27
28
31
30
35
29
29
29
30
11
39
9
6
6
39
39
39
39
19
28
For the year ended December 31
2010
2009
113,516
188,196
246,921
117,215
48,412
(3,066)
172,013
8,673
(269)
47,384
2,315
1,058
32,756
(117,599)
669,329
236,601
94,522
(122)
76,025
(3,468)
151,518
(3,146)
916
3,936
16,776
18,970
(145,202)
635,522
(20,734)
91,498
24,302
(26,024)
(1,307)
14,290
25,742
(8,794)
768,302
(3,429)
(24,514)
123,471
2,282
(16,960)
(20,703)
4,469
(4,696)
695,442
(903,017)
(249,934)
(20,415)
(10,434)
(10,186)
(9,063)
54
(8,121)
(5,202)
(4,867)
(1,006)
4,175
4,953
5,699
2,379
(1,204,985)
(102,775)
(253,059)
(15,848)
(3,078)
(40,305)
196
(4,432)
461
(1,989)
(182)
5,427
4,621
(2,964)
(3,257)
(417,184)
1,408,873
388,305
1,642
(246)
(1,058)
(22,695)
(36,439)
(45,638)
(124,815)
(190,582)
(1,245,426)
(868)
131,053
750,000
(49,124)
(9,497)
(3,479)
(43,560)
(100,940)
(153,776)
(653,887)
350,000
(1,535)
84,202
(305,630)
(11,300)
469,335
152,405
362,460
(2,399)
109,274
469,335
Cash flows from financing activities
Proceeds from issuance of long-term debt
Capital increases - non-controlling interests
Net proceeds from (repayment of) short-term borrowings
Share issuance costs
Cash paid on interest rate swaps
Debt issuance costs
Cash paid on derivative instruments
Dividends paid - non-controlling interests
Dividends paid
Interest paid
Principal payments on long-term debt
Proceeds from issuance of ordinary share capital
Other
Net cash flows from financing activities
Net increase (decrease) in cash and cash equivalents
Effect of exchange rate changes on cash
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
20
29
30
36
18
80
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended December 31, 2010
Attributable to owners of the parent
(thousands of euros)
Balance at January 1, 2010
Issued
Capital
Share
Premium
Treasury
Shares
Other
Reserves
(Note 20)
Retained
Earnings
Non-Controlling
Interests
Total
Total
Equity
172,015
1,404,252
(63,502)
66,807
258,162
1,837,734
59,073
1,896,807
Net income for the year
-
-
-
492
-
492
44,866
45,358
Other comprehensive income
-
-
-
-
205,044
205,044
-
205,044
Total comprehensive income
-
-
-
492
205,044
205,536
44,866
250,402
Share issuance cost, net of €1.1 million of tax benefit
-
(2,253)
-
-
-
(2,253)
-
(2,253)
Dividend distribution (€0.74 per share) (Note 36)
-
(3,637)
-
(121,178)
-
(124,815)
-
(124,815)
Appropriation of 2009 income in accordance with Italian law
-
-
-
(3,946)
3,946
-
-
-
Share-based payment (Note 35)
-
-
-
-
(269)
(269)
-
(269)
Shares issued under stock award plans
-
-
3,389
-
(3,389)
-
-
-
Change in fair value of put/call option arising from business
combination
-
-
-
1,987
-
1,987
-
1,987
Purchase of non-controlling interest
-
-
-
-
(3,078)
(3,078)
-
(3,078)
Capital increases (Note 20)
-
-
-
-
-
-
388,305
388,305
Dividend distribution
-
-
-
-
-
-
(45,638)
(45,638)
Scratch and Win investor costs, net of €1.0 million of tax
-
-
-
-
-
-
(2,114)
(2,114)
Expiration of share buy-back program
-
307,266
-
-
(307,266)
-
-
-
Other movements in equity
-
-
-
(449)
-
(449)
-
(449)
172,015
1,705,628
(60,113)
(56,287)
153,150
Balance at December 31, 2010
1,914,393
444,492
2,358,885
81
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended December 31, 2009
Attributable to owners of the parent
(thousands of euros)
Balance at January 1, 2009
Issued
Capital
Share
Premium
Treasury
Shares
Other
Reserves
(Note 20)
Retained
Earnings
Non-Controlling
Interests
Total
Total
Equity
152,287
1,139,071
(73,184)
95,647
277,583
1,591,404
58,428
1,649,832
Net income for the year
-
-
-
68,149
-
68,149
44,205
112,354
Other comprehensive loss
-
-
-
-
(10,732)
(10,732)
-
(10,732)
Total comprehensive income
-
-
-
68,149
(10,732)
57,417
44,205
101,622
Ordinary share capital issued
19,728
330,272
-
-
-
350,000
-
350,000
Share issuance costs, net of €3.4 million of tax benefit
-
(7,073)
-
-
-
(7,073)
-
(7,073)
Swap liability associated with share issuance, net of €27.7 million of
tax benefit
-
(58,018)
-
-
-
(58,018)
-
(58,018)
Dividend distribution (€0.68 per share) (Note 36)
-
-
-
(100,940)
-
(100,940)
-
(100,940)
Appropriation of 2008 income in accordance with Italian law
-
-
-
(77)
77
-
-
-
Share-based payment (Note 35)
-
-
-
-
916
916
-
916
Shares issued under stock award plans
-
-
9,682
-
(9,682)
-
-
-
Change in fair value of put/call option arising from business
combination
-
-
-
4,169
-
4,169
-
4,169
Dividend distribution
-
-
-
-
-
-
(43,560)
(43,560)
Other movements in equity
-
-
-
(141)
-
(141)
-
(141)
172,015
1,404,252
(63,502)
66,807
258,162
59,073
1,896,807
Balance at December 31, 2009
1,837,734
82
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate information
Lottomatica Group S.p.A. is one of the leading gaming operators in the world based on total wagers and, through its
subsidiaries, including GTECH Corporation, is a leading provider of lottery and gaming technology solutions and
services worldwide. The principal activities of the Group are described in Note 7.
In these notes, the term “Lottomatica” refers to Lottomatica Group S.p.A., the parent entity, and its subsidiaries
excluding GTECH; the term “GTECH” refers to GTECH Corporation and its subsidiaries; and the terms “Group,
“we,” “our,” and “us” refer to Lottomatica and all subsidiaries included in the consolidated financial statements.
Lottomatica is a joint stock company incorporated and domiciled in the Republic of Italy, and its registered office is
located at Viale del Campo Boario, Rome, Italy. Lottomatica is majority owned by the De Agostini Group, a centuryold publishing, media, and financial services company and is listed on the Mercato Telematico Azionario, the Italian
screen-based trading system managed by Borsa Italiana S.p.A. (the "Italian Stock Exchange") under the trading
symbol “LTO”. Lottomatica has a Sponsored Level 1 American Depository Receipt (ADR) program listed on the
United States over the counter market under the trading symbol “LTTOY”.
The consolidated financial statements for the year ended December 31, 2010 were approved for issuance in
accordance with a resolution of the Board of Directors on March 10, 2011.
2. Adoption of new and revised International Financial Reporting Standards
The Group‟s accounting policies are consistent with those of the previous financial year except the Group adopted
new, amended and revised International Financial Reporting Standards (IFRS), International Accounting Standards
Board (IASB), and International Financial Reporting Interpretations Committee (IFRIC) Standards and
Interpretations as of January 1, 2010 as described below. Adoption of these Standards and Interpretations did not
have a material effect on the financial position or performance of the Group.
IFRS 2 Share-Based Payment: Group Cash-Settled Share-Based Payment Transactions (Amended)
The amendment to IFRS 2 clarifies the scope and the accounting for group cash-settled share-based payment
transactions.
IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements (Amended)
The Revised IFRS 3 introduces significant changes in the accounting for business combinations occurring after July
1, 2009. The changes affect the valuation of non-controlling interests, the accounting for transaction costs, the initial
recognition and subsequent measurement of contingent consideration and business combinations achieved in stages.
These changes will impact the amount of goodwill recognized, the reported results in the period that an acquisition
occurs and future reported results.
The amendment to IAS 27 requires that a change in the ownership interest of a subsidiary (without loss of control) is
accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer
give rise to goodwill, nor will they give rise to a gain or loss. Furthermore, the amended standard changes the
accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by this
revised and amended standard affect acquisitions or loss of control of subsidiaries and transactions with noncontrolling interests after January 1, 2010.
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2. Adoption of new and revised International Financial Reporting Standards (continued)
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
The amendment to IFRS 5 (resulting from Improvements to IFRSs issued in May 2008) clarifies that when a
subsidiary is classified as held for sale, all its assets and liabilities are classified as held for sale, even when the entity
remains a non-controlling interest after the sale transaction.
IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items
The amendment to IAS 39 clarifies that an entity is permitted to designate a portion of the fair value changes or cash
flow variability of a financial instrument as a hedged item, including the designation of inflation as a hedged risk in
particular situations.
IFRIC 17 Distributions of Non-Cash Assets to Owners
IFRIC 17 provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to
shareholders either as a distribution of reserves or as dividends.
Improvements to IFRSs issued in April 2009
In April 2009, the IASB issued an omnibus of amendments to twelve of its standards, primarily with a view of
removing inconsistencies and clarifying wording. The amended standards are described below.

IFRS 2 Share-Based Payment – This amendment confirms that contributions of a business on the formation of a
joint venture and common control transactions are excluded from the scope of IFRS 2.

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations – This amendment clarifies that the
disclosures required in respect of non-current assets and disposal groups classified as held for sale or
discontinued operations are only those set out in IFRS 5. The disclosure requirements of other IFRSs only apply
if specifically required for such non-current assets or discontinued operations.

IFRS 8 Operating Segments - This amendment clarifies that segment assets and liabilities need only be reported
when those assets and liabilities are included in measures that are used by the chief operating decision maker.

IAS 1 Presentation of Financial Statements – This amendment clarifies that the potential settlement of a
liability by the issue of equity is not relevant to its classification as current or non-current.

IAS 7 Statement of Cash Flows – This amendment explicitly states that only expenditures that result in
recognizing an asset in the statement of financial position can be classified as a cash flow from investing
activities.

IAS 17 Leases – This amendment clarifies that when a lease includes both land and building elements, an entity
assesses the classification of each element as a finance or operating lease separately.

IAS 18 Revenue – This amendment provides additional guidance on how to determine whether an entity is
acting as a principal or as an agent. The features to consider are whether the entity:
Has primary responsibility for providing the goods or service
Has inventory risk
Has discretion in establishing prices
Bears the credit risk
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2. Adoption of new and revised International Financial Reporting Standards (continued)

IAS 36 Impairment of Assets – This amendment clarifies that the largest unit permitted for allocating goodwill
acquired in a business combination is the operating segment as defined in IFRS 8 before aggregation for
reporting purposes.

IAS 38 Intangible Assets – Two amendments to IAS 38 clarify the accounting for intangible assets acquired in a
business combination and the description of valuation techniques commonly used when measuring the fair value
of intangible assets acquired in a business combination that are not traded in active markets.

IAS 39 Financial Instruments: Recognition and Measurement – This amendment clarifies the type of forward
contracts the guidance applies to and provides additional guidance regarding embedded prepayment penalties
and hedging transactions.

IFRIC 9 Reassessment of Embedded Derivatives – This amendment clarifies that the scope of IFRIC 9 excludes
contracts with embedded derivatives acquired in a combination between entities under common control or in the
formation of a joint venture.

