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 nine month periods ended: July 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
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 September 9, 1999:
Class A Common Stock: 36,265,526
Class B Common Stock: None
Page 1 of 21
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER INFORMATION
QUARTER ENDED JULY 31, 1999
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Balance Sheets as of July 31, 1999
and October 31, 1998 3
Statements of Operations for the Three Months Ended
July 31, 1999 and 1998 4
Statements of Operations for the Nine Months Ended
July 31, 1999 and 1998 5
Statements of Cash Flows for the Nine Months Ended
July 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-19
PART II. OTHER INFORMATION
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
2
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
July 31, October 31,
1999 1998
--------- -----------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ....................................................$ 14,465 6,809
Restricted cash .............................................................. 746 638
Accounts receivable, net ..................................................... 16,555 21,752
Inventories .................................................................. 10,502 11,295
Prepaid expenses, deposits and other current assets .......................... 2,413 1,932
--------- ---------
Total current assets .................................................... 44,681 42,426
--------- ---------
Property and equipment, at cost ................................................... 198,722 196,748
Less accumulated depreciation ................................................ 121,388 118,315
--------- ---------
Net property and equipment .............................................. 77,334 78,433
--------- ---------
Goodwill, net of amortization ..................................................... 2,665 3,614
Operating right, net of amortization .............................................. 14,098 14,848
Other assets and investments ...................................................... 19,291 17,179
--------- ---------
$ 158,069 156,500
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt .......................................$ 2,628 2,992
Accounts payable ............................................................. 13,482 13,610
Accrued liabilities .......................................................... 24,568 24,996
Interest payable ............................................................. 7,380 3,706
--------- ---------
Total current liabilities ............................................... 48,058 45,304
--------- ---------
Deferred income taxes ............................................................. 1,793 1,832
Other long-term liabilities ....................................................... 2,869 2,124
Long-term debt, excluding current installments .................................... 118,860 120,878
Long-term debt, convertible subordinated debentures ............................... 35,000 35,000
--------- ---------
Total liabilities ....................................................... 206,580 205,138
--------- ---------
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,
36,183 and 35,943 shares outstanding at July 31, 1999
and October 31, 1998, respectively ........................................ 362 360
Class B non-voting common stock, par value $0.01 per share, 700 shares
authorized, none outstanding .............................................. -- --
Additional paid-in capital ................................................... 149,498 149,119
Accumulated losses ........................................................... (197,198) (197,231)
Accumulated other comprehensive loss ......................................... (1,071) (784)
Treasury stock, at cost ...................................................... (102) (102)
--------- ---------
Total stockholders' equity (deficit) .................................... (48,511) (48,638)
--------- ---------
$ 158,069 156,500
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended July 31, 1999 and 1998
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Operating revenues:
Services .................................................................. $ 38,883 34,862
Sales ..................................................................... 14,287 3,933
-------- --------
53,170 38,795
-------- --------
Operating expenses (exclusive of depreciation and amortization shown below):
Services .................................................................. 25,908 22,790
Sales ..................................................................... 9,631 2,835
-------- --------
35,539 25,625
-------- --------
Total gross profit ................................................... 17,631 13,170
Selling, general and administrative expenses ................................... 6,641 6,310
Depreciation and amortization .................................................. 5,352 7,502
-------- --------
Operating income (loss) .............................................. 5,638 (642)
Other deductions:
Interest expense .......................................................... 3,928 3,838
Other income .............................................................. (80) (141)
-------- --------
3,848 3,697
-------- --------
Income (loss) before income tax expense (benefit) .............................. 1,790 (4,339)
Income tax expense (benefit) ................................................... (105) 74
-------- --------
Net income (loss) .................................................... $ 1,895 (4,413)
======== ========
Net income (loss) per basic share and diluted share .................. $ 0.05 (0.12)
======== ========
Weighted average number of shares used in per share calculation:
Basic shares ......................................................... 36,169 35,916
Diluted shares ....................................................... 38,699 35,916
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended July 31, 1999 and 1998
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Operating revenues:
Services ............................................................... $109,608 99,114
Sales .................................................................. 42,293 10,327
-------- --------
151,901 109,441
-------- --------
Operating expenses (exclusive of depreciation and amortization shown below):
Services ............................................................... 72,801 62,792
Sales .................................................................. 30,505 6,600
-------- --------
103,306 69,392
