UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
{Mark One}
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly and six month periods ended: April 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition from _______________ to _______________
Commission File number: 0-13063
AUTOTOTE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 81-0422894
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
750 Lexington Avenue, New York, New York 10022
----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(212)-754-2233
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of June 12, 2000:
Class A Common Stock: 36,886,292
Class B Common Stock: None
Page 1 of 23
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER INFORMATION
QUARTER ENDED APRIL 30, 2000
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Balance Sheets as of October 31, 1999
and April 30, 2000 3
Statements of Operations for the Three Months Ended
April 30, 1999 and 2000 4
Statements of Operations for the Six Months Ended
April 30, 1999 and 2000 5
Statements of Cash Flows for the Six Months Ended
April 30, 1999 and 2000 6
Notes to Consolidated Financial Statements 7-16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17-21
PART II.OTHER INFORMATION
Item 2. Change in Securities and Use of Proceeds 22
Item 4. Submission of Matters to a Vote of Stockholders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
2
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
October 31, April 30,
1999 2000
----------- ---------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................ $ 5,067 2,599
Restricted cash .......................................................... 771 782
Accounts receivable, net ................................................. 25,755 25,949
Inventories .............................................................. 14,636 11,125
Prepaid expenses, deposits and other current assets ...................... 2,319 2,579
--------- ---------
Total current assets ................................................ 48,548 43,034
--------- ---------
Property and equipment, at cost ............................................... 199,767 216,402
Less accumulated depreciation ............................................ 123,039 128,070
--------- ---------
Net property and equipment .......................................... 76,728 88,332
--------- ---------
Goodwill, net of amortization ................................................. 5,237 4,053
Operating right, net of amortization .......................................... 13,848 13,348
Other assets and investments .................................................. 21,198 23,671
--------- ---------
$ 165,559 172,438
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt ................................... $ 4,253 1,377
Accounts payable ......................................................... 20,102 14,253
Accrued liabilities ...................................................... 28,015 22,686
Interest payable ......................................................... 3,898 4,093
--------- ---------
Total current liabilities ........................................... 56,268 42,409
--------- ---------
Deferred income taxes ......................................................... 1,656 1,615
Other long-term liabilities ................................................... 2,963 3,714
Long-term debt, excluding current installments ................................ 117,891 134,870
Long-term debt, convertible subordinated debentures ........................... 35,000 35,000
--------- ---------
Total liabilities ................................................... 213,778 217,608
--------- ---------
Stockholders' equity (deficit):
Preferred stock, par value $1.00 per share, 2,000 shares
authorized, none outstanding .......................................... -- --
Class A common stock, par value $0.01 per share, 99,300 shares authorized,
36,268 and 36,848 shares outstanding at October 31, 1999
and April 30, 2000, respectively ...................................... 364 369
Class B non-voting common stock, par value $0.01 per share, 700 shares
authorized, none outstanding .......................................... -- --
Additional paid-in capital ............................................... 149,622 151,042
Accumulated losses ....................................................... (196,852) (194,052)
Treasury stock, at cost .................................................. (102) (102)
Accumulated other comprehensive loss ..................................... (1,251) (2,427)
--------- ---------
Total stockholders' equity (deficit) ................................ (48,219) (45,170)
--------- ---------
$ 165,559 172,438
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended April 30, 1999 and 2000
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 2000
------- -------
<S> <C> <C>
Operating revenues:
Services .............................................................. $36,496 38,285
Sales ................................................................. 16,583 12,776
------- -------
53,079 51,061
------- -------
Operating expenses (exclusive of depreciation and amortization shown below):
Services .............................................................. 23,730 24,447
Sales ................................................................. 12,718 8,357
------- -------
36,448 32,804
------- -------
Total gross profit ............................................... 16,631 18,257
Selling, general and administrative expenses ............................... 6,425 6,254
Depreciation and amortization .............................................. 5,278 5,142
------- -------
Operating income ................................................. 4,928 6,861
Other deductions:
Interest expense ...................................................... 4,039 4,186
Other expense ......................................................... 256 126
------- -------
4,295 4,312
------- -------
Income before income tax expense ...................................... 633 2,549
Income tax expense ......................................................... 61 243
------- -------
Net income ................................................................. $ 572 2,306
======= =======
Net income per basic share ................................................. $ 0.02 0.06
======= =======
Net income per diluted share ............................................... $ 0.02 0.06
======= =======
Weighted-average number of shares used in per share calculations:
Basic shares .......................................................... 36,032 36,622
======= =======
Diluted shares ........................................................ 37,371 41,878
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended April 30, 1999 and 2000
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 2000
--------- ---------
<S> <C> <C>
Operating revenues:
Services .............................................................. $ 70,725 74,618
Sales ................................................................. 28,006 26,008
--------- ---------
98,731 100,626
--------- ---------
Operating expenses (exclusive of depreciation and amortization shown below):
Services .............................................................. 46,893 48,927
Sales ................................................................. 20,874 16,353
--------- ---------
67,767 65,280
--------- ---------
Total gross profit ............................................... 30,964 35,346
Selling, general and administrative expenses ............................... 13,213 13,247
Depreciation and amortization .............................................. 11,011 10,652
--------- ---------
Operating income ................................................. 6,740 11,447
Other deductions:
Interest expense ...................................................... 8,109 8,183
Other expense ......................................................... 301 183
--------- ---------
8,410 8,366
--------- ---------
Income (loss) before income tax expense ............................... (1,670) 3,081
Income tax expense ......................................................... 192 311
--------- ---------
Net income (loss) .......................................................... $ (1,862) 2,770
========= =========
Net income (loss) per basic share .......................................... $ (0.05) 0.08
========= =========
Net income (loss) per diluted share ........................................ $ (0.05) 0.07
========= =========
Weighted-average number of shares used in per share calculations:
Basic shares .......................................................... 36,027 36,504
========= =========
Diluted shares ........................................................ 36,027 41,112
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended April 30, 1999 and 2000
(Unaudited, in thousands)
<TABLE>
<CAPTION>
1999 2000
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................... $ (1,862) 2,770
-------- --------
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
Depreciation and amortization .............................. 11,011 10,652
Changes in operating assets and liabilities ................ (771) (7,987)
Other ...................................................... 668 760
-------- --------