IFRIC 16 Hedges of a Net Investment in a Foreign Operation - This amendment removes the restriction on the
entity that can hold hedging instruments.
3. Significant accounting policies
3.1 Statement of compliance
The consolidated financial statements of the Group have been prepared in accordance with International Financial
Reporting Standards as adopted by the European Union.
3.2 Basis of preparation
The consolidated financial statements have been prepared on a historical cost basis, except for those items measured
at fair value as disclosed in the accounting policies below. The consolidated financial statements are presented in
euros and all values are rounded to the nearest thousand (€000) (except share and per share data) unless otherwise
indicated.
Format of the consolidated financial statements
The Group presents current and non-current assets, and current and non-current liabilities as separate classifications
in its consolidated statements of financial position.
The consolidated income statements are presented using a classification based on the nature of expenses, rather than
based on their function of expense, as management believes this presentation provides information that is more
relevant.
The consolidated statements of changes in equity include only details of transactions with owners, with non-owner
changes in equity presented separately. Comprehensive income is presented in two statements; a separate
consolidated income statement and consolidated statement of comprehensive income.
The consolidated statements of cash flows are presented using the indirect method.
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The Group‟s principal accounting policies are described below.
3.3 Basis of consolidation
Basis of consolidation from January 1, 2010
The consolidated financial statements include the financial statements of Lottomatica and its subsidiaries as of
December 31 each year.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control,
and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries
are prepared for the same reporting period as the parent company, using consistent accounting policies. All intragroup balances, transactions, income and expenses, unrealized gains and losses and dividends resulting from intragroup transactions are eliminated. Losses within a subsidiary are attributed to the non-controlling interest even if that
results in a deficit balance.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it:
Derecognizes the assets (including goodwill) and liabilities of the subsidiary
Derecognizes the carrying amount of any non-controlling interest
Derecognizes the cumulative translation differences recorded in equity
Recognizes the fair value of the consideration received
Recognizes the fair value of any investment retained
Recognizes any surplus or deficit in profit or loss
Reclassifies the parent‟s share of components previously recognized in other comprehensive income to profit or
loss or retained earnings, as appropriate
Basis of consolidation prior to January 1, 2010
Certain of the above-mentioned requirements were applied on a prospective bases. The following differences,
however, are carried forward in certain instances from the previous basis of consolidation:
Non-controlling interests represented the portion of profit or loss and net assets that were not held by the Group
and were presented separately in the consolidated income statement and within equity in the consolidated
statement of financial position, separately from parent shareholders‟ equity. Acquisitions of non-controlling
interests were accounted for using the entity method, whereby the difference between the consideration and the
book value of the share of net assets acquired were recognized in equity.
Losses incurred by the Group were attributed to the non-controlling interest until the balance was reduced to
zero. Any further excess losses were attributable to the parent, unless the non-controlling interest had a binding
obligation to cover these. Losses prior to January 1, 2010 were not reallocated between non-controlling interest
and the parent shareholders.
Upon loss of control, the Group accounted for the investment retained at its proportionate share of net asset value
at the date control was lost.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.4 Business combinations and goodwill
Business combinations from January 1, 2010
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the
aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any noncontrolling interest in the acquiree. For each business combination, the acquirer measures the noncontrolling interest
in the acquiree either at fair value or at the proportionate share of the acquiree‟s identifiable net assets. Acquisition
costs incurred are expensed and included in other expense in our consolidated income statement.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic circumstances and pertinent
conditions at the acquisition date. This includes the separation of embedded derivatives in host contracts by the
acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer‟s previously held
equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date.
Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will
be recognized in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. If the
contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity.
Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the
amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this
consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in
profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of
impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the
Group‟s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets
or liabilities of the acquiree are assigned to those units.
Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the
goodwill associated with the operation disposed of is included in the carrying amount of the operation when
determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured
based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.
Business combinations prior to January 1, 2010
In comparison to the above-mentioned requirements, the following differences applied:
Business combinations were accounted for using the purchase method. Transaction costs directly attributable to the
acquisition formed part of the acquisition costs. The non-controlling interest (formerly known as minority interest)
was measured at the proportionate share of the acquiree‟s identifiable net assets.
Business combinations achieved in stages were accounted for as separate steps. Any additional acquired share of
interest did not affect previously recognized goodwill.
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3.4 Business combinations and goodwill (continued)
Contingent consideration was recognized if, an only if, the Group had a present obligation, the economic outflow was
more likely than not and a reliable estimate was determinable. Subsequent adjustments to the contingent
consideration were recognized as part of goodwill.
For business combinations where the Group had a put option with respect to the non-controlling interest shares, the
Group determined whether it had a present ownership interest in those shares. If the Group determined that it had a
present ownership interest in the shares, the acquisition was accounted for as an acquisition of those underlying
shares and non-controlling interest was not recognized. The cost of the acquisition included the estimated fair value
of the liability to the non-controlling interest shareholders. Following the initial accounting, all changes in the
carrying amount of the liability were adjusted against goodwill, except for the unwinding of the discount due to the
passage of time which was recognized in the income statement.
If the Group determined it did not have a present ownership interest in the non-controlling interest shares, the noncontrolling interest was attributed its share of profits and losses of the acquiree after the business combination. At
each reporting date, the amount of the non-controlling interest was presented in the statement of financial position as
a financial liability. Any difference between the present value of the amount payable to the minority shareholders and
the non-controlling interest was reclassified to equity.
3.5 Investments in associates
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest
in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of
the investee but is not control or joint control over those policies. The Group‟s investments in associates are
accounted for using the equity method of accounting, except when the investment is classified as held for sale, in
which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations.
Under the equity method, the investment in the associate is carried in the statement of financial position at cost plus
post acquisition changes in the Group‟s share of net assets of the associate. Goodwill relating to the associate is
included in the carrying amount of the investment and is neither amortized nor separately tested for impairment. The
income statement reflects the Group‟s share of the results of operations of the associate. Where there has been a
change recognized directly in the equity of the associate, the Group recognizes its share of any changes and discloses
this, when applicable, in the statement of changes in equity. Unrealized gains and losses resulting from transactions
between the Group and the associate are eliminated to the extent of the interest in the associate.
The share of profit or loss of associates is included in equity income (loss) on the face of the income statement. This
is the profit or loss attributable to equity holders of the associate and therefore is profit or loss after tax and noncontrolling interests in the subsidiaries of the associates.
The financial statements of the associate are prepared for the same reporting year as the parent company. Where
necessary, adjustments are made to bring the accounting policies in line with those of the Group.
After application of the equity method, the Group determines whether it is necessary to recognize an additional
impairment loss on the Group‟s investment in its associates. The Group determines at each reporting date whether
there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates
the amount of impairment as the difference between the recoverable amount of the associate and its carrying value
and recognizes the amount in the income statement.
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3.5 Investments in associates (continued)
Upon loss of significant influence over an associate, the Group measures and recognizes any remaining investment at
its fair value. Any difference between the carrying amount of an associate upon loss of significant influence and the
fair value of the remaining investment and proceeds from disposal is recognized in the income statement.
3.6 Interests in joint ventures
A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that
is subject to joint control. Joint control is when the strategic financial and operating policy decisions relating to the
activities of the joint venture requires the unanimous consent of the parties sharing control.
Joint venture arrangements that involve the establishment of a separate entity in which each venturer has an interest
are referred to as jointly controlled entities. The Group reports its interests in jointly controlled entities using the
proportionate consolidation method, except when the investment is classified as held for sale, in which case it is
accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. The Group
combines its proportionate share of each of the assets, liabilities, income and expenses of the joint venture with
similar items, line by line, in its consolidated financial statements. The financial statements of the joint venture are
prepared for the same reporting period as the parent company. Adjustments are made where necessary to bring the
accounting policies in line with those of the Group.
Adjustments are made in the Group‟s consolidated financial statements to eliminate the Group‟s share of intragroup
balances, income and expenses and unrealized gains and losses on transactions between the Group and jointly
controlled entities. Losses on transactions are recognized immediately if the loss provides evidence of a reduction in
the net realizable value of current assets or an impairment loss. The joint venture is proportionately consolidated until
the date on which the Group ceases to have joint control over the joint venture.
Upon loss of joint control and provided the former jointly controlled entity does not become a subsidiary or associate,
the Group measures and recognizes its remaining investment at its fair value. Any difference between the carrying
amount of the former jointly controlled entity upon loss of joint control and the fair value of the remaining
investment and proceeds from disposal is recognized in the income statement. When the remaining investment
constitutes significant influence, it is accounted for as investment in an associate.
3.7 Non-current assets held for sale
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered
principally through a sale transaction rather than through continuing use. This condition is regarded as met only when
the sale is highly probable and the non-current asset or disposal group is available for immediate sale in its present
condition. Management must be committed to the sale, which should be expected to qualify for recognition as a
completed sale within one year from the date of classification. Non-current assets and disposal groups classified as
held for sale are measured at the lower of carrying amount and fair value less costs to sell. Property, plant and
equipment and intangible assets once classified as held for sale are not depreciated or amortized.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.8 Revenue recognition
Revenue is recognized to the extent that it is probable the economic benefits associated with the transaction will flow
to the Group and the amount of revenue can be reliably measured. Revenue is measured at the fair value of the
consideration received, excluding discounts. Specific recognition criteria must also be met before revenue is
recognized as discussed below.
Lottery, gaming, sports betting, interactive, and non-lottery commercial transaction processing services
We generally conduct our business under three types of contractual arrangements: Operating Contracts, Facilities
Management Contracts and Product Sales Contracts.
Operating contracts
Certain of our revenue, primarily revenue from Italian Operations, are derived from operating contracts. Under
operating contracts, we manage all the activities along the lottery value chain including collecting wagers, paying out
prizes, managing all accounting and other back-office functions, running advertising and promotions, operating data
transmission networks and processing centers, training staff, providing retailers with assistance and supplying
materials for the game. We also provide sports pools and sports betting services. Under sports pools arrangements,
we manage the sports pool whereby the sports pool prizes are divided among those players who select the correct
outcome. There are no odds involved in sports pools and each winner‟s payoff depends on the number of players and
the size of the pool. We also set odds and assume risks under fixed odds sports betting contracts.
Fees earned under operating contracts are recognized as revenue in the period earned and are classified as service
revenue in our consolidated income statement 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
Under sports pools arrangements, we collect the wagers, pay prizes, pay a percentage fee to retailers, withhold our
fee, and remit the balance to the respective regulatory agency. We assume no risk associated with sports pool
wagering. We record revenue net of prize payouts, taxes, retailer commissions and remittances to state authorities,
because we are acting as an agent to the authorities.
In sports betting contracts, we establish and assume the risks related to the odds. Under fixed odds betting, the
potential payout is fixed at the time bets are placed and we bear the risk of odds setting. We are responsible for
collecting the wagers, paying prizes, and paying fees to retailers. We retain the remaining cash as profits. Under these
arrangements, we record revenue net, calculated as total wagers less the estimated payout for prizes, because the
betting contract is considered a derivative and is required to be recorded at fair value. Taxes and retailer commissions
are shown as expenses.
Facilities management contracts
Under facilities management contracts, we construct, install, operate and retain ownership of the online system.
These contracts generally provide for a variable amount of monthly or weekly service fees paid to us directly from
our customer based on a percentage of sales or net machine income.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.8 Revenue recognition (continued)
Fees earned under facilities management contracts are recognized as revenue in the period earned, throughout the
service period, and are classified as service revenue in our consolidated income statement 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 multiple element product sales contracts, we generally construct, sell, deliver and install a turnkey system or
deliver equipment, and license the computer software for a fixed price, and our customer subsequently operates the
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 functionality of the software inherent in our systems, revenue is
recognized using contract accounting upon customer acceptance as long as the cost to deliver remaining obligations
or elements to the customer can be reasonably estimated. Upon revenue recognition, sufficient revenue is deferred
associated with estimated costs to deliver any remaining elements to the customer. Multiple elements are generally
recorded as a single unit of accounting at an overall blended margin. Customer acceptance milestones typically
coincide with phases of delivery resulting in a percentage of completion recognition of product sales revenues.
Amounts due to us and costs incurred by us in constructing the system prior to customer acceptance are deferred. We
recognize losses, if any, on contracts when the amount of the loss is probable and determinable. Revenue attributable
to the system is classified as product sales in our consolidated income statement and is recognized upon customer
acceptance as long as there are no substantial doubts regarding collectibility.
In transactions subject to contract accounting, revenues attributable to any ongoing services (such as post contract
support) provided subsequent to customer acceptance are classified as service revenue in our consolidated income
statement 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) where we are not responsible for installation,
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 customer acceptance of the product is required, revenue is deferred until any acceptance criteria
have been met.
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3.8 Revenue recognition (continued)
For those product sale contracts not recognized under contract accounting, in instances where post contract support
(PCS) is included, up front revenue is deferred over the contracted PCS period if defined, or over the average
expected customer relationship period if the PCS period is not defined or not substantial, unless a fair value of PCS
revenue is determinable. In the cases where a fair value of PCS revenue is determinable, that amount is deferred and
recognized over the remaining contracted PCS period.
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.
In those cases where we provide extended payment terms to our customer, we consider the standard business
environment of the customer and industry to determine if extended payment terms are a common practice. While
extended payment terms are not our typical profile, terms that extend substantially beyond the date the product is
delivered, may result in the necessity to defer revenue (no more than 12 months payment extension would be
acceptable). In such cases, it is presumed that the fee is not fixed or determinable. In other cases where it is an
industry practice to provide extended payment terms, we consider the impact of the extended payment terms on the
ability to reliably measure revenue and costs due to the time value of money, credit risk associated with the extended
payment terms, the potential for fee reductions, and the risk of future concessions. Depending on these
considerations, revenue recognition for transactions with extended payment terms may be permitted whereby the
revenue is recorded at a discount to take into consideration the time value of money. We are not currently recording
any revenue upfront for transactions with extended payment terms.
Non-lottery commercial 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 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 monetary volume processed). We recognize these fees as service revenue at the time
a transaction is processed based on the net amount retained.
Deferred revenue and liquidated damage assessments
Amounts received from customers in advance of revenue recognition are recorded in other current liabilities in our
consolidated statements of financial position. We generally 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.
Interest income
Revenue is recognized as interest accrues using the effective interest method.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.9 Foreign currency translation
The Group‟s consolidated financial statements are presented in euros, which is the Group‟s functional and
presentation currency. Each entity in the Group determines its own functional currency and items included in the
financial statements of each entity are measured using that functional currency.
Transactions and balances
Transactions in currencies other than the entity‟s functional currency (foreign currencies) are initially recorded by the
Group entities at their respective functional currency rates prevailing at the date of the transaction. At the end of each
reporting period, foreign currency monetary items are retranslated at the functional currency spot exchange rate in
effect at the reporting date. The resulting foreign currency exchange differences are recorded in our consolidated
income statement with the exception of differences that arise on monetary items that provide an effective hedge for a
net investment in a foreign operation (such as intragroup loans where settlement is neither planned nor likely to occur
in the foreseeable future). These are recognized in other comprehensive income until the disposal of the net
investment, at which time they are recognized in the income statement. Tax charges and credits attributable to
exchange differences on those monetary items are also recorded in equity.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the
exchange rates as of the date of the initial transaction. Non-monetary items measured at fair value in a foreign
currency are translated using the exchange rates at the date when the fair value is determined.
Foreign operations
The assets and liabilities of foreign operations are translated into euros at the rate of exchange prevailing at the
reporting date and their income statements are translated at average exchange rates for the period. The exchange
differences arising on the translation are recognized in other comprehensive income. On disposal of a foreign
operation, the component of other comprehensive income relating to that particular foreign operation is recognized in
the income statement.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts
of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and
translated at the closing rate.
3.10 Systems, equipment and other assets related to contracts, net
Systems, equipment and other assets related to contracts are stated on the basis of cost, net of accumulated
depreciation and/or accumulated impairment loss, if any. The cost is depreciated over the estimated useful life of the
assets using the straight-line method depending on the type of cost. Cost is comprised of two categories:
hard costs (for example: terminals, mainframe computers and communications equipment) and;
soft costs (for example: software development).
Hard costs are generally depreciated over the base term of the contract plus extension years provided for in the
contract but not to exceed 10 years. Soft costs are depreciated using the straight line method over the base term of the
contract, but not to exceed 10 years. Repair and maintenance costs are recognized in the income statement as
incurred.
The carrying values of systems, equipment and other assets related to contracts are reviewed for impairment when
events or changes in circumstances indicate that the carrying value may not be recoverable.
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3.10 Systems, equipment and other assets related to contracts, net (continued)
Systems, equipment and other assets related to contracts are derecognized upon disposal or when no future economic
benefits are expected from the assets‟ use or disposal. Any gain or loss arising on derecognition of the asset
(calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in
the income statement in the year the asset is derecognized. The assets‟ residual values, useful lives and methods of
depreciation are reviewed at each financial year end and adjusted prospectively if appropriate.
3.11 Property, plant and equipment, net
Property, plant and equipment is stated on the basis of cost. The cost, excluding land, is depreciated over the
estimated useful life of the assets using the straight-line method. The estimated useful lives are generally 40 years for
buildings and five to 10 years for furniture and equipment. Repair and maintenance costs are recognized in the
income statement as incurred.
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in
circumstances indicate that the carrying value may not be recoverable.
Property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from
the assets‟ use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between
the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the
asset is derecognized. The assets‟ residual values, useful lives and methods of depreciation are reviewed at each
financial year end and adjusted prospectively if appropriate.
3.12 Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired
in a business combination is its fair value at the date of acquisition. Following initial recognition, intangible assets are
carried at cost less any accumulated amortization and accumulated impairment loss, if any. Internally generated
intangible assets, excluding capitalized development costs, are not capitalized and any expenditure is reflected in the
income statement in the year in which the expenditure is incurred.
The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are
amortized over their useful economic life and assessed for impairment whenever there is an indication that the
intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a
finite useful life is reviewed at least annually, during the fourth quarter ending on December 31. Changes in the
expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is
accounted for by changing the amortization period or method, as appropriate, and are treated as changes in
accounting estimates. Amortization expense on intangible assets with finite lives is recorded in our consolidated
income statement.
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, as of
December 31, either individually or at the cash generating unit level, as appropriate, and when circumstances indicate
that the carrying value may be impaired. The assessment of indefinite life is reviewed annually to determine whether
the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from
indefinite to finite is made on a prospective basis.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net
disposal proceeds and the carrying amount of the asset and are recognized in the income statement when the asset is
derecognized.
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3.13 Income taxes
Current income tax
Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered
from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are
enacted or substantively enacted, by the reporting date, in the countries where the Group operates and generates
taxable income.
Current income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated
income statement. Management periodically evaluates positions taken in the income tax returns with respect to
situations in which applicable tax regulations are subject to interpretation and establishes provisions where
appropriate.
Deferred income tax
Deferred income tax is provided using the liability method on temporary differences at the reporting date between the
tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax
credits and unused tax losses, to the extent that it is probable that taxable income will be available against which the
deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized
except:
Where the deferred income tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting income nor taxable income or loss; and
In respect of deductible temporary differences associated with investments in subsidiaries, associates and
interests in joint ventures, deferred income tax assets are recognized only to the extent that it is probable that the
temporary differences will reverse in the foreseeable future and taxable income will be available against which
the temporary differences can be utilized.
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it
is no longer probable that sufficient taxable income will be available to allow all or part of the deferred income tax
asset to be utilized. Unrecognized deferred income tax assets are reassessed at each reporting date and are recognized
to the extent that it has become probable that future taxable income will allow the deferred income tax asset to be
recovered.
Deferred income tax liabilities are recognized for all taxable temporary differences, except:
Where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in
a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting
income nor taxable income or loss; and
In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in
joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable
that the temporary differences will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the
asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively
enacted at the reporting date.
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3.13 Income taxes (continued)
Deferred income tax relating to items recognized outside income or loss is recognized in correlation to the underlying
transaction either in other comprehensive income or directly in equity.
Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off
current income tax assets against current income tax liabilities and the deferred income taxes relate to the same
taxable entity and the same taxation authority.
Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that
date, would be recognized subsequently if new information about facts and circumstances changed. The adjustment
would either be treated as a reduction to goodwill (as long as it does not exceed goodwill) if it was incurred during
the measurement period or in the income statement.
3.14 Financial instruments – initial recognition and subsequent measurement
a) Financial assets
Initial recognition and measurement
Financial assets within the scope of IAS 39 Financial Instruments: Recognition and Measurement are classified as
financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-forsale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The
Group determines the classification of its financial assets at initial recognition.
Financial assets are recognized initially at fair value, plus, in the case of investments not at fair value through profit
or loss, directly attributable transaction costs.
The Group‟s financial assets include cash and cash equivalents, trade and other receivables, loans and other
receivables, available-for-sale financial investments, and derivative financial instruments.
Subsequent measurement
The subsequent measurement of financial assets depends on their classification as follows:
Financial assets at fair value through profit or loss;
Loans and receivables;
Held-to-maturity investments; or
Available-for-sale financial investments
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading and financial assets
designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for
trading if they are acquired for the purpose of selling or repurchasing in the near term. This category includes
derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge
relationships as defined by IAS 39. Derivatives, including separated embedded derivatives are also classified as held
for trading unless they are designated as effective hedging instruments. Financial assets at fair value through profit
and loss are carried in the statement of financial position at fair value with changes in fair value recognized in the
income statement.
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3.14 Financial instruments – initial recognition and subsequent measurement (continued)
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in
an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using
the effective interest rate method, less impairment. Amortized cost is calculated by taking into account any discount
or premium on acquisition and fees or costs that are an integral part of the effective interest rate method. The
effective interest rate method amortization and losses arising from impairment are recognized in the consolidated
income statement.
Held-to-maturity investments
Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-tomaturity when the Group has the positive intention and ability to hold them to maturity. After initial measurement,
held-to-maturity investments are measured at amortized cost using the effective interest method, less impairment.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are
an integral part of the effective interest method. The effective interest rate method amortization and losses arising
from impairment are recognized in the consolidated income statement. The Group did not have any held-to-maturity
investments during the years ended December 31, 2010 and 2009.
Available-for-sale financial investments
Available-for-sale financial investments include equity and debt securities. Equity investments classified as availablefor sale are those, which are neither classified as held for trading nor designated at fair value through profit or loss.
Debt securities in this category are those which are intended to be held for an indefinite period of time and which
may be sold in response to needs for liquidity or in response to changes in the market conditions.
After initial measurement, available-for-sale financial investments are subsequently measured at fair value with
unrealized gains or losses recognized as other comprehensive income in the net unrealized gain/(loss) reserve until
the investment is derecognized, at which time the cumulative gain or loss is recognized in the income statement, or
determined to be impaired, at which time the cumulative loss is recognized in the income statement and removed
from the net unrealized gain/(loss) reserve.
The Group evaluates its available-for-sale financial investments to determine whether the ability and intention to sell
them in the near term is still appropriate. When the Group is unable to trade these financial assets due to inactive
markets and management‟s intent significantly changes to do so in the foreseeable future, the Group may elect to
reclassify these financial assets in rare circumstances. Reclassification to loans and receivables is permitted when the
financial asset meets the definition of loans and receivables and the Group has the intent and ability to hold these
assets for the foreseeable future or maturity. Reclassification to the held-to-maturity category is permitted only when
the entity has the ability and intent to hold the financial asset accordingly.
For a financial asset reclassified out of the available-for-sale category, any previous gain or loss on that asset that has
been recognized in equity is amortized to profit or loss over the remaining life of the investment using the effective
interest rate method. Any difference between the new amortized cost and the expected cash flows is also amortized
over the remaining life of the asset using the effective interest rate method. If the asset is subsequently determined to
be impaired, then the amount recorded in equity is reclassified to the income statement.
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3.14 Financial instruments – initial recognition and subsequent measurement (continued)
Derecognition
A financial asset (or where applicable, a part of a financial asset or part of a group of similar financial assets) is
derecognized when:
The rights to receive cash flows from the asset have expired;
The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the
received cash flows in full without material delay to a third party under a “pass through” arrangement; and either
(a) the Group has transferred substantially all the risks and rewards of the asset; or
(b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has
transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through
arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor
transferred control of the asset, the asset is recognized to the extent of the Group‟s continuing involvement in the
asset. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability
are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement
that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount
of the asset and the maximum amount of consideration that the Group could be required to repay.
b) Impairment of financial assets
The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of
financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if,
there is objective evidence of impairment as a result of one or more events that has occurred after the initial
recognition of the asset (an incurred “loss event”) and that loss event has an impact on the estimated future cash flows
of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may
include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or
delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial
reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash
flows, such as changes in arrears or economic conditions that correlate with defaults.
Financial assets carried at amortized cost
For financial assets carried at amortized cost, the Group first assesses individually whether objective evidence of
impairment exists individually for financial assets that are individually significant, or collectively for financial assets
that are not individually significant. If the Group determines that no objective evidence of impairment exists for an
individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets
with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually
assessed for impairment and for which an impairment loss is, or continues to be recognized, are not included in a
collective assessment of impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the
difference between the asset‟s carrying amount and the present value of estimated future cash flows (excluding future
expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is
discounted at the financial assets original effective interest rate. If a loan has a variable interest rate, the discount rate
for measuring any impairment loss is the current effective interest rate.
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3.14 Financial instruments – initial recognition and subsequent measurement (continued)
The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is
recognized in the income statement. Interest income continues to be accrued on the reduced carrying amount and is
accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment
loss. The interest income is recorded in the income statement. Loans together with the associated allowance are
written off when there is no realistic prospect of future recovery and all collateral has been realized or has been
transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases
because of an event occurring after the impairment was recognized, the previously recognized impairment loss is
increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is recorded in
the income statement.
Available-for-sale financial investments
For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective
evidence that an investment or a group of investments is impaired.
In the case of equity investments classified as available-for-sale, objective evidence would include a significant or
prolonged decline in the fair value of the investment below its cost. „Significant‟ is to be evaluated against the
original cost of the investment and „prolonged‟ against the period in which the fair value has been below its original
cost. Where there is evidence of impairment, the cumulative loss, measured as the difference between the acquisition
cost and the current fair value, less any impairment loss on that investment previously recognized in the income
statement, is removed from other comprehensive income and recognized in the income statement. Impairment loss on
equity investments is not reversed through the income statement; increases in their fair value after impairment are
recognized directly in other comprehensive income.
In the case of debt instruments classified as available-for-sale, impairment is assessed based on the same criteria as
financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss
measured as the difference between the amortized cost and the current fair value, less any impairment loss on that
investment previously recognized in the income statement.
Future interest income continues to be accrued based on the reduced carrying amount of the asset and is accrued
using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The
interest income is recognized in the income statement. If, in a subsequent year, the fair value of a debt instrument
increases and the increase can be objectively related to an event occurring after the impairment loss was recognized
in the income statement, the impairment loss is reversed through the income statement.
c)
Financial liabilities
Initial recognition and measurement
Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss,
loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The
Group determines the classification of its financial liabilities at initial recognition.
Financial liabilities are recognized initially at fair value and, in the case of loans and borrowings, net of directly
attributable debt issuance costs.
The Group‟s financial liabilities include accounts and other payables, bank overdrafts, loans and borrowings,
financial guarantee contracts, finance lease obligations, loan guarantees, Swap Liability and derivative financial
instruments.
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3.14 Financial instruments – initial recognition and subsequent measurement (continued)
Subsequent measurement
The subsequent measurement of financial liabilities depends on their classification as follows:
Financial liabilities at fair value through profit or loss; or
Loans and borrowings
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial
liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified
as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative
financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships
as defined by IAS 39. Separated embedded derivatives are also classified as held for trading unless they are
designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognized in the
income statement.
Loans and borrowings
After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the
effective interest rate method. Gains and losses are recognized in the consolidated income statement when the
liabilities are derecognized as well as through the effective interest rate method amortization process. Amortized cost
is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part
of the effective interest rate method. The effective interest rate method amortization is included in interest expense in
the consolidated income statement.
Financial guarantee contracts
Financial guarantee contracts issued by the Group are those contracts that require a payment to be made to reimburse
the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the
terms of a debt instrument. Financial guarantee contracts are recognized initially as a liability at fair value, adjusted
for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is
measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting
date and the amount recognized less cumulative amortization.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or
the terms of an existing liability are substantially modified, such an exchange or modification is treated as a
derecognition of the original liability and the recognition of a new liability, and the difference in the respective
carrying amounts is recognized in the income statement.
d) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the consolidated statement of
financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there
is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.
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3.14 Financial instruments – initial recognition and subsequent measurement (continued)
e)
Fair value of financial instruments
The fair value of financial instruments that are traded in active markets at each reporting date is determined by
reference to quoted market bid prices or dealer price quotations (bid price for long positions and ask price for short
positions), without any deduction for transaction costs. For financial instruments not traded in an active market, the
fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm‟s
length market transactions; reference to the current fair value of another instrument that is substantially the same;
discounted cash flow analysis; or other valuation models. An analysis of fair values of financial instruments and
further details as to how they are measured are provided in Note 14.
f)
Derivative financial instruments and hedge accounting
Initial recognition and subsequent measurement
The Group uses derivative financial instruments such as forward currency contracts and interest rate swaps to hedge
its foreign currency risks and interest rate risks, respectively. Such derivative financial instruments are initially
recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at
fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when
the fair value is negative.
Any gains or losses arising from changes in fair value on derivatives are taken directly to the income statement,
except for the effective portion of cash flow hedges and hedges of a net investment in a foreign operation, which are
recognized in other comprehensive income.
For the purpose of hedge accounting, derivatives are classified as:
Fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment (except for foreign currency risk); or
Cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk
associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency
risk in an unrecognized firm commitment; or
Hedges of a net investment in a foreign operation.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to
which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking
the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the
nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging
instrument‟s fair value in offsetting the exposure to changes in the hedged item‟s fair value or cash flows attributable
to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or
cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout
the financial reporting periods for which they were designated.
Derivatives which meet the strict criteria for hedge accounting are accounted for as follows:
Fair value hedges
The change in the fair value of an interest rate hedging derivative is recognized in the income statement. The change
in the fair value of the hedged item attributable to the risk hedged is recorded as a part of the carrying value of the
hedged item and is also recognized in the income statement.
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3.14 Financial instruments – initial recognition and subsequent measurement (continued)
For fair value hedges relating to items carried at amortized cost, the adjustment to the carrying value may be
amortized, using the effective interest method, as soon as the adjustment exists (through the income statement over
the remaining term to maturity) or may begin no later than when the hedged item ceases to be adjusted for changes in
its fair value attributable to the risk being hedged.
If the hedge item is derecognized, the unamortized fair value is recognized immediately in the income statement.
When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair
value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a
corresponding gain or loss recognized in the income statement.
Cash flow hedges
The effective portion of the gain or loss on the hedging instrument is recognized directly as other comprehensive
income in the net unrealized gain/(loss) reserve, while any ineffective portion is recognized immediately in the
income statement.
Amounts recognized as other comprehensive income are transferred to the income statement when the hedged
transaction affects income or loss, such as when the hedged financial income or financial expense is recognized or
when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the
amounts recognized as other comprehensive income are transferred to the initial carrying amount of the non-financial
asset or liability.
If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously
recognized in equity is transferred to the income statement. If the hedging instrument expires or is sold, terminated or
exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss
previously recognized in other comprehensive income remains in other comprehensive income until the forecast
transaction or firm commitment affects income or loss.
Hedges of a net investment in a foreign operation
Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part
of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging
instrument relating to the effective portion of the hedge are recognized as other comprehensive income while any
gains or losses relating to the ineffective portion are recognized in the income statement. On disposal of the foreign
operation, the cumulative value of any such gains or losses recorded in equity is transferred to the income statement.
Current versus non-current classification
Derivative instruments that are not a designated and effective hedging instrument are classified as current or noncurrent or separated into a current and non-current portion based on an assessment of the facts and circumstances (i.e.
the underlying contracted cash flows).
Where the Group will hold a derivative as an economic hedge (and does not apply hedge accounting), for a period
beyond 12 months after the reporting date, the derivative is classified as non-current (or separated into current and
non-current portions) consistent with the classification of the underlying item.
Embedded derivatives that are not closely related to the host contract are classified consistent with the cash flows of
the host contract.
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3.14 Financial instruments – initial recognition and subsequent measurement (continued)
Derivative instruments that are designated as, and are effective hedging instruments, are classified consistent with the
classification of the underlying hedged item. The derivative instrument is separated into a current portion and noncurrent portion only if a reliable allocation can be made.
3.15 Share-based payment transactions
Employees of the Group may receive remuneration in the form of share-based payment transactions, whereby
employees render services as consideration for equity instruments (equity-settled transactions). The cost of equitysettled transactions with employees is measured by reference to the fair value on the date they are granted. The fair
value is determined using a binomial model, further details of which are provided in Note 35.
The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period
in which the performance and/or service conditions are fulfilled, ending on the date in which the relevant employees
become fully entitled to the award (vesting date). The cumulative expense recognized for equity-settled transactions
at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the
Group‟s best estimate of the number of equity instruments that will ultimately vest. The income statement expense or
credit for a period represents the movement in cumulative expense recognized as of the beginning and end of that
period.
No expense is recognized for awards that do not ultimately vest, except for equity-settled transactions where vesting
is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the
market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are
satisfied.
Where the terms of an equity-settled transaction award are modified, the minimum expense recognized is the expense
as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognized
for any modification that increases the total fair value of the share-based payment transaction, or is otherwise
beneficial to the employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any
expense not yet recognized for the award is recognized immediately. This includes any award where non-vesting
conditions within the control of either the entity or the employee are not met. However, if a new award is substituted
for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new
awards are treated as if they were a modification of the original award, as described in the previous paragraph. All
cancellations of equity-settled transaction awards are treated equally.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted
earnings per share, further details of which are provided in Note 32.
3.16 Treasury shares
Lottomatica‟s own equity instruments that are reacquired (treasury shares) are recognized at cost and deducted from
equity. No gain or loss is recognized in the income statement on the purchase, sale, issue or cancellation of the
Group‟s own equity instruments. If reissued, any difference between the carrying amount and the consideration is
recognized in other reserves.
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3.17 Leases
The determination of whether an arrangement is, or contains a lease, is based on the substance of the arrangement at
the inception date and whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets
and the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement.
For arrangements entered into prior to January 1, 2005, the date of inception is deemed to be January 1, 2005 in
accordance with the transitional requirements of IFRIC 4.
Finance leases
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the
leased item, are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at
the present value of the minimum lease payments. Lease payments are apportioned between finance charges and
reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are recognized in the income statement.
Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the
Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated
useful life of the asset and the lease term.
Operating leases
Operating lease payments are recognized as an expense in the consolidated income statement on a straight line basis
over the lease term.
3.18 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a
substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective
assets. All other borrowing costs are expensed in the period incurred. Borrowing costs consist of interest and other
costs that an entity incurs in connection with the borrowing of funds.
3.19 Research and development costs
Research costs are expensed as incurred. Development expenditures on an individual project are recognized as an
asset when the Group can demonstrate:
The technical feasibility of completing the asset so that it will be available for use or sale;
Its intention to complete and its ability to use or sell the asset;
How the asset will generate future economic benefits;
The availability of resources to complete the asset; and
The ability to measure reliably the expenditure during the development.
Following initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset
to be carried at cost less any accumulated amortization and accumulated impairment loss. The asset is amortized over
the period of expected future benefit beginning when development is complete and the asset is available for use. The
carrying value of development costs is reviewed for impairment annually when the asset is not yet in use or more
frequently when an indication of impairment arises during the year.
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3.20 Inventories
Inventories are valued at the lower of cost (under the first in, first out method or specific cost basis as considered
necessary in the specific circumstances) or net realizable value. Net realizable value is the estimated selling price in
the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
Inventories include amounts we manufacture or assemble for our long-term service contracts, which are transferred to
systems, equipment and other assets related to contracts, net upon shipment. Inventories also include amounts related
to product sales contracts, including product sales under long-term contracts.
3.21 Impairment of non-financial assets
The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any
indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset‟s
recoverable amount. An asset‟s recoverable amount is the higher of an asset‟s or cash-generating unit‟s (CGU) fair
value less costs to sell and its value in use, and is determined for an individual asset, unless the asset does not
generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying
amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to
its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific
to the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available.
If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated
by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.
For goodwill and indefinite lived intangible assets, the Group bases its impairment calculation on detailed budgets
and forecasts that are prepared separately for each of the Group‟s CGUs to which the individual assets are allocated.
These budgets and forecasts cover a period of five to nine years (the “base period”). For periods beyond the base
period, a long term growth rate is applied to project future cash flows.
For assets excluding goodwill and indefinite lived intangible assets, an assessment is made at each reporting date as
to whether there is any indication that a previously recognized impairment loss may no longer exist or may have
decreased. If such indication exists, the Group estimates the asset‟s or CGU‟s recoverable amount. A previously
recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the
asset‟s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying
amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been
determined, net of depreciation or amortization, had no impairment loss been recognized for the assets in prior years.
Such reversal is recognized in the income statement unless the asset is carried at a revalued amount, in which case the
reversal is treated as a revaluation increase.
Impairment loss is recorded in the consolidated income statement.
The following criteria are also applied in assessing impairment of goodwill and indefinite lived intangible assets.
Goodwill
Goodwill is tested for impairment annually, as of December 31, or more frequently when circumstances indicate that
the carrying value may be impaired.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.21 Impairment of non-financial assets (continued)
Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to
which the goodwill relates. Where the recoverable amount of the CGU is less than its carrying amount, an
impairment loss is recognized. Impairment loss relating to goodwill cannot be reversed in future periods.
Intangible assets
Intangible assets with indefinite useful lives are tested for impairment annually, as of December 31, either
individually or at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be
impaired.
3.22 Post employment benefits
The Group has a defined benefit plan (staff severance fund) to provide certain post employment benefits to Italian
employees following termination from the Group. Italian employees may choose to participate in an unfunded plan
within the Group or transfer their plan balance to independent external funds. These benefits are funded only to the
extent paid to the external funds. The cost of providing benefits under the plan, for those employees that participate in
the unfunded plan within the Group, is determined using the projected unit credit actuarial valuation method. The
cost of providing benefits for those employees that choose to transfer their plan to independent external funds are
considered as defined contributions and are accrued as the employees render the related service. Actuarial gains and
losses are immediately recognized in the consolidated income statement. The defined benefit liability represents the
present value of the Group‟s defined benefit plan obligation.
3.23 Cash and cash equivalents
Cash and cash equivalents in the consolidated statement of financial position are comprised of cash at banks and on
hand and short-term, highly liquid investments with an original maturity of three months or less at the date of
purchase.
3.24 Trade and other receivables
Trade accounts receivable are reported net of allowances for doubtful accounts and liquidated damages (penalties
incurred due to a failure to meet specified deadlines or performance standards). Allowances for doubtful accounts are
generally recorded when there is objective evidence that we may not be able to collect the related receivables. Bad
debts are written off when identified. Allowances for liquidated damages are generally recorded when they are
probable and estimable. Short-term receivables are not discounted because the effect of discounting cash flows is not
material.
3.25 Provisions
General
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event
and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation
and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a
provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate
asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the
consolidated income statement net of any reimbursement.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.25 Provisions (continued)
Warranty provisions
Provisions for warranty-related costs are recognized when the product is sold or service is provided. Initial
recognition is based on historical experience. The initial estimate of warranty-related costs is revised annually.
Contingent liabilities recognized in a business combination
A contingent liability recognized in a business combination is initially measured at its fair value. Subsequently, it is
measured at the higher of:
The amount that would be recognized in accordance with the general guidance for provisions above (IAS 37); or
The amount initially recognized less, when appropriate, cumulative amortization recognized in accordance with
the guidance for revenue recognition (IAS 18).
4. Significant accounting judgments, estimates and assumptions
The preparation of the Group‟s consolidated financial statements requires management to make judgments, estimates
and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities, and the disclosure of
contingent liabilities, at the reporting period. However, uncertainty about these assumptions and estimates could
result in outcomes that may require a material adjustment to the carrying amount of the asset or liability affected in
the future.
Judgments
In the process of applying the Group‟s accounting policies, management has made the following judgment, apart
from those involving estimations, that has the most significant effect on the amounts recognized in the consolidated
financial statements:
Finance and operating lease commitments
The Group leases the GTECH world headquarters facility (land and building) in Providence, Rhode Island, USA.
The Group determined that the present value of the future minimum lease payments for the building amounts to
substantially all of the fair value relating to the Group’s portion of the building and therefore accounts for its portion
of the building as a finance lease. The Group also determined that since title to the land will never transfer to the
Group, the land is accounted for as an operating lease.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. Significant accounting judgments, estimates and assumptions (continued)
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the
next financial year are discussed below.
Impairment of Systems, Equipment and Other Assets Related to Contracts
The carrying values of systems, equipment and other assets related to contracts are reviewed for impairment when
events or changes in circumstances indicate that the carrying value may not be recoverable. This requires
management to make an estimate of the expected future cash flows from the assets and also to choose a suitable
discount rate in order to calculate the present value of those cash flows. The carrying amount of systems, equipment
and other assets related to contracts at December 31, 2010 and December 31, 2009 was €887.1 million and €774.6
million, respectively. Further details are provided in Notes 8 and 28.
Impairment of Goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the
“value in use” or “fair value less costs to sell” of the cash-generating units to which the goodwill is allocated.
Estimating a value in use or fair value less costs to sell amount requires management to make an estimate of the
expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to
calculate the present value of those cash flows. The carrying amount of goodwill at December 31, 2010 and
December 31, 2009 was €3.2 billion and €3.0 billion, respectively. Further details are provided in Notes 10 and 28.
Impairment of Intangible Assets
The Group determines whether intangible assets with indefinite useful lives are impaired at least on an annual basis.
This requires management to make an estimate of the expected future cash flows from the assets and also to choose a
suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of intangible
assets at December 31, 2010 and December 31, 2009 was €1.7 billion and €822.9 million, respectively. Further
details are provided in Notes 11 and 28.
Share-based payment transactions
The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity
instruments on the date they are granted. Estimating fair value for share-based payment transactions requires
determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This
estimate also requires determining the most appropriate inputs to the valuation model including the expected life of
the option, volatility and dividend yield and making assumptions about them. The assumptions and models used for
estimating fair value for share-based payment transactions are disclosed in Note 35.
Income taxes
Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future
taxable income. Given the wide range of international business relationships and the long-term nature and complexity
of existing contractual agreements, differences arising between the actual results and the assumptions made, or future
changes to such assumptions, could necessitate future adjustments to taxable income and income tax expense already
recorded. The Group establishes provisions, based on reasonable estimates, for possible consequences of audits by
the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various
factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity
and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending
on the conditions prevailing in the respective Group company's domicile.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. Significant accounting judgments, estimates and assumptions (continued)
Deferred tax assets are recognized for all unused tax losses and tax credits to the extent that it is probable that taxable
income will be available against which the losses and tax credits can be utilized. Significant management judgment is
required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level
of future taxable income together with future tax planning strategies. At December 31, 2010, the value of recognized
and unrecognized deferred tax assets related to operating losses was €112.9 million and €22.1 million, respectively.
At December 31, 2009, the value of recognized and unrecognized tax assets related to operating losses was €78.9
million and €23.1 million, respectively. At December 31, 2010, the value of recognized and unrecognized tax assets
related to tax credits was €1.3 million and €22.8 million, respectively. At December 31, 2009, the value of recognized
and unrecognized tax assets related to tax credits was €1.2 million and €21.1 million, respectively. Further details on
income taxes are disclosed in Note 15.
Fair value measurement of contingent consideration
Contingent consideration resulting from business combinations is valued at fair value at the acquisition date as part of
the business combination. Where the contingent consideration meets the definition of a derivative and thus, a
financial liability, it is subsequently remeasured to fair value at each reporting date. The determination of the fair
value is based on discounted cash flows. The key assumptions take into consideration the probability of meeting each
performance target and the discount factor.
Fair value of financial instruments
Where the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot
be derived from active markets, their fair value is determined using valuation techniques including the discounted
cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not
feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs
such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported
fair value of financial instruments.
5. International Financial Reporting Standards issued but not yet effective
The new, amended and revised Standards and Interpretations that were issued by the IASB and IFRIC but not yet
effective up to the date of issuance of the Group‟s financial statements are described below.
IFRS 1 First-time Adoption of International Financial Reporting Standards
The amendments to IFRS 1 were issued in December 2010 and become effective for annual periods beginning on or
after July 1, 2011 but do not apply to the Group.
IFRS 7 Financial Instruments – Disclosures
The amendments to IFRS 7 were issued in October 2010 and become effective for annual periods beginning on or
after July 1, 2011. The amendments increase the disclosure requirements for transactions involving transfers of
financial assets. The amendments require enhancements to the existing disclosures in IFRS 7 where an asset is
transferred but is not derecognized and introduce new disclosure for assets that are derecognized but the entity
continues to have a continuing exposure to the asset after the sale. The adoption of these amendments is not expected
to have a material impact on the financial position or performance of the Group when adopted on January 1, 2012.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. International Financial Reporting Standards issued but not yet effective (continued)
IFRS 9 Financial Instruments – Classification and Measurement
IFRS 9 was issued in November 2009 and becomes effective for annual periods beginning on or after January 1,
2013. The standard is the first phase in the IASB‟s project to replace IAS 39 Financial Instruments: Recognition and
Measurement and introduces new requirements for classifying and measuring financial assets. In subsequent phases,
the IASB will address classifying and measuring financial liabilities, hedge accounting and derecognition. The Group
is evaluating the impact the standard will have on the consolidated financial statements when adopted on January 1,
2013.
IFRS 9 Financial Instruments (Revised)
The Revised IFRS 9 was issued in October 2010 and becomes effective for annual periods beginning on or after
January 1, 2013. The revised standard retains the requirements for classification and measurement of financial assets
that were published in November 2009 but adds guidance on the classification and measurement of financial
liabilities. The Group is evaluating the impact the standard will have on the consolidated financial statements when
adopted on January 1, 2013.
IAS 12 Deferred Tax: Recovery of Underlying Assets
The amendments to IAS 12 were issued in December 2010 and become effective for annual periods beginning on or
after January 1, 2012. The amendments provide an exception to the general principles of IAS 12 for investment
property measured using the fair value model in IAS 40 Investment Property. The adoption of these amendments is
not expected to have a material impact on the financial position or performance of the Group when adopted on
January 1, 2012.
IAS 24 Related Party Disclosures (Revised)
The Revised IAS 24 was issued in November 2009 and becomes effective for annual periods beginning on or after
January 1, 2011. The revised standard clarifies the definition of a related party to simplify the identification of such
relationships and to eliminate inconsistencies in its application and introduces a partial exemption of disclosure
requirements for government-related entities. The Group is evaluating the impact the standard will have on the
consolidated financial statements when adopted on January 1, 2011.
IAS 32 Financial Instruments: Presentation – Classification of Rights Issues
The amendment to IAS 32 was issued in October 2009 and becomes effective for annual periods beginning on or
after February 1, 2010. The amendment changes the definition of a financial liability in order to classify rights issues
(and certain options or warrants) as equity instruments in cases where such rights are given pro rata to all of the
existing owners of the same class of an entity‟s non-derivative equity instruments, or to acquire a fixed number of the
entity‟s own equity instruments for a fixed amount in any currency. The Group is evaluating the impact the
amendment will have on the consolidated financial statements when adopted on January 1, 2011.
IFRIC 14 Prepayments of a Minimum Funding Requirement
The amendment to IFRIC 14 was issued in November 2009 and becomes effective for annual periods beginning on or
after January 1, 2011 with retrospective application. The amendment provides guidance on assessing the recoverable
amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding
requirement as an asset. The adoption of this amendment is not expected to have a material impact on the financial
position or performance of the Group when adopted on January 1, 2011.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. International Financial Reporting Standards issued but not yet effective (continued)
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments
IFRIC 19 was issued in November 2009 and becomes effective for annual periods beginning on or after July 1, 2010.
The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as
consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably
measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognized
immediately in profit or loss. The adoption of this interpretation is not expected to have a material impact on the
financial position or performance of the Group when adopted on January 1, 2011.
Improvements to IFRSs issued in May 2010
In May 2010 the IASB issued an omnibus of amendments to its standards, primarily with a view of removing
inconsistencies and clarifying wording. There are separate transitional provisions for each standard that are effective
for periods starting after the date of these financial statements and therefore have yet to be adopted by the Group as
described below. The Group anticipates that these changes will not have a material effect on the consolidated
financial statements when adopted.

IFRS 1 First-time Adoption of International Financial Reporting Standards – This amendment becomes
effective for annual periods beginning on or after January 1, 2011 but does not apply to the Group.

IFRS 3 Business Combinations – This amendment becomes effective for annual periods beginning on or after
July 1, 2010 and clarifies the measurement method for non-controlling interests, specifies how to measure
unreplaced and voluntary replaced share-based payment awards, and clarifies the transitional requirements for
contingent consideration from a business combination that occurred before the July 1, 2009 effective date of
IFRS 3.

IFRS 7 Financial Instruments: Disclosures - This amendment becomes effective for annual periods beginning
on or after January 1, 2011 and emphasizes the interaction between quantitative and qualitative disclosures and
the nature and extent of risks associated with financial instruments.

IAS 1 Presentation of Financial Statements - This amendment becomes effective for annual periods beginning
on or after January 1, 2011 and clarifies that an entity may present the analysis of other comprehensive income
by item either in the statement of changes in equity or in the notes to the financial statements.

IAS 27 Consolidated and Separate Financial Statements (Revised) - This amendment becomes effective for
annual periods beginning on or after July 1, 2010 and clarifies the transitional requirements for the consequential
amendments made to other standards as a result of IAS 27.

IAS 34 Interim Financial Reporting - This amendment becomes effective for annual periods beginning on or
after January 1, 2011 and clarifies the disclosures required for significant events and transactions and financial
instruments and their fair values.

