Equity Investments

At December 31, 2014, we had investments in the entities described below, which are accounted for using the equity method of accounting (other than RCN, as discussed below). We record income or loss from equity method investments as "Earnings (loss) from equity investments" in the Consolidated Statements of Operations and Comprehensive Loss and record the carrying value of each investment in "Equity investments" in the Consolidated Balance Sheets.

LNS

We own a 20% equity interest in LNS, an entity comprised principally of us, Gtech S.p.A. and Arianna 2001, a company owned by the Federation of Italian Tobacconists, that was awarded the concession from the Italian Monopoli di Stato to be the exclusive operator of the Italian Gratta e Vinci instant game lottery beginning in October 2010. The concession has an initial term of nine years (subject to a performance evaluation during the fifth year) and could be extended by the Monopoli di Stato for an additional nine years. LNS succeeded Consorzio Lotterie Nazionali ("CLN"), a consortium comprised of essentially the same group that owns LNS, as holder of the concession. Under the new concession, we are the primary supplier of instant lottery games for LNS, as we were under the prior concession. CLN, which had held the concession since 2004, is being wound up, with the bulk of its assets having been transferred to LNS. As of December 31, 2014, our investment in CLN was $2.1 million. LNS paid €800.0 million in upfront fees in 2010 under the terms of the new concession. We paid our pro rata share of these fees to LNS in 2010. The upfront fees associated with the new concession are amortized by LNS (€89.0 million each year of the new concession on a pre-tax basis), which reduces our earnings from our equity investment in LNS. Our share of the amortization is €18.0 million each year on a pre-tax basis. Subject to applicable limitations, we are entitled to receive from LNS annual cash dividends as well as periodic return of capital payments over the life of the concession.

For the years ended December 31, 2014, 2013 and 2012, we recorded income of $17.6 million, $17.9 million and $17.9 million, respectively, representing our share of earnings of LNS. We recognized revenue from the sale of instant games to LNS during the years ended December 31, 2014, 2013 and 2012 of $47.1 million, $52.0 million and $52.0 million, respectively. As of December 31, 2014 we had accounts receivable of $10.7 million from LNS. We received dividends of $18.5 million, $18.3 million and $17.7 million from LNS and CLN for the years ended December 31, 2014, 2013 and 2012, respectively. We received distributions of capital of $31.5 million, $17.6 million and $21.0 million from LNS and CLN during the years ended December 31, 2014, 2013 and 2012, respectively.

Northstar Illinois

We own a 20% equity interest in Northstar Illinois, an entity formed with Gtech Corporation to be the private manager for the Illinois lottery. Northstar Illinois was selected as the private manager following a competitive procurement and entered into a PMA with the State of Illinois in January 2011 for a 10-year term. Northstar Illinois, subject to the oversight of the Illinois lottery, manages the day-to-day operations of the lottery including lottery game development and portfolio management, retailer recruitment and training, supply of goods and services and overall marketing strategy. Northstar Illinois is reimbursed on a monthly basis for most of its operating expenses under the Northstar Illinois PMA. Under our supply agreement with Northstar Illinois, we are responsible for the design, development, manufacturing, warehousing and distribution of instant lottery games and are compensated based on a percentage of retail sales.

Under the terms of a PMA, Northstar Illinois is entitled to receive annual incentive compensation payments from the Illinois Department of the Lottery (the “Illinois Lottery”) to the extent it is successful in increasing the Illinois Lottery's net income (as defined in the PMA) above specified target levels, subject to a cap of 5% of the applicable year's net income, and is responsible for annual shortfall payments to the Illinois Lottery to the extent such targets are not achieved, subject to a similar cap. Northstar Illinois and the State of Illinois have disagreed regarding the State’s calculation of net income for each of the Illinois Lottery fiscal years during the term of the PMA. In August 2014, we understand that the Governor’s office of the State of Illinois directed the Illinois Lottery to end the PMA with Northstar Illinois.

