<PAGE>   1
                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended August 29, 1998


Commission file number  1-11250


                           GTECH Holdings Corporation
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                         <C>
           Delaware                                                    05-0450121
(State or other jurisdiction of                             (I.R.S. Employer Identification
incorporation or organization)                                          Number)


55 Technology Way, West Greenwich, Rhode Island                          02817
(Address of principal executive offices)                              (Zip Code)
</TABLE>

Registrant's telephone number, including area code:  (401) 392-1000


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes   X       No


At October 3, 1998 there were 41,281,123 shares of the registrant's Common
Stock outstanding.




<PAGE>   2
INDEX

GTECH HOLDINGS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
                                                                                Page
PART I.  FINANCIAL INFORMATION                                                 Number
                                                                                -----

<S>                                                                            <C>
Item 1.       Financial Statements

              Consolidated Balance Sheets                                           3

              Consolidated Income Statements                                       4-5

              Consolidated Statement of Shareholders' Equity                        6

              Consolidated Statements of Cash Flows                                 7

              Notes to Consolidated Financial Statements                           8-10

Item 2.       Management's Discussion and Analysis of Financial Condition         11-19
              and Results of Operations

Item 3.       Quantitative and Qualitative Disclosures about Market Risk           20


PART II.  OTHER INFORMATION

Item 1.       Legal Proceedings                                                   20-21

Item 2.       Changes in Securities                                                22

Item 4.       Submission of Matters to Vote of Security Holders                    22

Item 5.       Other information                                                    23

Item 6.       Exhibits and Reports on Form 8-K                                     23

SIGNATURES                                                                         24

EXHIBITS                                                                          25-36
</TABLE>
<PAGE>   3
PART 1. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
GTECH HOLDINGS CORPORATION AND SUBSIDIARIES                                               (Unaudited)
                                                                                           August 29,         February 28,
ASSETS                                                                                       1998                 1998
                                                                                          -----------         -----------
                                                                                        (In thousands, except share amounts)
<S>                                                                                       <C>                 <C>
CURRENT ASSETS
      Cash and cash equivalents                                                           $     9,526         $     8,250
      Trade accounts receivable                                                                88,277              93,778
      Sales-type lease receivables                                                             11,518              13,958
      Inventories                                                                              33,802              27,853
      Deferred income taxes                                                                    40,897              40,897
      Assets held for sale                                                                     14,178              14,178
      Other current assets                                                                     19,044              14,141
                                                                                          -----------         -----------
                               TOTAL CURRENT ASSETS                                           217,242             213,055

SYSTEMS, EQUIPMENT AND OTHER ASSETS RELATING TO CONTRACTS                                   1,252,937           1,204,552
Less: Accumulated Depreciation                                                               (738,942)           (677,696)
                                                                                          -----------         -----------
                                                                                              513,995             526,856


GOODWILL, net                                                                                 138,999             118,537

INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES                                       12,443              64,808

OTHER ASSETS                                                                                   98,839             100,556
                                                                                          -----------         -----------
                                                                                          $   981,518         $ 1,023,812
                                                                                          ===========         ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
      Accounts payable                                                                    $    30,354         $    39,451
      Accrued expenses                                                                         57,444              57,155
      Special charge                                                                           11,950              33,631
      Employee compensation                                                                    15,986              25,648
      Advance payments from customers                                                          22,327                 504
      Income taxes payable                                                                     57,989              25,392
      Current portion of long-term debt                                                         2,391               3,903
                                                                                          -----------         -----------
                               TOTAL CURRENT LIABILITIES                                      198,441             185,684

LONG-TERM DEBT, less current portion                                                          352,191             453,587

OTHER LIABILITIES                                                                              36,984              19,171

DEFERRED INCOME TAXES                                                                          20,160              20,160

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,
         44,121,565 and 43,922,627 shares issued, 41,280,484 and 41,284,146 shares
         outstanding at August 29, 1998 and February 28, 1998, respectively                       441                 439
      Additional paid-in capital                                                              175,911             171,302
      Equity carryover basis adjustment                                                        (7,008)             (7,008)
      Accumulated other comprehensive income                                                   (9,965)                (42)
      Retained earnings                                                                       296,482             255,955
                                                                                          -----------         -----------
                                                                                              455,861             420,646
      Less cost of 2,841,081 and 2,638,481 shares in treasury at
         August 29, 1998 and February 28, 1998, respectively                                  (82,119)            (75,436)
                                                                                          -----------         -----------
                                                                                              373,742             345,210
                                                                                          -----------         -----------
                                                                                          $   981,518         $ 1,023,812
                                                                                          ===========         ===========
</TABLE>

See notes to consolidated financial statements


                                     - 3 -
<PAGE>   4
CONSOLIDATED INCOME STATEMENTS

GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                           (Unaudited)
                                                                        Three Months Ended
                                                                 -------------------------------
                                                                 August 29,            August 30,
                                                                    1998                 1997
                                                                 ---------             ---------
                                                                     (Dollars in thousands,
                                                                    except per share amounts)
<S>                                                              <C>                   <C>
Revenues:
      Services                                                   $ 224,582             $ 209,139
      Sales of products                                              8,952                17,671
                                                                 ---------             ---------
                                                                   233,534               226,810
Costs and expenses:
      Costs of services                                            148,523               143,548
      Costs of sales                                                 6,812                 9,169
                                                                 ---------             ---------
                                                                   155,335               152,717
                                                                 ---------             ---------
Gross profit                                                        78,199                74,093

Selling, general and administrative                                 29,504                32,939
Research and development                                             8,648                 7,869
                                                                 ---------             ---------
Operating income                                                    40,047                33,285

Other income (expense):
      Interest income                                                  832                 1,792
      Equity in earnings of unconsolidated affiliates                  870                 4,957
      Other income                                                   2,840                   510
      Interest expense                                              (6,920)               (7,916)
                                                                 ---------             ---------
Income before income taxes                                          37,669                32,628

Income taxes                                                        15,821                12,403
                                                                 ---------             ---------
Net income                                                       $  21,848             $  20,225
                                                                 =========             =========

Basic earnings per share                                         $     .53             $     .48
                                                                 =========             =========

Diluted earnings per share                                       $     .53             $     .48
                                                                 =========             =========
</TABLE>

See notes to consolidated financial statements

                                     - 4 -
<PAGE>   5
CONSOLIDATED INCOME STATEMENTS

GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                          (Unaudited)
                                                                      Six Months Ended (1)
                                                                 -------------------------------
                                                                 August 29,            August 30,
                                                                    1998                 1997
                                                                 ---------             ---------
                                                                      (Dollars in thousands,
                                                                     except per share amounts)
<S>                                                              <C>                   <C>
Revenues:
      Services                                                   $ 446,463             $ 435,069
      Sales of products                                             19,350                36,912
                                                                 ---------             ---------
                                                                   465,813               471,981
Costs and expenses:
      Costs of services                                            297,112               300,263
      Costs of sales                                                14,823                20,497
                                                                 ---------             ---------
                                                                   311,935               320,760
                                                                 ---------             ---------

