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, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition from _______________ to _______________
Commission File number: 0-13063
AUTOTOTE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 81-0422894
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
750 Lexington Avenue, New York, New York 10022
----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(212)-754-2233
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports 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 9, 2000:
Class A Common Stock: 36,603,369
Class B Common Stock: None
Page 1 of 19
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER INFORMATION
QUARTER ENDED JANUARY 31, 2000
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Balance Sheets as of October 31, 1999
and January 31, 2000 3
Statements of Operations for the Three Months Ended
January 31, 1999 and 2000 4
Statements of Cash Flows for the Three Months Ended
January 31, 1999 and 2000 5
Notes to Consolidated Financial Statements 6-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-17
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8K 18
2
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
October 31, January 31,
1999 2000
----------- -----------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................ $ 5,067 3,048
Restricted cash .......................................................... 771 721
Accounts receivable, net ................................................. 25,755 23,237
Inventories .............................................................. 14,636 16,751
Prepaid expenses, deposits and other current assets ...................... 2,319 3,132
--------- ---------
Total current assets ................................................ 48,548 46,889
--------- ---------
Property and equipment, at cost ............................................... 199,767 205,286
Less accumulated depreciation ............................................ 123,039 125,754
--------- ---------
Net property and equipment .......................................... 76,728 79,532
--------- ---------
Goodwill, net of amortization ................................................. 5,237 4,541
Operating right, net of amortization .......................................... 13,848 13,598
Other assets and investments .................................................. 21,198 21,714
--------- ---------
$ 165,559 166,274
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt ................................... $ 4,253 3,002
Accounts payable ......................................................... 20,102 15,297
Accrued liabilities ...................................................... 28,015 23,373
Interest payable ......................................................... 3,898 7,449
--------- ---------
Total current liabilities ........................................... 56,268 49,121
--------- ---------
Deferred income taxes ......................................................... 1,656 1,664
Other long-term liabilities ................................................... 2,963 3,093
Long-term debt, excluding current installments ................................ 117,891 125,369
Long-term debt, convertible subordinated debentures ........................... 35,000 35,000
--------- ---------
Total liabilities ................................................... 213,778 214,247
--------- ---------
Stockholders' equity (deficit):
Preferred stock, par value $1.00 per share, 2,000 shares
authorized, none outstanding .......................................... -- --
Class A common stock, par value $0.01 per share, 99,300 shares authorized,
36,268 and 36,500 shares outstanding at October 31, 1999
and January 31, 2000, respectively .................................... 364 366
Class B non-voting common stock, par value $0.01 per share, 700 shares
authorized, none outstanding .......................................... -- --
Additional paid-in capital ............................................... 149,622 150,021
Accumulated losses ....................................................... (196,852) (196,388)
Treasury stock, at cost .................................................. (102) (102)
Accumulated other comprehensive loss ..................................... (1,251) (1,870)
--------- ---------
Total stockholders' equity (deficit) ................................ (48,219) (47,973)
--------- ---------
Commitments and contingencies (see Notes 8, 10, 13 and 14 to the Consolidated
Financial Statements in the Company's 1999 Annual Report on Form 10-K.) ....... $ 165,559 166,274
========= =========
</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 2000
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 2000
-------- --------
<S> <C> <C>
Operating revenues:
Services .............................................................. $ 34,229 36,333
Sales ................................................................. 11,423 13,232
-------- --------
45,652 49,565
-------- --------
Operating expenses (exclusive of depreciation and amortization shown below):
Services .............................................................. 23,163 24,480
Sales ................................................................. 8,156 7,996
-------- --------
31,319 32,476
-------- --------
Total gross profit ............................................... 14,333 17,089
Selling, general and administrative expenses ............................... 6,788 6,993
Depreciation and amortization .............................................. 5,733 5,510
-------- --------
Operating income ................................................. 1,812 4,586
-------- --------
Other deductions:
Interest expense ...................................................... 4,070 3,997
Other expense ......................................................... 45 57
-------- --------
4,115 4,054
-------- --------
Income (loss) before income tax expense ............................... (2,303) 532