-------- --------
Total gross profit ................................................ 48,595 40,049
Selling, general and administrative expenses ................................ 19,854 19,155
Gain on sale of business .................................................... -- (684)
Depreciation and amortization ............................................... 16,363 22,117
-------- --------
Operating income (loss) ........................................... 12,378 (539)
Other deductions:
Interest expense ....................................................... 12,037 11,492
Other (income) expense ................................................. 221 (726)
-------- --------
12,258 10,766
-------- --------
Income (loss) before income tax expense ..................................... 120 (11,305)
Income tax expense .......................................................... 87 368
-------- --------
Net income (loss) ................................................. $ 33 (11,673)
======== ========
Net income (loss) per basic share and diluted share ............... $ -- (0.33)
======== ========
Weighted average number of shares used in per share calculation:
Basic shares ...................................................... 36,075 35,603
Diluted shares .................................................... 38,004 35,603
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended July 31, 1999 and 1998
(Unaudited, in thousands)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................................. $ 33 (11,673)
-------- --------
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
Depreciation and amortization ................................. 16,363 22,117
Gain on sale of business ...................................... -- (684)
Changes in operating assets and liabilities ................... 8,797 2,177
Other ......................................................... 946 792
-------- --------
Total adjustments ........................................ 26,106 24,402
-------- --------
Net cash provided by operating activities ............................... 26,139 12,729
-------- --------
Cash flows from investing activities:
Capital expenditures ............................................... (1,306) (1,568)
Wagering systems expenditures ...................................... (9,971) (18,484)
Cash acquired in business acquisition .............................. -- 2,177
Increase in other assets and investments ........................... (5,034) (5,974)
-------- --------
Net cash used in investing activities ................................... (16,311) (23,849)
-------- --------
Cash flows from financing activities:
Proceeds from the issuance of long-term debt, net of financing fees 60 12,000
Payments on long-term debt ......................................... (2,356) (2,283)
Net proceeds from issuance of common stock ......................... 146 510
-------- --------
Net cash provided (used) by financing activities ........................ (2,150) 10,227
-------- --------
Effect of exchange rate changes on cash ................................. (22) (54)
-------- --------
Increase (decrease) in cash and cash equivalents ........................ 7,656 (947)
Cash and cash equivalents, beginning of period .......................... 6,809 18,207
-------- --------
Cash and cash equivalents, end of period ................................ $ 14,465 17,260
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ........................................................... $ 7,843 7,479
======== ========
Income taxes ....................................................... $ 579 388
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
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 July 31, 1999 and the consolidated
statements of operations for the three and nine months ended July 31, 1999 and
1998, and the consolidated statements of cash flows for the nine 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 July 31, 1999 and the results of its operations for the three
and nine months ended July 31, 1999 and 1998 and its cash flows for the nine
months ended July 31, 1999 and 1998 have been made. In the second quarter of
fiscal 1998, the Company reversed reserves of $1.3 million in connection with
the collection of receivables previously reserved due to concerns about their
recoverability and cost savings related to the refurbishment of certain
terminals.
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 Annual Report on Form 10-K for the year ended October 31, 1998.
The results of operations for the nine months ended July 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 increase in income before income tax benefit and net income
and a $0.03 increase in net income per basic and diluted share in the third
quarter of fiscal 1999, and an approximate $3,300 increase in income before
income tax expense and net income and a $0.09 increase in net income per basic
and diluted share in the first nine months of fiscal 1999.
Basic Net Income (Loss) Per Share and Diluted Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during the period.
Diluted net income per share gives effect to all dilutive potential common
shares that were outstanding during the period. Potential common shares are not
included in the calculation of the dilutive net loss per share in the periods
presented, since their inclusion would be anti-dilutive. Basic and diluted net
loss per common share for these periods, therefore, are the same. The following
represents a reconciliation of the numerator and denominator used in computing
basic and diluted net income per share for the three and nine month periods
ended July 31, 1999:
<TABLE>
<CAPTION>
Third Quarter Fiscal 1999 Nine Months Fiscal 1999
------------------------------------------------------------------------------
Income Shares Per Share Income Shares Per Share
(numerator) (denominator) Amount (numerator) (denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic net income per share-net
income and weighted average
common shares outstanding .......... $1,895 36,169 0.05 33 36,075 --
Effect of diluted securities-stock
options, warrants, and
deferred shares .................... -- 2,530 -- -- 1,929 --
------ ------ ---- ------ ------ ----
Diluted net income per share-net
income, weighted average
common shares outstanding
and effect of dilutive securities .. $1,895 38,699 0.05 33 38,004 --
====== ====== ==== ====== ====== ====
</TABLE>
At July 31, 1999 and 1998, the Company had outstanding stock options,
warrants, convertible subordinated debentures, Performance Accelerated
Restricted Stock Units and deferred shares which could potentially dilute basic
earnings per share in the future.