Total adjustments ..................................... 10,908 3,425
-------- --------
Net cash provided by operating activities ............................ 9,046 6,195
-------- --------
Cash flows from investing activities:
Capital expenditures ............................................ (788) (2,537)
Wagering systems expenditures ................................... (5,671) (18,179)
Proceeds from net asset disposals ............................... (63) --
Increase in other assets and investments ........................ (2,887) (3,306)
-------- --------
Net cash used in investing activities ................................ (9,409) (24,022)
-------- --------
Cash flows from financing activities:
Net borrowings under revolving credit facility .................. -- 16,220
Payments on long-term debt ...................................... (1,601) (2,793)
Proceeds from issuance of long-term debt ........................ -- 964
Net proceeds from issuance of common stock ...................... 47 1,328
-------- --------
Net cash provided by (used in) financing activities .................. (1,554) 15,719
-------- --------
Effect of exchange rate changes on cash .............................. (34) (360)
-------- --------
Decrease in cash and cash equivalents ................................ (1,951) (2,468)
Cash and cash equivalents, beginning of period ....................... 6,809 5,067
-------- --------
Cash and cash equivalents, end of period ............................. $ 4,858 2,599
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ........................................................ $ 7,738 7,677
======== ========
Income taxes .................................................... $ 478 433
======== ========
</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 April 30, 2000 and the consolidated
statements of operations for the three and six months ended April 30, 1999 and
2000, and the consolidated statements of cash flows for the six months then
ended have been prepared by the Company without audit. In the opinion of
management, all adjustments necessary to present fairly the financial position
of the Company at April 30, 2000 and the results of its operations for the three
and six months ended April 30, 1999 and 2000 and its cash flows for the six
months ended April 30, 1999 and 2000 have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's 1999 Annual Report on Form 10-K. The results
of operations for the period ended April 30, 2000 are not necessarily indicative
of the operating results for the full year.
Basic Net Income (Loss) Per Share and Diluted Net Income (Loss) Per Share
The following represents a reconciliation of the numerator and denominator
used in computing basic and diluted net income (loss) per share for the three
and six month periods ended April 30, 1999 and 2000:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
----------------- -----------------
1999 2000 1999 2000
------- ------ ------ ------
<S> <C> <C> <C> <C>
Income (numerator)
Net income (loss) ............................................ $ 572 2,306 (1,862) 2,770
------- ------ ------ ------
Shares (denominator)
Basic weighted average common shares outstanding ............. 36,032 36,622 36,027 36,504
Effect of diluted securities-stock options, warrants, and
deferred shares ......................................... 1,339 5,256 -- 4,608
------- ------ ------ ------
Diluted weighted average common shares outstanding ........... 37,371 41,878 36,027 41,112
======= ====== ====== ======
Per Share Amount
Basic net income (loss) per share ............................ $ 0.02 0.06 (0.05) 0.08
======= ====== ====== ======
Diluted net income (loss) per share .......................... $ 0.02 0.06 (0.05) 0.07
======= ====== ====== ======
</TABLE>
At April 30, 2000, the Company had outstanding stock options, warrants,
convertible subordinated debentures and deferred shares which could potentially
dilute basic earnings per share in the future. (See Notes 12 and 13 to the
Consolidated Financial Statements for the year ended October 31, 1999 in the
Company's 1999 Annual Report on Form 10-K.)
7
<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 off-track betting establishments ("OTBs") and bookmakers
in Germany. The purchase, which included a cash payment of approximately $2,333
and the assumption of certain liabilities, was recorded using the purchase
method of accounting, and the acquired assets and liabilities have been recorded
at their estimated fair value at the date of acquisition. The excess of the
purchase price over the fair values of the net assets acquired was approximately
$3.2 million and has been recorded as goodwill which is being amortized over 15
years. The operating results of the Datasport and Datek businesses have been
included in the consolidated statements of operations since the date of
acquisition. Had the operating results of the Datasport and Datek businesses
been included as if the transaction had been consummated on November 1, 1998,
the pro forma operating results of the Company for the three and six month
periods ended April 30, 1999 would not have been materially different.
3) Business Segments
The following tables represent revenues and profits by business segments
for the three and six month periods ended April 30, 1999 and 2000. Corporate
expenses are allocated among business segments. Interest expense and other
(income) deductions are not allocated to business segments.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
---------------------- --------------------
1999 2000 1999 2000
-------- ------ ------ -------
<S> <C> <C> <C> <C>
Service revenue and product sales:
Pari-mutuel operations .................................. $ 21,297 23,904 41,485 51,340
Venue management operations ............................. 15,432 15,723 29,746 30,069
Lottery operations ...................................... 16,193 11,434 26,914 18,890
SJC Video operations .................................... 157 -- 586 327
-------- ------ ------ -------
$ 53,079 51,061 98,731 100,626
======== ====== ====== =======
Gross profit:
Pari-mutuel operations .................................. $ 8,919 10,840 16,833 21,529
Venue management operations ............................. 3,964 4,399 7,337 8,315
Lottery operations ...................................... 3,778 3,018 6,589 5,502
SJC Video operations .................................... (30) -- 205 --
-------- ------ ------ -------
Total gross profit ................................. $ 16,631 18,257 30,964 35,346
======== ====== ====== =======
Operating income (loss):
Pari-mutuel operations .................................. $ 969 2,924 23 4,711
Venue management operations ............................. 1,744 2,236 2,628 3,845
Lottery operations ...................................... 2,560 1,701 4,531 2,891
SJC Video operations .................................... (345) -- (442) --
-------- ------ ------ -------
4,928 6,861 6,740 11,447
Other deductions:
Interest expense ........................................ 4,039 4,186 8,109 8,183
Other expense ........................................... 256 126 301 183
-------- ------ ------ -------
Income (loss) before income tax expense ...................... $ 633 2,549 (1,670) 3,081
======== ====== ====== =======
</TABLE>
8
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited, in thousands, except per share amounts)
3) Business Segments--(Continued)
October 31, April 30,
1999 2000
----------- --------
Assets
Pari-mutuel operations .............. $110,598 113,471
Venue management operations ......... 34,613 34,981
Lottery operations .................. 20,348 23,986
SJC Video operations ................ -- --
-------- --------
$165,559 172,438
======== ========
Six Months Ended April 30,
--------------------------
1999 2000
----------- --------
Capital and wagering systems expenditures
Pari-mutuel operations .............. $ 3,516 13,568
Venue management operations ......... 625 1,314
Lottery operations .................. 2,286 5,834
SJC Video operations ................ 32 --
--------- --------
$ 6,459 20,716
========= ========
4) Comprehensive Income (Loss)
The following presents a reconciliation of net income (loss) to
comprehensive income (loss) for the three and six months ended April 30, 1999
and 2000:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
------------------ ------------------
1999 2000 1999 2000
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income (loss) ............... $ 572 2,306 (1,862) 2,770
Other comprehensive loss:
Foreign currency translation (192) (557) (337) (1,176)
------ ------ ------ ------
Comprehensive income (loss) ..... $ 380 1,749 (2,199) 1,594
====== ===== ====== =====
</TABLE>
9
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited, in thousands, except per share amounts)
5) Inventories
Inventories consist of the following:
October 31, April 30,
1999 2000
----------- ---------
Parts and work-in-process ........ $13,735 10,230
Finished goods ................... 344 247
Ticket paper ..................... 557 648
------- -------
$14,636 11,125
======= =======
Work-in-process includes costs for equipment expected to be sold. Costs
incurred for equipment associated with specific wagering system service
contracts not yet placed in service are classified as construction in progress
in property and equipment.
