-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NL9o8LI+QjM099cVMGBeo5NNLU0TLMSaku3NakJIN5XigtqUZHFaj3huvuprgyEZ DWt9aJekheNSIwUoZIUYsw== 0000891554-99-000519.txt : 19990318 0000891554-99-000519.hdr.sgml : 19990318 ACCESSION NUMBER: 0000891554-99-000519 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUTOTOTE CORP CENTRAL INDEX KEY: 0000750004 STANDARD INDUSTRIAL CLASSIFICATION: CALCULATING & ACCOUNTING MACHINES (NO ELECTRONIC COMPUTERS) [3578] IRS NUMBER: 810422894 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11693 FILM NUMBER: 99566729 BUSINESS ADDRESS: STREET 1: 100 BELLEVUE CITY: NEWARK STATE: DE ZIP: 19714 BUSINESS PHONE: 3027374300 MAIL ADDRESS: STREET 1: 100 BELLEVUE ROAD CITY: NEWARK STATE: DE ZIP: 19714 FORMER COMPANY: FORMER CONFORMED NAME: UNITED TOTE INC DATE OF NAME CHANGE: 19920317 10-Q 1 QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-Q {Mark One} [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: January 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition from ___________________ to ____________________ Commission File number: 0-13063 AUTOTOTE CORPORATION (Exact name of registrant as specified in its charter) Delaware 81-0422894 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 750 Lexington Avenue, New York, New York 10022 (Address of principal executive offices) (Zip Code) (212)-754-2233 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports 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 __ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of March 12, 1999: Class A Common Stock: 36,026,115 Class B Common Stock: None Page 1 of 16 AUTOTOTE CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION QUARTER ENDED JANUARY 31, 1999 Page PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Balance Sheets as of January 31, 1999 and October 31, 1998 3 Statements of Operations for the Three Months Ended January 31, 1999 and 1998 4 Statements of Cash Flows for the Three Months Ended January 31, 1999 and 1998 5 Notes to Consolidated Financial Statements 6-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-14 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8K 15 2 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
January 31, October 31, 1999 1998 ---------- ----------- ASSETS (Unaudited) Current assets: Cash and cash equivalents ................................................ $ 4,955 6,809 Restricted cash .......................................................... 670 638 Accounts receivable, net ................................................. 20,106 21,752 Inventories .............................................................. 12,055 11,295 Prepaid expenses, deposits and other current assets ...................... 2,890 1,932 --------- --------- Total current assets ................................................ 40,676 42,426 --------- --------- Property and equipment, at cost ............................................... 190,908 196,748 Less accumulated depreciation ............................................ 114,825 118,315 --------- --------- Net property and equipment .......................................... 76,083 78,433 --------- --------- Goodwill, net of amortization ................................................. 3,234 3,614 Operating right, net of amortization .......................................... 14,598 14,848 Other assets and investments .................................................. 18,565 17,179 --------- --------- $ 153,156 156,500 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current installments of long-term debt ................................... $ 2,915 2,992 Accounts payable ......................................................... 11,532 13,610 Accrued liabilities ...................................................... 23,475 24,996 Interest payable ......................................................... 7,435 3,706 --------- --------- Total current liabilities ........................................... 45,357 45,304 --------- --------- Deferred income taxes ......................................................... 1,810 1,832 Other long-term liabilities ................................................... 1,895 2,124 Long-term debt, excluding current installments ................................ 120,230 120,878 Long-term debt, convertible subordinated debentures ........................... 35,000 35,000 --------- --------- Total liabilities ................................................... 204,292 205,138 --------- --------- Stockholders' equity (deficit): Preferred stock, par value $1.00 per share, 2,000 shares authorized, none outstanding .......................................... -- -- Class A common stock, par value $0.01 per share, 99,300 shares authorized, 36,026 and 35,943 shares outstanding at January 31, 1999 and October 31, 1998, respectively .................................... 361 360 Class B non-voting common stock, par value $0.01 per share, 700 shares authorized, none outstanding .......................................... -- -- Additional paid-in capital ............................................... 149,199 149,119 Accumulated losses ....................................................... (199,665) (197,231) Accumulated other comprehensive loss ..................................... (929) (784) Treasury stock, at cost .................................................. (102) (102) --------- --------- Total stockholders' equity (deficit) ................................ (51,136) (48,638) --------- --------- $ 153,156 156,500 ========= =========