IFRIC 13 Customer Loyalty Programmes - This amendment becomes effective for annual periods beginning on
or after January 1, 2011 and clarifies the accounting for the fair value of award credits.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6. Business combinations and acquisition of non-controlling interests
The Group made a number of acquisitions in the Italian Operations segment consisting of strategic investments to
exploit growth opportunities in the Sports Betting and Machine Gaming markets. The aim was to acquire additional
sports betting rights or to increase our directly-managed gaming machine base (amusement with prize machines). The
acquisitions were not material, either individually or collectively.
The Group‟s business combination activity is summarized below:
(thousands of euros)
Cash acquisition cost
For the year ended December 31,
2010
2009
9,063
40,305
Receivables (payables) - acquired companies
Accrued contingent consideration
Liability to minority shareholder
Non-cash acquisition cost
9,259
1,506
10,765
(757)
12,055
1,229
12,527
Total acquisition cost
19,828
52,832
Cash cost paid in 2009
Cash cost paid in 2010
Net cash acquired
Net cash outflow
9,063
(54)
9,009
40,305
(196)
40,109
Acquisition of additional interest in St. Enodoc Holdings Limited
In January 2011, after the close of calendar year 2010, GTECH Global Services Corporation Limited (“GGSC”)
acquired the remaining ten percent interest in St. Enodoc Holdings Limited and its subsidiaries including St. Minver
Limited (collectively “St. Minver”), increasing its ownership interest to 100%.
Under the terms of the 2008 sale agreement, ten percent of St. Minver was to remain with Gary Shaw, Founder and
Chairman, until at least 2012, at which point both Mr. Shaw and GGSC had the right to cause GGSC to acquire Mr.
Shaw‟s shares at a price equal to fair value to be determined by an independent appraisal as of the date of exercise.
We accounted for the acquisition on the basis that we did not have present ownership interest to the shares owned by
Mr. Shaw which were subject to the put/call option. Accordingly, a charge to equity is recorded for the difference
between the fair value of the estimated liability to Mr. Shaw for these shares and the non-controlling interest. The
non-controlling interest as of December 31, 2010 is included in current financial liabilities in our consolidated
statement of financial position.
In January 2011, GGSC and Gary Shaw entered into a new agreement (terminating the original sale agreement)
whereby GGSC agreed to (i) acquire the remaining ten percent of St. Minver and (ii) sell its 30% ownership in St.
Endellion Limited (“St. Endellion”) to Gary Shaw (St. Endellion‟s 70% shareholder) for a net cash purchase price of
€1.9 million. See Note 39 for further information.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. Operating segment information
For management purposes, the Group‟s operating segments are organized and managed separately according to the
nature of the products and services provided, with each segment representing a strategic business unit. The Group is
comprised of the following four reportable operating segments:
The Italian Operations segment operates and provides a full range of gaming services, including online, instant and
traditional lotteries, scratch and win, sports betting, machine gaming, interactive skill games and non-lottery
commercial transactions.
The GTECH Lottery segment operates and provides a full range of services, technology and products to
government sponsored online, instant and traditional lotteries.
The Gaming Solutions segment operates and provides solutions, products and services relating to video lottery
terminals (“VLTs”) and associated systems for the government sponsored market and video and traditional
mechanical reel slot machines and systems for the commercial gaming markets.
The GTECH G2 segment provides digitally-distributed, multi-channel gaming entertainment products and services,
including sports betting, lottery, bingo, poker, casino games and quick games, as well as retail solutions for realtime transaction processing and information systems for the sports-betting market.
No operating segments have been aggregated to form the above reportable operating segments. Sales between
segments are made at prices that approximate market prices.
Management monitors the operating results of its operating segments separately for the purpose of making decisions
about resource allocation and performance assessment. Segment performance is evaluated based on operating
income.
Prior to the first quarter of 2010, certain corporate overhead costs were presented within the GTECH Lottery
segment. These costs are now presented separately because they are not attributable to any one reportable segment.
Prior period amounts have been reclassified to conform to the current year presentation.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. Operating segment information (continued)
The following tables present revenue and operating income (loss) information regarding the Group‟s reportable
operating segments for the years ended December 31, 2010 and 2009, respectively. Prior period amounts have been
reclassified to conform to the current year presentation.
(thousands of euros)
Operating Segments
Italian Operations
GTECH Lottery
Gaming Solutions
GTECH G2
Eliminations
Corporate overhead
Other
(thousands of euros)
Operating Segments
Italian Operations
GTECH Lottery
Gaming Solutions
GTECH G2
Eliminations
Corporate overhead
Other
Total
revenue
For the year ended December 31, 2010
Intersegment
Third-party
Operating
revenue
revenue
income/(loss)
1,254,521
842,072
190,212
74,506
2,361,311
(5,182)
(37,299)
(5,109)
(47,590)
1,254,521
836,890
152,913
69,397
2,313,721
406,405
132,642
(1,693)
(52,548)
484,806
(47,590)
342
2,314,063
47,590
-
342
2,314,063
(14,112)
(14,328)
(70,388)
385,978
Total
revenue
For the year ended December 31, 2009
Intersegment
Third-party
Operating
revenue
revenue
income/(loss)
1,176,091
783,066
152,549
71,132
2,182,838
(2,454)
(3,851)
(6,305)
1,176,091
780,612
152,549
67,281
2,176,533
416,300
125,768
(16,665)
(62,758)
462,645
(6,305)
324
2,176,857
6,305
-
324
2,176,857
(62)
(10,996)
(85,166)
366,421
Other principally represents the amortization of acquired tangible and intangible assets in connection with the August
2006 acquisition of GTECH by Lottomatica.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. Operating segment information (continued)
The following tables present depreciation, amortization and impairment information regarding the Group‟s reportable
operating segments for the years ended December 31, 2010 and 2009, respectively.
(thousands of euros)
Operating Segments
Italian Operations
GTECH Lottery
Gaming Solutions
GTECH G2
Corporate overhead
Other
(thousands of euros)
Operating Segments
Italian Operations
GTECH Lottery
Gaming Solutions
GTECH G2
Corporate overhead
Other
For the year ended December 31, 2010
Depreciation
Amortization
Impairment
71,389
139,014
15,149
3,158
228,710
52,040
2,589
4,915
5,200
64,744
(4,544)
2,173
50,783
48,412
61
18,150
246,921
52,471
117,215
48,412
For the year ended December 31, 2009
Depreciation
Amortization
Impairment
61,543
131,446
16,482
2,694
212,165
24,438
3,135
5,303
7,389
40,265
2,478
1,920
1,804
62,981
69,183
28
24,408
236,601
54,135
94,400
6,842
76,025
Other represents the depreciation, amortization and impairment of acquired tangible and intangible assets in
connection with the August 2006 acquisition of GTECH by Lottomatica.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. Operating segment information (continued)
Geographic information
The following table presents revenue information by geography regarding the Group‟s reportable operating segments.
Revenue from external customers is based on the geographical location of the Group‟s customers.
(thousands of euros)
Total Revenue
Italy
United States
United Kingdom
Sweden
Poland
Other
For the year ended December 31,
2010
2009
1,264,475
531,667
78,001
45,355
40,965
353,600
2,314,063
1,177,378
535,303
63,216
48,077
42,115
310,768
2,176,857
The following table presents non-current asset information by geography regarding the Group‟s reportable operating
segments. Non-current assets are based on the geographical location of the Group‟s assets or, in the case of goodwill
and intangible assets, net, location of the entity acquired.
December 31,
(thousands of euros)
Non-Current Assets
United States
Italy
Sweden
United Kingdom
China
Chile
Germany
Other
2010
2009
3,466,112
2,030,798
85,641
68,539
21,051
18,259
16,039
94,277
5,800,716
3,272,918
1,114,487
112,324
76,065
19,836
16,644
20,358
82,809
4,715,441
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. Operating segment information (continued)
Non-current assets consist of the following items in the consolidated statements of financial position:
December 31,
(thousands of euros)
Non-Current Assets
Systems, equipment and other assets related to contracts, net
Property, plant and equipment, net
Goodwill
Intangible assets, net
Other non-current assets
2010
2009
887,132
91,496
3,157,279
1,639,198
25,611
5,800,716
774,558
88,522
3,006,783
822,886
22,692
4,715,441
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8. Systems, equipment and other assets related to contracts, net
(thousands of euros)
Net book value
Balance at January 1, 2009
Acquisitions
Additions
Depreciation (Note 26)
Impairment loss (Note 28)
Disposals
Foreign currency translation
Transfers
Other
Balance at December 31, 2009
Land and
Buildings
Terminals
and Systems
Furniture and
Equipment
Contracts
in Progress
Total
18,370
79
5,043
(4,283)
(12)
19,197
613,380
2,077
65,124
(205,871)
6
(1,122)
(17,206)
160,519
(2,477)
614,430
47,427
360
16,249
(13,934)
(110)
(114)
(364)
311
111
49,936
79,540
172,028
(924)
2,981
(162,554)
(76)
90,995
758,717
2,516
258,444
(224,088)
(104)
(2,160)
(14,601)
(1,724)
(2,442)
774,558
Acquisitions
Additions
Depreciation (Note 26)
Impairment loss (Note 28)
Disposals
Foreign currency translation
Transfers
Other
Balance at December 31, 2010
13,652
(6,065)
(728)
29
(1)
26,084
4,545
79,282
(210,877)
(290)
(4,645)
42,306
213,416
(7)
738,160
74
16,191
(16,197)
(2,161)
2,645
5,956
32
56,476
188,265
(264)
6,785
(219,351)
(18)
66,412
4,619
297,390
(233,139)
(290)
(7,798)
51,765
21
6
887,132
Balance at December 31, 2009
Cost
Accumulated depreciation
Net book value
39,746
(20,549)
19,197
1,368,519
(754,089)
614,430
90,857
(40,921)
49,936
90,995
90,995
1,590,117
(815,559)
774,558
Balance at December 31, 2010
Cost
Accumulated depreciation
Net book value
52,647
(26,563)
26,084
1,679,752
(941,592)
738,160
110,602
(54,126)
56,476
66,412
66,412
1,909,413
(1,022,281)
887,132
The amount of borrowing costs capitalized during 2010 and 2009 was €1.3 million and €1.6 million, respectively.
The rate used to determine the amount of borrowing costs eligible for capitalization was approximately 5% in both
years, which is the effective interest rate of all borrowings.
118
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9. Property, plant and equipment, net
(thousands of euros)
Net book value
Balance at January 1, 2009
Additions
Depreciation (Note 26)
Disposals
Foreign currency translation
Transfers
Other
Balance at December 31, 2009
Land and
Buildings
Furniture and
Equipment
Construction
in Progress
Total
31,304
64
(1,554)
(56)
(419)
136
6
29,481
32,097
10,189
(10,959)
(415)
(1,046)
28,729
1
58,596
22,622
5,595
(631)
(27,141)
445
86,023
15,848
(12,513)
(471)
(2,096)
1,724
7
88,522
Additions
Depreciation (Note 26)
Disposals
Foreign currency translation
Transfers
Other
Balance at December 31, 2010
2
(1,668)
(64)
2,367
30,118
9,426
(12,114)
(636)
4,638
650
9
60,569
1,006
29
(671)
809
10,434
(13,782)
(700)
7,034
(21)
9
91,496
Balance at December 31, 2009
Cost
Accumulated depreciation
Net book value
35,485
(6,004)
29,481
87,926
(29,330)
58,596
445
445
123,856
(35,334)
88,522
Balance at December 31, 2010
Cost
Accumulated depreciation
Net book value
38,286
(8,168)
30,118
103,281
(42,712)
60,569
809
809
142,376
(50,880)
91,496
The Group capitalized €0.5 million of borrowing costs in 2009. The rate used to determine the amount of borrowing
costs eligible for capitalization was approximately 5%, which was the effective interest rate on all borrowings.
119
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. Goodwill
December 31,
(thousands of euros)
2010
2009
Balance at beginning of year
3,006,783
3,074,571
3,895
2,763
6,658
18,035
13,387
7,835
39,257
179,432
2,274
(183)
(37,685)
143,838
3,157,279
(67,141)
(8,341)
(4,668)
(3,046)
(23,849)
(107,045)
3,006,783
3,079,155
(72,372)
3,006,783
3,123,288
(48,717)
3,074,571
3,270,013
(112,734)
3,157,279
3,079,155
(72,372)
3,006,783
Acquisitions:
Coin Net
Labet
Europa Gestione
Other
Adjustments:
Foreign currency translation
Subsequent changes in fair value of contingent liabilities
Revisions to fair value of other assets and liabilities acquired
Revisions to fair value of Atronic assets and liabilities acquired
Impairment loss (Note 28)
Balance at end of year
Balance at beginning of year
Cost
Accumulated impairment loss
Balance at end of year
Cost
Accumulated impairment loss
The Group reviews goodwill for impairment annually, during its fourth quarter ending on December 31, or more
frequently if events or changes in circumstances indicate that the carrying value may be impaired. The €37.7 million
impairment loss recorded during 2010 relates to the GTECH G2 segment and the €23.8 million impairment loss
recorded during 2009 primarily relates to the GTECH G2 segment. See Notes 12 and 28 for further discussion.
120
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11. Intangible assets, net
December 31,
(thousands of euros)
Balance at beginning of year
Intangible assets acquired during the year:
Purchase business combination related:
Sports betting rights and horse racing betting rights
Customer contracts
Other
All other intangible assets acquired:
Concessions and licenses
Patents
Sports betting rights and horse racing betting rights
Other
Total intangible assets acquired
Foreign currency translation
Revisions to fair value of assets and liabilities acquired
Impairment loss (Note 28)
Non-current assets classified as held for sale (Note 19)
Amortization (Note 27)
Balance at end of year
Balance at beginning of year
Cost
Accumulated amortization
Balance at end of year
Cost
Accumulated amortization
2010
2009
822,886
847,281
2,740
29
2,769
15,767
15,767
888,709
12,328
314
1,666
903,017
88,092
9,271
1,963
3,449
102,775
905,786
49,436
18,522
(13,217)
(27,000)
(117,215)
1,639,198
118,542
(13,632)
15,034
(49,817)
(94,522)
822,886
1,131,426
(308,540)
822,886
1,074,762
(227,481)
847,281
2,072,604
(433,406)
1,639,198
1,131,426
(308,540)
822,886
121
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11. Intangible assets, net (continued)
Other intangible assets acquired in 2010 includes payment of €800 million for the Italian Scratch & Win license
renewal (which is being amortized over nine years beginning October 2010) and payment of €80.7 million for the
final 50% of 10,761 video lottery terminal (“VLT”) rights in Italy. In 2010, capital contributions of €288.0 million
and €100.0 million were received from our partners and an investor in the Scratch & Win concession, respectively.
Other intangible assets acquired in 2009 principally relate to the non-refundable payment for 50% of the total cost of
10,761 VLT rights in Italy.
Intangible assets that are subject to amortization are being amortized ratably over their estimated useful lives, with no
estimated residual values. Certain trademarks were determined to have indefinite lives and are not subject to
amortization. The Group expects to make use of the trademarks on existing and future business, and no economic,
legal or contractual limitation of their useful lives is anticipated. The following tables present detailed information for
intangible assets.
(thousands of euros)
Subject to amortization
Concessions & licenses
Customer contracts
Sports and horse racing betting rights
Capitalized computer software
Patents
Proprietary hardware
Networks
Trademarks
Other
Not subject to amortization
Trademarks
Weighted Average
Amortization
Period (Years)
9.0
13.1
6.5
9.9
3.0
13.9
1.2
3.0
10.2
As of December 31, 2010
Gross
Carrying
Accumulated
Amount
Amortization
Net
Carrying
Amount
965,518
676,273
96,310
111,157
89,972
20,556
7,432
2,284
8,251
1,977,753
39,610
217,141
31,914
57,287
70,047
6,405
6,390
1,484
3,128
433,406
925,908
459,132
64,396
53,870
19,925
14,151
1,042
800
5,123
1,544,347
94,851
94,851
2,072,604
433,406
94,851
94,851
1,639,198
122
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11. Intangible assets, net (continued)
(thousands of euros)
Subject to amortization
Customer contracts
Concessions & licenses
Capitalized computer software
Sports and horse racing betting rights
Patents
Proprietary hardware
Networks
Trademarks
Other
Not subject to amortization
Trademarks
Weighted Average
Amortization
Period (Years)
13.9
7.9
9.9
6.8
3.0
14.0
1.3
5.0
7.6
As of December 31, 2009
Gross
Carrying
Accumulated
Amount
Amortization
Net
Carrying
Amount
627,424
105,095
102,592
65,353
77,281
19,081
7,431
4,574
33,684
1,042,515
154,263
15,052
44,645
17,656
62,703
4,570
3,675
1,188
4,788
308,540
473,161
90,043
57,947
47,697
14,578
14,511
3,756
3,386
28,896
733,975
88,911
88,911
1,131,426
308,540
88,911
88,911
822,886
123
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. Impairment testing of goodwill and intangibles with indefinite lives
Goodwill and other intangible assets with indefinite lives acquired through business combinations have been
allocated to the cash generating units for impairment testing as described below. The carrying amount of goodwill
and trademarks at December 31, 2010 and 2009 are as follows:
Goodwill
(thousands of euros)
Italian Operations:
Lottery
Commerical Services
Sports Betting
Machine Gaming
GTECH Lottery
Gaming Solutions
GTECH G2
Trademarks and Networks
2010
2009
2010
2009
445,175
218,266
63,266
35,717
762,424
445,175
218,437
58,668
35,599
757,879
-
-
2,166,247
135,314
93,294
3,157,279
2,007,715
125,423
115,766
3,006,783
74,624
14,070
6,157
94,851
69,633
13,497
5,781
88,911
Italian Operations
For Italian Operations, the recoverable amounts for the Lottery, Commercial Services, Sports Betting and Machine
Gaming cash generating units have been determined based on a value in use calculation using cash flow projections
from financial forecasts approved by senior management. These forecasts cover a period of approximately nine years
for Lottery; five years for Commercial Services; six years for Sports Betting and five years for Machine Gaming,
which are based on the weighted average contractual life of customer contracts in Lottomatica‟s portfolio. Cash flows
beyond the base periods do not assume an annual growth rate.
GTECH Lottery
For GTECH Lottery, the recoverable amounts have been determined based on fair value less costs to sell using the
discounted cash flow method of the income approach to value. Under this method we utilized cash flow projections
based on financial forecasts approved by senior management covering a period of five years. Cash flows beyond the
five year period were extrapolated using an annual growth rate of 3.5%, which reflects the estimated sustainable
long-term growth rate of GTECH Lottery.
Gaming Solutions
For Gaming Solutions, the recoverable amounts have been determined based on fair value less costs to sell using the
discounted cash flow method of the income approach to value. Under this method we utilized cash flow projections
based on financial forecasts approved by senior management covering a period of five years. Cash flows beyond the
five year period were extrapolated using an annual growth rate of 3.5% which reflects the estimated sustainable longterm growth rate of Gaming Solutions.
124
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. Impairment testing of goodwill and intangibles with indefinite lives (continued)
GTECH G2
For GTECH G2, the recoverable amounts have been determined based on fair value less costs to sell using the
discounted cash flow method of the income approach to value. Under this method we utilized cash flow projections
based on financial forecasts approved by senior management covering a period of five years. Cash flows beyond the
five year period were extrapolated using an annual growth rate of 4.5%, which reflects the estimated sustainable
long-term growth rate of GTECH G2.
Key assumptions used in the value in use and fair value less costs to sell calculations
After-tax discount rate
Discount rates were calculated based on the estimated cost of equity capital and debt capital considering data and
factors relevant to the economy, the industry, and the cash-generating units. These costs were then weighted in terms
of a typical industry capital structure to arrive at an estimated weighted average cost of capital. The after-tax discount
rates applied to the cash flow projections for the cash-generating units described above were as follows:
Italian Operations:
Lottery
Commercial Services
Sports Betting
Machine Gaming
7.66%
8.40%
7.86%
8.48%
GTECH Lottery
Gaming Solutions
GTECH G2
6.85%
9.10%
11.00%
Annual growth rate after 2015
Growth rates after 2015 used to extrapolate cash flows beyond the base forecast period are based on market data,
input from management and considerations relevant to each of the cash generating units and its contracts.
Service revenue and related profit
Projected cash flows from service revenue assumes the continuation of recent historical trends adjusted for expected
new contract wins, anticipated contract renewal pricing pressures, and the expected impact of sales and marketing
initiatives that are being developed or expected to be developed.
Product sales and related profit
Projected cash flows from product sales assumes renewal orders from existing customers in connection with known
upcoming procurements, along with orders from new or developing customers and markets at selling prices generally
in line with historical experiences adjusted for expected competitive pressures.
125
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. Impairment testing of goodwill and intangibles with indefinite lives (continued)
The excess of fair values over carrying values of the Company‟s cash generating units are summarized as follows:
(thousands of euros)
Italian Operations:
Lottery
Commerical Services
Sports Betting
Machine Gaming
GTECH Lottery
Gaming Solutions
GTECH G2
Excess over
carrying value
180,925
135,947
66,556
162,670
546,098
81,551
14,078
641,727
Because the fair value of GTECH G2‟s cash generating unit is equal to its carrying value, any adverse change in a
key assumption may cause a further impairment loss to be recognized. Because the fair values for the GTECH
Lottery and Gaming Solutions cash generating units are only marginally higher than their carrying values, even a
small negative change in a key assumption may cause a further impairment loss to be recognized.
Changes in key variables needed to render the recoverable amount equal to the carrying amount
GTECH
Lottery
After-tax discount rate
Annual growth rate after 2015
1.3%
-2.8%
Gaming
Solutions
2.7%
-9.6%
During 2010 and 2009, €37.7 million and €22.3 million, respectively, of goodwill impairment losses related to
GTECH G2‟s cash generating unit were recorded. See Note 28 for further discussion.
126
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13. Other assets (non-current and current)
December 31,
(thousands of euros)
Other non-current assets
Long-term deferred asset
Long-term prepaid expenses
Deposits
Long-term customer receivables
Sales-type lease receivables
Other
2010
(thousands of euros)
Other current assets
Other receivables
Value-added tax receivables
Prepaid expenses
Other tax receivables
Other
2010
2009
7,475
4,685
4,482
3,303
2,603
3,063
25,611
6,978
3,075
3,470
6,517
1,113
1,539
22,692
December 31,
26,552
12,529
10,936
10,368
3,784
64,169
2009
28,104
10,188
10,429
9,676
3,180
61,577
127
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14. Financial instruments
Fair values
Set out below is a comparison by class of the carrying amounts and fair values of our financial instruments.
(thousands of euros)
Loans and receivables
Other loans and receivables
Derivatives
Swap receivable
Financial assets at fair value through profit or loss
Call option
Available-for-sale financial investments
Other available-for-sale financial investments
Non-current financial assets
Cash and cash equivalents
Cash and cash equivalents
Derivatives
Swap receivable
Foreign currency forward contracts
Loans and receivables
Escrow and other deposits
Other loans and receivables
Current financial assets
December 31, 2010
Carrying
Fair
Amount
Value
December 31, 2009
Carrying
Fair
Amount
Value
2,365
2,365
2,365
2,365
1,864
1,864
1,864
1,864
580
580
580
580
-
-
480
480
480
480
-
-
12,201
12,201
12,201
12,201
5,445
5,445
5,445
5,445
15,626
15,626
7,309
7,309
152,405
152,405
152,405
152,405
469,335
469,335
469,335
469,335
2,601
581
3,182
2,601
581
3,182
133
445
578
133
445
578
20
3,471
3,491
20
3,471
3,491
6
4,029
4,035
6
4,029
4,035
6,673
6,673
4,613
4,613
Cash and cash equivalents are stated at cost, which approximates fair value, and earn interest at market rates.
128
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LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14. Financial instruments (continued)
(thousands of euros)
December 31, 2010
Carrying
Fair
Amount
Value
December 31, 2009
Carrying
Fair
Amount
Value
Facilities
Notes due 2016
Capital Securities
Notes due 2018
GTECH Senior Credit Facilities
Other
Loans and borrowings (Note 21)
848,888
746,016
735,836
493,797
875
2,825,412
856,814
744,455
691,209
481,665
896
2,775,039
740,821
733,180
1,145,100
2,889
2,621,990
761,764
673,854
1,122,734
2,889
2,561,241
47,414
47,414
47,414
47,414
53,094
53,094
53,094
53,094
29,953
19,514
3,844
171
12,723
66,205
28,932
14,902
3,844
171
12,723
60,572
56,391
18,694
2,629
11,509
89,223
56,200
16,082
2,629
11,509
86,420
113,619
107,986
142,317
139,514
Derivatives
Interest rate swaps
Other financial liabilities
Swap Liability
World Headquarters finance lease (Note 39)
Communication equipment finance lease (Note 39)
Acquisition related liabilities
Other financial liabilities
Non-current financial liabilities
129
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14. Financial instruments (continued)
(thousands of euros)
Facilities
Capital Securities
Notes due 2016
Notes due 2018
LTO Revolving Credit Facility
GTECH Senior Credit Facilities
Short-term borrowings
Other
Loans and borrowings (Note 21)
Derivatives
Foreign currency forward contracts
Net investment hedge
Interest rate swaps
Other financial liabilities
Swap Liability
Acquisition related liabilities
World Headquarters finance lease (Note 39)
Communication equipment finance lease (Note 39)
Other financial liabilities
Current financial liabilities
December 31, 2010
Carrying
Fair
Amount
Value
December 31, 2009
Carrying
Fair
Amount
Value
51,950
46,618
2,926
2,240
20
7,458
15,068
126,280
52,431
43,791
2,920
2,185
20
7,458
15,068
123,873
46,618
3,147
22
203
5,079
17,196
72,265
42,846
3,236
22
203
5,079
17,196
68,582
2,630
1,916
4,546
2,630
1,916
4,546
599
1,107
664
2,370
599
1,107
664
2,370
32,410
1,900
641
142
29,561
64,654
29,991
1,900
490
142
29,561
62,084
29,924
22,842
513
4,236
57,515
29,896
22,842
441
4,236
57,415
69,200
66,630
59,885
59,785
The fair values of our financial instruments were determined using the following methods and assumptions:
Swap receivable was determined by comparing the present value of expected cash flows using current variable
interest rates and the present value of expected cash flows using fixed interest rates;
Available-for-sale financial investments are based on current market prices when available;
Foreign currency forward contracts and net investment hedge were calculated by reference to current forward
exchange rates for contracts with similar maturity profiles;
Escrow and other deposits were stated at cost, which approximates fair value, and earn interest at market rates;
Facilities approximate carrying amounts, excluding the effect of debt issuance costs;
Notes due 2016, Capital Securities, Notes due 2018 and interest rate swaps were calculated by independent
investment bankers using market interest rates;
GTECH Senior Credit Facilities was calculated by reference to a third party forecast of the applicable variable
rate and quotation of the spread for a loan of similar risk and maturity profile;
130
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14. Financial instruments (continued)
Swap Liability was determined by calculating the present value of expected cash flows using current interest
rates;
World Headquarters finance lease and Communication equipment finance lease was recorded at the present value
of the lease payments based on current market interest rates;
Acquisition related liabilities were determined using discounted cash flows;
LTO Revolving Credit Facility approximates carrying amounts, excluding the effect of debt issuance costs; and
Other financial liabilities were based on current market interest rates.
Fair value hierarchy
Financial instruments that are measured subsequent to initial recognition at fair value are grouped into the following
levels based on the degree to which the fair value is observable:
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical
assets or liabilities;
Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1
that are observable for the asset or liability, either directly or indirectly;
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or
liability that are not based on observable market data.
As of December 31, 2010, the Group held the following financial instruments carried at fair value on the statement of
financial position (in thousands of euros):
Level 1
Level 2
Level 3
Total
Assets measured at fair value
Financial assets at fair value through profit or loss
Derivatives
Available-for-sale financial investments
Non-current financial assets
303
303
580
580
480
11,898
12,378
480
580
12,201
13,261
-
3,182
3,182
-
3,182
3,182
Derivatives
Other financial liabilities
Non-current financial liabilities
-
47,414
47,414
171
171
47,414
171
47,585
Derivatives
Other financial liabilities
Current financial liabilities
-
4,546
4,546
1,900
1,900
4,546
1,900
6,446
Derivatives
Current financial assets
Liabilities measured at fair value
131
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14. Financial instruments (continued)
Reconciliation of Level 3 fair value measurements of financial instruments
(thousands of euros)
Balance at January 1, 2010
Purchases
Balance at December 31, 2010
Financial assets at
fair value through
profit or loss
Available-for-sale
financial
investments
Other non-current
financial
liabilities
480
480
5,197
6,701
11,898
171
171
Other current
financial
liabilities
1,900
1,900
15. Income tax
Income before income tax expense consists of the following:
December 31,
(thousands of euros)
Italy
Foreign
2010
274,663
(161,147)
113,516
2009
311,736
(123,540)
188,196
The significant components of income tax expense are as follows:
December 31,
(thousands of euros)
Current
Italy
Foreign
Total Current
Deferred
Italy
Foreign
Total Deferred
Income tax expense
2010
2009
82,116
21,140
103,256
108,173
23,237
131,410
17,919
(53,017)
(35,098)
68,158
7,090
(62,658)
(55,568)
75,842
132
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. Income tax (continued)
The tax effects of temporary differences and carryforwards that give rise to deferred tax assets and liabilities consist
of the following:
December 31,
(thousands of euros)
Deferred tax assets
Provisions not currently deductible for tax purposes
Net operating loss carryforward
Depreciation and amortization
Interest rate swaps
Foreign currency translation
Cash collected in excess of revenue recognized
Inventory reserves
Tax credit carryforward
Other
Deferred tax liabilities
Acquired intangible assets
Depreciation and amortization
Other
Net deferred tax liabilities
Reconciliation to the statement of financial position
Deferred income tax assets
Deferred income tax liabilities
Reconciliation of net deferred tax liabilities
Net deferred tax liabilities at December 31, 2010
Net deferred tax liabilities at December 31, 2009
Net change on the statement of financial position
Deferred tax benefit recorded to the income statement
Other deferred tax expense recorded to equity
Deferred tax expense recorded to goodwill
2010
2009
109,091
100,441
30,008
18,425
13,533
5,598
5,371
1,261
7,309
291,037
99,491
75,803
76,737
20,137
12,362
5,122
3,250
1,169
4,227
298,298
297,668
109,778
8,158
415,604
(124,567)
326,274
97,437
2,684
426,395
(128,097)
9,011
(133,578)
(124,567)
6,030
(134,127)
(128,097)
(124,567)
(128,097)
3,530
35,098
(29,809)
(1,759)
3,530
133
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. Income tax (continued)
The effective income tax rate on income before income tax expense differed from the Italian statutory tax rate for the
following reasons:
December 31,
(thousands of euros)
Income before income tax expense
2010
113,516
2009
188,196
Italian statutory tax rate
27.50%
27.50%
Theoretical provision for income taxes
31,217
51,754
Permanent differences
Italian local tax (IRAP)
Foreign tax rate differential
Nondeductible expense
Other
19,865
12,587
6,889
(2,400)
23,800
(5,547)
10,763
(4,928)
Total tax provision
68,158
75,842
Reconciliation of the theoretical and effective provision for income taxes:
Effective tax rate
60.0%
40.3%
At December 31, 2010, a €440.0 million deficit existed in undistributed earnings of foreign subsidiaries.
Accordingly, no undistributed earnings existed that would have required the consideration of a deferred tax liability if
such earnings were forecasted to be distributed in the foreseeable future. If undistributed earnings had existed at
December 31, 2010, an associated deferred tax liability would not have been required because there is no intention by
the Group to remit foreign earnings in the foreseeable future.
At December 31, 2010, the Group has recognized deferred tax assets related to operating losses of €112.9 million
(United States, state and Italian net operating losses) and recognized deferred tax assets related to tax credits of €1.3
million. The recognition of these assets is based on expectations that sufficient taxable income will be generated in
future years to utilize the tax loss carry forwards. The Group also has €22.1 million of unrecognized deferred tax
assets related to net operating losses and €22.8 million of unrecognized deferred tax assets related to tax credits.
These deferred tax assets were not recorded because realization of these assets is uncertain.
At December 31, 2010, the Group also has United States (US) federal net operating loss carry forwards of €273.5
million that expire at various dates through 2030. The Group also has Italian net operating loss carry forwards of €9.5
million, of which €4.8 million expire at various dates through 2015 and the remaining €4.7 million has no time
limitations.
At December 31, 2010, the Group had US state net operating losses that will expire at various dates through 2030.
The Group has recorded a deferred tax asset of €19.4 million for these state net operating losses.
134
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. Income tax (continued)
At December 31, 2010, the Group had unrecognized foreign net operating losses of €37.1 million that expire at
various dates through 2028. The Group also had unrecognized US tax credit carry forwards of €22.8 million that
expire at various dates through 2018.
On February 4, 2010, the US Internal Revenue Service completed an examination of the Group‟s consolidated
income tax returns for 2003 to 2006 resulting in a signed Revenue Agent Report (“RAR”), which was approved by
the Joint Committee on Taxation. As a result of the approved RAR, during the first quarter of 2010, the Group