Gross profit                                                       153,878               151,221

Selling, general and administrative                                 59,701                68,853
Research and development                                            18,243                16,044
                                                                 ---------             ---------
Operating income                                                    75,934                66,324

Other income (expense):
      Interest income                                                1,577                 3,545
      Equity in earnings of unconsolidated affiliates                4,236                 8,671
      Other income                                                   2,535                   880
      Interest expense                                             (14,408)              (14,592)
                                                                 ---------             ---------
Income before income taxes                                          69,874                64,828

Income taxes                                                        29,347                25,283
                                                                 ---------             ---------
Net income                                                       $  40,527             $  39,545
                                                                 =========             =========
Basic earnings per share                                         $     .98             $     .94
                                                                 =========             =========
Diluted earnings per share                                       $     .97             $     .93
                                                                 =========             =========
</TABLE>

(1)   26 weeks in the six month period ended August 29, 1998 and 27 weeks in the
      six month period ended August 30, 1997

See notes to consolidated financial statements


                                     - 5 -
<PAGE>   6
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY-(Unaudited)

GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                                   Equity
                                                   Common Stock       Additional  Carryover
                                                Issued                 Paid-in       Basis
                                                Shares      Amount     Capital    Adjustment
                                              ----------  ----------  ----------  ----------
                                                            (Dollars in thousands)
<S>                                           <C>         <C>         <C>         <C>
Balance at February 28, 1998                  43,922,627  $      439  $  171,302  $   (7,008)

Comprehensive income:
     Net income                                       --          --          --          --
     Other comprehensive income, net of tax:
         Foreign currency translation                 --          --          --          --
Comprehensive income                              
Purchase of 202,600
     shares of common stock                           --          --          --          --
Common stock issued
     under stock award plans                     198,938           2       4,609          --

                                              ----------  ----------  ----------  ----------
Balance at August 29, 1998                    44,121,565  $      441  $  175,911  $   (7,008)
                                              ==========  ==========  ==========  ==========


<CAPTION>
                                              Accumulated
                                                Other
                                             Comprehensive   Retained    Treasury
                                                 Income      Earnings     Stock        Total
                                               ----------   ----------  ----------   ----------
                                                            (Dollars in thousands)
<S>                                            <C>          <C>         <C>          <C>
Balance at February 28, 1998                   $      (42)  $  255,955  $  (75,436)  $  345,210

Comprehensive income:
     Net income                                        --       40,527          --       40,527
     Other comprehensive income, net of tax:
         Foreign currency translation              (9,923)          --          --       (9,923)
                                                                                     ----------
Comprehensive income                                                                     30,604
Purchase of 202,600
     shares of common stock                            --           --      (6,683)      (6,683)
Common stock issued
     under stock award plans                           --           --          --        4,611

                                               ----------   ----------  ----------   ----------
Balance at August 29, 1998                     $   (9,965)  $  296,482  $  (82,119)  $  373,742
                                               ==========   ==========  ==========   ==========
</TABLE>

See notes to consolidated financial statements


                                     - 6 -
<PAGE>   7
CONSOLIDATED STATEMENTS OF CASH FLOWS

GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                                            (Unaudited)
                                                                                       Six Months Ended (1)
                                                                                  -------------------------------
                                                                                 August 29,             August 30,
                                                                                    1998                  1997
                                                                                  ---------             ---------
                                                                                       (Dollars in thousands)
<S>                                                                               <C>                   <C>
OPERATING ACTIVITIES
Net income                                                                        $  40,527             $  39,545
Adjustments to reconcile net income to net cash provided by operating
  activities:
      Depreciation and amortization                                                 103,354                99,289
      Equity in earnings of unconsolidated affiliates,
         net of dividends received                                                   (2,473)               (1,813)
      Other                                                                            (919)                1,930
      Changes in operating assets and liabilities:
         Trade accounts receivable                                                   10,160                24,132
         Inventories                                                                 (4,945)               (8,408)
         Special charge                                                             (19,683)                   --
         Other assets and liabilities                                                15,250               (24,099)
                                                                                  ---------             ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                           141,271               130,576

INVESTING ACTIVITIES
Purchases of systems, equipment and other assets relating to contracts              (85,818)             (174,939)
Cash proceeds from sale of equity investment                                         84,904                    --
Acquisitions (net of cash acquired)                                                 (21,864)               (4,426)
Other                                                                                (9,903)              (10,384)
                                                                                  ---------             ---------
NET CASH USED FOR INVESTING ACTIVITIES                                              (32,681)             (189,749)

FINANCING ACTIVITIES
Proceeds from issuance of long-term debt                                             84,956               433,818
Principal payments on long-term debt                                               (188,693)             (356,592)
Purchases of treasury stock                                                          (6,683)              (15,834)
Other                                                                                 4,473                (1,712)
                                                                                  ---------             ---------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES                               (105,947)               59,680

Effect of exchange rate changes on cash                                              (1,367)                 (549)
                                                                                  ---------             ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                      1,276                   (42)

Cash and cash equivalents at beginning of period                                      8,250                11,985
                                                                                  ---------             ---------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                        $   9,526             $  11,943
                                                                                  =========             =========
</TABLE>

(1)   26 weeks in the six month period ended August 29, 1998 and 27 weeks in the
      six month period ended August 30, 1997

See notes to consolidated financial statements


                                     - 7 -
<PAGE>   8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

GTECH HOLDINGS CORPORATION AND SUBSIDIARIES

NOTE A--BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of GTECH Holdings
Corporation (the "Company"), the parent of GTECH Corporation ("GTECH"), have
been prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six-month period ended August 29, 1998 are
not necessarily indicative of the results that may be expected for the full 1999
fiscal year ending February 27, 1999. The balance sheet at February 28, 1998 has
been derived from the audited financial statements at that date. For further
information refer to the consolidated financial statements and footnotes thereto
included in GTECH Holdings Corporation's fiscal 1998 Annual Report on Form 10-K.

The Company operates on a 52- to 53-week fiscal year ending on the last Saturday
in February. Fiscal 1998 was a 53-week year. The Company included the extra week
in the fiscal 1998 first quarter ended May 31, 1997. Accordingly, there are 26
weeks in the six-month period ended August 29, 1998, versus 27 weeks in the
six-month period ended August 30, 1997.