6) Other Assets and Investments
Other assets at April 30, 2000 includes $750 loaned by the Company to
Atlantic City Racing Association ("ACRA"). The loan is secured by a mortgage on
certain real estate owned by ACRA. In consideration for this loan, the Company
has the right to acquire ACRA for an additional $6,250 subject to certain other
adjustments. The Company has extended its option to acquire the ACRA until
August 31, 2000. The Company is presently evaluating its alternatives, which
could include the negotiation for a further extension of the option. Should the
Company decide not to purchase ACRA, or if the Company is not successful in
negotiating the extension of the option, the loan will be forgiven.
7) Debt
At April 30, 2000, the Company had approximately $7,718 available for
borrowing, approximately $16,220 of borrowings outstanding and $1,062 in letters
of credit issued under the Company's revolving Credit Facility (the "Facility").
In addition, there were approximately $7,800 of borrowings outstanding under the
Company's Term Loan ("Term Loan").
At April 30, 2000, the approximately $16,220 of borrowings outstanding
under the Facility as well as $7,200 of the Term Loan, which is currently due in
installments through February 15, 2001, have been classified as long-term debt.
The Company anticipates refinancing these debts in connection with the financing
of the proposed acquisition of Scientific Games Holdings Corp (See Note 8
below).
8) Proposed Acquisition of Scientific Games Holdings Corp and New Debt and
Equity Financing
On May 19, 2000 the Company announced the signing of a definitive
agreement for the acquisition of Scientific Games Holdings Corp ("Scientific
Games"), a world leading supplier of lottery products, integrated lottery
systems and support services, and pre-paid telephone cards. The acquisition is
expected be completed through a merger in which Scientific Games becomes a
wholly-owned subsidiary of the Company at an estimated cost of $310 million plus
related costs. Consummation of the acquisition is subject to satisfaction or
waiver by the parties of certain closing conditions, including the receipt of
regulatory approvals, approval by the stockholders of Scientific Games and other
customary closing conditions. It is expected that, subject to such conditions,
the acquisition will be completed during the summer and be accounted for under
the purchase method.
10
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited, in thousands, except per share amounts)
8) Proposed Acquisition of Scientific Games Holdings Corp and New Debt and
Equity Financing--(Continued)
Certain affiliates of Donaldson Lufkin Jenrette and Lehman Brothers have
issued a commitment letter to provide debt financing for the acquisition,
certain related costs and other purposes. Such commitment letter contemplates
financing under senior term loan and revolving credit facilities, and issuance
of senior subordinated notes, totaling up to $440 million or more. Depending on
the financing alternatives chosen by the Company, such financing may include the
issuance of warrants to purchase Company common stock, in amounts and on terms
common in transactions of this nature, dependent on market conditions and the
financing alternatives being pursued. In a separate transaction, Olivetti S.p.A.
has issued a commitment letter to purchase, for an aggregate of $100 million,
preferred stock convertible into Company common stock at a price of $6.00 per
share (subject to potential reset to no less than $5.00 per share based on
possible future market price movements), which would mature and become
mandatorily convertible into common stock after five years and would pay
dividends at the rate of 6% per annum (payable in kind in additional shares or,
at the Company's option beginning with the ninth quarterly dividend date, in
cash). Other investors have issued similar commitment letters for an additional
$10 million of convertible preferred stock. Both such debt financing and such
preferred stock financing are subject to various terms and conditions and will
be embodied in definitive documentation to be negotiated and completed by the
parties.
In the event the acquisition is not completed, the Company may be entitled
to receive or be subject to pay certain breakup fees. Further information
regarding the proposed acquisition and financing can be found in the Form 8-Ks
filed by the Company on May 19, 2000 and May 26, 2000.
9) Financial Information for Guarantor Subsidiaries and Non-Guarantor
Subsidiaries
The Company conducts substantially all of its business through its
domestic and foreign subsidiaries. In July 1997, the Company issued $110,000
aggregate principal amount of Senior Notes bearing interest at an annual rate of
10 7/8% (the "Notes"). On May 22, 1998, the Company and Autotote Lottery
Corporation entered into a $12,000 three-year term loan arrangement that bears
interest at a fixed annual rate of 8.87% (the "Term Loan"). The Term Loan was
extended in conjunction with the Facility and is subject to certain restrictive
and financial covenants contained in the Facility. Obligations under the
Facility and the Notes are jointly and severally guaranteed by substantially all
of the Company's wholly-owned domestic subsidiaries (the "Guarantor
Subsidiaries"). (See Note 8 to the Consolidated Financial Statements for the
year ended October 31, 1999 in the Company's 1999 Annual Report on Form 10-K.)
