Equity Investments

At December 31, 2013, we had investments in the entities described below, which are accounted for using the equity method of accounting. We record income or loss from equity method investments as "Earnings from equity investments" in the Consolidated Statements of Operations and Comprehensive Income 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, 2013, our investment in CLN was $2.5 million. LNS paid €800.0 million in upfront fees under the terms of the new concession. We paid our pro rata share of these fees 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, 2013, 2012 and 2011 we recorded income of $17.9 million, $17.9 million and $18.6 million, respectively, representing our share of earnings of LNS. We recognized revenue from the sale of games to LNS during the years ended December 31, 2013, 2012 and 2011 of $52.0 million, $52.0 million and $56.9 million, respectively. As of December 31, 2013 we had accounts receivable of $13.0 million from LNS. We received dividends of $18.3 million, $17.7 million and $26.3 million from LNS and CLN for the years ended December 31, 2013, 2012 and 2011, respectively. We received distributions of capital of $17.6 million, $21.0 million, and $17.8 million from LNS and CLN during the years ended December 31, 2013, 2012 and 2011, 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.

Under the terms of the PMA, Northstar Illinois is entitled to receive annual incentive compensation payments to the extent it is successful in increasing the 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. Northstar Illinois is responsible for payments to the State to the extent such targets are not achieved, subject to a similar cap. These net income target levels are subject to upward or downward adjustment under certain circumstances in accordance with the terms of the PMA. Northstar Illinois may seek downward adjustments to the net income targets in the event certain actions of the State (or the federal government) have a material adverse effect on the lottery's net income and Northstar Illinois' ability to receive incentive compensation payments. In November 2012, an arbitrator determined that Northstar Illinois is entitled to a $28.4 million downward adjustment to the net income target for the lottery's 2012 fiscal year and a $2.9 million downward adjustment to the net income target for the lottery's 2013 fiscal year.

We understand that the lottery has asserted that Northstar Illinois is responsible for shortfall payments of approximately $22 million with respect to the fiscal year ended June 30, 2012 and approximately $39 million with respect to the fiscal year ended June 30, 2013. We further understand that Northstar Illinois disagrees with the methodology used by the lottery in calculating the lottery's net income that formed the basis of the lottery's shortfall payment claim and believes that certain other matters that could impact any potential shortfall payment have yet to be resolved, and has initiated the resolution process contemplated by the PMA in an attempt to resolve these matters.

We understand that, despite the matters to be resolved, in light of the completion of the lottery's financial statements for the fiscal year ended June 30, 2012, and based on preliminary financial information for the lottery's fiscal year ended June 30, 2013, Northstar Illinois recorded a liability of $42.0 million associated with its estimate of the potential aggregate net shortfall payments for the first three fiscal years under the PMA. For the year ended December 31, 2013, earnings from our equity investment in Northstar Illinois were reduced by an amount equal to the amortization of our 20% share of the $42.0 million of estimated net shortfall payments recorded by Northstar Illinois, which amortization is allocated over the life of the contract. These amounts were not material to our results of operations for the year ended December 31, 2013. In December 2013, we made a capital contribution of $13.8 million to Northstar Illinois. We may be required to make capital contributions to Northstar Illinois to fund our pro rata share of any shortfall payments that are payable to the State under the private management agreement.

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.

For the years ended December 31, 2013, 2012 and 2011, we recorded a loss of $4.5 million, $2.6 million and $1.7 million, respectively, representing our share of the losses of Northstar Illinois. We recognized revenue from the sale of instant lottery games to Northstar Illinois during the years ended December 31, 2013, 2012 and 2011 of $25.0 million, $24.6 million and $14.0 million, respectively. As of December 31, 2013 we had accounts receivable of $7.9 million from Northstar Illinois. We received no dividends or distributions of capital from Northstar Illinois during the years ended December 31, 2013, 2012 and 2011.

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 $21.5 million, our pro rata portion. 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 lottery games and related services and Gtech provides Northstar New Jersey with lottery systems and 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.

For the year ended December 31, 2013, we recorded income of $0.9 million, representing our share of the combined earnings of Northstar New Jersey and Northstar SupplyCo. We recognized revenue of $1.2 million from the sale of instant lottery games to Northstar New Jersey during the year ended December 31, 2013. As of December 31, 2013, we had accounts receivable of $1.2 million from Northstar New Jersey. We received no dividends or distributions of capital from Northstar New Jersey during the years ended December 31, 2013, 2012 and 2011.

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 ticket 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. Operations under the concession agreement are expected to commence during the first half of 2014. In connection with the concession, Hellenic Lotteries paid an upfront fee of €190.0 million to the Greek government, of which we contributed €31.4 million, our pro rata portion. 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 the operating company 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 lottery game supply agreement with Hellenic Lotteries, pursuant to which we will be the exclusive provider of instant lottery game and design services to Hellenic Lotteries and will also be responsible for certain advisory services applicable to all lottery games included in the concession. We received no dividends or distributions of capital from Hellenic Lotteries during the years ended December 31, 2013, 2012 and 2011, respectively.