<TABLE>
<CAPTION>

NOTE B--INVENTORIES                                        August 29,       February 28,
                                                              1998              1998
                                                       ---------------     ---------------
                                                             (Dollars in thousands)
<S>                                                    <C>                 <C>
Inventories consist of:
       Purchased components                            $        18,300     $        17,202
       Finished subassemblies                                    1,706               1,719
       Work-in-process                                          10,166               7,789
       Finished goods                                            3,630               1,143
                                                       ---------------     ---------------
                                                       $        33,802     $        27,853
                                                       ===============     ===============
</TABLE>


<TABLE>
<CAPTION>
NOTE C--LONG-TERM DEBT                                     August 29,       February 28,
                                                              1998              1998
                                                       ---------------     ---------------
                                                             (Dollars in thousands)
<S>                                                    <C>                 <C>
Long-term debt consists of:
       7.75% Series A Senior Notes due 2004            $       150,000     $       150,000
       7.87% Series B Senior Notes due 2007                    150,000             150,000
       Revolving credit facility                                50,000             135,000
       Other                                                     4,582              22,490
                                                       ---------------     ---------------
                                                               354,582             457,490
       Less current portion                                      2,391               3,903
                                                       ---------------     ---------------
                                                       $       352,191     $       453,587
                                                       ===============     ===============
</TABLE>

The Company has an unsecured revolving credit facility of $400 million expiring
in June 2002 (the "Credit Facility"). At August 29, 1998, the weighted average
interest rate for all outstanding borrowings under the Credit Facility was
5.83%.


                                     - 8 -
<PAGE>   9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)


NOTE D--INCOME TAXES

The Company's effective income tax rate is greater than the statutory rate due
primarily to state income taxes and certain expenses that are not deductible for
income tax purposes.


NOTE E--COMMITMENTS AND CONTINGENCIES

See Legal Proceedings in Part II, Item 1 and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Part I, Item 2
herein.


NOTE F--EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>
                                                 Three Months Ended                    Six Months Ended
                                            -------------------------------     ------------------------------
                                               August 29,      August 30,         August 29,     August 30,
                                                 1998             1997               1998           1997
                                            --------------    -------------     -------------    -------------
                                                (Dollars and shares in thousands, except per share amounts)

<S>                                         <C>               <C>               <C>              <C>
Numerator:
       Net income                           $       21,848    $      20,225     $      40,527    $      39,545

Denominator:
       Weighted average shares-Basic                41,293           42,046            41,351           42,065

Effect of dilutive securities:
       Employee stock options                          254              343               304              333

       Weighted average shares-Diluted              41,547           42,389            41,655           42,398
                                            ==============    =============     =============    =============

Basic earnings per share                    $          .53    $         .48     $         .98    $         .94
                                            ==============    =============     =============    =============

Diluted earnings per share                  $          .53    $         .48     $         .97    $         .93
                                            ==============    =============     =============    =============
</TABLE>

NOTE G--ACQUISITION

On July 1, 1998, the Company acquired 80% of the equity of Europrint Holdings
Ltd. ("Europrint") and its wholly owned subsidiaries, including Interactive
Games International ("IGI") for a net cash purchase price of $21,864,000,
including related acquisition costs. The Company has the option, and in certain
circumstances the obligation, to acquire the remaining 20% of the equity of
Europrint and IGI within the next five years. Europrint is among the world's
largest providers of media promotional games, and IGI has pioneered the
development of interactive, televised lottery games.


                                     - 9 -
<PAGE>   10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)


NOTE H --NEW ACCOUNTING PRONOUNCEMENT

In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", that is required
to be adopted in years beginning after June 15, 1999. The Statement permits
early adoption as of the beginning of any fiscal quarter after its issuance. The
Company plans to adopt the new Statement effective August 30, 1998 (the first
day of its fiscal 1999 third quarter) and, based on the Company's derivative
positions at August 30, 1998 the new Statement will not have a significant
effect on earnings or the financial position of the Company. The Statement will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings.


                                     - 10 -
<PAGE>   11
Item 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS


Certain statements contained in this section and elsewhere in this report are
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934. Such statements
include, without limitation, statements relating to (i) the future prospects for
and stability of the lottery industry and other businesses that the Company is
engaged in or expects to engage in, (ii) the future operating and financial
performance of the Company, (iii) the ability of the Company to retain existing
business and to obtain and retain new business, and (iv) the results and effects
of legal proceedings and investigations. Such forward-looking statements reflect
management's assessment based on information currently available, but are not
guarantees and are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in the forward-looking
statements. These risks and uncertainties include, but are not limited to, those
set forth elsewhere in this report and in the Company's press releases and its
fiscal 1998 Form 10-K and subsequent filings with the Securities and Exchange
Commission.


General

The Company has derived substantially all of its revenues from the rendering of
services and the sale or supply of computerized on-line lottery systems and
components to government-authorized lotteries. Service revenues have been
derived primarily from lottery service contracts. These contracts are typically
of at least five years' duration, and are generally based upon a percentage of a
lottery's gross on-line lottery sales. These percentages vary depending on the
size of the lottery and the scope of services provided to the lottery. Product
sale revenues have been derived primarily from the installation of new on-line
lottery systems and sales of lottery terminals and equipment in connection with
the expansion of existing lottery systems. The size and timing of these
transactions have resulted in variability in product sale revenues from period
to period. Fiscal 1998 was a significant year for product sales, including a
large product sale to the Massachusetts State Lottery in the second quarter of
fiscal 1998. The Company currently anticipates that product purchases by
lotteries during fiscal 1999 could be lower than the fiscal 1998 level of $122.0
million by as much as 50%.

The Company has taken steps to broaden its offerings of high-volume transaction
processing services outside of its core business of providing on-line lottery
services. For example, the Company's Dreamport subsidiary ("Dreamport") provides
gaming technology and a comprehensive array of management, development and
strategic services to the gaming and entertainment market.

The Company's business is highly regulated, and the competition to secure new
government contracts is often intense. Awards of contracts to the Company are,
from time to time, challenged by competitors. Further, there have been and
continue to be investigations of various types, including grand jury
investigations, conducted by governmental authorities into possible
improprieties and wrongdoing in connection with efforts to obtain and/or the
awarding of lottery contracts and related matters. Although the Company does not
believe that it has engaged in any wrongdoing in connection with these matters,
certain investigations that are conducted largely in secret are still under way.
Accordingly, the Company lacks sufficient information to determine with
certainty their ultimate scope and whether the government authorities will
assert claims resulting from these or other investigations that could implicate
or reflect adversely upon the Company. Because the Company's reputation for
integrity is an important factor in its business dealings with lottery and other
government agencies, if government authorities were to make an allegation of, or
if there were to be a finding of, improper conduct on the part of or
attributable to the Company in any matter, such an allegation or finding could
have a materially adverse effect on the Company's business, including its
ability to retain existing contracts and to obtain new or renewal


                                     - 11 -
<PAGE>   12
contracts. In addition, continuing adverse publicity resulting from these
investigations and related matters could have such a materially adverse effect.
See "Legal Proceedings" in Part II, Item 1 herein; Part I, Item 1 - "Factors
Affecting Future Performance - Maintenance of Business Relationships and Certain
Legal Matters" and Part I, Item 3 - "Legal Proceedings" in the Company's fiscal
1998 annual report on Form 10-K; and Note G to the Consolidated Financial
Statements in the Company's fiscal 1998 annual report on Form 10-K for further
information concerning these matters and other contingencies.

The Company operates on a 52-to 53-week fiscal year ending on the last Saturday
in February. Fiscal 1998 was a 53-week year. The Company included the extra week
in the fiscal 1998 first quarter ended May 31, 1997. Accordingly, there are 26
weeks in the six-month period ended August 29, 1998, versus 27 weeks in the
six-month period ended August 30, 1997.

