<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) September 6, 2000
0-13063
(Commission File Number)
------------------------------
AUTOTOTE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 81-0422894
(State of Incorporation) (IRS Employer
Identification Number)
750 Lexington Avenue, New York, New York 10022
(Address of registrant's principal executive office)
(212) 754-2233
(Registrant's telephone number)
------------------------------
<PAGE>
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
The following historical audited consolidated financial
statements of Scientific Games and notes thereto, as set forth
in Scientific Games' Annual Report on Form 10-K for the year
ended December 31, 1999, are included herein.
Report of Independent Auditors
Consolidated Statements of Income for the years ended
December 31, 1997, 1998 and 1999
Consolidated Balance Sheets as of December 31, 1998 and 1999
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1997, 1998 and 1999
Notes to Consolidated Financial Statements
The following historical unaudited consolidated condensed
financial statements of Scientific Games and notes thereto,
as set forth in Scientific Games' Quarterly Report on Form
10-Q for the quarter ended June 30, 2000, are included
herein.
Consolidated Condensed Statements of Income for:
The three-month periods ended June 30, 1999 and 2000
The six-month periods ended June 30, 1999 and 2000
Consolidated Condensed Balance Sheets as of June 30, 2000 and
December 31, 1999
Consolidated Condensed Statements of Cash Flows for:
The six-month periods ended June 30, 1999 and 2000
Notes to Consolidated Condensed Financial Statements
(unaudited)
(b) Pro Forma Financial Information.
The following pro forma financial information is subject to
revision, which could have a significant impact on total
assets, total liabilities and stockholders' equity (deficit),
depreciation and amortization, interest expense and income
taxes.
Pro Forma Consolidated Balance Sheet as of July 31, 2000
Pro Forma Consolidated Statements of Income for:
The twelve-month period ended December 31, 1999
The nine-month period ended July 31, 2000
(c) Exhibits.
Exhibit
Number Description
------- -----------
23.1 Consent of Ernst & Young LLP, dated November 20, 2000
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Scientific Games Holdings Corp.
We have audited the consolidated balance sheets of Scientific Games Holdings
Corp. (the "Company") as of December 31, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Scientific Games
Holdings Corp. at December 31, 1999 and 1998, and the results of its operations
and cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
Atlanta, Georgia
February 10, 2000
<PAGE>
Scientific Games Holdings Corp. Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1999 1998
--------- ---------
(IN THOUSANDS, EXCEPT SHARE
NUMBERS AND PAR VALUE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...... $ 14,775 $ 9,270
Trade receivables .............. 48,655 39,445
Inventories .................... 15,281 15,090
Prepaid expenses and other
current assets ............... 2,706 2,111
Deferred income tax benefits ... 1,053 1,032
--------- ---------
Total current assets ............. 82,470 66,948
Property and equipment, at cost:
Land ........................... 2,404 2,521
Buildings ...................... 12,535 11,664
Production and other equipment . 110,219 101,098
Construction-in-progress ....... 12,526 2,047
--------- ---------
137,684 117,330
Less accumulated depreciation
and amortization ............. (68,705) (57,386)
--------- ---------
68,979 59,944
Goodwill ......................... 31,473 35,282
Other assets ..................... 20,711 17,459
--------- ---------
$ 203,633 $ 179,633
--------- ---------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable ............... $ 15,912 $ 16,270
Accrued liabilities ............ 23,397 17,822
Credit facility ................ -- 12,482
Income taxes payable ........... 1,827 3,932
--------- ---------
Total current liabilities ........ 41,136 50,506
Credit facility .................. 23,547 --
Other long-term liabilities ...... 5,677 8,221
Deferred income taxes payable .... 6,727 6,694
Minority interest in consolidated
subsidiaries ................... 3,004 2,306
Shareholders' equity:
Preferred stock-3,000,000 shares
authorized, no shares issued
and outstanding .............. -- --
Common stock-par value $.001 per
share:
25,750,000 shares authorized;
11,915,702 shares and
11,875,737 shares issued at
December 31, 1999 and 1998,
respectively ............... 12 12
Additional paid-in capital ..... 66,060 65,551
Accumulated earnings ........... 66,689 46,201
Accumulated other comprehensive
income ....................... (1,198) 142
Treasury stock, at cost-509,200
shares at December 31, 1999 .. (8,021) --
--------- ---------
Total shareholders' equity ....... 123,542 111,906
--------- ---------
$ 203,633 $ 179,633
--------- ---------
</TABLE>
See accompanying notes.
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<PAGE>
Scientific Games Holdings Corp. Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Revenues ................................................. $228,573 $213,800 $197,456
Cost of revenues ......................................... 148,826 138,630 124,718
-------- -------- --------
79,747 75,170 72,738
Selling, general and administrative expenses ............. 29,031 26,518 25,653
Depreciation and amortization ............................ 18,024 16,330 13,229
Pull-tab business write-off .............................. -- -- 3,376
In-process technology write-off .......................... -- -- 10,102
Interest income .......................................... 502 484 354
Other income/(expense) ................................... (37) 147 --
Gain/(loss) on foreign currency .......................... 437 (65) 507
Interest expense ......................................... 588 1,353 911
Minority interest in subsidiaries' (income)/loss ......... (531) 85 --
-------- -------- --------
Income before income taxes ............................... 32,475 31,620 20,328
Income tax expense ....................................... 11,987 12,211 11,356
-------- -------- --------
Net income ............................................... $ 20,488 $ 19,409 $ 8,972
-------- -------- --------
Basic net income per common share ........................ $ 1.73 $ 1.60 $ 0.75
-------- -------- --------
Diluted net income per common share ...................... $ 1.72 $ 1.58 $ 0.72
-------- -------- --------
Average common shares outstanding-basic .................. 11,828 12,108 12,020
Dilutive effect of stock options and non-vested restricted
stock awards ........................................... 116 190 407
-------- -------- --------
Average common shares outstanding-diluted ................ 11,944 12,298 12,427
-------- -------- --------
</TABLE>
See accompanying notes.
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<PAGE>
Scientific Games Holdings Corp. Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ............................................ $ 20,488 $ 19,409 $ 8,972
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation ........................................ 12,813 12,012 10,361
Amortization ........................................ 5,211 4,318 2,868
In-process technology write-off ..................... -- -- 10,102
Pull-tab business write-off ......................... -- -- 3,376
Loss (gain) on disposal of property and equipment ... 32 (5) --
Deferred income taxes ............................... 12 4,407 (1,513)
Stock compensation expense .......................... 64 563 1,313
Minority interest ................................... 531 (85) --
Changes in operating assets and liabilities:
Accounts receivable ................................. (9,319) (4,416) 536
Inventories ......................................... (466) (3,470) 1,376
Accounts payable .................................... 298 9,751 (4,256)
Other ............................................... (3,384) 3,039 (11,670)
-------- -------- --------
Net cash provided by operating activities ............. 26,280 45,523 21,465
INVESTING ACTIVITIES
Proceeds from sale of assets .......................... 174 188 800
Payments for property and equipment ................... (22,470) (8,359) (22,280)
Acquisitions of businesses, net of cash acquired ...... (1,250) (6,469) (24,091)
-------- -------- --------
Net cash used in investing activities ................. (23,546) (14,640) (45,571)
FINANCING ACTIVITIES
Payments on notes receivable from officers ............ -- 71 --
Borrowings under credit facility ...................... 65,685 3,000 36,060
Payments on credit facility ........................... (54,620) (21,142) (9,420)
Repurchase of common stock ............................ (8,021) (10,461) (5,787)
Proceeds from the exercise of common stock options .... 417 4,427 57
-------- -------- --------
Net cash provided by (used in) financing activities ... 3,461 (24,105) 20,910
Effect of exchange rate changes on cash ............... (690) (351) (213)
-------- -------- --------
Increase (decrease) in cash and cash equivalents ...... 5,505 6,427 (3,409)
Cash and cash equivalents at beginning of year ........ 9,270 2,843 6,252
-------- -------- --------
Cash and cash equivalents at end of year .............. $ 14,775 $ 9,270 $ 2,843
-------- -------- --------
</TABLE>
See accompanying notes.