7
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited, in thousands, except per share amounts)
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 income (loss). The following presents a reconciliation of net
income (loss) to comprehensive income (loss) for the three and nine months ended
July 31, 1999 and 1998:
<TABLE>
<CAPTION>
Three months ended Nine months ended
July 31, July 31,
--------------------- ----------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) ............................ $ 1,895 (4,413) 33 (11,673)
Other comprehensive income (loss):
Foreign currency translation ............ 50 (17) (287) (191)
------- ------- ------- -------
Comprehensive income (loss) .................. $ 1,945 (4,430) (254) (11,864)
======= ======= ======= =======
</TABLE>
4) Inventories
Inventories consist of the following:
July 31, October 31,
1999 1998
------- ----------
Parts and work-in-process ......... $ 9,474 10,082
Finished goods .................... 274 448
Ticket paper ...................... 754 765
------- -------
$10,502 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 July 31, 1999, the Company had approximately $23,581 available for
borrowing under the Company's revolving Credit Facility (the "Facility"). There
were no borrowings outstanding under the Facility at July 31, 1999, however,
approximately $1,419 in letters of credit were issued under the Facility.
8
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited, in thousands, except per share amounts)
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 Annual Report on Form 10-K for the year ended October
31, 1998.)
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 foreign subsidiaries and the non-wholly owned domestic and foreign
subsidiaries (the "Non-Guarantor Subsidiaries") as of July 31, 1999 (unaudited)
and October 31, 1998 (audited) and for the three and nine month periods ended
July 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.
9
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
July 31, 1999
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------- ----------- ------------
ASSETS
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents ............................. $ 11,855 596 2,014 -- 14,465
Accounts receivable, net .............................. -- 13,938 2,617 -- 16,555
Other current assets .................................. 38 9,593 4,494 (464) 13,661
Property and equipment, net ........................... 318 69,525 7,768 (277) 77,334
Investment in subsidiaries ............................ 79,060 -- -- (79,060) --
Goodwill .............................................. 199 840 1,626 -- 2,665
Other assets .......................................... 6,178 29,434 712 (2,935) 33,389
--------- --------- --------- --------- ---------
Total assets ....................................... $ 97,648 123,926 19,231 (82,736) 158,069
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current installments of long-term debt ................ $ -- 2,500 128 -- 2,628
Current liabilities ................................... 15,019 24,696 5,878 (163) 45,430
Long-term debt, excluding current installments ........ 146,250 7,229 381 -- 153,860
Other non-current liabilities ......................... 2,097 1,076 2,062 (573) 4,662
Intercompany balances ................................. (17,207) 17,264 (298) 241 --
Stockholders' equity (deficit) ........................ (48,511) 71,161 11,080 (82,241) (48,511)
--------- --------- --------- --------- ---------
Total liabilities and stockholders equity (deficit).. $ 97,648 123,926 19,231 (82,736) 158,069
========= ========= ========= ========= =========
</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>
10
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Three Months Ended July 31, 1999
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Operating revenues ...................................... $ -- 46,250 13,351 (6,431) 53,170
Operating expenses ...................................... -- 29,284 12,682 (6,427) 35,539
------- ------- ------- ------- ------
Gross profit ......................................... -- 16,966 669 (4) 17,631
Selling, general and administrative expenses ............ 2,387 3,286 972 (4) 6,641
Depreciation and amortization ........................... 46 4,578 753 (25) 5,352
------- ------- ------- ------- ------
Operating income (loss) .............................. (2,433) 9,102 (1,056) 25 5,638
Interest expense ........................................ 3,679 221 111 (83) 3,928
Other (income) expense .................................. (50) (28) (85) 83 (80)
------- ------- ------- ------- ------
Income (loss) before equity in income of
subsidiaries, and income taxes .......................... (6,062) 8,909 (1,082) 25 1,790
Equity in income of subsidiaries ........................ 8,008 -- -- (8,008) --
Income tax expense (benefit) ............................ 51 57 (213) -- (105)
------- ------- ------- ------- ------
Net income (loss) ....................................... $ 1,895 8,852 (869) (7,983) 1,895
======= ======= ======= ======= ======
</TABLE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Three Months Ended July 31, 1998
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Operating revenues ...................................... $ -- 33,733 7,049 (1,987) 38,795
Operating expenses ...................................... -- 21,977 5,514 (1,866) 25,625
------- ------- ------- ------- -------