Acquisition

On July 1, 1998, the Company acquired 80% of the equity of Europrint Holdings
Ltd. ("Europrint") and its wholly owned subsidiaries, including Interactive
Games International ("IGI") for a net cash purchase price of $21,864,000,
including related acquisition costs. The Company has the option, and in certain
circumstances the obligation, to acquire the remaining 20% of the equity of
Europrint and IGI within the next five years. Europrint is among the worlds
largest providers of media promotional games, and IGI has pioneered the
development of interactive, televised lottery games.


Results of Operations

Second Quarter

Revenues for the second quarter of fiscal 1999 were $233.5 million, representing
a $6.7 million, or 3.0%, increase over revenues of $226.8 million in the second
quarter of fiscal 1998.

Service revenues in the fiscal 1999 second quarter were $224.6 million,
representing a $15.5 million, or 7.4%, increase over the $209.1 million of
service revenues in the second quarter of fiscal 1998. This increase was driven
primarily by higher service revenues from the record breaking Powerball jackpot
in the second quarter of fiscal 1999, higher service revenues from the on-line
lottery system in Brazil that was implemented by the Company in fiscal 1998,
higher service revenues from Dreamport and higher service revenues from certain
of the Company's international lottery customers. These increases were partially
offset by lower service revenues from the Company's Texas lottery contract
(resulting primarily from lower sales generated by the Texas lottery).

Product sales in the second quarter of fiscal 1999 were $9.0 million, a decrease
of $8.7 million, or 49.3%, from the $17.7 million of product sales in the second
quarter of fiscal 1998. This decrease resulted primarily from fewer terminal
sales as well as fewer sales of lottery equipment to existing lottery customers
in the second quarter of fiscal 1999 than in the second quarter of fiscal 1998,
partially offset by approximately $6 million of product sales from Europrint
that was acquired by the Company in the second quarter of fiscal 1999. The
Company sold approximately 30 lottery terminals in the second quarter of fiscal
1999 as compared to approximately 2,000 lottery terminals in the second quarter
of fiscal 1998.

Gross margins on service revenues were 33.9% in the fiscal 1999 second quarter
compared to 31.4% in the second quarter of fiscal 1998. This increase was due
primarily to the record breaking Powerball jackpot in the second quarter of
fiscal 1999 along with lower costs resulting from the restructuring announced in
the fourth quarter of fiscal 1998, partially offset by lower margins realized
from the Company's Texas lottery contract (primarily as a function of lower
sales generated by the Texas lottery) and lower margins relating to the start-up
nature of the on-line lottery in Brazil.


                                     - 12 -
<PAGE>   13
Gross margins on product sales fluctuate due to the mix, volume and timing of
product sales contracts. Gross margins on product sales were 23.9% in the second
quarter of fiscal 1999 compared to 48.1% in the second quarter of fiscal 1998.
This change reflects the lower volume of peripheral equipment sales in the
second quarter of fiscal 1999, along with product sales from Europrint that
carried lower margins than were realized in the second quarter of fiscal 1998.

Selling, general and administrative expenses in the second quarter of fiscal
1999 were $29.5 million, representing a $3.4 million, or 10.4%, decrease from
the $32.9 million incurred in the second quarter of fiscal 1998. This decrease
was due primarily to cost savings resulting from the restructuring announced in
February 1998, along with lower legal expenses associated with investigations
and legal proceedings. As a percentage of revenues, selling, general and
administrative expenses were 12.6% and 14.5% during the second quarters of
fiscal 1999 and 1998, respectively.

Research and development expenses in the second quarter of fiscal 1999 were $8.6
million, representing a $.7 million, or 9.9%, increase over research and
development expenses of $7.9 million in the second quarter of fiscal 1998. This
increase reflects costs associated with the continuing development of the
Company's Internet wagering platform. As a percentage of revenues, research and
development expenses were 3.7% and 3.5% during the second quarters of fiscal
1999 and 1998, respectively.

Equity in earnings of unconsolidated affiliates in the second quarter of fiscal
1999 was $.9 million, a decrease of $4.1 million from the $5.0 million earned
during the second quarter of fiscal 1998. This decrease was due primarily to the
sale by the Company, in April 1998, of its 22.5% equity interest in Camelot
Group plc ("Camelot") to Camelot for approximately $84.9 million. The book value
of the Camelot investment at the time of sale was approximately $51.8 million. A
portion of the cash received by the Company would have to be returned to Camelot
in the event that Camelot loses its operating license for reasons attributable
to actions of the Company or its employees. Accordingly, the Company has
deferred the recognition of the gain from the sale of its investment and will
recognize such gain evenly over the remaining period of Camelot's operating
license. The sale of the equity interest does not affect the Company's position
as the principal supplier of goods and services to Camelot, but has reduced the
Company's equity in earnings of unconsolidated affiliates. (Reference is made to
the Company's Report on Form 8-K and 8-K/A filed with the SEC in May 1998 for
further information concerning the sale of the Company's equity interest in
Camelot).

Other income in the second quarter of fiscal 1999 was $2.8 million, an increase
of $2.3 million over the $.5 million recorded in the second quarter of fiscal
1998. This increase was due primarily to the amortization of the deferred gain
on the sale of the Camelot investment discussed above.

Interest expense in the second quarter of fiscal 1999 was $6.9 million, a
decrease of $1.0 million from the $7.9 million incurred during the second
quarter of fiscal 1998. This decrease was due primarily to lower average debt
balances, partially offset by higher average interest rates.

Year to Date

Revenues for the first six months of fiscal 1999 were $465.8 million,
representing a $6.2 million, or 1.3%, decrease from revenues of $472.0 million
in the first six months of fiscal 1998.

Service revenues for the first six months of fiscal 1999 were $446.5 million,
representing an $11.4 million, or 2.6%, increase over the $435.1 million of
service revenues for the first six months of fiscal 1998. This increase was due
primarily to higher service revenues from the on-line lottery system in Brazil,
higher jackpot activity resulting from two large Powerball jackpots in the first
six months of fiscal 1999, higher service revenues from certain of the Company's
U.S. and international lottery customers and higher service revenues from
Dreamport. These increases were partially offset by lower service


                                     - 13 -
<PAGE>   14
revenues from the Company's Texas lottery contract (resulting primarily from
lower sales generated by the Texas lottery). Further, there were 26 weeks of
service revenues in the six-month period ended August 29, 1998, versus 27 weeks
in the six-month period ended August 30, 1997. After a number of years of
growth, the Company has witnessed a slowing in the sales generated by its U.S.
lottery customers. The Company believes that the overall growth rate for its
U.S. lottery customer's sales will be in the 1-3% range in fiscal 1999. However,
there can be no assurance that this will be the case.