See accompanying notes to consolidated financial statements. 3 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended January 31, 1999 and 1998 (Unaudited, in thousands, except per share amounts)
1999 1998 -------- -------- Operating revenues: Services .............................................................. $ 34,229 31,327 Sales ................................................................. 11,423 3,104 -------- -------- 45,652 34,431 -------- -------- Operating expenses (exclusive of depreciation and amortization shown below): Services .............................................................. 23,163 19,705 Sales ................................................................. 8,156 1,793 -------- -------- 31,319 21,498 -------- -------- Total gross profit ............................................... 14,333 12,933 Selling, general and administrative expenses ............................... 6,788 7,159 Depreciation and amortization .............................................. 5,733 7,385 -------- -------- Operating income (loss) .......................................... 1,812 (1,611) Other deductions: Interest expense ...................................................... 4,070 3,829 Other (income) expense ................................................ 45 (371) -------- -------- 4,115 3,458 -------- -------- Loss before income tax expense ........................................ (2,303) (5,069) Income tax expense ......................................................... 131 125 -------- -------- Net loss ................................................................... $ (2,434) (5,194) ======== ======== Net loss per basic share and diluted share ................................. $ (0.07) (0.15) ======== ======== Number of shares used in per share calculation ............................. 35,998 35,389 ======== ========
See accompanying notes to consolidated financial statements. 4 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended January 31, 1999 and 1998 (Unaudited, in thousands)
1999 1998 ------- ------- Cash flows from operating activities: Net loss .................................................................. $(2,434) (5,194) ------- ------- Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization ........................................ 5,733 7,385 Changes in operating assets and liabilities .......................... 65 3,838 Other ................................................................ 299 283 ------- ------- Total adjustments ............................................... 6,097 11,506 ------- ------- Net cash provided by operating activities ...................................... 3,663 6,312 ------- ------- Cash flows from investing activities: Capital expenditures ...................................................... (326) (326) Wagering systems expenditures ............................................. (1,832) (3,879) Proceeds from asset disposals ............................................. -- 44 Increase in other assets and investments .................................. (2,582) (1,446) ------- ------- Net cash used in investing activities .......................................... (4,740) (5,607) ------- ------- Cash flows from financing activities: Proceeds from issuance of long-term debt .................................. 60 -- Payments on long-term debt ................................................ (750) (337) ------- ------- Net cash used in financing activities .......................................... (690) (337) ------- ------- Effect of exchange rate changes on cash ........................................ (87) (126) ------- ------- Increase (decrease) in cash and cash equivalents ............................... (1,854) 242 Cash and cash equivalents, beginning of period ................................. 6,809 18,207 ------- ------- Cash and cash equivalents, end of period ....................................... $ 4,955 18,449 ======= ======= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest .................................................................. $ 61 173 ======= ======= Income taxes .............................................................. $ 178 148 ======= =======