Income tax expense ......................................................... 131 68
-------- --------
Net income (loss) .......................................................... $ (2,434) 464
======== ========
Net income (loss) per basic share and diluted share ........................ $ (0.07) 0.01
======== ========
Weighted average number of shares used in per share calculation:
Basic shares .......................................................... 35,998 36,388
======== ========
Diluted shares ........................................................ 35,998 40,352
======== ========
</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 2000
(Unaudited, in thousands)
<TABLE>
<CAPTION>
1999 2000
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................... $(2,434) 464
------- -------
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
Depreciation and amortization .............................. 5,733 5,510
Changes in operating assets and liabilities ................ 65 (6,066)
Other ...................................................... 299 258
------- -------
Total adjustments ..................................... 6,097 (298)
------- -------
Net cash provided by operating activities ............................ 3,663 166
------- -------
Cash flows from investing activities:
Capital expenditures ............................................ (326) (1,751)
Wagering systems expenditures ................................... (1,832) (5,435)
Increase in other assets and investments ........................ (2,582) (1,570)
------- -------
Net cash used in investing activities ................................ (4,740) (8,756)
------- -------
Cash flows from financing activities:
Net borrowings under lines of credit ............................ -- 8,315
Proceeds from issuance of long-term debt ........................ 60 86
Payments on long-term debt ...................................... (750) (2,034)
Proceeds from the issuance of common stock ...................... -- 338
------- -------
Net cash provided by (used in) financing activities .................. (690) 6,705
------- -------
Effect of exchange rate changes on cash .............................. (87) (134)
------- -------
Decrease in cash and cash equivalents ................................ (1,854) (2,019)
Cash and cash equivalents, beginning of period ....................... 6,809 5,067
------- -------
Cash and cash equivalents, end of period ............................. $ 4,955 3,048
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ........................................................ $ 61 65
======= =======
Income taxes .................................................... $ 178 200
======= =======
</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
Basis of Presentation
The consolidated balance sheet as of January 31, 2000 and the consolidated
statements of operations for the three months ended January 31, 1999 and 2000,
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, 2000 and the results of its operations for the three
months ended January 31, 1999 and 2000 and its cash flows for the three months
ended January 31, 1999 and 2000 have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's 1999 Annual Report on Form 10-K. The results
of operations for the period ended January 31, 2000 are not necessarily
indicative of the operating results for the full year.
Basic Net Income (Loss) Per Share and Diluted Net Income (Loss) Per Share
The following represents a reconciliation of the numerator and denominator
used in computing basic and diluted net income per share for the three month
periods ended January 31, 1999 and 2000:
<TABLE>
<CAPTION>
Three months
ended January 31,
--------------------
1999 2000
-------- ------
<S> <C> <C>
Income (numerator)
Net income (loss) ................................... $ (2,434) 464
-------- ------
Shares (denominator)
Basic weighted average common shares outstanding .... 35,998 36,388
Effect of diluted securities-stock options, warrants,
and deferred shares ............................... -- 3,964
-------- ------
Diluted weighted average common shares outstanding .. 35,998 40,352
======== ======
Per Share Amount
Basic net income (loss) per share ................... $ (0.07) 0.01
======== ======
Diluted net income (loss) per share ................. $ (0.07) 0.01
======== ======
</TABLE>
At January 31, 2000, 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. (See Notes 12 and 13 to the Consolidated Financial
Statements for the year ended October 31, 1999 in the Company's 1999 Annual
Report on Form 10-K.)
6
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share amounts)
2) Acquisition of Datasport Assets and Interest in Datek
On September 1, 1999, the Company completed the purchase of selected
assets and the assumption of certain liabilities from Datasport Toto
Dienstleistung GmbH & Co KG ("Datasport"). As a result of this purchase, the
Company is the sole provider of totalisator and simulcasting services to the 14
thoroughbred racetracks in Germany. The transaction also increased the Company's
ownership and control of Datek GmbH ("Datek"), the primary provider of
pari-mutuel wagering to OTBs and bookmakers in Germany. The purchase, which
included approximately $2,333 in cash and the assumption of certain liabilities,
was recorded using the purchase method of accounting, and the acquired assets
and liabilities have been recorded at their estimated fair value at the date of
acquisition. The excess of the purchase price over the fair values of the net
assets acquired was approximately $3.2 million and has been recorded as goodwill
which is being amortized over 15 years. The operating results of the Datasport
and Datek businesses have been included in the consolidated statements of
operations since the date of acquisition. Had the operating results of the
Datasport and Datek businesses been included as if the transaction had been
consummated on November 1, 1998, the pro forma operating results of the Company
for the three months ended January 31, 1999 would not have been materially
different.