Gross profit ......................................... -- 11,756 1,535 (121) 13,170
Selling, general and administrative expenses ............ 2,178 3,519 613 -- 6,310
Depreciation and amortization ........................... 39 6,632 936 (105) 7,502
------- ------- ------- ------- -------
Operating income (loss) .............................. (2,217) 1,605 (14) (16) (642)
Interest expense ........................................ 3,757 10 79 (8) 3,838
Other (income) expense .................................. (79) (84) 14 8 (141)
------- ------- ------- ------- -------
Income (loss) before equity in income of
subsidiaries, and income taxes ........................ (5,895) 1,679 (107) (16) (4,339)
Equity in income of subsidiaries ........................ 1,487 -- -- (1,487) --
Income tax expense ...................................... 5 -- 69 -- 74
------- ------- ------- ------- -------
Net income (loss) ....................................... $(4,413) 1,679 (176) (1,503) (4,413)
======= ======= ======= ======= =======
</TABLE>
11
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Nine Months Ended July 31, 1999
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
---------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Operating revenues ........................................ $ -- 131,715 34,239 (14,053) 151,901
Operating expenses ........................................ -- 86,694 30,654 (14,042) 103,306
-------- -------- -------- -------- --------
Gross profit ........................................... -- 45,021 3,585 (11) 48,595
Selling, general and administrative expenses .............. 6,852 9,859 3,159 (16) 19,854
Depreciation and amortization ............................. 136 14,105 2,199 (77) 16,363
-------- -------- -------- -------- --------
Operating income (loss) ................................ (6,988) 21,057 (1,773) 82 12,378
Interest expense .......................................... 11,232 727 222 (144) 12,037
Other (income) expense .................................... (1,825) 52 2 1,992 221
-------- -------- -------- -------- --------
Income (loss) before equity in income of
subsidiaries, and income taxes............................ (16,395) 20,278 (1,997) (1,766) 120
Equity in income of subsidiaries ......................... 16,597 -- -- (16,597) --
Income tax expense (benefit) .............................. 169 102 (184) -- 87
-------- -------- -------- -------- --------
Net income (loss) ......................................... $ 33 20,176 (1,813) (18,363) 33
======== ======== ======== ======== ========
</TABLE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Nine Months Ended July 31, 1998
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
-------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Operating revenues ...................................... $ -- 97,897 18,175 (6,631) 109,441
Operating expenses ...................................... -- 62,544 13,019 (6,171) 69,392
-------- -------- -------- -------- --------
Gross profit ......................................... -- 35,353 5,156 (460) 40,049
Selling, general and administrative expenses ............ 6,976 9,742 2,437 -- 19,155
Gain on sale of business ................................ (684) -- -- -- (684)
Depreciation and amortization ........................... 95 19,640 2,652 (270) 22,117
-------- -------- -------- -------- --------
Operating income (loss) .............................. (6,387) 5,971 67 (190) (539)
Interest expense ........................................ 11,280 57 180 (25) 11,492
Other (income) expense .................................. (555) (144) (52) 25 (726)
-------- -------- -------- -------- --------
Income (loss) before equity in income of
subsidiaries, and income taxes ........................ (17,112) 6,058 (61) (190) (11,305)
Equity in income of subsidiaries ....................... 5,596 -- -- (5,596) --
Income tax expense ...................................... 157 -- 211 -- 368
-------- -------- -------- -------- --------
Net income (loss) ....................................... $(11,673) 6,058 (272) (5,786) (11,673)
======== ======== ======== ======== ========
</TABLE>
12
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS
Nine Months Ended July 31, 1999
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
-------- ------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net income (loss) ....................................... $ 33 20,176 (1,813) (18,363) 33
Depreciation and amortization ........................ 136 14,105 2,199 (77) 16,363
Equity in income of subsidiaries ..................... (16,597) -- -- 16,597 --
Other non-cash adjustments ........................... 930 15 1 -- 946
Changes in working capital ........................... 2,557 8,343 (1,944) (159) 8,797
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities ..... (12,941) 42,639 (1,557) (2,002) 26,139
-------- -------- -------- -------- --------
Cash flows from investing activities:
Capital and wagering systems expenditures ............ (26) (9,467) (1,780) (4) (11,277)
Other assets and investments ......................... (504) (5,447) (275) 1,192 (5,034)
-------- -------- -------- -------- --------
Net cash provided by (used in) investing activities ..... (530) (14,914) (2,055) 1,188 (16,311)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ............. -- 60 -- -- 60
Payments on long-term debt ........................... -- (2,066) (290) -- (2,356)