See accompanying notes to consolidated financial statements. 5 AUTOTOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands, except per share amounts) 1) Consolidated Financial Statements The consolidated balance sheet as of January 31, 1999 and the consolidated statements of operations for the three months ended January 31, 1999 and 1998, and the consolidated statements of cash flows for the three months then ended have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present fairly the financial position of the Company at January 31, 1999 and the results of its operations for the three months ended January 31, 1999 and 1998 and its cash flows for the three months ended January 31, 1999 and 1998 have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's 1998 Annual Report on Form 10-K. The results of operations for the period ended January 31, 1999 are not necessarily indicative of the operating results for the full year. Certain items in the prior year's financial statements have been reclassified to conform with the current year presentation. Change in Depreciable Lives of Pari-mutuel Terminals Effective November 1, 1998 the Company lengthened the depreciable lives of pari-mutuel terminals from seven to ten years as a result of the renewal of a number of key service contracts and the realized equipment durability. The change in the depreciable lives of pari-mutuel terminals resulted in an approximate $1,100 decrease in loss before income tax expense and net loss and a $0.03 decrease in net loss per basic and diluted share in the first quarter of fiscal 1999. 2) Acquisition of Netherlands Subsidiary On July 1, 1998, the Company completed the purchase of Hippo Toto B. V., which was renamed Autotote Nederland B.V. This wholly owned subsidiary holds an exclusive five-year license to operate all on-track and off-track pari-mutuel wagering in the Netherlands. The initial license, granted by the Dutch Ministry of Agriculture, extends through June 30, 2003. The purchase was for nominal consideration and the acquisition was recorded using the purchase method of accounting and, accordingly, the assets and liabilities of the acquired entities have been recorded at their estimated fair value at the date of acquisition. The operating results of Autotote Nederland B.V. have been included in the consolidated statements of operations since the date of acquisition. 3) Comprehensive Income (Loss) On November 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for the reporting and display of comprehensive income (loss) and its components. SFAS 130 requires the unrealized losses on the Company's foreign currency translation adjustments, which prior to adoption were reported separately in stockholders' equity (deficit), to be included in other comprehensive loss. The following presents a reconciliation of net loss to comprehensive loss for the three months ended January 31, 1999 and 1998: Three months ended January 31, ------------------------------- 1999 1998 ------- ------- Net loss ............................. $(2,434) (5,194) Other comprehensive loss: Foreign currency translation .... (145) (282) ------- ------- Comprehensive loss ................... $(2,579) (5,476) ======= ======= 6 AUTOTOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (Unaudited, in thousands, except per share amounts) 4) Inventories Inventories consist of the following: January 31, October 31, 1999 1998 ----------- ---------- Parts and work-in-process ........ $10,958 10,082 Finished goods ................... 360 448 Ticket paper ..................... 737 765 ------- ------- $12,055 11,295 ======= ======= Work-in-process includes costs for equipment expected to be sold. Costs incurred for equipment associated with specific wagering system service contracts not yet placed in service are classified as construction in progress in property and equipment. 5) Debt At January 31, 1999, the Company had approximately $24,194 available for borrowing under the Company's revolving Credit Facility (the "Facility"). There were no borrowings outstanding under the Facility at January 31, 1999, however, approximately $806 in letters of credit were issued under the Facility. 6) Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries The Company conducts substantially all of its business through its domestic and foreign subsidiaries. In July 1997, the Company issued $110,000 aggregate principal amount of Senior Notes bearing interest at an annual rate of 10 7/8% (the "Notes"). On May 22, 1998, the Company and Autotote Lottery Corporation entered into a $12,000 three-year term loan arrangement that bears interest at a fixed annual rate of 8.87% (the "Term Loan"). The Term Loan was extended in conjunction with the Facility and is subject to certain restrictive and financial covenants contained in the Facility. Obligations under the Facility and the Notes are jointly and severally guaranteed by substantially all of the Company's wholly-owned domestic subsidiaries (the "Guarantor Subsidiaries"). (See Note 7 to the Consolidated Financial Statements for the year ended October 31, 1998 in the Company's 1998 Annual Report on Form 10-K.) Presented below is condensed consolidating financial information for Autotote Corporation (the "Parent Company") which