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<PAGE>
Scientific Games Holdings Corp. Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
NOTES
ADDITIONAL RECEIVABLE OTHER
PAID-IN TREASURY ACCUMULATED FROM THE COMPREHENSIVE
SHARES AMOUNT CAPITAL STOCK EARNINGS SALE OF STOCK INCOME TOTAL
--------- --------- --------- --------- --------- ------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997 ................. 12,158 $ 12 $ 56,486 -- $ 36,671 $ (71) $ 691 $ 93,789
Foreign currency
translation adjustment -- -- -- -- -- -- (310) (310)
Net income ............. -- -- -- -- 8,972 -- -- 8,972
Comprehensive income ... -- -- -- -- -- -- -- 8,662
Exercise of stock
options, including
tax benefit .......... 20 -- 150 -- -- -- -- 150
Compensation expense in
connection with stock
option plans ......... -- -- 1,313 -- -- -- -- 1,313
Repurchase and
retirement of common
stock ................ (302) -- -- -- (5,787) -- -- (5,787)
--------- --------- --------- --------- --------- --------- --------- ---------
Balance at December 31,
1997 ................. 11,876 $ 12 $ 57,949 -- $ 39,856 $ (71) $ 381 $ 98,127
Foreign currency
translation adjustment -- -- -- -- -- -- 16 16
Additional minimum
pension liability .... -- -- -- -- -- -- (255) (255)
Net income ............. -- -- -- -- 19,409 -- -- 19,409
Comprehensive income ... -- -- -- -- -- -- -- 19,170
Exercise of stock
options, including
tax benefit .......... 659 1 7,039 -- -- -- -- 7,040
Compensation expense in
connection with stock
option plans ......... -- -- 563 -- -- -- -- 563
Repurchase and
retirement of common
stock ................ (659) (1) -- -- (13,064) -- -- (13,065)
Repayment of notes
receivable ........... -- -- -- -- -- 71 -- 71
--------- --------- --------- --------- --------- --------- --------- ---------
Balance at December 31,
1998 ................. 11,876 12 65,551 -- 46,201 -- 142 111,906
Foreign currency
translation adjustment -- -- -- -- -- -- (1,487) (1,487)
Unrealized gain on
investments .......... -- -- -- -- -- -- 21 21
Additional minimum
pension liability .... -- -- -- -- -- -- 126 126
Net income ............. -- -- -- -- 20,488 -- -- 20,488
--------- --------- --------- --------- --------- --------- --------- ---------
Comprehensive income ... -- -- -- -- -- -- -- 19,148
--------- --------- --------- --------- --------- --------- --------- ---------
Exercise of stock
options, including
tax benefit .......... 24 -- 152 -- -- -- -- 152
Employee stock purchase
plan ................. 16 -- 293 -- -- -- -- 293
Compensation expense in
connection with stock
option plans ......... -- -- 64 -- -- -- -- 64
Repurchase and
retirement of common
stock ................ -- -- -- -- -- -- -- --
Purchase of treasury
stock ................ (509) -- -- (8,021) -- -- -- (8,021)
--------- --------- --------- --------- --------- --------- --------- ---------
Balance at December 31,
1999 ................. 11,407 $ 12 $ 66,060 $ (8,021) $ 66,689 $ -- $ (1,198) $ 123,542
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
-6-
<PAGE>
Scientific Games Holdings Corp. Notes to Consolidated Financial Statements
December 31, 1999
1. CORPORATE ORGANIZATION AND BASIS OF PRESENTATION
Scientific Games Holdings Corp. ("Company") provides a full range of
lottery game consulting and production services, including the manufacturing,
warehousing and distribution of instant lottery tickets and related instant-
ticket services such as game design, sales and marketing support, retailer
telemarketing and field services. The Company also provides lottery systems and
systems-related services, including transaction processing software that
accommodates instant ticket game accounting and validation and on-line games,
point-of-sale terminal hardware which connect to these systems, central site
computer and communications hardware which runs these systems and ongoing
maintenance for each of these items. These products and services (Instant Ticket
and Related Services and Systems) are provided primarily to domestic and
international governmentally sanctioned lotteries. The Company enters into
short-term and long-term contracts with these lotteries to obtain rights to
provide lottery products and services. Non-lottery products and services include
the production of prepaid telephone cards. Products and services are provided
through the Company's wholly owned subsidiaries and its joint ventures,
Alpharetta, Georgia- based Scientific Games Inc. ("SGI"), United Kingdom-based
Scientific Games International Limited ("SGIL"), Austria-based Scientific Games
International GmbH ("SG Austria") and France-based SciGames France SAS ("SG
France"). See Note 3.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The following summarizes the Company's principal accounting policies.
Consolidated financial statements presented herein include the accounts and
operations of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUES AND COST OF REVENUES
Revenues from the sales of the Company's products and services are
recognized based upon shipment and delivery, a percentage of the lottery's
instant ticket or on-line sales to the public over a contracted period, as
support and maintenance services are provided under related agreements, or the
percentage of completion method for development projects, or any combination of
the foregoing. All costs related to the design, planning and production of
instant ticket segment products are capitalized as inventories and recognized as
cost of revenues when the tickets are shipped or when sold to the public. Costs
related to the planning and development of the systems and systems-related
services may be recorded based upon the percentage of completion method, or if
the revenue is recognized based on lottery sales to the public, then the costs
may be recognized over the period of the contract. Costs related to the
provision of support and maintenance services are recorded in costs of revenues,
and revenues are recognized when the service is provided.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist principally of cash and institutional
money market funds on deposit with banks. The Company considers all highly
liquid investments with a maturity of three months or less when purchased to be
cash equivalents.
TRADE RECEIVABLES
The Company generally does not require collateral or other security for
its receivables. For certain foreign receivables, the Company requires letters
of credit backing such amounts. Credit losses have been within management's
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<PAGE>
expectations. The company had unbilled receivables of $14.0 million and $9.6
million on its percentage of completion contracts at December 31, 1999 and 1998
respectively. The unbilled receivables are expected to be collected within one
year.
INVENTORIES
Inventories consist principally of instant lottery tickets, telephone
cards, materials related to their production, and certain electronic components
related to Systems terminals. Inventories are valued at the lower of cost
(first-in, first-out method) or market. Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Finished goods........................................... $ 8,633 $ 7,939
Work-in-process.......................................... 2,075 1,087
Raw materials............................................ 4,573 6,064
------- -------
$15,281 $15,090
------- -------
</TABLE>
PROPERTY AND EQUIPMENT
Leasehold improvements are amortized on the straight-line method over the
lives of the respective leases or, where applicable, the related lottery game
contracts. Amortization associated with capitalized leases is included in
depreciation expense. Production and other equipment and office furniture and
equipment are depreciated on the straight-line method, generally over 3 to 14
years. Buildings are depreciated on the straight-line method over 31 years.
GOODWILL
Goodwill represents the excess purchase price paid over the net assets
acquired in connection with business combinations accounted for under the
purchase method. Goodwill is being amortized on the straight-line method.
Goodwill related to SGIL, SG Austria and SG France is being amortized over
periods of 4 to 30 years. Accumulated amortization of goodwill totaled
approximately $5.9 million and $3.5 million at December 31, 1999 and 1998,
respectively.
In the event facts and circumstances indicate that goodwill or other
long-lived assets may be impaired, an evaluation of recoverability would then be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow value is
required.
OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash surrender value of life insurance................... $ 5,513 $ 3,836
Lottery contract costs................................... 3,721 5,509
Intangible pension asset................................. 2,781 3,138
Other.................................................... 8,696 4,976
------- -------
$20,711 $17,459
------- -------
</TABLE>
-8-
<PAGE>
ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Potential legal claims and other assessments............. $ 799 $ 917
Reserves for defective ticket adjustments................ 549 650
Accrued compensation..................................... 4,949 2,920
Due to other entities.................................... 4,051 3,283
Accrued contract costs................................... 7,440 7,645
Other.................................................... 5,609 2,407
------- -------
$23,397 $17,822
------- -------
</TABLE>
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations are translated from the local
currency into U.S. dollars at the rate of currency exchange at the end of the
fiscal period. Translation gains and losses of foreign operations that use local
currencies as the functional currency are accumulated and reported as other
comprehensive income in shareholders' equity. Revenues and expenses are
translated at average monthly exchange rates. Transaction gains and losses
arising from exchange rate fluctuations on transactions denominated in a
currency other than the local functional currency are included in the results of
operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reflected in the consolidated balance sheets for cash,
cash equivalents, accounts receivable, accounts payable, and bank debt
approximate their respective fair values.
ACCOUNTING POLICIES NOT YET ADOPTED
In June 1998, the FASB issued Statement No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND FOR HEDGING ACTIVITIES. Statement 133 provides a comprehensive
standard for the recognition and measurement of derivatives and hedging
activities. Statement No. 133 requires all derivatives to be recorded on the
balance sheet at fair value and establishes "special accounting" for the
different types of hedges. Though the accounting treatment and criteria for each
type of hedge are unique, they all result in recognizing offsetting changes in
value or cash flows of both the hedge and the hedged item in earnings in the
same period. Changes in fair value of derivatives that do not meet the hedge
criteria are included in earnings in the period of the change. The Company does
not believe that the adoption of Statement No. 133 in 2001 will have a
significant impact on its consolidated financial statements.
3. ACQUISITIONS AND DISPOSITIONS
On April 15, 1997, the Company completed its stock acquisition of
TeleControl Kommunikations-und Computersysteme Gesellschaft m.b.h., an Austrian
corporation which was renamed Scientific Games Kommunikations-und
Computersysteme GmbH. ("SG Austria"), an on-line lottery and transaction systems
company located in Vienna, Austria, from Autotote Corporation. The purchase
price was $26.9 million net of $2.8 million of SG Austria's acquired cash. The
purchase was accounted for under the purchase method of accounting. The purchase
price was allocated to approximately $5.1 million of net assets and to a
one-time write-off of $10.1 million in connection with in-process
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<PAGE>
research and development costs based on an appraisal, with the remainder
allocated to goodwill to be amortized over 15 years.
The accompanying financial statements include the results of operation of
SG Austria from the date of such acquisition. The following table summarizes the
Company's estimated pro forma unaudited results of operations as if the purchase
of SG Austria occurred on January 1, 1996, (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1997
----
<S> <C>
Revenues........................................................ $200,225
Net income...................................................... 18,841
Earnings per common share-basic................................. 1.57
Earnings per common share-diluted............................... 1.51
</TABLE>
The pro forma results presented above include adjustments to reflect
interest expense on borrowings for the acquisitions, amortization of assets
acquired including intangibles, certain management expenses related to the
Company's combined operations and the income tax effect of such pro forma
adjustments and income taxes on earnings.
These pro forma unaudited results of operations do not purport to
represent what the Company's actual results of operations would have been if the
SG Austria acquisition had occurred on January 1, 1996, and should not serve as
a forecast of the Company's operating results for any future periods. The pro
forma adjustments are based solely upon certain assumptions that management
believes are reasonable under the circumstances at this time. However, the full
impact of potential cost savings has not been reflected in the pro forma results
presented above, although there can be no assurances such cost savings will be
achieved.
In the fourth quarter of 1998, the Company formed a joint venture with La
Francaise des Jeux, the operator of the French National Lottery. The joint
venture corporation, ("SG France"), was formed to provide systems maintenance
services for the lottery terminal software and hardware of six German provincial
lotteries, terminal maintenance for the French National Lottery and to develop a
lottery terminal to be used by La Francaise de Jeux in France and by the Company
throughout the world. The Company's initial cash contribution to SG France was
approximately $1.9 million which resulted in a 55% ownership interest. The
Company also advanced to SG France approximately $1.4 million as a loan to
acquire inventory to be used in the venture. Goodwill and other intangibles
totaling approximately $2.5 million have been recognized in the consolidated
financial statements in connection with the joint venture.