Product sales in the first six months of fiscal 1999 were $19.3 million, a
decrease of $17.6 million, or 47.6%, from the $36.9 million of product sales in
the first six months of fiscal 1998. This decrease resulted primarily from lower
central lottery system, instant ticket validation system, terminal and
peripheral equipment sales in the first six months of fiscal 1999 than in the
first six months of fiscal 1998. These lower revenues were partially offset by
the recognition of deferred revenues on product sales to Camelot and other
members of the U.K. lottery consortium and product sales from Europrint. Prior
to the sale of the Company's investment in Camelot, the Company deferred 22.5%
of the revenues attributable to any product sales to Camelot and the other
consortium members and recognized such deferred revenue over the depreciable
life of the equipment. The sale of the Camelot investment triggered an
acceleration in the recognition of this deferred revenue. The Company had no
sales of lottery central systems in the first six months of fiscal 1999 compared
to the sale of one new central lottery system and one new instant ticket
validation system in the first six months of fiscal 1998. The Company sold
approximately 200 lottery terminals in the first six months of fiscal 1999 as
compared to approximately 3,100 lottery terminals in the first six months of
fiscal 1998.

Gross margins on service revenues were 33.5% in the first six months of fiscal
1999 compared to 31.0% in the first six months of fiscal 1998. This increase was
due primarily to higher Powerball jackpots in the first six months of fiscal
1999 than in the corresponding period of fiscal 1998, along with lower costs
resulting from the restructuring announced in the fourth quarter of fiscal 1998,
partially offset by lower margins realized from the Company's Texas lottery
contract (primarily as a function of lower sales generated by the Texas lottery)
and lower margins relating to the start-up nature of the on-line lottery in
Brazil.

Gross margins on product sales were 23.4% in the first six months of fiscal 1999
compared to 44.5% in the first six months of fiscal 1998. This decrease reflects
the acceleration into the first six months of fiscal 1999 of deferred revenue
and related cost associated with prior years' product sales to Camelot and other
members of the U.K. lottery consortium, along with product sales of Europrint,
compared to higher margin central lottery, instant ticket validation system,
terminal and peripheral equipment sales in the first six months of fiscal 1998.

Selling, general and administrative expenses in the first six months of fiscal
1999 were $59.7 million, representing a $9.2 million, or 13.3%, decrease from
the $68.9 million incurred in the first six months of fiscal 1998. This decrease
was due primarily to cost savings resulting from the restructuring announced in
February 1998, along with lower legal expenses associated with investigations
and legal proceedings. As a percentage of revenues, selling, general and
administrative expenses were 12.8% and 14.6% during the first six months of
fiscal 1999 and 1998, respectively.

Research and development expenses in the first six months of fiscal 1999 were
$18.2 million, representing a $2.2 million, or 13.7%, increase over research and
development expenses of $16.0 million in the first six months of fiscal 1998.
This increase reflects costs associated with the continuing development of the
Company's Internet wagering platform. As a percentage of revenues, research and
development expenses were 3.9% and 3.4% during the first six months of fiscal
1999 and 1998, respectively.

Interest income in the first six months of fiscal 1999 was $1.6 million, a
decrease of $1.9 million from the $3.5 million earned during the first six
months of fiscal 1998. During the first six months of fiscal


                                     - 14 -
<PAGE>   15
1998 the Company had higher dollar-denominated cash balances on hand in Brazil
than in the comparable period of fiscal 1999 to fund the on-line lottery system
implementation that was completed in February 1998.

Equity in earnings of unconsolidated affiliates in the first six months of
fiscal 1999 was $4.2 million, a decrease of $4.4 million from the $8.7 million
earned during the second quarter of fiscal 1998. This decrease was due primarily
to the sale by the Company, in April 1998, of its 22.5% equity interest in
Camelot.

Other income in the first six months of fiscal 1999 was $2.5 million, an
increase of $1.6 million over the $.9 million recorded in the first six months
of fiscal 1998. This increase was due primarily to the amortization of the gain
on the sale of the Camelot investment, partially offset by the timing impact of
foreign exchange costs incurred relating to the marking to market of hedges
utilized to protect certain fiscal 1999 profit.

Interest expense in the first six months of fiscal 1999 was $14.4 million, a
decrease of $.2 million from the $14.6 million incurred during the first six
months of fiscal 1998. This decrease was due primarily to lower average debt
balances, partially offset by higher average interest rates.

The Company's effective income tax rate increased from 39% in the first six
months of fiscal 1998 to 42% in the first six months of fiscal 1999 due
principally to the loss of the beneficial tax effect of U.K. equity earnings
that were reported on an after-tax basis. The Company's effective income tax
rate is greater than the statutory rate due primarily to state income taxes and
certain expenses that are not deductible for income tax purposes.


Special Charge

In the fourth quarter of fiscal 1998 the Company's Board of Directors approved a
plan of reorganization and restructuring of the Company's operations (the
"Plan"). The Company estimated and recorded a $99.4 million special charge
($60.6 million after-tax) in connection with the Plan. The major components of
the Plan consisted of the sale of electronic benefit transfer (EBT) contracts
and certain related assets held by the Company's Transactive subsidiary
("Transactive"), contractual obligations in connection with the departures of
the Company's former Chairman and Vice Chairman from the Company, legal costs in
connection with the Branson litigation and judgment in the U.K., asset
impairment charges relating to two of the Company's lottery contracts, and a
worldwide workforce reduction to eliminate a total of approximately 800 company
positions worldwide. See Note P to the Consolidated Financial Statements in the
Company's fiscal 1998 annual report on Form 10-K for further information.

The Company expects total pre-tax savings in fiscal 1999 in the range of $40.0
to $45.0 million resulting from the Plan. For the six month period ended August
29, 1998 the savings associated with the Plan were in line with the Company's
expectations.

The sale of EBT contracts and certain related assets held by Transactive is
subject to the consents of the applicable state contract parties and to
approvals from regulatory agencies, including the U.S. Department of Justice,
that has challenged the transaction on anti-trust grounds. The Company has
received consents from two of the four state contract parties. The Company has
contested the Department of Justice's position and expects a resolution by the
end of fiscal 1999. In the event that the court's decision is unfavorable, the
agreement with Citibank is modified or is terminated by either party, or
requisite customer approvals are not received, an additional charge may be
required.


                                     - 15 -
<PAGE>   16
Impact of Year 2000

Like many other companies, the year 2000 computer issue creates risks for the
Company. If lottery, gaming or EBT systems that the Company supplies to
customers or management information systems that the Company uses internally do
not correctly recognize and process date information beyond the year 1999, there
could be an adverse impact on the customer's and/or the Company's operations.

The Company has begun a program to assess the capability of its lottery, gaming
and EBT products and interfaces to customer systems to handle the year 2000. The
major challenge for the Company in remediating the year 2000 issue with respect
to customer systems is the multinational nature of the Company's business and
the high degree of coordination that is required with customers, suppliers and
employees across the globe. The Company expects to complete the assessment phase
of this program in 1998, and further currently plans to complete any necessary
remediation in this area by September 1999. The Company is actively working with
its customers to ensure integration with their systems and to ensure that
customer controlled telecommunications will work properly in the new millennium.
The Company is also actively working with critical suppliers of products and
services to determine that the suppliers' operations and the products and
services they provide are year 2000 capable. The Company will continue to
monitor their progress toward year 2000 capability.

