GTech (GTK) 10-Q 2007 Q1 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended May 27, 2006

OR

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

Commission file number 1-11250

GTECH Holdings Corporation

(Exact name of Registrant as specified in its charter)

Delaware (State or other Jurisdiction of Incorporation or Organization)	05-0450121 (I.R.S. Employer Identification Number)
55 Technology Way, West Greenwich, Rhode Island (Address of Principal Executive Offices)	02817 (Zip Code)

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesþ Noo

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filerþ Accelerated filero Non-accelerated filero

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso Noþ

Number of shares of Registrant’s Common Stock outstanding as of June 20, 2006: 127,389,752

INDEX

GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

		Page
		Number
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets		3
	Consolidated Income Statements		4
	Consolidated Statements of Cash Flows		5
	Consolidated Statement of Shareholders’ Equity		6
	Notes to Consolidated Financial Statements		7-26
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27-40
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		40
Item 4.	Controls and Procedures		40
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		41
Item 1A.	Risk Factors		41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		42
Item 4.	Submission of Matters to a Vote of Security Holders		43
Item 6.	Exhibits		44
SIGNATURES			44
EXHIBITS
EX-10.1: EMPLOYMENT AGREEMENT
EX-10.2: EMPLOYMENT AGREEMENT
EX-10.3: STIPULATION OF SETTLEMENT
EX-12.1: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION

PART 1. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	May 27,			February 25,
	2006			2006
	(Dollars in thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	185,177		$	235,191
Investment securities available-for-sale		323,125			260,725
Trade and other receivables, net		151,449			183,561
Refundable performance deposit		8,000			8,000
Inventories		108,539			88,024
Deferred income taxes		27,783			26,398
Other current assets		55,003			47,819
TOTAL CURRENT ASSETS		859,076			849,718
SYSTEMS, EQUIPMENT AND OTHER ASSETS RELATING TO CONTRACTS, net		731,266			692,545
GOODWILL		346,096			346,096
PROPERTY, PLANT AND EQUIPMENT, net		108,693			101,416
INTANGIBLE ASSETS, net		61,589			64,212
OTHER ASSETS		43,789			45,915
TOTAL ASSETS	$	2,150,509		$	2,099,902
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	78,698		$	93,205
Accrued expenses		49,123			46,220
Employee compensation		23,792			31,804
Advance payments from customers		79,287			63,768
Deferred revenue and advance billings		31,354			17,889
Income taxes payable		64,852			67,098
Taxes other than income taxes		16,887			17,106
Short-term borrowings		1,748			—
Current portion of long-term debt		6,326			9,148
TOTAL CURRENT LIABILITIES		352,067			346,238
LONG-TERM DEBT, less current portion		539,769			542,259
OTHER LIABILITIES		114,142			106,671
DEFERRED INCOME TAXES		97,765			99,362
COMMITMENTS AND CONTINGENCIES		—			—
SHAREHOLDERS’ EQUITY:
Preferred Stock, par value $.01 per share - 20,000,000 shares authorized, none issued		—			—
Common Stock, par value $.01 per share - 200,000,000 shares authorized, 127,381,252 and 127,179,225 shares issued and outstanding at May 27, 2006 and February 25, 2006, respectively		1,274			1,272
Additional paid-in capital		449,302			444,810
Accumulated other comprehensive loss		(33,551	)		(35,662	)
Retained earnings		629,741			594,952
		1,046,766			1,005,372
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,150,509		$	2,099,902

See Notes to Consolidated Financial Statements

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GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

	(Unaudited)
	Three Months Ended
	May 27,			May 28,
	2006			2005
	(Dollars in thousands, except per share amounts)
Revenues:
Services	$	290,175		$	291,364
Sales of products		25,671			35,035
		315,846			326,399
Costs and expenses:
Costs of services		175,821			168,917
Costs of sales		15,051			21,604
		190,872			190,521
Gross profit		124,974			135,878
Selling, general and administrative		39,275			32,019
Research and development		10,797			12,938
Operating expenses		50,072			44,957
Operating income		74,902			90,921
Other income (expense):
Interest income		4,389			2,045
Equity in earnings of unconsolidated affiliates		601			1,787
Other expense		(75	)		(1,794	)
Interest expense		(7,453	)		(7,265	)
		(2,538	)		(5,227	)
Income before income taxes		72,364			85,694
Income taxes		26,702			30,850
Net income	$	45,662		$	54,844
Basic earnings per share	$	0.36		$	0.48
Diluted earnings per share	$	0.35		$	0.43
Weighted average shares outstanding — basic		127,279			114,646
Weighted average shares outstanding — diluted		130,436			129,707
Cash dividends declared per common share	$	0.085		$	0.085

See Notes to Consolidated Financial Statements

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GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	(Unaudited)
	Three Months Ended
	May 27,			May 28,
	2006			2005
	(Dollars in thousands)
OPERATING ACTIVITIES
Net income	$	45,662		$	54,844
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		42,008			42,023
Intangibles amortization		2,444			2,485
Other amortization		430			156
Stock-based compensation expense		2,556			2,523
Deferred income taxes		(2,982	)		4,372
Excess tax benefit from stock option exercises		(842	)		3,044
Minority interest		720			1,309
Equity in earnings of unconsolidated affiliates, net of dividends received		266			(1,787	)
Other		1,987			5,183
Changes in operating assets and liabilities:
Trade and other receivables, net		30,410			17,820
Inventories		(20,515	)		13,486
Other current assets		(6,984	)		(4,631	)
Accounts payable		(13,015	)		(32,448	)
Employee compensation		(8,984	)		3,188
Advance payments from customers		15,519			(192	)
Deferred revenue and advance billings		13,465			(5,101	)
Income taxes payable		(1,404	)		11,558
Other assets and liabilities		1,562			3,744
NET CASH PROVIDED BY OPERATING ACTIVITIES		102,303			121,576
INVESTING ACTIVITIES
Purchases of systems, equipment and other assets relating to contracts		(80,235	)		(40,562	)
Purchases of available-for-sale investment securities		(63,500	)		(85,000	)
Maturities and sales of available-for-sale investment securities		1,100			72,325
Purchases of property, plant and equipment		(2,986	)		(2,394	)
Decrease in restricted cash		—			5,080
Other		(163	)		296
NET CASH USED FOR INVESTING ACTIVITIES		(145,784	)		(50,255	)
FINANCING ACTIVITIES
Dividends paid		(10,822	)		(9,770	)
Principal payments on long-term debt		(2,553	)		(1,317	)
Proceeds from stock options		330			3,322
Excess tax benefit from stock option exercises		842			—
Purchases of treasury stock		—			(32,051	)
Other		3,201			863
NET CASH USED FOR FINANCING ACTIVITIES		(9,002	)		(38,953	)
Effect of exchange rate changes on cash		2,469			(1,180	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(50,014	)		31,188
Cash and cash equivalents at beginning of period		235,191			94,446
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	185,177		$	125,634

See Notes to Consolidated Financial Statements

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GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY — (Unaudited)

							Accumulated
					Additional		Other
	Outstanding		Common		Paid-in		Comprehensive			Retained
	Shares		Stock		Capital		Loss			Earnings			Total
					(Dollars in thousands)
Balance at February 25, 2006		127,179,225	$	1,272	$	444,810	$	(35,662	)	$	594,952		$	1,005,372
Comprehensive income:
Net income		—		—		—		—			45,662			45,662
Other comprehensive income (loss), net of tax:
Foreign currency translation		—		—		—		2,863			—			2,863
Unrecognized net loss on derivative instruments		—		—		—		(668	)		—			(668	)
Amortization of unrecognized gain on interest rate locks to interest expense		—		—		—		(84	)		—			(84	)
Comprehensive income														47,773
Cash dividends declared on common stock ($0.085 per share)		—		—		—		—			(10,873	)		(10,873	)
Shares issued under employee stock purchase and stock award plans		134,464		2		363		—			—			365
Shares issued upon exercise of stock options		37,824		—		330		—			—			330
Shares issued upon conversion of debentures		29,739		—		401		—			—			401
Stock-based compensation expense		—		—		2,556		—			—			2,556
Excess tax benefit from stock option exercises		—		—		842		—			—			842
Balance at May 27, 2006		127,381,252	$	1,274	$	449,302	$	(33,551	)	$	629,741		$	1,046,766

See Notes to Consolidated Financial Statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

Organization

GTECH Holdings Corporation (“Holdings”) is a global gaming and technology company providing software, networks and professional services that power high-performance, transaction processing systems. We are the world’s leading operator of highly-secure online lottery transaction processing systems, doing business in 51 countries worldwide and we have a growing presence in commercial gaming technology and financial services transaction processing. We have a single operating and reportable business segment, the Transaction Processing segment. In these notes, the terms “Holdings,” “Company,” “we,” “our,” and “us” refer to GTECH Holdings Corporation and all subsidiaries included in the consolidated financial statements, unless otherwise specified. The accounting policies of the Transaction Processing segment are the same as those described in Note 1 – “Organization and Summary of Significant Accounting Policies” in our Consolidated Financial Statements and footnotes included in our fiscal 2006 Annual Report on Form 10-K. Management evaluates the performance of this segment based on operating income.

Basis of Presentation

The accompanying unaudited consolidated financial statements of Holdings, the parent of GTECH Corporation (“GTECH”), have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended May 27, 2006 are not necessarily indicative of the results that may be expected for the full fiscal year ending February 24, 2007. The balance sheet at February 25, 2006 has been derived from the audited financial statements at that date. For further information refer to the Consolidated Financial Statements and footnotes included in our fiscal 2006 Annual Report on Form 10-K.

Certain amounts in our prior period financial statements have been reclassified to conform to the current period presentation.

NOTE 2 – ACQUISITION OF THE COMPANY

On January 10, 2006, we entered into an agreement and plan of merger with Lottomatica S.p.A., an Italian corporation and exclusive license holder and operator of Italy’s Lotto (“Lottomatica”), whereby Lottomatica will acquire Holdings for $35.00 in cash per outstanding Holdings share. The total value of the transaction is approximately $4.8 billion, including the assumption of Holding’s existing net debt. During the first quarter of fiscal 2007, Holdings incurred approximately $7 million of costs in connection with the transaction and we expect to incur approximately $28 million to $30 million of additional costs through the closing of the transaction, of which approximately $12 million to $14 million are contingent upon completion of the transaction. These costs are subject to change based on changes in terms of the transaction.