In December 2014, Northstar Illinois, the State of Illinois, SGI and Gtech Corporation ("Gtech") entered into a termination agreement with respect to the PMA. The termination agreement contemplates, among other things, (1) termination of the PMA in December 2015 (subject to extension by the State for up to an additional 18 months), (2) that, following the Illinois Lottery’s 2014 fiscal year, Northstar Illinois will no longer be entitled to any incentive compensation payments and will no longer be liable for any shortfall payments, (3) reimbursement of Northstar Illinois for certain costs it incurs in transitioning its obligations under the PMA and (4) continuation of our instant lottery game supply agreement (and Gtech’s lottery systems supply agreement) until June 2021, subject to a reduced rate structure, early termination in certain circumstances and a "matching right" for SGI (and Gtech) under certain circumstances involving a competitive procurement to replace the supply agreements.

In February 2015, the Illinois Governor’s Office sent a letter to Northstar Illinois stating that the Illinois Attorney General issued a formal decision disapproving the termination agreement and that the Governor’s Office has directed the Illinois Lottery to enforce the terms of the PMA. Both Northstar Illinois and we believe that the termination agreement is valid and binding on the parties. We intend to continue to investigate this matter.

During the three months ended June 30, 2014, we recorded a charge of $8.0 million, representing our 20% share of the estimated shortfall payment for the lottery's fiscal year ended June 30, 2014, in earnings (loss) from equity investments in our Consolidated Statements of Operations and Comprehensive Loss. During the three months ended September 30, 2014, we contributed $13.5 million to Northstar Illinois primarily to fund our pro rata share of the shortfall payments for the lottery's fiscal year ended June 30, 2014. In connection with the contemplated termination of the PMA, during the three months ended September 30, 2014, we recorded a non-cash impairment charge of $19.7 million to write down our investment in Northstar Illinois. During the three months ended December 31, 2014, we recorded a charge of $3.1 million, representing our 20% share of the remaining shortfall liability for the lottery's fiscal year ended June 30, 2014, in earnings (loss) from equity investments and contributed $1.2 million to Northstar Illinois primarily to fund our pro rata share of this remaining shortfall payment.

For the years ended December 31, 2014, 2013 and 2012, we recorded losses of $34.8 million (inclusive of a $19.7 million non-cash impairment charge to write down our investment in Northstar Illinois), $4.5 million and $2.6 million, respectively. We recognized revenue from the sale of instant games to Northstar Illinois during the years ended December 31, 2014, 2013 and 2012 of $24.5 million, $25.0 million and $24.6 million, respectively. As of December 31, 2014 we had accounts receivable of $8.1 million from Northstar Illinois. We received no dividends or distributions of capital from Northstar Illinois during the years ended December 31, 2014, 2013 and 2012.

Northstar New Jersey

We own a 17.69% equity interest in Northstar New Jersey, the operating entity comprised of us, Gtech Corporation, and a subsidiary of the administrator of the Ontario Municipal Employees Retirement System that executed a long-term services agreement to provide marketing and sales services to the New Jersey lottery until 2029. In connection with the execution of the services agreement, Northstar New Jersey made a $120.0 million payment to the State, of which we contributed our pro rata portion of $21.5 million. The award of the agreement to Northstar New Jersey was protested by a union that represents certain of the lottery workers. The protest was denied and the union has appealed the denial of the protest. Services under Northstar New Jersey's agreement with the New Jersey lottery commenced on October 1, 2013. We account for our investment in Northstar New Jersey as an equity method investment due to our significant influence through our substantive participating and minority interest protection rights with respect to the entity. We contributed an additional $7.2 million to Northstar New Jersey during the year ended December 31, 2013 representing our pro rata portion of its initial working capital requirements.

Northstar New Jersey is entitled to receive annual incentive compensation payments from the State to the extent the lottery's net income for the applicable year exceeds specified target levels, subject to a cap of 5% of the applicable year's net income. Northstar New Jersey is responsible for payments to the State to the extent such targets are not achieved, subject to a cap of 2% of the applicable year's net income and a $20.0 million shortfall payment credit. We may be required to make capital contributions to Northstar New Jersey to fund our pro rata share of any shortfall payments that are payable to the State under the services agreement.

