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GTech warns, CEO quits
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July 6, 2000: 10:26 a.m. ET
Lottery provider sees 2Q earnings shortfall; president also departs
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NEW YORK (CNNfn) - Leading lottery and gaming services provider GTech Holdings Corp. on Thursday announced the resignation of its chairman and president and warned that profits in its second quarter and the current fiscal year would fall short of Wall Street estimates.
The West Greenwich, R.I.-based company blamed the resignation of its two top executives -- Chief Executive Officer William O'Connor and Chief Operating Officer Steven Nowick -- on the poor handling of a software glitch in the mid-1990s at the British Lottery.
GTech (GTK: Research, Estimates) gave no specific forecast  in issuing the profit warning, attributed in part to problems in its contracts with the state of Rhode Island and the nation of Colombia. It expects to supply within the next 10 business days revised earnings guidance for the second quarter, which ends in August, and full year.
Shares of GTech, which supplies or operating lotteries on behalf of more than 80 government entities or licensees in 36 countries -- as well as more than three-quarters of all lotteries in the United States -- tumbled about 13 percent to close off 2-15/16 at 19-13/16.
According to First Call/Thompson, the one analyst that tracks GTech was looking for earnings to be flat at 58 cents a share.
In its fiscal first quarter, ended in May, GTech reported income of $20.2 million, or 58 cents a share, up from $18.9 million, or 50 cents a share for the same period a year earlier. Revenue of $242 million compared with $238.7 million in the first quarter of fiscal 2000.
GTech, which designs, installs, operates, and maintains lottery and instant ticket systems, also said it accepted the resignation of CEO and Chairman William O'Connor, 54, and President and Chief Operating Officer Steven Nowick, 45.
 GTech's board of directors said it accepted O'Connor's resignation, citing several factors, including growing dissatisfaction with the company's stock performance and the handling of a 1998 software glitch in Britain.
GTech identified a software malfunction in June 1998 and corrected the glitch in July 1998, but without notifying Camelot, the operator of Britain's National Lottery, which is the largest in the world by revenue.
According to recent published reports, the software problem, which occurred between November 1994 and July 1998, caused some 78,000 lottery winners to be underpaid and 35,000 to be overpaid. GTech's directors had recently been called to an emergency meeting with Britain's National Lottery Commission to explain.
O'Connor, who joined GTech as president and chief operating officer in 1994 and was elected chief executive officer in 1997 and chairman in 1998, and Nowick were unavailable for comment.
William Bruce Turner, 40, tapped to immediately take over as non-executive chairman of the company's board, said the company's directors were disappointed with the handling of the situation.
"The board is disappointed with the manner in which this entire matter, of which it only recently became aware, was dealt with and believes the problem should have been disclosed," said Turner in a press statement.
Turner, former managing director of equity research for Salomon Smith Barney, has been a member of the board since October 1999.
Earnings hurt by delays, problems, cost over-runs
Regarding the profit warning, GTech noted that the Rhode Island state government's decision to reduce compensation to some lottery vendors would cut revenues by $3.0 million-to-$3.5 million for the full fiscal year.
 The delayed start-up for Colombia's National Lottery is seen trimming $2 million-to-$3 million in revenue from GTech's second quarter, while delays in certain International product sales will shave $10 million-to-$15 million in revenue for the full fiscal year.
In addition to the contract problems, cost overruns related to system projects also had a negative impact on earnings. The factors came to light as part of management's review of operations since last month's release of results for the first fiscal quarter ended May 27.
O'Connor joined GTech as president and chief operating officer in 1994 and was elected chief executive officer in 1997 and chairman in 1998. 
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GTech
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