-----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, UuvlokTUWOnoPRHWWotiMXAgDCYnqey7J/8PbsHFc1r4lMGOcGS3bxSgwgYRHWYT QVGyIFC+ck5lDUmwULwdeA== /in/edgar/work/20000614/0001005477-00-004700/0001005477-00-004700.txt : 20000919 0001005477-00-004700.hdr.sgml : 20000919 ACCESSION NUMBER: 0001005477-00-004700 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000430 FILED AS OF DATE: 20000614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUTOTOTE CORP CENTRAL INDEX KEY: 0000750004 STANDARD INDUSTRIAL CLASSIFICATION: [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: 654989 BUSINESS ADDRESS: STREET 1: 750 LEXINGTON AVE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 3027374300 MAIL ADDRESS: STREET 1: 750 LEXINGTON AVE CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: UNITED TOTE INC DATE OF NAME CHANGE: 19920317 10-Q 1 0001.txt FORM 10-Q 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 and six month periods ended: April 30, 2000 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 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 |_| APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of June 12, 2000: Class A Common Stock: 36,886,292 Class B Common Stock: None Page 1 of 23 AUTOTOTE CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION QUARTER ENDED APRIL 30, 2000 Page ---- PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Balance Sheets as of October 31, 1999 and April 30, 2000 3 Statements of Operations for the Three Months Ended April 30, 1999 and 2000 4 Statements of Operations for the Six Months Ended April 30, 1999 and 2000 5 Statements of Cash Flows for the Six Months Ended April 30, 1999 and 2000 6 Notes to Consolidated Financial Statements 7-16 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17-21 PART II.OTHER INFORMATION Item 2. Change in Securities and Use of Proceeds 22 Item 4. Submission of Matters to a Vote of Stockholders 22 Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 22 2 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
October 31, April 30, 1999 2000 ----------- --------- ASSETS (Unaudited) Current assets: Cash and cash equivalents ................................................ $ 5,067 2,599 Restricted cash .......................................................... 771 782 Accounts receivable, net ................................................. 25,755 25,949 Inventories .............................................................. 14,636 11,125 Prepaid expenses, deposits and other current assets ...................... 2,319 2,579 --------- --------- Total current assets ................................................ 48,548 43,034 --------- --------- Property and equipment, at cost ............................................... 199,767 216,402 Less accumulated depreciation ............................................ 123,039 128,070 --------- --------- Net property and equipment .......................................... 76,728 88,332 --------- --------- Goodwill, net of amortization ................................................. 5,237 4,053 Operating right, net of amortization .......................................... 13,848 13,348 Other assets and investments .................................................. 21,198 23,671 --------- --------- $ 165,559 172,438 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current installments of long-term debt ................................... $ 4,253 1,377 Accounts payable ......................................................... 20,102 14,253 Accrued liabilities ...................................................... 28,015 22,686 Interest payable ......................................................... 3,898 4,093 --------- --------- Total current liabilities ........................................... 56,268 42,409 --------- --------- Deferred income taxes ......................................................... 1,656 1,615 Other long-term liabilities ................................................... 2,963 3,714 Long-term debt, excluding current installments ................................ 117,891 134,870 Long-term debt, convertible subordinated debentures ........................... 35,000 35,000 --------- --------- Total liabilities ................................................... 213,778 217,608 --------- --------- 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, 36,268 and 36,848 shares outstanding at October 31, 1999 and April 30, 2000, respectively ...................................... 364 369 Class B non-voting common stock, par value $0.01 per share, 700 shares authorized, none outstanding .......................................... -- -- Additional paid-in capital ............................................... 149,622 151,042 Accumulated losses ....................................................... (196,852) (194,052) Treasury stock, at cost .................................................. (102) (102) Accumulated other comprehensive loss ..................................... (1,251) (2,427) --------- --------- Total stockholders' equity (deficit) ................................ (48,219) (45,170) --------- --------- $ 165,559 172,438 ========= =========
See accompanying notes to consolidated financial statements. 3 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended April 30, 1999 and 2000 (Unaudited, in thousands, except per share amounts)
1999 2000 ------- ------- Operating revenues: Services .............................................................. $36,496 38,285 Sales ................................................................. 16,583 12,776 ------- ------- 53,079 51,061 ------- ------- Operating expenses (exclusive of depreciation and amortization shown below): Services .............................................................. 23,730 24,447 Sales ................................................................. 12,718 8,357 ------- ------- 36,448 32,804 ------- ------- Total gross profit ............................................... 16,631 18,257 Selling, general and administrative expenses ............................... 6,425 6,254 Depreciation and amortization .............................................. 5,278 5,142 ------- ------- Operating income ................................................. 4,928 6,861 Other deductions: Interest expense ...................................................... 4,039 4,186 Other expense ......................................................... 256 126 ------- ------- 4,295 4,312 ------- ------- Income before income tax expense ...................................... 633 2,549 Income tax expense ......................................................... 61 243 ------- ------- Net income ................................................................. $ 572 2,306 ======= ======= Net income per basic share ................................................. $ 0.02 0.06 ======= ======= Net income per diluted share ............................................... $ 0.02 0.06 ======= ======= Weighted-average number of shares used in per share calculations: Basic shares .......................................................... 36,032 36,622 ======= ======= Diluted shares ........................................................ 37,371 41,878 ======= =======
See accompanying notes to consolidated financial statements. 4 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Six Months Ended April 30, 1999 and 2000 (Unaudited, in thousands, except per share amounts)