Completion of the transaction, which is expected to occur in mid-2006, is subject to regulatory approvals, receipt of contract assignment assurance from certain significant lottery customers, Lottomatica maintaining a pro forma investment grade credit rating, and other customary conditions. Subsequent to the acquisition, Holdings shares will be delisted on the New York Stock Exchange.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 3 – INVENTORIES

Inventories consist of the following:

	May 27,		February 25,
	2006		2006
	(Dollars in thousands)
Raw materials	$	24,788	$	19,465
Work in progress		41,947		37,157
Inventoried costs related to long-term contracts		31,861		25,606
Finished goods		9,943		5,796
	$	108,539	$	88,024

Inventories include amounts we manufacture or assemble for our long-term service contracts and amounts related to product sales contracts, including product sales which are accounted for using contract accounting.

Amounts received from customers in advance of revenue recognition totaled $79.3 million and $63.8 million at May 27, 2006 and February 25, 2006, respectively, of which $36.2 million and $33.3 million were associated with inventoried costs related to long-term contracts. These amounts are included in Advance Payments from Customers in our Consolidated Balance Sheets.

NOTE 4 – PRODUCT WARRANTY

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

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

A summary of product warranty activity for the three months ended May 27, 2006 and May 28, 2005 is as follows:

	May 27,			May 28,
	2006			2005
	(Dollars in thousands)
Balance at beginning of period	$	1,255		$	1,634
Additional reserves		77			84
Charges incurred		(111	)		(411	)
Other		23			(16	)
Balance at end of period	$	1,244		$	1,291

Our reserves for product warranty are included in Accrued Expenses in our Consolidated Balance Sheets.

-8-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5 – LONG-TERM DEBT

Long-term debt consists of the following:

	May 27,			February 25,
	2006			2006
	(Dollars in thousands)
4.75% Senior Notes due October 2010	$	249,759		$	249,745
4.50% Senior Notes due December 2009		149,708			149,687
5.25% Senior Notes due December 2014		148,870			148,837
1.75% Convertible Debentures due December 2021		6,206			6,615
Fair value of interest rate swaps		(9,052	)		(6,063	)
Other, due through October 2007		604			2,586
		546,095			551,407
Less current portion		6,326			9,148
	$	539,769		$	542,259

Credit Facility

We have a $500 million unsecured senior revolving credit facility expiring in October 2009 (the “Credit Facility”). There were no outstanding borrowings under the Credit Facility at May 27, 2006 or February 25, 2006. Up to $100 million of the Credit Facility may be used for the issuance of letters of credit. At May 27, 2006 there was $499.5 million available for borrowing under the Credit Facility, after considering $0.5 million of letters of credit issued and outstanding.

NOTE 6 – COMMITMENTS AND CONTINGENCIES

Acquisition

We entered into an agreement in December 2004, as amended in January 2006, to acquire a 50% controlling equity position in the Atronic group of companies (“Atronic”) owned by Paul and Michael Gauselmann (the “Gauselmanns”). The remaining 50% of Atronic will be retained by the Gauselmanns. Atronic is a video gaming machine manufacturer and also develops video machine games and customized solutions for dynamic gaming operations. This transaction is contingent upon regulatory and gaming license approvals and other closing conditions, and is expected to be completed by December 2007.

The final purchase price for Atronic will be calculated pursuant to a performance-based formula equal to eight times Atronic’s EBITDA (earnings before interest, taxes, depreciation and amortization) for its fiscal year ending December 31, 2006, provided however, that the payment shall not be less than Euro 20 million. In addition, the Gauselmanns have the potential to receive an earn-out payment one year after the closing, if Atronic’s 2007 performance exceeds certain specified thresholds. However, if Euro 20 million is paid at the closing and if such payment exceeds the payment that would have been made pursuant to the performance-based formula, then any excess will be applied to the earn-out payment. Should we purchase the remaining 50% interest in Atronic, any remaining unapplied excess would be applied toward that purchase. We currently expect the transaction will have a total value of approximately $100 million to $150 million, for our 50% share, including the cash payment and assumption of debt.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 6 – COMMITMENTS AND CONTINGENCIES (continued)

Through the end of 2011, we have the option to purchase the Gauselmanns’ remaining 50% interest in Atronic at a price calculated pursuant to a performance based formula equal to eight times Atronic’s EBITDA for its previous twelve months, plus an earn-out payment pursuant to a performance based formula if certain specified thresholds are exceeded. However, the payment for the second 50% shall not be less than Euro 50 million. During this period, the Gauselmanns have put rights that become effective only under certain circumstances. The exercise price of these puts under the specified circumstances would be calculated through a performance based formula.

Beginning in 2012, we have the option to purchase the Gauselmanns’ remaining interests in Atronic and Gauselmann has a reciprocal right to sell its interest to us at a value to be determined by independent appraisers.

Option to Purchase PolCard Outstanding Equity

In May 2003, we completed the acquisition of a controlling equity position in PolCard S.A. (“PolCard”), for a purchase price, net of cash acquired, of $35.9 million. PolCard is the leading debit and credit card merchant transaction acquirer and processor in Poland. In September 2005, we purchased an additional 11.681% of PolCard from Innova Capital Sp. z o.o. (“Innova”) for cash consideration of approximately $21.5 million, resulting in PolCard’s outstanding equity being owned 74.5% by us, 25.2% by two funds managed by Innova, and 0.3% by the Polish Bank Association, one of PolCard’s previous owners.

The terms of the Share Purchase Agreement which govern the purchase of the additional 11.681% of PolCard included a commitment by GTECH and Innova, as the majority shareholders of PolCard, to vote in favor of a general shareholder dividend of approximately $25.0 million to be paid after the close of PolCard’s fiscal year ending on February 25, 2006, and for PolCard to loan to Innova approximately $6.3 million in anticipation of the dividend. This loan was advanced in December 2005, bears interest at WIBOR plus 1.75% (5.9% as of May 27, 2006), and is fully secured by the dividend and by PolCard shares currently owned by Innova. The dividend was declared and paid in June 2006.

We have three fair value options to purchase Innova’s interest in PolCard, and Innova has the reciprocal right to sell its interest in PolCard to us at fair value. Each fair value option has a duration of 90 days and, in the absence of an agreed price between the parties prior to the commencement of an option period, will be based on an appraised value from at least two investment banks at the date of each option period.

We estimate that the buyout prices of each fair value option, based on discounted cash flows, could be as follows:

	Buyout Percentage
	of the PolCard			Range of
Exercise Date Commencing In	Outstanding Equity			Buyout Price
May 2007		12.6	%	$	20 to $30 million
May 2008		6.3	%	$	11 to $17 million
May 2009		6.3	%	$	13 to $19 million

Litigation

See “Legal Proceedings” in Part II, Item 1 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this report.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7 – GUARANTEES AND INDEMNIFICATIONS

Performance and Other Bonds

In connection with certain contracts and procurements, we have been required to deliver performance bonds for the benefit of our customers and bid and litigation bonds for the benefit of potential customers, respectively. These bonds give the beneficiary the right to obtain payment and/or performance from the issuer of the bond if certain specified events occur. In the case of performance bonds, which generally have a term of one year, such events include our failure to perform our obligations under the applicable contract. To obtain these bonds, we are required to indemnify the issuers against the costs they incur if a beneficiary exercises its rights under a bond. Historically, our customers have not exercised their rights under these bonds and we do not currently anticipate they will do so. The following table provides information related to potential commitments at May 27, 2006 (in thousands):

	Total potential
	commitments
Performance bonds	$	260,201
Financial guarantees		31,485
Litigation bonds		7,870
All other bonds		4,968
	$	304,524

Atronic

In March 2005, we guaranteed Euro 25 million of Atronic’s obligations due under a Euro 50 million loan made by a commercial lender to Atronic (the “Agreement”). Our maximum liability under this guarantee is equal to the lesser of Euro 25 million or 50% of Atronic’s obligations under the Agreement. On December 22, 2005, Atronic repaid Euro 25 million principal amount of the loan. At May 27, 2006, our maximum liability under this guarantee was Euro 12.5 million (approximately $16.0 million). The guarantee arose in connection with our planned acquisition of Atronic by December 2007. We would be required to perform under the guarantee should Atronic fail to make any interest or principal payments in accordance with the terms and conditions of the Agreement. Our guarantee expires on April 26, 2010. As of May 27, 2006, the carrying amount of the liability for our obligations under this guarantee is $2.0 million, which is included in Other Liabilities in our Consolidated Balance Sheet. A corresponding asset of $2.0 million is included in Other Assets in our Consolidated Balance Sheet.

The Agreement stipulates that if any event of default should occur and be continuing under the Credit Facility, we would be required to deposit in an account with the commercial lender, Euro 12.5 million, which would be held by the commercial lender as collateral for the payment and performance of our obligations under the guarantee. The commercial lender would have control over this account. The cash deposit would be released to us three business days after all the events of default have been cured or waived.

On January 10, 2006, we agreed to provide an additional guarantee of approximately Euro 20 million ($25.6 million at the May 27, 2006 exchange rate) of loans made by unrelated commercial lenders to Atronic. As of May 27, 2006, our guarantee obligations had not yet commenced. On June 21, 2006 (after the close of our fiscal 2007 first quarter), we guaranteed Euro 9.2 million ($11.8 million at the May 27, 2006 exchange rate) of the Euro 20 million that we agreed to guarantee.

- 11 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7 – GUARANTEES AND INDEMNIFICATIONS (continued)

Loxley GTECH Private Limited

We have a 49% interest in Loxley GTECH Private Limited Co. (“LGT”), which is accounted for using the equity method of accounting. LGT is a corporate joint venture that will provide an online lottery system in Thailand. In March 2005, in order to assist LGT with obtaining the financing they required to enable them to perform under their obligation to operate the online lottery system in Thailand, we guaranteed, along with the 51% shareholder in LGT, Baht 1.925 billion (approximately $50.3 million at the May 27, 2006 exchange rate) principal amount in loans and Baht 455 million (approximately $11.9 million at the May 27, 2006 exchange rate) in performance bonds and trade finance facilities made to LGT by an unrelated commercial lender (collectively the “Facilities”). We are jointly and severally liable with the other shareholder in LGT for this guarantee. We would be required to perform under the guarantee should LGT fail to make interest or principal payments in accordance with the terms and conditions of the Facilities. Our guarantee obligations commenced in July 2005 and will terminate upon the start-up of the online lottery system in Thailand, currently expected to occur in August 2006. At May 27, 2006, the principal amount of loans outstanding that we guaranteed totaled $15.5 million. As of May 27, 2006, the carrying amount of the liability for our obligations under this guarantee is $0.5 million, which is included in Accrued Expenses in our Consolidated Balance Sheet. A corresponding asset of $0.5 million is included in Other Current Assets in our Consolidated Balance Sheet.