3) Business Segments
The following tables represent revenues and profits by business segments
for the three month periods ended January 31, 1999 and 2000. Corporate expenses
are allocated among business segments. Interest expense and other (income)
deductions are not allocated to business segments.
<TABLE>
<CAPTION>
Three Months
Ended January 31,
----------------------
1999 2000
-------- --------
<S> <C> <C>
Service revenue and product sales:
Pari-mutuel operations ........... $ 20,188 27,436
Venue management operations ...... 14,314 14,346
Lottery operations ............... 10,721 7,456
SJC Video operations ............. 429 327
-------- --------
$ 45,652 49,565
======== ========
Gross profit
Pari-mutuel operations ........... $ 7,914 10,689
Venue management operations ...... 3,373 3,916
Lottery operations ............... 2,811 2,484
SJC Video operations ............. 235 --
-------- --------
Total gross profit ............ $ 14,333 17,089
======== ========
Operating income (loss)
Pari-mutuel operations ........... $ (888) 1,783
Venue management operations ...... 970 1,613
Lottery operations ............... 1,827 1,190
SJC Video operations ............. (97) --
-------- --------
1,812 4,586
Other deductions:
Interest expense ................... 4,070 3,997
Other expense ...................... 45 57
-------- --------
Income (loss) before income tax expense $ (2,303) 532
======== ========
</TABLE>
7
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited, in thousands, except per share amounts)
3) Business Segments--(Continued)
October 31, January 31,
1999 2000
----------- -----------
Assets
Pari-mutuel operations .......... $110,598 113,082
Venue management operations ..... 34,613 34,368
Lottery operations .............. 20,348 18,824
SJC Video operations ............ -- --
-------- --------
$165,559 166,274
======== ========
Three Months Ended January 31,
------------------------------
1999 2000
---------- -------------
Capital and wagering systems expenditures
Pari-mutuel operations .......... $ 1,419 6,648
Venue management operations ..... 177 356
Lottery operations .............. 541 182
SJC Video operations ............ 21 --
-------- --------
$ 2,158 7,186
======== ========
4) Comprehensive Loss
The following presents a reconciliation of net income (loss) to
comprehensive loss for the three months ended January 31, 1999 and 2000:
Three Months Ended January 31,
------------------------------
1999 2000
---------- -------------
Net income (loss) .................... $ (2,434) 464
Other comprehensive loss:
Foreign currency translation .... (145) (619)
-------- ----
Comprehensive loss ................... $ (2,579) (155)
======== ====
5) Inventories
Inventories consist of the following:
October 31, January 31,
1999 2000
----------- -----------
Parts and work-in-process ............ $ 13,735 15,810
Finished goods ....................... 344 209
Ticket paper ......................... 557 732
-------- ------
$ 14,636 16,751
======== ======
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.
8
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except per share amounts)
6) Debt
At January 31, 2000, the Company had approximately $15,581 available for
borrowing under the Company's revolving Credit Facility (the "Facility"). There
were approximately $8,315 of borrowings outstanding under the Facility at
January 31, 2000, and approximately $1,104 in letters of credit were issued
under the Facility.
7) Financial Information for Guarantor Subsidiaries and Non-Guarantor
Subsidiaries
The Company conducts substantially all of its business through its
domestic and foreign subsidiaries. In July 1997, the Company issued $110,000
aggregate principal amount of Senior Notes bearing interest at an annual rate of
10 7/8% (the "Notes"). On May 22, 1998, the Company and Autotote Lottery
Corporation entered into a $12,000 three-year term loan arrangement that bears
interest at a fixed annual rate of 8.87% (the "Term Loan"). The Term Loan was
extended in conjunction with the Facility and is subject to certain restrictive
and financial covenants contained in the Facility. Obligations under the
Facility and the Notes are jointly and severally guaranteed by substantially all
of the Company's wholly-owned domestic subsidiaries (the "Guarantor
Subsidiaries"). (See Note 8 to the Consolidated Financial Statements for the
year ended October 31, 1999 in the Company's 1999 Annual Report on Form 10-K.)