Other, principally intercompany balances ............. 23,227 (25,316) 1,621 614 146
-------- -------- -------- -------- --------
Net cash provided by (used in) financing activities ..... 23,227 (27,322) 1,331 614 (2,150)
-------- -------- -------- -------- --------
Effect of exchange rate changes on cash ................. 45 -- (267) 200 (22)
-------- -------- -------- -------- --------
Increase/(decrease) in cash and cash equivalents ........ 9,801 403 (2,548) -- 7,656
Cash and cash equivalents, beginning of period .......... 2,054 193 4,562 -- 6,809
-------- -------- -------- -------- --------
Cash and cash equivalents, end of period ................ $ 11,855 596 2,014 -- 14,465
======== ======== ======== ======== ========
</TABLE>
13
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS
Nine Months Ended July 31, 1998
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
-------- -------------- ------------- ------- ------------
<S> <C> <C> <C> <C> <C>
Net income (loss) ....................................... $(11,673) 6,058 (272) (5,786) (11,673)
Depreciation and amortization ........................ 95 19,640 2,652 (270) 22,117
Equity in income of subsidiaries ..................... (5,596) -- -- 5,596 --
Gain on sale of business ............................. (684) -- -- -- (684)
Other non-cash adjustments ........................... 996 (115) (89) -- 792
Changes in working capital ........................... 870 1,803 (375) (121) 2,177
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities ..... (15,992) 27,386 1,916 (581) 12,729
-------- -------- -------- -------- --------
Cash flows from investing activities:
Capital and wagering systems expenditures ............ (294) (18,363) (1,821) 426 (20,052)
Cash acquired in business acquisition ................ -- -- 2,177 -- 2,177
Other assets and investments ......................... (238) (5,830) (77) 171 (5,974)
-------- -------- -------- -------- --------
Net cash provided by (used in) investing activities ..... (532) (24,193) 279 597 (23,849)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Net proceeds from issuance of long-term debt ......... -- 12,000 -- -- 12,000
Payments on long-term debt ........................... -- (2,001) (294) 12 (2,283)
Other, principally intercompany balances ............. 13,343 (13,771) 974 (36) 510
-------- -------- -------- -------- --------
Net cash provided by (used in) financing activities ..... 13,343 (3,772) 680 (24) 10,227
-------- -------- -------- -------- --------
Effect of exchange rate changes on cash ................. 5 1 (68) 8 (54)
-------- -------- -------- -------- --------
Increase/(decrease) in cash and cash equivalents ........ (3,176) (578) 2,807 -- (947)
Cash and cash equivalents, beginning of year ............ 15,582 328 2,297 -- 18,207
-------- -------- -------- -------- --------
Cash and cash equivalents, end of period ................ $ 12,406 (250) 5,104 -- 17,260
======== ======== ======== ======== ========
</TABLE>
14
<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 July 31, 1999 and the results of its operations for the three and nine
month periods ended July 31, 1999, 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, 1998 ("fiscal 1998") included in the Company's Annual Report
on Form 10-K for fiscal 1998.
Three Months Ended July 31, 1999 Compared to Three Months Ended July 31, 1998
<TABLE>
<CAPTION>
Third Quarter Fiscal 1999 Third Quarter Fiscal 1998
----------------------------------- ----------------------------------
Pari- Pari-
Mutuel Lottery Mutuel Lottery
Operations Operations Total Operations Operations Total
---------- ---------- ------- ------- ----------- -------
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Services ......................................... $35,954 2,929 38,883 31,917 2,945 34,862
Sales ............................................ 7,934 6,353 14,287 3,586 347 3,933
------- ------- ------- ------- ------- -------
Total Revenues ................................... $43,888 9,282 53,170 35,503 3,292 38,795
======= ======= ======= ======= ======= =======
Gross Profit (excluding
depreciation and amortization) ...................... $14,952 2,679 17,631 12,196 974 13,170
======= ======= ======= ======= ======= =======
</TABLE>
Third Quarter Revenue Analysis
Revenues increased 37% or $14.4 million to $53.2 million in the third
quarter of the fiscal year ending October 31, 1999 ("fiscal 1999") from $38.8
million in the third quarter of fiscal 1998.
Pari-mutuel Operations services revenues of $36.0 million for the third
quarter of fiscal 1999 improved $4.0 million or 13% from the third quarter of
the prior year. This improvement primarily reflects $2.5 million in revenues
from the Netherlands operations that were acquired in July of fiscal 1998,
revenues from the new NASRIN(TM) operation, higher OTB revenues attributable to
improved handle and the September 1998 opening of the race book at the Mohegan
Sun Casino, and the growth in simulcasting and handle related revenues in the
Company's North American pari-mutuel operations. These increases were partially
offset by the loss of a French pari-mutuel service contract. Pari-mutuel
Operations equipment sales revenues in the third quarter of fiscal 1999 of $7.9
million increased $4.3 million from the third quarter of the prior year due
primarily to sales of a system to the Irish Horseracing Association, Extrema(TM)
terminals to the UK Tote, and Max 3000 terminals to other international
customers.