Presented below is condensed consolidating financial information for (i)
Autotote Corporation (the "Parent Company") which includes the activities of
Autotote Management Corporation, (ii) the Guarantor Subsidiaries and (iii) the
wholly-owned and the non-wholly owned foreign subsidiaries (the "Non-Guarantor
Subsidiaries") as of April 30, 2000 (unaudited) and October 31, 1999 (audited)
and for the three and six month periods ended April 30, 1999 and 2000
(unaudited). The condensed consolidating financial information has been
presented to show the nature of assets held, results of operations and cash
flows of the Parent Company, Guarantor Subsidiaries and Non-Guarantor
Subsidiaries assuming the guarantee structure of the Notes and the Facility were
in effect at the beginning of the periods presented. Separate financial
statements for Guarantor Subsidiaries are not presented based on management's
determination that they would not provide additional information that is
material to investors.
The condensed consolidating financial information reflects the investments
of the Parent Company in the Guarantor and Non-Guarantor Subsidiaries using the
equity method of accounting. In addition, corporate interest and administrative
expenses have not been allocated to the subsidiaries.
11
<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 installments of long-term debt ....... $ 1,250 2,429 574 -- 4,253
Current liabilities .......................... 12,219 29,546 10,922 (672) 52,015
Long-term debt, excluding current installments 145,000 6,627 1,264 -- 152,891
Other non-current liabilities ................ 2,193 1,233 1,766 (573) 4,619
Intercompany balances ........................ (45,906) 43,214 1,942 750 --
Stockholders' equity (deficit) ............... (48,219) 50,394 10,237 (60,631) (48,219)
--------- --------- --------- --------- ---------
Total liabilities and stockholders'
equity (deficit) ........................ $ 66,537 133,443 26,705 (61,126) 165,559
========= ========= ========= ========= =========
</TABLE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
April 30, 2000
(Unaudited, 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 .................... $ 702 88 1,809 -- 2,599
Accounts receivable, net ..................... -- 21,918 4,031 -- 25,949
Other current assets ......................... 47 10,907 3,966 (434) 14,486
Property and equipment, net .................. 273 77,599 10,722 (262) 88,332
Investment in subsidiaries ................... 73,442 -- -- (73,442) --
Goodwill ..................................... 194 -- 3,859 -- 4,053
Other assets ................................. 6,793 31,070 1,517 (2,361) 37,019
--------- --------- --------- --------- ---------
Total assets .............................. $ 81,451 141,582 25,904 (76,499) 172,438
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current installments of long-term debt ....... $ -- 600 777 -- 1,377
Current liabilities .......................... 10,430 23,329 7,733 (460) 41,032
Long-term debt, excluding current installments 161,220 7,231 1,419 -- 169,870
Other non-current liabilities ................ 3,085 684 2,133 (573) 5,329
Intercompany balances ........................ (48,114) 43,360 4,211 543 --
Stockholders' equity (deficit) ............... (45,170) 66,378 9,631 (76,009) (45,170)
--------- --------- --------- --------- ---------
Total liabilities and stockholders'
equity (deficit) ........................ $ 81,451 141,582 25,904 (76,499) 172,438
========= ========= ========= ========= =========
</TABLE>
12
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Three Months Ended April 30, 1999
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Operating revenues ................................... $ -- 46,440 10,444 (3,805) 53,079
Operating expenses ................................... -- 31,047 9,194 (3,793) 36,448
------- ------- ------- ------- -------
Gross profit ...................................... -- 15,393 1,250 (12) 16,631
Selling, general and administrative expenses ......... 1,828 3,369 1,240 (12) 6,425
Depreciation and amortization ........................ 45 4,523 735 (25) 5,278
------- ------- ------- ------- -------
Operating income (loss) ........................... (1,873) 7,501 (725) 25 4,928
Interest expense ..................................... 3,800 215 62 (38) 4,039
Other (income) expense ............................... (1,765) 72 63 1,886 256
------- ------- ------- ------- -------
Income (loss) before equity in income of subsidiaries,
and income taxes .................................. (3,908) 7,214 (850) (1,823) 633
Equity in income of subsidiaries ..................... 4,578 -- -- (4,578) --
Income tax expense (benefit) ......................... 98 26 (63) -- 61
------- ------- ------- ------- -------
Net income (loss) .................................... $ 572 7,188 (787) (6,401) 572
======= ======= ======= ======= =======
</TABLE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Three Months Ended April 30, 2000
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Operating revenues ................................... $ -- 42,931 12,202 (4,072) 51,061
Operating expenses ................................... -- 26,611 10,260 (4,067) 32,804
------- ------- ------- ------- -------
Gross profit ...................................... -- 16,320 1,942 (5) 18,257
Selling, general and administrative expenses ......... 2,045 3,026 1,188 (5) 6,254
Depreciation and amortization ........................ 72 4,223 874 (27) 5,142
------- ------- ------- ------- -------
Operating income (loss) ........................... (2,117) 9,071 (120) 27 6,861
Interest expense ..................................... 3,958 220 145 (137) 4,186
Other (income) expense ............................... -- (98) 87 137 126
------- ------- ------- ------- -------
Income (loss) before equity in income of subsidiaries,
and income taxes .................................. (6,075) 8,949 (352) 27 2,549
Equity in income of subsidiaries ..................... 8,467 -- -- (8,467) --
Income tax expense (benefit) ......................... 86 215 (58) -- 243
------- ------- ------- ------- -------
Net income (loss) .................................... $ 2,306 8,734 (294) (8,440) 2,306
======= ======= ======= ======= =======
</TABLE>
13
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Six Months Ended April 30, 1999
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Operating revenues ................................... $ -- 85,585 20,888 (7,742) 98,731
Operating expenses ................................... -- 57,530 17,972 (7,735) 67,767
-------- -------- -------- -------- --------
Gross profit ...................................... -- 28,055 2,916 (7) 30,964
Selling, general and administrative expenses ......... 4,465 6,573 2,187 (12) 13,213
Depreciation and amortization ........................ 90 9,525 1,446 (50) 11,011
-------- -------- -------- -------- --------
Operating income (loss) ........................... (4,555) 11,957 (717) 55 6,740
Interest expense ..................................... 7,553 506 111 (61) 8,109
Other (income) expense ............................... (1,775) 80 87 1,909 301