In 1997, the Company discontinued its charity pull-tab ticket business
line which was produced and distributed by its then named subsidiary GameTec,
Inc. ("GameTec"). A write-off of $3.4 million (pre-tax) was recognized for the
disposition of the assets of this business line in 1997. In connection with the
disposition, the Company sold substantially all of the assets of GameTec. The
Company entered into a three-year extendible marketing agreement with the buyer
to provide marketing and related services to state lotteries for pull-tab
tickets. The Company will continue to provide pull-tab tickets to its lottery
customers through the marketing agreement.
4. CREDIT FACILITY
On November 30, 1999 the Company entered into a three-year, $80 million
credit facility with four banks (the "$80 Million Credit Facility"). The $80
Million Credit Facility contains provisions for domestic and foreign currency
loans whereby, at the request of the Company, funds may be borrowed and repaid
in either, US Dollars, British Pounds Sterling, French Francs, Deutsche Marks,
or the European currency, Euros. In addition, on the same day, the Company also
entered into a separate, 364 day, $25 million credit facility with one of the
participating banks (the "$25 Million Credit Facility"). The $25 Million Credit
Facility expires on November 29, 2000, and can be renegotiated at the mutual
consent of both the bank and the Company, for the subsequent 364 days. The
interest-rate options available to the Company under both credit facilities are
LIBOR, IBOR and the Base Rate (the higher of the prime rate, or the federal
funds rate plus .5%), plus the applicable margin as defined in the Credit
Facility. These interest rates options are applicable and available in varying
circumstances based upon, among other things, the amount and nature of the
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<PAGE>
borrowings and the Company's leverage ratio at the time such amounts are
borrowed. The weighted-average interest rate on the outstanding borrowings under
the combined credit facilities, including foreign currency debt, during 1999 and
1998 was 4.9% and 5.0%, respectively. For the $80 Million Credit Facility
exclusively, a per annum fee of .20% is payable on the average, daily unused
portion of the commitment. At December 31, 1999, outstanding borrowings under
the combined credit facilities was $23.5 million. This amount included $10.5
million British pounds sterling, $5.0 million Euros, and the balance of $8.0
million was U.S. dollars.
Both credit facilities agreements contain covenants that restrict the
Company's ability to incur additional debt or create liens on any of its
property, except as permitted, and require the Company to maintain a leverage
ratio, as defined, at or below 50% and a fixed charge coverage ratio of at least
three to one.
For the year ended December 31, 1999 interest paid totaled $770,000, of
which $101,000 was capitalized. For the year ended December 31, 1998 interest
paid totaled $1.2 million. These amounts include interest on bank debt, interest
on capital leases and commitment fees. For the year ended December 31, 1997,
total interest paid and incurred totaled $955,000, of which $44,000 was
capitalized.
The outstanding balance under the $80 Million Credit Facility is due on
November 30, 2002.
5. SHAREHOLDERS' EQUITY
In July 1997, the Company adopted a shareholders' rights plan, which
provided for the issuance to each holder of the Company's common stock, certain
rights (the "Rights") to purchase shares of the Company's redeemable Series A
Participating Cumulative Preferred Stock pursuant to the terms of a Rights
Agreement. Such Rights are exercisable after distribution by the holders
thereof, other than "Acquiring Persons" as defined in the Rights Agreement, in
the event of certain ownership changes and in connection with certain business
combinations. The Rights have certain anti-takeover effects. The Rights may
cause substantial dilution to a person that attempts to acquire the Company
without a condition to such an offer being that a substantial number of the
Rights to be acquired or that the Rights be redeemed or declared invalid. The
Rights should not interfere with any merger or other business combination
approved by the Board of Directors (under some circumstances with the
concurrence of the continuing directors, as defined) since the rights may be
redeemed by the Company.
6. STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, requires use of
option valuation models that were not developed for use in valuing employee
stock options.
The Company has stock option plans that provide for the granting of
non-qualified options to purchase the Company's common stock to selected key
employees, officers and directors. Such options generally have ratable, annual
vesting periods ranging from 3 to 7 years from the date of the grant, and
maximum terms ranging from 7 to 10 years from the date of the grant.
A summary of the Company's stock option activity, and related
information for the years ended December 31, 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
WEIGHTED- WEIGHTED- WEIGHTED-
SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE
(000'S) EXERCISE PRICE (000'S) EXERCISE PRICE (000'S) EXERCISE PRICE
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year.......... 1,019 $ 17.72 1,376 $12.46 1,271 $ 11.41
Granted................................ 125 17.08 345 19.76 125 20.60
Exercised.............................. (25) 5.54 (659) 7.56 (18) 3.17
Forfeited.............................. (58) 7.70 (43) 20.68 (2) 3.06
------- ----------- ------- --------- ------- ------------
Outstanding-end of year................ 1,061 17.27 1,019 17.72 1,376 $ 12.46
------- ----------- ------- --------- ------- ------------
Exercisable-end of year................ 662 $ 16.38 558 $ 15.06 885 $ 9.59
------- ----------- ------- --------- ------- ------------
</TABLE>
-11-
<PAGE>
Exercise prices for options outstanding as of December 31, 1998, ranged
from $1.46 to $7.00 for approximately 149,000 options, from $9.44 to $20.00 for
approximately 580,000 options, and from $20.00 to $38.00 for approximately
332,000 options. The weighted-average remaining contractual life of those
options is 7.3 years.
The Company charged approximately $64,000, $563,000, and $1.3 million
to operations in 1999, 1998 and 1997, respectively, representing the
amortization of the difference in the option price and the fair market value of
the option shares at the date of grant.
At December 31, 1999, the Company has reserved approximately 518,000
shares of Common Stock for possible future issuance in connection with its stock
option plans.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994, under the fair value method of that
Statement. The fair value of these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 1998 and 1997, respectively: risk-free interest rates of
5.4%, 5.2% and 6.7%, a dividend yield of 0.0%; volatility factors of the
expected market price of the Company's common stock of .41, .41 and .46; and a
weighted-average expected life of the option of 8.0, 8.0 and 8.7 years. The
weighted-average fair value of options granted during 1999, 1998, and 1997 were
$9.50, $10.94, and $13.16, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Pro forma net income..................................... $19,238 $18,352 $7,689
Pro forma earnings per share-diluted..................... $1.61 $1.51 $.62
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for earnings per share
information):
Because Statement 123 is applicable to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until future
years.
-12-
<PAGE>
7. INCOME TAXES
Income tax expense is composed of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal................................................................. $ 7,329 $ 5,939 $10,457
State................................................................... 984 796 2,600
Foreign................................................................. 3,662 1,069 842
Deferred:
Federal................................................................. - 2,765 (1,433)
State................................................................... 1 629 (213)
Foreign................................................................. 11 1,013 (897)
-------- ------- -------
Income tax expense...................................................... $ 11,987 $12,211 $11,356
-------- ------- -------
</TABLE>
The pre-tax income (loss) attributed to the Company's foreign
operations was approximately $9.3 million, $7.7 million, and ($8.5) million for
the years ended December 31, 1999, 1998 and 1997 respectively.
The difference between the provision for income taxes and amounts
computed by applying federal statutory rates to income before income taxes is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal income tax expense at statutory rates....................... $11,367 $11,067 $ 7,115
State income taxes net of federal income tax effect................. 639 1,082 1,551
Non-deductible expenses............................................. 1,236 1,139 450
In-process technology write-off..................................... - - 3,535
Tax credits......................................................... (115) (305) (582)
Other............................................................... (1,140) (772) (713)
------- ------- -------
Income tax provision................................................ $11,987 $12,211 $11,356
------- ------- -------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31, 1999 and
1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation....................................... $5,058 $3,897
Other-net........................................................ 1,669 2,797
------ ------
Total deferred tax liabilities................................... 6,727 6,694
Deferred tax assets:
Accruals and reserves............................................ 150 130
Stock compensation............................................... 903 902
------ ------
Total deferred tax assets........................................ 1,053 1,032
------ ------
Net deferred tax liabilities..................................... $5,674 $5,662
------ ------
</TABLE>
The Company made federal and state income tax payments of approximately
$10.1 million, $7.6 million and $11.7 million, in the years ended December 31,
1999, 1998 and 1997, respectively. The Company made $4.7 million,
-13-
<PAGE>
$580,000, and $750,000 in foreign income tax payments in the years ended
December 31, 1999, 1998, and 1997 respectively.
8. LEASES
The Company leases certain office and warehouse facilities under
operating leases. Lease expense for operating leases totaled approximately $4.0
million, $2.8 million and $2.3 million for the years ended December 31, 1999,
1998 and 1997, respectively. Future minimum lease obligations at December 31,
1999, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
2000..................................................................... $ 3,805
2001..................................................................... 3,066
2002..................................................................... 1,339
2003..................................................................... 829
2004..................................................................... 720
Thereafter............................................................... 2,245
---------
Total lease obligations.................................................. $ 12,004
---------
</TABLE>
Scientific Games Holdings Corp. Notes to Consolidated Financial Statements
December 31, 1999
9. BENEFIT PLANS
THE COMPANY SPONSORS THE FOLLOWING DEFINED CONTRIBUTION PLANS FOR ITS
EMPLOYEES AND DIRECTORS:
The Company sponsors the Scientific Games Inc. Savings and Investment
Plan, a savings plan which covers all SGI employees who elect to participate.
Employees are eligible for participation on the enrollment date following six
months of service. Prior to 1999, the Company contributed an amount equal to 33%
of the portion of the employee's elective deferral contributions which do not
exceed 6% of the employee's total pay for each payroll period in which an
elective deferral is made, subject to the limitations of the Internal Revenue
Code. Beginning in 1999, the Company contributed an amount equal to 50% of the
portion of the employee's elective deferral contributions which do not exceed 6%
of the employee's total pay for each payroll period in which an elective
deferral is made. The Company's matching portion of employees' contributions is
made with the Company's common stock, which is purchased on the open market.