To address year 2000 issues with its internal management information systems,
the Company has been pursuing a 5 year comprehensive program that is designed to
deal with the most critical systems first. The Company currently plans to have
changes to critical systems completed and tested by July 1999. These activities
are intended to encompass all major categories of internal systems in use by the
Company, including manufacturing, sales, finance and human resources. We expect
that remediation activities will be on-going throughout 1998 and 1999 with the
goal of appropriately resolving all internal systems issues by July 1999. The
Company has a limited number of non-IT systems that are primarily in use by the
engineering and manufacturing departments of the Company. The Company plans to
begin assessment of these systems in October 1998 in order to complete
remediation by September 1999.

The Company's contingency planning involves using already established problem
resolution processes to resolve any problems encountered during the Year 2000
timeframe. As a standard practice, the Company provides 24 hours a day
operational support. This support provides focused individuals in all
disciplines that respond real time to operational issues. In addition, an
expanded team will be staffing our year 2000 help desk to provide greater
responsiveness to issues.

The costs incurred to date related to these programs has been less than
$500,000. The Company currently expects that the total cost of these programs
will not exceed $25 million, including $11 million for the purchase of software
and hardware that will be capitalized. The total cost estimate does not include
potential costs related to any customer or other claims or the cost of internal
software and hardware replaced in the normal course of business but does include
the cost to install new software and hardware that is being accelerated to
afford a solution to year 2000 issues. The total cost estimate is based on the
current assessment of the project and is subject to change as the project
progresses.

Based on currently available information, management does not believe that the
year 2000 matters discussed above will pose significant operational problems;
however there can be no assurance that this will be the case. Year 2000 issues
could have a significant impact on the Company's operations and its financial
results if modifications cannot be completed on a timely basis, unforeseen needs
or problems arise, or, if systems operated by third parties are not year 2000
compliant. In addition to the potential for a significant loss of revenues
associated with year 2000 issues, certain of the Company's United States lottery
contracts provide for up to $10,000 or more in liquidated damages per minute for
system downtime in excess of a stipulated grace period and certain of the
Company's international customers reserve the right to assess substantial
liquidated damages in the event that system downtime does occur.

                                     - 16 -
<PAGE>   17

Strategies

The Company currently is evaluating a number of possible alternatives to
increase shareholder value. Such alternatives include, but are not limited to,
increasing debt and expanding the share repurchase program while focusing on the
Company's core gaming and entertainment business; making strategic non-gaming
acquisitions that would allow the Company to leverage its strengths in data
communications and high volume transaction processing; and taking the Company
private through a leveraged buy out. Under certain alternatives, the Company may
consider a recapitalization that would involve higher debt and a substantial
reduction in equity. Every alternative would include continued commitment to the
core business. The Company expects to complete its evaluation of these and other
strategic alternatives by the end of November 1998. However, there can be no
assurance that such timetable will be met or that any such actions or
transactions will actually be consummated.


Changes in Financial Position, Liquidity and Capital Resources

During the first six months of fiscal 1999, the Company generated $141.3 million
of cash from operations. This cash, together with $84.9 million of cash received
from the sale of the Company's investment in Camelot, was used to pay down the
Credit Facility, to fund the purchase of $85.8 million of systems, equipment and
other assets relating to contracts, to fund the acquisition of Europrint for
$21.9 million and to repurchase $6.7 million of the Company's common stock.

The cost of systems, equipment and other assets relating to contracts increased
by $48.3 million, from $1,204.6 million at February 28, 1998 to $1,252.9 million
at August 29, 1998. This increase reflects the continuing installation of new
lottery systems for lotteries in Michigan and the Czech Republic and the
expansion of lottery systems in several domestic and international locations,
partially offset by the write-off of fully depreciated assets in certain U.S.
and international jurisdictions.

Goodwill increased by $20.5 million, from $118.5 million at February 28, 1998 to
$139.0 million at August 29, 1998, due primarily to the acquisition of
Europrint.

Investments in and advances to unconsolidated affiliates decreased by $52.4
million, from $64.8 million at February 28, 1998 to $12.4 million at August 29,
1998, due primarily to the sale of the Company's investment in Camelot.

Accounts payable decreased by $9.1 million, from $39.5 million at February 28,
1998 to $30.4 million at August 29, 1998, due primarily to the current lower
volume of ongoing lottery and benefits delivery system installations.

Special charge decreased by $21.6 million, from $33.6 million at February 28,
1998 to $12.0 million at August 29, 1998, due to approximately $15.0 million of
severance and related payments.

Employee compensation decreased by $9.7 million, from $25.6 million at February
28, 1998 to $16.0 million at August 29, 1998, due primarily to the payment of
fiscal 1998 management bonuses and employee profit sharing along with lower
anticipated management bonus costs.

Advance payments from customers increased by $21.8 million, from $.5 million at
February 28, 1998 to $22.3 million at August 29, 1998. This increase reflects
the current portion of the deferred gain from the


                                     - 17 -
<PAGE>   18
sale of the Company's investment in Camelot, along with downpayments received
from several international customers.

Income taxes payable, that are reported net against income tax refunds
receivable, increased by $32.6 million, from $25.4 million at February 28, 1998
to $58.0 million at August 29, 1998, due primarily to an income tax refund
received relating to the special charge, along with the timing of income tax
payments.

Long-term debt, less current portion decreased by $101.4 million, from $453.6
million at February 28, 1998 to $352.2 million at August 29, 1998, due primarily
to the proceeds received from the sale of the Company's investment in Camelot
that were utilized to reduce the Credit Facility, along with higher net cash
provided by operations.

Other liabilities increased by $17.8 million, from $19.2 million at February 28,
1998 to $37.0 million at August 29, 1998. This increase reflects the long-term
portion of the deferred gain from the sale of the Company's investment in
Camelot. See discussion of Camelot sale in "Results of Operations - Second
Quarter" above.

The Company's business is capital-intensive. Although it is not possible to
estimate precisely, due to the nature of the business, the Company currently
anticipates that the level of capital expenditures for systems, equipment and
other assets relating to contracts required during fiscal 1999 will be in a
range of $160.0 million to $210.0 million. The principal sources of liquidity
for the Company are expected to be cash generated from operations and borrowings
under the Company's Credit Facility. As of October 3, 1998 the Company had
utilized approximately $24.7 million of its $400 million Credit Facility. The
Company currently expects that its cash flow from operations and available
borrowings under its Credit Facility, together with other sources of capital
believed to be available, will be sufficient to permit it to meet its
anticipated working capital and ordinary capital expenditure needs, to service
its debt obligations and to permit it to fund anticipated internal growth.
However, see "Strategies" above.