Under separate supply agreements, we provide Northstar New Jersey with instant games and related services and Gtech provides Northstar New Jersey with lottery systems equipment and related services. We have a 30% economic interest (and are responsible for 30% of the capital requirements) associated with these supply arrangements. We own a 30% equity interest in Northstar SupplyCo New Jersey, LLC ("Northstar SupplyCo."), an entity we formed with Gtech in connection with these supply arrangements. During the year ended December 31, 2014 we contributed $3.7 million pursuant to the terms of the operating agreement of Northstar SupplyCo.

For the years ended December 31, 2014 and 2013, we recorded a loss of $3.7 million and income of $0.9 million, respectively, representing our share of the combined losses and earnings of Northstar New Jersey and Northstar SupplyCo. We recognized revenue of $12.7 million and $1.2 million, respectively, from the sale of instant games to Northstar New Jersey during the years ended December 31, 2014 and 2013. As of December 31, 2014, we had accounts receivable of $3.1 million from Northstar New Jersey. We received no dividends or distributions of capital from Northstar New Jersey or Northstar SupplyCo. during the years ended December 31, 2014 and 2013.

Hellenic Lotteries

We own a 16.5% equity interest in Hellenic Lotteries, a company we formed with OPAP S.A. and Intralot S.A. In July 2013, Hellenic Lotteries was granted a 12-year concession for the exclusive rights to the production, operation and management of instant game and certain traditional lotteries in Greece. We account for our investment in Hellenic Lotteries as an equity method investment due to our significant influence through our substantive participating and minority interest protection rights with respect to the entity. In connection with the concession, Hellenic Lotteries paid an upfront fee of €190.0 million to the Greek government, of which we contributed our pro rata portion of €31.4 million. In addition to our portion of the upfront payment, we contributed an additional €0.3 million to Hellenic Lotteries for working capital requirements, resulting in aggregate contributions of €31.7 million to Hellenic Lotteries for the year ended December 31, 2013. Hellenic Lotteries will also be responsible for a monthly fee to the Greek government equal to a percentage of gross gaming revenue. In July 2013, we executed an instant games supply agreement with Hellenic Lotteries, pursuant to which we will be the exclusive provider of instant games and design services to Hellenic Lotteries and will also be responsible for certain advisory services applicable to all lottery games included in the concession. Operations under the concession agreement commenced in May 2014.

For the year ended December 31, 2014, we recorded income of $2.3 million representing our share of the earnings of Hellenic Lotteries. We recognized revenue of $6.3 million from the sale of instant games to Hellenic Lotteries during the year ended December 31, 2014. As of December 31, 2014, we had accounts receivable of $0.1 million from Hellenic Lotteries. We received no dividends or distributions of capital from Hellenic Lotteries during the years ended December 31, 2014 and 2013, respectively.

CSG

On October 12, 2007, we invested $7.4 million for a 49% equity interest in CSG. CSG established an instant game manufacturing facility that produces instant lottery games for sale to the China Sports Lottery for a 15-year period that began in 2009. For the years ended December 31, 2014, 2013 and 2012, we recorded income of $6.0 million, $6.9 million and $8.3 million, respectively, representing our share of the earnings of CSG. We are also entitled to a royalty fee from CSG for intellectual property rights equal to 1% of the total gross profits distributed by CSG. We received dividends of $6.4 million, $6.3 million and $9.3 million from CSG for the years ended December 31, 2014, 2013 and 2012, respectively. We received no distributions of capital from CSG during the years ended December 31, 2014, 2013 and 2012, respectively.

GLB

On November 15, 2007, we acquired a 50% equity interest in the ownership of GLB, a provider of instant lottery game validation and inventory management systems to all of the China Welfare Lottery provincial jurisdictions, for $28.0 million. For the years ended December 31, 2014, 2013 and 2012, we recorded income of $1.8 million, a loss of $5.7 million (including an impairment of our investment of $6.4 million) and income of $1.7 million, respectively, representing our share of earnings of GLB.

As a result of our investment review as of December 31, 2013, we recorded an impairment of $6.4 million to reduce the historical book value of our investment in GLB to the fair value, which impairment is reflected in earnings (loss) from equity investments in our Consolidated Statements of Operations and Comprehensive Loss. No impairments were recorded for the years ended December 31, 2014 or 2012. We received no dividends or distributions of capital from GLB during the years ended December 31, 2014, 2013 and 2012, respectively.