Matching contributions of the Company are 100% vested upon receipt.
Approximately $581,000, $360,000 and $331,000 was expensed by the Company
related to this plan during 1999, 1998 and 1997, respectively.
On October 1, 1996, the Company established the Scientific Games Inc.
Management Deferred Compensation Plan (MDCP) to provide deferred compensation
for a select group of management or highly compensated employees. Generally,
participants in the MDCP may elect to defer up to 50% of their salary and up to
100% of their annual cash incentive bonus. Assets of the MDCP may be held by a
rabbi trust and are accounted for as assets of the Company; therefore all
earnings and expenses are recorded in the Company's financial statements. The
net amount of the MDCP's earnings and losses is recorded as additional liability
to the participants and is an expense of the Company. Assets and liabilities of
the MDCP totaled approximately $1.4 million and $1.7 million, respectively, at
December 31, 1999. Compensation expense associated with the MDCP was
approximately $292,000, $546,000 and $649,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
Effective July 11, 1996, the Company established Scientific Games
Holdings Corp. Directors Deferred Compensation Plan (DDCP) to provide each
member of the Board of Directors who is not an employee of the Company (a
"Director") an opportunity, on an annual basis, to defer all or any portion of
his or her director's fees. Similar to the MDCP discussed above, assets of the
DDCP may be held by a rabbi trust. Assets and liabilities of the DDCP totaled
approximately $279,000 and $322,000, respectively, at December 31, 1999.
Compensation expense associated with the
-14-
<PAGE>
DDCP was approximately $60,000, $133,000 and $71,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
THE COMPANY ALSO SPONSORS THE FOLLOWING DEFINED BENEFIT PLANS FOR
CERTAIN EMPLOYEES:
Certain employees of SGIL are participants in a defined-benefit pension
plan administered by SGIL. The benefits are based on an average of the
employee's compensation over two years preceding retirement or leave of service.
The Company also sponsors the Scientific Games Inc. Supplemental
Executive Retirement Plan ("SERP") covering certain executives as determined by
the Compensation Committee of the Board. All current participants are 100%
vested in their benefits. Generally, participants will receive benefits for 15
years in an amount equal to 53% of his or her compensation in the final three
calendar years of employment. Such amounts may be reduced based upon length of
service and vesting schedules for participants entering the SERP after January
1, 1996.
The following tables summarize the SGIL Plan and the SERP amounts
related to the SERP for 1997 have not been presented as such amounts were not
significant.
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------
SGIL SERP
---------------------------- ----------------
1999 1998 1997 1999 1998
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CHANGES IN BENEFIT OBLIGATION
Net benefit obligation at beginning of year................ $11,960 $9,634 $8,089 $5,506 $5,252
Service cost............................................... 1,018 963 775 283 134
Interest cost.............................................. 646 631 770 404 394
Actuarial (gain) loss...................................... 2,044 732 -- (23) (152)
Gross benefits paid........................................ -- -- -- (163) (122)
------- ------- ------ ------ ------
Net benefit obligation at end of year...................... $15,668 $11,960 $9,634 $6,007 $5,506
------- ------- ------ ------ ------
CHANGES IN PLAN ASSETS
Fair value of plan assets at beginning of year............. $11,777 $9,883 $9,059 $-- $--
Actual return on plan assets............................... 1,647 780 49 -- --
Employer contributions..................................... 799 963 775 -- --
Plan participants' contribution............................ 476 151 -- -- --
Gross benefits paid........................................ -- -- -- -- --
------- ------- ------ ------ ------
Fair value of plan assets at end of year................... $14,699 $11,777 $9,883 $-- $--
------- ------- ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------
SGIL SERP
---------------------------- ----------------
1999 1998 1997 1999 1998
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Funded status at end of year............................... $ (969) $ (183) $ 249 $ (6,007) $ (5,506)
Unrecognized net actuarial gain (loss)..................... 727 (100) (396) 595 623
Unrecognized prior service cost............................ -- -- -- 2,781 3,139
Additional minimum liability............................... -- -- -- (2,910) (3,394)
Intangible asset........................................... -- -- -- 2,781 3,139
Accrued other comprehensive Income......................... -- -- -- 129 255
------- ------- ------ ------- -------
Net amount recognized at end of year....................... $ (242) $ (283) $ (147) $(2,631) $(1,744)
------- ------- ------ ------- -------
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------
SGIL SERP
---------------------------- ----------------
1999 1998 1997 1999 1998
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Service cost............................................... $ 1,018 $ 963 $ 775 $ 283 $ 134
Interest cost.............................................. 646 631 770 404 394
Expected return on plan assets............................. (889) (780) (819) -- --
Amortization of unrecognized transition obligation......... -- (16) -- -- --
Amortization of prior service cost......................... -- -- -- 358 358
Amortization of actuarial loss (gain)...................... -- -- -- 4 29
-------- ------- ------- ------- ------
Net periodic pension cost.................................. $ 775 $ 798 $ 726 $ 1,049 $ 915
-------- ------- ------- ------- ------
</TABLE>
Assumptions used in the accounting for the defined benefit plans are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------
SGIL SERP
---------------------------- ----------------
1999 1998 1997 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted-average discount rate............................... 6.0% 5.5% 6.5% 7.5% 7.5%
Rate of increase in future compensation levels............... 4.5% 4.0% 4.5% 5.0% 5.0%
Expected long term rate of return on plan assets............. 7.5% 7.5% 7.5% -- --
</TABLE>
The SERP is not a qualified plan and has no plan assets. To provide a
funding source for the payment of benefits under the SERP, the Company owns
whole-life insurance contracts on the participants. The cash value of these
policies was approximately $2.5 million at December 31, 1998 and approximately
$3.8 million at December 31,1999. The Company made cash payments associated with
the policies of approximately $787,000 annually during 1999, 1998 and 1997.
These policies have been placed in a rabbi trust, which will hold the policies
and death benefits as they are received.
10. CONTINGENCIES
As initially reported in July 1993 and periodically reported
thereafter, the Company's Scientific Games Inc. ("SGI") subsidiary owns a
minority interest in Wintech de Colombia S.A. ("Wintech"), which formerly
operated the Colombian national lottery under contract with Empresa Colombiana
de Recursos para la Salud, S.A. ("Ecosalud"), an agency of the Colombian
government. The contract projected that certain levels of lottery ticket sales
would be attained and provided a penalty against Wintech, SGI and the other
shareholders of Wintech of up to $5.0 million if such performance levels of
lottery ticket sales were not achieved. In addition, with respect to a further
guarantee of performance under the contract with Ecosalud, SGI delivered to
Ecosalud a $4.0 million bond issued by a Colombian surety, Seguros del Estado
("Seguros"). Wintech started the instant lottery in Colombia, but, due to
difficulties beyond its control, including, among other factors, social and
political unrest in Colombia, frequently interrupted telephone service and power
outages, and competition from another lottery being operated in a province of
Colombia in violation of Wintech's exclusive license from Ecosalud, the
projected sales level was not met for the year ended June 1993. On July 1, 1993,
Ecosalud adopted resolutions declaring, among other things, that the contract
was in default and asserted various claims for compensation and penalties
against Wintech, SGI and other shareholders of Wintech. As the Company has
previously disclosed in its filings with the Commission, litigation is pending
in Colombia concerning various claims among Ecosalud, Wintech and SGI, relating
to the termination of the contracts with Ecosalud (the "Colombian Litigation").
Ecosalud's claims in the Colombian Litigation were for, among other things,
realization on the full amount of the penalty, plus interest and costs of the
bond.
SGI has consulted with Colombian counsel and been advised that SGI has
various legal defenses to Ecosalud's claims. SGI also has certain cross
indemnities and undertakings from the two other privately held shareholders of
Wintech
-16-
<PAGE>
for their respective shares of any liability to Ecosalud. That obligation is
secured in part by a $1.5 million confirmed letter of credit in favor of SGI.
The Colombian surety which issued a $4.0 million bond to Ecosalud under
the contract paid $2.4 million to Ecosalud under the bond, and made demand upon
SGI for that amount under the indemnity agreement entered into by the surety and
SGI. SGI declined to make or authorize any such payment and notified the surety
that any payment in response to Ecosalud's demand on the bond was at the
surety's risk. No assurance can be given that the other shareholders of Wintech
will, or have sufficient assets to, honor their indemnity undertakings to SGI
when the claims by Ecosalud against SGI and Wintech are finally resolved, in the
event such claims result in any final liability.
On April 2, 1998, Seguros brought suit against SGI in the United States
District Court for the Northern District of Georgia, Atlanta Division, Civil
Action No. 1:98-CV-968-CAM. The plaintiff sought $2.4 million for sums paid by
Seguros to Ecosalud under the surety bond on November 1, 1994, plus interest at
the Colombian bank rate of interest. SGI filed a motion to dismiss based on the
Colombian statute of limitations of two years and, alternatively, sought that
the case be dismissed on other grounds. Seguros filed a motion for summary
judgment with the Court on May 6, 1998 seeking summary judgment on its claim in
the amount of $2.4 million, plus interest.
On September 29, 1999, the District Court issued an order in which it
denied various motions of SGI, including a motion to dismiss, and granted
Seguros' motion for summary judgment. On September 29, 1999, the District Court
also entered judgment for Seguros in the amount of $2.4 million or the
equivalent in Colombian pesos as of the judgment date, plus pre-judgment
interest at a rate of 38.76% per annum, equivalent to approximately $4.6
million.
SGI has appealed the matters covered by the District Court's order and
judgment. SGI has posted an appeal bond in the amount of $7 million through its
existing bonding arrangements. SGI continues to believe that it has meritorious
defenses, including that the amount paid by Seguros was improperly paid because
of the default by Ecosalud of its obligations to SGI, which claims remain the
subject of separate litigation in Colombia.