Inflation, Interest Rates and Foreign Exchange Fluctuation

The impact of inflation on the Company's operations has not been significant to
date. While the Company believes that its business is not highly sensitive to
inflation, there can be no assurance that a high rate of inflation in the future
would not have an adverse effect on the Company's operations, particularly in
emerging markets such as Brazil. The Company has historically used the U.S.
dollar as the functional currency for its operations in Brazil due to the high
levels of inflation in the Brazilian economy. The Company began using the local
currency in Brazil as the functional currency on March 1, 1998 because of the
significant reduction in the rate of inflation in Brazil. The change in
functional currency is not expected to materially affect the Company's
operations. At August 29, 1998, the net book value of the Company's investments
in Brazil was approximately $172.5 million.

The Company uses various techniques to reduce the risk associated with future
increases in interest rates, including the issuance of seven- and ten-year fixed
rate debt on May 29, 1997, in a private placement.

The Company manages its foreign exchange risk by securing payment from its
customers in U.S. dollars, by sharing risk with its customers, by utilizing
foreign currency borrowings, by leading and lagging receipts and payments, and
by entering into foreign currency exchange and option contracts. In addition, a
significant portion of the costs attributable to the Company's foreign currency
revenues are payable in the local currencies.

The Company, from time to time, enters into foreign currency exchange and option
contracts to reduce the exposure associated with certain firm sales commitments,
anticipated local currency margin and certain assets and liabilities denominated
in foreign currencies. The Company does not engage in


                                     - 18 -
<PAGE>   19
currency speculation. Unrealized gains and losses on contracts that hedge
specific foreign currency commitments are deferred and accounted for as part of
the transaction being hedged. Contracts used to hedge local currency margin and
certain assets and liabilities are marked to market with the resulting
transaction gains or losses included in other income. As of October 3, 1998, the
Company had approximately $1.1 million of outstanding foreign currency exchange
contracts to purchase foreign currencies (primarily Australian dollars) and
approximately $210.6 million of outstanding foreign currency exchange and
futures contracts to sell foreign currencies (primarily pounds Sterling,
Brazilian Reals, Spanish pesetas and Australian dollars).

In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", that is required
to be adopted in years beginning after June 15, 1999. The Statement permits
early adoption as of the beginning of any fiscal quarter after its issuance. The
Company plans to adopt the new Statement effective August 30, 1998 (the first
day of its fiscal 1999 third quarter) and, based on the Company's derivative
positions at August 30, 1998 the new Statement will not have a significant
effect on earnings or the financial position of the Company. The Statement will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings.


                                     - 19 -
<PAGE>   20
Item 3.       Quantitative and Qualitative Disclosures about Market Risk

              Not Applicable


PART II.  OTHER INFORMATION

Item 1.       LEGAL PROCEEDINGS

As previously publicly reported, in October 1994, the U.S. Attorney's Office for
the District of New Jersey indicted J. David Smith, the former sales manager of
the Company (who resigned in early 1994 for reasons unrelated to the
indictments), and two other individuals who served as consultants to the
Company. The indictment alleged essentially that, unbeknownst to the Company,
Mr. Smith had received kickbacks from the consultants for his own benefit. The
indictment did not charge the Company with any wrongdoing, and the actions
complained of did not affect the Company's New Jersey lottery operations. The
trial of Mr. Smith and the two consultants commenced in September 1996 in the
U.S. District Court for New Jersey, and on October 4, 1996, Mr. Smith and one of
the two consultants were found guilty of all charges. The other consultant was
found not guilty. The New Jersey U.S. Attorney immediately announced in a press
release that a grand jury investigation in that jurisdiction was continuing but
did not specify the scope of such investigation. In October 1996, Mr. Smith
moved for a new trial. In the midst of these events, the New Jersey Lottery
Commission awarded the Company a contract to continue operating the State
lottery. Mr. Smith still has not been sentenced respecting the October 1996 jury
verdict against him. In August 1998, the New Jersey Federal Court denied a
motion brought by Mr. Smith for a new trial. A hearing respecting Mr. Smith's
sentencing is currently scheduled for October 8, 1998.

As previously publicly reported, in April 1997, Nora Linares, the former
Executive Director of the Texas Lottery Commission, filed suit against GTECH and
James Hosker, the Company's Texas Site Director (captioned Nora Alicia Linares
v. GTECH Corporation and James Hosker, et al.) in the District Court of Travis
County, Texas (261st Judicial District). Ms. Linares, who had been terminated as
Executive Director of the Texas Lottery Commission in January 1997, alleged that
GTECH, in violation of Texas State Law and its lottery contract with the State
of Texas, engaged in questionable business practices, tortiously interfered with
her employment relationship with her former employer by, among other things,
hiring Michael Moeller, with whom she had a personal relationship, as a
consultant, and intentionally inflicted emotional distress upon her. Ms. Linares
sought both a declaratory judgment setting forth the rights, duties and
responsibilities which GTECH owes to public officials such as Ms. Linares, as
well as actual and exemplary damages from GTECH. In August 1998, GTECH and Ms.
Linares settled this litigation on mutually agreed terms involving the payment
by GTECH of amounts which are not material to the Company's consolidated
financial position, results of operations or cash flows.

As previously publicly reported, in July 1997, Border Capital (Nevada) Corp.
("BCNC"), Border Capital Corp., IBC Investments Limited ("IBC") and Gaming
Properties & Investments, LLC ("GPI") filed suit against the Arizona Lottery,
the Company and GTECH in the United States District Court for the District of
Delaware. The plaintiffs alleged that "Arizona Bingo," a game offered by GTECH
and the Arizona Lottery, infringed upon United States patents issued in 1994 and
1996, which are represented to be owned by IBC and exclusively licensed to BCNC
and GPI. The plaintiffs sought a declaratory judgment that IBC is the owner of
the patents and that the patents have been willfully infringed by the
defendants; injunctive relief enjoining further alleged infringement; and actual
and exemplary damages from the defendants respecting such alleged infringement.
GTECH filed its answer in October 1997 and asserted, among other defenses, that
the patents in suit are invalid and unenforceable. GTECH filed a counterclaim
for declaratory relief. In March 1998, the Arizona Lottery ceased operating the
"Arizona


                                     - 20 -
<PAGE>   21
Bingo Game" for reasons unrelated to the lawsuit described above, and in August
1998, the plaintiffs and GTECH agreed to the dismissal of the lawsuit without
prejudice.

The Company monitors, and occasionally affirmatively becomes involved in,
litigation involving Indian gaming in states where such litigation may, directly
or indirectly, concern or call into question the legal rights and operations of
state lotteries to which the Company provides contract services. The purpose of
this effort is to protect state lottery interests, and thus the Company's
revenue streams, from service contracts. One such piece of litigation is Rumsey
Indian Rancheria v. Wilson, recently pending in the U.S. District Court for the
Eastern District of California, which involved a suit by several California
Indian tribes against the Governor of California under the federal Indian Gaming
Regulatory Act ("IGRA"). The Indian Tribes claimed that certain elements of the
California State Lottery (which is a customer of the Company) and the equipment
on which it is run involve the operation of slot machines and, therefore, under
IGRA, the tribes also must be permitted to operate slot machines. The State of
California argued that the California Lottery does not involve the operation of
slot machines; however, the State also appeared to take the position that, if
and to the extent the California Lottery does involve the operation of slot
machines, it must be terminated because the California Lottery is not exempt
from the California law prohibiting the operation of slot machines. The Company
recently filed amicus curiae briefs in this case which argued that the
California Lottery does not involve the operation of slot machines and that even
if it does, the California Lottery is exempt from the State law prohibition on
slot machines. In September 1998, the Court entered summary judgment for the
defendants. In so doing, the Court declined to rule on the issue of whether the
California Lottery operates slot machines, thus removing the risk that this
action will result in an order curtailing California Lottery operations.