Presented below is condensed consolidating financial information for (i)
Autotote Corporation (the "Parent Company") which includes the activities of
Autotote Management Corporation, (ii) the Guarantor Subsidiaries and (iii) the
wholly-owned and the non-wholly owned foreign subsidiaries (the "Non-Guarantor
Subsidiaries") as of January 31, 2000 (unaudited) and October 31, 1999 (audited)
and for the three month periods ended January 31, 1999 and 2000 (unaudited). The
condensed consolidating financial information has been presented to show the
nature of assets held, results of operations and cash flows of the Parent
Company, Guarantor Subsidiaries and Non-Guarantor Subsidiaries assuming the
guarantee structure of the Notes and the Facility were in effect at the
beginning of the periods presented. Separate financial statements for Guarantor
Subsidiaries are not presented based on management's determination that they
would not provide additional information that is material to investors.
The condensed consolidating financial information reflects the investments
of the Parent Company in the Guarantor and Non-Guarantor Subsidiaries using the
equity method of accounting. In addition, corporate interest and administrative
expenses have not been allocated to the subsidiaries.
9
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
October 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 .................... $ 1,598 506 2,963 -- 5,067
Accounts receivable, net ..................... -- 21,083 4,672 -- 25,755
Other current assets ......................... 30 14,143 4,017 (464) 17,726
Property and equipment, net .................. 298 66,973 9,708 (251) 76,728
Investment in subsidiaries ................... 58,214 -- -- (58,214) --
Goodwill ..................................... 198 353 4,686 -- 5,237
Other assets ................................. 6,199 30,385 659 (2,197) 35,046
--------- --------- --------- --------- ---------
Total assets .............................. $ 66,537 133,443 26,705 (61,126) 165,559
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities .......................... $ 12,219 29,546 10,922 (672) 52,015
Current installments of long-term debt ....... 1,250 2,429 574 -- 4,253
Long-term debt, excluding current installments 145,000 6,627 1,264 -- 152,891
Other non-current liabilities ................ 2,193 1,233 1,766 (573) 4,619
Intercompany balances ........................ (45,906) 43,214 1,942 750 --
Stockholders' equity (deficit) ............... (48,219) 50,394 10,237 (60,631) (48,219)
--------- --------- --------- --------- ---------
Total liabilities and stockholders'
equity (deficit) ....................... $ 66,537 133,443 26,705 (61,126) 165,559
========= ========= ========= ========= =========
</TABLE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
January 31, 2000
(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 .................... $ 439 1,076 1,533 -- 3,048
Accounts receivable, net ..................... -- 18,626 4,611 -- 23,237
Other current assets ......................... 14 16,152 4,872 (434) 20,604
Property and equipment, net .................. 283 70,033 9,505 (289) 79,532
Investment in subsidiaries ................... 65,027 -- -- (65,027) --
Goodwill ..................................... 196 88 4,257 -- 4,541
Other assets ................................. 6,387 30,699 632 (2,406) 35,312
--------- --------- --------- --------- ---------
Total assets .............................. $ 72,346 136,674 25,410 (68,156) 166,274
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities .......................... $ 14,086 22,897 9,586 (450) 46,119
Current installments of long-term debt ....... -- 2,407 595 -- 3,002
Long-term debt, excluding current installments 153,315 6,026 1,028 -- 160,369
Other non-current liabilities ................ 2,441 733 2,155 (572) 4,757
Intercompany balances ........................ (49,523) 47,004 2,088 431 --
Stockholders' equity (deficit) ............... (47,973) 57,607 9,958 (67,565) (47,973)
--------- --------- --------- --------- ---------
Total liabilities and stockholders'
equity (deficit) ....................... $ 72,346 136,674 25,410 (68,156) 166,274
========= ========= ========= ========= =========
</TABLE>
10
<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, 2000
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operating revenues .............................. $ -- 42,149 12,163 (4,747) 49,565
Operating expenses .............................. -- 26,570 10,653 (4,747) 32,476
--------- --------- --------- --------- ---------
Gross profit ................................. -- 15,579 1,510 -- 17,089
Selling, general and administrative expenses .... 2,517 3,438 1,038 -- 6,993
Depreciation and amortization ................... 72 4,624 839 (25) 5,510