includes the activities of Autotote Management Corporation, the Guarantor Subsidiaries and the wholly-owned foreign subsidiaries and the non-wholly owned domestic and foreign subsidiaries (the "Non-Guarantor Subsidiaries") as of January 31, 1999 (unaudited) and October 31, 1998 (audited) and for the three month periods ended January 31, 1999 and 1998 (unaudited). The condensed consolidating financial information has been presented to show the nature of assets held, results of operations and cash flows of the Parent Company, Guarantor Subsidiaries and Non-Guarantor Subsidiaries assuming the guarantee structure of the Notes and the Facility were in effect at the beginning of the periods presented. Separate financial statements for Guarantor Subsidiaries are not presented based on management's determination that they would not provide additional information that is material to investors. The condensed consolidating financial information reflects the investments of the Parent Company in the Guarantor and Non-Guarantor Subsidiaries using the equity method of accounting. In addition, corporate interest and administrative expenses have not been allocated to the subsidiaries. 7 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET January 31, 1999 (in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated --------- ------------- ------------- ----------- ------------ ASSETS Cash and cash equivalents ............................ $ 1,840 (172) 3,287 -- 4,955 Accounts receivable, net ............................. -- 17,635 2,471 -- 20,106 Other current assets ................................. 18 11,916 4,158 (477) 15,615 Property and equipment, net .......................... 364 68,589 7,459 (329) 76,083 Investment in subsidiaries ........................... 66,813 -- -- (66,813) -- Goodwill ............................................. 203 1,404 1,627 -- 3,234 Other assets ......................................... 6,506 27,918 830 (2,091) 33,163 --------- --------- --------- --------- ---------- Total assets ...................................... $ 75,744 127,290 19,832 (69,710) 153,156 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current installments of long-term debt ............... $ -- 2,677 251 (13) 2,915 Current liabilities .................................. 15,010 21,429 5,925 78 42,442 Long-term debt, excluding current installments ...................................... 146,250 8,433 547 -- 155,230 Other non-current liabilities ........................ 2,068 442 1,773 (578) 3,705 Intercompany balances ................................ (36,448) 39,185 (2,737) -- -- Stockholders' equity (deficit) ....................... (51,136) 55,124 14,073 (69,197) (51,136) --------- --------- --------- --------- ---------- Total liabilities and stockholders' equity (deficit) ................. $ 75,744 127,290 19,832 (69,710) 153,156 ========= ========= ========= ========= =========
AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET October 31, 1998 (in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated --------- ------------- ------------- ----------- ------------ ASSETS Cash and cash equivalents ............................. $ 2,054 260 4,495 -- 6,809 Accounts receivable, net .............................. -- 18,559 3,193 -- 21,752 Other current assets .................................. 39 10,245 4,058 (477) 13,865 Property and equipment, net ........................... 389 70,897 7,437 (290) 78,433 Investment in subsidiaries ............................ 62,826 -- -- (62,826) -- Goodwill .............................................. 204 1,686 1,724 -- 3,614 Other assets .......................................... 6,090 26,748 692 (1,503) 32,027 --------- --------- --------- --------- --------- Total assets ....................................... $ 71,602 128,395 21,599 (65,096) 156,500 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current installments of long-term debt ................ $ -- 2,679 326 (13) 2,992 Current liabilities ................................... 12,463 21,668 8,103 78 42,312 Long-term debt, excluding current installments ....................................... 146,250 9,056 572 -- 155,878 Other non-current liabilities ......................... 1,535 1,192 1,229 -- 3,956 Intercompany balances ................................. (40,008) 42,900 (2,892) -- -- Stockholders' equity (deficit) ........................ (48,638) 50,900 14,261 (65,161) (48,638) --------- --------- --------- --------- --------- Total liabilities and stockholders' equity (deficit) .................. $ 71,602 128,395 21,599 (65,096) 156,500 ========= ========= ========= ========= =========