Lottery Technology Services Corporation

We have a 44% interest in Lottery Technology Services Corporation (“LTSC”), which we account for using the equity method of accounting. LTSC provides equipment and services (which we supplied to LTSC), to the Taipei Fubon Bank. The Taipei Fubon Bank holds the license to operate the Taiwan Public Welfare Lottery.

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

Lottery Technology Enterprises

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

- 12 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7 – GUARANTEES AND INDEMNIFICATIONS (continued)

World Headquarters Facility

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

Rent payments are expected to begin March 1, 2007. We have the right to cancel the lease after June 30, 2023 if the Master Contract with the State of Rhode Island is not renewed, in exchange for a termination fee equal to six months of base rent and operating expenses. The lease includes two ten year extension options. We have 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 us to assign or sublease our portion of the building without the lessor’s approval, which is not to be unreasonably withheld or conditioned.

Under Emerging Issues Task Force Issue No. 97-10, “The Effect of Lessee Involvement in Asset Construction”, we are considered the owner of the Facility (for accounting purposes only). Accordingly, we are recording the construction cost of the Facility along with a related liability in our Consolidated Balance Sheets, which is included in Property, Plant and Equipment, net and Other Liabilities, respectively.

NOTE 8 – COMPREHENSIVE INCOME

The components of comprehensive income are as follows:

	Three Months Ended
	May 27,			May 28,
	2006			2005
	(Dollars in thousands)
Net income	$	45,662		$	54,844
Other comprehensive income (loss), net of tax
Foreign currency translation		2,863			(5,088	)
Unrecognized net gain (loss) on derivative instruments		(668	)		963
Amortization of unrecognized gain on interest rate locks to interest expense		(84	)		(83	)
Comprehensive income	$	47,773		$	50,636

- 13 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 – STOCK-BASED COMPENSATION

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”). SFAS 123R supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and amends FASB Statement No. 95, “Statement of Cash Flows”. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values at the date of grant. Recognizing compensation expense using the intrinsic value method described in APB 25 and disclosing the pro forma impact of using the fair value based method described in SFAS 123 is no longer an alternative.

We adopted SFAS 123R on February 26, 2006 (the first day of fiscal 2007) using the modified prospective transition (“MPT”) method. Under the MPT method, compensation cost recognized during the first quarter of fiscal 2007 includes:

• compensation cost for all share-based payments granted prior to but not yet vested as of February 25, 2006, based on the grant-date fair value estimate used for SFAS 123 pro forma disclosure purposes and;

• compensation cost for all share-based payments granted subsequent to February 25, 2006, based on the grant-date fair value estimated in accordance with SFAS 123R.

In accordance with the MPT method, our results of operations and financial position for the first quarter of fiscal 2006 have not been restated to reflect, and do not include, the impact of SFAS 123R. Prior to the adoption of SFAS 123R, we accounted for stock options using the intrinsic value method under the guidance of APB 25 and provided pro forma disclosure in accordance with SFAS 123. Under APB 25, we did not record compensation expense for stock options because the exercise price of all stock options granted was equal to the fair market value of our common stock on the grant date. We did recognize stock compensation expense for restricted stock awards based on the fair value on the grant date, which is being charged to expense over the vesting period.

The adoption of SFAS 123R had the following impact on the first quarter of fiscal 2007 results:

• Income before income taxes was reduced by $1.6 million

• Net income was reduced by $1.0 million

• Cash flow from operations was reduced by $0.8 million

• Cash flow from financing activities was increased by $0.8 million

• Basic and diluted earnings per share were reduced by $0.01

Prior to the adoption of SFAS 123R, we presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in our Consolidated Statement of Cash Flows. SFAS 123R requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those stock options (excess tax benefits) to be classified as financing cash flows. The $0.8 million excess tax benefit classified as a financing cash inflow would have been classified as an operating cash inflow if we had not adopted SFAS 123R.

Stock-based compensation expense and related income tax benefit recognized during the first quarter of fiscal 2007 was $2.6 million and $0.9 million, respectively. No compensation expense was capitalized during the quarter. Stock-based compensation expense was recorded in the following line items of our Consolidated Income Statement (dollars in thousands):

	Three Months
	Ended
	May 27,
	2006
Selling, general and administrative	$	2,048
Costs of services		341
Research and development		143
Costs of sales		24
	$	2,556

- 14 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 – STOCK-BASED COMPENSATION (continued)

Equity Compensation Plans

We have three stock-based compensation plans: the 1997 Stock Option Plan; the 2000 Omnibus Stock Option and Long-Term Incentive Plan; and the 2002 Omnibus Stock Option and Long-Term Incentive Plan (the “Plans”). The Plans, which are shareholder approved, permit the grant of incentive stock options, nonqualified stock options, restricted stock (defined in SFAS 123R as non-vested stock), stock appreciation rights, and performance awards to nonemployee members of our Board of Directors and key employees. The Plans provide for the grant of up to 27.2 million shares of our common stock. We have not granted any incentive stock options, stock appreciation rights or performance awards under the Plans.

Historically, the majority of our nonqualified stock options and restricted stock awards have been granted during the first quarter of each fiscal year. Nonqualified stock options are granted with an exercise price equal to the fair market value of our common stock at the grant date and recipients of restricted stock grants do not pay us any cash consideration for the shares. Nonqualified stock options and restricted stock granted prior to April 2005 generally vest ratably over a four-year period from the grant date and subsequent grants generally vest ratably over a four-year period beginning on the second anniversary date of the grant. Vesting is based on continuous service. The maximum contractual term of all options is ten years. Nonqualified stock options and restricted stock are generally forfeited if the employee leaves the Company before they vest. Nonqualified stock options and restricted stock are subject to accelerated vesting if there is a change in control as defined in the Plans.

We also have an employee stock purchase plan (the “ESPP”) that is open to substantially all employees (with the exception of those employees who are 5% or more shareholders in our Company), that allows eligible employees to purchase shares of our common stock, through regular payroll deductions, of up to 10% of their base earnings. The purchase price of our common stock is equal to 85% of the fair market value of the stock on the first or last trading day of the six-month offering period, whichever is lower. Employees may purchase shares of our common stock having a fair market value of up to $25,000 per calendar year. All shares of our common stock purchased must be retained for a period of one year. The six-month offering period that ended April 30, 2006 was the last offering period under the ESPP. Under APB 25, we were not required to recognize stock-based compensation expense for shares issued under the ESPP. Upon adoption of SFAS 123R, we began recording stock-based compensation related to the ESPP.

- 15 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 – STOCK-BASED COMPENSATION (continued)

Non-Qualified Stock Options (“Options”)

Stock Option Valuation

Beginning February 27, 2005 (the first day of fiscal 2006), we use a binomial option pricing model, with the assistance of an outside valuation advisor, to calculate the grant-date fair value of an award. The fair values of Options granted prior to fiscal 2006 were estimated using a Black-Scholes option pricing model for footnote disclosure under SFAS 123. We changed our option pricing model to a binomial model as we believe the binomial model provides a better estimate of fair value because it identifies patterns of exercises based on triggering events, tying the results to possible future events instead of a single path of actual historical events. There were no Options granted during the first quarter of fiscal 2007. The fair value of Options granted during the first quarter of fiscal 2006 was calculated using the following estimated weighted-average assumptions:

	Three Months
	Ended
	May 28,
	2005
Options granted		984,700
Weighted-average exercise price	$	23.53
Weighted-average grant date fair value	$	7.00
Risk-free interest rate		4.0	%
Expected volatility		34.8	%
Expected dividend yield		1.4	%
Expected term (in years)		4.5

Risk-free interest rate

Risk-free interest rate was based on zero-coupon U.S. Treasury securities whose term was consistent with the contractual term of our Options.

Expected volatility

Expected volatility was based on a combination of historical volatility of our stock price over the expected term of the Options and implied volatility for publicly traded options of our stock.

Expected dividend yield

Expected dividend yield was calculated by annualizing the cash dividend declared by our Board of Directors for the current quarter and dividing that result by the closing stock price on the grant date. Although dividends are declared at the discretion of our Board of Directors, we anticipate continuing to pay a quarterly dividend that approximates the current dividend.

Expected term

Expected term was based on historical employee exercise data because we believe that our employees generally exhibit similar exercise behavior.

- 16 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 – STOCK-BASED COMPENSATION (continued)

Expense Attribution

Under SFAS 123R, an entity may elect either the accelerated recognition method or a straight-line recognition method for awards subject to graded vesting based on a service condition. We elected to amortize compensation costs related to share-based payments using the straight-line recognition method.

The amount of stock-based compensation recognized is based on the value of the portion of awards that are ultimately expected to vest. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from "cancellations" or “expirations” and represents only the unvested portion of the surrendered option. We currently expect, based on an analysis of our historical forfeitures, that approximately 90% of our Options will actually vest, and therefore we have applied a 10% forfeiture rate in determining the stock-based compensation charge recorded. We will re-evaluate this estimate periodically and adjust the forfeiture rate on a prospective basis as necessary. Ultimately, the actual expense recognized over the vesting period will only be for those shares that actually vest.

Had stock-based compensation expense been recorded during the first quarter of fiscal 2006 using the fair value based method described in SFAS 123, net income and earnings per share would have been reduced to the pro forma amounts listed in the table below (dollars in thousands, except per share amounts). The reported and pro forma net income and earnings per share for the first quarter of fiscal 2007 are the same since stock-based compensation expense was recorded in accordance with SFAS 123R.

	Three Months
	Ended
	May 28,
	2005
Net income, as reported	$	54,844
Add: Stock-based compensation expense included in reported net income, net of related tax effects		1,615
Deduct: Total stock-based compensation expense determined under the fair value method for all awards, net of related tax effects		(2,753	)
Pro forma net income	$	53,706
Basic earnings per share:
As reported	$	.48
Pro forma		.47
Diluted earnings per share:
As reported	$	.43
Pro forma		.42

Stock Option Activity

A summary of stock option activity under the Plans as of May 27, 2006 is as follows:

						Weighted
				Weighted		Average	Aggregate
				Average		Remaining	Intrinsic
	Shares			Exercise		Contractual	Value
	Outstanding			Price		Term (in years)	(in thousands)
Outstanding at February 25, 2006		7,709,541		$	14.79
Granted		—			—
Exercised		(37,824	)		8.72
Forfeited or expired		(25,000	)		24.33
Outstanding at May 27, 2006		7,646,717			14.79	6.3	$	147,274
Exercisable at May 27, 2006		5,406,766		$	11.29	5.7	$	123,089
Options vested or expected to vest as of May 27, 2006		7,422,722		$	14.54	6.3	$	144,837

- 17 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 – STOCK-BASED COMPENSATION (continued)

During the first quarter of fiscal 2007 and 2006, the total intrinsic value of Options exercised (i.e. the difference between the market price at exercise and the price paid by the employee to exercise the Options) was $1.0 million and $5.6 million, respectively.