In addition to vigorously prosecuting its appeal of the District
Court's order and judgment, SGI continues to vigorously defend the Colombian
litigation and has been advised by counsel that SGI has various defenses on the
merits as well as procedural defenses to the litigation (which it has asserted).
Nevertheless, it is not possible to determine the exact/ultimate outcome of the
appeal of the order and judgment granted to Seguros or the outcome of any
litigation in Colombia. While it is not feasible to predict or determine the
final outcome of these proceedings, management, based on the knowledge of the
related facts and circumstances does not believe that any potential losses will
result in a materially adverse effect on the Company's financial position,
results of operations, liquidity or capital resources.
At December 31, 1999 the company has contracts for the completion of
the expansions of the Alpharetta and U.K. facilities totaling approximately
$17.5 million.
Scientific Games Holdings Corp. Notes to Consolidated Financial Statements
December 31, 1999
11. SEGMENT INFORMATION
The Company's primary customers are government sanctioned lotteries
worldwide. The two primary products sold by these lotteries are instant ticket
games (scratch-off lottery tickets) and online lottery games (lotto-type games).
The Company's two reportable segments are organized based on the products and
services it supplies to lotteries, Instant Tickets and Related Services and
Systems.
In the Instant Ticket and Related Services segment, the Company
primarily supplies game design, sales and marketing support, instant ticket
manufacturing and delivery, inventory management and distribution, and retailer
telemarketing and field service. In addition, this segment includes the supply
of promotional instant tickets and pull-tab tickets, which are sold to both
lottery and non-lottery customers as well as prepaid phone cards which are sold
to telecommunications companies. These products represent less than 10% of the
Company's revenue.
-17-
<PAGE>
In the Systems segment, the Company primarily supplies transaction
processing software that accommodates instant ticket accounting and validation
and online games, point-of-sale terminal hardware which connects to these
systems, central site computer and communication hardware which run these
systems, and ongoing maintenance services for each of these items. On-line
lottery games include lotto, daily pick, keno and other games. The Systems
segment also includes software and hardware for sports betting systems and
credit card processing systems for non-lottery customers.
The Company refers to Cooperative Services in various sections of this
annual report. Cooperative Services is a branded marketing name given to the
combination of any of the products offered by the two segments under one
customer contract. The Company believes the Cooperative Services name assists it
in promoting greater awareness of its capabilities, but does not treat it as a
separate segment. The intersegment sales relate to Systems activity included in
Instant ticket and related services customer contracts. The amount of
intersegment sales was calculated based on the market value of the product or
service provided as if it was sold separately. The Corporate line items in the
schedules relate to general and administrative functions which are not allocated
to the segments.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
SEGMENT INFORMATION
Revenue from external customers:
Instant tickets and related services.................................. $ 188,571 $ 176,676 $ 178,923
Intersegment revenue............................................... (7,306) (8,098) (6,353)
Systems............................................................... 39,716 36,810 18,470
Intersegment revenue............................................... 7,306 8,098 6,353
Corporate............................................................. 286 314 63
----------- ----------- ----------
Total revenue from external customers.................................... $ 228,573 $ 213,800 $ 197,456
----------- ----------- ----------
Depreciation and amortization:
Instant tickets and related services.................................. $ 9,186 $ 8,887 $ 8,868
Systems............................................................... 6,880 6,091 3,406
Corporate............................................................. 1,958 1,352 955
----------- ----------- ----------
Total depreciation and amortization...................................... $ 18,024 $ 16,330 $ 13,229
----------- ----------- ----------
Operating income (loss):
Instant tickets and related services.................................. $ 38,255 $ 34,343 $ 37,707
Pull-tab business write-off........................................ - - (3,376)
Systems............................................................... 6,152 7,577 5,553
In-process technology write-off.................................... - - (10,102)
Corporate............................................................. (11,715) (9,598) (9,404)
----------- ----------- ----------
Total operating income................................................... 32,692 32,322 20,378
Interest expense................................................... (588) (1,353) (911)
Other.............................................................. 371 651 861
----------- ----------- ----------
Income before income taxes............................................... $ 32,475 $ 31,620 $ 20,328
----------- ----------- ----------
Assets:
Instant tickets and related services.................................. $ 131,101 $ 137,718 $ 136,470
Systems............................................................... 56,141 26,564 19,485
Corporate............................................................. 16,391 15,351 8,455
----------- ----------- ----------
Total assets............................................................. $ 203,633 $ 179,633 $ 164,410
----------- ----------- ----------
GEOGRAPHIC INFORMATION
Net revenues(a):
United States......................................................... $ 168,147 $ 169,360 $ 158,911
Europe................................................................ 60,426 44,440 38,545
----------- ----------- ----------
Total net revenues....................................................... $ 228,573 $ 213,800 $ 197,456
----------- ----------- ----------
Net revenues(b):
United States......................................................... $ 141,392 $ 138,199 $ 131,335
Europe................................................................ 69,150 68,250 58,089
Other................................................................. 18,031 7,351 8,032
----------- ----------- ----------
Total net revenues....................................................... $ 228,573 $ 213,800 $ 197,456
----------- ----------- ----------
Net long lived assets:
United States......................................................... $ 74,467 $ 75,062 $ 80,738
Europe................................................................ 25,985 20,164 17,460
----------- ----------- ----------
Total long lived assets.................................................. $ 100,452 $ 95,226 $ 98,198
----------- ----------- ----------
</TABLE>
-----------
(a) Based on subsidiaries' countries of domicile
(b) Based on customers' countries of domicile
During the years ended December 31, 1999 one customer comprised
approximately 10% of the Company's total revenues and in 1998 and 1997,
respectively, no single customer accounted for over 10% of the Company's total
revenues.
-18-
<PAGE>
12. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- --------- ---------
IN THOUSANDS,
EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C>
1999
Revenues.......................................................... $ 52,665 $ 57,125 $ 59,511 $ 59,272
Gross profit...................................................... 18,947 21,549 20,444 18,807
Income before taxes............................................... 8,081 8,628 7,866 7,900
Net income........................................................ 5,006 5,430 5,373 4,679
---------- ---------- --------- ---------
Net income per share-basic........................................ $ 0.42 $ 0.46 $ 0.45 $ 0.40
---------- ---------- --------- ---------
Net income per share-diluted...................................... $ 0.42 $ 0.45 $ 0.45 $ 0.40
---------- ---------- --------- ---------
1998
Revenues.......................................................... $ 48,419 $ 51,567 $ 53,928 $59,886
Gross profit...................................................... 16,862 18,832 20,116 19,360
Income before taxes............................................... 6,229 8,103 9,093 8,195
Net income........................................................ 3,777 4,853 5,282 5,497
---------- ---------- --------- ---------
Net income per share-basic........................................ $ .32 $ .39 $ .43 $ .46
---------- ---------- --------- ---------
Net income per share-diluted...................................... $ .31 $ .39 $ .43 $ .46
---------- ---------- --------- ---------
</TABLE>
-19-
<PAGE>
SCIENTIFIC GAMES HOLDINGS CORP.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands except share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
(UAUDITED) (1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................................. $ 11,296 $ 14,775
Trade receivables ..................................................................... 46,669 48,655
Inventories ........................................................................... 15,648 15,281
Prepaid expenses and other current assets ............................................. 3,500 2,706
Income taxes receivable ............................................................... 74 --
Deferred income tax benefits .......................................................... 1,100 1,053
--------- ---------
Total current assets ......................................................... 78,287 82,470
Property, SYSTEMS AND EQUIPMENT, at cost:
Land .................................................................................. 5,024 2,404
Buildings ............................................................................. 12,405 12,535
Leasehold improvements ................................................................ 3,016 2,367
Production, systems and other equipment ............................................... 115,650 112,884
Construction-in-progress .............................................................. 25,759 12,089
--------- ---------
161,854 142,279
Less accumulated depreciation and amortization ........................................ (75,407) (69,324)
--------- ---------
86,447 72,955
OTHER ASSETS:
Goodwill, net of amortization ......................................................... 29,819 31,473
Other assets .......................................................................... 18,462 16,735
--------- ---------
$ 213,015 $ 203,633
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ...................................................................... $ 13,457 $ 15,912
Accrued Liabilities ................................................................... 25,125 23,397
Income taxes payable .................................................................. -- 1,827
--------- ---------
Total current liabilities .................................................... 38,582 41,136
LONG-TERM LIABILITIES:
Credit facilities ..................................................................... 28,900 23,547
Other long-term liabilities ........................................................... 5,364 5,677
Deferred income taxes payable ......................................................... 7,471 6,727
Minority interest in consolidated subsidiaries ........................................ 3,238 3,004
STOCKHOLDERS' EQUITY:
Common stock par value $.001 per share:
shares authorized: 25,750,000;
issued and outstanding shares 11,924,151 at June 30, 2000 and
11,915,702 at December 31, 1999 ................................................... 12 12
Additional paid-in capital ............................................................ 66,144 66,060
Accumulated earnings .................................................................. 72,337 66,689
Accumulated other comprehensive income ................................................ (999) (1,198)
Treasury stock, at cost - 509,200 shares at June 30, 2000
and December 31, 1999 ................................................................. (8,034) (8,021)
--------- ---------
Total stockholders' equity ................................................... 129,460 123,542
--------- ---------
$ 213,015 $ 203,633
========= =========
</TABLE>
(1) Derived from audited financial statements
See accompanying notes.