Lottery Operations services revenues of $2.9 million in the third quarter
of fiscal 1999 were unchanged from the prior year quarter. Lottery Operations
equipment sales revenues increased significantly in the third quarter of fiscal
1999 to $6.4 million from $0.3 million in the same period in fiscal 1998. This
increase is primarily attributable to sales of Extrema(TM) terminals for use in
the SISAL SPORT Italia SpA lottery operations.
Gross Profit Analysis
The total gross profit of $17.6 million in the third quarter of fiscal 1999
increased by $4.5 million, or 34%, from the third quarter of fiscal 1998. Higher
gross profit on international sales of the Company's systems, Extrema(TM)
terminals and Max 3000 terminals, coupled with profits on higher pari-mutuel and
OTB services revenues, were partially offset by the decrease in profits earned
in the French pari-mutuel operations. Gross profit as a percent of revenues in
the Company's service businesses was 33% in the third quarter of fiscal 1999
compared to 35% in the third quarter of fiscal 1998 and 35% in full fiscal 1998.
This decrease reflects, primarily, the lower gross profit on the Netherlands
operations that were acquired in July of fiscal 1998, and lower gross profit on
French pari-mutuel operations, partially offset by improved gross profit in
pari-mutuel and OTB operations. Gross profit earned on equipment sales of $4.7
million in the third quarter of fiscal 1999 increased by $3.6 million from the
third quarter of fiscal 1998. Gross profit as a percent of equipment sales was
33% in the third quarter of fiscal 1999, an increase from gross profit of 28% in
the third quarter of fiscal 1998 as a result of a change in the mix of equipment
and systems sold.
15
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(Continued)
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 increased $0.3 million or
5% to $6.6 million in the third quarter of fiscal 1999 from $6.3 million in the
third quarter of fiscal 1998. The increase is primarily the result of the
inclusion of the Netherlands operations acquired in July 1998.
Depreciation and amortization expenses decreased $2.1 million or 29% to
$5.4 million in the third quarter of fiscal 1999 from $7.5 million in the third
quarter of fiscal 1998. Depreciation decreased by $1.3 million primarily due to
the lengthening of depreciable lives of pari-mutuel terminals from seven to ten
years, effective November 1, 1998, as the result of the renewal of a number of
service contracts and the realized equipment durability. Amortization expenses
decreased by $0.8 million as a result of the full amortization of certain
intangible assets in fiscal 1998.
Interest expense of $3.9 million in the third quarter of fiscal 1999
increased $0.1 million from the third quarter of fiscal 1998, as a result of the
borrowings in connection with the fiscal 1998 installation of the Connecticut
lottery terminals.
Income Taxes
An income tax benefit of $0.1 million was recorded in the third quarter of
fiscal 1999 compared to $0.1 million of expense in the fiscal 1998 third
quarter. Income tax expense (benefit) principally reflects foreign taxes, since
no tax benefit has been recognized on domestic operating losses.
Nine Months Ended July 31, 1999 Compared to Nine Months Ended July 31, 1998
<TABLE>
<CAPTION>
Nine Months Fiscal 1999 Nine Months Fiscal 1998
-------------------------------------- ---------------------------------------
Pari- Pari-
Mutuel Lottery Mutuel Lottery
Operations Operations Total Operations Operations Total
---------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Services ............................. $102,171 7,437 109,608 91,924 7,190 99,114
Sales ................................ 13,534 28,759 42,293 9,014 1,313 10,327
-------- -------- -------- -------- -------- --------
Total Revenues ....................... $115,705 36,196 151,901 100,938 8,503 109,441
======== ======== ======== ======== ======== ========
Gross Profit (excluding
depreciation and amortization) .......... $ 39,340 9,255 48,595 37,123 2,926 40,049
======== ======== ======== ======== ======== ========
</TABLE>
Nine Month Revenue Analysis
Revenues increased 39% or $42.5 million to $151.9 million in the first nine
months of fiscal 1999 from $109.4 million in the first nine months of fiscal
1998.