1999 2000 --------- --------- Operating revenues: Services .............................................................. $ 70,725 74,618 Sales ................................................................. 28,006 26,008 --------- --------- 98,731 100,626 --------- --------- Operating expenses (exclusive of depreciation and amortization shown below): Services .............................................................. 46,893 48,927 Sales ................................................................. 20,874 16,353 --------- --------- 67,767 65,280 --------- --------- Total gross profit ............................................... 30,964 35,346 Selling, general and administrative expenses ............................... 13,213 13,247 Depreciation and amortization .............................................. 11,011 10,652 --------- --------- Operating income ................................................. 6,740 11,447 Other deductions: Interest expense ...................................................... 8,109 8,183 Other expense ......................................................... 301 183 --------- --------- 8,410 8,366 --------- --------- Income (loss) before income tax expense ............................... (1,670) 3,081 Income tax expense ......................................................... 192 311 --------- --------- Net income (loss) .......................................................... $ (1,862) 2,770 ========= ========= Net income (loss) per basic share .......................................... $ (0.05) 0.08 ========= ========= Net income (loss) per diluted share ........................................ $ (0.05) 0.07 ========= ========= Weighted-average number of shares used in per share calculations: Basic shares .......................................................... 36,027 36,504 ========= ========= Diluted shares ........................................................ 36,027 41,112 ========= =========
See accompanying notes to consolidated financial statements. 5 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended April 30, 1999 and 2000 (Unaudited, in thousands)
1999 2000 -------- -------- Cash flows from operating activities: Net income (loss) ............................................... $ (1,862) 2,770 -------- -------- Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization .............................. 11,011 10,652 Changes in operating assets and liabilities ................ (771) (7,987) Other ...................................................... 668 760 -------- -------- Total adjustments ..................................... 10,908 3,425 -------- -------- Net cash provided by operating activities ............................ 9,046 6,195 -------- -------- Cash flows from investing activities: Capital expenditures ............................................ (788) (2,537) Wagering systems expenditures ................................... (5,671) (18,179) Proceeds from net asset disposals ............................... (63) -- Increase in other assets and investments ........................ (2,887) (3,306) -------- -------- Net cash used in investing activities ................................ (9,409) (24,022) -------- -------- Cash flows from financing activities: Net borrowings under revolving credit facility .................. -- 16,220 Payments on long-term debt ...................................... (1,601) (2,793) Proceeds from issuance of long-term debt ........................ -- 964 Net proceeds from issuance of common stock ...................... 47 1,328 -------- -------- Net cash provided by (used in) financing activities .................. (1,554) 15,719 -------- -------- Effect of exchange rate changes on cash .............................. (34) (360) -------- -------- Decrease in cash and cash equivalents ................................ (1,951) (2,468) Cash and cash equivalents, beginning of period ....................... 6,809 5,067 -------- -------- Cash and cash equivalents, end of period ............................. $ 4,858 2,599 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest ........................................................ $ 7,738 7,677 ======== ======== Income taxes .................................................... $ 478 433 ======== ========
See accompanying notes to consolidated financial statements. 6 AUTOTOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands, except per share amounts) 1) Consolidated Financial Statements Basis of Presentation The consolidated balance sheet as of April 30, 2000 and the consolidated statements of operations for the three and six months ended April 30, 1999 and 2000, and the consolidated statements of cash flows for the six 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 April 30, 2000 and the results of its operations for the three and six months ended April 30, 1999 and 2000 and its cash flows for the six months ended April 30, 1999 and 2000 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 1999 Annual Report on Form 10-K. The results of operations for the period ended April 30, 2000 are not necessarily indicative of the operating results for the full year. Basic Net Income (Loss) Per Share and Diluted Net Income (Loss) Per Share The following represents a reconciliation of the numerator and denominator used in computing basic and diluted net income (loss) per share for the three and six month periods ended April 30, 1999 and 2000:
Three Months Ended Six Months Ended April 30, April 30, ----------------- ----------------- 1999 2000 1999 2000 ------- ------ ------ ------ Income (numerator) Net income (loss) ............................................ $ 572 2,306 (1,862) 2,770 ------- ------ ------ ------ Shares (denominator) Basic weighted average common shares outstanding ............. 36,032 36,622 36,027 36,504 Effect of diluted securities-stock options, warrants, and deferred shares ......................................... 1,339 5,256 -- 4,608 ------- ------ ------ ------ Diluted weighted average common shares outstanding ........... 37,371 41,878 36,027 41,112 ======= ====== ====== ====== Per Share Amount Basic net income (loss) per share ............................ $ 0.02 0.06 (0.05) 0.08 ======= ====== ====== ====== Diluted net income (loss) per share .......................... $ 0.02 0.06 (0.05) 0.07 ======= ====== ====== ======
At April 30, 2000, the Company had outstanding stock options, warrants, convertible subordinated debentures and deferred shares which could potentially dilute basic earnings per share in the future. (See Notes 12 and 13 to the Consolidated Financial Statements for the year ended October 31, 1999 in the Company's 1999 Annual Report on Form 10-K.) 7 AUTOTOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited, in thousands, except per share amounts) 2) Acquisition of Datasport Assets and Interest in Datek On September 1, 1999, the Company completed the purchase of selected assets and the assumption of certain liabilities from Datasport Toto Dienstleistung GmbH & Co KG ("Datasport"). As a result of this purchase, the Company is the sole provider of totalisator and simulcasting services to the 14 thoroughbred racetracks in Germany. The transaction also increased the Company's ownership and control of Datek GmbH ("Datek"), the primary provider of pari-mutuel wagering to off-track betting establishments ("OTBs") and bookmakers in Germany. The purchase, which included a cash payment of approximately $2,333 and the assumption of certain liabilities, was recorded using the purchase method of accounting, and the acquired assets and liabilities have been recorded at their estimated fair value at the date of acquisition. The excess of the purchase price over the fair values of the net assets acquired was approximately $3.2 million and has been recorded as goodwill which is being amortized over 15 years. The operating results of the Datasport and Datek businesses have been included in the consolidated statements of operations since the date of acquisition. Had the operating results of the Datasport and Datek businesses been included as if the transaction had been consummated on November 1, 1998, the pro forma operating results of the Company for the three and six month periods ended April 30, 1999 would not have been materially different. 3) Business Segments The following tables represent revenues and profits by business segments for the three and six month periods ended April 30, 1999 and 2000. Corporate expenses are allocated among business segments. Interest expense and other (income) deductions are not allocated to business segments.