8 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS Three Months Ended January 31, 1999 (in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated --------- ------------ -------------- ----------- ------------- Operating revenues .................................. $ -- 39,071 10,444 (3,863) 45,652 Operating expenses .................................. -- 26,409 8,778 (3,868) 31,319 ------- ------- ------- ------- ------- Gross profit ..................................... -- 12,662 1,666 5 14,333 Selling, general and administrative expenses .......................... 2,637 3,204 947 -- 6,788 Depreciation and amortization ....................... 45 5,002 711 (25) 5,733 ------- ------- ------- ------- ------- Operating income (loss) .......................... (2,682) 4,456 8 30 1,812 Interest expense .................................... 3,753 291 49 (23) 4,070 Other (income) expense .............................. (10) 8 24 23 45 ------- ------- ------- ------- ------- Income (loss) before equity in income of subsidiaries, and income taxes ................... (6,425) 4,157 (65) 30 (2,303) Equity in income of subsidiaries ................... 4,011 -- -- (4,011) -- Income tax expense .................................. 20 19 92 -- 131 ------- ------- ------- ------- ------- Net income (loss) ................................... $(2,434) 4,138 (157) (3,981) (2,434) ======= ======= ======= ======= =======
AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS Three Months Ended January 31, 1998 (in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated ------- ------------ -------------- ----------- ------------- Operating revenues ................................. $ -- 30,065 6,310 (1,944) 34,431 Operating expenses ................................. -- 19,211 4,110 (1,823) 21,498 ------- ------- ------- ------- ------- Gross profit .................................... -- 10,854 2,200 (121) 12,933 Selling, general and administrative expenses ......................... 2,980 3,079 1,010 90 7,159 Depreciation and amortization ...................... 27 6,433 1,007 (82) 7,385 ------- ------- ------- ------- ------- Operating income (loss) ......................... (3,007) 1,342 183 (129) (1,611) Interest expense ................................... 3,757 (10) 90 (8) 3,829 Other (income) expense ............................. (317) (16) (46) 8 (371) ------- ------- ------- ------- ------- Income (loss) before equity in income of subsidiaries, and income taxes .................. (6,447) 1,368 139 (129) (5,069) Equity in income of subsidiaries ................... 1,316 -- -- (1,316) -- Income tax expense ................................. 63 -- 62 -- 125 ------- ------- ------- ------- ------- Net income (loss) .................................. $(5,194) 1,368 77 (1,445) (5,194) ======= ======= ======= ======= =======
9 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS Three Months Ended January 31, 1999 (in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated --------- ------------ ------------- ----------- ------------- Net income (loss) ....................................... $(2,434) 4,138 (157) (3,981) (2,434) Depreciation and amortization ........................ 45 5,002 711 (25) 5,733 Equity in income of subsidiaries ..................... (4,011) -- -- 4,011 -- Changes in operating assets and liabilities .......... 2,568 (1,251) (1,433) 181 65 Other ................................................ 303 (20) 16 -- 299 ------- ------- ------- ------- ------- Net cash provided by (used in) operating activities ................................. (3,529) 7,869 (863) 186 3,663 ------- ------- ------- ------- ------- Cash flows from investing activities: Capital and wagering systems expenditures ...................................... (7) (1,998) (149) (4) (2,158) Other assets and investments ......................... (149) (2,303) (161) 31 (2,582) ------- ------- ------- ------- ------- Net cash provided by (used in) investing activities ................................. (156) (4,301) (310) 27 (4,740) ------- ------- ------- ------- ------- Cash flows from financing activities: Proceeds from issuance of long-term debt .................................... -- 60 -- -- 60 Payments on long-term debt ........................... -- (685) (65) -- (750) Other, principally intercompany balances .......................................... 3,471 (3,517) 101 (55) -- ------- ------- ------- ------- ------- Net cash provided by (used in) financing activities ................................. 3,471 (4,142) 36 (55) (690) ------- ------- ------- ------- ------- Effect of exchange rate changes on cash ................. -- 1 (138) 50 (87) ------- ------- ------- ------- ------- Increase (decrease) in cash and cash equivalents ................................. (214) (573) (1,275) 208 (1,854) Cash and cash equivalents, beginning of period .................................. 2,054 401 4,562 (208) 6,809 ------- ------- ------- ------- ------- Cash and cash equivalents, end of period ................ $ 1,840 (172) 3,287 -- 4,955 ======= ======= ======= ======= =======