Non-Vested Stock

Award Valuation

We value restricted stock awards based on the closing price of our common stock on the grant date.

Expense Attribution

We recognize compensation cost related to restricted stock awards ratably over the requisite service period.

Award Activity

A summary of non-vested stock awards as of May 27, 2006 is as follows:

				Weighted
				Average
	Non-Vested			Grant Date
	Stock			Fair
	Awards			Value
Balance at February 25, 2006		666,813		$	23.05
Granted		—			—
Vested		(109,250	)		21.48
Forfeited		(6,000	)		24.36
Balance at May 27, 2006		551,563			23.34

Unrecognized Compensation Cost

Under the provisions of SFAS 123R, expense not yet recognized for awards granted as of May 27, 2006 is as follows:

			Weighted
	Unrecognized		Average
	Compensation		Remaining
	Cost		Vesting Period
	(in thousands)		(in years)
Stock options	$	10,479	2.5
Non-vested stock awards		8,991	2.9
	$	19,470

The total grant-date fair value of stock options and stock awards that vested during the first quarter of fiscal 2007 and 2006 was $5.9 million and $8.2 million, respectively.

- 18 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 10 – EARNINGS PER SHARE

The following reflects the income and share data used in the basic and diluted earnings per share computations:

	Three Months Ended
	May 27,		May 28,
	2006		2005
	(In thousands, except per
	share amounts)
Numerator:
Net income (Numerator for basic earnings per share)	$	45,662	$	54,844
Effect of dilutive securities:
Interest expense on 1.75% Convertible Debentures, net of tax		20		523
Numerator for diluted earnings per share	$	45,682	$	55,367
Denominator:
Denominator for basic earnings per share – weighted average shares		127,279		114,646
Effect of dilutive securities:
1.75% Convertible Debentures		463		12,459
Employee stock options		2,433		2,463
Unvested stock awards and employee stock purchase plan shares		261		139
Dilutive potential common shares		3,157		15,061
Denominator for diluted earnings per share – adjusted weighted average shares and assumed conversions		130,436		129,707
Basic earnings per share	$	.36	$	.48
Diluted earnings per share	$	.35	$	.43

NOTE 11 – INCOME TAXES

Our effective income tax rate is based upon expected income for the year, the composition of income or loss in different jurisdictions and related statutory tax rates, accruals for tax contingencies and the tax consequences or benefits from audits or the resolution of tax contingencies.

- 19 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 12 – SUPPLEMENTAL CASH FLOW INFORMATION

Non-cash investing and financing activities are excluded from the consolidated statement of cash flows. Non-cash activities that occurred during the first three months of fiscal 2007 and 2006 are summarized as follows:

	May 27,			May 28,
	2006			2005
	(Dollars in thousands)
Non-cash activities that occurred in connection with the conversion of our 1.75% Convertible Debentures:
Issuance of 29,739 shares of Holdings common stock	$	409		$	—
Issuance of 268,218 treasury shares		—			3,688
Forfeited interest		2			—
Debt issuance costs		(10	)		—
Reclassification to Shareholder’s Equity	$	401		$	3,688
Non-cash investment related to our new world headquarters facility in Providence, RI (see Note 7)	$	6,597		$	4,315
Shares issued under stock award plans		1,064			2,041

NOTE 13 – SUPPLEMENTAL GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION

On December 18, 2001, Holdings (the “Parent Company”) issued, in a private placement, $175 million principal amount of 1.75% Convertible Debentures due December 15, 2021 (the “Debentures”). On October 9, 2003, the Parent Company issued, in a private placement, $250 million principal amount of 4.75% Senior Notes due October 15, 2010, and on November 16, 2004, issued $150 million principal amount of 4.75% Senior Notes due December 1, 2009 and $150 million principal amount of 5.25% Senior Notes due December 1, 2014 (collectively, the “Senior Notes”). All of the Senior Notes were subsequently exchanged for Senior Notes registered under the Securities Act of 1933. The Debentures and Senior Notes are unsecured and unsubordinated obligations of the Parent Company that are jointly and severally, fully and unconditionally guaranteed by GTECH and two of its wholly owned subsidiaries: GTECH Rhode Island Corporation and GTECH Latin America Corporation (collectively with GTECH, the “Guarantor Subsidiaries”). Condensed consolidating financial information is presented below.

Selling, general and administrative costs and research and development costs are allocated to each subsidiary based on the ratio of the subsidiaries’ combined service revenues and sales of products to consolidated revenues.

The Parent Company conducts business through its consolidated subsidiaries and unconsolidated affiliates and has, as its only material asset, an investment in GTECH. Equity in earnings of consolidated affiliates recorded by the Parent Company includes the Parent Company’s share of the after-tax earnings of GTECH. Taxes payable and deferred income taxes are obligations of the subsidiaries. Income tax expense related to both current and deferred income taxes are allocated to each subsidiary based on our consolidated effective income tax rates.

- 20 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 13 – SUPPLEMENTAL GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (continued)

Condensed Consolidating Balance Sheets
May 27, 2006

	Parent		Guarantor		Non-Guarantor		Eliminating
	Company		Subsidiaries		Subsidiaries		Entries			Consolidated
	(Dollars in thousands)
Assets
Current Assets:
Cash and cash equivalents	$	—	$	109,942	$	75,235	$	—		$	185,177
Investment securities available-for-sale		—		323,125		—		—			323,125
Trade and other receivables, net		—		68,114		83,335		—			151,449
Due from subsidiaries and affiliates		—		72,800		—		(72,800	)		—
Refundable performance deposit		—		—		8,000		—			8,000
Inventories		—		44,753		72,311		(8,525	)		108,539
Deferred income taxes		—		13,659		14,124		—			27,783
Other current assets		—		16,288		38,715		—			55,003
Total Current Assets		—		648,681		291,720		(81,325	)		859,076
Systems, Equipment and Other Assets Relating to Contracts, net		—		631,730		111,488		(11,952	)		731,266
Investment in Subsidiaries and Affiliates		1,046,766		470,391		—		(1,517,157	)		—
Goodwill		—		115,981		230,115		—			346,096
Property, Plant and Equipment, net		—		74,505		34,188		—			108,693
Intangible Assets, net		—		18,601		42,988		—			61,589
Other Assets		—		25,281		18,508		—			43,789
Total Assets	$	1,046,766	$	1,985,170	$	729,007	$	(1,610,434	)	$	2,150,509
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	—	$	44,744	$	33,954	$	—		$	78,698
Due to subsidiaries and affiliates		—		—		72,800		(72,800	)		—
Accrued expenses		—		26,924		22,199		—			49,123
Employee compensation		—		14,477		9,315		—			23,792
Advance payments from customers		—		30,149		49,138		—			79,287
Deferred revenue and advance billings		—		7,569		23,785		—			31,354
Income taxes payable		—		57,333		7,519		—			64,852
Taxes other than income taxes		—		6,812		10,075		—			16,887
Short-term borrowings		—		—		1,748		—			1,748
Current portion of long-term debt		—		6,206		120		—			6,326
Total Current Liabilities		—		194,214		230,653		(72,800	)		352,067
Long-Term Debt, less current portion		—		539,286		483		—			539,769
Other Liabilities		—		91,827		22,315		—			114,142
Deferred Income Taxes		—		92,600		5,165		—			97,765
Shareholders’ Equity		1,046,766		1,067,243		470,391		(1,537,634	)		1,046,766
Total Liabilities and Shareholders’ Equity	$	1,046,766	$	1,985,170	$	729,007	$	(1,610,434	)	$	2,150,509

-21-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 13 – SUPPLEMENTAL GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (continued)

Condensed Consolidating Balance Sheets
February 25, 2006

	Parent		Guarantor		Non-Guarantor		Eliminating
	Company		Subsidiaries		Subsidiaries		Entries			Consolidated
	(Dollars in thousands)
Assets
Current Assets:
Cash and cash equivalents	$	—	$	158,150	$	77,041	$	—		$	235,191
Investment securities available-for-sale		—		260,725		—		—			260,725
Trade and other receivables, net		—		95,894		87,667		—			183,561
Due from subsidiaries and affiliates		—		75,758		—		(75,758	)		—
Refundable performance deposit		—		—		8,000		—			8,000
Inventories		—		32,329		63,906		(8,211	)		88,024
Deferred income taxes		—		15,418		10,980		—			26,398
Other current assets		—		12,982		34,837		—			47,819
Total Current Assets		—		651,256		282,431		(83,969	)		849,718
Systems, Equipment and Other Assets Relating to Contracts, net		—		600,437		104,241		(12,133	)		692,545
Investment in Subsidiaries and Affiliates		1,005,372		474,696		—		(1,480,068	)		—
Goodwill		—		115,981		230,115		—			346,096
Property, Plant and Equipment, net		—		67,002		34,414		—			101,416
Intangible Assets, net		—		19,277		44,935		—			64,212
Other Assets		—		27,272		18,643		—			45,915
Total Assets	$	1,005,372	$	1,955,921	$	714,779	$	(1,576,170	)	$	2,099,902
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	—	$	52,023	$	41,182	$	—		$	93,205
Due to subsidiaries and affiliates		—		—		75,758		(75,758	)		—
Accrued expenses		—		23,231		22,989		—			46,220
Employee compensation		—		24,084		7,720		—			31,804
Advance payments from customers		—		19,758		44,010		—			63,768
Deferred revenue and advance billings		—		9,213		8,676		—			17,889
Income taxes payable		—		66,646		452		—			67,098
Taxes other than income taxes		—		6,409		10,697		—			17,106
Current portion of long-term debt		—		6,615		2,533		—			9,148
Total Current Liabilities		—		207,979		214,017		(75,758	)		346,238
Long-Term Debt, less current portion		—		542,206		53		—			542,259
Other Liabilities		—		86,173		20,498		—			106,671
Deferred Income Taxes		—		93,847		5,515		—			99,362
Shareholders’ Equity		1,005,372		1,025,716		474,696		(1,500,412	)		1,005,372
Total Liabilities and Shareholders’ Equity	$	1,005,372	$	1,955,921	$	714,779	$	(1,576,170	)	$	2,099,902

-22-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 13 – SUPPLEMENTAL GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (continued)