received a cash refund of €2.1 million and recorded €9.9 million of tax benefits.
16. Inventories
December 31,
(thousands of euros)
Raw materials
Work in progress
Finished goods
2010
2009
25,564
84,352
55,398
165,314
25,374
48,665
60,041
134,080
The total cost of inventory related to product sales that were recognized as an expense during 2010 and 2009 was
€100.4 million and €99.4 million, respectively, which is included in raw materials, services and other costs in our
consolidated income statement (Note 24).
The amount of write-down of inventories recognized as an expense during 2010 and 2009 was €3.9 million and €7.0
million, respectively, which is included in raw materials, services and other costs in our consolidated income
statement (Note 24).
17. Trade and other receivables
December 31,
(thousands of euros)
Trade receivables
Receivables from intermediaries
Related party receivables (Note 38)
Sales-type lease receivables
Allowance for doubtful accounts (Note 40)
2010
568,974
182,883
21,667
2,553
(63,838)
712,239
2009
584,331
268,967
2,647
666
(64,808)
791,803
Receivables from intermediaries represent amounts due from tobacconists, bars, petrol stations, newspaper stands and
motorway restaurants in Italy whereby Lottomatica provides third-party processing services related to their
commercial services network. Trade receivables and receivables from intermediaries are non-interest bearing.
135
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18. Consolidated net financial position
December 31,
(thousands of euros)
Cash on hand
Cash at bank
Cash and cash equivalents
2010
2009
430
151,975
152,405
453
468,882
469,335
6,673
4,613
51,950
46,618
32,410
64,502
195,480
46,618
29,924
55,608
132,150
36,402
(341,798)
848,888
746,016
735,836
493,797
47,414
29,953
37,127
2,939,031
740,821
733,180
53,094
56,391
1,145,100
35,721
2,764,307
Net financial position
2,975,433
2,422,509
Total indebtedness included in net financial position
2,951,692
2,694,255
Current financial receivables
Facilities
Capital Securities
Swap Liability
Other
Current financial debt
Net current financial debt (cash)
Facilities
Notes due 2016
Capital Securities
Notes due 2018
Interest rate swaps
Swap Liability
GTECH Senior Credit Facilities
Other
Non current financial debt
136
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
19. Non-current assets classified as held for sale
VLT rights
The Company has recently implemented a commercial strategy whereby it will offer VLT rights, machines, and
systems to other operators in the Italian machine gaming market in return for a percentage of net sales. The Company
is in ongoing discussions with other operators in the Italian machine gaming market under which these operators
would purchase VLT rights held by the Company. These assets were previously classified as intangible assets within
the Italian Operations segment. The Company expects these transactions to close in 2011 and has classified €27
million as an asset held for sale.
Property
In August 2008, the Company classified certain property acquired in connection with its acquisition of Atronic
(Gaming Solutions segment) located in Scottsdale, Arizona, USA as held for sale.
At December 31, 2009, the major classes of assets held for sale were as follows:
(thousands of euros)
Building
Land
Foreign currency translation
Asset impairment loss on the remeasurement to fair value less costs to sell
(€0.9 million net of tax benefit)
Non-current assets classified as held for sale
December 31,
2009
3,957
3,499
7,456
(179)
(1,387)
5,890
During the third quarter of 2010, the Company entered into a purchase agreement for the sale of the property, the sale
of which was completed in December 2010, resulting in an additional impairment loss of €2.2 million (€1.3 million
net of tax benefit).
137
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20. Issued capital, reserves and non-controlling interests
Issued capital
December 31,
Authorized shares
Ordinary shares of €1 par value per share
2010
2009
182,682,847
180,857,821
December 31,
Ordinary shares outstanding, issued and fully paid
Balance at beginning of year
Ordinary share capital issued
Balance at end of year
2010
172,015,373
172,015,373
2009
152,286,837
19,728,536
172,015,373
Approximately 1.4 million and 1.5 million ordinary shares were reserved to satisfy rights in respect of our various
share-based payment plans at December 31, 2010 and 2009, respectively.
On November 24, 2009, Lottomatica raised €350 million by issuing 19,728,536 shares to Mediobanca International
(Luxembourg) S.A. (“Mediobanca”) for €17.7408 per share (a 15% premium to the market price of €15.4268), the
proceeds of which supported the renewal of the Scratch & Win concession and the purchase of video lottery terminal
rights.
In order to raise the funds necessary to subscribe for the shares, Mediobanca commissioned UBI Banca International
S.A. to issue mandatory exchangeable bonds (“the Bonds”) which, upon maturity on October 29, 2012, must be
exchanged into Lottomatica ordinary shares. The Bonds were placed with qualified investors on a private placement
basis and bear interest at 8.75% per annum payable semi-annually in arrears in equal installments on October 29th
and April 29th of each year, commencing on April 29, 2010.
Lottomatica entered into a swap agreement with Mediobanca whereby Mediobanca paid an upfront fixed amount to
Lottomatica of €46 million, corresponding to the 15% premium to market. Lottomatica will pay fixed payments semiannually to Mediobanca that correspond to interest on the Bonds that are not converted at any interest payment date.
The present value of these payments has been recorded as a financial liability in the consolidated statement of
financial position (the “Swap Liability”).
138
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20. Issued capital, reserves and non-controlling interests (continued)
Reserves
Other reserves at December 31, 2010 consist of the following:
(thousands of euros)
Balance at January 1, 2010
Stock
Option
and
ShareRestricted Based
Legal
Stock
Payment
Reserve Reserve Reserve
Net
Unrealized
Ex Art
Gain/
2349
(Loss) Translation
Reserve Reserve
Reserve
Treasury
Share
Reserve
Other
Reserve
Total
30,457
31,458
20,382
1,834
(32,220)
(175,845)
382,096
-
258,162
Fair value of interest rate swaps
-
-
-
-
35,978
-
-
-
35,978
Amortization of gain on interest
rate swap on discontinued cash
flow hedge
-
-
-
-
(570)
-
-
-
(570)
Unrecognized net loss on derivative
instruments
-
-
-
-
(4,434)
-
-
-
(4,434)
Unrecognized net gain on available
for sale investment
-
-
-
-
19
-
-
-
19
Foreign currency translation
-
-
-
-
-
174,051
-
-
174,051
Other comprehensive income
-
-
-
-
30,993
174,051
-
-
205,044
3,946
-
-
-
-
-
-
-
3,946
Share-based payment
-
-
(269)
-
-
-
-
-
(269)
Shares issued under stock award
plans
-
-
-
-
-
-
(3,389)
-
(3,389)
Purchase of non-controlling interest
-
-
-
-
-
-
-
(3,078)
(3,078)
Expiration of share buy-back
program
-
29,248
(17,920)
-
-
-
(318,594)
-
(307,266)
34,403
60,706
2,193
1,834
(1,227)
(1,794)
60,113
(3,078)
153,150
Appropriation of 2009 income in
accordance with Italian law
Balance at December 31, 2010
139
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20. Issued capital, reserves and non-controlling interests (continued)
Other reserves at December 31, 2009 consist of the following:
(thousands of euros)
Balance at January 1, 2009
Legal
Reserve
Stock
Option
and
ShareRestricted Based
Stock
Payment
Reserve Reserve
Net
Unrealized
Ex Art
Gain/
2349
(Loss) Translation
Reserve Reserve
Reserve
Treasury
Share
Reserve
Total
30,380
34,066
26,540
1,834
(43,987)
(153,346)
382,096
277,583
Fair value of interest rate swaps
-
-
-
-
13,147
-
-
13,147
Amortization of unrecognized gain
on interest rate swap
-
-
-
-
(570)
-
-
(570)
Unrecognized net loss on derivative
instruments
-
-
-
-
(732)
-
-
(732)
Unrecognized net loss on available
for sale investment
-
-
-
-
(78)
-
-
(78)
Foreign currency translation
-
-
-
-
-
(22,499)
-
(22,499)
Other comprehensive income (loss)
-
-
-
-
11,767
(22,499)
-
(10,732)
77
-
-
-
-
-
-
77
Share-based payment
-
-
916
-
-
-
-
916
Shares issued under stock award
plans
-
(2,608)
(7,074)
-
-
-
-
(9,682)
30,457
31,458
20,382
1,834
(32,220)
(175,845)
382,096
258,162
Appropriation of 2008 income in
accordance with Italian law
Balance at December 31, 2009
Nature and purpose of other reserves
Legal reserve
The legal reserve is required by Italian law and must be increased by a minimum of 5% of net income for the year
until the balance represents 20% of share capital.
Stock option and restricted stock reserve
The stock option and restricted stock reserve is used to record the fair value of stock options granted to employees
that have been exercised and stock awards that vested during the year.
Share-based payment reserve
The share-based payment reserve represents the cumulative amount recorded for equity-settled share-based payment
transactions that have not yet vested. Increases relate to the charge for goods or services that are received in equitysettled share-based payment transactions. Decreases relate to the fair value of stock awards that vested during the
year.
140
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20. Issued capital, reserves and non-controlling interests (continued)
Ex Art 2349 reserve
The ex art 2349 reserve was established by shareholders‟ resolution in accordance with Lottomatica‟s by-laws, as
appropriated from income of the Group, to serve share-based payment plans.
Net unrealized gain/(loss) reserve
The net unrealized gain/(loss) reserve is used to record:
the deferred gain, net of amortization, related to our agreement to lock in interest rates to hedge €750 million of
capital securities;
the fair value of interest rate swaps assessed to be highly effective; and
the unrecognized net gain or loss on other derivative instruments assessed as being highly effective and available
for sale investments.
Translation reserve
The translation reserve is used to record:
exchange differences that arise from the translation of the financial statements of foreign subsidiaries, joint
ventures and investments valued at equity; and
exchange differences that arise on monetary items that, in substance, form part of the net investment in foreign
operations (such as intragroup loans where settlement is neither planned nor likely to occur in the foreseeable
future).
Treasury share reserve
The treasury share reserve was established upon the approval at the April 2008 Shareholders‟ Meeting, of the plan to
repurchase Lottomatica ordinary shares up to a maximum amount of 10% of share capital within an 18-month time
period. In October 2009, the 18-month buy-back period expired. Decreases result from the actual purchase of treasury
shares.
Other reserve
Other reserve is used to record the purchase of a non-controlling interest.
Non-controlling interests
In 2010, Amministrazione Autonoma dei Monopoli di Stato (“AAMS”) awarded Lotterie Nazionali S.r.l. (“LN”), a
majority-owned Lottomatica subsidiary, a nine year concession to operate the national instant lotteries in Italy
(Scratch & Win concession).
In connection with the award, LN paid AAMS an upfront fee of €800 million, of which €288 million was contributed
by the non-controlling shareholders in LN (our “partners”). In addition, in December 2010, UniCredit Merchant
S.p.A. (the “investor”) indirectly invested €100 million in the Scratch & Win concession operated by LN. As a result
of this investment, Lottomatica owns, directly and indirectly through Lotterie Nazionali Holding S.p.A., a 51.5%
interest in LN.
The total capital contributions of €388 million, net of €2.1 million of investor costs, were recorded as a capital
increase from non-controlling interests in the consolidated statement of changes in equity.
141
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
21. Debt
December 31,
(thousands of euros)
Long-term debt, less current portion
Facilities
Notes due 2016
Capital Securities
Notes due 2018
GTECH Senior Credit Facilities
Other
Short-term borrowings
Short-term borrowings
Current portion of long-term debt
Facilities
Capital Securities
Notes due 2016
Notes due 2018
LTO Revolving Credit Facility
GTECH Senior Credit Facilities
Other
Total indebtedness
2010
2009
848,888
746,016
735,836
493,797
875
2,825,412
740,821
733,180
1,145,100
2,889
2,621,990
7,458
7,458
5,079
5,079
51,950
46,618
2,926
2,240
20
15,068
118,822
46,618
3,147
22
203
17,196
67,186
2,951,692
2,694,255
142
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
21. Debt (continued)
Facilities
In December 2010, Lottomatica and GTECH entered into an agreement with a syndicate of financial institutions for
the following facilities:
Facility
Borrower
$700 million term loan (the "Term Loan Facility")
GTECH
€500 million multi-currency revolving credit facility ("Revolving Facility A")
GTECH
€400 million multi-currency revolving credit facility ("Revolving Facility B")
Lottomatica
Revolving Facility A and Revolving Facility B are collectively referred to as the "Revolving Facilities" and the Term
Loan Facility and the Revolving Facilities are collectively referred to as the "Facilities".
The Facilities are unsecured and unsubordinated and expire on December 20, 2015. The Term Loan Facility and
Revolving Facility A are fully and unconditionally guaranteed by Lottomatica, GTECH Holdings Corporation
("Holdings"), GTECH Rhode Island Corporation ("GTECH Rhode Island") and Invest Games S.A ("Invest Games")
(Holdings, GTECH Rhode Island and Invest Games are collectively referred to as the "Other Guarantors").
Revolving Facility B is fully and unconditionally guaranteed by GTECH and the Other Guarantors.
GTECH is required to repay the Term Loan Facility pursuant to the following schedule (US dollars in thousands):
2011
2012
2013
2014
2015
Total
70,000
105,000
140,000
175,000
210,000
700,000
Interest on the Facilities is generally payable between one and six months in arrears. Interest rates are determined by
reference to LIBOR for the Term Loan Facility and either LIBOR or EURIBOR for the Revolving Facilities, plus a
margin based on the Group's ratio of total net debt to earnings before interest, taxes, depreciation and amortization,
and the Group's senior unsecured long-term debt rating. A facility fee is payable quarterly at a rate of 37.5% of
margin per annum on the total available commitment under the Facilities. A utilization fee is payable quarterly at a
rate between 0% and 0.4% per annum based on the average daily amount outstanding under the Revolving Facilities.
At December 31, 2010, the effective interest rate on the Facilities was 1.92%.
The agreement for the Facilities has covenants and restrictions, among other things, requirements relating to the
maintenance of certain financial ratios, limitations on acquisitions, and limitations on dividends. Violation of these
covenants may result in the full principal amounts of the Facilities being immediately payable upon written notice. At
December 31, 2010, we were in compliance with all covenants and restrictions.
Debt issuance costs associated with the Facilities are being amortized over approximately five years beginning
January 2011.
As of December 31, 2010, €385 million is outstanding under the Revolving Facilities.
143
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
21. Debt (continued)
Notes Due 2016
In December 2009, Lottomatica issued €750 million of guaranteed notes due December 5, 2016 (the "2009 Notes").
The 2009 Notes are unconditionally and irrevocably guaranteed by GTECH and the Other Guarantors. The 2009
Notes, which have received ratings of Baa3 and BBB- by Moody's Investors Service and Standard & Poor's Rating
Service, respectively, are listed on the Luxembourg Stock Exchange.
Interest on the 2009 Notes is payable annually in arrears on each December 5, commencing on December 5, 2010, at
5.375% per annum, and is subject to adjustment from time to time in the event of a step up rating change or step
down rating change. In the event of a step up or step down rating change, the interest rate shall be increased or
decreased by 1.25% per annum, provided that at no time during the term of the 2009 Notes will the interest rate be
higher than 6.625% or lower than the initial rate of interest of 5.375%.
Unless previously redeemed or purchased and cancelled, the 2009 Notes will be redeemed at 100% of their principal
amount on December 5, 2016. The 2009 Notes may be redeemed at any time after January 4, 2010 by Lottomatica, in
whole but not in part, at the greater of (i) 100% of their principal amount together with any accrued interest or (ii) an
amount specified in the terms and conditions of the 2009 Notes. The 2009 Notes may also be redeemed in whole, but
not in part, at 100% of their principal amount at the option of Lottomatica in the event of certain changes affecting
taxation in Italy, the United States or Luxembourg. Holders of the 2009 Notes may require Lottomatica to redeem the
2009 Notes in whole or in part at 100% of their principal amount plus accrued interest following the occurrence of
certain events specified in the terms and conditions of the 2009 Notes.
The proceeds of the 2009 Notes, net of associated fees and costs, were used to repay Lottomatica‟s €360 million
senior unsecured term loan facility, a portion of the GTECH Senior Credit Facilities (as discussed below) and other
debt.
Debt issuance costs associated with the 2009 Notes are being amortized over approximately seven years beginning
December 2009.
Capital Securities
In May 2006, Lottomatica issued €750 million of subordinated interest-deferrable capital securities due March 2066
(the "Capital Securities"). The Capital Securities have a fixed interest rate of 8.25% payable annually through March
31, 2016 and thereafter have a variable interest rate of six-month EURIBOR plus 505 basis points payable semiannually. The Capital Securities, which have received ratings of Ba2 and BB by Moody's Investors Service and
Standard & Poor's Rating Service, respectively, are listed on the Luxembourg Stock Exchange.
The Capital Securities are redeemable at maturity, at par value after March 31, 2016, upon the occurrence of certain
tax events, through open market purchases, by public cash tender offer or if a change of control event occurs.
Debt issuance costs associated with the Capital Securities are being amortized over 10 years beginning May 2006.
The terms of the Capital Securities allow Lottomatica to optionally defer interest payments and mandates deferral of
interest payments if Lottomatica is in breach of the interest coverage ratio as defined in the trust deed for the Capital
Securities. Under circumstances described in the trust deed for the Capital Securities, Lottomatica is required to settle
deferred interest payments with cash or equity. Lottomatica paid €61.9 million of interest on the Capital Securities in
both 2010 and 2009.
144
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
21. Debt (continued)
The terms of the Capital Securities require Lottomatica to authorize the issuance of ordinary shares in accordance
with a resolution approved by Lottomatica shareholders. At each annual general meeting, the value of the ordinary
shares authorized for issuance must be at least equivalent to the interest payments due during the following two-year
period. As of December 31, 2010, the authorization was in place for the issuance of capital up to €170 million.
Interest payments over the next two years are approximately €124 million.
Notes Due 2018
In December 2010, Lottomatica issued €500 million of guaranteed notes due February 2, 2018 (the "2010 Notes").
The 2010 Notes are unconditionally and irrevocably guaranteed by GTECH and the Other Guarantors. The 2010
Notes, which have received ratings of Baa3 and BBB- by Moody's Investors Service and Standard & Poor's Rating
Service, respectively, are listed on the Luxembourg Stock Exchange.
Interest on the 2010 Notes is payable annually in arrears on each February 2, commencing on February 2, 2012, at
5.375% per annum, and is subject to adjustment from time to time in the event of a step up rating change or step
down rating change. In the event of a step up or step down rating change, the interest rate shall be increased or
decreased by 1.25% per annum, provided that at no time during the term of the 2010 Notes will the interest rate be
higher than 6.625% or lower than the initial rate of interest of 5.375%.
Unless previously redeemed or purchased and cancelled, the 2010 Notes will be redeemed at 100% of their principal
amount on February 2, 2018. The 2010 Notes may be redeemed at any time after January 3, 2011 by Lottomatica, in
whole but not in part, at the greater of (i) 100% of their principal amount together with any accrued interest or (ii) an
amount specified in the terms and conditions of the 2010 Notes. The 2010 Notes may also be redeemed in whole, but
not in part, at 100% of their principal amount at the option of Lottomatica in the event of certain changes affecting
taxation in Italy, the United States or Luxembourg. Holders of the 2010 Notes may require Lottomatica to redeem the
2010 Notes in whole or in part at 100% of their principal amount plus accrued interest following the occurrence of
certain events specified in the terms and conditions of the 2010 Notes.
The proceeds of the 2010 Notes, net of associated fees and costs, were used to repay a portion of the Lottomatica
Revolving Credit Facility (as discussed below) and to prepay a portion of the GTECH Senior Credit Facilities (as
discussed below).
Debt issuance costs associated with the 2010 Notes are being amortized over approximately seven years beginning
December 2010.
GTECH Senior Credit Facilities
GTECH was a party to an agreement with a syndicate of financial institutions for a $2.76 billion senior unsecured
term and revolving credit facilities (the "GTECH Senior Credit Facilities") which was due to expire on August 29,
2012. On December 6, 2010 and December 7, 2010, GTECH prepaid $75 million and $205 million, respectively, of
the GTECH Senior Credit Facilities with proceeds from the 2010 Notes. On December 23, 2010, GTECH prepaid the
outstanding balance of the GTECH Senior Credit Facilities with the proceeds of the Term Loan Facility and
Revolving Facility A and cancelled the GTECH Senior Credit Facilities. As a result, unamortized debt issuance costs
and the fair value of the interest rate swaps associated with the GTECH Senior Credit Facilities were written off to
other expense in the consolidated income statement, further details of which are provided in Note 29.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
21. Debt (continued)
Prior to the cancellation of the GTECH Senior Credit Facilities, interest was generally payable three months in
arrears at rates determined by reference to LIBOR plus a margin based on the Group's ratio of total net debt to
earnings before interest, taxes, depreciation and amortization, and the Group's senior unsecured long-term debt rating.
A facility fee was payable quarterly at a rate of 0.24% per annum on the total amount available of the €500 million
commitment under its revolver facilities, and the effective interest rate was 0.89%.
LTO Revolving Credit Facility
Lottomatica was a party to an agreement with a syndicate of financial institutions for a €300 million senior unsecured
revolving credit facility (the "LTO Revolving Credit Facility") which was due to expire on August 29, 2012. On
December 23, 2010, Lottomatica repaid the LTO Revolving Credit Facility with proceeds of Revolving Facility B
and cancelled the LTO Revolving Credit Facility. As a result, unamortized debt issuance costs associated with the
LTO Revolving Credit Facility were written off to other expense in the consolidated income statement, further details
of which are provided in Note 29.
Letters of Credit
In connection with certain customer contracts, we are required to issue letters of credit for the benefit of our
customers. The letters of credit primarily secure our performance under the customer contracts. At December 31,
2010, €570.5 million of letters of credit were outstanding with a weighted average annual cost of 0.74%. At
December 31, 2009, €619.9 million of letters of credit were outstanding with a weighted average annual cost of
0.79%.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
22. Provisions
(thousands of euros)
Long-term provisions
Balance at January 1, 2010
Arising during the year
Utilized
Unused amounts reversed
Other
Foreign currency translation
Balance at December 31, 2010
Short-term provisions
Balance at January 1, 2010
Arising during the year
Utilized
Unused amounts reversed
Foreign currency translation
Balance at December 31, 2010
Legal
Matters
Tax
Matters
Other
Total
11,139
(975)
(2,104)
239
8,299
9,138
(1,477)
84
190
7,935
2,693
782
(375)
3,100
22,970
782
(1,350)
(3,581)
84
429
19,334
1,238
(112)
(1)
1,125
-
620
877
(816)
(63)
65
683
1,858
877
(928)
(64)
65
1,808
Legal matters
Provisions relate primarily to the legal matters discussed in Note 42 and are calculated based on management‟s
expectations of settlement determined with the assistance of legal counsel.
Tax matters (other than income taxes)
Provisions relate primarily to disputed tax assessments and reserves for regulatory audits and are calculated based on
assessed taxes and expected payment of tax based on statutory rates.
Other
Other provisions relate primarily to warranty obligations, which generally extend for 12 months, on equipment sales
and prizes on certain lottery games. Provisions are calculated based on historical cost information and expected prize
payouts. Settlement on prizes varies according to the terms of each individual game.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
23. Other liabilities (non-current and current)
December 31,
(thousands of euros)
Other non-current liabilities
Deferred revenue
Contingent liabilities related to GTECH acquisition
Staff severance fund (Note 37)
Other
2010
(thousands of euros)
Other current liabilities
Accrued expenses
Taxes other than income taxes
Employee compensation
Deferred revenue
Advance payments from customers
Advance billings
2010
2009
27,874
13,514
7,491
8,873
57,752
27,628
13,503
8,082
5,971
55,184
December 31,
2009
72,506
64,932
57,958
39,998
17,894
5,842
259,130
99,763
49,763
56,841
38,259
18,647
7,291
270,564
24. Raw materials, services and other costs
December 31,
(thousands of euros)
2010
2009
Operating expenses
Outside services
Consumables
Cost of product sales (Note 16)
Insurance, miscellaneous taxes and other
Telecommunications
Occupancy
Travel
Write-down of inventories (Note 16)
538,356
157,253
119,069
100,448
88,230
64,443
52,118
27,846
3,925
1,151,688
472,382
144,704
110,881
99,423
77,956
62,375
47,551
30,133
7,024
1,052,429
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
25. Personnel
December 31,
(thousands of euros)
2010
Payroll
Statutory benefits
Company benefits
Incentive compensation
Net benefits for staff severance fund (Note 37)
Share-based payment (Note 35)
Other
2009
353,936
33,595
26,468
25,305
3,563
(269)
7,790
450,388
333,466
31,288
26,306
24,336
4,178
916
7,815
428,305
The Group‟s worldwide employees are comprised of the following personnel:
Personnel Description
Executives
Middle Management
All Other Permanent Employees
Employees with Temporary Employment Contracts
Number of employees
As of December 31,
2010
2009
413
1,015
5,836
338
7,602
2010
Average
400
977
6,131
164
7,672
407
993
5,920
371
7,691
26. Depreciation
December 31,
(thousands of euros)
Systems, equipment and other assets related to contracts, net (Note 8)
Property, plant and equipment, net (Note 9)
2010
2009
233,139
13,782
246,921
224,088
12,513
236,601
27. Amortization
December 31,
(thousands of euros)
Intangibles amortization (Note 11)
Other
2010
117,215
117,215
2009
94,522
(122)
94,400
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
28. Impairment loss, net of recovery
Impairment loss, net of recovery was recorded by the Group during 2010 and 2009 as detailed below.
(thousands of euros)
Systems, equipment and other assets related to
contracts, net (Note 8)
Goodwill (Note 10)
Intangible assets, net (Note 11)
Assets classified as held for sale (Note 19)
Recovery
(thousands of euros)
Systems, equipment and other assets related to
contracts, net (Note 8)
Goodwill (Note 10)
Intangible assets, net (Note 11)
Non-current financial assets
Assets classified as held for sale (Note 19)
Italian
Operations
-
Italian
Operations
110
1,500
868
2,478
For the year ended December 31, 2010
GTECH
Gaming
GTECH
Lottery
Solutions
G2
290
119
(4,953)
(4,544)
2,173
2,173
37,685
13,098
50,783
For the year ended December 31, 2009
GTECH
Gaming
GTECH
Lottery
Solutions
G2
6,585
6,585
(6)
2,600
1,387
3,981
22,349
40,632
62,981
Total
290
37,685
13,217
2,173
(4,953)
48,412
Total
104
23,849
49,817
868
1,387
76,025
2010 impairment
GTECH G2 segment
The 2010 impairment loss recorded in this segment relates to regulatory changes of online gaming in Europe. The
industry that GTECH G2 operates in is undergoing a transition from mainly cross-border online gaming operators to
highly regulated nationally licensed businesses known as Nationally Regulated Gaming Markets (“NRM‟s”). NRM‟s
are expected to erode growth of cross-border businesses, especially in Europe. This transition has various
implications, which include accelerating the blocking of cross-border online gaming business and delaying the
approval to launch locally licensed business in some markets that adopted national regulations, all of which combined
are impacting current revenue streams as well as delaying revenue opportunities for the GTECH G2 segment.
The impairment loss represents the write-down of goodwill and intangible assets to their recoverable amounts. The
recoverable amounts were based on fair value less costs to sell and were determined using after-tax discount rates
ranging from 8.5% to 11%.
GTECH Lottery segment
The 2010 net impairment recovery in this segment principally relates to non-refundable cash received that is
associated with an impairment loss originally recorded in 2008 that related to a lottery system we deployed for an
international customer that had encountered a sustained period of political instability which has prevented the lottery
system from launching.
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LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
28. Impairment loss, net of recovery (continued)
2009 impairment
GTECH G2 segment
The 2009 impairment loss recorded in this segment related to potential changes in the regulation of online gaming in
Europe. A significant European Court decision upheld the interest of numerous European States in creating
Nationally Regulated Gaming Markets under which cross-border online gaming operators may be required to apply
for jurisdiction specific online gaming licenses. Given the uncertain timeline of new licenses and impact to crossborder transactions, we estimated that growth in this segment would continue but at a slower pace.
The impairment loss represents the write-down of goodwill and intangible assets to their recoverable amounts. The
recoverable amounts were based on fair value less costs to sell and were determined using after-tax discount rates
ranging from 9% to 11%.
GTECH Lottery segment
The 2009 impairment loss recorded in this segment principally related to the lower expected profitability of a new
lottery contract. The impairment loss represents the write-down of an intangible asset to its recoverable amount. The
recoverable amount was based on fair value less costs to sell and was determined using a 6.65% after-tax discount
rate.
Gaming Solutions segment
The 2009 impairment loss recorded in this segment principally related to lower expected revenues associated with
Atronic and the remeasurement to fair value less costs to sell of the Atronic property held for sale (See Note 19). The
impairment loss associated with the write-down of intangible assets to their recoverable amounts was based on fair
value less costs to sell and was determined using a 12.7% after-tax discount rate.
29. Other expense
(thousands of euros)
For the year ended December 31,
2010
2009
Non-cash loss on interest rate swaps (Note 33)
Debt issuance costs
Other fees
Termination of interest rate swaps
Debt extinguishment costs
(47,384)
(8,296)
(58)
(55,738)
(5,391)
(3,936)
(9,327)
Cash paid on interest rate swaps
Mark to market adjustments on interest rate swaps
Other
(1,058)
305
(8,028)
(64,519)
(7,363)
(16,690)
151
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
29. Other expense (continued)
Debt extinguishment costs
For the year ended December 31, 2010
On December 20, 2010, we completed the refinancing of €2.65 billion of Group debt (that began in December 2009),
extending the weighted average debt maturity to over five years and diversifying our sources of capital, while
improving terms and conditions. As part of the refinancing, Lottomatica issued 7-year, €500 million of guaranteed
notes (the "2010 Notes"), GTECH entered into a $700 million 5-year term loan facility and Lottomatica and GTECH
entered into €400 million and €500 million, respectively, of committed revolver facilities (together, the "Facilities").
The proceeds of the 2010 Notes and borrowings under the Facilities, net of associated fees and costs, were used to
repay a portion of the Lottomatica Revolving Credit Facility (the “LTO Facility”) and to prepay the outstanding
balance of the GTECH Senior Credit Facilities (the “Old Facility”). Upon prepayment, the Old Facility was
cancelled. We determined that the terms of the Facilities were substantially different from the Old Facility and
accounted for the refinancing as an extinguishment of the Old Facility.
Immediately prior to the prepayment and cancellation, unamortized debt issuance costs for the LTO Facility and Old
Facility were €1.0 million and $9.8 million (€7.3 million at the December 31, 2010 exchange rate), respectively.
GTECH also held $1.3 billion notional amount of interest rate swaps with an aggregate fair value loss of $63.8
million (€47.4 million) recorded in other comprehensive income.
Upon completion of the refinancing, the €8.3 million of unamortized debt issuance costs and €0.1 million of other
fees were written off as a cost of the debt extinguishment. In addition, we concluded that the interest rate swaps no
longer qualified for cash flow hedge accounting since there was no longer a hedging relationship and the €47.4
million aggregate fair value loss recorded in other comprehensive income was also written off.
The interest rate swaps were not terminated at the time of refinancing and are expected to be held through their
original expiration date of June 30, 2012. Mark to market adjustments on the interest rate swaps subsequent to
December 20, 2010 were recorded directly to other expense in the consolidated income statement.
For the year ended December 31, 2009
In December 2009, Lottomatica issued €750 million of guaranteed notes (the “2009 Notes”), the proceeds of which,
net of associated fees and costs, were used to reimburse Lottomatica‟s €360 million senior unsecured term loan
facility, a portion of the GTECH Senior Credit Facilities and other debt. As a result, unamortized debt issuance costs
and interest rate swaps associated with the reimbursed debt were written off.
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LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
30. Foreign exchange loss, net
Foreign exchange gains and losses are classified as realized (cash) or unrealized (non-cash) as follows:
(thousands of euros)
Cash foreign exchange loss
Non-cash foreign exchange gain (loss)
For the year ended December 31,
2010
2009
(32,756)
(8,673)
(41,429)
(18,970)
3,146
(15,824)
Cash foreign exchange loss
Cash foreign exchange loss was comprised of the following:
(thousands of euros)