Pari-mutuel Operations services revenues of $102.2 million in the first
nine months of fiscal 1999 improved $10.2 million or 11% from the first nine
months of the prior year. This improvement primarily reflects $8.8 million in
revenues from the Netherlands operations that were acquired in July 1998,
revenues from the new NASRIN(TM) operation, higher OTB revenues attributable to
increased handle and the September 1998 opening of the race book at the Mohegan
Sun Casino and improved simulcasting revenues in Germany. These improvements
were partially offset by the loss of a French pari-mutuel service contract and
fewer sales of excess transponder time in the domestic simulcasting operations.
Pari-mutuel equipment sales revenues in the first nine months of fiscal
16
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(Continued)
1999 of $13.5 million increased $4.5 million or 50% from the first nine months
of the prior year, primarily due to sales of a system to the Irish Horseracing
Association, Extrema(TM) terminals to the UK Tote and Max 3000 terminals to
other international customers.
Lottery Operations service revenues increased $0.2 million in the first
nine months of fiscal 1999 to $7.4 million primarily due to the April 1999
launch of the Montana lottery. Lottery equipment sales revenues increased to
$28.8 million in the first nine months of fiscal 1999 from $1.3 million in the
same period in fiscal 1998. This increase is primarily attributable to the
fiscal 1999 sales of Extrema(TM) terminals for use in the SISAL Sport Italia SpA
lottery operations, and the March 1999 delivery of a lottery central system,
terminals and communications equipment to the Montana Lottery.
Gross Profit Analysis
The total gross profit of $48.6 million in the first nine months of fiscal
1999 increased by $8.5 million, or 21%, from the first nine months of fiscal
1998. Higher margins were due to the profit on sales of Extrema(TM) terminals
for use in the SISAL Sport Italia SpA lottery operations, sales of Max 3000
terminals to other international customers and the March 1999 delivery of a
lottery central system, terminals and communications equipment to the Montana
Lottery, coupled with profits on higher pari-mutuel and OTB service revenues.
These gross profits were partially offset by the lower profit in the French
pari-mutuel operations. Gross profit as a percent of revenues in the Company's
services businesses was 34% in the first nine months of fiscal 1999, compared to
37% in the first nine months of fiscal 1998, reflecting, primarily, lower
margins on the Netherlands operations that were acquired in July of fiscal 1998,
the start-up of the NASRIN(TM) business, and lower gross profit on French
pari-mutuel operations, partially offset by improved earnings in OTB operations.
Gross profit earned on equipment sales was $11.8 million in the first nine
months of fiscal 1999, compared to $3.7 million in the first nine months of
fiscal 1998 primarily due to the international sales of lottery and pari-mutuel
terminals mentioned above. Gross profit as a percent of equipment sales was 28%
in the first nine months of fiscal 1999, a decrease from the gross profit
percent of 36% in the first nine months of fiscal 1998 and the 33% gross profit
percent for all of fiscal 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 increased $0.7 million or
4% to $19.9 million in the first nine months of fiscal 1999 from $19.2 million
in the first nine months of fiscal 1998. The increase is primarily the result of
the inclusion of the Netherlands operations acquired in July 1998 and lower
expenses reported in fiscal 1998 resulting from the collection of receivables
previously reserved due to concerns about their recoverability.
Depreciation and amortization expenses decreased $5.8 million or 26% to
$16.4 million in the first nine months of fiscal 1999 from $22.1 million in the
first nine months of fiscal 1998. Depreciation decreased by $3.9 million
primarily due to the lengthening of depreciable lives of pari-mutuel terminals
from seven to ten years, effective November 1, 1998, as the result of the
renewal of a number of service contracts and the realized equipment durability.
Amortization expenses decreased by $1.8 million primarily as a result of the
full amortization of certain intangible assets in fiscal 1998.
Interest expense of $12.0 million in the first nine months of fiscal 1999
increased $0.5 million from the first nine months of fiscal 1998 as a result of
borrowings in connection with the fiscal 1998 installation of the Connecticut
lottery terminals.
Other expense of $0.2 million in the first nine months of fiscal 1999
consisted primarily of currency translation expenses, and other income of $0.7
million in the first nine months of fiscal 1998 consisted primarily of interest
on invested excess cash.
Income Taxes
Income tax expense was $0.1 million in the first nine months of fiscal 1999
compared to $0.4 million in the first nine months of fiscal 1998. Income tax
expense principally reflects foreign taxes, since no tax benefit has been
recognized on domestic operating losses.