--------- --------- --------- --------- ---------
Operating income (loss) ...................... (2,589) 7,517 (367) 25 4,586
Interest expense ................................ 3,729 219 166 (117) 3,997
Other (income) expense .......................... (3) 10 4 46 57
--------- --------- --------- --------- ---------
Income (loss) before equity in income of
subsidiaries and income taxes ................ (6,315) 7,288 (537) 96 532
Equity in income of subsidiaries ................ 6,779 -- -- (6,779) --
Income tax expense .............................. -- 100 (32) -- 68
--------- --------- --------- --------- ---------
Net income (loss) ............................... $ 464 7,188 (505) (6,683) 464
========= ========= ========= ========= =========
</TABLE>
11
<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 non-cash adjustments ................... 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>
12
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended January 31, 2000
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net income (loss) ............................... $ 464 7,188 (505) (6,683) 464
Depreciation and amortization ................ 72 4,624 839 (25) 5,510
Equity in income of subsidiaries ............. (6,779) -- -- 6,779 --
Other non-cash adjustments ................... 283 23 (48) -- 258
Changes in working capital ................... 1,883 (5,321) (1,940) (688) (6,066)
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities (4,077) 6,514 (1,654) (617) 166
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Capital and wagering systems expenditures .... (17) (6,287) (882) -- (7,186)
Other assets and investments ................. (198) (1,709) 412 (75) (1,570)
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing activities (215) (7,996) (470) (75) (8,756)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Net borrowing under lines of credit .......... 8,315 -- -- -- 8,315
Proceeds from issuance of long-term debt ..... -- -- 86 -- 86
Payments on long-term debt ................... (1,250) (611) (173) -- (2,034)
Other, principally intercompany balances ..... (3,932) 2,294 1,213 763 338
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities 3,133 1,683 1,126 763 6,705
--------- --------- --------- --------- ---------
Effect of exchange rate changes on cash ......... -- 369 (432) (71) (134)
--------- --------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents (1,159) 570 (1,430) -- (2,019)
Cash and cash equivalents, beginning of period .. 1,598 506 2,963 -- 5,067
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period ........ $ 439 1,076 1,533 -- 3,048
========= ========= ========= ========= =========
</TABLE>
13
<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, 2000 and the results of its operations for the three month
period ended January 31, 2000, 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, 1999 included in the Company's 1999 Annual Report on Form
10-K.
We operate primarily in three business segments, Pari-mutuel Operations,
Venue Management and Lottery Operations. Pari-mutuel Operations include all
aspects of our pari-mutuel service business, which encompass our North American
and international on-track, off-track and inter-track pari-mutuel services,
simulcasting and communications services, video gaming, and sales of pari-mutuel
systems and equipment. Venue Management includes the Connecticut off-track
betting operations and our Netherlands on-track and off-track betting
operations. Lottery Operations include both domestic and international lottery
service, as well as sales of lottery systems and equipment. During fiscal 1999,
the Company commenced negotiations to sell its SJC Video business.
Historically, our revenues have been derived from two principal sources:
service revenues and sales revenues. Service revenues are earned pursuant to
multi-year contracts to provide wagering systems and other services, which are
typically based on a percentage of Handle and/or daily or monthly fees; or are
derived from wagering by customers at facilities owned or leased by us. Sales
revenues are derived from sales contracts for wagering equipment, services and
software. The first quarter of our fiscal year and a portion of our second
fiscal quarter traditionally comprise the weakest season for pari-mutuel
wagering service revenue. Wagering equipment sales revenues usually reflect a
limited number of large transactions which do not recur on an annual basis, but
which historically have given rise to additional terminal and systems software
sales to existing customers. Consequently, revenues and operating results can
vary substantially from period to period as a result of the timing of revenue
recognition for major equipment sales.