-20-
<PAGE>
SCIENTIFIC GAMES HOLDINGS CORP.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three-month period Six-month period
ended June 30, ended June 30,
---------------------------- ----------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues ............................................... $ 61,448 $ 57,125 $ 120,511 $ 109,790
Cost of revenues ....................................... 42,973 35,576 82,616 69,294
--------- --------- --------- ---------
18,475 21,549 37,895 40,496
Selling, general and administrative expenses ........... 7,510 7,617 16,058 14,357
Depreciation and amortization .......................... 4,856 4,822 9,424 8,894
Plant closure costs .................................... 309 2,826
--------- --------- --------- ---------
Operating income ....................................... 5,800 9,110 9,587 17,245
Other income (expense):
Interest income .................................. 175 189 368 279
Other income ..................................... 70 25 78 30
Gain/(loss) on foreign currency .................. (14) (174) (308) 273
Interest expense ................................. 337 235 622 402
Minority interest elimination .................... (118) (287) (176) (716)
--------- --------- --------- ---------
Income before income taxes ............................. 5,576 8,628 8,927 16,709
Income tax expense ..................................... 2,062 3,198 3,278 6,273
--------- --------- --------- ---------
Net income ............................................. $ 3,514 $ 5,430 $ 5,649 $ 10,436
========= ========= ========= =========
Basic net income per common share ...................... $ 0.31 $ 0.46 $ 0.50 $ 0.88
========= ========= ========= =========
Diluted net income per common share .................... $ 0.30 $ 0.45 $ 0.49 $ 0.87
========= ========= ========= =========
Average common shares outstanding - basic .............. 11,415 11,885 11,411 11,885
Dilutive effect of stock options and
non-vested restricted stock awards .................... 163 108 124 108
--------- --------- --------- ---------
Average common shares outstanding-diluted .............. 11,578 11,993 11,535 11,993
========= ========= ========= =========
</TABLE>
See accompanying notes.
-21-
<PAGE>
SCIENTIFIC GAMES HOLDINGS CORP.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands except share data)
<TABLE>
<CAPTION>
Six month period
ended June 30,
2000 1999
---- ----
<S> <C> <C>
CASH FLOW PROVIDED BY OPERATING ACTIVITIES
Net income.................................................................. $5,649 $10,436
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation........................................................... 6,645 5,838
Amortization........................................................... 2,778 3,056
Gain on disposal of property and equipment............................. (521) (12)
Stock compensation expense............................................. 35 31
Minority interest...................................................... 118 348
Deferred income taxes.................................................. (32) 257
Changes in operating assets and liabilities:
Accounts receivable............................................... 1,745 (12,752)
Inventories....................................................... (526) (527)
Accounts payable.................................................. (2,400) 435
Other............................................................. (288) 3,520
------- ------
Net cash provided by operating activities.................................. 13,203 10,630
CASH FLOWS USED IN INVESTING ACTIVITIES
Proceeds from sales of property and equipment............................... 442 120
Purchases of property and equipment......................................... (22,270) (5,956)
------- ------
Net cash used in investing activities.................................... (21,828) (5,836)
CASH FLOWS USED IN FINANCING ACTIVITIES
Borrowings under credit facilities.......................................... 23,891 21,265
Payments on bank credit facilities.......................................... (18,000) (19,771)
Repurchase of common stock.................................................. (13) --
Proceeds of exercise of common stock options................................ 4 8
------- ------
Net cash provided by financing activities................................ 5,882 1,502
EFFECT OF EXCHANGE RATE CHANGES ON CASH......................................... (736) (1,834)
------- ------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............................ (3,479) 4,462
CASH AND CASH EQUIVALENTS, beginning of period.................................. 14,775 9,270
------- ------
CASH AND CASH EQUIVALENTS, end of period........................................ $ 11,296 $ 13,732
======== ========
SUPPLEMENTAL CASH FLOWS DISCLOSURE:
Cash paid for interest...................................................... $460 $318
==== ====
</TABLE>
See accompanying notes.
-22-
<PAGE>
SCIENTIFIC GAMES HOLDINGS CORP.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
Note 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements and
should be read in conjunction with the financial statement
disclosures contained in the Company's 1999 Annual Report on
Form 10-K for the year ended December 31, 1999. In the opinion
of management, all adjustments considered necessary for a fair
presentation (which were of a normal, recurring nature) have
been included. Operating results for the three and six month
periods ended June 30, 2000 are not necessarily indicative of
the results that may be expected for the year ended December
31, 2000.
Note 2. INVENTORIES
Inventories consist principally of instant lottery tickets,
materials related to their production and certain electronic
components related to Systems terminals which are valued at
the lower of cost (first-in, first-out method) or market.
Inventories consisted of the following at:
<TABLE>
<CAPTION>
June 30,
2000 December 31, 1999
-------- -----------------
(In Thousands)
<S> <C> <C>
Finished goods..................................... $9,015 $8,633
Work-in-process.................................... 1,915 2,075
Raw materials...................................... 4,718 4,573
------- -------
$15,648 $15,281
======= =======
</TABLE>
Note 3. CONTINGENCIES
As initially reported in July 1993 and periodically reported
thereafter, the Company's Scientific Games Inc. ("SGI")
subsidiary owns a minority interest in Wintech de Colombia
S.A. ("Wintech"), which formerly operated the Colombian
national lottery under contract with Empresa Colombiana de
Recursos para la Salud, S.A. ("Ecosalud"), an agency of the
Colombian government. The contract projected that certain
levels of lottery ticket sales would be attained and provided
a penalty against Wintech, SGI and the other shareholders of
Wintech of up to $5.0 million if such performance levels of
lottery ticket sales were not achieved. In addition, with
respect to a further guarantee of performance under the
contract with Ecosalud, SGI delivered to Ecosalud a $4.0
million bond issued by a Colombian surety, Seguros del Estado
("Seguros"). Wintech started the instant lottery in Colombia,
but, due to difficulties beyond its control, including, among
other factors, social and political unrest in Colombia,
frequently interrupted telephone service and power outages,
and competition from another lottery being operated in a
province of Colombia in violation of Wintech's exclusive
license from Ecosalud, the projected sales level was not met
for the year ended June 1993. On July 1, 1993, Ecosalud
adopted resolutions declaring, among other things, that the
contract was in default and asserted various
claims for compensation and penalties against Wintech, SGI and
other shareholders of Wintech. As the Company has previously
disclosed in its filings with the Commission, litigation is
pending in Colombia concerning various claims among Ecosalud,
Wintech and SGI, relating to the termination of the contracts
with Ecosalud (the "Colombian Litigation"). Ecosalud's claims
in the Colombian Litigation were for, among other things,
realization on the full amount of the penalty, plus interest
and costs of the bond.
SGI has consulted with Colombian counsel and been advised that
SGI has various legal defenses to Ecosalud's claims. SGI also
has certain cross indemnities and undertakings from the two
other privately held shareholders of Wintech for their
respective shares of any liability to Ecosalud. That
obligation is secured in part by a $1.5 million confirmed
letter of credit in favor of SGI.
The Colombian surety, which issued a $4.0 million bond to
Ecosalud under the contract, paid $2.4 to Ecosalud under the
bond, and made demand upon SGI for that amount under the
indemnity agreement entered into by the surety and SGI. SGI
declined to make or authorize any such payment and notified
the surety that any payment in response to Ecosalud's demand
on the bond was at the surety's risk. No assurance can be
given that the other shareholders of Wintech will, or have
sufficient assets to, honor their indemnity undertakings to
SGI when the claims by Ecosalud against SGI and Wintech are
finally resolved, in the event such claims result in any final
liability.
On April 2, 1998, Seguros brought suit against SGI in the
United States District Court for the Northern District of
Georgia, Atlanta Division, Civil Action No. 1:98-CV-968-CAM.
The plaintiff sought $2.4 million for sums paid by Seguros to
Ecosalud under the surety bond on November 1, 1994, plus
interest at the Colombian bank rate of interest. SGI filed a
motion to dismiss based on the Colombian statute of
limitations of two years and, alternatively, sought that the
case be dismissed on other grounds. Seguros filed a motion for
summary judgment with the Court on May 6, 1998 seeking summary
judgment on its claim in the amount of $2.4 million, plus
interest.
On September 29, 1999, the District Court issued an order in
which it denied various motions of SGI, including a motion to
dismiss, and granted Seguros' motion for summary judgment. On
September 29, 1999, the District Court also entered judgment
for Seguros in the amount of $2.4 million or the equivalent in
Colombian pesos as of the judgment date, plus pre-judgment
interest at a rate of 38.76% per annum, equivalent to
approximately $4.6 million.
SGI has appealed the matters covered by the District Court's
order and judgment. SGI has posted an appeal bond in the
amount of $7 million through its existing bonding
arrangements. SGI continues to believe that it has meritorious
defenses, including that the amount paid by Seguros was
improperly paid because of the default by Ecosalud of its
obligations to SGI, which claims remain the subject of
separate litigation in Colombia.
In addition to vigorously prosecuting its appeal of the
District Court's order and judgment, SGI continues to
vigorously defend the Colombian litigation and has been
advised by counsel that SGI has various defenses on the merits
as well as procedural defenses to the litigation (which it has
asserted). Nevertheless, it is not possible to determine the
exact/ultimate outcome of the appeal of the order and judgment
granted to Seguros or the outcome of any litigation in
Colombia. While it is not feasible to predict or determine the
final outcome of these proceedings, management, based on the
knowledge of the related facts and circumstances,
-23-
<PAGE>
believes that any potential losses will not result in a
materially adverse effect on the Company's financial position,
results of operations, liquidity or capital resources.
Note 4. COMPREHENSIVE INCOME
Total comprehensive income was $195,000 and $5.8 million for
the three-month and six-month periods ended June 30, 2000 and
$5.4 million and $10.0 million for the three-month and
six-month periods ended June 30, 1999, respectively.
Note 5. CREDIT FACILITIES
The Company has two credit facilities, an $80 million
revolving credit facility with four banks which expires
November 30, 2002 and a $25 million revolving 364-day credit
facility with a single bank that expires on November 29, 2000.
(Refer to the Company's 10-K for the year ended December 31,
1999 for a description of the Company's credit facilities).
Net borrowings under the credit facilities were $28.9 million
at June 30, 2000.