17
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(Continued)
Liquidity, Capital Resources and Working Capital Deficiency
At July 31 1999, the Company's available cash and borrowing capacity
totaled $38.0 million compared to $29.9 million at October 31, 1998. Net cash
provided by operating activities increased by $13.4 million to $26.1 million in
the nine months ended July 31, 1999 from $12.7 million in the nine months ended
July 31, 1998 reflecting improved earnings, the collection of trade receivables
and customer deposits and the reduction of inventory related primarily to the
sales of systems and terminals to international customers. Partially offsetting
these increases were the payments of liabilities incurred in fiscal 1998 in
connection with the European cost savings efforts and liabilities assumed in
connection with the fiscal 1998 acquisition of the Netherlands operations. In
the first nine months of fiscal 1999, the Company utilized cash provided by
operating activities to invest $16.3 million, principally in capital and
contract expenditures and in software systems development, and to repay $2.4
million of long-term debt.
At July 31, 1999, the Company's current liabilities exceeded current assets
by $3.4 million, an increase of $0.5 million from October 31, 1998. The increase
is principally due to the use of available cash to fund capital expenditures.
As described above in Note 5 to the Consolidated Financial Statements, the
Company had $23.6 million of borrowing availability under its Facility at July
31, 1999. The Company believes that 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 over the long term to enable it to meet its debt
service obligations, including scheduled principal payments under the Notes, the
Subordinated Debentures and the Term Loan. See Notes 5 and 6 to the Consolidated
Financial Statements.
Year 2000
The Company is dedicated to providing uninterrupted, high quality
performance from its computer software systems, products and satellite
communications network before, during and after year 2000. Since its fiscal year
ended October 31, 1997, 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 Simulcasting satellite and ground control systems and encoders/decoders
are compliant. Company-owned Scientific Atlanta NTL encoders and the Scientific
Atlanta control computer (DEMC V2.31) were tested and certified by the Company.
All other simulcasting equipment Year 2000 certifications are based on third
party certifications of various components by the original equipment
manufacturers ("OEMs") and GE Americom, the satellite system provider.
Pari-mutuel and Video Gaming wagering systems are Year 2000 compliant.
Installation of a Compaq authored Year 2000 patch for the Company's VAX systems
Open VMS operating systems was completed. Regulatory testing and certification
of pari-mutuel wagering systems is complete. Regulatory testing of video gaming
systems is complete and certification is anticipated by the end of September
1999. Additional known regulatory and/or quasi-regulatory testing, where
mandated, will be completed by October 1, 1999.
Year 2000 compliant Lottery software was made available to the lotteries in
mid-June 1999 and regulatory testing and certification of Lottery systems is
expected to be complete by November 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 and progress made to date support the Company's belief that
its solutions will be implemented and tested prior to any anticipated Year 2000
impact on the Company's systems.
18
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(Continued)
The total estimated cost of Year 2000 remediation efforts is not expected
to exceed $1 million. Through the first nine months of fiscal 1999, the Company
has incurred approximately $0.4 million of costs principally for software
modifications and conversions. The Company had previously believed that the
simulcasting network might require equipment upgrades and replacements in order
to become Year 2000 compliant. It is now believed that such equipment upgrades
and replacements will not be necessary. Similar Year 2000 readiness programs are
in place in the Company's foreign operations. Costs to address these operations'
Year 2000 issues are not expected to be material and are included in the above
remediation cost estimate. The Company intends to monitor these processes, and
has evaluated alternative solutions, which will be implemented if necessary.
The Company expects that its critical systems and applications will be
compliant by November 30, 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
business, consolidated 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.
19
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
Quarter Ended July 31, 1999
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 Annual Report on Form 10-K for the
year ended October 31, 1998.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
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 third quarter of
fiscal 1999.
20
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
Quarter Ended July 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)
/s/ DeWayne E. Laird
By: ----------------------
Name: DeWayne E. Laird
Title: Vice President & Chief Financial Officer
Dated: September 14, 1999
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-1-1998
<PERIOD-END> JUL-31-1999
<CASH> 14,465
<SECURITIES> 0
<RECEIVABLES> 18,547
<ALLOWANCES> (1,992)
<INVENTORY> 10,502
<CURRENT-ASSETS> 44,681
<PP&E> 198,722
<DEPRECIATION> 121,388
<TOTAL-ASSETS> 158,069
<CURRENT-LIABILITIES> 48,058
<BONDS> 35,000
0
0
<COMMON> 362
<OTHER-SE> (48,873)
<TOTAL-LIABILITY-AND-EQUITY> 158,069
<SALES> 151,901
<TOTAL-REVENUES> 151,901
<CGS> 103,306
<TOTAL-COSTS> 103,306
<OTHER-EXPENSES> 36,438
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,037
<INCOME-PRETAX> 120
<INCOME-TAX> 87
<INCOME-CONTINUING> 33
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33
<EPS-BASIC> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
