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GTECH Announces Strong Q1 Earnings

Operating Results

Revenues for the first quarter of fiscal 2001 totaled $242.0 million compared to $238.7 million in the first quarter of fiscal 2000. Net income was $20.2 million, or $.58 per share, compared with $18.9 million, or $.50 per share, for the same period last year.

Service revenues were $222.6 million in the quarter, representing a 5% increase over the $211.2 million of service revenues in the same quarter last year. This increase reflects an 11% increase in international lottery service revenues and a 2% increase in domestic lottery service revenues.

Service gross margins for the quarter increased to 35.9% from 33.7% in the same quarter last year primarily due to higher domestic jackpot activity.

Product margins were 18.4% in the quarter compared to 34.1% in the first quarter of last year resulting from the inclusion of a low-margin central system conversion in the overall product mix.

Operating expenses were $47.1 million in the quarter compared to $42.7 million in the same period last year driven by higher spending on the Company's Internet offerings.

The Company's effective income tax rate decreased from 41% in the first quarter of fiscal 2000 to 39% in the current quarter due principally to lower state taxes and increased R&D tax credits.

``We're very pleased by our first-quarter results showing an increase in domestic lottery sales, as well as the steps being taken by some of our domestic customers to stimulate sales increases that we are confident will be sustainable,'' said William Y. O'Connor, GTECH Chairman and CEO.

Cash Flow and Investments

During the first quarter of fiscal 2001 the Company generated $39.4 million of cash from operations. This cash was used principally to fund the purchase of $33.8 million of systems, equipment and other assets relating to contracts.

At the end of the quarter, the Company had approximately $350 million of revolving credit available under its $400.0 million credit facility.

Highlights

``We continue to make significant progress with the five strategic growth initiatives of the Company - defending and expanding our core businesses, winning new domestic and international business, expanding our perimeter ventures and leveraging out infrastructure.

"Our strategic approach, coupled with the restructuring that is bringing us closer to our customers, is paying dividends and laying a foundation that should serve us well in the long term,'' continued Mr. O'Connor.

During the quarter, GTECH signed a new contract with the Western Australia Lotteries Commission, as well as a four-year extension with its customer in Barbados. The Company signed a new seven-year contract with the Illinois State Lottery, and more recently was selected to negotiate a new long-term contract with the Ohio State Lottery, one of the ten largest lotteries in the United States.

In addition, GTECH was selected, after a vigorous competitive procurement, to negotiate a contract with the operator of the National Lottery of Portugal to convert Europe's largest off-line lottery to the Company's secure and reliable network of hardware, software and terminals.

More recently, GTECH signed a contract to provide products and service for the Ivory Coast National Lottery, expanding the Company's operations in Africa to three countries.

GTECH also signed a new contract in Brazil with Caixa Economica Federal to expand additional financial transaction services and online lottery products and services through January 2003. Under the new contract, GTECH will expand its current level of services provided over its dedicated network infrastructure to include social security contributions and payments, credit card transactions, IRS transactions, prepaid cards, and traditional banking transactions such as deposits, withdrawals, account transfers, and statements.

``We're on course to restore growth in the business driven in part by investing in our various businesses to build a platform for enhancing shareholder value,'' Mr. O'Connor concluded.

GTECH Holdings Corporation is the leading global supplier of systems and services to the lottery and gaming/entertainment industries. Through its Worldwide Lottery Group, Dreamport, GameScape, Europrint/IGI, VideoSite and UWin!, GTECH provides customized solutions to meet the needs of lotteries, governments, and corporations on six continents. For more information about the Company, please visit GTECH's website at http://www.gtech.com.

    Consolidated statement of operations to follow:


    CONSOLIDATED INCOME STATEMENTS

    GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
                                                         (Unaudited)
                                                      Three Months Ended
                                                     May 27,        May 29,
                                                      2000           1999
                                                      (Dollars in thousands,
                                                    except per share amounts)

    Revenues:
      Services                                      $222,631       $211,158
      Sales of products                               19,367         27,502
                                                     241,998        238,660
    Costs and expenses:
      Costs of services                              142,763        139,912
      Costs of sales                                  15,811         18,118
                                                     158,574        158,030

    Gross profit                                      83,424         80,630

    Selling, general and administrative               32,561         30,438
    Research and development                          12,926         10,676
    Goodwill amortization                              1,609          1,563
      Operating expenses                              47,096         42,677

    Operating income                                  36,328         37,953

    Other income (expense):
      Interest income                                  1,925            837
      Equity in earnings of unconsolidated
       affiliates                                      1,256          1,143
      Other income                                       687         (1,054)
      Interest expense                                (7,035)        (6,785)