-24-
<PAGE>
Note 6. Segment Information
<TABLE>
<CAPTION>
A. Operating Segment Three month period Six month period
Information I. ended June 30 II. ended June 30
(IN THOUSANDS) 2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue from external customers:
Instant Ticket and Related Services $ 54,312 $ 45,917 $ 106,872 $ 86,673
Intersegment Revenue (1,876) (1,896) (3,784) (3,565)
Systems 7,250 11,161 13,652 23,054
Intersegment Revenue 1,876 1,896 3,784 3,565
Corporate (114) 47 (13) 63
--------- --------- --------- ---------
Total revenue from external customers 61,448 57,125 120,511 109,790
========= ========= ========= =========
Operating income
Instant Ticket and Related Services 9,302 9,729 18,968 17,604
Systems (476) 2,807 (3,510) 5,731
Corporate (3,026) (3,426) (5,871) (6,090)
Total operating income 5,800 9,110 9,587 17,245
Interest expense, net (164) (46) (254) (123)
Other (60) (436) (406) (413)
--------- --------- --------- ---------
Income before income tax $ 5,576 $ 8,628 $ 8,927 $ 16,709
========= ========= ========= =========
</TABLE>
Note 7. PLANT CLOSURE
On January 28, 2000, the Company announced plans to consolidate its
printing operations by expanding its Alpharetta, Georgia facility and
closing its instant ticket printing operation in Gilroy, California. The
severance and stay incentive plan was announced to the employees on January
27, 2000. A total of $309,000 and $2.8 million in closure costs were
expensed for the quarter and six months ended June 30, 2000, respectively.
The reserve in accrued liabilities was $2.4 million at June 30, 2000. These
costs consisted of severance, stay incentives, lease termination and asset
write-downs. There are approximately 130 employees that will be terminated
including both production and support employees at the plant. The plant
stopped printing operations on July 26, 2000 and will cease total
operations by the end of August 2000. There were $185,000 in charges taken
against the reserve during the quarter ended June 30, 2000.
-25-
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
The table below sets forth for Autotote and Scientific Games summary
unaudited pro forma combined statement of operations data for the fiscal year
ended October 31, 1999 and the nine months ended July 31, 2000, as well as
summary unaudited balance sheet data for Autotote on July 31, 2000 and summary
unaudited pro forma balance sheet data for the combined entities as of July 31,
2000. The information should be read in conjunction with the consolidated
financial statements and notes thereto of Autotote Corporation and Scientific
Games, respectively.
The summary unaudited pro forma condensed combined financial data set forth
below have been derived from the unaudited pro forma condensed combined
financial data included elsewhere herein and give effect to the following:
i) The acquisition of Scientific Games.
ii) The offering of $150,000 principal amount of 12 1/2% Senior Subordinated
Notes due August 15, 2010, Series A.
iii) $280,000 of term loan borrowings under the terms of our new senior credit
facilities. On September 6, 2000, simultaneously with the consummation of
the Scientific Games acquisition, we entered into new senior secured credit
facilities with DLJ Capital Funding, Inc., an affiliate of Donaldson,
Lufkin & Jenrette Securities Corporation and Lehman Commercial Paper Inc.,
an affiliate of Lehman Brothers Inc. (collectively, the "Agents"), and a
syndicate of other financial institutions (collectively, the "Lenders"),
under which the Agents and the Lenders agreed to provide new senior secured
credit facilities to us in an aggregate amount of up to $345.0 million. The
Credit Agreement and the other loan documentation entered into on September
6, 2000 were amended and restated as of October 6, 2000 but no material
terms were changed (the "New Facility").
iv) $7,000 of borrowings under the revolving credit facility of our New
Facility.
v) $110,000 of gross proceeds from the sale of our new convertible preferred
stock, $100.0 million of which was purchased by an affiliated entity of
Olivetti S.p.A. As a result, the Olivetti group has become our largest
equity investor, owning approximately 31% of our common stock on a fully
converted basis.
vi) $12,522 cash on hand used to fund a portion of the acquisition.
vii) The application of the net proceeds received from (ii), (iii), (iv) and (v)
including the refinancing of existing indebtedness of Autotote and
Scientific Games.
viii) The fees and expenses associated with the above.
The summary unaudited pro forma combined statement of operations data,
other data and related ratio information, give effect to these transactions as
if each had occurred at the beginning of the periods presented and the summary
unaudited pro forma balance sheet data give effect to these transactions as if
each had occurred on July 31, 2000. The unuadited pro forma financial data do
not purport to represent what our financial position and results of operations
would have been if the transactions listed above had actually occurred as of the
dates indicated and are not intended to project our financial position or
results of operations for any future periods.
-26-
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
OCTOBER 31, JULY 31,
1999 (1) 2000(2)
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues .............................. $ 439,811 $ 328,957
Operating expenses (exclusive of depreciation and
amortization) ................................... 291,987 219,285
--------- ---------
Gross profit .................................... 147,824 109,672
Selling, general and administrative expenses .... 55,928 42,786
Special charges ................................. 1,600 2,826
Depreciation and amortization ................... 50,138 38,156
--------- ---------
Operating income ................................ 40,158 25,904
Net loss applicable to common stockholders ...... (20,503) (17,515)
OTHER DATA:
Ratio of earnings to fixed charges (3) .......... -- --
<CAPTION>
AS OF JULY 31, 2000
-------------------------
AUTOTOTE
BALANCE SHEET DATA: ACTUAL PRO FORMA
--------- ---------
<S> <C> <C>
Cash and cash equivalents ....................... $ 3,181 $ 1,955
Working capital ................................. (3,480) 26,113
Total assets .................................... 174,704 644,188
Total debt (4) .................................. 170,759 439,139
Convertible preferred stock (5) ................. -- 106,378
Common stockholders' deficit .................... (43,213) (55,509)
</TABLE>
(1) Represents an unaudited pro forma combination of Autotote's fiscal
year ended October 31, 1999 and Scientific Games' twelve months
ended September 30, 1999.
(2) Represents an unaudited pro forma combination of Autotote's nine
month period ended July 31, 2000 and Scientific Games' nine month
period ended June 30, 2000.
(3) For purposes of determining the ratio of earnings to fixed charges,
"earnings" consist of loss before income tax expense plus fixed charges,
plus income allocable to minority interests in consolidated entities that
have incurred fixed charges. "Fixed charges" consist of interest expense,
including amortization of deferred finance costs, plus one-third of rental
expense (this portion is considered to be representative of the interest
factor). For the year ended October 31, 1999 and the nine months ended July
31, 2000 unaudited pro forma earnings were insufficient to cover fixed
charges by $9,257 and $11,095, respectively.
(4) Excludes undrawn letters of credit in the amounts of $0.8 million (actual)
and $3.9 million (pro forma).
(5) Reflects $110.0 million gross proceeds from sale of convertible preferred
stock less $0.87 million in fees paid on behalf of the convertible
preferred stockholders and the $2.75 million cash portion of the
placement agent fee (and does not reflect $2.75 million convertible
preferred stock issued as partial payment of placement agent fees in
lieu of cash).
-27-
<PAGE>
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENT DATA
OF AUTOTOTE AND SCIENTIFIC GAMES
The unaudited pro forma condensed combined financial statements have
been derived by the application of pro forma adjustments to the combined
historical consolidated financial statements of Autotote and Scientific
Games. The unaudited pro forma condensed combined statement of operations
data for the year ended October 31, 1999, for the nine months ended July 31,
2000 give effect to the following: (i) the consummation of the Scientific
Games acquisition by Autotote, (ii) proceeds from the issuance of our
$150,000 principal amount 12 1/2% Senior Subordinated notes due August 15,
2010, Series A; (iii) initial borrowings under our new senior credit
facilities, (iv) the sale of $110 million of convertible preferred stock, and
(v) repayment of substantially all of Autotote's and Scientific Games'
existing indebtedness, as if each occurred at the beginning of the periods
presented. The unaudited pro forma condensed combined balance sheet as of
July 31, 2000 gives effect to these transactions as if each had occurred on
that date.
The unaudited pro forma condensed combined financial statements do not
include adjustments to reflect cost savings that we expect to realize following
the Scientific Games acquisition. (See Note 4 of Notes to Pro Forma Condensed
Combined Statements of Operations.) The unaudited pro forma financial data do
not purport to represent what our financial position and results of operations
would have been if these transactions had actually occurred as of the dates
indicated and are not intended to project our financial position or results of
operations for any future period.
The pro forma adjustments related to the purchase price allocation and
financing of the Scientific Games acquisition are preliminary and based on
information obtained to date that is subject to revision as additional
information becomes available. Any such revisions could have a significant
impact on total assets, total liabilities and stockholders' equity, depreciation
and amortization, interest expense and income taxes.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical consolidated financial statements of
Autotote and Scientific Games and related notes.
-28-
<PAGE>
UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SCIENTIFIC
AUTOTOTE GAMES PRO FORMA
HISTORICAL (1) HISTORICAL (2) ADJUSTMENTS (3) PRO FORMA
--------------- ----------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Operating revenues ................. $211,148 $229,188 $ (525) (a) $439,811
Operating expenses (exclusive of
depreciation and amortization). 143,433 148,890 (336) (a) 291,987
--------------- ----------------- ------------------- ---------------
Gross profit 67,715 80,298 (189) (a) 147,824
Selling, general and
administrative expenses ....... 27,178 29,350 (600) (b) 55,928
Special charges .................... 1,600 -- -- 1,600
Depreciation and amortization....... 22,189 17,431 10,518 (c)(d) 50,138
--------------- ----------------- ------------------- ---------------
Operating income (loss)............. 16,748 33,517 (10,107) 40,158
Interest expense ................... 16,177 682 33,304 (e) 50,163
Other expense....................... 15 64 -- 79
--------------- ----------------- ------------------- ---------------
Income (loss) before income tax
expense (benefit) ............ 556 32,771 (43,411) (10,084)
Income tax expense (benefit) ....... 177 11,463 (7,986) (f) 3,654
--------------- ----------------- ------------------- ---------------
Net income (loss) .................. 379 21,308 (35,425) (13,738)
Preferred stock dividend ........... -- -- (6,765) (g) (6,765)
--------------- ----------------- ------------------- ---------------
Net income (loss) applicable to
common stockholders............ $ 379 $ 21,308 $ (42,190) $(20,503)
=============== ================= =================== ===============
Net income (loss) per basic share... $ 0.01 $ (0.57)
=============== ===============
Net income (loss) per diluted share. -- $ (0.57)
=============== ===============
Weighted average number of shares
used in per share calculation:
Basic share...................... 36,118 36,118
=============== ===============
Diluted share.................... 38,343 36,118
=============== ===============
OTHER DATA:
Ratio of earnings to fixed
charges (5)....................... --
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
condensed combined statement of operations.
