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
<PAGE>
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
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
January 31, October 31,
1999 1998
---------- -----------
ASSETS (Unaudited)
<S> <C> <C>
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
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended January 31, 1999 and 1998
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended January 31, 1999 and 1998
(Unaudited, in thousands)
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
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
<PAGE>
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
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
January 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
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
========= ========= ========= ========= =========
</TABLE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
October 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
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
========= ========= ========= ========= =========
</TABLE>
8
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Three Months Ended January 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
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)
======= ======= ======= ======= =======
</TABLE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Three Months Ended January 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
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)
======= ======= ======= ======= =======
</TABLE>
9
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended January 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
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
======= ======= ======= ======= =======
</TABLE>
10
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended January 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ========
</TABLE>
11
<PAGE>
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
<TABLE>
<CAPTION>
First Quarter Fiscal 1999 First Quarter Fiscal 1998
------------------------------------- ------------------------------------
Pari- Pari-
Mutuel Lottery Mutuel Lottery
Operations Operations Total Operations Operations Total
---------- ---------- ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
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
======= ======= ======= ======= ======= =======
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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