-------- -------- -------- -------- --------
Income (loss) before equity in income of subsidiaries,
and income taxes .................................. (10,333) 11,371 (915) (1,793) (1,670)
Equity in income of subsidiaries .................... 8,589 -- -- (8,589) --
Income tax expense ................................... 118 45 29 -- 192
-------- -------- -------- -------- --------
Net income (loss) .................................... $ (1,862) 11,326 (944) (10,382) (1,862)
======== ======== ======== ======== ========
</TABLE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Six Months Ended April 30, 2000
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Operating revenues ................................... $ -- 85,080 24,365 (8,819) 100,626
Operating expenses ................................... -- 53,181 20,913 (8,814) 65,280
-------- -------- -------- -------- --------
Gross profit ...................................... -- 31,899 3,452 (5) 35,346
Selling, general and administrative expenses ......... 4,562 6,464 2,226 (5) 13,247
Depreciation and amortization ........................ 144 8,847 1,713 (52) 10,652
-------- -------- -------- -------- --------
Operating income (loss) ........................... (4,706) 16,588 (487) 52 11,447
Interest expense ..................................... 7,687 439 311 (254) 8,183
Other (income) expense ............................... (3) (159) 91 254 183
-------- -------- -------- -------- --------
Income (loss) before equity in income of subsidiaries,
and income taxes .................................. (12,390) 16,308 (889) 52 3,081
Equity in income of subsidiaries ..................... 15,246 -- -- (15,246) --
Income tax expense (benefit) ......................... 86 315 (90) -- 311
-------- -------- -------- -------- --------
Net income (loss) .................................... $ 2,770 15,993 (799) (15,194) 2,770
======== ======== ======== ======== ========
</TABLE>
14
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS
Six Months Ended April 30, 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) ................................. $ (1,862) 11,326 (944) (10,382) (1,862)
Depreciation and amortization .................. 90 9,525 1,446 (50) 11,011
Equity in income of subsidiaries ............... (8,589) -- -- 8,589 --
Other non-cash adjustments ..................... 637 (10) 41 -- 668
Changes in working capital ..................... (1,382) 3,421 (2,715) (95) (771)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities (11,106) 24,262 (2,172) (1,938) 9,046
-------- -------- -------- -------- --------
Cash flows from investing activities:
Capital and wagering systems expenditures ...... (14) (6,046) (395) (4) (6,459)
Proceeds from net asset disposals .............. 56 -- (119) -- (63)
Other assets and investments ................... (198) (2,541) (723) 575 (2,887)
-------- -------- -------- -------- --------
Net cash provided by (used in) investing activities (156) (8,587) (1,237) 571 (9,409)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ....... -- 60 144 (204) --
Payments on long-term debt ..................... -- (1,386) (288) 73 (1,601)
Other, principally intercompany balances ....... 11,962 (13,477) 243 1,319 47
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities ....................................... 11,962 (14,803) 99 1,188 (1,554)
-------- -------- -------- -------- --------
Effect of exchange rate changes on cash ........... 52 1 (266) 179 (34)
-------- -------- -------- -------- --------
Increase/(decrease) in cash and cash equivalents .. 752 873 (3,576) -- (1,951)
Cash and cash equivalents, beginning of period .... 2,054 193 4,562 -- 6,809
-------- -------- -------- -------- --------
Cash and cash equivalents, end of period .......... $ 2,806 1,066 986 -- 4,858
======== ======== ======== ======== ========
</TABLE>
15
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS
Six Months Ended April 30, 2000
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net income (loss) .................................. $ 2,770 15,993 (799) (15,194) 2,770
Depreciation and amortization ................... 144 8,847 1,713 (52) 10,652
Equity in income of subsidiaries ................ (15,246) -- -- 15,246 --
Other non-cash adjustments ...................... 569 313 (122) -- 760
Changes in working capital ...................... (1,806) (3,619) (2,549) (13) (7,987)
-------- -------- -------- -------- --------
Net cash provided by (used in ) operating activities (13,569) 21,534 (1,757) (13) 6,195
-------- -------- -------- -------- --------
Cash flows from investing activities:
Capital and wagering systems expenditures ....... (40) (17,455) (3,221) -- (20,716)
Other assets and investments .................... (220) (3,442) (202) 558 (3,306)
-------- -------- -------- -------- --------
Net cash used in investing activities .............. (260) (20,897) (3,423) 558 (24,022)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Net borrowings under revolving credit facility .. 16,220 -- -- -- 16,220
Proceeds from issuance of long-term debt ....... -- -- 964 -- 964
Payments on long-term debt ...................... (1,250) (1,213) (330) -- (2,793)
Net proceeds from issuance of common stock ...... 1,328 -- -- -- 1,328
Other, principally intercompany balances ........ (3,365) (77) 3,987 (545) --
-------- -------- -------- -------- --------
Net cash provided by (used in) financing activities 12,933 (1,290) 4,621 (545) 15,719
-------- -------- -------- -------- --------
Effect of exchange rate changes on cash ............ -- 235 (595) -- (360)
-------- -------- -------- -------- --------
Decrease in cash and cash equivalents .............. (896) (418) (1,154) -- (2,468)
Cash and cash equivalents, beginning of period ..... 1,598 506 2,963 -- 5,067
-------- -------- -------- -------- --------
Cash and cash equivalents, end of period ........... $ 702 88 1,809 -- 2,599
======== ======== ======== ======== ========
</TABLE>
16
<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 April 30, 2000 and the results of its operations for the three and six
month periods ended April 30, 2000, compared to the same periods last year. This
discussion should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations for the fiscal year
ended October 31, 1999 included in the Company's 1999 Annual Report on Form
10-K.
We operate primarily in three business segments, Pari-mutuel Operations,
Venue Management and Lottery Operations. Pari-mutuel Operations include all
aspects of our pari-mutuel service business, which encompass our North American
and international on-track, off-track and inter-track pari-mutuel services,
simulcasting and communications services, video gaming, and sales of pari-mutuel
systems and equipment. Venue Management includes the Connecticut off-track
betting ("OTB") operations and our Netherlands on-track and off-track betting
operations. Lottery Operations include both domestic and international lottery
service, as well as sales of lottery systems and equipment. In the second
quarter of fiscal 2000, the Company completed the sale of its SJC Video
business.