    Income before income taxes                        33,161         32,094

    Income taxes                                      12,932         13,159

    Net income                                       $20,229        $18,935

    Basic and diluted earnings per share                $.58           $.50


    CONSOLIDATED BALANCE SHEETS

    GTECH HOLDINGS CORPORATION AND SUBSIDIARIES       (Unaudited)
                                               May 27,         February 26,
    ASSETS                                      2000              2000
                                         (In thousands, except share amounts)
    CURRENT ASSETS
      Cash and cash equivalents                $12,679           $11,115
      Trade accounts receivable                107,211           115,358
      Sales-type lease receivables              10,119            10,110
      Inventories                               72,870            67,418
      Deferred income taxes                     15,853            15,853
      Other current assets                      24,651            19,346
        TOTAL CURRENT ASSETS                   243,383           239,200
    SYSTEMS, EQUIPMENT AND OTHER ASSETS
     RELATING TO CONTRACTS                   1,251,221         1,231,755
    Less: Accumulated Depreciation            (884,026)         (855,837)
                                               367,195           375,918

    GOODWILL, net                              129,100           130,710

    INVESTMENTS IN AND ADVANCES TO
     UNCONSOLIDATED AFFILIATES                  36,111            25,898

    OTHER ASSETS                               128,644           119,297
                                             $ 904,433          $891,023

    LIABILITIES AND SHAREHOLDERS' EQUITY

    CURRENT LIABILITIES
      Accounts payable                         $41,782           $53,103
      Accrued expenses                          43,217            44,898
      Employee compensation                     19,487            30,057
      Advance payments from customers           37,682            33,438
      Income taxes payable                      57,565            49,382
      Current portion of long-term debt             17                69
        TOTAL CURRENT LIABILITIES              199,750           210,947

    LONG-TERM DEBT, less current portion       362,100           349,400

    OTHER LIABILITIES                           25,655            27,363

    DEFERRED INCOME TAXES                        6,737             6,737

    SHAREHOLDERS' EQUITY
      Preferred Stock, par value $.01 per
       share -- 20,000,000 shares authorized,
        none issued                                 --                --
      Common Stock, par value $.01 per share --
       150,000,000 shares authorized, 44,176,815
       and 44,171,315 shares issued, 34,869,010
       and 34,804,004 shares outstanding at
       May 27, 2000 and February 26, 2000,
       respectively                                442               442
      Additional paid-in capital               176,843           176,750
      Equity carryover basis adjustment         (7,008)           (7,008)
      Accumulated other comprehensive income   (77,245)          (69,493)
      Retained earnings                        457,567           437,830
                                               550,599           538,521

      Less cost of 9,307,805 and 9,367,311
       shares in treasury at May 27, 2000
       and February 26, 2000, respectively    (240,408)         (241,945)
                                               310,191           296,576
                                             $ 904,433          $891,023


    CONSOLIDATED STATEMENTS OF CASH FLOWS

    GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
                                                         (Unaudited)
                                                      Three Months Ended
                                                     May 27,        May 29,
                                                      2000           1999
                                                     (Dollars in thousands)

    OPERATING ACTIVITIES
    Net income                                       $20,229        $18,935
    Adjustments to reconcile net income to net
     cash provided by operating activities:
      Depreciation and other intangibles
       amortization                                   44,089         43,258
      Goodwill amortization                            1,609          1,563
      Equity in earnings of unconsolidated
       affiliates, net of dividends received            (525)           (11)
      Other                                               65           (816)
      Changes in operating assets and liabilities:
        Trade accounts receivable                      8,147         14,806
        Inventories                                   (5,452)         6,018
        Special charge                                    --         (2,879)
        Other assets and liabilities                 (28,751)       (37,226)
    NET CASH PROVIDED BY OPERATING ACTIVITIES         39,411         43,648

    INVESTING ACTIVITIES
    Purchases of systems, equipment and other
     assets relating to contracts                    (33,834)       (36,284)
    Investments in and advances to unconsolidated
     subsidiaries                                    (11,328)        (5,361)
    Other                                             (3,694)        (5,881)
    NET CASH USED FOR INVESTING ACTIVITIES           (48,856)       (47,526)

    FINANCING ACTIVITIES
    Net proceeds from issuance of long-term debt      37,700         38,100
    Principal payments on long-term debt             (25,049)       (10,479)
    Purchases of treasury stock                           --        (27,900)
    Other                                              1,052           (208)
    NET CASH PROVIDED BY (USED FOR) FINANCING
     ACTIVITIES                                       13,703           (487)

    Effect of exchange rate changes on cash           (2,694)         2,496
    INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   1,564         (1,869)

    Cash and cash equivalents at beginning
     of period                                        11,115          7,733

    CASH AND CASH EQUIVALENTS AT END OF PERIOD       $12,679         $5,864

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