10 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS Three Months Ended January 31, 1998 (in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated ------- ------------ ------------- ----------- ----------- Net income (loss) .................................. $ (5,194) 1,368 77 (1,445) (5,194) Depreciation and amortization ................... 27 6,433 1,007 (82) 7,385 Equity in income of subsidiaries ................ (1,316) -- -- 1,316 -- Changes in operating assets and liabilities .................................. 1,322 1,651 790 75 3,838 Other ........................................... 345 11 (73) -- 283 -------- -------- -------- -------- -------- Net cash provided by (used in) operating activities ............................ (4,816) 9,463 1,801 (136) 6,312 -------- -------- -------- -------- -------- Cash flows from investing activities: Capital and wagering systems expenditures ................................. (56) (4,047) (169) 67 (4,205) Proceeds from asset disposal .................... -- -- 44 -- 44 Other assets and investments .................... (108) (1,265) (72) (1) (1,446) -------- -------- -------- -------- -------- Net cash provided by (used in) investing activities ............................ (164) (5,312) (197) 66 (5,607) -------- -------- -------- -------- -------- Cash flows from financing activities: Payments on long-term debt ...................... -- (138) (203) 4 (337) Other, principally intercompany balances ..................................... 4,284 (3,698) (635) 49 -- -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities ............................ 4,284 (3,836) (838) 53 (337) -------- -------- -------- -------- -------- Effect of exchange rate changes on cash ............ 8 13 (164) 17 (126) -------- -------- -------- -------- -------- Increase (decrease) in cash and cash equivalents ................................ (688) 328 602 -- 242 Cash and cash equivalents, beginning of period ............................. 15,582 328 2,297 -- 18,207 -------- -------- -------- -------- -------- Cash and cash equivalents, end of period ........... $ 14,894 656 2,899 -- 18,449 ======== ======== ======== ======== ========
11 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion addresses the financial condition of the Company as of January 31, 1999 and the results of its operations for the three month period ended January 31, 1999, compared to the same period last year. This discussion should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended October 31, 1998 ("fiscal 1998") included in the Company's 1998 Annual Report on Form 10-K. Three Months Ended January 31, 1999 Compared to Three Months Ended January 31, 1998
First Quarter Fiscal 1999 First Quarter Fiscal 1998 ------------------------------------- ------------------------------------ Pari- Pari- Mutuel Lottery Mutuel Lottery Operations Operations Total Operations Operations Total ---------- ---------- ------- ---------- ---------- ------- Operating Revenues: Service revenue $32,057 2,172 34,229 29,096 2,231 31,327 Sales revenue 2,874 8,549 11,423 2,393 711 3,104 ------- ------- ------- ------- ------- ------- Total Revenue $34,931 10,721 45,652 31,489 2,942 34,431 ======= ======= ======= ======= ======= ======= Gross Profit (excluding depreciation and amortization) $11,413 2,920 14,333 11,754 1,179 12,933 ======= ======= ======= ======= ======= =======
First Quarter Revenue Analysis Revenues increased 33% or $11.3 million to $45.7 million in the first quarter of the fiscal year ending October 31, 1999 ("fiscal 1999") from $34.4 million in the first quarter of the fiscal year ended October 31, 1998 ("fiscal 1998"). Pari-mutuel Operations service revenues of $32.1 million for the first quarter of fiscal 1999 improved $3.0 million or 10% from the first quarter of the prior year. This improvement reflects primarily, $3.2 million in revenues from the Netherlands operations that was acquired in the second half of fiscal 1998, revenues from the new NASRIN(TM) operation and revenues attributable to the opening of the Race Book at the Mohegan Sun Casino. These increases were partially offset by lower revenues resulting from weather related declines in handle in the Company's North American pari-mutuel and simulcasting operations and the loss of a French pari-mutuel service contract. Sales revenues increased by $0.5 million or 20% to $2.9 million in the first quarter of fiscal 1999, from $2.4 million in the first quarter of the prior year due primarily to the sales of terminals to the Company's international customers. Lottery Operations service revenues in the first quarter of fiscal 1999 were $2.2 million and remained flat compared to service revenues in the first quarter of fiscal 1998. Sales revenues increased by $7.8 million to $8.5 million in the first quarter of fiscal 1999 from $0.7 million in the same period in fiscal 1998. This increase is primarily attributable to the first quarter fiscal 1999 international sale of terminals for use in the SISAL Sport Italia SpA lottery operations. Gross Profit Analysis The total gross profit, excluding depreciation and amortization, of $14.3 million in the first quarter of fiscal 1999 increased by $1.4 million, or 11%, from the first quarter of fiscal 1998. Higher gross profit