RCN

In February 2007, we sold our racing communications business and our 70% equity interest in NASRIN, our data communications business, to RCN in exchange for a 29.4% equity interest in RCN. RCN provides communications services to racing and other companies. For the year ended December 31, 2012, we recorded income of $6.4 million representing our share of earnings of RCN. For the years ended December 31, 2014 and 2013, respectively, our investment basis was reduced to zero as dividends were received in excess of our investment basis. In accordance with ASC 323, we temporarily discontinued the application of equity method accounting and recorded $4.3 million and $3.2 million of cash dividends received during the years ended December 31, 2014 and 2013, respectively, as equity income. We received dividends of $4.3 million, $3.2 million and $11.7 million from RCN for the years ended December 31, 2014, 2013 and 2012, respectively. We received no distributions of capital from RCN during the years ended December 31, 2014, 2013 and 2012.

Sportech

Following the sale of our racing business to Sportech in 2010, we owned a 20% equity interest in Sportech, a U.K. company that operates football pools and associated games and provides wagering technology solutions to racetracks and off-track wagering networks. We recorded our equity interest in Sportech on a 90-day lag as allowed under ASC 323. In January 2014, we completed the sale of our equity interest in Sportech for cash proceeds of £27.8 million, or $44.9 million, resulting in a gain of approximately £9 million, or $14.5 million, which is reflected as a gain on sale of equity interest in our Consolidated Statements of Operations and Comprehensive Loss.

ITL

We formed ITL in 2011 with a subsidiary of Playtech Limited in connection with our license of a back-end technology platform from such entity. ITL acquires gaming machines and fixed odds betting terminals with funds contributed to it by us and the Playtech subsidiary. We lease gaming machines and fixed odds betting terminals from ITL and provide them to certain of our customers. The allocation of equity ownership interests in ITL between us and the Playtech subsidiary varies based on the respective capital contributions from each party; however, operating decisions of ITL are made jointly by the parties. Intra-entity profits and losses are eliminated as necessary. For the years ended December 31, 2014, 2013 and 2012, we recorded losses of $1.8 million, $16.5 million and $3.8 million, respectively, attributable to our share of losses of ITL. We received dividends from ITL of $2.4 million for the year ended December 31, 2013 and no dividends for the years ended December 31, 2014 and 2012, respectively. We received distributions of capital of $17.4 million, $2.4 million and $3.8 from ITL during the years ended December 31, 2014, 2013 and 2012, respectively. We contributed an additional $40.3 million to ITL during the year ended December 31, 2014, primarily to fund new fixed odds betting terminals under a renewed contract with our largest U.K. customer. No contributions were made during the years ended December 31, 2013 or 2012.

Combined summary financial information

The combined summary financial information as of and for the years ended December 31, 2014, 2013 and 2012 is presented for all equity method investments owned during the respective periods. The audited financial statements of LNS are attached as Exhibit 99.1 to this Annual Report on Form 10-K. No other equity method investments were considered significant for the years ended December 31, 2014, 2013 and 2012.



	Years Ended December 31,
	2014 *		2013 *		2012
Revenue	$	962.8	$	901.1	$	949.5
Revenue less cost of revenue	$	352.5	$	398.4	$	506.4
Net income	$	83.1	$	90.4	$	111.2



	As of December 31,
	2014 *		2013 *
Current assets	$	879.6	$	870.5
Non-current assets	$	1,062.8	$	1,500.9
Current liabilities	$	648.8	$	621.9
Non-current liabilities	$	41.9	$	156.9

* No equity method investments were deemed significant for the years ended December 31, 2014 and 2013 under applicable SEC rules. This information is included for informational purposes only.

As described in Note 1 (Description of the Business and Summary of Significant Accounting Policies), we assess on a periodic basis whether there are any indicators that the fair value of our equity investments may be impaired. An equity investment is impaired if the estimate of the fair value of such investment is less than the carrying value, and such decline in value is deemed to be other than temporary. If an impairment was to occur, the loss would be measured as the excess of the carrying amount over the fair value of the equity investment. No other than temporary impairments were identified for the years ended December 31, 2014, 2013 and 2012 other than the impairment of our equity investment in GLB described above for 2013.