Cash paid on derivative instruments
GTECH euro denominated debt
Other
For the year ended December 31,
2010
2009
(36,439)
3,683
(32,756)
(16,583)
(2,387)
(18,970)
Cash paid on derivative instruments
In December 2010, we completed the refinancing of €2.65 billion of Group debt that began in December 2009. Prior
to the refinancing, approximately 45% of the Group‟s debt was denominated in US dollars and therefore exposed to
fluctuations in the euro versus the US dollar exchange rate. In order to mitigate the risk of higher Group debt from the
weakening euro versus the US dollar, at varying times during 2010, the Group entered into derivative instruments
with notional amounts approximating €600 million. In December 2010, we settled these derivative instruments,
resulting in a cash foreign exchange loss. No further exposure exists at December 31, 2010.
GTECH euro denominated debt
In 2009, GTECH borrowed in euro under the GTECH Senior Credit Facilities in order to better match future cash
flows with the Group‟s revenue concentration from European countries (which has increased in recent years). These
euro denominated borrowings resulted in a cash foreign exchange loss when in December 2009, a portion of the
proceeds from the 2009 Notes were used to reimburse the outstanding euro borrowings under the GTECH Senior
Credit Facilities.
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LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
30. Foreign exchange loss, net (continued)
Non-cash foreign exchange gain (loss)
Non-cash foreign exchange gain (loss) was comprised of the following:
(thousands of euros)
GTECH euro denominated debt
Other
For the year ended December 31,
2010
2009
(7,146)
(1,527)
(8,673)
3,146
3,146
GTECH euro denominated debt
GTECH‟s outstanding borrowings under its €500 million Revolving Facility A resulted in a non-cash foreign
exchange loss during 2010 due to fluctuations in the US dollar to euro exchange rate.
31. Interest expense
The Group incurred interest expense on the following:
(thousands of euros)
Capital Securities
GTECH Senior Credit Facilities
Notes due 2016
Interest accretion on Swap Liability
LTO Term and Revolving Credit Facilities
Notes due 2018
Facilities
Other
For the year ended December 31,
2010
2009
(64,531)
(54,046)
(38,288)
(3,041)
(2,834)
(2,299)
(555)
(6,419)
(172,013)
(64,658)
(57,139)
(3,030)
(591)
(14,984)
(11,116)
(151,518)
See Note 21 for details of the debt related components.
154
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32. Earnings per share
Basic and diluted earnings per share are calculated as follows:
(thousands of euros)
Numerator
Net income for the year attributable to owners of the parent
Numerator for basic and diluted earnings per share
For the year ended December 31,
2010
2009
Denominator
Basic weighted average number of ordinary shares
Potential dilutive effect of stock options and restricted shares
Diluted weighted average number of ordinary shares
Basic earnings per share/ADRs
Diluted earnings per share/ADRs
€
€
492
492
68,149
68,149
168,072
32
168,104
150,336
88
150,424
-
€
€
0.45
0.45
Lottomatica‟s American depositary receipts (ADRs) are negotiable certificates representing ordinary shares of
Lottomatica. The ratio of Lottomatica shares to ADRs is 1:1.
Basic earnings per share/ADRs amounts are calculated by dividing net income for the year attributable to owners of
the parent by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share/ADRs amounts are calculated by dividing net income for the year attributable to owners of
the parent by the weighted average number of ordinary shares outstanding during the year along with the weighted
average number of ordinary shares that would be issued upon the conversion of all potentially dilutive ordinary
shares into ordinary shares.
There were approximately 0.8 million and 1.0 million potential ordinary shares at December 31, 2010 and 2009,
respectively, that were excluded from the weighted average number of ordinary shares for the purposes of diluted
earnings per share because their effect would have been anti-dilutive.
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LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
33. Components of other comprehensive income
(thousands of euros)
Interest rate swaps (cash flow hedges):
Gains arising during the year
Reclassification adjustments for losses included in the income statement
(Note 29)
Derivative instruments (cash flow hedges):
Losses arising during the year
Reclassification adjustments for (gains) losses included in the income
statement
Translation of foreign operations:
Gains (losses) arising during the year
Reclassification adjustment for gain on foreign operation disposed of during
the year
For the year ended December 31,
2010
2009
9,085
16,923
47,384
56,469
3,936
20,859
(5,031)
(2,561)
(2,123)
(7,154)
1,514
(1,047)
173,951
(30,013)
(115)
173,836
(30,013)
34. Research and development costs
The aggregate amount of research and development expenditures recognized as expense during 2010 and 2009 was
€54.8 million and €62.4 million, respectively.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
35. Share-based payment plans
The Group has three types of equity-settled share-based payment plans for employees as described below.
Stock Option Plans
The Group has various stock option plans whereby stock options are granted to certain directors, executives, and
other key employees of the Group as approved by the Board of Directors. The exercise price of the options is
generally equal to the average price of the Group‟s ordinary shares one month prior to the grant date. The options
vest subject to the satisfaction of performance conditions related to the Group‟s EBITDA (earnings before interest,
taxes, depreciation and amortization) and net financial debt over a three-year period and to the employees remaining
in service to the Group. Options partially vest upon achievement of 90% or more of the performance conditions and if
the performance conditions are not met, the options are forfeited. The contractual life of the options range from six to
eight years (depending on the plan) and there are no cash settlement alternatives.
Restricted Stock Plans
Performance based shares
The Group has various performance based share award plans whereby restricted stock is granted to certain employees
of the Group as approved by the Board of Directors. Recipients of the awards do not pay the Group any cash
consideration for the awards. The awards vest subject to the satisfaction of performance conditions related to the
Group‟s EBITDA and net financial debt over a three-year period and to the employees remaining in service to the
Group. Awards partially vest upon achievement of 90% or more of the performance conditions and if the
performance conditions are not met, the awards are forfeited. The contractual life of the awards is four to five years
and they may be settled in cash at the Group‟s option. The Group does not have a past practice of cash settlement and
does not plan to cash settle awards in the future.
Time based shares
The Group has a time based share award plan whereby restricted stock is granted to certain employees of the Group
as approved by the Board of Directors. Recipients of the awards do not pay the Group any cash consideration for the
awards. The awards generally vest over a five-year period and are subject to the employees remaining in service to
the Group. The contractual life of the awards is five years and they may be settled in cash at the Group‟s option. The
Group does not have a past practice of cash settlement and does not plan to cash settle awards in the future.
Modifications
There were no modifications to any share-based payment plans during 2010.
During the second quarter of 2009, modifications were made to the performance conditions of certain of our
performance based plans. These modifications, along with adjustments for current vesting expectations, resulted in a
net reduction of stock compensation expense. The modifications did not result in any incremental fair value required
to be recognized as expense.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
35. Share-based payment plans (continued)
Stock option movements in the year
The following table illustrates the number and weighted average exercise prices of, and movements in, stock options
during the year:
2010
Shares
under
Options
Outstanding at beginning of year
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Outstanding at end of year
Exercisable at end of year
2009
Weighted
Average
Exercise Price
Shares
under
Options
Weighted
Average
Exercise Price
6,410,287
1,750,644
(1,555,798)
(286,616)
6,318,517
€ 21.91
10.89
28.79
23.17
17.11
4,724,018
1,850,510
(164,241)
6,410,287
€ 25.11
14.03
25.09
21.91
794,186
€ 29.59
1,092,325
€ 27.90
The range of exercise prices and weighted average remaining contractual life for stock options outstanding under the
stock option plans as of December 31, 2010 and 2009 are as follows:
As of December 31, 2010
Exercise Price
or Range of
Exercise Prices
€10.89 - €14.03
€ 20.29
€ 23.17
€29.45 - €30.40
Options
Outstanding
3,517,614
2,006,717
794,186
6,318,517
As of December 31, 2009
Weighted
Average
Remaining
Contractual
Life (Years)
Exercise Price
or Range of
Exercise Prices
4.83
5.33
3.48
€ 14.03
€ 20.29
€ 23.17
€29.45 - €30.40
Options
Outstanding
1,840,220
2,133,662
286,616
2,149,789
6,410,287
Weighted
Average
Remaining
Contractual
Life (Years)
5.33
6.33
0.33
5.01
158
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
35. Share-based payment plans (continued)
Fair value measurement of stock options
The fair value of equity-settled stock option grants is estimated at the date of grant using a binomial model, taking
into account the terms and conditions upon which the stock options were granted. The weighted average fair value of
stock options granted during 2010 and 2009 was €1.45 per share and €2.99 per share, respectively. The following
tables list the inputs to the binomial model used for the years ended December 31, 2010 and 2009.
Year ended December 31,
2010
2009
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of options (in years)
Weighted average share price (€)
Exercise price (€)
6.15
26.24
3.00
4.50
11.08
10.89
4.62
26.32
3.50
4.50
15.45
14.03
The expected life of the stock option is based on historical data and is not necessarily indicative of exercise patterns
that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future
trends, which may not be the actual outcome. No other features of stock option grants were incorporated into the
measurement of fair value.
Restricted stock grants
Performance based restricted share awards granted during 2010 and 2009 and their weighted average fair value at the
date of grant (which represents the average share price during the employee grant acceptance period) are as follows:
Year ended December 31,
2010
2009
Granted during the year
Weighted average fair value at the date of grant
724,020
€
11.08
673,729
€
15.45
There were no grants of time based restricted share awards in 2010 or 2009.
Expense charged to income statement
The expense (contra-expense) recognized during the year arising from employee share-based payment plans and
included in personnel in our consolidated income statement was as follows:
December 31,
(thousands of euros)
Performance based stock option plans
Performance based restricted shares
Time based restricted shares
2010
(629)
(917)
1,277
(269)
2009
(3,399)
1,866
2,449
916
159
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
36. Dividends paid
December 31,
(thousands of euros)
Cash dividend declared and paid on ordinary shares:
Dividend for 2010: €0.74 per share (2009: €0.68 per share)
2010
124,815
2009
100,940
In February 2011, Lottomatica Group‟s Board of Directors recommended a new dividend policy that will allocate no
more than 50% of annual levered free cash flow for the payment of dividends. In order to transition to the new policy,
in 2011 the Board recommended that the 2010 dividend be a distribution of treasury shares in the ratio of one share of
Lottomatica stock for every 50 shares owned as of May 23, 2011. If approved at the annual shareholders‟ meeting in
April 2011, we will distribute our currently-owned 3,167,552 treasury shares, and approximately 205,000 shares that
are expected to be acquired over the next several weeks for approximately €2.4 million based on the current stock
price. We do not intend to repurchase any other additional shares during 2011.
37. Employee benefits
Staff Severance Fund
The Group has a defined benefit plan (staff severance fund) to provide certain post employment benefits to Italian
employees following termination from the Group. Italian employees may choose to participate in an unfunded plan
within the Group or transfer their plan balance to independent external funds. These benefits are funded only to the
extent paid to the external funds. The cost of providing benefits under the plan, for those employees that participate in
the unfunded plan within the Group, is determined using the projected unit credit actuarial valuation method. The
cost of providing benefits for those employees that choose to transfer their plan to independent external funds are
considered as defined contributions and are accrued as the employees render the related service. The defined benefit
liability represents the present value of the Group‟s defined benefit obligation.
The following table summarizes the components of net benefit expense recognized during the year for the staff
severance fund, which is included in personnel in our consolidated income statement.
December 31,
(thousands of euros)
Current service cost
Net actuarial (gain) loss recognized in the year
Net benefit expense
2010
3,935
(372)
3,563
2009
3,660
518
4,178
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
37. Employee benefits (continued)
Changes in the present value of the defined benefit obligation are as follows:
December 31,
(thousands of euros)
2010
Balance at beginning of year
Current service cost
Actuarial (gain) loss
Disposal of subsidiary
Benefits paid
Balance at end of year
2009
8,082
3,935
(372)
(295)
(3,859)
7,491
7,755
3,660
518
(3,851)
8,082
The present value of the defined benefit obligation for the years ended 2008, 2007, and 2006 was €7.8 million, €7.8
million, and €8.8 million, respectively.
The principal assumptions used in determining the defined benefit obligation are shown below:
December 31, 2010
Other
Managers
employees
Assumed inflation rate
Discount rate
Future salary increases:
Up to age 40
Age between 40 and 55
Age greater than 55
December 31, 2009
Other
Managers
employees
2.00%
4.30%
2.00%
4.30%
2.00%
4.10%
2.00%
4.10%
2.75%
2.50%
2.25%
2.50%
2.25%
2.00%
2.75%
2.50%
2.25%
2.50%
2.25%
2.00%
Termination Benefits
Termination benefits expense, primarily related to salary continuation and continued medical benefits coverage for
employees who were terminated during the year, was €6.1 million and €5.9 million in 2010 and 2009, respectively.
161
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
38. Related party disclosures
December 31,
(thousands of euros)
Accounts receivable
De Agostini Group
Spain UTE
Taiwan Sports Lottery Corporation
Accounts payable
De Agostini Group
(thousands of euros)
Service revenue and product sales
Spain UTE
CLS-GTECH Company Limited
Taiwan Sports Lottery Corporation
Raw materials, services and other costs
De Agostini Editore S.p.A. - service fees
De Agostini S.p.A.- management fees
2010
2009
19,333
2,331
3
21,667
2,096
456
95
2,647
53,025
43,232
For the year ended December 31,
2010
2009
16,105
227
199
16,531
200
1,691
1,891
3,827
281
4,108
261
325
586
De Agostini Group
The De Agostini Group includes De Agostini S.p.A (“De Agostini”), the majority shareholder of Lottomatica and De
Agostini Editore S.p.A, a subsidiary of De Agostini. Outstanding accounts receivable balances at December 31, 2010
and December 31, 2009 are non-interest bearing.
Spain UTE
GTECH has a 50% interest in a Spanish joint venture (“Spain UTE”) which is accounted for using the proportionate
consolidation method. Spain UTE provided to the National Organization of the Spanish Blind (“ONCE”), end-to-end
lottery technology, marketing services, logistics, and retailer services for a lottery retailer network that will
complement ONCE‟s existing lottery network. ONCE is authorized by the Spanish government to administer lottery
and wagering games in Spain.
Taiwan Sports Lottery Corporation
GTECH has a 24.5% interest in Taiwan Sports Lottery Corporation (“TSLC”) which is accounted for using the equity
method of accounting. TSLC is the agency commissioned by Taipei Fubon Bank (the sports lottery license holder
through December 2013) to be Taiwan‟s sport betting solutions and services provider.
CLS-GTECH Company Limited
GGSC has a 50% interest in CLS-GTECH Company Limited (“CLS-GTECH”), which is accounted for using
proportionate consolidation. CLS-GTECH is a corporate joint venture that was formed to provide a nationwide
KENO system for Welfare lotteries throughout China.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
38. Related party disclosures (continued)
Compensation of Key Management Personnel
The amounts recognized as expense during the year related to key management personnel are as follows:
For the year ended December 31,
2010
2009
(thousands of euros)
Short-term employee benefits
Post-employment benefits
Share-based payments
6,544
186
(118)
6,612
6,270
159
492
6,921
Compensation paid to Lottomatica Group S.p.A. board of director members, statutory auditors, general manager and
the managers with strategic responsibilities are as follows (amounts in euros):
Name and
Surname
Position
Period in the
position(s)
End of
Term
January 1, 2010 to
December 31, 2010
April 28, 2011
435,000
January 1, 2010 to
December 31, 2010
April 28, 2011
96,250
January 1, 2010 to
December 31, 2010
April 28, 2011
95,000
January 1, 2010 to
December 31, 2010
April 28, 2011
91,250
January 1, 2010 to
December 31, 2010
April 28, 2011
95,000
January 1, 2010 to
December 31, 2010
April 28, 2011
95,000
Emoluments
Non-monetary
benefits
Bonus
Other
Board Chairman
Lorenzo Pellicioli
Executive Committee Chairman
Robert Dewey Jr.
Remuneration Committee Member
Board Vice Chairman
10,000
Managing Director and CEO
Marco Sala
Executive Committee Member
34,919
1,158,750
750,000
Board Member
Pietro Boroli
Executive Committee Member
Paolo Ceretti
Executive Committee Member
Board Member
Board Member
Marco Drago
Executive Committee Member
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
38. Related party disclosures (continued)
Name and
Surname
Position
Period in the
position
End of
Term
January 1, 2010 to
December 31, 2010
April 28, 2011
103,750
10,000
January 1, 2010 to
December 31, 2010
April 28, 2011
98,750
10,000
January 1, 2010 to
December 31, 2010
April 28, 2011
92,500
January 1, 2010 to
December 31, 2010
April 28, 2011
100,000
10,000
January 1, 2010 to
December 31, 2010
April 28, 2011
151,250
10,000
January 1, 2010 to
December 31, 2010
April 28, 2011
102,500
10,000
Emoluments
Non-monetary
benefits
Bonus
Other
Board Member
Jeremy Hanley,
KCMG
Internal Audit and Compliance
Committee - Member
Board Member
James McCann
Remuneration Committee Member
Board Member
Jaymin Patel
Executive Committee Member
8,216
873,067
579,424
Board Member
Anthony Ruys
Internal Audit and Compliance
Committee - Member
Board Member
Severino Salvemini
Internal Audit and Compliance
Committee - Chairman
Surveillance Body
Board Member
Gianmario Tondato
Da Ruos
Remuneration Committee Chairman
William Bruce
Turner
Board Member
January 1, 2010 to
December 31, 2010
April 28, 2011
67,500
Sergio Duca
Board of Statutory Auditors Chairman
January 1, 2010 to
December 31, 2010
April 28, 2011
112,500
January 1, 2010 to
December 31, 2010
April 28, 2011
85,000
75,000
Angelo Gaviani
Board of Statutory Auditors Regular Member
Surveillance Body
Francesco Martinelli
Board of Statutory Auditors Regular Member
January 1, 2010 to
December 31, 2010
April 28, 2011
Renato Ascoli
General Manager
January 1, 2010 to
December 31, 2010
April 28, 2011
1,896,250
33,484
392,040
580,000
76,619
2,423,857
1,969,424
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
38. Related party disclosures (continued)
Compensation paid to Lottomatica Group S.p.A. managers with strategic responsibilities during 2010 was €1,056,832
and does not include the compensation of Renato Ascoli, General Manager, since his compensation is indicated on a
disaggregate basis in the table above.
Stock options assigned to Lottomatica Group S.p.A. board of director members, statutory auditors, general manager
and the managers with strategic responsibilities are as follows:
Stock Option
Plan
2005-2010
2006-2014
2007-2015
2008-2016
2009-2015
2010-2016
As of
December 31, 2009
Options Outstanding
Number
Exercise
of Options
Price
95,336
134,500
360,000
556,270
945,720
2,091,826
€
€
€
€
€
23.17
29.45
30.40
20.29
14.03
-
During 2010
Options Granted
Options
Number
Exercise Expired or
of Options
Price
Forfeited
901,824
901,824
€ 10.89
95,336
360,000
455,336
Options
Exercised
-
As of
December 31, 2010
Options Outstanding
Number
Exercise
of Options
Price
134,500
556,270
945,720
901,824
2,538,314
€
€
€
€
€
€
23.17
29.45
30.40
20.29
14.03
10.89
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
39. Commitments and contingencies
Commitments
Acquisition of Finsoft Limited
On July 2, 2007, we acquired Finsoft Limited (“Finsoft”), a provider of real-time transaction and information
management systems for the commercial sports-betting market for a cash purchase price of ₤29.6 million (€43.9
million at the July 2, 2007 exchange rate). In consideration of performance targets which were met for Finsoft‟s fiscal
year ended September 30, 2007, contingent consideration of ₤10.3 million (€13.4 million) was paid in May 2008.
Based on performance targets for Finsoft‟s fiscal years ended September 30, 2008 and 2009, contingent consideration
of £4.5 million (€5.2 million at the December 31, 2010 exchange rate) was paid in December 2010.
Acquisition of Dynamite Design and Marketing Limited
On April 1, 2008, Boss Media, a GTECH subsidiary, acquired 100% of Dynamite Design and Marketing Limited, a
developer and supplier of unique, innovative online interactive betting games for £5.9 million in cash (€7.4 million at
the April 1, 2008 exchange rate). In consideration of performance targets which were met in 2009 and 2010,
contingent consideration of £2.7 million (€3.0 million) was paid as follows (in thousands):
Payment Date
January 2009
August 2009
December 2009
subtotal 2009
July 2010
subtotal 2010
£
636
749
430
1,815
836
836
2,651
€
722
785
482
1,989
1,006
1,006
2,995
Acquisition of St. Enodoc Holdings Limited
On April 30, 2008, GGSC acquired 90% of Gibraltar-based St. Enodoc Holdings Limited and its subsidiaries
including St. Minver Limited (collectively “St. Minver”), the leading provider of end-to-end white label gaming
services for £23.8 million in cash (€30.4 million at the April 30, 2008 exchange rate). In consideration of
performance targets that were met in 2008 and 2009, contingent consideration of ₤4.5 million (€5.7 million) and ₤0.2
million (€0.2 million) was paid in October 2008 and December 2009, respectively.
Under the terms of the original sale agreement, ten percent of St. Minver remained with Gary Shaw, Founder and
Chairman, until at least 2012, at which point both Mr. Shaw and GGSC had the right to cause GGSC to acquire Mr.
Shaw‟s shares at a price equal to fair value to be determined by an independent appraisal as of the date of exercise.
In January 2011, GGSC and Gary Shaw entered into a new agreement (terminating the original sale agreement)
whereby GGSC agreed to (i) acquire the remaining ten percent of St. Minver and (ii) sell its 30% ownership in St.
Endellion Limited (“St. Endellion”) to Gary Shaw (St. Endellion‟s 70% shareholder) for a net cash purchase price of
€1.9 million. The purchase price will be paid in two installments; €0.5 million that was paid January 2011, and €1.4
million payable upon Gary Shaw‟s satisfaction of certain payment conditions as outlined in the new agreement. If the
second payment conditions have not been satisfied (or waived) on or before March 31, 2011, then GGSC‟s
contingent obligation to make the second payment will automatically terminate.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
39. Commitments and contingencies (continued)
Acquisitions in the Italian Operations segment
The Group has made a number of acquisitions in the Italian Operations segment consisting of strategic investments to
exploit growth opportunities in the Sports Betting and Machine Gaming markets. Some of these acquisitions include
provisions for the payment of contingent consideration if certain wager or network performance conditions are
achieved. Contingent consideration of €8.1 million and €4.4 million, respectively, was paid during 2010 and 2009. If
the performance conditions continue to be achieved, the Group expects to pay the following additional amounts:
December 31,
(thousands of euros)
Within one year
After one year but not more than five years
2010
9,828
1,819
11,647
2009
26,555
1,900
28,455
Medstroms AB Put/Call
At December 31, 2009, GTECH Global Services Corporation Limited (“GGSC”) had an 87.454% interest in GEMed
AB (“GEMed”), a Swedish private limited liability company that owns 100% of Boss Media AB, a leading developer
of innovative software and systems for digitally-distributed gaming entertainment. GGSC had the option, which it
could exercise between April 1, 2010 and June 30, 2010 to require Medströms Invest AB (“Medströms”) to sell its
12.546% interest in GEMed to GTECH and Medströms had an identical put right. On April 1, 2010, Medströms
exercised its put right and on April 12, 2010, GGSC paid Medströms SEK 200 million (€20.4 million) for the
remaining 12.546% interest in GEMed.
CLS-GTECH Company Limited
GGSC has a 50% interest in CLS-GTECH Company Limited (“CLS-GTECH”), which is accounted for using
proportionate consolidation. CLS-GTECH is a corporate joint venture that was formed to provide a nationwide
KENO system for Welfare lotteries throughout China.
In December 2007, GGSC made a capital commitment to CLS-GTECH of AUD$7.5 million in the form of a
promissory note to be repaid at the discretion of the CLS-GTECH board of directors. On August 11, 2008, the
outstanding commitment remaining under the promissory note was converted from AUD$6.4 million to US$5.4
million. At December 31, 2010, the outstanding commitment was US$3.8 million (€2.8 million at the December 31,
2010 exchange rate).
Loto Real Del Cibao, C.X.A.
On August 28, 2008, GTECH and GGSC entered into a 20-year contract with Loto Real Del Cibao, C.X.A. (“Loto
Real”) to be the exclusive technology provider to Loto Real for an online lottery system, terminals, and future
commercial services and other gaming opportunities in the Dominican Republic. The contract has a provision that
allows GTECH the right to acquire 35% of the outstanding capital of Loto Real within sixty days after receiving
audited financial statements and applicable due diligence for the year ended December 31, 2012 at a price equal to
4.5 times EBITDA for the year ended December 31, 2012.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
39. Commitments and contingencies (continued)
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. We are required to indemnify the bond issuers
against costs they would incur if a beneficiary exercises their rights, although we do not currently anticipate any
exercise of these rights. The following table provides information related to potential commitments for bonds
outstanding at December 31, 2010 (in thousands of euros):
Total bonds
Performance bonds
Litigation bonds
All other bonds
276,469
5,314
2,400
284,183
Loxley GTECH Technology Co., LTD guarantee
GTECH has a 49% interest in Loxley GTECH Technology Co., LTD ("LGT"), which is accounted for using
proportionate consolidation. LGT is a corporate joint venture that was formed to provide an online lottery system in
Thailand.
At December 31, 2010, GTECH guaranteed, along with the 51% shareholder in LGT, performance bonds from trade
finance facilities made to LGT by an unrelated commercial lender. GTECH is jointly and severally liable with the
other shareholder in LGT for this guarantee. There is no scheduled termination date for GTECH‟s guarantee
obligation. At December 31, 2010, the maximum amount guaranteed and outstanding is Baht 375 million (€9.3
million).
Commonwealth of Pennsylvania indemnification
GTECH will indemnify the Commonwealth of Pennsylvania and any related state agencies for claims made relating
to the state‟s approval of GTECH‟s manufacturer‟s license in the Commonwealth of Pennsylvania.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
39. Commitments and contingencies (continued)
Leases
Operating Leases
The Group leases certain facilities and equipment under operating leases that expire at various dates through 2023.
Certain of these leases have escalation clauses and renewal options. We are generally required to pay all maintenance
costs, taxes and insurance premiums relating to our leased assets. There are no restrictions placed upon us by entering
into these leases.
Future minimum lease payments under non-cancellable operating leases are as follows:
December 31,
(thousands of euros)
Within one year
After one year but not more than five years
More than five years
2010
27,372
45,679
5,776
78,827
2009
24,963
52,607
2,714
80,284
Rental expense for operating leases was €32.5 million and €29.6 million in 2010 and 2009, respectively.
Finance Leases
World Headquarters finance lease
The Group has a finance lease for the GTECH world headquarters facility in Providence, Rhode Island, USA.
GTECH has the right to cancel the lease after June 30, 2023 if its facilities management contract with the State of
Rhode Island is not renewed, in exchange for a termination fee equal to six months of base rent plus operating
expenses. The lease includes two ten year extension options. GTECH has the unilateral right to extend the lease under
the two extension options under the same terms as in the base term. The lease contains a restriction which does not
allow GTECH to assign the lease or sublease its portion of the building without the lessor‟s approval, which is not to
be unreasonably withheld. As of December 31, 2010, GTECH had no sublease arrangements.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
39. Commitments and contingencies (continued)
Future minimum lease payments under the World Headquarters finance lease together with the present value of the
minimum lease payments are as follows:
(thousands of euros)
Within one year
December 31, 2010
Present
Minimum
Value of
Payments
Payments
December 31, 2009
Present
Minimum
Value of
Payments
Payments
2,235
641
2,034
513
After one year but not more than five years
More than five years
Non-current
9,370
22,064
31,434
3,617
15,897
19,514
8,529
22,700
31,229
2,945
15,749
18,694
Total minimum lease payments
Less amounts representing finance charges
Present value of minimum lease payments
33,669
(13,514)
20,155
20,155
20,155
33,263
(14,056)
19,207
19,207
19,207
At December 31, 2010 and 2009, the net carrying amount of the World Headquarters finance lease asset is €16.1
million which is included in property, plant and equipment, net in the consolidated statements of financial position.
The carrying amount of the liability is recorded in the consolidated statements of financial position as follows:
(thousands of euros)
Non-current financial liabilities
Current financial liabilities
Present value of minimum lease payments
December 31,
2010
2009
19,514
641
20,155
18,694
513
19,207
Communication equipment finance lease
In December 2010, GTECH entered into a finance lease for certain communication equipment, including 26,818 very
small aperture terminals (“VSATs”). At December 31, 2010, GTECH leased 6,500 VSATs and expects to lease the
remaining VSATs on a phased in approach over the next eighteen months. The lease term expires in June 2022, but
may be extended at any time. GTECH has the option to buyout the lease after a period of 66 months by paying the net
present value of all future cash flows at an interest rate of 6.4%.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
39. Commitments and contingencies (continued)
Future minimum lease payments under the equipment finance lease together with the present value of the minimum
lease payments are as follows:
(thousands of euros)
Within one year
December 31, 2010
Present
Minimum
Value of
Payments
Payments
395
142
After one year but not more than five years
More than five years
Non-current
2,028
3,247
5,275
1,187
2,657
3,844
Total minimum lease payments
Less amounts representing finance charges
Present value of minimum lease payments
5,670
(1,684)
3,986
3,986
3,986
At December 31, 2010, the net carrying amount of the equipment finance lease asset is €4.0 million which is included
in systems, equipment and other assets related to contracts, net in the consolidated statements of financial position.
The carrying amount of the liability is recorded in the consolidated statements of financial position as follows (in
thousands of euros):
Non-current financial liabilities
Current financial liabilities
Present value of minimum lease payments
3,844
142
3,986
Sale and Leaseback Transactions
GTECH sold its technology center facility in December 2006 and entered into a sale-lease back agreement with the
new owners for a base term of ten years, beginning December 2006, including four consecutive three-year extension
options. The lease payments under the extension periods are equal to 102% of the previous years rent. The lease
contains an option for GTECH to cancel the lease after seven years in exchange for a termination fee equal to nine
months of base rent, taxes, and operating expenses. The lease is accounted for as an operating lease and future
minimum lease payments are included in the operating leases section above.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
40. Financial risk management objectives and policies
Our principal financial instruments, other than derivatives, are comprised of debt and cash and cash equivalents. The
main purpose of these financial instruments is to fund the capital needs of the Group‟s operations. We have various
other financial assets and liabilities, such as trade receivables and trade payables, which arise directly from
operations.
The primary risk inherent in our financial instruments is the market risk arising from adverse changes in interest rates
and foreign currency exchange rates. We enter into derivative transactions, including principally interest rate swaps
and forward currency contracts, for the purpose of managing interest rate and currency risks arising from our
operations and its sources of financing. It is, and has been throughout the year under review, our policy not to engage
in currency or interest rate speculation. Our accounting policies regarding derivatives are set out in Note 3.14.
Credit risk
The Group‟s primary credit risk is derived from cash and trade accounts receivable balances. We maintain cash
deposits and trade with only recognized, creditworthy third parties. 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. A
significant amount of our trade accounts receivable are from government lottery entities from which we have
historically experienced insignificant write-offs. Trade accounts receivable are reported net of allowances for
doubtful accounts and liquidated damages. Allowances for doubtful accounts are generally recorded when there is
objective evidence we will not be able to collect the receivable. Bad debts are written off when identified.
With respect to credit risk arising from the other financial assets which comprise cash, available-for-sale financial