is due to the first quarter fiscal 1999 international sale of terminals and improved gross profits earned on higher handle in the OTB operations, partially offset by a decrease in gross profit earned on lower handle in the domestic and French pari-mutuel operations. Gross profit as a percent of service revenue was 32% in the first quarter of fiscal 1999, down from the gross profit percentage of 37% in the first quarter of fiscal 1998, and down from the gross profit percentage of 35% in the full fiscal year 1998. This decrease reflects, primarily, the lower gross profit on the Netherlands operations that were acquired in the second half of fiscal 1998, and lower gross profit on French pari-mutuel operations. Gross profit earned on equipment sales increased by $2.0 million to $3.3 million in the first quarter of fiscal 1999, compared to $1.3 million in the first quarter of fiscal 12 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(Continued) 1998. Gross profit as a percent of equipment sales revenue was 29% in the first quarter of fiscal 1999, compared to the gross profit percentage of 42% in the first quarter of fiscal 1998 and the gross profit percentage of 33% earned in the full fiscal year 1998 as a result of a change in the mix of equipment and systems sold. Expense Analysis Selling, general and administrative expenses include marketing, sales, administrative, engineering and software development, finance, legal and other expenses. Selling, general and administrative expenses decreased $0.4 million or 5% to $6.8 million in the first quarter of fiscal 1999 from $7.2 million in the first quarter of fiscal 1998. Cost savings efforts, primarily in France and lower compensation costs and professional fees associated with the ongoing business, were partially offset by expenses of the recently acquired Netherlands operations and the new NASRIN(TM) business. Depreciation and amortization expenses decreased $1.7 million or 22% to $5.7 million in the first quarter of fiscal 1999 from $7.4 million in the first quarter of fiscal 1998. Depreciation decreased $1.1 million primarily due to lengthening the depreciable lives of pari-mutuel terminals from seven to ten years, effective November 1, 1998, as a result of service contract renewals and the realized durability of the equipment. Amortization expense decreased as a result of the full amortization of certain intangible assets in fiscal 1998. Interest expense increased $0.3 million to $4.1 million in the first quarter of fiscal 1999 from $3.8 million in the first quarter of fiscal 1998 as a result of the borrowings in connection with the fiscal 1998 installation of the Connecticut lottery terminals. Income Taxes Income tax expense was $0.1 million in both the first quarter of fiscal 1999 and the first quarter of fiscal 1998. Income tax expense principally reflects foreign taxes, since no tax benefit has been recognized on domestic operating losses. Liquidity, Capital Resources and Working Capital Deficiency At January 31, 1999, the Company's available cash and borrowing capacity totaled $29.1 million compared to $29.9 million at October 31, 1998. Net cash provided by operating activities decreased by $2.6 million to $3.7 million for the quarter ended January 31, 1999 from $6.3 million in the quarter ended January 31, 1998 reflecting working capital investments in connection with the start-up of the Montana lottery, and the liquidation of accruals relating to the European cost savings efforts and liabilities incurred with the acquisition of the Netherlands operations. In the first quarter of fiscal 1999, the Company utilized cash provided by operating activities and $1.9 million of available cash, to invest $4.7 million principally in capital and contract expenditures and in software systems development and used $0.7 million to reduce other long-term loans. At January 31, 1999, the Company's current liabilities exceeded current assets by $4.7 million, principally as a result of the investment in contract expenditures of $2.2 million in the first quarter of fiscal 1999 and $24.1 million in fiscal 1998 which included $12.0 million for the manufacture and installation of the lottery system for the Connecticut state lottery. These investments were financed in part with available cash resources which were not replenished by long-term borrowings as of January 31, 1999. The Company anticipates a significantly lower level of investment in contract expenditures in fiscal 1999. As described above in Note 5 to the Consolidated Financial Statements, the Company had $24.2 million of borrowing availability under its Facility at January 31, 1999. The Company believes that, although it expects to incur a net loss in fiscal 1999, its cash resources, anticipated cash flows from operations and borrowing availability under the Facility will provide sufficient liquidity to meet scheduled interest payments and anticipated capital expenditures during the next twelve months. The Company believes that additional financing will be required to enable it to meet its debt service obligations, including scheduled principal payments under the Notes, the Subordinated Debentures, the Term Loan maturity and the Facility, and for capital expenditures that are not financed through cash flows from operations, beginning in the fiscal year ending October 31, 2001. 