Condensed Consolidating Income Statements
Three Months Ended May 27, 2006

	Parent		Guarantor			Non-Guarantor			Eliminating
	Company		Subsidiaries			Subsidiaries			Entries			Consolidated
	(Dollars in thousands)
Revenues:
Services	$	—	$	194,883		$	95,292		$	—		$	290,175
Sales of products		—		4,175			21,496			—			25,671
Intercompany sales and fees		—		23,649			12,281			(35,930	)		—
		—		222,707			129,069			(35,930	)		315,846
Costs and expenses:
Costs of services		—		116,485			60,465			(1,129	)		175,821
Costs of sales		—		2,573			12,478			—			15,051
Intercompany cost of sales and fees		—		30,752			1,608			(32,360	)		—
		—		149,810			74,551			(33,489	)		190,872
Gross profit		—		72,897			54,518			(2,441	)		124,974
Selling, general & administrative		—		24,758			14,517			—			39,275
Research and development		—		6,803			3,994			—			10,797
Operating expenses		—		31,561			18,511			—			50,072
Operating income		—		41,336			36,007			(2,441	)		74,902
Other income (expense):
Interest income		—		3,861			528			—			4,389
Equity in earnings of unconsolidated affiliates		—		878			(277	)		—			601
Equity in earnings of consolidated affiliates		45,662		22,757			—			(68,419	)		—
Other expense		—		(8	)		(67	)		—			(75	)
Interest expense		—		(7,327	)		(126	)		—			(7,453	)
		45,662		20,161			58			(68,419	)		(2,538	)
Income before income taxes		45,662		61,497			36,065			(70,860	)		72,364
Income taxes		—		22,692			13,308			(9,298	)		26,702
Net income	$	45,662	$	38,805		$	22,757		$	(61,562	)	$	45,662

-23-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 13 – SUPPLEMENTAL GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (continued)

Condensed Consolidating Income Statements
Three Months Ended May 28, 2005

	Parent		Guarantor			Non-Guarantor			Eliminating
	Company		Subsidiaries			Subsidiaries			Entries			Consolidated
	(Dollars in thousands)
Revenues:
Services	$	—	$	189,638		$	101,726		$	—		$	291,364
Sales of products		—		9,097			25,938			—			35,035
Intercompany sales and fees		—		48,477			12,616			(61,093	)		—
		—		247,212			140,280			(61,093	)		326,399
Costs and expenses:
Costs of services		—		114,184			55,903			(1,170	)		168,917
Costs of sales		—		4,738			16,866			—			21,604
Intercompany cost of sales and fees		—		28,156			7,833			(35,989	)		—
		—		147,078			80,602			(37,159	)		190,521
Gross profit		—		100,134			59,678			(23,934	)		135,878
Selling, general & administrative		—		19,495			12,524			—			32,019
Research and development		—		7,883			5,055			—			12,938
Operating expenses		—		27,378			17,579			—			44,957
Operating income		—		72,756			42,099			(23,934	)		90,921
Other income (expense):
Interest income		—		1,395			650			—			2,045
Equity in earnings of unconsolidated affiliates		—		1,289			498			—			1,787
Equity in earnings of consolidated affiliates		54,844		26,126			—			(80,970	)		—
Other income (expense)		—		548			(2,342	)		—			(1,794	)
Interest expense		—		(7,182	)		(83	)		—			(7,265	)
		54,844		22,176			(1,277	)		(80,970	)		(5,227	)
Income before income taxes		54,844		94,932			40,822			(104,904	)		85,694
Income taxes		—		34,176			14,696			(18,022	)		30,850
Net income	$	54,844	$	60,756		$	26,126		$	(86,882	)	$	54,844

-24-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 13 – SUPPLEMENTAL GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (continued)

Condensed Consolidating Statements of Cash Flows
Three Months Ended May 27, 2006

	Parent			Guarantor			Non-Guarantor			Eliminating
	Company			Subsidiaries			Subsidiaries			Entries			Consolidated
	(Dollars in thousands)
Net cash provided by operating activities	$	—		$	92,062		$	11,127		$	(886	)	$	102,303
Investing Activities
Purchases of systems, equipment and other assets relating to contracts		—			(66,477	)		(14,644	)		886			(80,235	)
Purchases of available-for-sale investment securities		—			(63,500	)		—			—			(63,500	)
Maturities and sales of available-for-sale investment securities		—			1,100			—			—			1,100
Purchases of property, plant and equipment		—			(2,964	)		(22	)		—			(2,986	)
Other		—			—			(163	)		—			(163	)
Net cash used for investing activities		—			(131,841	)		(14,829	)		886			(145,784	)
Financing Activities
Dividends paid		(10,822	)		—			—			—			(10,822	)
Principal payments on long-term debt		—			—			(2,553	)		—			(2,553	)
Proceeds from stock options		330			—			—			—			330
Tax benefit related to stock award plans		842			—			—			—			842
Intercompany capital transactions		8,425			(8,425	)		—			—			—
Other		1,225			—			1,976			—			3,201
Net cash used for financing activities		—			(8,425	)		(577	)		—			(9,002	)
Effect of exchange rate changes on cash		—			(4	)		2,473			—			2,469
Decrease in cash and cash equivalents		—			(48,208	)		(1,806	)		—			(50,014	)
Cash and cash equivalents at beginning of period		—			158,150			77,041			—			235,191
Cash and cash equivalents at end of period	$	—		$	109,942		$	75,235		$	—		$	185,177

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 13 – SUPPLEMENTAL GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION (continued)

Condensed Consolidating Statements of Cash Flows
Three Months Ended May 28, 2005

	Parent			Guarantor			Non-Guarantor			Eliminating
	Company			Subsidiaries			Subsidiaries			Entries			Consolidated
	(Dollars in thousands)
Net cash provided by operating activities	$	—		$	114,574		$	7,941		$	(939	)	$	121,576
Investing Activities
Purchases of systems, equipment and other assets relating to contracts		—			(34,766	)		(6,735	)		939			(40,562	)
Purchases of available-for-sale investment securities		—			(85,000	)		—			—			(85,000	)
Maturities and sales of available-for-sale investment securities		—			72,325			—			—			72,325
Purchases of property, plant and equipment		—			(1,841	)		(553	)		—			(2,394	)
Decrease in restricted cash		—			—			5,080			—			5,080
Other		—			—			296			—			296
Net cash used for investing activities		—			(49,282	)		(1,912	)		939			(50,255	)
Financing Activities
Dividends paid		(9,770	)		—			—			—			(9,770	)
Principal payments on long-term debt		—			—			(1,317	)		—			(1,317	)
Proceeds from stock options		3,322			—			—			—			3,322
Purchases of treasury stock		(32,051	)		—			—			—			(32,051	)
Intercompany capital transactions		37,264			(37,264	)		—			—			—
Other		1,235			(68	)		(304	)		—			863
Net cash used for financing activities		—			(37,332	)		(1,621	)		—			(38,953	)
Effect of exchange rate changes on cash		—			5			(1,185	)		—			(1,180	)
Increase in cash and cash equivalents		—			27,965			3,223			—			31,188
Cash and cash equivalents at beginning of period		—			23,020			71,426			—			94,446
Cash and cash equivalents at end of period	$	—		$	50,985		$	74,649		$	—		$	125,634

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the financial results of GTECH Holdings Corporation. MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes.

The discussion that follows assumes that the Company continues to operate on a stand alone basis and does not reflect the potential impact of the proposed acquisition of the Company, which is described below.

This overview provides guidance on the individual sections of MD&A as follows:

• Forward-Looking Statements– cautionary information about forward-looking statements.

• Potential Change in Control of our Company- a description of the potential change in control of our company.

• Our Business– a general description of our business; growth strategy; Brazil lottery contract and stock-based compensation.

• Operations Review– an analysis of our consolidated results of operations for the three month periods ended May 27, 2006 and May 28, 2005 presented in our financial statements. We operate in one business – Transaction Processing, and we have a single operating and reportable business segment. Therefore, our discussions are not quantified by segment results.

• Liquidity, Capital Resources and Financial Position– an analysis of cash flows, financial position, and commitments.

• Financial Risk Management and Dividend Policy –information about financial risk management; interest rate market risk; foreign currency exchange rate risk; and our dividend policy.

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

Forward-Looking Statements

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

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

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

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

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

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

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

• the results and effects of legal proceedings and investigations.

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These forward-looking statements reflect management’s assessment based on information currently available, but are not guarantees and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in the forward-looking statements. These risks and uncertainties include, among other things, the following:

• government regulations and other actions affecting the online lottery industry could have a negative effect on our business, results of operations or prospects;

• we may be subject to adverse determinations in legal proceedings in Brazil which could result in substantial monetary judgments, significant reputational damage and the non-extension of our contract with Caixa Economica Federal, the Brazilian bank and operator of Brazil’s National Lottery;

• our lottery operations are dependent upon our continued ability to retain and extend our existing contracts and win new contracts;

• slow growth or declines in sales of online lottery goods and services could lead to lower revenues and cash flows;

• we derive approximately half of our revenues from jurisdictions outside the United States and are subject to the economic, political and social instability risks of doing business in these jurisdictions;

• our results of operations are exposed to non-United States currency exchange rate fluctuations which could result in lower revenues, net income and cash flows when such results are translated into U.S. dollar accounts;

• we have a concentrated customer base and the loss of any of our larger customers (or lower sales from any of these customers) could lead to significantly lower revenue;

• our quarterly operating results may fluctuate significantly;

• we operate in a highly competitive environment and increased competition may cause us to experience lower cash flows or to lose contracts;

• we are subject to substantial penalties for failure to perform under our contracts;

• we may not be able to respond to technological changes or to satisfy future technology demands of our customers in which case we could fall behind our competitors;

• if we are unable to manage potential risks related to acquisitions, our business and growth prospects could suffer;

• expansion of online lottery and other forms of gaming face opposition which could limit our access to some markets;

• our business prospects and future success depend upon our ability to attract and retain qualified employees;

• our business prospects and future success rely heavily upon the integrity of our employees and executives and the security of our systems;

• our dependence on certain suppliers creates a risk of implementation delays if the supply contract is terminated or breached, and any delays may result in substantial penalties;

• our non-lottery ventures, which are an increasingly important aspect of our business, may fail, including by reason of our relative lack of experience in markets outside our core lottery market and, in the case of ventures into the non-lottery gaming market, the difficulty in obtaining necessary licenses;

• if we are unable to protect our intellectual property or prevent its use by third parties, our ability to compete in the market may be harmed;

• third party infringement claims against us could limit or affect our ability to compete effectively;

• our systems are subject to network interruption risks which could have a negative impact on the quality of the services offered by us, which could, in turn, negatively impact consumer demand and result in a decrease in the volume of our customers’ sales and consequently our own revenues; and

• other risks and uncertainties set forth below and elsewhere in this report, in our fiscal 2006 Annual Report on Form 10-K, and in our subsequent press releases and Forms 10-Q and other reports and filings with the Securities and Exchange Commission.