Three Months Ended Six Months Ended April 30, April 30, ---------------------- -------------------- 1999 2000 1999 2000 -------- ------ ------ ------- Service revenue and product sales: Pari-mutuel operations .................................. $ 21,297 23,904 41,485 51,340 Venue management operations ............................. 15,432 15,723 29,746 30,069 Lottery operations ...................................... 16,193 11,434 26,914 18,890 SJC Video operations .................................... 157 -- 586 327 -------- ------ ------ ------- $ 53,079 51,061 98,731 100,626 ======== ====== ====== ======= Gross profit: Pari-mutuel operations .................................. $ 8,919 10,840 16,833 21,529 Venue management operations ............................. 3,964 4,399 7,337 8,315 Lottery operations ...................................... 3,778 3,018 6,589 5,502 SJC Video operations .................................... (30) -- 205 -- -------- ------ ------ ------- Total gross profit ................................. $ 16,631 18,257 30,964 35,346 ======== ====== ====== ======= Operating income (loss): Pari-mutuel operations .................................. $ 969 2,924 23 4,711 Venue management operations ............................. 1,744 2,236 2,628 3,845 Lottery operations ...................................... 2,560 1,701 4,531 2,891 SJC Video operations .................................... (345) -- (442) -- -------- ------ ------ ------- 4,928 6,861 6,740 11,447 Other deductions: Interest expense ........................................ 4,039 4,186 8,109 8,183 Other expense ........................................... 256 126 301 183 -------- ------ ------ ------- Income (loss) before income tax expense ...................... $ 633 2,549 (1,670) 3,081 ======== ====== ====== =======
8 AUTOTOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (Unaudited, in thousands, except per share amounts) 3) Business Segments--(Continued) October 31, April 30, 1999 2000 ----------- -------- Assets Pari-mutuel operations .............. $110,598 113,471 Venue management operations ......... 34,613 34,981 Lottery operations .................. 20,348 23,986 SJC Video operations ................ -- -- -------- -------- $165,559 172,438 ======== ======== Six Months Ended April 30, -------------------------- 1999 2000 ----------- -------- Capital and wagering systems expenditures Pari-mutuel operations .............. $ 3,516 13,568 Venue management operations ......... 625 1,314 Lottery operations .................. 2,286 5,834 SJC Video operations ................ 32 -- --------- -------- $ 6,459 20,716 ========= ======== 4) Comprehensive Income (Loss) The following presents a reconciliation of net income (loss) to comprehensive income (loss) for the three and six months ended April 30, 1999 and 2000:
Three Months Ended Six Months Ended April 30, April 30, ------------------ ------------------ 1999 2000 1999 2000 ------ ------ ------ ------ Net income (loss) ............... $ 572 2,306 (1,862) 2,770 Other comprehensive loss: Foreign currency translation (192) (557) (337) (1,176) ------ ------ ------ ------ Comprehensive income (loss) ..... $ 380 1,749 (2,199) 1,594 ====== ===== ====== =====
9 AUTOTOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (Unaudited, in thousands, except per share amounts) 5) Inventories Inventories consist of the following: October 31, April 30, 1999 2000 ----------- --------- Parts and work-in-process ........ $13,735 10,230 Finished goods ................... 344 247 Ticket paper ..................... 557 648 ------- ------- $14,636 11,125 ======= ======= 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. 6) Other Assets and Investments Other assets at April 30, 2000 includes $750 loaned by the Company to Atlantic City Racing Association ("ACRA"). The loan is secured by a mortgage on certain real estate owned by ACRA. In consideration for this loan, the Company has the right to acquire ACRA for an additional $6,250 subject to certain other adjustments. The Company has extended its option to acquire the ACRA until August 31, 2000. The Company is presently evaluating its alternatives, which could include the negotiation for a further extension of the option. Should the Company decide not to purchase ACRA, or if the Company is not successful in negotiating the extension of the option, the loan will be forgiven. 7) Debt At April 30, 2000, the Company had approximately $7,718 available for borrowing, approximately $16,220 of borrowings outstanding and $1,062 in letters of credit issued under the Company's revolving Credit Facility (the "Facility"). In addition, there were approximately $7,800 of borrowings outstanding under the Company's Term Loan ("Term Loan"). At April 30, 2000, the approximately $16,220 of borrowings outstanding under the Facility as well as $7,200 of the Term Loan, which is currently due in installments through February 15, 2001, have been classified as long-term debt. The Company anticipates refinancing these debts in connection with the financing of the proposed acquisition of Scientific Games Holdings Corp (See Note 8 below). 8) Proposed Acquisition of Scientific Games Holdings Corp and New Debt and Equity Financing On May 19, 2000 the Company announced the signing of a definitive agreement for the acquisition of Scientific Games Holdings Corp ("Scientific Games"), a world leading supplier of lottery products, integrated lottery systems and support services, and pre-paid telephone cards. The acquisition is expected be completed through a merger in which Scientific Games becomes a wholly-owned subsidiary of the Company at an estimated cost of $310 million plus related costs. Consummation of the acquisition is subject to satisfaction or waiver by the parties of certain closing conditions, including the receipt of regulatory approvals, approval by the stockholders of Scientific Games and other customary closing conditions. It is expected that, subject to such conditions, the acquisition will be completed during the summer and be accounted for under the purchase method. 10 AUTOTOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) (Unaudited, in thousands, except per share amounts) 8) Proposed Acquisition of Scientific Games Holdings Corp and New Debt and Equity Financing--(Continued) Certain affiliates of Donaldson Lufkin Jenrette and Lehman Brothers have issued a commitment letter to provide debt financing for the acquisition, certain related costs and other purposes. Such commitment letter contemplates financing under senior term loan and revolving credit facilities, and issuance of senior subordinated notes, totaling up to $440 million or more. Depending on the financing alternatives chosen by the Company, such financing may include the issuance of warrants to purchase Company common stock, in amounts and on terms common in transactions of this nature, dependent on market conditions and the financing alternatives being pursued. In a separate transaction, Olivetti S.p.A. has issued a commitment letter to purchase, for an aggregate of $100 million, preferred stock convertible into Company common stock at a price of $6.00 per share (subject to potential reset to no less than $5.00 per share based on possible future market price movements), which would mature and become mandatorily convertible into common stock after five years and would pay dividends at the rate of 6% per annum (payable in kind in additional shares or, at the Company's option beginning with the ninth quarterly dividend date, in cash). Other investors have issued similar commitment letters for an additional $10 million of convertible preferred stock. Both such debt financing and such preferred stock financing are subject to various terms and conditions and will be embodied in definitive documentation to be negotiated and completed by the parties. In the event the acquisition is not completed, the Company may be entitled to receive or be subject to pay certain breakup fees. Further information regarding the proposed acquisition and financing can be found in the Form 8-Ks filed by the Company on May 19, 2000 and May 26, 2000. 