On July 27, 1998, the U.S. Department of Justice filed suit in the U.S. District
Court for the District of Delaware, U.S. v. Citicorp, Inc., Citicorp Services,
Inc., GTECH Holdings Corporation and Transactive Corporation, seeking to enjoin
the consummation of a transaction between Citicorp Services, Inc. and the
Company's Transactive subsidiary respecting the sale to Citicorp of
Transactive's electronic benefits transfer contracts and certain related assets
(which transaction is described in particularity in connection with the
discussion of the $99.4 million special charge [$60.6 million after-tax] special
charge recorded by the Company in the fourth quarter of fiscal 1998 set forth in
Item 2 "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Special Charge"). The Department of Justice alleges in its suit
that the proposed sale of assets would tend substantially to lessen competition
in the electronic benefits transfer market in violation of Section 7 of the
Clayton Act, as amended (15 U.S.C. Section 18), and would constitute an
unreasonable restraint of trade in violation of Section 1 of the Sherman Act (15
U.S.C. Section 1). The lawsuit requests the issuance of preliminary and
permanent injunctions against the consummation of the sale of Transactive's
electronic benefit transfer assets and the recovery of costs incurred by the
government in bringing the action. While the Company intends to vigorously
contest this action, if the government's lawsuit is successful, the Company may
be required to record additional material charges.

For further information respecting legal proceedings, refer to Items 1 and 3 of,
and Note G of Notes to Consolidated Financial Statements included in, the
Company's fiscal 1998 Annual Report on Form 10-K; to Part I, Item 2
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and Part II, Item 1, "Legal Proceedings", of the Company's
Quarterly Report for the period ending May 30, 1998; and to Part I, Item 2,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of this report.


                                     - 21 -
<PAGE>   22
Item 2.       CHANGES IN SECURITIES

(c)  During the quarter, 3,000 shares of the Company's unregistered common stock
     vested under stock award plans. Pursuant to the terms of these plans the
     shares were issued with no cash consideration to the Company. Registration
     of such shares was not required because the transaction did not constitute
     a "sale" under Section 2 (3) of the Securities Act of 1933 or,
     alternatively, the transaction was exempt pursuant to the private offering
     provisions of the Act and the rules thereunder.



Item 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a) and (c)

The Company's Annual Meeting of Shareholders was held on July 13, 1998, and in
connection therewith, proxies were solicited by management pursuant to
Regulation 14 under the Securities Exchange Act of 1934. An aggregate of
41,354,559 shares of the Company's common stock ("Shares") were outstanding and
entitled to vote at the meeting. At the meeting, the following matters (not
including ordinary procedural matters) were submitted to a vote of the holders
of Shares, with the results indicated below:

1. Election of two directors to serve until the 2001 Annual Meeting.
   The following persons were elected. There was no solicitation in opposition
   to such nominees. The tabulation of votes was as follows:

<TABLE>
<CAPTION>
                                                                                       Withheld
              Nominee                                For                        (including broker nonvotes)
              -------                                ---                        ---------------------------
<S>                                          <C>                                <C>
     Robert M. Dewey, Jr.                    36,771,660 Shares                        255,319 Shares

     The Rt. Hon. Lord Moore                 36,747,255 Shares                        279,724 Shares
      of Lower Marsh, P.C.
</TABLE>


2. Approval of the Company's Employee Stock Purchase Plan. The tabulation of
   votes was as follows:
<TABLE>
<CAPTION>
                                                                                          Abstentions
              For                                  Against                      (including broker nonvotes)
              ---                                  -------                      ---------------------------
<S>                                             <C>                             <C>
       36,886,371 Shares                        89,723 Shares                           50,885 Shares
</TABLE>


                                     - 22 -
<PAGE>   23
Item 5.       OTHER INFORMATION

Recently, the Securities and Exchange Commission adopted a new proxy rule (Rule
14a-4(c)(i) under the Securities Exchange Act of 1934) which specifies the
circumstances in which a company's annual meeting proxies executed by its
shareholders may confer discretionary authority on the persons named in the
proxies to vote on shareholder proposals which may be presented at the annual
meeting. Under this new rule, such proxies may confer discretionary authority to
vote on shareholder proposals presented at an annual meeting if: (i) the company
did not have notice of the shareholder proposal at least 45 days before the date
on which the company first mailed its proxy materials for the prior year's
annual meeting, and (ii) a specific statement to that effect is made in the
company's proxy statement or form of proxy.

The Company intends to avail itself of the provisions of Rule 14a-4(c)(i), and,
accordingly, with respect to the Company's 1999 annual meeting, Company proxies
executed by shareholders will be deemed to have granted discretionary authority
to vote on any shareholder proposals presented at the 1999 annual meeting of
which the Company has not received written notice (addressed to the Company at
its principal executive offices set forth on the cover page of this Report,
Attention: Corporate Secretary) by April 24, 1999, or such other date as the
Company may hereafter specify.

The foregoing has no affect on the requirement (as set forth in the Company's
proxy statement for its July 13, 1998 annual meeting) that in order to be
eligible for inclusion in the Company's proxy statement relating to its 1999
annual meeting, shareholder proposals must be received by the Company not later
than February 15, 1999.


Item 6.       EXHIBITS AND REPORTS ON FORM 8-K

        (a) Exhibits - The exhibits to this report are as follows:

            3     Amended and Restated By-Laws
            27    Financial Data Schedule - August 29, 1998
            27.1  Financial Data Schedule - August 30, 1997

        (b) The Company did not file any reports on form 8-K during the quarter
            to which this report relates


                                     - 23 -
<PAGE>   24
                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                   GTECH HOLDINGS CORPORATION


Date:  October 7, 1998             By   /s/ Thomas J. Sauser
                                        ---------------------------------------
                                    Thomas J. Sauser, Senior Vice President,
                                    Chief Financial Officer and Treasurer
                                    (Principal Financial Officer)


Date:  October 7, 1998             By   /s/ Robert J. Plourde
                                        ----------------------------------------
                                    Robert J. Plourde, Vice President and
                                    Corporate Controller (Principal Accounting
                                    Officer)


                                     - 24 -
<PAGE>   25

                                EXHIBIT INDEX
                                -------------




Exhibit No.      Description
-----------      -----------

   3             Amended and Restated By-Laws             

   27            Financial Data Schedule - August 29, 1998

   27.1          Financial Data Schedule - August 30, 1997