assets, and certain derivative instruments, our exposure to credit risk arises from default of the counterparty, with a
maximum exposure equal to the carrying amount of these instruments (see Note 14). We manage our exposure to
counterparty credit risk by entering into financial instruments with major, financially sound counterparties with highgrade credit ratings, and by limiting exposure to any one counterparty.
At December 31, 2010 and 2009, approximately 72% and 80% of total trade and other receivables are from Italy.
Approximately 42% and 46% of receivables from Italy relate to our lottery instant ticket business at December 31,
2010 and 2009, respectively.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
40. Financial risk management objectives and policies (continued)
Past due financial assets
The following is an analysis of the Group‟s past due financial assets which are comprised entirely of trade and other
receivables, net of related allowance for doubtful accounts.
(thousands of euros)
Current
Past due:
1-30 days
31-60 days
61-90 days
Over 90 days
Total trade and other receivables
December 31, 2010
€
%
December 31, 2009
€
%
625,818
87.9%
642,572
81.2%
50,919
13,778
4,219
17,505
86,421
712,239
7.1%
1.9%
0.6%
2.5%
12.1%
100.0%
117,353
15,131
4,421
12,326
149,231
791,803
14.8%
1.9%
0.5%
1.6%
18.8%
100.0%
Allowance for doubtful accounts
(thousands of euros)
December 31,
2010
2009
Balance at beginning of year
Provisions
Amounts written off as uncollectible
Foreign currency translation
Other
Balance at end of year (Note 17)
(64,808)
(3,590)
5,109
(728)
179
(63,838)
(44,032)
(25,355)
4,025
20
534
(64,808)
Liquidity risk
The Group‟s primary liquidity risk is derived from required debt service on our debt and on-going working capital
needs. The Group‟s objective in managing this risk is to maintain adequate liquidity and flexibility through the use of
cash generated by operating activities, bank overdrafts, and bank loans. We believe our ability to generate excess
cash from operations to reinvest in our business is one of our fundamental financial strengths and combined with our
committed borrowing capacity, we expect to meet our financial obligations and operating needs in the foreseeable
future. We expect to use cash generated primarily from operating activities to meet contractual obligations and to pay
dividends. Our growth is expected to be financed through a combination of cash generated from operating activities,
existing sources of committed liquidity, access to capital markets, and other sources of capital. Our corporate debt
ratings of Baa3 from Moody‟s Investors Service and BBB- from Standard and Poor‟s Rating Service contribute to
our ability to access capital markets at attractive prices, therefore, we do not believe the Group is exposed to a
significant concentration of liquidity risk.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
40. Financial risk management objectives and policies (continued)
The following tables set out the contractual maturities of the Group‟s financial liabilities based on contractual
undiscounted payments:
Year ended December 31, 2010
(thousands of euros)
Fixed rate
Capital Securities
Notes due 2016
Notes due 2018
Swap Liability
World Headquarters finance lease
Communication equipment finance lease
Floating rate
Facilities
Acquisition related liabilities
LTO Revolving Credit Facility
Other
Within 1
year
1-2
years
2-3
years
3-4
years
More than
4 years
Total
796,618
752,926
502,240
61,250
33,669
5,670
2,152,373
46,618
2,926
2,240
30,625
2,235
395
85,039
-
-
-
30,625
2,276
506
33,407
2,320
507
2,827
2,365
507
2,872
750,000
750,000
500,000
24,473
3,755
2,028,228
52,794
1,900
20
22,525
77,239
162,278
78,581
171
1,358
80,110
113,517
104,775
177
104,952
107,779
130,968
154
131,122
133,994
542,162
367
542,529
2,570,757
909,280
2,071
20
24,581
935,952
3,088,325
1-2
years
2-3
years
3-4
years
More than
4 years
Total
46,618
3,147
30,625
2,034
82,424
30,625
2,072
32,697
30,625
2,112
32,737
2,152
2,152
750,000
750,000
24,893
1,524,893
796,618
753,147
91,875
33,263
1,674,903
203
22
22,842
22,275
45,342
127,766
124,948
2,889
127,837
160,534
1,027,350
2,628
1,029,978
1,062,715
2,152
1,524,893
1,152,501
22
25,470
25,164
1,203,157
2,878,060
Year ended December 31, 2009
(thousands of euros)
Fixed rate
Capital Securities
Notes due 2016
Swap Liability
World Headquarters finance lease
Floating rate
GTECH Senior Credit Facilities
LTO Revolving Credit Facility
Acquisition related liabilities
Other
Within 1
year
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LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
40. Financial risk management objectives and policies (continued)
Market risk
Interest rate market risk
Our exposure to changes in market interest rates relates primarily to our net debt obligations with floating interest
rates. Our definition of net debt is variable rate debt less variable rate cash investments. Our policy is to manage
interest cost using a mix of fixed and variable rate debt. We use various techniques to mitigate the risks associated
with future changes in interest rates, including entering into interest rate swap and treasury rate lock agreements. As
of December 31, 2010 there were €150 million (notional value) in interest rate swaps outstanding (US$1.4 billion at
December 31, 2009) and approximately 36% and 12% of our net debt portfolio was exposed to interest rate
fluctuations at the end of 2010 and 2009, respectively.
Taking into consideration interest rate swaps outstanding at December 31, 2010, the following demonstrates the
sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group‟s
income before income tax expense and equity associated with our floating rate debt over the next year:
2010
2009
Increase (decrease)
in basis points
10
(10)
Effect on income
before income tax
expense (€000s)
(1,060)
1,060
10
(10)
(290)
290
Effect on
equity (€000s)
2,077
(2,069)
Foreign currency exchange rate risk
As a result of significant operations worldwide, our consolidated statement of financial position can be affected
significantly by movements in exchange rates due to the translation of foreign currency balance sheet accounts into
euro balance sheet accounts. We also have transactional currency exposures arising from current and anticipated
transactions denominated in currencies other than our functional currency, which is the euro. Translation amounts in
other reserves (Note 20) in our consolidated statements of financial position are derived primarily from our US dollar
functional currency subsidiaries.
We seek to manage our foreign exchange risk by securing payment from our customers in euros, by sharing risk with
our customers, by utilizing foreign currency borrowings, by netting 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.
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. It is our policy to
negotiate the terms of the hedge derivatives to match the terms of the hedged item to maximize hedge effectiveness.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
40. Financial risk management objectives and policies (continued)
As of December 31, 2010, we had contracts for the sale of approximately US$474.0 million of foreign currency
(primarily euro, Swedish krona, British pounds, Canadian dollars, and Czech koruna) and the purchase of
approximately US$100.6 million of foreign currency (primarily euro, Swedish krona, British pounds, Polish zlotys
and Mexican pesos).
As of December 31, 2009, we had contracts for the sale of approximately US$353.2 million of foreign currency
(primarily euro, Swedish krona, British pounds, Colombian pesos, and Czech koruna) and the purchase of
approximately US$183.9 million of foreign currency (primarily euro, Swedish krona, British pounds, Polish zlotys
and Canadian dollars).
The following demonstrates the sensitivity to a reasonably possible change in the euro to US dollar exchange rate,
with all other variables held constant, of the Group‟s income before income tax expense and equity associated with
our foreign currency denominated receivables and payables and foreign currency forward contracts over the next
year:
2010
2009
Increase (decrease)
in exchange rate
10%
(10%)
Effect on income
before income tax
expense (€000s)
57,300
(57,300)
Effect on
equity (€000s)
266,100
(266,100)
10%
(10%)
9,500
(9,500)
227,180
(227,180)
Commodity price risk
Our exposure to commodity price changes is not considered material and is managed through our procurement and
sales practices.
Hedging activities and derivatives
Derivatives not designated as hedging instruments
The Group uses forward foreign currency contracts to manage some of its transaction exposures and future foreign
currency net cash flows that the Group expects to generate through its operations. These forward foreign currency
contracts are not designated as cash flow, fair value, or net investment hedges and are typically matched with current
transactions or forecasted foreign currency transactions to be derived from operations. The aggregate fair value of the
contracts at December 31, 2010 and 2009 was (€0.4) million and (€0.1) million, respectively.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
40. Financial risk management objectives and policies (continued)
Cash flow hedges
Foreign exchange contracts
At December 31, 2010 and 2009, the Group held forward currency contracts designated as hedges of future foreign
currency net cash flows that the Group expects to generate through its operations. The terms of the currency contracts
are typically matched with the forecasted foreign currency transactions to be derived from operations up to a period
of 12 months. At December 31, 2010 and December 31, 2009, the aggregate fair value of these contracts was not
material.
Interest rate swaps
At December 31, 2010, the Group held US$1.3 billion notional amount of interest rate swaps (“swaps”), with an
aggregate fair value loss of US$63.4 million (€47.4 million at the December 31, 2010 exchange rate), which is
included in non-current financial liabilities in our consolidated statement of financial position. Prior to December 20,
2010, the swaps were designated as hedges of floating interest rates on the GTECH Senior Credit Facilities (the
“Facilities”) and effectively converted US$1.3 billion of the Facilities‟ variable interest rate debt to fixed rate debt.
On December 20, 2010, we completed the refinancing of Group debt and on December 23, 2010, we prepaid and
cancelled the Facilities. Accordingly, the swaps no longer qualified for cash flow hedge accounting since there was
no longer a hedging relationship. The swaps were not terminated and are expected to be held through their original
expiration date of June 30, 2012. Mark to market adjustments on the swaps subsequent to December 20, 2010 were
recorded to other expense in the consolidated income statement.
Under the terms of these swaps, the Group is required to make fixed interest payments based on rates ranging
between 2.89% and 5.02% and receives variable interest payments from its counterparties based on three-month
Libor with settlement occurring quarterly. If interest rates associated with these swaps were to increase or decrease by
10 basis points, holding all other variables constant, the Group‟s income before income tax expense would increase
or decrease, respectively, by €1.2 million over the next year, with no effect on equity.
The interest rate swap contracts provide that the notional amount outstanding will reduce as follows (US dollars in
thousands):
December 31, 2010
June 30, 2011
December 31, 2011
June 30, 2012
Notional Amount
Outstanding
1,277,764
1,226,024
1,174,284
-
At December 31, 2009, the Group held US$1.4 billion notional amount of interest rate swaps (“swaps”), with an
aggregate fair value loss of US$75.2 million (€52.2 million at the December 31, 2009 exchange rate), which is
included in non-current financial liabilities in our consolidated statement of financial position. These swaps were
designated as hedges of floating interest rates on the GTECH Senior Credit Facilities and effectively converted
US$1.4 billion of the GTECH Senior Credit Facilities‟ variable interest rate debt to fixed rate debt.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
40. Financial risk management objectives and policies (continued)
Under the terms of these swaps, the Group was required to make fixed interest payments based on rates ranging
between 2.89% and 5.02% and received variable interest payments from its counterparties based on three-month
Libor with settlement occurring quarterly. During 2009, we recorded an unrealized loss to equity of €13.1 million, net
of €7.7 million of income tax benefit, principally associated with these swaps.
The interest rate swap contracts provide that the notional amount outstanding will reduce as follows (US dollars in
thousands):
December 31, 2009
June 30, 2010
December 31, 2010
June 30, 2011
December 31, 2011
June 30, 2012
Notional Amount
Outstanding
1,381,244
1,329,504
1,277,764
1,226,024
1,174,284
-
Fair value hedges
At December 31, 2010, the Group held €150 million notional amount of interest rate swaps (“swaps”) with an
aggregate fair value of €3.1 million, which were designated as hedges of fixed interest rates on the €750 million of
senior notes due 2016 (the “2009 Notes”). These swaps effectively convert €150 million of the 2009 Notes fixed
interest rate debt to variable rate debt. Under the terms of these swaps, the Group is required to make variable rate
interest payments based on a 6 month floating Euribor plus a flat spread rate, collectively ranging between 3.498%
and 3.538% as of December 31, 2010, and receives fixed interest payments from its counterparties based on a fixed
rate of 5.375%. The Euribor rate resets on a semi-annual basis, but settlement occurs annually. Because these swaps
convert fixed rate debt to variable rate debt they are considered fair value hedges. With fair value hedges, both the
swaps and the hedged item (the 2009 Notes) are recorded at fair value, with the offset being recorded in interest
expense. During 2010, we recorded a swap unrealized gain of €3.1 million with an offsetting debt unrealized loss of
€2.9 million, with the difference of €0.2 million recorded as a reduction to interest expense.
At December 31, 2009, the Group held €100 million notional amount of interest rate swaps (“swaps”) with an
aggregate fair value loss of €0.7 million, which were designated as hedges of fixed interest rates on the €750 million
of senior notes due 2016 (the “2009 Notes”). These swaps effectively converted €100 million of the 2009 Notes fixed
interest rate debt to variable rate debt. Under the terms of these swaps, the Group was required to make variable rate
interest payments based on a 6 month floating Euribor plus a flat spread rate, collectively ranging between 3.263%
and 3.276% as of December 31, 2009, and received fixed interest payments from its counterparties based on a fixed
rate of 5.375%. The Euribor rate resets on a semi-annual basis, but settlement occurs annually. Because these swaps
convert fixed rate debt to variable rate debt they are considered fair value hedges. With fair value hedges, both the
swaps and the hedged item (the 2009 Notes) are recorded at fair value, with the offset being recorded in interest
expense. During 2009, we recorded a swap unrealized loss of €0.7 million with an offsetting debt unrealized gain of
€0.9 million, with the difference of €0.2 million recorded as a reduction to interest expense.During 2009, we recorded
a swap unrealized loss of €0.7 million with an offsetting debt unrealized gain of €0.9 million, with the difference of
€0.2 million recorded as a reduction to interest expense.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
40. Financial risk management objectives and policies (continued)
Hedges of a net investment in a foreign operation
At December 31, 2010, the Group held SEK 1.0 billion (€111.5 million at the December 31, 2010 exchange rate) of
foreign currency forward contracts, with an aggregate fair value loss of €1.9 million, designated as a hedge against
the net investment in Boss Media.
At December 31, 2009, the Group held SEK 1.0 billion (€96.9 million at the December 31, 2009 exchange rate) of
foreign currency forward contracts, with an aggregate fair value loss of €1.1 million, designated as a hedge against
the net investment in Boss Media. During 2009, €0.9 million of ineffectiveness arising from this hedge loss was
recognized in foreign exchange gain (loss), net in our consolidated income statement.
Capital management
The primary goal of the Group‟s capital management strategy is to ensure strong credit ratings and healthy financial
ratios in order to support its business while maximizing corporate value and reducing the Group‟s financial risks. We
consider all equity and debt to be managed capital of the Group.
The Group manages its capital structure and makes adjustments based on long term strategy decisions in light of
changes in economic conditions. Additionally, the Group seeks to preserve an optimal weighted average cost of
capital and maintain sufficient financial flexibility to pursue growth opportunities. There were no changes in the
objectives, policies, or processes during the years ended December 31, 2010 and 2009.
41. Supplemental cash flow information
Non-cash investing and financing activities are excluded from the consolidated statement of cash flows and are
summarized as follows:
December 31,
(thousands of euros)
Accrued systems, equipment and other assets related to contracts
Non-cash purchase price costs related to acquisition activity (Note 6)
Communication equipment acquired under a finance lease (Note 39)
2010
36,231
10,765
3,986
50,982
2009
12,527
12,527
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LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
42. Litigation
Lottomatica's Italian Business
1. Lotto Game Concession: Lottomatica/AAMS Arbitration – Stanley International Betting Limited Appeal – Sisal
Appeal
Arbitration Lottomatica/AAMS
Pursuant to the arbitration clause set out in article 30 of the Lotto Concession, on January 24, 2005 Lottomatica
initiated an arbitration proceeding to ascertain the effective initial date of said Concession. Lottomatica asked the
Board of Arbitrators to ascertain and state that the initial starting date of the Lotto Concession was June 8, 1998 (date
in which the European Commission in Brussels was notified that the infringement procedure no. 91/0619 was closed)
and that, as a result, the final expiration date of the Lotto Concession is June 8, 2016. Lottomatica's conclusion had
been confirmed by an opinion given by Professor Guarino and declared in the 2001 Lottomatica Listing Prospectus.
The Arbitration Award issued by the Board of Arbitrators accepted Lottomatica‟s request by lodging its award on
August 1, 2005 stating that the Lotto Concession became operative only once the infringement procedure initiated by
the European Commission was closed. In addition the Board of Arbitrators stated that during the European Litigation
there was a so-called stand still period and that the approval by the European Commission was a so-called "condicio
juris". AAMS challenged the Arbitration Award before the Rome Court of Appeal (pursuant to art. 828 of the Italian
code of civil procedure) by serving a deed to defending counsel on December 15, 2005, and to Lottomatica on
December 30, 2005. The first hearing was held on April 20, 2006, and was adjourned to January 28, 2010 to hear the
conclusions.
In the interim, on January 18, 2008, upon AAMS‟s request to advance said hearing, the Court of Appeal advanced the
hearing date to January 15, 2009.
On January 15, 2009 Lottomatica appeared before the Court of Appeal. Lottomatica specified in its response to the
charges brought forth by AAMS that it is of the opinion that they are groundless.
At the July 2, 2009 hearing, the Court of Appeal deferred the hearing to September 26, 2011.
On June 18, 2007 Stanley International Betting Limited served upon AAMS and Lottomatica a summons before TAR
of Lazio seeking the annulment and/or the non-application of the note of April 19, 2007, as well as the acts of the
Lotto Concession, in connection with which AAMS, on the assumption that the Concession is still in force in favour
of Lottomatica, has rejected the request of the plaintiff's co-management of the service of the Lotto. Similar summons
were also served by Sisal S.p.A., which also intervened in the appeal of Stanley Betting. Lottomatica appeared in the
proceeding and demanded the dismissal of appeals.
TAR of Lazio rejected the two appeals for procedural reasons.
Stanley Betting appealed against the decision before the Council of State (Consiglio di Stato).
As of the date of this report a hearing date was not yet set for the said appeal.
Given the judgment of the TAR of Lazio which seems correctly and adequately motivated, the risk that the action
brought by Stanley will be successful seems to be remote.
Notice of the judgment of the TAR of Lazio concerning the Sisal case was provided to Lottomatica on June 24, 2010.
The term, therefore, to appeal against that ruling expired on October 8, 2010 (60 days from notification).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
42. Litigation (continued)
2. Ticket One S.P.A. Litigation
On August 12, 2003, Ticket One S.p.A. (“Ticket One”), which operates in the services business sector primarily in
the ticketing services area, filed a suit with the TAR of Lazio against Lottomatica and Lottomatica Italia Servizi
S.p.A ("LIS") to obtain, among other things, an order requiring Lottomatica to offer its network to third parties under
the same conditions as those offered to the controlled company LIS.
Before serving the appeal dated March 12, 2003, Ticket One had asked Lottomatica for the right to use its network.
Lottomatica rejected Ticket One‟s request.
On December 3, 2003, Ticket One also commenced civil proceedings before the Court of Appeal of Rome,
substantially repeating the same claims made in the administrative proceedings before the TAR of Lazio. In addition,
Ticket One requested €10 million in damages for alleged unfair competition and illegal use of the network by
Lottomatica and LIS, and an order enjoining them from committing any further acts of unfair competition and,
alternatively, access to Lottomatica‟s electronic network.
Lottomatica and LIS responded to both lawsuits and, since Ticket One had filed the same claims with two different
courts, filed an appeal with the Supreme Court sitting in joint session, requesting a preliminary proceeding to resolve
the issue of jurisdiction and the suspension of the proceedings.
At the hearing on June 24, 2004, the TAR of Lazio accepted the request filed by Lottomatica and LIS and suspended
the proceeding, arranging for the documents to be sent to the Supreme Court of Cassation. The Supreme Court
declared Lottomatica and LIS‟s appeal to be inadmissible on February 9, 2006. As a result of the Supreme Court‟s
declaration, Ticket One motioned for a hearing set for October 28, 2009 during which the TAR of Lazio closed the
presentation of the arguments by the parties. Then at the hearing on October 28, 2009 the case was retained in the
decision. By ruling of October 28, 2009, November 25, 2009 and December 9, 2009, TAR of Lazio dismissed the
appeal of Ticket One. In particular, the above decision: upheld the traceability of network properties in the hands of
Lottomatica; did not detect any evidence to consider the network already in use by Lottery – and usable in the
specific segment dedicated to the sale of tickets online – as special and exclusive rights given that this market
segment does not appear to be prevented or significantly subtracted from third parties; and finally, confirmed the
validity of the Concession of Lotto.
At present, the time limits for bringing appeal by Ticket One against the sentence expired.
As for the procedure before the Court of Appeal, the Civil Judge after reserving on the request of suspension of the
proceeding raised by Lottomatica and LIS, by order dated July 28, 2004 rejected it and postponed the hearing to June
21, 2006. At this hearing, where admitted witnesses were to be deposed, the Judge declared a suspension because of
the merger of Lottomatica into NewGames S.p.A. On June 23, 2006, Ticket One presented a petition to revoke the
suspension decision. On October 27, 2006, the Court of Rome revoked the decision whereby the action had come to a
halt and postponed the hearing to January 26, 2007 for the examination of witnesses.
The testimonies of Elisabetta Cragnotti (former SS Lazio soccer team manager) and Fabrizio Conti (Milan Indoor
Tennis Championship organizer) were heard on January 26, 2007. At the July 5, 2007 hearing the Judge, having
taken note of Ticket One‟s waiver to depose additional witnesses, upon the parties‟ request adjourned the case to the
December 18, 2008 hearing for stating his conclusions. As of the December 18, 2008 hearing, the Judge has closed
the presentation of the arguments by the parties.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
42. Litigation (continued)
The Judge issued the ruling on June 25 – August 4, 2009 stating that Lottomatica has no obligation to allow third
parties use of its network and therefore dismissing all charges brought forth by Ticket One. On March 13, 2010
Ticket One filed an appeal of the Judge‟s ruling. At the first hearing held on September 17, 2010, Ticket One did not
appear. The Judge, under the principle contained in article 348 of the Italian Civil Procedure Code, postponed the
discussion of the litigation proceedings to the hearing of January 28, 2011. At the hearing, Ticket One did not appear
and for this reason the appeal will be declared null and void.
3. Summons to Formula Giochi Shareholders
On October 26, 2005, the companies Karissa Holding S.A., Cored International S.A., Mr. Massimo Maci and
shareholders of Formula Giochi S.p.A. in liquidation (operating in the gaming collection and wagering market)
served summons on Lottomatica and Sisal, to appear - on January 30, 2006- before the Court of Appeal of Rome.
The plaintiffs requested the assessment of the liability of Lottomatica and Sisal S.p.A. for engaging in the
anticompetitive conduct enjoined by the order of the Italian Antitrust Authority of November 23, 2004, which
conduct, the plaintiffs allege, was responsible for (i) their inability to sell their stake (for €3.0 million) and (ii)
Formula Giochi S.p.A.‟s inability to enter the gaming and wagering market, which caused the business value of
Formula Giochi to decrease by €34.2 million.
The plaintiffs also requested, that Lottomatica and Sisal S.p.A. be ordered, jointly and severally, to pay directly to the
plaintiffs‟ damages totaling €37.2 million in the aggregate.
Lottomatica contested a number of prejudicial issues concerning, inter alia, plaintiff legitimacy and stated that the
documents of the proceedings initiated by the Italian Antitrust do not indicate that Lottomatica‟s conduct was
prejudicial and detrimental to Formula Giochi. On the contrary, the documents in the trial dossier, literally transposed
in the Authority order to close the case, and in particular, the statements made during the November 10, 2003 hearing
by the managing director of Formula Giochi, show that “the dissolution of the recently established third pole” derives
from causes that are not related to Lottomatica.
Lottomatica duly appeared before the Court of Appeal on January 10, 2006. Formula Giochi S.p.A. appeared through
its receiver at the January 30, 2006 hearing. At the February 6, 2006 hearing the Court of Appeal granted the parties
30 days to submit their remarks. By order of March 15, 2006 the Court of Appeal granted the parties 30 days to file
their briefs as well as to state and amend their claims, objections and conclusions already made in addition to 30 more
days for their replies.
In a brief dated March 31, 2006, Karissa and others, by presenting their motions consequent to the appearance of
Formula Giochi S.p.A., admitted the entrance into a settlement agreement between Formula Giochi and Sisal S.p.A.
to settle the lawsuit pending between them. This agreement envisaged payment of €0.5 million to Formula Giochi.
In a brief duly filed by Lottomatica, Lottomatica asserted that Karissa Holding S.A.‟s active legitimacy no longer
existed following the appearance of Formula Giochi, as well as the non-admissibility of the action by Formula
Giochi, in addition to the already-formulated preliminary and merit objections.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
42. Litigation (continued)
It was noted how, in the merit, the €0.5 million settlement between Sisal and Formula Giochi against claims by the
latter amounting to €34.0 million provided an idea of Formula Giochi‟s claims, so much so that it attributed the
failure of the third pole to Sisal, who had a Director in common with Formula Giochi. Such circumstances do not
exist for Lottomatica, which had no relations with Sisal with regard to Formula Giochi (as shown by the Authority
order), nor with Formula Giochi itself.
On November 29, 2006, the Court of Appeals, accepting the request made by the opposing party, designated Angelo
Novellino as expert witness in order to estimate any damages. The hearing was postponed to February 19, 2007 for
the swearing and queries formulation.
After hearing the expert witness‟s testimony, the Court of Appeals admitted the following queries:
a)
the profits which Formula Giochi would have earned if it had had access to the gaming market according to
conservative criteria which took into account the company‟s size, its ability to penetrate the market and its
investment capacities;
b) whether Formula Giochi had suffered any damages from the inability to present itself as an operator other
than Sisal and Lottomatica in the Italian gaming market;
c) if the response to point 2 was positive, whether it was possible to quantify the damages suffered by Formula
Giochi for having missed said opportunity, referring to valid economic parameters and according to rational
methods leading to statistically plausible conclusions, and a prudent evaluation.
The expert opinion presented on February 21, 2008 stated that:
“the financial reports of Formula Giochi and its subsidiaries demonstrate that at the launch of the strategic
plan in March 2003 the group did not generate revenues and was in a liquidity crisis which resulted in
serious financial tensions”, “the group was in need of an immediate injection of over €4 million only to
cover the losses incurred in 2002 and was therefore not able to independently undertake an operation in the
ex Coni gaming market”. The expert witness further includes that based on the economic information
supplied by Lottomatica regarding the management of ex Coni games, the Formula Giochi group would not
have generated any profits if it had been granted free access to the ex Coni gaming market;
“the absence of Formula Giochi from the ex Coni games tender resulted from the group’s financial
difficulties, the lack of authorization of the strategic plan and the lack of financial support from the
shareholders”.
The expert witness included that Lottomatica and Sisal did not cause any damage to Formula Giochi and that it was
the company‟s financial and economic difficulties which prevented the company from participating in the ex CONI
games tender.
Due to the extremely favorable outcome of the expert opinion, Lottomatica and its legal representatives determined
that it was not necessary to submit any additional brief regarding the expert opinion.
At the June 9, 2008 hearing the Court of Appeals reserved any observations regarding some objections presented by
Formula Giochi pertaining to the expert witness testimony. The Court of Appeals claimed that the objections should
be however included during the decision-making process. The closing hearing has been set to July 4, 2011.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
42. Litigation (continued)
4. “LAS VEGAS” Instant Lottery Petition
Non-winning “Las Vegas” instant lottery (Scratch and Win) tickets have been presented to the Consorzio Lotterie
Nazionali ("Consorzio") for payment starting in April 2006.
To the date of January 31, 2011, 787 petitions and 102 requests for injunctive payments for alleged prizes and
liquidated damages, for a total sum of about €5.9 million, have been presented to the Consorzio Lotterie Nazionali.
There have also been numerous requests for out-of-court payments with the same demand.
The claims relate to:
a)
payment of prizes for non-winning tickets. In particular, the players claim that, according to their
interpretation of the Rules of the games established by Decree of the Ministry of Economy and Finance
dated February 16, 2005, the amounts corresponding to the prizes listed in the various areas of the game
tickets are to be paid every time the cards from 10 to K appear assuming that these cards have the same
value. The Consorzio considers unfounded the claims of the applicants, being contrary to the Rules of the
games that are explicit regarding the qualification of the winning ticket; and
b) claims for damages, since the Consorzio, following the bulk of the judgments undertaken by players referred
to in subparagraph a), has released a series of tickets bearing the words "The card K, Q, J, A have different
scores" and so changing the rules. Consorzio contends that the wording inserted later on tickets released for
sale is merely a clarification, not an amendment.
At December 31, 2010, 251 sentences were handed down with judgment as positive, and 236 as negative (the latter
referring to all judgments made by "Judges of the Peace").
The Consorzio Lotterie Nazionale has instructed its counsel to file an appeal against the unfavourable rulings.
5. TOTOBIT – Navale Assicurazione Arbitration
Totobit Informatica Software e Sistemi S.p.A. (“Totobit”), a company of the Lottomatica Group, within the scope of
its business activities enters into contracts regarding IT services (cellular phone top-ups) with third party retailers.
On January 23, 2002 Totobit executed with Navale Assicurazioni S.p.A. an insurance policy in order to guarantee the
fulfillment of payment obligations under the corresponding contracts regarding the above mentioned activities
performed by the retailers. The insurance policy had a 3 year duration beginning from January 28, 2002. According
to the policy provisions, any breach on the part of the retailers may be reported by Totobit to Navale Assicurazioni
within and not later than 3 months of the policy‟s annual expiration; the guarantee outside this deadline would no
longer be valid.
On November 22, 2004 Navale Assicurazioni sent Totobit a notice informing the same that the policy would be
terminated effective as of January 28, 2005, thus blocking the settlement of claims allegedly reported late by Totobit
for a total of €1.5 million. In view of said missed payment, the arbitration proceeding was initiated on November 8,
2005.
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42. Litigation (continued)
The Arbitration Board approved the expert witness Mr. Enrico Proia to make a technical-accounting review of the
documents produced by Totobit on request by Navale Assicurazioni.
On January 22, 2007 the Arbitration Award partly accepted the requests made by Totobit and ruled Navale
Assicurazioni S.p.A. to pay the sum of €239,911.66.
The amount referred exclusively to enforcement actions prior to April 28, 2005. The Arbitration Award partly
accepted the counterclaim of Navale Assicurazioni S.p.A. regarding some requests of payment made by Totobit and
for this reason ordered Totobit to pay the sum of €200,654.19.
Totobit and its counsels filed the appeal against the arbitration award. At the June 6, 2008 hearing the Court of
Appeals of Rome set the pre-trial evidentiary hearing to November 18, 2011.