Historically, our revenues have been derived from two principal sources:
service revenues and sale revenues. Service revenues are earned pursuant to
multi-year contracts to provide wagering systems and other services, which are
typically based on a percentage of Handle and/or daily or monthly fees; or are
derived from wagering by customers at facilities owned or leased by us. Sales
revenues are derived from sales contracts for wagering equipment, services and
software. The first quarter of our fiscal year and a portion of our second
fiscal quarter traditionally comprise the weakest season for pari-mutuel
wagering service revenue. Wagering equipment sales revenues usually reflect a
limited number of large transactions which do not recur on an annual basis, but
which historically have given rise to additional terminal and systems software
sales to existing customers. Consequently, revenues and operating results can
vary substantially from period to period as a result of the timing of revenue
recognition for major equipment sales.
<TABLE>
<CAPTION>
Three Months ended Six Months ended
Results of Operations: April 30, April 30,
-------------------- -------------------
1999 2000 1999 2000
------- ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Pari-mutuel Operations
Operating Revenues:
Service revenue ......................................... $18,571 19,510 35,885 38,402
Sales revenue ........................................... 2,726 4,394 5,600 12,938
------- ------ ------ ------
Total Revenue ...................................... $21,297 23,904 41,485 51,340
======= ====== ====== ======
Gross Profit (excluding depreciation and amortization) ...... $ 8,919 10,840 16,833 21,529
======= ====== ====== ======
Venue Management Operations
Operating Revenues:
Service revenue ......................................... $15,432 15,723 29,746 30,069
======= ====== ====== ======
Gross Profit (excluding depreciation and amortization) ...... $ 3,964 4,399 7,337 8,315
======= ====== ====== ======
</TABLE>
17
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(Continued)
<TABLE>
<CAPTION>
Three Months ended Six Months ended
April 30, April 30,
----------------------- --------------------
Results of Operations: 1999 2000 1999 2000
-------- ------ ------ -------
Lottery Operations (in thousands)
<S> <C> <C> <C> <C>
Operating Revenues:
Service revenue .................................. $ 2,336 3,052 4,508 5,820
Sales revenue .................................... 13,857 8,382 22,406 13,070
-------- ------ ------ -------
Total Revenue ............................... $ 16,193 11,434 26,914 18,890
======== ====== ====== =======
Gross Profit (excluding depreciation and amortization) $ 3,778 3,018 6,589 5,502
======== ====== ====== =======
SJC Video Operations
Operating Revenues:
Service revenue .................................. $ 157 -- 586 327
======== ====== ====== =======
Gross Profit (excluding depreciation and amortization) $ (30) -- 205 --
======== ====== ====== =======
Company Total
Operating Revenues:
Service revenue .................................. $ 36,496 38,285 70,725 74,618
Sales revenue .................................... 16,583 12,776 28,006 26,008
-------- ------ ------ -------
Total Revenue ............................... $ 53,079 51,061 98,731 100,626
======== ====== ====== =======
Gross Profit (excluding depreciation and amortization) $ 16,631 18,257 30,964 35,346
======== ====== ====== =======
</TABLE>
Three Months Ended April 30, 2000 Compared to Three Months Ended April 30, 1999
Pari-mutuel Operations service revenues of $19.5 million for the second
quarter of fiscal 2000 improved $0.9 million or 5% from the second quarter of
the prior year. This improvement reflects primarily $1.0 million in revenues
from the German operations that were acquired in the fourth quarter of fiscal
1999 and improved revenues in the Company's NASRIN(TM) operations. These
increases were partially offset by lower service revenues in the North American
simulcasting operations. Pari-mutuel Operations sales revenues increased by $1.7
million to $4.4 million in the second quarter of fiscal 2000 due primarily to
the sales of terminals to the Company's international customers, primarily in
Italy and Finland. Pari-mutuel Operations gross profit of $10.8 million or 45%
of total revenues, increased from gross profit of $8.9 million in the same
period last year. Higher gross profit on improved Handle, primarily in the
German pari-mutuel operations and higher equipment sales were partially offset
by a decrease in gross profit on lower revenues in the North American
simulcasting operations.
Venue Management Operations service revenues of $15.7 million for the
second quarter of fiscal 2000 increased 2% over the service revenues in the
second quarter of the prior year. Handle-related revenue increases of 4% in the
Connecticut OTB operations and 6% in the Netherlands operations, were partly
offset by the impact of foreign exchange on the reported Netherlands operations
revenues. Gross profit was $4.4 million or 28% of service revenue in the second
quarter of fiscal 2000, an increase over the gross profit of $4.0 million or 26%
of service revenue in the second quarter of fiscal 1999. This improvement
primarily reflects higher Handle-related revenues and cost savings in the
Connecticut OTB operations.
Lottery Operations service revenues in the second quarter of fiscal 2000
of $3.1 million improved $0.7 million from the second quarter of the prior year
due to the April 1999 launch of the Montana lottery. The $5.5 million decrease
in sales revenues to $8.4 million in the second quarter of fiscal 2000 is
primarily attributable to the April 1999 sale of a lottery central system,
terminals and communications equipment to the Montana lottery, and fewer
terminal sales, primarily for use in Italy. Lottery Operations gross profit of
$3.0 million or 26% of total revenues, decreased from gross profit of $3.8
million or 23% of total revenues in the same period last year. Higher gross
profit on improved service revenues due to the new Montana lottery service
contract were more than offset by a decrease in gross profit on equipment sales
due to the Montana equipment sale in April 1999 and lower international
equipment sales in the second quarter of fiscal 2000.
18
<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 including software
development costs decreased $0.2 million or 3% to $6.3 million in the second
quarter of fiscal 2000. Lower expenses were due to cost reduction programs in
Connecticut OTB and France, and the absence of the SJC Video business.
Depreciation and amortization expenses decreased $0.1 million or 3% to
$5.1 million in the second quarter of fiscal 2000. Depreciation increased $0.1
million, primarily due to the installation of wagering system equipment at new
North American pari-mutuel customers, partly offset by the absence of the SJC
Video business depreciation. Amortization expense decreased $0.2 million as a
result of the full amortization of intangible assets associated with the North
American simulcasting operations.
Interest expense increased $0.1 million to $4.2 million in the second
quarter of fiscal 2000 as a result of an increase in average outstanding
borrowings during the period.