<TABLE>
<CAPTION>
Results of Operations: Three Months Ended January 31,
-------------------------------
1999 2000
---- ----
Pari-mutuel Operations (in thousands)
<S> <C> <C>
Operating Revenues:
Service revenue .................................. $17,314 18,892
Sales revenue .................................... 2,874 8,544
------- ------
Total Revenue ................................. $20,188 27,436
======= ======
Gross Profit (excluding depreciation and amortization) $ 7,914 10,689
======= ======
Venue Management Operations
Operating Revenues:
Service revenue .................................. $14,314 14,346
======= ======
Gross Profit (excluding depreciation and amortization) $ 3,373 3,916
======= ======
</TABLE>
14
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(Continued)
<TABLE>
<CAPTION>
Results of Operations: Three Months Ended January 31,
------------------------------
1999 2000
------- -----
Lottery Operations (in thousands)
<S> <C> <C>
Operating Revenues:
Service revenue .................................. $ 2,172 2,768
Sales revenue .................................... 8,549 4,688
------- ------
Total Revenue ................................. $10,721 7,456
======= ======
Gross Profit (excluding depreciation and amortization) $ 2,811 2,484
======= ======
SJC Video
Operating Revenues:
Service revenue .................................. $ 429 327
======= ======
Gross Profit (excluding depreciation and amortization) $ 235 --
======= ======
Company Total
Operating Revenues:
Service revenue .................................. $34,229 36,333
Sales revenue .................................... 11,423 13,232
------- ------
Total Revenue ................................. $45,652 49,565
======= ======
Gross Profit (excluding depreciation and amortization) $14,333 17,089
======= ======
</TABLE>
Three Months Ended January 31, 2000 Compared to Three Months Ended January 31,
1999
Pari-mutuel Operations service revenues of $18.9 million for the first
quarter of fiscal 2000 improved $1.6 million or 9% from the first quarter of the
prior year. This improvement reflects primarily $1.6 million in revenues from
the German operations that were acquired in the fourth quarter of fiscal 1999
and improved revenues in the Company's North American pari-mutuel and NASRIN(TM)
operations. These increases were partially offset by lower service revenues in
the French operations. Pari-mutuel Operations sales revenues increased by $5.7
million to $8.5 million in the first quarter of fiscal 2000 due primarily to the
sales of terminals to the Company's international customers, primarily in Italy
and Chile. Pari-mutuel Operations gross profit of $10.7 million or 39% of total
revenues, increased from gross profit of $7.9 million in the same period last
year. Higher gross profit on improved handle, primarily in North America and
Germany pari-mutuel operations and higher equipment sales were partially offset
by a decrease in gross profit on lower handle in the French pari-mutuel
operations and higher satellite service fees due to a credit received in fiscal
1999 from our satellite provider resulting from a service interruption.
Venue Management Operations service revenues of $14.3 million for the
first quarter of fiscal 2000 approximated the service revenues of the first
quarter of the prior year as revenue increases due to increased handle in the
Connecticut operations were offset by the impact of foreign exchange on the
reported revenues of the Netherlands operations. Gross profit was $3.9 million
or 27% percent of service revenue in the first quarter of fiscal 2000, an
increase over the gross profit of $3.4 million or 24% percentage of service
revenue in the first quarter of fiscal 1999. This improvement primarily reflects
higher handle-related revenues and cost savings in the Connecticut operations.
15
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(Continued)
Lottery Operations service revenues in the first quarter of fiscal 2000 of
$2.8, improved $0.6 million from the first quarter of the prior year due to the
April 1999 launch of the Montana lottery. The $3.9 million decrease in sales to
$4.7 million in the first quarter of fiscal 2000 is primarily attributable to
lower sales of terminals, primarily for use in Italy. Lottery Operations gross
profit of $2.5 million or 33% of total revenues, decreased from gross profit of
$2.8 million or 26% of total revenues in the same period last year. Higher gross
profit on improved service revenue due to the new Montana lottery operation were
more than offset by a decrease in gross profit on the lower international
equipment sales.
Expense Analysis
Selling, general and administrative expenses including software
development costs increased $0.2 million or 3% to $7.0 million in the first
quarter of fiscal 2000. Higher expenses were due to increased operating levels
in the North American and German pari-mutuels operations and the Montana lottery
which began in April 1999.
Depreciation and amortization expenses decreased $0.2 million or 4% to
$5.5 million in the first quarter of fiscal 2000. Depreciation decreased $0.3
million, primarily due to full depreciation of certain assets in prior periods.
