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April 10, 2000

Gtech Announces 4th Quarter And Year-End Results

COMPANY PRESS RELEASE: GTECH Holdings Corporation today announced earnings for the fourth quarter and fiscal year ending February 26, 2000.Revenues for the fourth quarter of fiscal 2000 totaled $267.2 million, an increase of approximately 5% over the $255.4 million of revenues in the fourth quarter of fiscal 1999.

By CBR Staff Writer

Net income was $30.1 million, or $.87 per basic share, compared with $22.1 million, or $.55 per basic share, for the same period last year.

Revenues for fiscal 2000 improved 4% to $1.01 billion, compared with revenues of $972.9 million in fiscal 1999. Net income was $93.6 million, or $2.58 per basic share, compared with net income of $89.1 million, or $2.17 per basic share in fiscal 1999.

In the fourth quarter of fiscal 2000, the Company released $1.1 million of the $15 million special charge recorded in the fourth quarter of fiscal 1999, as a result of prudent management of severance costs and attrition at the Company’s Transactive subsidiary.

I believe fiscal year 2000 will prove to be a watershed year for GTECH, said William Y. O’Connor, Chairman and CEO. We defended and expanded our core businesses, won a significant number of new customers, expanded our perimeter businesses in the Internet lottery space and social and venue space and continued to add applications that leverage our infrastructure.

Service revenues were $218.3 million in the fourth quarter, representing a 2% increase over the $214.8 million of service revenues in the same quarter last year. This increase reflects a 6% increase in international lottery service revenues, partially offset by a 2% decline in domestic lottery service revenues. Had last year’s average foreign exchange rates prevailed throughout the most recent quarter, total service revenues would have increased 4%.

Product sales were $48.9 million, compared with $40.6 million in the same quarter last year. This increase was primarily due to radio and terminal sales to South Africa.

Service gross margins for the quarter increased to 37.7% from 32.0% in the same quarter last year primarily due to a financial services rate increase in Brazil and higher domestic jackpot activity.

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Product margins improved to 35.6% in the fourth quarter of fiscal 2000 compared to 27.1% in the fourth quarter of last year, again as the result of radio and terminal sales to South Africa.

Other income of $20.7 million in the fourth quarter of fiscal 1999 included non-recurring gains associated with the Company’s global asset protection and foreign exchange management programs. As a result of the material devaluation that took place in Brazil in January 1999, and the hedging strategy that the Company had in place at that time, the Company recognized a one-time gain of approximately $17 million in the fourth quarter of fiscal 1999.

Fourth quarter results marked the first quarter-over-quarter increase in service revenues in more than a year. Domestic lottery sales stabilized, due in part to the continued recovery of instant ticket sales in Texas. Strong underlying growth in international service revenues made a significant difference for the period, said Mr. O’Connor.

Service revenues were $860.4 million in fiscal 2000, down 3% compared to service revenues of $887.4 million in fiscal 1999. This decrease reflects a 6% decline in domestic lottery service revenues, partially offset by a 1% improvement in international lottery service revenues. Had last year’s average foreign exchange rates prevailed throughout the most recent fiscal year, total service revenues would have increased 4%.

As anticipated, product sales increased from $85.5 million in fiscal 1999 to $150.4 million in fiscal 2000. This increase was driven by equipment sales to South Africa and the sale of a new online lottery system to Isreal. The company sold approximately 13,300 lottery terminals in fiscal 2000, compared to 4,900 lottery terminals in fiscal 1999.

Service gross margins increased to 35.2% from 33.3% last year primarily due to improved margins from the Company’s lottery operations in Brazil.

Product margins improved to 32.2% in fiscal 2000 from 30.1% in fiscal 1999 as a result of radio and terminal sales to South Africa.

Selling, general and administrative expenses were $126.6 million, compared to $124.4 million in fiscal 1999. This modest increase was attributable to the Company’s customer and industry conference held in July, 1999.

Research and development expenses were $46.1 million, an increase of $5.9 million over fiscal 1999 spending of $40.2 million. This increase reflects development activities associated with the Company’s next-generation lottery operating system and terminals along with increased spending by the Company’s Dreamport subsidiary on new products in the development pipeline.

Our commitment to increasing our research and development investment – more than the rest of the industry combined – is paying dividends by enhancing our competitive position both in terms of exciting new products that drive the existing core business and innovative solutions for the re-bid and new customer markets, continued Mr. O’Connor.

Equity earnings were $2.8 million in fiscal 2000, a decrease of $4.3 million from the $7.1 million earned during fiscal 1999. This decrease resulted principally from the sale, in fiscal 1999, of the Company’s equity interest in Camelot.

Other expenses of $1.3 million in fiscal 2000 is comprised of net foreign exchange losses associated with the Company’s global asset protection and foreign exchange management programs designed to protect future cash flows, partially offset by the amortization of the gain on the sale of Camelot.

The Company’s effective income tax rate decreased from 41% in fiscal 1999 to 40% in fiscal 2000 principally due to lower state taxes and increased research and development tax credits.

During fiscal 2000, the Company generated $230.8 million of cash from operations. This cash was used principally to fund the purchase of $128.6 million of systems, equipment and other assets relating to contracts and to repurchase $98.7 million of the company’s common stock. Approximately four million shares of the Company’s common stock were repurchased in fiscal 2000, representing approximately 10% of the outstanding shares at the beginning of the fiscal year.

At the end of fiscal 2000, the Company has $355 million of revolving credit available under its $400 million credit facility.

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