Income Taxes
Income tax expense was $0.2 million in the second quarter of fiscal 2000
and $0.1 million in the second quarter of fiscal 1999. Income tax expense
principally reflects federal alternative minimum tax, foreign and state income
taxes.
Six Months Ended April 30, 2000 Compared to Six Months Ended April 30, 1999
Pari-mutuel Operations service revenues of $38.4 million for the first six
months of fiscal 2000 improved $2.5 million or 7% from the first six months of
the prior year. This improvement primarily reflects $2.5 million in revenues
from the German operations that were acquired in the fourth quarter of fiscal
1999 and improved revenues in the Company's North American pari-mutuel and
NASRIN(TM) operations. These increases were partially offset by lower service
revenues in the French operations and lower service revenues in North American
simulcasting. Pari-mutuel Operations sales revenues increased by $7.3 million to
$12.9 million in the first six months of fiscal 2000 due primarily to the sales
of terminals to the Company's international customers, primarily in Italy,
Finland and Chile. Pari-mutuel Operations gross profit of $21.5 million or 42%
of total revenues, increased from gross profit of $16.8 million in the same
period last year. Higher gross profit on improved Handle, primarily in the
German pari-mutuel operations, higher NASRIN(TM) service revenues and increased
equipment sales, were partially offset by a decrease in gross profit on lower
Handle in the French pari-mutuel operations, lower simulcasting service
revenues, and higher satellite service fees due to a credit received in fiscal
1999 from our satellite provider as a result of a service interruption.
Venue Management Operations service revenues of $30.1 million for the
first six months of fiscal 2000 increased 1% over the service revenues of the
first six months of the prior year. Handle-related revenue increases of 4% in
the Connecticut OTB operations and 3% in the Netherlands operations, were partly
offset by the impact of foreign exchange on the reported Netherlands operations
revenues. Gross profit was $8.3 million or 28% of service revenue in the first
six months of fiscal 2000, an increase over the gross profit of $7.3 million or
25% of service revenue in the first six months of fiscal 1999. This improvement
primarily reflects higher Handle-related revenues and cost savings in the
Connecticut OTB operations.
Lottery Operations service revenues in the first six months of fiscal 2000
of $5.8 million improved $1.3 million from the first six months of the prior
year due to the April 1999 launch of the Montana lottery. The $9.3 million
decrease in sales to $13.1 million in the first six months of fiscal 2000 is
primarily attributable to the April 1999 Montana lottery equipment sale and
fewer terminal sales as compared to the fiscal 1999 period, primarily for use in
Italy. Lottery Operations gross profit of $5.5 million or 29% of total revenues,
decreased from gross profit of $6.6 million or 24% of total revenues in the same
period last year. Higher gross profit on improved service revenue due to the new
Montana lottery service contract was more than offset by a decrease in gross
profit due to the lower volume of international equipment sales.
19
<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 including software
development costs were comparable at $13.2 million for the first six months of
fiscal 2000 and fiscal 1999. Higher expenses due to increased operating levels
in the North American and German pari-mutuel operations and the Montana lottery,
which began in April 1999, were offset by cost reductions in NASRIN(TM) and
France, and the absence of the SJC Video business.
Depreciation and amortization expenses decreased $0.4 million or 3% to
$10.7 million in the first six months of fiscal 2000. Depreciation expense
decreased $0.3 million, primarily due to the full depreciation of certain assets
in prior periods and the absence of the SJC Video business. Amortization expense
decreased $0.1 million as a result of the full amortization of intangible assets
associated with the North American simulcasting operations.
Interest expense increased $0.1 million to $8.2 million in the first six
months of fiscal 2000 as a result of an increase in average outstanding
borrowings during the period.
Income Taxes
Income tax expense was $0.3 million in the first six months of fiscal
2000, as compared to $0.2 million in the first six months of fiscal 1999. Income
tax expense principally reflects federal alternative minimum tax, foreign and
state income taxes.
Liquidity, Capital Resources and Working Capital Deficiency
At April 30, 2000, the Company's available cash and borrowing capacity
totaled $10.3 million compared to $29.0 million at October 31, 1999. Net cash
provided by operating activities decreased by $2.9 million to $6.2 million for
the six months ended April 30, 2000 from $9.0 million in the six months ended
April 30, 1999 as a result of a decrease in accounts payable, partially offset
by a decrease in inventory. In the first six months of fiscal 2000, the Company
utilized $6.2 million of cash provided by operating activities, $17.2 million of
long-term borrowings, $1.3 million in proceeds from stock sales, and $2.5
million of available cash, to invest $20.7 million principally in capital and
contract expenditures in connection with the January 2000 start-up of the
Monmouth/Meadowlands service contract and the Vermont and New Hampshire state
lotteries which will commence operations in July 2000. The Company also invested
$3.3 million in software systems development and other assets, and used $2.8
million to reduce other long-term loans.
At April 30, 2000, the Company's current assets exceeded current
liabilities by $0.6 million, an improvement of $8.3 million from October 31,
1999. The improvement results principally from a reduction in accounts payable
and the classification of substantially all debt as long term as the result of
the planned debt refinancing which will be done in connection with the recently
announced proposed acquisition of Scientific Games Holdings Corp (see below).
As described above in Note 7 to the Consolidated Financial Statements, the
Company had $7.7 million of borrowing availability under its Facility at April
30, 2000. The Company believes that its cash resources, anticipated cash flows
from operations and borrowing availability under the Facility and the planned
replacement facility (see below) will provide sufficient liquidity to meet
scheduled interest payments and anticipated capital expenditures during the next
twelve months.
Proposed Acquisition of Scientific Games Holdings Corp and New Debt and Equity
Financing
On May 19, 2000 the Company announced the signing of a definitive
agreement for the acquisition of Scientific Games Holdings Corp ("Scientific
Games"), a world leading supplier of lottery products, integrated lottery
systems and support services, and pre-paid telephone cards. The acquisition is
expected be completed through a merger in which Scientific Games becomes a
wholly-owned subsidiary of the Company at an estimated cost of $310 million plus
related costs. Consummation of the acquisition is subject to satisfaction or
waiver by the parties of certain closing conditions, including the receipt of
regulatory approvals, approval by the stockholders of Scientific Games and other
customary closing conditions. It is expected that, subject to such conditions,
the acquisition will be completed during the summer and be accounted for under
the purchase method.