Amortization expense increased $0.1 million as a result of the amortization of
intangible assets associated with the German operation acquired in September
1999.
Interest expense decreased $0.1 million to $4.0 million in the first
quarter of fiscal as a result of fluctuations in long term borrowings.
Income Taxes
Income tax expense was $0.1 million in both the first quarter of fiscal
2000 and the first quarter of fiscal 1999. Income tax expense principally
reflects foreign and state income taxes, since no federal tax benefit has been
recognized on domestic operating losses.
Liquidity, Capital Resources and Working Capital Deficiency
At January 31, 2000, the Company's available cash and borrowing capacity
totaled $18.6 million compared to $29.0 million at October 31, 1999. Net cash
provided by operating activities decreased by $3.5 million to $0.2 million for
the quarter ended January 31, 2000 from $3.7 million in the quarter ended
January 31, 1999 as a result of an increase in inventory and the decrease in
accounts payable. In the first quarter of fiscal 2000, the Company utilized $0.2
million of cash provided by operating activities, $8.3 million of long-term
borrowings and $2.0 million of available cash, to invest $8.8 million,
principally in capital and contract expenditures in connection with the start-up
of the Monmouth/Meadowlands service contract and in software systems
development, and used $2.0 million to reduce other long-term loans.
At January 31, 2000, the Company's current liabilities exceeded current
assets by $2.2 million, an improvement of $5.5 million from October 31, 1999.
The improvement results principally from cash flows from operations that were
used to reduce accounts payable.
As described above in Note 6 to the Consolidated Financial Statements, the
Company had $15.6 million of borrowing availability under its Facility at
January 31, 2000. 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 to enable it to meet the scheduled maturity of the
Term Loan and Credit Facility in February 2001 and the scheduled maturity of the
Subordinated Debentures in August 2001. The Company also believes that
additional financing will be required to enable it to meet the scheduled
maturity of the Notes and for capital expenditures that are not financed through
cash flows from operations.
16
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(Continued)
Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
133 standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts. Under the standard, entities
are required to carry all derivative instruments in the statement of financial
position at fair value. SFAS 133 is effective beginning in the first quarter of
our fiscal year ending October 31, 2001. The Company has not determined the
impact that SFAS 133 will have on its financial statements and believes that
such determination will not be meaningful until closer to the date of initial
adoption.
Year 2000
We are dedicated to providing uninterrupted, high quality performance from
our computer software systems, products and satellite communications network
before, during and after year 2000. Since fiscal 1997, we have tested our
critical systems, surveyed our 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 remediated
any deficient systems. As a result of our planning and remediation, we
encountered no significant problems with any of our systems as we entered the
year 2000. We will continue to monitor our systems and take appropriate actions,
when and if necessary. We do not expect to encounter any significant problems
with year 2000 date-related deficiencies, however, our belief and expectations
may ultimately prove to be inaccurate.
17
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
Quarter Ended January 31, 12000
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 1999 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 2000.
18
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
Quarter Ended January 31, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AUTOTOTE CORPORATION
--------------------
(Registrant)
By: /s/ DeWayne E. Laird
--------------------
Name: DeWayne E. Laird
Title: Vice President & Chief Financial Officer
Dated: March 15, 2000
19
<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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-2000
<PERIOD-START> NOV-1-1999
<PERIOD-END> JAN-31-2000
<CASH> 3,048
<SECURITIES> 0
<RECEIVABLES> 26,049
<ALLOWANCES> (2,812)
<INVENTORY> 16,751
<CURRENT-ASSETS> 46,889
<PP&E> 205,286
<DEPRECIATION> 125,754
<TOTAL-ASSETS> 166,274
<CURRENT-LIABILITIES> 49,121
<BONDS> 35,000
0
0
<COMMON> 366
<OTHER-SE> (48,339)
<TOTAL-LIABILITY-AND-EQUITY> 166,274
<SALES> 49,565
<TOTAL-REVENUES> 49,565
<CGS> 32,476
<TOTAL-COSTS> 32,476
<OTHER-EXPENSES> 12,560
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,997
<INCOME-PRETAX> 532
<INCOME-TAX> 68
<INCOME-CONTINUING> 464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 464
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