The foregoing list of important factors is not all-inclusive.

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Potential Change in Control of Our Company

On January 10, 2006, we entered into an agreement and plan of merger with Lottomatica S.p.A., an Italian corporation and exclusive license holder and operator of Italy’s Lotto (“Lottomatica”), whereby Lottomatica will acquire Holdings for $35.00 in cash per outstanding Holdings share. The total value of the transaction is approximately $4.8 billion, including the assumption of Holding’s existing net debt. During the first quarter of fiscal 2007, Holdings incurred approximately $7 million of costs in connection with the transaction and we expect to incur approximately $28 million to $30 million of additional costs through the closing of the transaction, of which approximately $12 million to $14 million are contingent upon completion of the transaction. These costs are subject to change based on changes in terms of the transaction.

Completion of the transaction, which is expected to occur in mid-2006, is subject to regulatory approvals, receipt of contract assignment assurance from certain significant lottery customers, Lottomatica maintaining a pro forma investment grade credit rating, and other customary conditions. Subsequent to the acquisition, Holdings shares will be delisted on the New York Stock Exchange.

Our Business

General

We operate on a 52-week or 53-week fiscal year ending on the last Saturday in February and fiscal 2007 is a 52-week year that ends on February 24, 2007.

We are a global gaming and technology company providing software, networks and professional services that power high-performance, transaction processing systems. We are the world’s leading operator of highly-secure online lottery transaction processing systems, doing business in 51 countries worldwide and we have a growing presence in commercial gaming technology (“Gaming solutions”) and financial services transaction processing (“Commercial services”). To date, the majority of our Gaming solutions revenues have been product sale driven. A comparison of our revenue concentration is as follows:

	Three Months
	Ended
	May 27,			Fiscal
Consolidated Revenues	2006			2006			2005			2004
Lottery		83	%		84	%		87	%		91	%
Commercial services		9	%		9	%		7	%		7	%
Gaming solutions		8	%		7	%		6	%		2	%
		100	%		100	%		100	%		100	%

Being a global business, we derive a substantial portion of our revenue from our operations outside of the United States. In fiscal 2006, we derived 48.9% of our revenues from international operations, including 11.4% of our revenues from our Brazilian operations alone (including 11.1% of our revenues from Caixa Economica Federal, the operator of Brazil’s National Lottery, our largest customer in fiscal 2006 based on annual revenues). In addition, substantial portions of our assets, primarily consisting of equipment we use to operate online lottery systems for our customers, are held outside of the United States. We are also exposed to more general risks of international operations, including increased governmental regulation of the online lottery industry in the markets where we operate; exchange controls or other currency restrictions; and significant political instability.

-29-

Our service revenues are derived primarily from lottery service contracts, which are typically at least five to seven years in duration for the base contract term with three to five years of extension options resulting in total contract lives of eight to ten years. Our contracts generally provide compensation to us based upon a percentage of a lottery’s gross online and instant ticket sales. These percentages vary depending on the size of the lottery and the scope of services provided to the lottery. Our product sale revenues are 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. Our product margins fluctuate depending on the mix, volume and timing of product sale contracts. Our product sale revenues from period to period may not be comparable due to the size and timing of product sale transactions.

Over the past several fiscal years, we have experienced and may continue to experience a reduction in the percentage of lottery ticket sales we receive from certain customers resulting from contract rebids, extensions and renewals due to a number of factors, including the substantial growth of lottery sales over the last decade, reductions in the cost of technology and telecommunications services, and general market and competitive dynamics. In anticipation of and response to these trends, beginning in fiscal 2001, we began the implementation of our Enterprise Series-led technology strategy combined with the implementation of a number of ongoing cost savings initiatives and efficiency improvement programs designed to enable us to maintain our market leadership in the lottery industry. In addition, we have developed and continue to develop new lottery games, licensed new game brands and installed a range of new lottery distribution devices, all of which are designed to maintain a strong level of same store sales growth for our customers.

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

• Part I, Item 1 — “Certain Factors That May Affect Future Performance – Government regulations and other actions affecting the online lottery industry could have a negative effect on our business, results of operations or prospects” in our fiscal 2006 Annual Report on Form 10-K;

• Part I, Item 3 – “Legal Proceedings” in our fiscal 2006 Annual Report on Form 10-K; and

• Note 15 to the Consolidated Financial Statements in our fiscal 2006 Annual Report on Form 10-K.

Growth Strategy

In recent years, we have taken steps to broaden our offerings of transaction processing services outside of our core market of providing online lottery services into the gaming technology and commercial services markets through acquisitions. We will continue to identify and evaluate a variety of selective opportunities for acquisitions in the Lottery, Gaming Solutions, and Commercial Services markets, as well as investing in growth through licensing when the right opportunities present themselves.

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Our Commercial Services market includes the processing and transmission of commercial, non-lottery transactions including debit and credit card transactions (both acquiring and issuing processing), bill payments, electronic tax payments, prepaid utility payments and prepaid cellular telephone recharges. Currently, our networks in Brazil, Poland, Chile, Colombia, the Czech Republic, Jamaica and other countries process debit and credit card transactions, bill payments and other commercial services transactions. In the near term, we expect to concentrate our efforts to grow commercial services revenues principally in Central and Eastern Europe and other selected emerging economies, with the goal of leveraging our existing technology, infrastructure and relationships to drive growth in Commercial Services.

Brazil Lottery Contract

GTECH Brasil Ltda., our Brazilian subsidiary (“GTECH Brazil”), has provided online lottery services and technology to Caixa Economica Federal (“CEF”), the Brazilian bank and operator of Brazil’s National Lottery since 1997. Revenues from our contract with CEF accounted for 11.1% of our total fiscal 2006 revenues, making CEF our largest customer in fiscal 2006 based upon annual revenues.

Our April 2003 contract with CEF expired on May 14, 2006. On May 15, 2006 GTECH Brazil entered into a new 90-day contract with CEF, which expires in August 2006, whereby we will continue to operate the existing lottery and financial transaction processing systems for CEF. The contract extension retains all of GTECH Brazil’s service offerings and the fixed and variable fee structure currently in place. CEF has announced its intention to develop a central in-house system to replace the services provided by GTECH Brazil under its contract with CEF. Therefore, we do not anticipate that our contract with CEF will be extended on a long-term basis.

Accumulated foreign currency translation losses related to our operations in Brazil of $50.4 million (which are recorded in Accumulated Other Comprehensive Loss in our Consolidated Balance Sheet at May 27, 2006), would be recorded as a charge to our consolidated income statement upon the expiration of our contract with CEF should we determine that the expiration of the CEF contract results in a substantial liquidation of our investment in Brazil.

Refer to Note 15 to the Consolidated Financial Statements in our fiscal 2006 Annual Report on Form 10-K for detailed disclosures regarding Brazil matters.

Stock-Based Compensation

In December 2004, the FASB issued SFAS 123R which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values at the date of grant. Recognizing compensation expense using the intrinsic value method described in APB 25 and disclosing the pro forma impact of using the fair value based method described in SFAS 123 is no longer an alternative.

We adopted SFAS 123R on February 26, 2006 (the first day of fiscal 2007) using the modified prospective transition method. Under this method, compensation cost recognized during the first quarter of fiscal 2007 includes:

• compensation cost for all share-based payments granted prior to but not yet vested as of February 25, 2006, based on the grant-date fair value estimate used for SFAS 123 pro forma disclosure purposes and;

• compensation cost for all share-based payments granted subsequent to February 25, 2006, based on the grant-date fair value estimated in accordance with SFAS 123R.

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In the first quarter of fiscal 2007, we recognized $2.6 million of stock-based compensation expense. The adoption of SFAS 123R reduced diluted earnings per share for the first quarter of fiscal 2007 by $0.01. We expect that the adoption of SFAS 123R will reduce diluted earnings per share by $0.01 in each of the remaining quarters of fiscal 2007.

Prior to the adoption of SFAS 123R, we accounted for stock options using the intrinsic value method under the guidance of APB 25 and provided pro forma disclosure in accordance with SFAS 123. Under APB 25, we did not record compensation expense for stock options because the exercise price of all stock options granted was equal to the fair market value of our common stock on the grant date. We did recognize stock compensation expense for restricted stock awards based on the fair value on the grant date, which is being charged to expense over the vesting period.

Beginning February 27, 2005 (the first day of fiscal 2006), we use a binomial option pricing model, with the assistance of an outside valuation advisor, to calculate the grant-date fair value of an award. The fair values of stock options granted prior to fiscal 2006 were estimated using a Black-Scholes option pricing model for footnote disclosure under SFAS 123. We changed our option pricing model to a binomial model as we believe the binomial model provides a better estimate of fair value because it identifies patterns of exercises based on triggering events, tying the results to possible future events instead of a single path of actual historical events.

Under the provisions of SFAS 123R, expense not yet recognized for awards granted as of May 27, 2006 is $19.5 million, which is expected to be recognized over a weighted average period of 2.6 years.

See Note 9 to our Consolidated Financial Statements contained in Item 1 of this Quarterly Report on Form 10-Q for further information regarding our adoption of SFAS 123R.

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Operations Review

Comparison of the three month periods ended May 27, 2006 and May 28, 2005

Revenues and Gross Margin

	Three Months Ended
	May 27,			May 28,			Change
	2006			2005			$			%
	(Dollars in millions)
Domestic	$	154.7		$	143.1		$	11.6			8.1
International (excluding Brazil)		75.7			81.6			(5.9	)		(7.2	)
Lottery	$	230.4		$	224.7		$	5.7			2.5
Brazil		33.0			45.6			(12.6	)		(27.6	)
Commercial services (excluding Brazil)		18.0			13.1			4.9			37.4
Gaming solutions		8.8			8.0			0.8			10.0
Services	$	290.2		$	291.4		$	(1.2	)		(0.4	)
Sales of products		25.7			35.0			(9.3	)		(26.6	)
Total revenues	$	315.9		$	326.4		$	(10.5	)		(3.2	)
	Three Months Ended
	May 27,			May 28,			Change
	2006			2005			Percentage Points
Service gross margin		39.4	%		42.0	%	(2.6)
Product gross margin		41.4	%		38.3	%	3.1

The principal drivers of the 8.1% increase in domestic lottery service revenues were higher revenues from an increase in sales by our domestic lottery customers of approximately 3%, net contract wins of approximately 1% (including the impact of our new service contract in North Carolina and the loss of the Colorado contract), and the combined benefit of higher jackpot activity and lower contract penalties of approximately 3%.