20
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(Continued)
Certain affiliates of Donaldson Lufkin Jenrette and Lehman Brothers have
issued a commitment letter to provide debt financing for the acquisition,
certain related costs and other purposes. Such commitment letter contemplates
financing under senior term loan and revolving credit facilities, and issuance
of senior subordinated notes, totaling up to $440 million or more. Depending on
the financing alternatives chosen by the Company, such financing may include the
issuance of warrants to purchase Company common stock, in amounts and on terms
common in transactions of this nature, dependent on market conditions and the
financing alternatives being pursued. In a separate transaction, Olivetti S.p.A.
has issued a commitment letter to purchase, for an aggregate of $100 million,
preferred stock convertible into Company common stock at a price of $6.00 per
share (subject to potential reset to no less than $5.00 per share based on
possible future market price movements), which would mature and become
mandatorily convertible into common stock after five years and would pay
dividends at the rate of 6% per annum (payable in kind in additional shares or,
at the Company's option beginning with the ninth quarterly dividend date, in
cash). Other investors have issued similar commitment letters for an additional
$10 million of convertible preferred stock. Both such debt financing and such
preferred stock financing are subject to various terms and conditions and will
be embodied in definitive documentation to be negotiated and completed by the
parties.
In the event the acquisition is not completed, the Company may be entitled
to receive or be subject to pay certain breakup fees. Further information
regarding the proposed acquisition and financing can be found in the Form 8-Ks
filed by the Company on May 19, 2000 and May 26, 2000.
The Company believes that this new financing and the proceeds of the new
convertible preferred stock issuance, in the aggregate, will be sufficient to
enable it to complete the purchase of Scientific Games, to repay substantially
all of the indebtedness of Scientific Games, to meet the scheduled maturity of
the Term Loan and Credit Facility in February 2001 and the scheduled maturity of
the Subordinated Debentures in August 2001, to retire the Notes, and to provide
financing for capital expenditures that are not financed through cash flows from
operations.
Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
133 standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts. Under the standard, entities
are required to carry all derivative instruments in the statement of financial
position at fair value. SFAS 133 is effective beginning in the first quarter of
our fiscal year ending October 31, 2001. The Company has not determined the
impact that SFAS 133 will have on its financial statements and believes that
such determination will not be meaningful until closer to the date of initial
adoption.
Forward-Looking Statements
This quarterly report on Form 10-Q contains certain statements and
projections (including statements concerning plans and objectives of management
for the future operations and services, statements concerning revenue
expectations and statements concerning mergers and re-financing) other than
those covering historical information, that should be considered forward-looking
and subject to certain risks and uncertainties. Such forward-looking statements
are based on management's belief as well as assumptions made by, and information
currently available to, management pursuant to "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. The Company's actual results
may differ materially from the plans envisioned in, or results projected by,
those statements if the Company's assumptions prove to be incorrect or for a
variety of other reasons, including those relating to factors identified in the
Company's Annual Report on Form 10-K for the year ended October 31, 1999 as part
of a Cautionary Statement for purposes of such safe harbor. The Company cautions
that such factors are not exclusive. The Company does not undertake to update
any forward-looking statement that may be made from time to time by, or on
behalf of, the Company.
21
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
Quarter Ended April 30, 2000
PART II. Other Information
Item 1. Legal Proceedings
No significant changes have occurred with respect to legal proceedings
disclosed in Part 1, Item 3, of the Company's 1999 Annual Report on Form 10-K
Item 2. Change in Securities and Use of Proceeds.
Recent Sales of Unregistered Securities
Between January and April 2000, the Company issued an aggregate of 281,898
unregistered shares (the "Shares") of Class A Common Stock pursuant to the
exercise, at $2.98 per share, of warrants originally issued as of September 14,
1995 to certain banks who were party to the Company's prior senior bank credit
facility (the "1995 Warrants"). The Shares were issued in reliance upon the
exemption from registration provided for under Section 4(2) of the Securities
Act of 1933, as amended. In addition, 1995 Warrants held by the Company's Chief
Executive Officer to purchase 28,691 shares and 1995 Warrants held (for the
deferred compensation account of the Chief Executive Officer) by the trust
established in connection with the Company's Deferred Compensation Plan to
purchase 14,345 shares were each amended in April 2000 (as amended, the "2000
Warrants"). The amendment extended the expiration date of the 2000 Warrants from
April 30, 2000 to April 30, 2003, in consideration for (i) a provision
precluding exercise thereof prior to May 1, 2001, except in the event of a
change in control, and (ii) an increase of the exercise price from $2.98 per
share to $3.32 per share.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Stockholders
The Annual Meeting of the stockholders of the Company was held on March
23, 2000 to elect five directors of the Company, to approve an amendment to the
Company's 1997 Incentive Compensation Plan and to ratify the appointment of KPMG
LLP as auditors for the Company's 2000 fiscal year. All matters put before the
stockholders passed as follows:
<TABLE>
<CAPTION>
Director Nominees/ Other Matters For Withheld Against Abstain
-------------------------------- --- -------- ------- -------
<S> <C> <C> <C> <C>
A. Lorne Weil 32,141,851 1,607,437 -- --
Larry Lawrence 32,078,353 1,670,935 -- --
Sir Brian G. Wolfson 32,141,451 1,607,837 -- --
Alan J. Zakon 32,158,451 1,590,837 -- --
Marshall Bartlett 32,141,851 1,607,437 -- --
Amend 1997 Incentive Comp Plan 28,216,199 -- 5,365,586 167,503
Ratification of KPMG LLP 33,280,345 -- 391,695 77,248
</TABLE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule.
No current reports on Form 8-K were filed during the second quarter of fiscal
2000. A current report on Form 8-K were filed on May 19, 2000 and May 26, 2000,
regarding the proposed acquisition by the Company of Scientific Games Holdings
Corp and certain related matters.
22
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
Quarter Ended April 30, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AUTOTOTE CORPORATION
--------------------
(Registrant)
By: /s/ DeWayne E. Laird
----------------------------------------
Name: DeWayne E. Laird
Title: Vice President & Chief Financial Officer
Dated: June 14 , 2000
23