9) 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 8 to the Consolidated Financial Statements for the year ended October 31, 1999 in the Company's 1999 Annual Report on Form 10-K.) Presented below is condensed consolidating financial information for (i) Autotote Corporation (the "Parent Company") which includes the activities of Autotote Management Corporation, (ii) the Guarantor Subsidiaries and (iii) the wholly-owned and the non-wholly owned foreign subsidiaries (the "Non-Guarantor Subsidiaries") as of April 30, 2000 (unaudited) and October 31, 1999 (audited) and for the three and six month periods ended April 30, 1999 and 2000 (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. 11 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET October 31, 1999 (in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated ------- ------------ ------------ ----------- ------------ ASSETS Cash and cash equivalents .................... $ 1,598 506 2,963 -- 5,067 Accounts receivable, net ..................... -- 21,083 4,672 -- 25,755 Other current assets ......................... 30 14,143 4,017 (464) 17,726 Property and equipment, net .................. 298 66,973 9,708 (251) 76,728 Investment in subsidiaries ................... 58,214 -- -- (58,214) -- Goodwill ..................................... 198 353 4,686 -- 5,237 Other assets ................................. 6,199 30,385 659 (2,197) 35,046 --------- --------- --------- --------- --------- Total assets .............................. $ 66,537 133,443 26,705 (61,126) 165,559 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current installments of long-term debt ....... $ 1,250 2,429 574 -- 4,253 Current liabilities .......................... 12,219 29,546 10,922 (672) 52,015 Long-term debt, excluding current installments 145,000 6,627 1,264 -- 152,891 Other non-current liabilities ................ 2,193 1,233 1,766 (573) 4,619 Intercompany balances ........................ (45,906) 43,214 1,942 750 -- Stockholders' equity (deficit) ............... (48,219) 50,394 10,237 (60,631) (48,219) --------- --------- --------- --------- --------- Total liabilities and stockholders' equity (deficit) ........................ $ 66,537 133,443 26,705 (61,126) 165,559 ========= ========= ========= ========= =========
AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET April 30, 2000 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated ------- ------------ ------------ ----------- ------------ ASSETS Cash and cash equivalents .................... $ 702 88 1,809 -- 2,599 Accounts receivable, net ..................... -- 21,918 4,031 -- 25,949 Other current assets ......................... 47 10,907 3,966 (434) 14,486 Property and equipment, net .................. 273 77,599 10,722 (262) 88,332 Investment in subsidiaries ................... 73,442 -- -- (73,442) -- Goodwill ..................................... 194 -- 3,859 -- 4,053 Other assets ................................. 6,793 31,070 1,517 (2,361) 37,019 --------- --------- --------- --------- --------- Total assets .............................. $ 81,451 141,582 25,904 (76,499) 172,438 ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current installments of long-term debt ....... $ -- 600 777 -- 1,377 Current liabilities .......................... 10,430 23,329 7,733 (460) 41,032 Long-term debt, excluding current installments 161,220 7,231 1,419 -- 169,870 Other non-current liabilities ................ 3,085 684 2,133 (573) 5,329 Intercompany balances ........................ (48,114) 43,360 4,211 543 -- Stockholders' equity (deficit) ............... (45,170) 66,378 9,631 (76,009) (45,170) --------- --------- --------- --------- --------- Total liabilities and stockholders' equity (deficit) ........................ $ 81,451 141,582 25,904 (76,499) 172,438 ========= ========= ========= ========= =========
12 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS Three Months Ended April 30, 1999 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated ------- ------------ ------------ ----------- ------------ Operating revenues ................................... $ -- 46,440 10,444 (3,805) 53,079 Operating expenses ................................... -- 31,047 9,194 (3,793) 36,448 ------- ------- ------- ------- ------- Gross profit ...................................... -- 15,393 1,250 (12) 16,631 Selling, general and administrative expenses ......... 1,828 3,369 1,240 (12) 6,425 Depreciation and amortization ........................ 45 4,523 735 (25) 5,278 ------- ------- ------- ------- ------- Operating income (loss) ........................... (1,873) 7,501 (725) 25 4,928 Interest expense ..................................... 3,800 215 62 (38) 4,039 Other (income) expense ............................... (1,765) 72 63 1,886 256 ------- ------- ------- ------- ------- Income (loss) before equity in income of subsidiaries, and income taxes .................................. (3,908) 7,214 (850) (1,823) 633 Equity in income of subsidiaries ..................... 4,578 -- -- (4,578) -- Income tax expense (benefit) ......................... 98 26 (63) -- 61 ------- ------- ------- ------- ------- Net income (loss) .................................... $ 572 7,188 (787) (6,401) 572 ======= ======= ======= ======= =======
AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS Three Months Ended April 30, 2000 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated ------- ------------ ------------ ----------- ------------ Operating revenues ................................... $ -- 42,931 12,202 (4,072) 51,061 Operating expenses ................................... -- 26,611 10,260 (4,067) 32,804 ------- ------- ------- ------- ------- Gross profit ...................................... -- 16,320 1,942 (5) 18,257 Selling, general and administrative expenses ......... 2,045 3,026 1,188 (5) 6,254 Depreciation and amortization ........................ 72 4,223 874 (27) 5,142 ------- ------- ------- ------- ------- Operating income (loss) ........................... (2,117) 9,071 (120) 27 6,861 Interest expense ..................................... 3,958 220 145 (137) 4,186 Other (income) expense ............................... -- (98) 87 137 126 ------- ------- ------- ------- ------- Income (loss) before equity in income of subsidiaries, and income taxes .................................. (6,075) 8,949 (352) 27 2,549 Equity in income of subsidiaries ..................... 8,467 -- -- (8,467) -- Income tax expense (benefit) ......................... 86 215 (58) -- 243 ------- ------- ------- ------- ------- Net income (loss) .................................... $ 2,306 8,734 (294) (8,440) 2,306 ======= ======= ======= ======= =======
13 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS Six Months Ended April 30, 1999 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated ------- ------------ ------------ ----------- ------------ Operating revenues ................................... $ -- 85,585 20,888 (7,742) 98,731 Operating expenses ................................... -- 57,530 17,972 (7,735) 67,767 -------- -------- -------- -------- -------- Gross profit ...................................... -- 28,055 2,916 (7) 30,964 Selling, general and administrative expenses ......... 4,465 6,573 2,187 (12) 13,213 Depreciation and amortization ........................ 90 9,525 1,446 (50) 11,011 -------- -------- -------- -------- -------- Operating income (loss) ........................... (4,555) 11,957 (717) 55 6,740 Interest expense ..................................... 7,553 506 111 (61) 8,109 Other (income) expense ............................... (1,775) 80 87 1,909 301 -------- -------- -------- -------- -------- Income (loss) before equity in income of subsidiaries, and income taxes .................................. (10,333) 11,371 (915) (1,793) (1,670) Equity in income of subsidiaries .................... 8,589 -- -- (8,589) -- Income tax expense ................................... 118 45 29 -- 192 -------- -------- -------- -------- -------- Net income (loss) .................................... $ (1,862) 11,326 (944) (10,382) (1,862) ======== ======== ======== ======== ========
AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS Six Months Ended April 30, 2000 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated ------- ------------ ------------ ----------- ------------ Operating revenues ................................... $ -- 85,080 24,365 (8,819) 100,626 Operating expenses ................................... -- 53,181 20,913 (8,814) 65,280 -------- -------- -------- -------- -------- Gross profit ...................................... -- 31,899 3,452 (5) 35,346 Selling, general and administrative expenses ......... 4,562 6,464 2,226 (5) 13,247 Depreciation and amortization ........................ 144 8,847 1,713 (52) 10,652 -------- -------- -------- -------- -------- Operating income (loss) ........................... (4,706) 16,588 (487) 52 11,447 Interest expense ..................................... 7,687 439 311 (254) 8,183 Other (income) expense ............................... (3) (159) 91 254 183 -------- -------- -------- -------- -------- Income (loss) before equity in income of subsidiaries, and income taxes .................................. (12,390) 16,308 (889) 52 3,081 Equity in income of subsidiaries ..................... 15,246 -- -- (15,246) -- Income tax expense (benefit) ......................... 86 315 (90) -- 311 -------- -------- -------- -------- -------- Net income (loss) .................................... $ 2,770 15,993 (799) (15,194) 2,770 ======== ======== ======== ======== ========
14 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS Six Months Ended April 30, 1999 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated ------- ------------ ------------ ----------- ------------ Net income (loss) ................................. $ (1,862) 11,326 (944) (10,382) (1,862) Depreciation and amortization .................. 90 9,525 1,446 (50) 11,011 Equity in income of subsidiaries ............... (8,589) -- -- 8,589 -- Other non-cash adjustments ..................... 637 (10) 41 -- 668 Changes in working capital ..................... (1,382) 3,421 (2,715) (95) (771) -------- -------- -------- -------- -------- Net cash provided by (used in) operating activities (11,106) 24,262 (2,172) (1,938) 9,046 -------- -------- -------- -------- -------- Cash flows from investing activities: Capital and wagering systems expenditures ...... (14) (6,046) (395) (4) (6,459) Proceeds from net asset disposals .............. 56 -- (119) -- (63) Other assets and investments ................... (198) (2,541) (723) 575 (2,887) -------- -------- -------- -------- -------- Net cash provided by (used in) investing activities (156) (8,587) (1,237) 571 (9,409) -------- -------- -------- -------- -------- Cash flows from financing activities: Proceeds from issuance of long-term debt ....... -- 60 144 (204) -- Payments on long-term debt ..................... -- (1,386) (288) 73 (1,601) Other, principally intercompany balances ....... 11,962 (13,477) 243 1,319 47 -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities ....................................... 11,962 (14,803) 99 1,188 (1,554) -------- -------- -------- -------- -------- Effect of exchange rate changes on cash ........... 52 1 (266) 179 (34) -------- -------- -------- -------- -------- Increase/(decrease) in cash and cash equivalents .. 752 873 (3,576) -- (1,951) Cash and cash equivalents, beginning of period .... 2,054 193 4,562 -- 6,809 -------- -------- -------- -------- -------- Cash and cash equivalents, end of period .......... $ 2,806 1,066 986 -- 4,858 ======== ======== ======== ======== ========
15 AUTOTOTE CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS Six Months Ended April 30, 2000 (Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating Company Subsidiaries Subsidiaries Entries Consolidated ------- ------------ ------------ ----------- ------------ Net income (loss) .................................. $ 2,770 15,993 (799) (15,194) 2,770 Depreciation and amortization ................... 144 8,847 1,713 (52) 10,652 Equity in income of subsidiaries ................ (15,246) -- -- 15,246 -- Other non-cash adjustments ...................... 569 313 (122) -- 760 Changes in working capital ...................... (1,806) (3,619) (2,549) (13) (7,987) -------- -------- -------- -------- -------- Net cash provided by (used in ) operating activities (13,569) 21,534 (1,757) (13) 6,195 -------- -------- -------- -------- -------- Cash flows from investing activities: Capital and wagering systems expenditures ....... (40) (17,455) (3,221) -- (20,716) Other assets and investments .................... (220) (3,442) (202) 558 (3,306) -------- -------- -------- -------- -------- Net cash used in investing activities .............. (260) (20,897) (3,423) 558 (24,022) -------- -------- -------- -------- -------- Cash flows from financing activities: Net borrowings under revolving credit facility .. 16,220 -- -- -- 16,220 Proceeds from issuance of long-term debt ....... -- -- 964 -- 964 Payments on long-term debt ...................... (1,250) (1,213) (330) -- (2,793) Net proceeds from issuance of common stock ...... 1,328 -- -- -- 1,328 Other, principally intercompany balances ........ (3,365) (77) 3,987 (545) -- -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities 12,933 (1,290) 4,621 (545) 15,719 -------- -------- -------- -------- -------- Effect of exchange rate changes on cash ............ -- 235 (595) -- (360) -------- -------- -------- -------- -------- Decrease in cash and cash equivalents .............. (896) (418) (1,154) -- (2,468) Cash and cash equivalents, beginning of period ..... 1,598 506 2,963 -- 5,067 -------- -------- -------- -------- -------- Cash and cash equivalents, end of period ........... $ 702 88 1,809 -- 2,599 ======== ======== ======== ======== ========
16 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 April 30, 2000 and the results of its operations for the three and six month periods ended April 30, 2000, compared to the same periods 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, 1999 included in the Company's 1999 Annual Report on Form 10-K. We operate primarily in three business segments, Pari-mutuel Operations, Venue Management and Lottery Operations. Pari-mutuel Operations include all aspects of our pari-mutuel service business, which encompass our North American and international on-track, off-track and inter-track pari-mutuel services, simulcasting and communications services, video gaming, and sales of pari-mutuel systems and equipment. Venue Management includes the Connecticut off-track betting ("OTB") operations and our Netherlands on-track and off-track betting operations. Lottery Operations include both domestic and international lottery service, as well as sales of lottery systems and equipment. In the second quarter of fiscal 2000, the Company completed the sale of its SJC Video business. Historically, our revenues have been derived from two principal sources: service revenues and sale revenues. Service revenues are earned pursuant to multi-year contracts to provide wagering systems and other services, which are typically based on a percentage of Handle and/or daily or monthly fees; or are derived from wagering by customers at facilities owned or leased by us. Sales revenues are derived from sales contracts for wagering equipment, services and software. The first quarter of our fiscal year and a portion of our second fiscal quarter traditionally comprise the weakest season for pari-mutuel wagering service revenue. Wagering equipment sales revenues usually reflect a limited number of large transactions which do not recur on an annual basis, but which historically have given rise to additional terminal and systems software sales to existing customers. Consequently, revenues and operating results can vary substantially from period to period as a result of the timing of revenue recognition for major equipment sales.