International lottery service revenues (excluding Brazil) declined by 7.2% primarily due to the loss of the Puerto Rico contract and contractual rate changes.

Brazil service revenues (including lottery and commercial services) declined 27.6% primarily due to the prior year court ordered return of funds previously held in escrow.

The 37.4% increase in commercial transaction processing service revenues (excluding Brazil) was primarily due to higher service revenues from an increase in transaction volumes by our commercial transaction processing customers of approximately 20%, the impact of our new contract in Colombia of approximately 9%, and favorable foreign exchange rates of approximately 6%.

Our service margins were down 2.6 percentage points from last year principally due to lower service revenues from Brazil related primarily to the prior year court ordered return of funds previously held in escrow.

Product sales were down principally due to the prior year sale of handheld lottery terminals to our customer in Spain which did not recur in the current year. Our product margins fluctuate depending on the mix, volume and timing of product sales contracts and were up 3.1 percentage points over last year, primarily due to the mix of sales.

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Operating Expenses

	Three Months Ended
	May 27,			May 28,			Change
	2006			2005			$			%
	(Dollars in millions)
SG&A expenses	$	39.3		$	32.0		$	7.3			22.8
R&D expenses		10.8			12.9			(2.1	)		(16.3	)
	$	50.1		$	44.9		$	5.2			11.6
Percentage of total revenue
SG&A expenses		12.4	%		9.8	%
R&D expenses		3.4	%		4.0	%

The $7.3 million increase in SG&A expenses was principally due to transaction costs associated with the potential acquisition of the Company by Lottomatica. The $2.1 million decrease in R&D expenses was principally due to the timing of development initiatives.

Interest Income

	Three Months Ended
	May 27,		May 28,		Change
	2006		2005		$		%
	(Dollars in millions)
Interest income	$	4.4	$	2.0	$	2.4		>100.0

Interest income increased over last year primarily due to higher invested funds and higher interest rates earned on those invested funds.

Income Taxes
Our effective income tax rate of 36.9% in the first quarter of fiscal 2007 was higher than the prior year rate of 36.0% due to transaction costs associated with the potential acquisition of the Company by Lottomatica that are not deductible for income tax purposes.

Liquidity, Capital Resources and Financial Position
We believe our ability to generate cash from operations to reinvest in our business is one of our fundamental financial strengths and we expect to meet our financial commitments and operating needs in the foreseeable future. We expect to use cash generated from operating activities primarily for contractual obligations and to pay dividends. We expect our growth to be financed through a combination of cash generated from operating activities, existing sources of liquidity, access to capital markets and other sources of capital. The Company has been assigned investment grade credit ratings from Moody’s and Standard and Poor’s. We believe investment grade credit ratings contribute to our ability to access capital markets at attractive prices.

Analysis of Cash Flows
During the first quarter of fiscal 2007, we generated $102.3 million of cash from operations. This cash was principally used to fund $80.2 million of systems, equipment and other assets relating to contracts and to pay cash dividends of $10.8 million. At May 27, 2006, we had $185.2 million of cash and cash equivalents and $323.1 million of investment securities available-for-sale on hand.

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Our business is capital-intensive. We expect our principal sources of liquidity to be existing cash and investment securities available-for-sale, along with cash we generate from operations and borrowings under our revolving credit facility. Our credit facility provides for an unsecured revolving line of credit of $500 million and matures in October 2009. There were no borrowings under the credit facility as of May 27, 2006. Up to $100 million of the Credit Facility may be used for the issuance of letters of credit. As of May 27, 2006, after considering $0.5 million of letters of credit issued and outstanding, there was $499.5 million available for borrowing under the credit facility. The credit facility contains various covenants, including among other things, requirements relating to the maintenance of certain financial ratios. None of these covenants are expected to impact our liquidity or capital resources. There are no covenants in our credit facility that restrict our ability to pay dividends. At May 27, 2006 we were in compliance with all applicable covenants.

We currently expect that our cash flow from operations, existing cash, investment securities available-for-sale, available borrowings under our credit facility and access to additional sources of capital will be sufficient, for the foreseeable future, to fund our anticipated working capital and ordinary capital expenditure needs, to service our debt obligations, to fund anticipated internal growth, to fund all or a portion of the cash needed for potential acquisitions, to pay dividends, to fund the capital requirements under our Master Contract with the Rhode Island Lottery and to repurchase shares of our common stock, from time to time, under our share repurchase programs.

Financial Position
Our consolidated balance sheet at May 27, 2006 as compared to our consolidated balance sheet at February 25, 2006 was impacted by the material changes described below.

	May 27,		February 25,		Change
	2006		2006		$			%
	(Dollars in millions)
Trade and other receivables, net	$	151.4	$	183.6	$	(32.2	)		(17.5	)
Inventories		108.5		88.0		20.5			23.3
Systems, equipment and other assets relating to contracts, net		731.3		692.5		38.8			5.6
Accounts payable		78.7		93.2		(14.5	)		(15.6	)
Employee compensation		23.8		31.8		(8.0	)		(25.2	)
Advance payments from customers		79.3		63.8		15.5			24.3
Deferred revenue and advance billings		31.4		17.9		13.5			75.4

The decrease in trade and other receivables, net was primarily due to collections of prior year product sale related receivables.

The increase in inventories was primarily due to higher inventory related to our contract with our customer in Finland, along with higher terminal inventory scheduled for delivery to our customers in the Czech Republic, Mexico and Thailand. Revenue under the Finland contract is expected to be recorded in fiscal 2009.

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The increase in systems, equipment and other assets relating to contracts, net was primarily due to the purchase of $80.2 million of systems, equipment and other assets relating to contracts (principally related to spending in North Carolina, Arizona and Washington), partially offset by depreciation expense.

The decrease in accounts payable was primarily due to the timing of payments related to ongoing lottery system installations.

The decrease in employee compensation was primarily due to the payment of incentive compensation in April 2006.

The increase in advance payments from customers was primarily due to advances received from our customers in New Zealand, Finland and Thailand related to new system implementations.

The increase in deferred revenue and advance billings was primarily due to revenue not yet recorded pending customer acceptance.

Commitments

Performance and Other Bonds
In connection with certain contracts and procurements, we have been required to deliver performance bonds for the benefit of our customers and bid and litigation bonds for the benefit of potential customers, respectively. These bonds give the beneficiary the right to obtain payment and/or performance from the issuer of the bond if certain specified events occur. In the case of performance bonds, which generally have a term of one year, such events include our failure to perform our obligations under the applicable contract. To obtain these bonds, we are required to indemnify the issuers against the costs they incur if a beneficiary exercises its rights under a bond. Historically, our customers have not exercised their rights under these bonds and we do not currently anticipate they will do so. The following table provides information related to potential commitments at May 27, 2006 (in millions):

	Total potential
	commitments
Performance bonds	$	260.2
Financial guarantees		31.4
Litigation bonds		7.9
All other bonds		5.0
	$	304.5

Master Contract with the Rhode Island Lottery
In May 2003, we entered into a Master Contract with the Rhode Island Lottery (the “Lottery”) that amended our existing contracts with the Lottery and grants us the right to be the exclusive provider of online, instant ticket and video lottery central systems and services for the Lottery during the 20-year term of the Master Contract for a $12.5 million up-front license fee which we paid in July 2003. This license fee is included in Intangible Assets, net in our Consolidated Balance Sheets at May 27, 2006 and is being amortized as a reduction of service revenue on a straight-line basis over the 20-year term of the Master Contract.

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

Acquisition of Atronic
We entered into an agreement in December 2004, as amended in January 2006, to acquire a 50% controlling equity position in the Atronic group of companies (“Atronic”) owned by Paul and Michael Gauselmann (the “Gauselmanns”). The remaining 50% of Atronic will be retained by the Gauselmanns. Atronic is a video gaming machine manufacturer and also develops video machine games and customized solutions for dynamic gaming operations. This transaction is contingent upon regulatory and gaming license approvals and other closing conditions, and is expected to be completed by December 2007.

The final purchase price for Atronic will be calculated pursuant to a performance-based formula equal to eight times Atronic’s EBITDA (earnings before interest, taxes, depreciation and amortization) for its fiscal year ending December 31, 2006, provided however, that the payment shall not be less than Euro 20 million. In addition, the Gauselmanns have the potential to receive an earn-out payment one year after the closing, if Atronic’s 2007 performance exceeds certain specified thresholds. However, if Euro 20 million is paid at the closing and if such payment exceeds the payment that would have been made pursuant to the performance-based formula, then any excess will be applied to the earn-out payment. Should we purchase the remaining 50% interest in Atronic, any remaining unapplied excess would be credited toward that purchase. We currently expect the transaction will have a total value of approximately $100 million to $150 million, for our 50% share, including the cash payment and assumption of debt.

Through the end of 2011, we have the option to purchase the Gauselmanns’ remaining 50% interest in Atronic at a price calculated pursuant to a performance based formula equal to eight times Atronic’s EBITDA for its previous twelve months, plus an earn-out payment pursuant to a performance based formula if certain specified thresholds are exceeded. However, the payment for the second 50% shall not be less than Euro 50 million. During this period, the Gauselmanns have put rights that become effective only under certain circumstances. The exercise price of these puts under the specified circumstances would be calculated through a performance based formula.

Beginning in 2012, we have the option to purchase the Gauselmanns’ remaining interests in Atronic and Gauselmann has a reciprocal right to sell its interest to us at a value to be determined by independent appraisers.

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Option to Purchase PolCard Outstanding Equity
In May 2003, we completed the acquisition of a controlling equity position in PolCard S.A. (“PolCard”), for a purchase price, net of cash acquired, of $35.9 million. PolCard is the leading debit and credit card merchant transaction acquirer and processor in Poland. In September 2005, we purchased an additional 11.681% of PolCard from Innova Capital Sp. z o.o. (“Innova”) for cash consideration of approximately $21.5 million, resulting in PolCard’s outstanding equity being owned 74.5% by us, 25.2% by two funds managed by Innova, and 0.3% by the Polish Bank Association, one of PolCard’s previous owners.