6. Request for Conclusions from the Audit Department on the Setting-Up and Operation of a Screen-Based
Gaming Management Network
On June 1, 2007, the Regional Public Prosecutor of the Government Audit Department (Corte dei Conti) served
Lottomatica Videolot Rete S.p.A. ("Videolot") and all other nine concessionaires for the operation of gaming
machines, an invitation to submit their briefs with regard to an investigation on possible damages to the State
Treasury.
The Regional Prosecutor contested that Videolot, in conjunction with some AAMS officials, inaccurately did not
fulfill a number of obligations relating to the concession and failed to comply with certain service levels.
The damage to the State Treasury supposedly caused by Videolot, in conjunction with said AAMS officials, is
alleged to add up to approximately €4.0 billion.
Videolot filed a motion on June 27, 2007, contesting the outcome of the Regional Prosecutor and arguing to have
always complied with its obligations as concessionaire and requesting the dismissal of the case.
At the same time, AAMS served Videolot and the other nine concessionaires the same charges as those filed by the
Regional Prosecutor and requested the payment of damages for the same amount.
Videolot challenged the charges brought forth by AAMS and appealed before the TAR of Lazio requesting the
annulment of the above.
Through an order dated July 25, 2007 the TAR of Lazio accepted the appeals brought forth by Videolot and the other
concessionaires and annulled the request for damages presented by AAMS. The hearing to discuss the merit was set
to January 23, 2008. Videolot presented a technical report prepared by sector experts demonstrating its complete
adherence to the concession contract obligations. The report illustrates how Videolot implemented a complete
gaming system that is efficient and entirely functional.
On April 1, 2008 the TAR of Lazio issued a ruling annulling the damages request lodged by AAMS for the payment
of €4.0 billion by Videolot.
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42. Litigation (continued)
On January 8, 2008, the Regional Public Prosecutor for the Audit Department served notice to Videolot regarding the
charges brought forth which partially reduced the penalties to approximately €3 billion, breaking down to:
1)
2)
3)
4)
€400,000.00 plus interests for the “delay in the launch of the online network” (which should have been
launched by September 13, 2004 – effective launch date was October 31, 2004);
€ 1.0 million plus interests for the “delay in the activation of the network” (which should have been
completed by October 31, 2004 – effective completion date was December 31, 2004);
€ 991,456.00 plus interests for the “delay in the connection of the gaming machines to the online network”
(which should have occurred no later than December 31, 2004 – effective completion date was February 2,
2006);
€ 3.0 billion plus interests for “not having fulfilled all service level obligations provided for in section 2,
letter b) of the concession”.
The first hearing before the Audit Department was set to December 4, 2008.
At the same time, on March 13, 2008 AAMS and Videolot signed an amendment to the original Concession contract,
amending, among others, the first 3 penalties.
With regard to the indications set forth by the above mentioned TAR ruling and based on the above mentioned
additional clause signed between the parties, AAMS, with letters dated as of May 23 and 27, 2008, notified Videolot
of the start of investigations with reference to the inaccurately fulfilling the online activation and management
obligations relating to the concession and failure to comply with service levels. The Ministry of Finance nominated
an ad hoc technical commission for the calculation of the fourth penalty.
To date, AAMS has not yet issued any communication regarding the fourth penalty.
Through letters dated September 2, 2008, October 1 and October 16, 2008, AAMS communicated the completion of
the investigation and application of the following penalties:
a) €33,490.00 for the failure to comply with the timing obligations to launch the online network;
b) €152,768.00 for the failure to comply with the obligations to complete the activation of the online network;
c) €216,565.00 for the failure to comply with the obligations to connect the remaining 5% of the gaming
machines.
Videolot filed the appeals against the above indicated 3 fines before the TAR of Lazio.
The TAR of Lazio dismissed the motions filed by Videolot on November 30, 2009 and in January 2010 Videolot
filed the appeal before the State Council. The hearing before the State Council has been set for May 17, 2011.
It should be noted that the Council of state (Consiglio di Stato), with ruling of November 23, 2010, upheld the appeal
filed by the concessionaire "B PLUS GIOCO LEGALE LTD". In particular, the Council of State said that there was
no damage (and in addition not proven) and also considered that the breach of contract against the eligible
concessionaire does not have any impact in the eventual delay of starting of the public service under the concession,
since the delay would depend on a number of factors (technical and administrative) largely unrelated to the sphere of
control of the concessionaires themselves.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
42. Litigation (continued)
In the meantime, Videolot filed before the Supreme Court a motion whether the application of the penalties provided
for the concession fall within the “administrative reserve” of AAMS.
On December 4, 2009 the Supreme Court declared the jurisdiction to be that of the Audit Department. After the
judgment of the Supreme Court, Videolot was notified of the resumption of the proceedings before the Audit
Department. A hearing was held on October 11, 2010 at which the case was discussed and held for decision.
It should, however, be noted that in the meantime the Technical Committee appointed by the Minister of Economy
for the determination of the fourth penalty has reversed its own conclusions. Such findings showed the nonproportionality and reasonableness of the criteria set forth in the Convention and therefore AAMS sought advice on
how to proceed from the Avvocatura dello Stato (that is, the Attorney General of the Government) and then from the
Consiglio di Stato (that is, the Council of State). The Council of State transmitted its legal opinion to Videolot on
October 8, 2010 (very close to the hearing set before the Court of Auditors). In this document the Council of State
declared that it shared AAMS' opinion regarding the need to bring fairness and reasonableness to the fourth penalty
as already had been done for the first three penalties, under the provision of art. 1, law n. 40/2010.
The Council of State also expressed a positive opinion regarding AAMS' intention to use a special addendum to the
Convention to bring back reasonableness and fairness in the concession agreement and above all in the fourth
penalty.
On October 22, 2010, AAMS and Videolot executed a new addendum to the concession. This addendum specifies the
new rules for the calculation of the fourth penalty for non-compliance with service levels for the period July 2005 –
March 2008. The addendum also sets forth the maximum annual penalty that may be paid by a concessionare as equal
to 11% of its annual remuneration to be calculated in accordance with article 6 of paragraph 3 of the AAMS network
decree. Videolot has specified that its execution of the addendum does not imply any default on its part and has
stated that the concessionaire's remuneration must be its actual compensation.
With a partial ruling and order notified to Videolot on November 17, 2010, the Auditors Court decided: (i) that the
damage (if any) to be paid by the concessionaires to the Italian state treasury is different from the fine claimed by
AAMS on the basis of non-compliance by the concessionaires with certain service levels under the concession; and
(ii) to appoint Digit PA as consultant to verify:
a)
whether the difficulties reported by AAMS, in particular relating to the delay, even intentionally, with which
the managers of "the Apparatus" of the transitional period have required concessionaires to be contracted for
the connection of the computer system of the concessionaires themselves, the shortage of dedicated
communications lines to be used by concessionaires and the presence of gaming machines with different
communication ports, may have played a predominant role in the verification of the delay in activating the
system;
b) whether the above circumstances could be predictable and preventable and whether in the concession or in
the Rules could have been introduced clauses or provision to take account of these circumstances;
c) if the concessionaires, in fulfilling their obligations, have complied with all the technical requirements
necessary to the proper and timely activation of the communication network, of its completion, of the
connection of all gaming machines and the subsequent running of the network;
d) if the technical characteristics of the Central System AAMS-SOGEI were appropriate to the type of service
and whether, more generally, network design and equipment connections are adequate to perform the
function of control over the legal gaming and ultimately, whether failures are detected and/or inefficiencies
in the system or network.
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42. Litigation (continued)
Digit PA was granted a period of 9 months from the date of publication of the above sentence for filing answers to
the questions raised and so its term will expire on August 11, 2011.
The Auditors Court also sued the Sogei.
It should, however, be noted that in the meantime the Technical Committee appointed by the Minister of Economy
for the determination of the fourth penalty has reversed its own conclusions. Such findings showed the nonproportionality and unreasonableness of the criteria set forth in the Convention and therefore AAMS sought advice
on how to proceed from the Avvocatura dello Stato (that is, the Attorney General of the Government) and then from
the Consiglio di Stato (that is, the Council of State). The Council of State transmitted its legal opinion to Videolot on
October 8, 2010 (very close to the hearing set before the Court of Auditors). In this document the Council of State
declared that it shared AAMS' opinion regarding the need to bring fairness and reasonableness to the fourth penalty
as already had been done for the first three penalties, under the provision of art. 1, Law n. 40/2010. The Council of
State also expressed a positive opinion regarding AAMS' intention to use a special addendum to the Convention to
bring back reasonableness and fairness in the concession agreement and above all in the fourth penalty.
On October 22, 2010, AAMS and Videolot executed a new addendum to the concession. This addendum specifies the
new rules for the calculation of the fourth penalty for non-compliance with service levels for the period July 2005 –
March 2008. The addendum also sets forth the maximum annual penalty that may be paid by a concessionaire as
equal to 11% of its annual remuneration to be calculated in accordance with article 6 of paragraph 3 of the AAMS
network decree. Videolot has specified that its execution of the addendum does not imply any default on its part and
has stated that the concessionaire's remuneration must be its actual compensation.
On February 18, 2011 AAMS notified Videolot of the calculation of the fourth penalty, keeping to the maximum
annual penalty amount that may be paid by a concessionaire as equal to 11% of its annual remuneration, for a total of
€9,737,625.44. The calculation was carried out based on the Council of State's presumed acceptance of the October
16, 2008 appeal brought forth by Videolot requesting the annulment of the AAMS penalties (€216,565.00). If the
Council of State formally accepts said appeal, the fourth penalty will therefore be reduced to €9,521,060.44.
Videolot considered the penalty imposed by AAMS as illegitimate, insofar as (i) it duly carried out its requirements,
(ii) no damage was incurred, and no proof presented of any damage, (iii) no proportionality between the fourth
penalty compared to the first three which, according to the Council of State, may be considered penalties beyond the
extent of possible damages resulting from not adhering to the service levels, and (iv) incorrect calculations.
Videolot is therefore preparing a dispute in regards to the fourth penalty to be presented within the 30 day term.
7. SUPERENALOTTO Tender Appeal
On June 6, 2008 Lottomatica filed an appeal with the TAR of Lazio challenging the April 2, 2008 AAMS
communication (protocol no. 2008/12798/giochi/Ena) in which Lottomatica was notified of the definitive awarding
of the tender to Sisal. With said appeal, Lottomatica challenged the offer presented by Sisal. Stanley included its
statement in the appeal brought forth by Lottomatica. Snai has filed its own separate appeal.
At the October 8, 2008 hearing, the TAR of Lazio postponed the negotiation for the preliminary motion brought forth
by Lottomatica to October 22, 2008 in order to obtain all necessary deeds relating to the awarding procedure (the
discussion of the same preliminary motion brought forth by Snai was set for the same date).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
42. Litigation (continued)
The award of the tender to Sisal was also challenged by Snai on the grounds of erroneous evaluations carried out by
the Awarding Commission. The TAR of Lazio issued a court order on June 4, 2008 requesting the tender
documentation from AAMS.
On October 22, 2008 the TAR of Lazio issued a court order granting Lottomatica and Snai the opportunity to
examine all tender deeds.
On April 16, 2009 AAMS sent Lottomatica an official copy of Decree of April 7, 2009 which constituted a specific
Committee to control the anomalies in the offer presented by Sisal. Said Committee communicated the conclusion of
its review and evaluation of the offer in question on May 25, 2009. In addition AAMS notified Lottomatica on June
23, 2009 of the Decree of June 10, 2009 with which the final review of the tender award to Sisal was completed with
a positive outcome.
AAMS presented the said conclusions regarding the offer presented by Sisal at the May 27, 2009 hearing. SNAI has
already submitted additional claims against the above mentioned evaluation of the Sisal offer. Lottomatica is doing
the same.
The April 16, 2009 appeal brought forth by Lottomatica requested the TAR of Lazio to ascertain its right to review
the administrative documents requested on February 24 and March 19, 2009 (Sisal and points of sale contract and
AAMS authorization, as well as documentation regarding AAMS review). AAMS denied Lottomatica access to said
documents on March 20, 2009. The ruling issued on June 10, 2009 by the TAR of Lazio admitted the appeal
presented by Lottomatica and ordered AAMS to grant Lottomatica access to said documents. Lottomatica executed
the abovementioned access in order to verify the irregular offer presented by Sisal. The next hearing has not been set.
8. Auditing Court – Judicial Account Appeal (years 2004-2005)
The Regional Public Prosecutor of the Auditing Court ("Corte dei Conti") served Lottomatica Videolot Rete S.p.A
("Videolot") and the other nine concessionaires, a summons for the rendering of the judicial accounts related to 20042005 years.
Videolot appeared before the Court on March 2, 2009 by submitting a regulation of jurisdiction in order to challenge
the Auditing Court‟s jurisdiction due to the fact that Videolot is not an accounting agent but a "fiscal passive subject"
as so also qualified by the rules in PREU ("Prelievo Erariale Unico") sector.
On April 20, 2010 the Supreme Court of Cassation declared the jurisdiction of the Auditing Court.
On April 13, 2010 the Regional Prosecutor of the Auditing Court (irrespective of the fact that at that time was still
pending the decision of the Supreme Court), having considered definitely expired the term for delivery of the
rendering of accounts (May 2009), notified Videolot with a new summons ordering Videolot to pay a penalty of €80
million because of its failure to submit the rendering of account.
The new penalty has been set in the amount of 50% of the profit assumed to be obtained by Videolot, and calculated
in the amount of 11.5% of the wagers for the years 2004-2006 as registered by AAMS ("Amministrazione Autonoma
dei Monopoli"). The hearing was held on October 7, 2010 after the parties filed their written defences and also the
judicial accounts related to 2004-2009 years duly approved by AAMS.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
42. Litigation (continued)
With a ruling notified to Videolot on November 18, 2010, the Auditors Court rejected the instance of the Prosecutor.
Videolot was also acquitted in that (i) the same cannot be accused of the subjective element of intent or gross
negligence, because he could legitimately be presumed not to be subject to the filing of the judicial accounts; (ii)
Videolot has always deposited promptly the above accounts to AAMS by transmitting electronic data of the amounts
played; and (iii) Videolot has also deposited the accounts to the Auditors Court as soon as it learned that there was an
obligation to do so.
Because of that acquittal, the Auditors Court ordered the liquidation of legal costs of €1,000 in favour of Videolot.
The term of filing the appeal is still pending.
GTECH's Business
1. CEF Contract Proceedings
Background
In January 1997, Caixa Economica Federal ("CEF"), the operator of Brazil‟s National Lottery, and Racimec
Informática Brasileira S.A. ("Racimec"), the predecessor of GTECH Brazil, entered into a four-year contract pursuant
to which GTECH Brazil agreed to provide on-line 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%. On August 13, 2006, all agreements between GTECH and CEF terminated in accordance with
their terms.
Criminal Allegations Against Certain Employees
a. 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 GTECH and President of GTECH Brazil, and Marcelo
Rovai, then GTECH Brazil‟s marketing director and currently employed in GTECH‟s Latin America Group
("Denuncia 1").
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. Neither GTECH nor GTECH Brazil were the subject of this criminal
investigation, and under Brazilian law, entities cannot be subject to criminal charges in connection with this matter.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
42. Litigation (continued)
In June 2004, the judge reviewing the charges in Denuncia 1 prior to their being filed refused to initiate the criminal
charges against the nine individuals 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 report of
their findings to the court. This report did not recommend that indictments be issued against Messrs. Rocha or Rovai,
or against any current or former employee of GTECH or GTECH Brazil. The Public Ministry Attorneys then
requested that the Brazilian Federal Police reopen their investigation. We understand that the Federal Police
subsequently completed their investigation and, in August 2010 issued a report, based entirely upon the June 21, 2006
Brazilian congressional report described below, and sent the report to the Public Ministry Attorneys.
b. Notwithstanding the favourable resolution of the Brazilian Federal Police's initial investigation, on June 21, 2006,
a special investigating panel of the Brazilian congress issued a report and voted, among other things, to ask the Public
Ministry Attorneys to indict 84 individuals, including one current and three former employees of GTECH Brazil,
alleging that the individuals helped GTECH Brazil to illegally obtain the 2003 Contract Extension. GTECH found
nothing in the congressional report to cause it to believe that any present or former employee of GTECH or GTECH
Brazil committed any criminal offence in connection with obtaining the 2003 Contract Extension.
c. GTECH conducted an internal investigation of the 2003 Contract Extension under the supervision of the
independent directors of GTECH Holdings Corporation. GTECH found no evidence that GTECH, GTECH Brazil, or
any of their current or former employees violated any law, or is otherwise guilty of any wrongdoing in connection
with these matters.
The U.S. SEC began an informal inquiry in February 2004, which informal inquiry became a formal investigation in
July 2004, into the Brazilian criminal allegations against Messrs. Rocha and Rovai, and GTECH's involvement in the
facts surrounding the 2003 Contract Extension, to ascertain whether there has been any violation of United States law
in connection with these matters. In addition, in May 2005, representatives of the United States Department of Justice
asked to participate in a meeting with GTECH and the SEC. GTECH cooperated fully with the SEC and the United
States Department of Justice with regard to these matters, including by responding to their requests for information
and documentation. In August 2009, GTECH was advised by the SEC that the SEC had concluded its investigation
and did not intend to recommend enforcement action.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
42. Litigation (continued)
d. These favourable developments notwithstanding, in September 2010, GTECH received a copy of new criminal
charges that Public Ministry Attorneys recommend to a Brazilian Federal judge be filed against 16 individuals,
including 14 current or former CEF officers and employees, Antonio Carlos Rocha and Marcos Andrade, a former
officer of GTECH Brazil ("Denuncia 2"). The Public Ministry Attorneys assert that the defendants "swindled public
money" through entering into successive illegal price changes, contract extensions and other amendments to CEF‟s
contracts with Racimec and GTECH Brazil, and agreeing to reduce or eliminate contractual fines and penalties that
should properly have been imposed upon Racimec and GTECH Brazil. Such allegations echo charges, discussed
below, which have been made in the past by the: (i) Public Ministry Attorneys in their April 2004 civil action, and (ii)
Federal Court of Accounts in their 2003 TCU Audit Report. These more recent allegations by the Public Ministry
Attorneys include the claim made in the April 2004 civil action that a consulting company in which a former CEF
director held an interest served as an intermediary in contract negotiations between CEF and a Brazilian public utility
pursuant to which CEF allowed the public utility to provide prepaid cellular phone cards through the CEF lottery
network operated by GTECH Brazil. GTECH Brazil was not a party to this agreement, entered into in 1999. The
Public Ministry Attorneys advance the theory that the consulting company received the 1999 contract in
consideration for the former CEF director‟s assistance in influencing CEF negotiations to the advantage of GTECH
Brazil. The Public Ministry Attorneys advance no facts (old or new) that would support this new allegation. The
charges in Denuncia 2 must be approved by a Brazilian Federal judge prior to their being filed. As part of this
process, the judge has allowed each of the defendants, including Messrs. Rocha and Andrade, an opportunity to
present a defense prior to his decision to accept or reject Denuncia 2.
e. In November 2010, GTECH received a copy of criminal charges that Public Ministry Attorneys recommend to a
Brazilian Federal judge be filed against nine individuals, including Antonio Carlos Rocha, Marcelo Rovai and
Marcos Andrade ("Denuncia 3"). The Public Ministry Attorneys assert that the defendants be charged with corruption
for using improper influence and offering undue advantage as a form of payment to obtain the 2003 Contract
Extension. The Public Ministry Attorneys advance no new facts that would support this new allegation.
GTECH finds nothing in these charges that would lead it to believe that any present or former employee of GTECH
or GTECH Brazil committed any criminal offense involving any contract between Racimec or GTECH Brazil and
CEF. Neither GTECH nor GTECH Brazil is named as a defendant in these criminal charges and, as noted above,
under Brazilian law entities cannot be subject to criminal charges in connection with these matters.
The Brazilian Federal judge has approved the filing of the charges in Denuncia 3 to be brought against all but one
defendant in this matter. The judge is allowing one defendant, because he was a former government employee, the
opportunity to present a defense prior to determining whether to accept Denuncia 3. The Company believes Mr.
Rocha is appealing the decision to deny certain defendants from presenting a defense at this point in the process.
Messrs. Rocha, Rovai and Andrade have not yet been served with any Denuncia setting forth charges against them.
GTECH believes that its two former employees and one current employee involved have strong substantive and
procedural defenses and that the assertions made against them are groundless.
Civil Action By The Public Ministry Attorneys
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. This civil action alleges that the defendants acted illegally
in entering into, amending and performing, the 1997 Contract, and the 2000 Contract.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
42. Litigation (continued)
This lawsuit seeks to impose damages equal to the sum of all amounts paid to GTECH Brazil under the 1997
Contract and the 2000 Contract, and certain other permitted amounts, minus GTECH‟s proven investment costs. The
applicable statute also permits the assessment of interest and, in the discretion of the court, penalties of up to three
times the amount of the damages imposed. GTECH estimates that through the date of the lawsuit, GTECH Brazil
received under the 1997 Contract and the 2000 Contract a total of approximately 1.5 billion Brazilian Reals (or
approximately €675.7 million at currency exchange rates in effect as of December 31, 2010). In addition, although it
is unclear how investment costs would be determined for purposes of this lawsuit, GTECH estimates that its
investment costs through the date of the lawsuit were approximately between 1.2 billion and 1.4 billion Brazilian
Reals (or approximately between €540.5 million and €630.6 million at currency exchange rates in effect as of
December 31, 2010) in aggregate; however, these investment costs could be disputed by CEF, and are ultimately
subject to approval by the court.
The civil action relies heavily on a June 2003 audit (the "2003 TCU Audit Report") by the Federal Court of Accounts
("TCU"), the court charged with auditing agencies of the Brazilian federal government and its subdivisions. The TCU
summoned GTECH Brazil, together with several then current and former employees of CEF, to appear before TCU‟s
Brasilia court to show cause why the defendants should not be required to jointly pay a base amount determined on a
preliminary basis by the TCU to be due of 91,974,625 Brazilian Reals (or approximately €41.4 million at currency
exchange rates in effect as of December 31, 2010), duly indexed for inflation and interest as of May 26, 2000
(Decision No. 692/2003). The central allegation of the 2003 TCU Audit Report is that under the 1997 Contract,
GTECH Brazil was accorded certain payment increases respecting lottery services, and it contracted to supply to CEF
certain lottery-related services that were not contemplated by the procurement process respecting the 1997 Contract
and that are not otherwise permitted under applicable Brazilian law. The 2003 TCU Audit Report alleges that as a
result of this, CEF overpaid GTECH Brazil under the 1997 Contract for the period commencing in January 1997
through May 26, 2000, and that GTECH Brazil is liable with respect to such alleged overpayments as specified
above. The 2003 TCU Audit Report did not allege that GTECH Brazil acted improperly. In April 2008, a panel of
judges at the TCU ruled in GTECH Brazil‟s favour to dismiss this matter. In the panel‟s decision, it ruled that CEF
actually received savings from the contract amendments as GTECH Brazil had argued.
GTECH has been advised by Brazilian counsel that civil matter proceedings brought by the Public Ministry
Attorneys are likely to take several years, and could take longer than 15 years in certain circumstances to litigate
through the appellate process to final judgment. GTECH believes that these claims are groundless.
TCU Audit
In June 2005, the TCU issued a preliminary report (the "2005 TCU Audit Report") with respect to GTECH Brazil‟s
contracts with CEF. While GTECH Brazil has not been formally served with a copy of the 2005 TCU Audit Report,
GTECH understands that its central allegations are that the 1997 Contract was improperly transferred from Racimec
to GTECH Brazil; it was accorded certain payment increases respecting financial services transactions that were not
contemplated by the procurement process respecting the 1997 Contract or otherwise permitted under applicable
Brazilian law; and the 2003 Contract Extension was entered into a manner inconsistent with Brazilian law and the
procurement process respecting the 1997 Contract. The 2005 TCU Audit Report alleges that as a result of these
considerations, CEF overpaid GTECH Brazil under the 1997 Contract and the 2000 Contract. The 2005 TCU Audit
Report seeks payment from GTECH of a base amount determined on a preliminary basis by TCU to be
approximately 400 million Brazilian Reals (approximately €180.1 million at currency exchange rates in effect as of
December 31, 2010).
In October 2010, a panel of judges at the TCU ruled in GTECH Brazil‟s favour to dismiss the charges contained in
the 2005 TCU Audit Report without liability to GTECH Brazil.
193
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
42. Litigation (continued)
2. ICMS Tax
On July 26, 2005, the State of São Paulo challenged GTECH Brazil for classifying the remittances of printing
ribbons, rolls of paper and wagering slips ("Consumables") to lottery outlets in Brazil as non-taxable shipments. The
tax authorities disagree with that classification and argue that these Consumables would be subject to ICMS tax as
opposed to the lower rate ISS tax that GTECH Brazil paid. The tax authorities argue that in order for printed matter to
be considered non-taxable it has to be "personalized." To be considered personalized, the Consumables must be
intended for the exclusive use of the one ordering them. GTECH Brazil filed its defense against the Tax Assessment
Notice, which was dismissed. GTECH Brazil filed an Ordinary Appeal and a Special Appeal to the Court of Taxes
and Fees, both of which were not granted. The State Treasury of São Paulo has filed a tax foreclosure to collect the
tax obligation amounting to 22,910,722 Brazilian Reals (approximately €10.3 million at exchange rates in effect as of
December 31, 2010) plus statutory interest, penalties and fees of approximately 67.2 million Brazilian Reals for a
total obligation of approximately 90.1 million Brazilian Reals (approximately €40.5 million at exchange rates in
effect as of December 31, 2010). GTECH Brazil is preparing to file an appeal of this matter with the First District
Court of the State Treasury (Barueri). Prior to filing the appeal, it is likely that GTECH Brazil will be required to
provide security for the tax obligation in the event it is unsuccessful in the appeal. GTECH Brazil has been advised
by Brazilian counsel that these proceedings are likely to take several years, and could take longer than seven years to
litigate through the appellate process to final judgment. GTECH Brazil believes that these claims are groundless.
43. Events after the reporting period
Northstar Lottery Group LLC
In January 2011, the Northstar Lottery Group LLC ("Northstar"), a consortium in which GTECH holds an 80%
controlling interest, signed a 10-year private management agreement with the Illinois Lottery (the “State”). Under the
agreement, Northstar, subject to the State's oversight, will manage the day-to-day operations of the lottery and its core
functions.
As compensation for its management services, Northstar will receive annual fees for reimbursement of certain
operating and lottery expenses. Northstar is also entitled to receive annual incentive compensation payments should it
achieve certain sales targets but is also subject to provide payments to the State if a minimum, agreed-upon
performance level is not achieved.
To the extent net income earned by the State each year exceeds the State established base net income levels for such
year, Northstar will earn incentive compensation that is awarded based on various levels of performance, up to an
annual maximum of 5% of the actual net income earned by the State.
Northstar‟s proposal guaranteed a minimum profit level for each of the first five years of the agreement, commencing
with the State‟s fiscal year ending June 30, 2012. The incentive compensation Northstar may earn could be reduced
by a shortfall payment in the event Northstar's performance does not achieve the levels it has guaranteed. The annual
shortfall payment may not exceed 5% of the net income for such contract year. Given that this agreement is in its
early stages, management is currently unable to estimate the financial impact of the minimum profit level guarantee.
194
2010 Annual Report
LOTTOMATICA GROUP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
43. Events after the reporting period (continued)
Czech Republic
According to publicly available information, GTECH‟s lottery customer in the Czech Republic is experiencing
financial difficulties that the Group is closely monitoring. GTECH has a long-term relationship with this customer
which began in1992. Under the terms of the current facility management contract, which has over ten years
remaining, GTECH provides facilities management services, including approximately 7,000 terminals, central system
hardware and software, ongoing lottery support services, communication services and operational support to this
customer. At December 31, 2010, trade receivables from this customer were €10.5 million, €4.6 million of which was
paid through March 10, 2011. The recoverability of outstanding trade receivables will depend on the resolution of
certain future events which are outside the Group‟s control, however, both GTECH and the Czech customer share a
common goal of continued generation of revenues. The Group also has approximately €13.6 million of systems,
equipment and other assets related to contracts and approximately €16.8 million of intangible assets on its
consolidated statement of financial position related to its contracts with this customer. Future events will determine
the recoverability of these assets, and therefore the financial impact to the Group is not currently estimable.
195
196
197
2010 Annual Report
AUDIT FIRM FEES
(thousands of euros)
Service description
Audit services
International statutory audit fees
Other services:
- Agreed upon procedures
- Accounting consultations
Total
2010 fees provided to:
Audit Firm's
Audit Firm
Network
of the Parent
of the Parent
Company
Company
336
2,286
725
379
258
973
135
3,146
198
2010 Annual Report
Lottomatica Group S.p.A
Summary Schedule of Essential Data of Consolidated Companies pursuant to Article
2429 of Italian Civil Code
Name
Aitken Spence GTECH (Private) Limited
Anguilla Lottery and Gaming Company Limited
Antigua Lottery Company Limited
Atronic Americas, LLC
Atronic Argentina, S.R.L.
Atronic Australia Pty. Ltd.
Atronic Australien GmbH
Atronic Austria GmbH
Atronic Austria Holding AG
Atronic International GmbH
Atronic Nevada, LLC
Atronic Peru S.A.
Atronic Russia o.o.o.
Atronic Systems B.V.
Atronic Systems GmbH
Atronic Systems S.A.M.
Atronic Systems, Inc.
Beijing GTECH Computer Technology Company Limited
BillBird S.A.