Three Months ended Six Months ended Results of Operations: April 30, April 30, -------------------- ------------------- 1999 2000 1999 2000 ------- ------ ------ ------ (in thousands) Pari-mutuel Operations Operating Revenues: Service revenue ......................................... $18,571 19,510 35,885 38,402 Sales revenue ........................................... 2,726 4,394 5,600 12,938 ------- ------ ------ ------ Total Revenue ...................................... $21,297 23,904 41,485 51,340 ======= ====== ====== ====== Gross Profit (excluding depreciation and amortization) ...... $ 8,919 10,840 16,833 21,529 ======= ====== ====== ====== Venue Management Operations Operating Revenues: Service revenue ......................................... $15,432 15,723 29,746 30,069 ======= ====== ====== ====== Gross Profit (excluding depreciation and amortization) ...... $ 3,964 4,399 7,337 8,315 ======= ====== ====== ======
17 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(Continued)
Three Months ended Six Months ended April 30, April 30, ----------------------- -------------------- Results of Operations: 1999 2000 1999 2000 -------- ------ ------ ------- Lottery Operations (in thousands) Operating Revenues: Service revenue .................................. $ 2,336 3,052 4,508 5,820 Sales revenue .................................... 13,857 8,382 22,406 13,070 -------- ------ ------ ------- Total Revenue ............................... $ 16,193 11,434 26,914 18,890 ======== ====== ====== ======= Gross Profit (excluding depreciation and amortization) $ 3,778 3,018 6,589 5,502 ======== ====== ====== ======= SJC Video Operations Operating Revenues: Service revenue .................................. $ 157 -- 586 327 ======== ====== ====== ======= Gross Profit (excluding depreciation and amortization) $ (30) -- 205 -- ======== ====== ====== ======= Company Total Operating Revenues: Service revenue .................................. $ 36,496 38,285 70,725 74,618 Sales revenue .................................... 16,583 12,776 28,006 26,008 -------- ------ ------ ------- Total Revenue ............................... $ 53,079 51,061 98,731 100,626 ======== ====== ====== ======= Gross Profit (excluding depreciation and amortization) $ 16,631 18,257 30,964 35,346 ======== ====== ====== =======
Three Months Ended April 30, 2000 Compared to Three Months Ended April 30, 1999 Pari-mutuel Operations service revenues of $19.5 million for the second quarter of fiscal 2000 improved $0.9 million or 5% from the second quarter of the prior year. This improvement reflects primarily $1.0 million in revenues from the German operations that were acquired in the fourth quarter of fiscal 1999 and improved revenues in the Company's NASRIN(TM) operations. These increases were partially offset by lower service revenues in the North American simulcasting operations. Pari-mutuel Operations sales revenues increased by $1.7 million to $4.4 million in the second quarter of fiscal 2000 due primarily to the sales of terminals to the Company's international customers, primarily in Italy and Finland. Pari-mutuel Operations gross profit of $10.8 million or 45% of total revenues, increased from gross profit of $8.9 million in the same period last year. Higher gross profit on improved Handle, primarily in the German pari-mutuel operations and higher equipment sales were partially offset by a decrease in gross profit on lower revenues in the North American simulcasting operations. Venue Management Operations service revenues of $15.7 million for the second quarter of fiscal 2000 increased 2% over the service revenues in the second quarter of the prior year. Handle-related revenue increases of 4% in the Connecticut OTB operations and 6% in the Netherlands operations, were partly offset by the impact of foreign exchange on the reported Netherlands operations revenues. Gross profit was $4.4 million or 28% of service revenue in the second quarter of fiscal 2000, an increase over the gross profit of $4.0 million or 26% of service revenue in the second quarter of fiscal 1999. This improvement primarily reflects higher Handle-related revenues and cost savings in the Connecticut OTB operations. Lottery Operations service revenues in the second quarter of fiscal 2000 of $3.1 million improved $0.7 million from the second quarter of the prior year due to the April 1999 launch of the Montana lottery. The $5.5 million decrease in sales revenues to $8.4 million in the second quarter of fiscal 2000 is primarily attributable to the April 1999 sale of a lottery central system, terminals and communications equipment to the Montana lottery, and fewer terminal sales, primarily for use in Italy. Lottery Operations gross profit of $3.0 million or 26% of total revenues, decreased from gross profit of $3.8 million or 23% of total revenues in the same period last year. Higher gross profit on improved service revenues due to the new Montana lottery service contract were more than offset by a decrease in gross profit on equipment sales due to the Montana equipment sale in April 1999 and lower international equipment sales in the second quarter of fiscal 2000. 18 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(Continued) Expense Analysis Selling, general and administrative expenses including software development costs decreased $0.2 million or 3% to $6.3 million in the second quarter of fiscal 2000. Lower expenses were due to cost reduction programs in Connecticut OTB and France, and the absence of the SJC Video business. Depreciation and amortization expenses decreased $0.1 million or 3% to $5.1 million in the second quarter of fiscal 2000. Depreciation increased $0.1 million, primarily due to the installation of wagering system equipment at new North American pari-mutuel customers, partly offset by the absence of the SJC Video business depreciation. Amortization expense decreased $0.2 million as a result of the full amortization of intangible assets associated with the North American simulcasting operations. Interest expense increased $0.1 million to $4.2 million in the second quarter of fiscal 2000 as a result of an increase in average outstanding borrowings during the period. Income Taxes Income tax expense was $0.2 million in the second quarter of fiscal 2000 and $0.1 million in the second quarter of fiscal 1999. Income tax expense principally reflects federal alternative minimum tax, foreign and state income taxes. Six Months Ended April 30, 2000 Compared to Six Months Ended April 30, 1999 Pari-mutuel Operations service revenues of $38.4 million for the first six months of fiscal 2000 improved $2.5 million or 7% from the first six months of the prior year. This improvement primarily reflects $2.5 million in revenues from the German operations that were acquired in the fourth quarter of fiscal 1999 and improved revenues in the Company's North American pari-mutuel and NASRIN(TM) operations. These increases were partially offset by lower service revenues in the French operations and lower service revenues in North American simulcasting. Pari-mutuel