The terms of the Share Purchase Agreement which govern the purchase of the additional 11.681% of PolCard included a commitment by GTECH and Innova, as the majority shareholders of PolCard, to vote in favor of a general shareholder dividend of approximately $25.0 million to be paid after the close of PolCard’s fiscal year ending on February 25, 2006, and for PolCard to loan to Innova approximately $6.3 million in anticipation of the dividend. This loan was advanced in December 2005, bears interest at WIBOR plus 1.75% (5.9% as of May 27, 2006), and is fully secured by the dividend and by PolCard shares currently owned by Innova. The dividend was declared and paid in June 2006.

We have three fair value options to purchase Innova’s interest in PolCard, and Innova has the reciprocal right to sell its interest in PolCard to us at fair value. Each fair value option has a duration of 90 days and, in the absence of an agreed price between the parties prior to the commencement of an option period, will be based on an appraised value from at least two investment banks at the date of each option period.

We estimate that the buyout prices of each fair value option, based on discounted cash flows, could be as follows:

	Buyout Percentage
	of the PolCard			Range of
Exercise Date Commencing In	Outstanding Equity			Buyout Price
May 2007		12.6	%	$	20 to $30 million
May 2008		6.3	%	$	11 to $17 million
May 2009		6.3	%	$	13 to $19 million

Financial Risk Management and Dividend Policy

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

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

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

	Estimated Fair Value
	At May 27,		10% Increase in		10% Decrease in
	2006		Interest Rates		Interest Rates
$250 million of 4.75% Senior Notes	$	248.0	$	244.0	$	252.2
$150 million of 4.50% Senior Notes		147.8		145.6		149.9
$150 million of 5.25% Senior Notes		147.3		142.6		152.3
$6.2 million of 1.75% Convertible Debentures		16.7		16.7		16.7
The estimated fair values above were determined by an independent investment banker. The values of the Senior Notes were determined after taking into consideration $225 million of interest rate swaps as follows:
			Interest Rate
	Estimated Debt		Swaps Outstanding
	Fair Value		(notional amount)
$250 million of 4.75% Senior Notes	$	248.0	$	150.0
$150 million of 4.50% Senior Notes		147.8		50.0
$150 million of 5.25% Senior Notes		147.3		25.0

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

We use various techniques to mitigate the risk associated with future changes in interest rates, including entering into interest rate swap and treasury rate lock agreements.

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

We seek to manage our foreign exchange risk by securing payment from our customers in United States dollars, by sharing risk with our customers, by utilizing foreign currency borrowings, by leading and lagging receipts and payments, and by entering into foreign currency exchange and option contracts. In addition, a significant portion of the costs attributable to our foreign currency revenues are payable in the local currencies. In limited circumstances, but whenever possible, we negotiate clauses into our contracts that allow for price adjustments should a material change in foreign exchange rates occur.

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

As of May 27, 2006, we had contracts for the sale of foreign currency of approximately $73.2 million (primarily British pounds, Euro and Brazilian real) and the purchase of foreign currency of approximately $20.4 million (primarily New Taiwan dollars, Brazilian real and British pounds).

At May 27, 2006, a hypothetical 10% adverse change in foreign exchange rates would result in a translation loss of $17.7 million that would be recorded in the equity section of our balance sheet.

At May 27, 2006, a hypothetical 10% adverse change in foreign exchange rates would result in a net pre-tax transaction loss of $5.0 million that would be recorded in current earnings after considering the effects of foreign exchange contracts currently in place.

At May 27, 2006, a hypothetical 10% adverse change in foreign exchange rates would result in a net reduction of cash flows from anticipatory transactions during the remainder of fiscal 2007 of $16.8 million, after considering the effects of foreign exchange contracts currently in place. The percentage of fiscal 2007 first quarter anticipatory cash flows that were hedged varied throughout the quarter, but averaged 23%.

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

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See “Financial Risk Management and Dividend Policy” above.

Item 4. CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Senior Vice President and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15 (e)) as of the end of the period covered by this report. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

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PART II. OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS

Shareholder Class Action Suits. On June 2, 2006, we entered into a Stipulation of Settlement with the plaintiffs in the two class action lawsuits arising in connection with the previously announced merger agreement, providing for the acquisition of Holdings by Lottomatica captioned (a) Ralph Sellite, individually and on behalf of all others similarly situated, v. GTECH Holdings Corporation, W. Bruce Turner, Robert M. Dewey, Paget L. Alves, Christine M. Cournoyer, James F. McCann, The Rt. Hon. Sir Jeremy Hanley KCMG, Philip R. Lochner, Jr., Anthony Ruys and Burnett W. Donoho, filed in the Rhode Island Superior Court of Kent County, and (b) Claire Partners, on behalf of itself and all others similarly situated, v. W. Bruce Turner, Robert M. Dewey, Jr., Paget L. Alves, Christine M. Cournoyer, Burnett W. Donoho, The Rt. Hon. Sir Jeremy Hanley KCMG, Philip R. Lochner, Jr., James F. McCann, Anthony Ruys, GTECH Holdings Corporation, and Lottomatica S.p.A., filed in the Rhode Island Superior Court of Kent County. As consideration for the Stipulation of Settlement, we made additional disclosures in our definitive proxy statement filed with the Securities and Exchange Commission on May 8, 2006 and agreed to pay plaintiffs’ claim for reasonable attorneys’ fees and expenses totaling $700,000. The settlement, which is subject to court approval and completion of the proposed merger, will result in the dismissal of both lawsuits and releases by the plaintiffs on behalf of themselves and the shareholder class they represent of all claims against Holdings and the individual directors arising out of or relating to the proposed merger. While we believe the claims made in the lawsuits to be without merit and have denied any wrongdoing, we entered into the Stipulation of Settlement in an effort to eliminate the burden and expense of further litigation and the risk of delaying the closing of the proposed merger with Lottomatica.

For information respecting certain other legal proceedings, see Item 1, “Certain Factors That May Affect Future Performance,” Item 3, “Legal Proceedings,” Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 8, Note 15 to Notes to Consolidated Financial Statements, of our fiscal 2006 Annual Report on Form 10-K.

Item 1A.RISK FACTORS

There were no material changes in our risk factors that were previously disclosed in Item 1A of our fiscal 2006 Annual Report on Form 10-K.

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Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Holders of our 1.75% Convertible Debentures, due December 2021 (the “Debentures”), have the right to convert the Debentures into shares of our Common Stock, par value $0.1 per share pursuant to the terms and conditions set forth in that certain Indenture, dated as of December 18, 2001.

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

(i)	if the sale price of our Common Stock is more than 120% of the conversion price (approximately $16.50 per share) for at least 20 trading days in a 30 trading-day period prior to the date of surrender for conversion;
(ii)	if, during any period, the credit ratings assigned to the Debentures by Moody’s or Standard & Poor’s are reduced below Ba1 or BB, respectively, or the credit rating assigned to the Debentures is suspended or withdrawn by either rating agency;
(iii)	if the Debentures have been called for redemption; or
(iv)	upon the occurrence of specified corporate transactions.

During our fiscal 2007 first quarter, we issued shares of our Common Stock upon the exercise of conversion rights by Holders of the Debentures, in the amounts, for consideration and pursuant to conversion notices dated, as follows:

	Consideration (Dollars of Retired
Date of Notice of Conversion	Debenture Principal Amount)	Common Shares Issued
March 3, 2006	50,000	3,636
April 5, 2006	150,000	10,909
April 6, 2006	209,000	15,194

This information was previously included in Current Reports on Forms 8-K.

We claim exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”) in respect to the issuance of shares of Common Stock upon the conversion of the Debentures by virtue of compliance (on the basis of facts described herein) with Section 3 (a) (9) of the Securities Act.

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

(a) and (c)

On June 7, 2006, a special meeting of stockholders of the Company was held, and in connection therewith, proxies were solicited by the Company’s management and Board of Directors. At the meeting, the Company’s stockholders were asked to adopt the merger agreement by and among the Company, Lottomatica, Gold Holding Co. and Gold Acquisition Corp., dated January 10, 2006, and to approve a proposal to adjourn the special meeting, if necessary, to solicit additional proxies in favor of adoption of the merger agreement if there were insufficient votes at the time of the special meeting to adopt the merger agreement. The merger agreement provides (subject to consummation of the merger described therein) for: (i) the Company to become an indirect wholly-owned subsidiary of Lottomatica; and (ii) each outstanding share of the Company’s Common Stock to be converted into the right to receive $35.00 in cash, without interest. An aggregate of 127,353,511 shares of the Company’s Common Stock were issued and eligible to vote at the special meeting.

1. Proposal to Adopt the Merger Agreement. At the special meeting, the stockholders of the Company adopted the merger agreement, and the number of votes cast for, against or withheld, with respect to adoption of the merger agreement are as follows:

FOR	AGAINST	ABSTAIN
85,369,822	217,435	131,746

2. Proposal to Adjourn Special Meeting (If Necessary to Solicit Additional Proxies). At the special meeting, the stockholders of the Company adopted a proposal to adjourn the special meeting, if necessary to solicit additional proxies in favor of adoption of the merger agreement. The number of votes cast for, against, or withheld with respect to this proposal are as follows:

FOR	AGAINST	ABSTAIN
77,729,925	7,856,653	132,425

No adjournment of the special meeting was in fact necessary in light of the fact that the proposal to adopt the merger agreement was approved at the special meeting.

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Item 6.EXHIBITS

The exhibits to this report are as follows:

10.1	Employment Agreement, dated May 8, 2006, between GTECH Holdings Corporation, Lottomatica S.p.A and Cornelia Laverty O’Connor.
10.2	Employment Agreement, dated May 8, 2006, between GTECH Holdings Corporation, Lottomatica S.p.A and Donald R. Sweitzer.
10.3	Stipulation of Settlement, dated June 2, 2006, between GTECH Holdings Corporation and plaintiffs in two class action lawsuits.
12.1	Computation of Ratio of Earnings to Fixed Charges
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of W. Bruce Turner, President and Chief Executive Officer of the Company
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of Jaymin B. Patel, Senior Vice President and Chief Financial Officer of the Company
32.1	Certification Pursuant to 18 United States Code Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of W. Bruce Turner, President and Chief Executive Officer of the Company
32.2	Certification Pursuant to 18 United States Code Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Jaymin B. Patel, Senior Vice President and Chief Financial Officer of the Company

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	GTECH HOLDINGS CORPORATION
Date: June 29, 2006	By /s/ Jaymin B. Patel
	Jaymin B. Patel, Senior Vice President and Chief
	Financial Officer (Principal Financial Officer)
Date: June 29, 2006	By /s/ Robert J. Plourde
	Robert J. Plourde, Vice President, Corporate
	Controller and Chief Accounting Officer
	(Principal Accounting Officer)

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