BG Monitoring Center Holding Company Limited
Boss Casinos N.V.
Boss Holdings Ltd.
Boss Media AB
Boss Media Antigua Ltd.
Thousands of euros
Revenue
Net Income
Assets
212
508
25,184
411
42,897
68,982
4,430
3,112
63
189
20,367
6,142
1,035
16,273
2,462
1,022
43,506
-
(610)
(98)
(231)
(1,028)
149
(137)
237
6,621
(231)
(12,094)
1,734
9
143
(498)
622
264
5
14
1,526
4
1,459
9,266
-
32
156
403
9,284
661
159
26,536
11,264
98,079
6,683
6,958
569
10,007
7,127
2,867
80
916
18,824
2,134
2,502
53,676
8
Revenue
0.0%
0.0%
0.0%
1.0%
0.0%
0.0%
0.0%
1.6%
0.0%
2.6%
0.2%
0.1%
0.0%
0.0%
0.8%
0.2%
0.0%
0.0%
0.6%
0.0%
0.1%
0.0%
1.6%
0.0%
Percentage
Net Income
-0.3%
0.0%
-0.1%
-0.5%
0.1%
-0.1%
0.1%
3.0%
-0.1%
-5.6%
0.8%
0.0%
0.1%
-0.2%
0.3%
0.1%
0.0%
0.0%
0.7%
0.0%
0.0%
0.7%
4.3%
0.0%
Assets
0.0%
0.0%
0.0%
0.1%
0.0%
0.0%
0.0%
0.2%
0.1%
0.7%
0.0%
0.0%
0.0%
0.1%
0.1%
0.0%
0.0%
0.0%
0.1%
0.0%
0.0%
0.0%
0.4%
0.0%
199
2010 Annual Report
Lottomatica Group S.p.A
Summary Schedule of Essential Data of Consolidated Companies pursuant to Article
2429 of Italian Civil Code
Name
Boss Media Canada Gaming Services Ltd.
Boss Media Investments AB
Boss Media Malta Casino Ltd.
Boss Media Malta Poker Ltd.
CAM Galaxy Group Ltd.
Caribbean Lottery Services, Inc.
Cartalis Imel S.p.A.
CLS-GTECH Australia Pty Ltd.
CLS-GTECH Company Limited
CLS-GTECH Technology (Beijing) Co., Ltd.
Coin Net S.r.l.
Consorzio Lotterie Nazionali
Consorzio Lottomatica Giochi Sportivi
Curacao Lottery Company, N.V.
D&D Electronic and Software GmbH
Data Transfer Systems, Inc.
DataTrans Sp. z.o.o.
Dreamport do Brasil Ltda.
Dreamport Suffolk Corporation
Dreamport, Inc.
Dynamite Design & Marketing Limited
East Luck Investments Limited
Empoli Giochi S.r.l.
Europrint (Games) Limited
Thousands of euros
Revenue
Net Income
Assets
727
3
3,356
8,372
2,157
5,640
225
1,061
244,982
11
620
1,880
300
-
35
2
102
221
(46)
(691)
(993)
(125)
89,109
(1)
(1,191)
18
655
-
2,773
119
2,662
11,346
166
978
44,296
5,882
2,182
110,775
440
455
236
2,379
6,028
4,808
1,819
39
Revenue
0.0%
0.0%
0.1%
0.3%
0.0%
0.1%
0.2%
0.0%
0.0%
0.0%
0.0%
9.2%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.1%
0.0%
0.0%
0.0%
Percentage
Net Income
0.0%
0.0%
0.0%
0.1%
0.0%
0.0%
-0.3%
0.0%
-0.5%
0.0%
-0.1%
41.0%
0.0%
0.0%
0.0%
0.0%
-0.5%
0.0%
0.0%
0.0%
0.3%
0.0%
0.0%
0.0%
Assets
0.0%
0.0%
0.0%
0.1%
0.0%
0.0%
0.3%
0.0%
0.0%
0.0%
0.0%
0.8%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
200
2010 Annual Report
Lottomatica Group S.p.A
Summary Schedule of Essential Data of Consolidated Companies pursuant to Article
2429 of Italian Civil Code
Name
Europrint Holdings Limited
Europrint Promotions Limited
Finsoft Limited
GEMed AB
GTECH Corporation
GTECH Asia Corporation
GTECH Australasia Corporation
GTECH Avrasya Teknik Hizmetler Ve Musavirlik A.S.
GTECH Brasil Ltda.
GTECH Colombia Ltda.
GTECH Computer Systems Sdn Bhd
GTECH Comunicaciones Colombia Ltda.
GTECH Corporation (Utah)
GTECH Cote D'Ivoire
GTECH Czech Republic LLC
GTECH Czech Services s.r.o.
GTECH Espana Corporation
GTECH Europe
GTECH Far East Pte Ltd
GTECH Foreign Holdings Corporation
GTECH France SARL
GTECH German Holdings Corporation Gmbh
GTECH Global Lottery S.L.U.
Thousands of euros
Revenue
Net Income
Assets
5,233
18,921
727
716,555
12,416
4,521
497
15,994
1,230
5,687
258
10
5,530
45,714
503
9,974
293
513
702
(284)
(61,078)
(21)
84
287
(641)
918
(87)
878
21
1
1,529
5,501
37
379
3,838
1,223
9,004
156,050
2,104,685
9,269
4,765
770
19,142
17,999
40
490
2
6,977
78
422
3,334
67,790
518
135,672
6,304
Revenue
0.0%
0.2%
0.7%
0.0%
27.0%
0.0%
0.5%
0.2%
0.0%
0.6%
0.0%
0.0%
0.0%
0.0%
0.2%
0.0%
0.0%
0.0%
0.2%
1.7%
0.0%
0.0%
0.4%
Percentage
Net Income
0.1%
0.2%
0.3%
-0.1%
-28.1%
0.0%
0.0%
0.1%
-0.3%
0.4%
0.0%
0.0%
0.0%
0.0%
0.4%
0.0%
0.0%
0.0%
0.7%
2.5%
0.0%
0.0%
0.2%
Assets
0.0%
0.0%
0.1%
1.1%
15.0%
0.1%
0.0%
0.0%
0.1%
0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.5%
0.0%
1.0%
0.0%
201
2010 Annual Report
Lottomatica Group S.p.A
Summary Schedule of Essential Data of Consolidated Companies pursuant to Article
2429 of Italian Civil Code
Name
GTECH Global Services Corporation Limited
GTECH GmbH
GTECH Holdings Corporation
GTECH Ireland Operations Limited
GTECH Lanka (Private) Limited
GTECH Latin America Corporation
GTECH Management P.I. Corporation
GTECH Mexico S.A. de C.V.
GTECH Northern Europe Corporation
GTECH Polska Sp. z o.o.
GTECH Printing Corporation
GTECH Rhode Island Corporation
GTECH Slovakia Corporation
GTECH Southern Africa (Propietary) Limited
GTECH Sports Betting Solutions Limited
GTECH Sweden AB
GTECH U.K. Limited
GTECH Ukraine
GTECH WaterPlace Park Company, LLC
GTECH West Africa Lottery Limited
GTECH West Greenwich Technology Associates GP, LLC
GTECH Worldwide Services Corporation
Innoka Oy
Interactive Games International Limited
Thousands of euros
Revenue
Net Income
Assets
179,878
1,678
12,974
(325)
12,582
1,959
41,082
18,396
61,461
6,059
27
1,763
15,464
133
180
1,090
49,249
190
4,405
(341)
5,676
30
198
5,907
(4,680)
30,404
298
(6)
(46)
98
1,072
72
(678)
(1,487)
129
147
540,643
2,879
2,983,220
6,175
4,144
93
2,980
2,022
25,769
42,431
1,041,535
569
1,129
63,034
719
2,757
163
3,360
1,016
396
220
Revenue
6.8%
0.1%
0.0%
0.5%
0.0%
0.5%
0.0%
0.0%
0.1%
1.5%
0.7%
2.3%
0.2%
0.0%
0.0%
0.1%
0.6%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Percentage
Net Income
22.7%
0.1%
0.0%
2.0%
-0.2%
2.6%
0.0%
0.0%
0.1%
2.7%
-2.2%
14.0%
0.1%
0.0%
0.0%
0.0%
0.5%
0.0%
0.0%
-0.3%
0.0%
-0.7%
0.1%
0.1%
Assets
3.8%
0.0%
21.2%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.2%
0.3%
7.4%
0.0%
0.0%
0.4%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
202
2010 Annual Report
Lottomatica Group S.p.A
Summary Schedule of Essential Data of Consolidated Companies pursuant to Article
2429 of Italian Civil Code
Name
International Poker Network Ltd.
Invest Games S.A.
JSJ Ltd.
L-Gaming S.A.
Labet S.r.l.
Leeward Islands Lottery Holding Company, Inc.
Lis Finanziaria S.p.A.
Logo S.r.l.
Lotterie Nazionali S.r.l.
Lotterie Nazionali Holding S.r.l.
Lottery Equipment Company
Lottomatica International Greece S.r.l.
Lottomatica Italia Servizi S.p.A.
Lottomatica Scommesse S.r.l.
Lottomatica Videolot Rete S.p.A.
Loxley GTECH Technology Co., Ltd.
LS Alpha S.r.l.
MIS International France SAS
Northstar Lottery Group LLC
On-Line Lottery License and Lease B.V.
Online Transaction Technologies SARL a Associe Unique
Oy GTECH Finland Ab
PCC Giochi e Servizi S.p.A.
Prodigal Lottery Services, N.V.
Thousands of euros
Revenue
Net Income
Assets
337
4,653
1,603
31,304
191
92,805
(12)
48,772
202,620
255,079
913
1,301
6,022
9,892
10,657
744
225
4,724
2
474
108
4,301
15
15,936
(22)
(21)
(4)
11,729
6,982
35,629
(1,463)
(925)
178
(957)
1,054
1,415
(21)
693
2,994,606
353
60
25,853
19,583
199,689
1,397
1,298,989
350,000
330
40
311,275
231,950
486,554
24,016
9,161
1,119
3,597
4,022
29,339
685
Revenue
0.0%
0.0%
0.0%
0.0%
0.2%
0.1%
1.2%
0.0%
3.5%
0.0%
0.0%
0.0%
1.8%
7.6%
9.6%
0.0%
0.0%
0.0%
0.0%
0.0%
0.2%
0.4%
0.4%
0.0%
Percentage
Net Income
0.1%
2.2%
0.0%
0.0%
0.2%
0.0%
2.0%
0.0%
7.3%
0.0%
0.0%
0.0%
5.4%
3.2%
16.4%
-0.7%
-0.4%
0.0%
0.0%
0.1%
-0.4%
0.5%
0.7%
0.0%
Assets
0.0%
21.3%
0.0%
0.0%
0.2%
0.1%
1.4%
0.0%
9.2%
2.5%
0.0%
0.0%
2.2%
1.6%
3.5%
0.2%
0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.2%
0.0%
203
2010 Annual Report
Lottomatica Group S.p.A
Summary Schedule of Essential Data of Consolidated Companies pursuant to Article
2429 of Italian Civil Code
Name
Retail Display and Service Handlers, LLC
SB Industria e Comércio Ltda.
SED Multitel S.r.l.
Siam GTECH Company Limited
Siderbet S.r.l.
Spielo Italia S.r.l.
Spielo Manufacturing ULC
Spielo USA Incorporated
Springboard Technologies Private Limited
St. Enodoc Holdings Limited
St. Kitts and Nevis Lottery Company, Limited
St. Minver (UK) Limited
St. Minver Limited
Technology Risk Management Services, Inc.
Toto Carovigno S.p.A.
Totobit Informatica Software E Sistemi S.p.A.
Tranco Investment Limited
TTS S.r.l.
Turks and Caicos Lottery Company Ltd.
UTE Logista - GTECH
VIA TECH Servicios S.p.A.
WebDollar AB
West Greenwich Technology Associates, L.P.
Thousands of euros
Revenue
Net Income
Assets
39,339
232
117
143,495
17,647
1,738
969
2,229
20,319
17,837
32,364
767
24
1,447
1,105
-
(2)
184
6,466
17
7
3
3,945
705
112
298
151
(219)
290
3,341
3,591
45
34
(15,882)
841
-
1,642
43,988
166
191
90
98,890
8,722
424
3,710
678
241
11,058
4,638
26,067
116,745
14,337
3,126
Revenue
0.0%
0.0%
1.5%
0.0%
0.0%
0.0%
5.4%
0.7%
0.1%
0.0%
0.0%
0.1%
0.8%
0.0%
0.7%
1.2%
0.0%
0.0%
0.0%
0.1%
0.0%
0.0%
0.0%
Percentage
Net Income
0.0%
0.1%
3.0%
0.0%
0.0%
0.0%
1.8%
0.3%
0.1%
0.0%
0.1%
0.1%
-0.1%
0.1%
1.5%
1.7%
0.0%
0.0%
0.0%
-7.3%
0.0%
0.4%
0.0%
Assets
0.0%
0.0%
0.3%
0.0%
0.0%
0.0%
0.7%
0.1%
0.0%
0.0%
0.0%
0.0%
0.1%
0.0%
0.2%
0.8%
0.0%
0.0%
0.0%
0.1%
0.0%
0.0%
0.0%
204
2010 Annual Report
Additional Required
Disclosure
205
2010 Annual Report
EXHIBIT 3C-ter
Certification of the consolidated annual financial statements, pursuant to Article 81-ter of
the CONSOB Regulations no. 11971 of May 14, 1999 with any following amendments
1. The undersigned, Marco Sala, Managing Director and Chief Executive Officer, and Stefano Bortoli,
Chief Financial Officer and Manager in charge of preparing corporate reports and financial documents
of Lottomatica Group S.p.A., also taking into account Article 154-bis, Section 3 and 4 of the
Legislative Decree no. 58 of February 24, 1998, certify:
the adequacy – with respect to the characteristic of Lottomatica, and;
the effective application,
of the administrative and accounting procedures relating to the preparation of the consolidated annual
financial statements throughout the year ended December 31, 2010.
2. With reference to the above, no material issues were identified.
3. It is further certified that:
3.1 The consolidated annual financial statements:
a.
b.
c.
are prepared in accordance to the applicable international financial reporting standards
admitted by the European Community pursuant to European Regulation (CE) no.
1606/2002 of July 19, 2002, of the European Parliament and Council;
correspond to the accounting books and entries; and
are suitable to offer truthful and accurate representations of the assets, financial position
and result of operations of Lottomatica and of the Group consolidated entities.
3.2 The Operating and Financial Review contains a reliable analysis of the ongoing business and results, as
well as of the status of Lottomatica and of the Group consolidated entities, jointly with a description of
the main risks and uncertainties to which they are exposed.
Date: April ____, 2011
Managing Director and CEO
CFO and Manager in charge of preparing
corporate reports and financial documents
……………………………………………..
Marco Sala
………………………………………………….
Stefano Bortoli
206
2010 Annual Report
Nevada Gaming Regulation
Due to the fact that Lottomatica is registered with the Nevada Gaming Commission as a publicly traded
corporation and has been found suitable to own the stock of four subsidiaries, one that has been licensed as
a manufacturer, distributor and slot route operator (Atronic Americas, LLC), one that has been licensed as
a manufacturer and distributor (Spielo Manufacturing ULC) and two that had been licensed as a
manufacturer (Atronic International GmbH and Atronic Austria GmbH), it was required to establish a
Global Compliance and Governance Committee. The manufacture, sale and distribution of gaming
devices in Nevada or for use outside Nevada are subject to extensive state laws and regulations of the
Commission as administered by the Nevada State Gaming Control Board (“GCB”). These laws and
regulations primarily cover the responsibility, financial stability and character of gaming equipment
manufacturers, distributors and operators, as well as persons financially interested or involved in the
gaming operations.
In particular, the Commission may require any person who acquires, directly or indirectly, a beneficial
ownership of a voting security or any person who has a material relationship to or material involvement
with Lottomatica, regardless of the number of shares owned, to file an application, be investigated, and be
found suitable. Any person who acquires more than 5% of Lottomatica‟s voting securities must report this
to the Commission within ten days of such acquisition. Any person who becomes a beneficial owner of
more than 10% of Lottomatica‟s voting securities must apply for a finding of suitability within 30 days
after the Chairman of the GCB mails the written notice requiring this finding of suitability.
Under certain circumstances, an “institutional investor,” as defined in the Nevada Act, which acquires the
beneficial ownership of more than 10%, but not more than 25%, of a Registered Corporation‟s voting
securities may apply to the Commission for a waiver of such finding of suitability if such institutional
investor holds the voting securities for investment purposes only. The applicant is required to pay all costs
of investigation incurred by the Nevada Gaming Authorities.
Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being
ordered to do so by the Commission or the Chairman of the GCB may be found unsuitable. The same
restrictions apply to a record owner who fails to identify the beneficial owner, if requested to do so. Any
stockholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of our
common stock beyond such period of time as may be prescribed by the Commission may be guilty of a
criminal offense. Lottomatica is subject to disciplinary action and possible loss of its approvals if, after it
receives notice that a person is unsuitable to be a stockholder or to have any other relationship with us or
any of our licensed gaming subsidiaries, Lottomatica:
(i) pays that person any dividend or interest upon our voting securities,
(ii) allows that person to exercise, directly or indirectly, any voting right conferred through securities
held by that person,
(iii) gives remuneration in any form to that person, for services rendered or otherwise, or
(iv) fails to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities
for cash at fair market value.
207
2010 Annual Report
The Commission may, in its discretion, require the holder of our debt securities to file an application, be
investigated and be found suitable to own any of our debt securities. If the Commission determines that a
person is unsuitable to own any of these securities, then pursuant to the Nevada gaming laws, we can be
sanctioned, including the loss of our approvals, if without prior Commission approval, Lottomatica:
(i) pays to the unsuitable person any dividend, interest, or any distribution whatsoever;
(ii) recognizes any voting right by such unsuitable person in connection with such securities;
(iii) Pays the unsuitable person remuneration in any form; or
(iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.
Changes in control of Lottomatica through merger, consolidation, acquisition of assets or stock,
management or consulting agreements or any form of takeover cannot occur without the prior investigation
of the GCB and approval of the Commission. Entities seeking to acquire control of us must satisfy the
GCB and the Commission in a variety of stringent standards prior to assuming control.
The Commission may also require controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire control, to be investigated and
licensed as part of the approval process relating to the transaction.
Failure of Lottomatica and/or Atronic and/or Spielo to comply with any of the laws or regulations
governing gaming can result in a fine assessed against the non-complying entity. The Commission also has
the power to revoke the license of any gaming licensee that willfully fails to comply with laws and
regulations governing gaming.
208
2010 Annual Report
Lottomatica Group and
Subsidiaries
209
2010 Annual Report
List of Lottomatica Group S.p.A. Subsidiaries and Affiliates
Name
Jurisdiction
Share Capital*
Ownership
%
Atronic Americas LLC
Nevada, USA
1,971
100
Lottomatica Group S.p.A.
Atronic Argentina S.r.l.
Argentina
30
80
Atronic International GmbH
Atronic Asia Limited (3)
China
10
100
Atronic Austria Holding AG
Atronic Australia Pty
Ltd.
Atronic Australien
GmbH
Atronic Austria GmbH
Australia
2,000
100
Atronic Australien GmbH
Germany
1,120
100
Lottomatica Group S.p.A.
Austria
300
100
Atronic Austria Holding AG
Austria
300
100
Atronic International GmbH
Germany
302
100
Nevada, USA
10
100
GTECH German Holdings
Corporation GmbH
Atronic Americas, LLC
Peru
**
98
Atronic International GmbH
Atronic Russia o.o.o.
Russia
3,018.20
50
Atronic Austria Holding AG
Atronic Systems B.V.
Netherland
18
100
Atronic International GmbH
Austria
36.4
100
Atronic Systems B.V.
Nevada, USA
**
100
Atronic Systems B.V.
Atronic Systems
S.A.M.
Banca ITB S.p.A.
(formerly IT Bank
S.p.A.)****
CartaLIS Imel S.p.A.
Monaco
147
98
Atronic Systems B.V.
Italy
25,120
13.33
Italy
10,000
85
Lottomatica Italia Servizi S.p.A.
Coin Net S.r.l. (7), (12)
Italy
10
100
Lottomatica Videolot Rete S.p.A.
Consel Consorzio Ellis
**** (8)
Consorzio Lotterie
Nazionali (9)
Consorzio Lottomatica
Giochi Sportivi (10)
Italy
51
0.1
Lottomatica Group S.p.A.
Italy
16,000
63
Lottomatica Group S.p.A.
Italy
100
90
Lottomatica Group S.p.A. (85%);
Totobit Informatica Software e
Sistemi S.p.A. (5%)
Atronic Austria
Holding GmbH (4)
Atronic International
GmbH
Atronic Nevada, LLC
Shareholder
(5)
Atronic Peru S.A.
Atronic Systems GmbH
Atronic Systems Inc.
(6)
Lottomatica Group S.p.A.
210
2010 Annual Report
List of Lottomatica Group S.p.A. Subsidiaries and Affiliates
Jurisdiction
Share Capital*
Ownership
%
Germany
26
50
Atronic International GmbH
Italy
1,900
10
United Kingdom
19
100
Totobit Informatica Software e
Sistemi S.p.A.
Lottomatica Scommesse S.r.l.
Empoli Giochi S.r.l. (12)
Italy
100
100
Lottomatica Videolot Rete S.p.A.
Europa Gestione S.r.l.
Italy
50
100
Lottomatica Videolot Rete S.p.A.
South Africa
**
100
Atronic Systems GmbH
Germany
25
100
Lottomatica Group S.p.A.
Luxembourg
92,100
100
Lottomatica Group S.p.A.
United Kingdom
60
50
L.S. Alpha S.r.l.
Italy
118
95
Lottomatica International Greece
S.r.l.
Lottomatica Scommesse S.r.l.
Labet S.r.l.
Italy
100
100
Lottomatica Scommesse S.r.l.
LIS Instituto di
Pagamento S.p.A.
(formerly LIS
Finanziaria S.p.A. (15)
Logo S.r.l. (16), (12)
Lotterie Nazionali
Holding S.p.A. (17)
Lotterie Nazionali S.r.l.
Italy
1,000
100
Totobit Informatica Software e
Sistemi S.p.A.
Italy
Italy
10
350
100
71.43
Italy
31,000
64
Italy
10
84
Lottomatica Group S.p.A.
(20.25%); Lotterie Nazionali
Holding S.p.A. (43.75%)
Lottomatica Group S.p.A.
Hungary
1,250
100
Lottomatica Group S.p.A.
Italy
100
100
Lottomatica Group S.p.A.
Italy
2,582
100
Lottomatica Group S.p.A.
Name
D&D Electronic &
Software GmbH
Easy Nolo S.p.A.****
Edrin Ltd. *** (11)
Shareholder
(12)
Grips RSA
GTECH German
Holdings Corporation
GmbH
Invest Games S.A. (13)
L-Gaming S.A. (14)
(18)
Lottomatica
International Greece (19)
Lottomatica
International Hungary
Korlátolt Felelősségű
Társaság (KFT) (13)
Lottomatica
International S.r.l. (20)
Lottomatica Italia
Servizi S.p.A.
Lottomatica Videolot Rete S.p.A.
Lottomatica Group S.p.A.
211
2010 Annual Report
List of Lottomatica Group S.p.A. Subsidiaries and Affiliates
Name
Jurisdiction
Share Capital*
Ownership
%
Lottomatica
Scommesse S.r.l.
Lottomatica Sistemi
S.p.A. (20)
Lottomatica Videolot
Rete S.p.A. (12)
MIS International
France SAS
Neurosoft S.A.****(21)
Italy
20,000
100
Lottomatica Group S.p.A.
Italy
5,165
100
Lottomatica Group S.p.A.
Italy
3,226
100
Lottomatica Group S.p.A.
France
40
100
Atronic Systems B.V.
United Kingdom
8,750
16.58
Lottomatica Group S.p.A.
PCC Giochi e Servizi
S.p.A. (20)
SED Multitel S.r.l.
Italy
21,000
100
Lottomatica Group S.p.A.
Italy
800
100
Lottomatica Group S.p.A.
Siderbet S.r.l. (22)
Italy
10
100
Lottomatica Scommesse S.r.l.
Spielo Italia S.r.l.
(formerly Lottomatica
Bingo S.r.l.) (23)
Spielo Manufacturing
ULC
Spielo USA
Incorporated (24)
Toto Carovigno S.p.A.
Italy
50
100
Lottomatica Group S.p.A.
Nova Scotia,
Canada
Delaware, USA
54,261
100
Lottomatica Group S.p.A.
**
100
Lottomatica Group S.p.A.
Italy
500
100
Lottomatica Scommesse S.r.l.
Totobit Informatica
Software e Sistemi
S.p.A.
TTS S.r.l. (25)
Italy
3,043
100
Lottomatica Italia Servizi S.p.A.
Italy
100
100
Tulipano S.r.l. (12)
Italy
20
100
Totobit Informatica Software e
Sistemi S.p.A.
Lottomatica Videolot Rete S.p.A.
Delaware, USA
3,147,515.382
100
Invest Games S.A.
Delaware, USA
**
100
GTECH Holdings Corporation
Sri Lanka
33,660
50
Anguilla
10
100
Antigua
**
100
GTECH Global Services
Corporation Limited
Leeward Islands Lottery Holding
Company, Inc.
Leeward Islands Lottery Holding
Company, Inc.
GTECH Holdings
Corporation (26)
GTECH Corporation
Aitken Spence GTECH
(Private) Limited
Anguilla Lottery and
Gaming Company, Ltd.
Antigua Lottery
Company, Ltd.
Shareholder
212
2010 Annual Report
List of Lottomatica Group S.p.A. Subsidiaries and Affiliates
Name
Jurisdiction
Share Capital*
Ownership
%
BG Monitoring Center
Holding Company
Limited (27)
Beijing GTECH
Computer Technology
Company Ltd.
BillBird S.A.
Cyprus
20
100
GTECH Global Services
Corporation Limited
China (PRC)
150
100
GTECH Foreign Holdings
Corporation
Poland
4,490.368
100
Boss Casinos N.V.
Curacao
67
100
GTECH Global Services
Corporation Limited
Boss Media AB
Boss Media AB
Sweden
1,141.3
100
GEMed AB
Antigua &
Barbuda
Canada
77
100
Boss Media AB
10
100
Boss Media AB
Malta
15
99.99
Boss Media AB
Sweden
100
100
Boss Media AB
Malta
80
99.99
Boss Holdings Ltd.
Malta
40
99.99
Boss Holdings Ltd.
Australia
**
100
Tranco Investment Limited
British Virgin
Islands
China (PRC)
30,000
50
2,700
100
GTECH Global Services
Corporation Limited
CLS-GTECH Company Limited
United Kingdom
100
100
GTECH Corporation
U.S. Virgin
Islands
Netherlands
Antilles
Poland
**
100
200
100
50
100
Delaware, USA
**
100
Leeward Islands Lottery Holding
Company, Inc.
Leeward Islands Lottery Holding
Company, Inc.
GTECH Corporation (80%);
GTECH Polska Sp. z o.o. (20%)
GTECH Corporation
Delaware, USA
**
100
GTECH Corporation
Boss Media Antigua
Ltd.
Boss Media Canada
Gaming Services Ltd.
Shareholder
(28)
Boss Holdings Ltd.
Boss Media Investment
AB
Boss Media Malta
Casino Ltd.
Boss Media Malta
Poker Ltd.
CLS-GTECH Australia
Pty Ltd. (2)
CLS-GTECH Company
Limited (2)
CLS-GTECH
Technology (Beijing)
Co., Ltd. (2)
Cam Galaxy Group
Ltd.
Caribbean Lottery
Services, Inc.
Curacao Lottery
Company, N.V.
DataTrans Sp. z o.o.
Data Transfer Systems,
Inc.
Dreamport, Inc.
213
2010 Annual Report
List of Lottomatica Group S.p.A. Subsidiaries and Affiliates
Jurisdiction
Share Capital*
Ownership
%
Brazil
3,434.133
100
Delaware, USA
**
100
Dreamport, Inc. (99.75%);
GTECH Foreign Holdings
Corporation (0.25%)
GTECH Corporation
United Kingdom
**
100
Boss Media AB
British Virgin
Islands
United Kingdom
**
100
CLS-GTECH Company Limited
20
100
Europrint Holdings Ltd.
90.908
100
United Kingdom
**
100
Cam Galaxy Group (40%);
JSJ Ltd. (60%)
Europrint Holdings Ltd.
United Kingdom
1.172
100
Sweden
100
100
Delaware, USA
**
100
GTECH Sports Betting Solutions
Limited
GTECH Global Services
Corporation Limited
GTECH Corporation
Delaware, USA
**
100
GTECH Corporation
Turkey
278.88
99.6
On-Line Lottery License and Lease
B.V.
Brazil
96,582.428
100
GTECH Colombia
Ltda.
Colombia
6,884,500
100
GTECH
Comunicaciones
Colombia Ltda.
Colombia
10,000
100
GTECH Computer
Systems Sdn Bhd
GTECH Corporation
Malaysia
**
100
GTECH Corporation (99.75%);
GTECH Foreign Holdings
Corporation (0.25%)
GTECH Global Services
Corporation Limited (99.998%);
GTECH Comunicaciones Colombia
Ltda. (.007%);
Alvaro Gomez Munoz (.007%)
(Nominee share)
GTECH Foreign Holdings
Corporation (99.99%);
Alvaro Rivas (.01%) (Nominee
share)
GTECH Corporation
Utah, USA
**
100
GTECH Corporation
Name
Dreamport do Brasil
Ltda.
Dreamport Suffolk
Corporation
Dynamite Design &
Marketing Limited
East Luck Investments
Limited (2)
Europrint (Games) Ltd.
Europrint Holdings Ltd. United Kingdom
Europrint Promotions
Ltd.
Finsoft Limited
GEMed AB (29)
GTECH Asia
Corporation
GTECH Australasia
Corporation
GTECH Avrasya
Teknik Hizmetler Ve
Musavirlik A.S.
GTECH Brasil Ltda.
Shareholder
214
2010 Annual Report
List of Lottomatica Group S.p.A. Subsidiaries and Affiliates
Jurisdiction
Share Capital*
Ownership
%
Ivory Coast
1,000
100
GTECH Czech
Services s.r.o.
Czech Republic
1,000
100
GTECH Czech
Republic, LLC (30)
GTECH Espana
Corporation
GTECH Europe (31)
Delaware, USA
3,000
37
GTECH Foreign Holdings
Corporation
GTECH Global Services
Corporation Limited (98%);
GTECH Ireland Operations Limited
(2%)
GTECH Corporation
Delaware, USA
**
100
GTECH Corporation
Belgium
1,250
100
Singapore
25
100
Delaware, USA
**
100
GTECH Corporation (99.9%);
GTECH Foreign Holdings
Corporation (.1%)
GTECH Global Services
Corporation Limited
GTECH Corporation
France
50
100
Germany
500
100
Spain
2,146
100
Cyprus
486,574.326
100
Ireland
100
100
Sri Lanka
1,000,000
100
GTECH Latin America
Corporation
GTECH Management
P.I. Corporation
GTECH Mexico S.A.
de C.V
Delaware, USA
**
100
GTECH Global Services
Corporation Limited
GTECH Global Services
Corporation Limited (99.9%);
GTECH Corporation (.1%)
GTECH Corporation
Delaware, USA
**
100
GTECH Corporation
Mexico
50,000
100
GTECH Northern
Europe Corporation
Delaware, USA
**
100
GTECH Corporation
(99.656696%);
GTECH Foreign Holdings
Corporation (0.343297%);
GTECH Latin America Corporation
(0.000007%)
GTECH Corporation
Name
GTECH Cote d'Ivoire
GTECH Far East Pte
Ltd
GTECH Foreign
Holdings Corporation
GTECH France SARL
GTECH GmbH
GTECH Global Lottery
S.L. (32)
GTECH Global
Services Corporation
Limited (33)
GTECH Ireland
Operations Limited
GTECH Lanka
(Private) Ltd. (34)
Shareholder
GTECH Foreign Holdings
Corporation
GTECH Global Services
Corporation Limited
GTECH Global Services
Corporation Limited
GTECH Corporation
215
2010 Annual Report
List of Lottomatica Group S.p.A. Subsidiaries and Affiliates
Name
Jurisdiction
Share Capital*
Ownership
%
GTECH Polska Sp.z
o.o.
GTECH Printing
Corporation
GTECH Rhode Island
Corporation
GTECH Slovakia
Corporation
GTECH Southern
Africa (Pty) Ltd.
GTECH Sports Betting
Solutions Limited
GTECH Sweden AB
Poland
47,445
100
Delaware, USA
**
100
GTECH Global Services
Corporation Limited
GTECH Corporation
Rhode Island,
USA
Delaware, USA
**
100
GTECH Corporation
**
100
GTECH Corporation
South Africa
**
100
GTECH Corporation
United Kingdom
**
100
Sweden
100
100
United Kingdom
200
100
GTECH Global Services
Corporation Limited
GTECH Global Services
Corporation
GTECH Corporation
Ukraine
19,066.264
100
GTECH WaterPlace
Park Company, LLC
GTECH West Africa
Lottery Limited
Delaware, USA
**
100
Nigeria
10,000
100
GTECH West
Greenwich Technology
Associates GP, LLC
GTECH Worldwide
Services Corporation
Innoka Oy
Delaware, USA
**
100
GTECH Global Services
Corporation Limited (75%);
GTECH Ireland Operations Limited
(25%)
GTECH Corporation
Delaware, USA
**
100
GTECH Corporation
Finland
16.2
81
Interactive Games
International Ltd.
International Poker
Network Ltd.
JSJ Ltd.
United Kingdom
**
100
GTECH Global Services
Corporation Limited
Europrint Holdings Ltd.
Malta
40
99.99
United Kingdom
690
100
GTECH Corporation
St. Kitts &
Nevis
13,600
100
GTECH Global Services
Corporation Limited
GTECH U.K. Limited
GTECH Ukraine
Leeward Islands
Lottery Holding
Company, Inc.
Shareholder
GTECH Asia Corporation (99%);
GTECH Management P.I .
Corporation (1%)
GTECH Corporation
Boss Holdings Ltd.
216
2010 Annual Report
List of Lottomatica Group S.p.A. Subsidiaries and Affiliates
Jurisdiction
Share Capital*
Ownership
%
Lottery Equipment
Company
Ukraine
**
100
Loxley GTECH
Technology Co., Ltd.
Thailand
1,470
49
Northstar Lottery
Group, LLC (35)
On-Line Lottery
License and Lease B.V.
Online Transaction
Technologies SARL à
Associé Unique
Oy GTECH Finland Ab
Illinois, USA
**
80
GTECH Asia Corporation
(99.994%);
GTECH Management P.I .
Corporation (.006%)
GTECH Global Services
Corporation Limited (39%);
GTECH Corporation (10%)
GTECH Corporation
Netherlands
18
100
GTECH Corporation
Morocco
500
100
GTECH Foreign Holdings
Corporation
Finland
8
100
GTECH Corporation
Prodigal Lottery
Services, N.V.
Retail Display and
Service Handlers, LLC
SB Indústria e
Comércio Ltda.
Netherlands
Antilles
Delaware, USA
10
100
**
100
Leeward Islands Lottery Holding
Company, Inc.
GTECH Corporation
Brazil
4,138.646
100
Siam GTECH
Company Limited
Springboard
Technologies Private
Limited (36)
St. Endellion Limited
**** (1) (37)
St. Enodoc Holdings
Limited (38)
St. Kitts and Nevis
Lottery Company, Ltd.
St. Minver Limited
Thailand
19.993
99.97
India
900
90
GTECH Global Services
Corporation Limited
Gibraltar
**
30
Gibraltar
14.13
90
St. Kitts &
Nevis
Gibraltar
**
100
**
100
GTECH Global Services
Corporation Limited
GTECH Global Services
Corporation Limited
Leeward Islands Lottery Holding
Company, Inc.
St. Enodoc Holdings Limited
United Kingdom
**
100
St. Enodoc Holdings Limited
Republic of
China
Delaware, USA
12,250
24.5
**
100
GTECH Global Services
Corporation Limited
GTECH Corporation
Name
(2)
St. Minver (UK)
Limited
Taiwan Sport Lottery
Corporation **** (1)
Technology Risk
Management Services,
Inc.
Shareholder
GTECH Corporation (99.99%);
GTECH Foreign Holdings
Corporation (0.01%)
GTECH Corporation
217
2010 Annual Report
List of Lottomatica Group S.p.A. Subsidiaries and Affiliates
Name
Tranco Investment
Limited (2)
Turks and Caicos
Lottery Company Ltd.
UTE LogistaGTECH,
Law 18/1982, No. 1
Jurisdiction
Share Capital*
Ownership
%
Hong Kong
**
100
East Luck Investments Limited
Turks & Caicos
50
100
Spain
2,000
50
Leeward Islands Lottery Holding
Company, Inc.
GTECH Global Lottery S.L.U.
Chile
5,000
100
Sweden
100
100
Rhode Island,
USA
**
100
Shareholder
(39)
VIA TECH Servicios
SpA (40)
WebDollar AB (41)
West Greenwich
Technology Associates,
L.P.
GTECH Global Services
Corporation Limited
Boss Media AB
GTECH Corporation (50%);
GTECH West Greenwich
Technology Associates GP, LLC
(50%)
NOTES
Unless otherwise noted, the consolidation method for all subsidiaries listed above is on a line-by-line
basis.
*
**
***
****
All Share Capital amounts are stated in local currency amounts and in thousands.
Share Capital is less than €1,000.
Companies not consolidated and carried at cost.
Companies not consolidated.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Accounted for by the equity method of accounting.
The consolidation method is proportionate consolidation.
On September 30, 2010, Atronic Asia Limited was dissolved.
On or about March 24, 2009, Atronic Austria Holding AG converted its entity status to GmbH.
On December 29, 2010, Atronic Nevada, LLC was liquidated.
On December 29, 2010, Atronic Systems Inc. was liquidated.
On September 22, 2010, Lottomatica Videolot Rete S.p.A. acquired 100% of Coin Net S.r.l.
On October 8, 2010, Lottomatica Group S.p.A. purchased 0.1% share capital of Consel Consorzio
Ellis for superior professional training.
Effective October 1, 2010, Consorzio Lotterie Nazionali transferred its Scratch & Win license to
Lotterie Nazionali S.r.l.
Consorzio Giochi Sportivi is in liquidation.
In July 2010, Edrin Ltd. was liquidated.
(9)
(10)
(11)
218
2010 Annual Report
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
(29)
(30)
(31)
(32)
(33)
On February 17, 2010 Europa Gestione S.r.l. and Tulipano S.r.l. were merged into the parent
company Lottomatica Videolot Rete S.p.A. Effective January 1, 2011, after the close of 2010,
Coin Net S.r.l., Empoli Giochi S.r.l. and Logo S.r.l. were merged into parent company
Lottomatica Videolot Rete S.p.A.
On February 17, 2010 Lottomatica International Hungary Korlátolt Felelősségű Társaság (KFT)
was merged into Lottomatica Group S.p.A. and Lottomatica Group S.p.A. became the sole owner
of Invest Games S.A.
On September 1, 2010, Lottomatica International Greece S.r.l. purchased 50% of L-Gaming S.A.
Based on the resolution issued on December 16, 2010 LIS Finanziaria S.p. A. modified its
company name to LIS Istituto di Pagamento P S.p.A. effective only following the authorization of
the Bank of Italy (Banca d'Italia).
On September 24, 2010, Lottomatica Videolot Rete S.p.A. purchased 100% of Logo S.r.l.
On December 7, 2010, Lotterie Nazionali Holding S.r.l. was formed and by resolution dated
December 14, 2010 was converted to S.p.A.
On May 13, 2010 Lottomatica Group S.p.A. (63%), Scientific Games Luxembourg Inv. S.a.r.l.
(19%), Arianna 2001 S.p.A. (15%), Scientific Games International Inc. (1%), Servizi in Rete
2001 S.r.l. (1%) and Olivetti S.p.A. (1%) formed Lotterie Nazionali S.r.l. On December 10,
2010, Lottomatica Group S.p.A. transferred its entire interest participation of Lotterie Nazionali
S.r.l. to Lotterie Nazaionali Holding S.p.A.
On June 16, 2010 Lottomatica Group S.p.A. formed Lottomatica International Greece, with an
84% share participation.
Effective January 1, 2010 Lottomatica Sistemi S.p.A. and Lottomatica International S.r.l. were
merged into Lottomatica Group S.p.A. As a result of such merger, Lottomatica Group S.p.A. is
the sole shareholder of PCC Giochi e Servizi S.p.A.
On March 23, 2010 Lottomatica Group acquired an additional share participation in Neurosoft
S.A., thereby increasing its percentage of ownership from 5% to 16.58%.
On May 19, 2010 Lottomatica Scommesse S.r.l. acquired 100% of Siderbet S.r.l.
On November 15, 2010, Lottomatica Bingo S.r.l. modified its company name to Spielo Italia
S.r.l. On November 29, 2010, Lottomatica Group S.p.A. purchased 100% of Spielo Italia S.r.l.
from Lottomatica Scommesse S.r.l.
As of January 1, 2011, after the close of 2010, Spielo USA Incorporated was merged into Atronic
Americas, LLC.
On July 30, 2010, TTS S.r.l. was sold.
On December 3, 2010, Invest Games S.A. made a capital contribution to GTECH Holdings
Corporation in the amount of US$391,633,901.25.
On November 8, 2010, BG Monitoring Center Holding Company Limited was formed. It is a
wholly owned subsidiary of GTECH Global Services Corporation Limited.
On April 21, 2010, 7532555 Canada Ltd. was formed in Canada and changed its name to Boss
Media Canada Gaming Services Ltd. on June 25, 2010. It is a wholly owned subsidiary of Boss
Media AB.
On April 12, 2010, GTECH Global Services Corporation Limited acquired 100% of GEMed AB's
interest participation from Medströms Invest AB.
On January 13, 2010, GTECH Corporation acquired an additional 12,000 units of GTECH Czech
Republic, LLC from Sazka, a.s., thereby increasing its percentage of ownership to 37%.
GTECH Europe was liquidated effective December 27, 2010.
On May 11, 2010, GTECH Global Lottery, S.L. increased its share capital to €2,146,000.
As of April 12, 2010 GTECH Global Services Corporation Limited increased its share capital to
US$486,574,326.
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On November 23, 2010, GTECH Lanka (Private) Ltd. was stricken from the register.
On July 15, 2010, Illinois Lottery Partners, LLC was formed in Illinois, USA and changed its
name to Northstar Lottery Group, LLC on July 22, 2010. It is owned 80% by GTECH
Corporation and 20% by Scientific Games International, Inc.
On January 10, 2011, after the close of 2010, GTECH Global Services Corporation Limited
acquired the remaining 10% interest in Springboard Technologies Private Limited.
On January 10, 2011, after the close of 2010, GTECH Global Services Corporation Limited sold
its 30% interest in St. Endellion Limited.
On January 10, 2011, after the close of 2010, GTECH Global Services Corporation Limited
acquired the remaining 10% interest in St. Enodoc Holdings Limited.
The Compañia de Distribución Integral Logísta S.A.U. and GTECH Global Lottery S.L.U.,
Union Temporal de Empresas, Law 18/1982 of 26th May, Number 1 (“UTE Logísta-GTECH Law
18/1982, No. 1”) is a Temporary Union of Entities formed under Spanish law. It was formed for
the purposes of carrying out the obligations under the Agreement with National Organization for
the Blind in Spain (ONCE) dated October 19, 2009.
On September 28, 2010, VIA TECH Servicios SpA was formed in Chile. It is owned 100% by
GTECH Global Services Corporation Limited.
On August 1, 2010, Webdollar AB was sold to Envoy Services Ltd.
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