CSG

On October 12, 2007, we invested $7.4 million for a 49% equity interest in CSG. CSG established an instant ticket manufacturing facility that produces instant lottery tickets for sale to the China Sports Lottery for a 15-year period that began in 2009. For the years ended December 31, 2013, 2012 and 2011, we recorded income of $6.9 million, $8.3 million, and $9.7 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 $6.3 million, $9.3 million and $5.4 million from CSG for the years ended December 31, 2013, 2012 and 2011, respectively. We received no distributions of capital from CSG during the years ended December 31, 2013, 2012 and 2011, respectively.

GLB

On November 15, 2007, we acquired a 50% equity interest in the ownership of GLB, a provider of instant lottery ticket validation and inventory management systems to all of the China Welfare Lottery provincial jurisdictions, for $28.0 million. For the years ended December 31, 2013, 2012 and 2011, we recorded a loss of $5.7 million (including an impairment of our investment of $6.4 million), and income of $1.7 million and $2.8 million, respectively, representing our share of earnings of GLB.

As a result of our investment review as of December 31, 2013, we determined that our equity interest in Guard Libang was impaired on an other-than-temporary basis due to a decrease in the fair value of the investment. The fair value was determined utilizing a discounted cash flow model and a market approach model. We recorded an impairment of $6.4 million to reduce the historical book value of our investment to the fair value, which impairment is reflected in earnings from equity investments in our Consolidated Statements of Operations and Comprehensive Income. We received no dividends or distributions of capital from GLB during the years ended December 31, 2013, 2012 and 2011, 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 years ended December 31, 2012 and 2011, we recorded income of $6.4 million and $2.4 million, respectively, representing our share of earnings of RCN. For the year ended December 31, 2013, our investment basis was reduced to zero as dividends were received in excess of our investment basis. In accordance with ASC 323, Investments - Equity Method and Joint Ventures, we temporarily discontinued the application of equity method accounting and recorded $3.2 million of cash dividends received during 2013 as equity income. We received dividends of $3.2 million, $11.7 million and $3.6 million from RCN for the years ended December 31, 2013, 2012 and 2011, respectively. We received no distributions of capital from RCN during the years ended December 31, 2013, 2012 and 2011.

Sciplay

On January 21, 2010, we entered into a joint venture with a subsidiary of Playtech Limited, in which we had a 50% interest in two entities, Sciplay International S.a.r.l. and Sciplay (Luxembourg) S.a.r.l. (collectively “Sciplay”). Sciplay offered internet gaming solutions to lotteries and other gaming operators. In January 2012, we restructured this joint venture and, as part of the restructuring, the Sciplay-related entities became wholly owned subsidiaries of the Company. The impact of this restructuring on our Consolidated Balance Sheet and Consolidated Results of Operations and Comprehensive Income as of and for the years ended December 31, 2013 and 2012 was not material.

Sportech

Following the sale of our Racing Business to Sportech, 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, Investments—Equity Method and Joint Ventures. In January 2014, we sold all of our Sportech shares for gross cash proceeds of £27.8 million. The sale had no impact on our Consolidated Balance Sheet or Consolidated Results of Operations for the year ended December 31, 2013. We will record a gain of approximately £9 million on the sale in the first quarter of 2014.

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 with funds contributed to it by us and the Playtech subsidiary. We lease gaming machines 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, 2013, 2012 and 2011, we recorded losses of $16.5 million, $3.8 million and $2.7 million, respectively, attributable to our share of earnings of ITL. We received dividends of $2.4 million from ITL for the year ended December 31, 2013 and $0.0 for the years ended December 31, 2012 and 2011. We received distributions of capital of $2.4 million, $3.8 million and $0.0 from ITL during the years ended December 31, 2013, 2012 and 2011, respectively.

Combined summary financial information

The combined summary financial information as of and for the years ended December 31, 2013, 2012 and 2011 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. We intend to file CSG's unaudited financial statements for the years ended December 31, 2013 and 2012 and its audited financial statements for the year ended December 31, 2011 as well as GLB's unaudited financial statements for the years ended December 31, 2013 and 2012 and its audited financial statements for the year ended December 31, 2011, as exhibits to Form 10-K/A no later than June 30, 2014.



	Years Ended December 31,
	2013 *		2012		2011
Revenue	$	901.1	$	949.5	$	907.7
Revenue less cost of revenue	$	398.4	$	506.4	$	461.7
Net income	$	90.4	$	111.2	$	124.5



	As of December 31,
	2013 *		2012
Current assets	$	870.5	$	682.3
Non-current assets	$	1,500.9	$	1,273.9
Current liabilities	$	621.9	$	496.4
Non-current liabilities	$	156.9	$	148.5

* No equity method investments were deemed significant for the year ended December 31, 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 is less than the carrying value, and such decline in value is deemed to be other than temporary. If an impairment were 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, 2013, 2012 and 2011 other than the impairment of our equity investment in Guard Libang described above.