13 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(Continued) Year 2000 The Company is dedicated to providing uninterrupted, high quality performance from its computer software systems, products and satellite communication network before, during and after year 2000. Since its fiscal year ended October 31,1997, the Company has been assessing the impact that the Year 2000 will have on its computer software systems, products and satellite communication network. Computer programs that do not properly interpret two-digit date information could generate erroneous data or cause a complete system failure. The Company has tested its critical systems, surveyed its principal suppliers, identified all internal systems with date-related deficiencies, developed solutions for those internal systems that have been found to have date-related deficiencies, and is in various phases of remediation. All simulcast systems should be Year 2000 compliant by April 1, 1999. Pari-mutuel wagering systems field upgrades began in early February 1999; 31% of the systems have received Year 2000 upgrades as of February 28, 1999 and this effort is scheduled for completion by June 1, 1999. It is anticipated that all wagering systems will be Year 2000 compliant by June 1, 1999 and that additional regulatory testing, where mandated, will be completed by July 1, 1999. Lottery systems should be Year 2000 compliant by April 1, 1999 and regulatory testing and certification of Lottery systems should be complete by July 1, 1999. In some instances, the Company is also relying on Year 2000 compliance representations and warranties that its vendors, suppliers and other service providers are making with respect to their products and services. This schedule supports the Company's belief that its solutions will be implemented and tested prior to any anticipated year 2000 impact on the Company's systems. Remediation efforts for the Company's computer systems are not expected to be substantial. Testing is expected to be completed by the middle of calendar year 1999, and the Company will upgrade its active systems throughout the remainder of the year. The total estimated cost of Year 2000 remediation efforts is not expected to exceed $3 million. Through the first quarter of fiscal 1999, the Company has incurred approximately $0.2 million of costs principally for software modifications and conversions. A major portion the remaining estimated costs represents equipment upgrades and replacements, if needed, which have not yet been purchased. Equipment replacement will be capitalized in accordance with Company policy. Similar Year 2000 readiness programs are in place in the Company's foreign operations. Costs to address these operations' Year 2000 issues not are expected to be material. The Company intends to monitor these processes, and has evaluated alternative solutions, which will be implemented, if necessary. Based on preliminary analyses, the Company expects that its critical systems and applications will be compliant by October 31, 1999, and the Year 2000 issue will not pose significant operational problems for the Company. There can be no assurance, however, that there will not be a delay in, or increased cost associated with, the implementation of such corrective action, and the Company's inability to implement such corrective action could have a material adverse effect on its financial condition or results of operations. The Company's belief and expectations are based on certain assumptions and expectations that may ultimately prove to be inaccurate. 14 PART II. Other Information Item 1. Legal Proceedings No significant changes have occurred with respect to legal proceedings as disclosed in Part 1, Item 3, of the Company's 1998 Annual Report on Form 10-K. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Stockholders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule. No current reports on Form 8-K were filed during the first quarter of fiscal 1999. 15 AUTOTOTE CORPORATION AND SUBSIDIARIES Quarter Ended January 31, 1999 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. AUTOTOTE CORPORATION ------------------------------------- (Registrant) By: /s/ DeWayne E. Laird Name: DeWayne E. Laird Title: Vice President & Chief Financial Officer Dated: March 17, 1999 16 EX-27 2 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF AUTOTOTE CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS OCT-31-1999 NOV-1-1998 JAN-31-1999 4,955 0 22,157 (2,051) 12,055 40,676 190,908 114,825 153,156 45,357 35,000 0 0 361 (51,497) 153,156 45,652 45,652 31,319 31,319 12,566 0 4,070 (2,303) 131 (2,434) 0 0 0 (2,434) (0.07) (0.07)
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