Operations sales revenues increased by $7.3 million to $12.9 million in the first six months of fiscal 2000 due primarily to the sales of terminals to the Company's international customers, primarily in Italy, Finland and Chile. Pari-mutuel Operations gross profit of $21.5 million or 42% of total revenues, increased from gross profit of $16.8 million in the same period last year. Higher gross profit on improved Handle, primarily in the German pari-mutuel operations, higher NASRIN(TM) service revenues and increased equipment sales, were partially offset by a decrease in gross profit on lower Handle in the French pari-mutuel operations, lower simulcasting service revenues, and higher satellite service fees due to a credit received in fiscal 1999 from our satellite provider as a result of a service interruption. Venue Management Operations service revenues of $30.1 million for the first six months of fiscal 2000 increased 1% over the service revenues of the first six months of the prior year. Handle-related revenue increases of 4% in the Connecticut OTB operations and 3% in the Netherlands operations, were partly offset by the impact of foreign exchange on the reported Netherlands operations revenues. Gross profit was $8.3 million or 28% of service revenue in the first six months of fiscal 2000, an increase over the gross profit of $7.3 million or 25% of service revenue in the first six months of fiscal 1999. This improvement primarily reflects higher Handle-related revenues and cost savings in the Connecticut OTB operations. Lottery Operations service revenues in the first six months of fiscal 2000 of $5.8 million improved $1.3 million from the first six months of the prior year due to the April 1999 launch of the Montana lottery. The $9.3 million decrease in sales to $13.1 million in the first six months of fiscal 2000 is primarily attributable to the April 1999 Montana lottery equipment sale and fewer terminal sales as compared to the fiscal 1999 period, primarily for use in Italy. Lottery Operations gross profit of $5.5 million or 29% of total revenues, decreased from gross profit of $6.6 million or 24% of total revenues in the same period last year. Higher gross profit on improved service revenue due to the new Montana lottery service contract was more than offset by a decrease in gross profit due to the lower volume of international equipment sales. 19 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(Continued) Expense Analysis Selling, general and administrative expenses including software development costs were comparable at $13.2 million for the first six months of fiscal 2000 and fiscal 1999. Higher expenses due to increased operating levels in the North American and German pari-mutuel operations and the Montana lottery, which began in April 1999, were offset by cost reductions in NASRIN(TM) and France, and the absence of the SJC Video business. Depreciation and amortization expenses decreased $0.4 million or 3% to $10.7 million in the first six months of fiscal 2000. Depreciation expense decreased $0.3 million, primarily due to the full depreciation of certain assets in prior periods and the absence of the SJC Video business. Amortization expense decreased $0.1 million as a result of the full amortization of intangible assets associated with the North American simulcasting operations. Interest expense increased $0.1 million to $8.2 million in the first six months of fiscal 2000 as a result of an increase in average outstanding borrowings during the period. Income Taxes Income tax expense was $0.3 million in the first six months of fiscal 2000, as compared to $0.2 million in the first six months of fiscal 1999. Income tax expense principally reflects federal alternative minimum tax, foreign and state income taxes. Liquidity, Capital Resources and Working Capital Deficiency At April 30, 2000, the Company's available cash and borrowing capacity totaled $10.3 million compared to $29.0 million at October 31, 1999. Net cash provided by operating activities decreased by $2.9 million to $6.2 million for the six months ended April 30, 2000 from $9.0 million in the six months ended April 30, 1999 as a result of a decrease in accounts payable, partially offset by a decrease in inventory. In the first six months of fiscal 2000, the Company utilized $6.2 million of cash provided by operating activities, $17.2 million of long-term borrowings, $1.3 million in proceeds from stock sales, and $2.5 million of available cash, to invest $20.7 million principally in capital and contract expenditures in connection with the January 2000 start-up of the Monmouth/Meadowlands service contract and the Vermont and New Hampshire state lotteries which will commence operations in July 2000. The Company also invested $3.3 million in software systems development and other assets, and used $2.8 million to reduce other long-term loans. At April 30, 2000, the Company's current assets exceeded current liabilities by $0.6 million, an improvement of $8.3 million from October 31, 1999. The improvement results principally from a reduction in accounts payable and the classification of substantially all debt as long term as the result of the planned debt refinancing which will be done in connection with the recently announced proposed acquisition of Scientific Games Holdings Corp (see below). As described above in Note 7 to the Consolidated Financial Statements, the Company had $7.7 million of borrowing availability under its Facility at April 30, 2000. The Company believes that its cash resources, anticipated cash flows from operations and borrowing availability under the Facility and the planned replacement facility (see below) will provide sufficient liquidity to meet scheduled interest payments and anticipated capital expenditures during the next twelve months. Proposed Acquisition of Scientific Games Holdings Corp and New Debt and Equity Financing On May 19, 2000 the Company announced the signing of a definitive agreement for the acquisition of Scientific Games Holdings Corp ("Scientific Games"), a world leading supplier of lottery products, integrated lottery systems and support services, and pre-paid telephone cards. The acquisition is expected be completed through a merger in which Scientific Games becomes a wholly-owned subsidiary of the Company at an estimated cost of $310 million plus related costs. Consummation of the acquisition is subject to satisfaction or waiver by the parties of certain closing conditions, including the receipt of regulatory approvals, approval by the stockholders of Scientific Games and other customary closing conditions. It is expected that, subject to such conditions, the acquisition will be completed during the summer and be accounted for under the purchase method. 20 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(Continued) Certain affiliates of Donaldson Lufkin Jenrette and Lehman Brothers have issued a commitment letter to provide debt financing for the acquisition, certain related costs and other purposes. Such commitment letter contemplates financing under senior term loan and revolving credit facilities, and issuance of senior subordinated notes, totaling up to $440 million or more. Depending on the financing alternatives chosen by the Company, such financing may include the issuance of warrants to purchase Company common stock, in amounts and on terms common in transactions of this nature, dependent on market conditions and the financing alternatives being pursued. In a separate transaction, Olivetti S.p.A. has issued a commitment letter to purchase, for an aggregate of $100 million, preferred stock convertible into Company common stock at a price of $6.00 per share (subject to potential reset to no less than $5.00 per share based on possible future market price movements), which would mature and become mandatorily convertible into common stock after five years and would pay dividends at the rate of 6% per annum (payable in kind in additional shares or, at the Company's option beginning with the ninth quarterly dividend date, in cash). Other investors have issued similar commitment letters for an additional $10 million of convertible preferred stock. Both such debt financing and such preferred stock financing are subject to various terms and conditions and will be embodied in definitive documentation to be negotiated and completed by the parties. In the event the acquisition is not completed, the Company may be entitled to receive or be subject to pay certain breakup fees. Further information regarding the proposed acquisition and financing can be found in the Form 8-Ks filed by the Company on May 19, 2000 and May 26, 2000. The Company believes that this new financing and the proceeds of the new convertible preferred stock issuance, in the aggregate, will be sufficient to enable it to complete the purchase of Scientific Games, to repay substantially all of the indebtedness of Scientific Games, to meet the scheduled maturity of the Term Loan and Credit Facility in February 2001 and the scheduled maturity of the Subordinated Debentures in August 2001, to retire the Notes, and to provide financing for capital expenditures that are not financed through cash flows from operations. Recent Accounting Pronouncements In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts. Under the standard, entities are required to carry all derivative instruments in the statement of financial position at fair value. SFAS 133 is effective beginning in the first quarter of our fiscal year ending October 31, 2001. The Company has not determined the impact that SFAS 133 will have on its financial statements and believes that such determination will not be meaningful until closer to the date of initial adoption. Forward-Looking Statements This quarterly report on Form 10-Q contains certain statements and projections (including statements concerning plans and objectives of management for the future operations and services, statements concerning revenue expectations and statements concerning mergers and re-financing) other than those covering historical information, that should be considered forward-looking and subject to certain risks and uncertainties. Such forward-looking statements are based on management's belief as well as assumptions made by, and information currently available to, management pursuant to "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The Company's actual results may differ materially from the plans envisioned in, or results projected by, those statements if the Company's assumptions prove to be incorrect or for a variety of other reasons, including those relating to factors identified in the Company's Annual Report on Form 10-K for the year ended October 31, 1999 as part of a Cautionary Statement for purposes of such safe harbor. The Company cautions that such factors are not exclusive. The Company does not undertake to update any forward-looking statement that may be made from time to time by, or on behalf of, the Company. 21 AUTOTOTE CORPORATION AND SUBSIDIARIES Quarter Ended April 30, 2000 PART II. Other Information Item 1. Legal Proceedings No significant changes have occurred with respect to legal proceedings disclosed in Part 1, Item 3, of the Company's 1999 Annual Report on Form 10-K Item 2. Change in Securities and Use of Proceeds. Recent Sales of Unregistered Securities Between January and April 2000, the Company issued an aggregate of 281,898 unregistered shares (the "Shares") of Class A Common Stock pursuant to the exercise, at $2.98 per share, of warrants originally issued as of September 14, 1995 to certain banks who were party to the Company's prior senior bank credit facility (the "1995 Warrants"). The Shares were issued in reliance upon the exemption from registration provided for under Section 4(2) of the Securities Act of 1933, as amended. In addition, 1995 Warrants held by the Company's Chief Executive Officer to purchase 28,691 shares and 1995 Warrants held (for the deferred compensation account of the Chief Executive Officer) by the trust established in connection with the Company's Deferred Compensation Plan to purchase 14,345 shares were each amended in April 2000 (as amended, the "2000 Warrants"). The amendment extended the expiration date of the 2000 Warrants from April 30, 2000 to April 30, 2003, in consideration for (i) a provision precluding exercise thereof prior to May 1, 2001, except in the event of a change in control, and (ii) an increase of the exercise price from $2.98 per share to $3.32 per share. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Stockholders The Annual Meeting of the stockholders of the Company was held on March 23, 2000 to elect five directors of the Company, to approve an amendment to the Company's 1997 Incentive Compensation Plan and to ratify the appointment of KPMG LLP as auditors for the Company's 2000 fiscal year. All matters put before the stockholders passed as follows:
Director Nominees/ Other Matters For Withheld Against Abstain -------------------------------- --- -------- ------- ------- A. Lorne Weil 32,141,851 1,607,437 -- -- Larry Lawrence 32,078,353 1,670,935 -- -- Sir Brian G. Wolfson 32,141,451 1,607,837 -- -- Alan J. Zakon 32,158,451 1,590,837 -- -- Marshall Bartlett 32,141,851 1,607,437 -- -- Amend 1997 Incentive Comp Plan 28,216,199 -- 5,365,586 167,503 Ratification of KPMG LLP 33,280,345 -- 391,695 77,248
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 second quarter of fiscal 2000. A current report on Form 8-K were filed on May 19, 2000 and May 26, 2000, regarding the proposed acquisition by the Company of Scientific Games Holdings Corp and certain related matters. 22 AUTOTOTE CORPORATION AND SUBSIDIARIES Quarter Ended April 30, 2000 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: June 14 , 2000 23 EX-27 2 0002.txt 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. 1,000 6-MOS OCT-31-2000 NOV-1-1999 APR-30-2000 2,599 0 28,730 (2,781) 11,125 43,034 216,402 (128,070) 172,438 42,409 35,000 0 0 369 (45,539) 172,438 100,626 100,626 65,280 65,280 24,082 0 8,183 3,081 311 2,770 0 0 0 2,770 0.08 0.07
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