-29-
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED JULY 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SCIENTIFIC
AUTOTOTE GAMES PRO FORMA
HISTORICAL(1) HISTORICAL(2) ADJUSTMENTS(3) PRO FORMA
--------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Operating revenues.................. $150,605 $179,782 $ (1,430) (a) $328,957
Operating expenses (exclusive of
depreciation and amortization)... 97,007 123,078 (800) (a) 219,285
--------------- --------------- ---------------- -----------------
Gross profit........................ 53,598 56,704 (630) (a) 109,672
Selling, general and
administrative expenses ......... 19,909 23,327 (450) (b) 42,786
Special charges..................... -- 2,826 -- 2,826
Depreciation and amortization ...... 15,960 13,514 8,682 (c)(d) 38,156
--------------- --------------- ---------------- -----------------
Operating income (loss)............. 17,729 17,037 (8,862) 25,904
Interest expense ................... 12,850 805 24,008 (e) 37,663
Other expense (income) ............. (138) (594) -- (732)
--------------- --------------- ---------------- ----------------
Income (loss) before income tax
expense ......................... 5,017 16,826 (32,870) (11,027)
Income tax expense (benefit) ....... 586 6,500 (5,672) (f) 1,414
--------------- --------------- ---------------- ----------------
Net income (loss)................... 4,431 10,326 (27,198) (12,441)
Preferred stock dividend .......... -- -- (5,074) (g) (5,074)
=============== =============== ================ ================
Net income (loss) applicable to
common stockholders ............. $ 4,431 $ 10,326 $(32,272) $(17,515)
=============== =============== ================ ================
Net income (loss) per basic share... $ 0.12 $ (0.48)
============== =================
Net income (loss) per diluted share. $ 0.11 $ (0.48)
============== =================
Weighted average number of shares
used in per share calculation:
Basic share...................... 36,632 36,632
============== =================
Diluted share.................... 41,250 36,632
============== =================
OTHER DATA:
Ratio of earnings to fixed
charges (5)....................... --
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
condensed combined statement of operations.
-30-
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
1. The historical balances in this column represent the consolidated results
of operations of Autotote for the fiscal year ended October 31, 1999 as
reported in the audited historical consolidated financial statements of
Autotote and the consolidated results of operations for the nine months
ended July 31, 2000 as reported in the unaudited historical consolidated
financial statements of Autotote.
2. The historical balances in this column represent the consolidated results
of operations of Scientific Games for the twelve months ended September 30,
1999 and for the nine months ended June 30, 2000 derived from the unuadited
historical consolidated financial statements of Scientific Games.
3. The pro forma adjustments reflected in the unaudited pro forma condensed
combined statements of operations give effect to the following:
(a) A decrease in operating revenues, operating expenses and gross profit
as a result of conforming Scientific Games' accounting policy with
regard to revenue recognition on prepaid phone cards to that of
Autotote.
(b) An elimination of compensation and other amounts payable in respect of
the departure of the Chief Executive Officer of Scientific Games,
including elimination of his participation in the Supplemental
Employee Retirement Plan of Scientific Games, which elimination is
directly attributable to the Scientific Games acquisition.
(c) A decrease in depreciation expense relating to acquired property and
equipment based on estimated useful lives (in years) and appraised
values. The preliminary appraised values of the acquired property and
equipment exceeded the historical net book values of the assets by
approximately $8,131. The following table indicates the components of
the adjustments by asset class and the amount by which current
estimates of average useful lives differ from the average remaining
lives in the depreciation accounts of Scientific Games.
<TABLE>
<CAPTION>
DEPRECIATION EXPENSE
----------------------------
APPROXIMATE
SCIENTIFIC
PRELIMINARY CURRENT GAMES NINE MONTHS
ESTIMATED AVERAGE AVERAGE YEAR ENDED ENDED
FAIR ESTIMATED REMAINING OCTOBER 31, JULY 31,
VALUE LIFE LIFE 1999 2000
--------------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Machinery and equipment........... $48,294 8 4 $ 8,567 $ 6,425
Land and buildings................ 16,520 30 16 412 309
Transportation equipment.......... 708 3 1 236 177
Furniture and fixtures........... 3,060 5 3 612 459
Leasehold improvements............ 2,437 4 3 609 457
Construction in progress.......... 23,559 N/A N/A -- --
--------------- ------------ ------------
$94,578 10,436 7,827
===============
Scientific Games
historical depreciation expense 12,944 10,717
------------ ------------
Decrease in depreciation expense. $(2,508) $ (2,890)
============ ============
</TABLE>
The decrease in depreciation expense is due to Autotote's belief that
the assets acquired will have an average useful life longer than that
originally determined by Scientific Games. The expected asset lives
are consistent with the useful lives Autotote assigns to its other
similar assets, when acquired.
-31-
<PAGE>
(d) An increase in amortization expense relating to acquired intangible
assets and goodwill based on estimated lives as follows:
<TABLE>
<CAPTION>
AMORTIZATION EXPENSE
-------------------------------
NINE
PRELIMINARY CURRENT YEAR ENDED MONTHS ENDED
ESTIMATED AVERAGE OCTOBER 31, JULY 31,
FAIR VALUE ESTIMATED LIFE 1999 2000
-------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Employee work force............. $ 7,200 5 $ 1,440 $ 1,080
Internally developed software... 16,800 4-10 1,920 1,440
Patents......................... 15,600 15 1,040 780
Customer lists.................. 66,000 20 3,300 2,475
Trade name...................... 32,200 20 1,610 1,208
Goodwill........................ 141,257 20 7,063 5,298
-------------- -------------- ----------------
$279,057 16,373 12,281
==============
Scientific Games historical
intangible amortization expense 3,347 709
-------------- ----------------
Increase in amortization expense $13,026 $11,572
============== ================
</TABLE>
(e) A net increase in interest expense reflecting borrowings under the new
senior credit facilities, issuance of the 12 1/2 % senior subordinated
notes, and amortization of deferred financing costs, is calculated as
follows:
<TABLE>
<CAPTION>
INTEREST EXPENSE
---------------------------------
NINE
YEAR ENDED MONTHS ENDED
AMOUNT INTEREST OCTOBER 31, JULY 31,
BORROWED RATE 1999 2000
------------ ---------- ---------------- ---------------
New senior credit facilities :
<S> <C> <C> <C> <C>
Term A Loan...................... $ 60,000 9.60% $ 5,760 $ 4,320
Term B Loan...................... 220,000 10.35% 22,770 17,078
Revolving credit facility........ 7,000 9.60% 672 504
12 1/2% senior subordinated notes... 150,000 12.50% 18,750 14,063
Amortization of deferred
financing costs................... 2,124 1,591
---------------- ---------------
Total new interest expense.......... 50,076 37,556
Existing interest expense
on debt being repaid.............. 16,772 13,548
---------------- ---------------
Increase in interest expense........ $33,304 $24,008
================ ================
</TABLE>
Interest rates on the components of the senior credit facilities are
based, at our option, on the prime rate or LIBOR plus a margin as
specified.
The effect of a 0.125% change in the assumed interest rate on
borrowings under the new senior credit facilities would result in an
approximate $360 change in the pro forma interest expense adjustment
on an annual basis.
(f) Income tax benefit resulting from the pro forma decrease in taxable
income. Pro forma tax benefit differs from the expected tax benefit
derived by applying a combined federal and state statutory tax rate of
40% to pro forma loss before income tax benefit because Autotote and
Scientific Games are in a tax loss carryforward position on a pro
forma combined basis and due to limitations in the deductibility of
expenses in foreign tax jurisdictions.
(g) Payment in kind dividends at an annual rate of 6% on (i) $110,000 of
convertible preferred stock sold in connection with the repayment of
certain existing indebtedness of Autotote and (ii) $2,750 of
convertible preferred stock issued as partial payment of placement
agent fees in lieu of cash.
-32-
<PAGE>
4. The pro forma condensed combined statements of operations data do not
reflect the effect of: (i) estimated cost savings as a result of the July
2000 closing of the Gilroy, California manufacturing facility and the
transfer of all printing previously done at the facility to the new
state-of-the-art, 21-unit flexographic printing press in our Alpharetta,
Georgia facility beginning September, 2000 and; (ii) elimination of
estimated duplicative personnel and corporate costs. Based upon our
transition plans, we estimated that if these expected cost savings had been
in effect on November 1, 1998, they would have had the effect of reducing
operating costs by $8.1 million during the year ended October 31, 1999 and
by $6.1 million for the nine months ended July 31, 2000.
5. For purposes of determining the ratio of earnings to fixed charges,
"earnings" consist of earnings (loss) before income tax expense (benefit)
plus fixed charges plus income allocable to minority interests in
consolidated entities that have incurred fixed charges. "Fixed charges"
consist of interest expense, including amortization of deferred finance
costs, plus one-third of rental expense (this portion is considered to be
representative of the interest factor). For the year ended October 31, 1999
and the nine months ended July 31, 2000 unaudited pro forma earnings were
insufficient to cover fixed charges by $9,257 and $11,095, respectively.
6. The accompanying pro forma condensed combined statements of operations do
not reflect the following: (i) the write-off of unamortized deferred
financing fees and costs and loss on the tender premium paid with respect
to the extinguishment of Autotote debt in the amount of $12,601; (ii)
interest expense in the amount of approximately $7,530 paid to certain
financial advisors in connection with their services to Autotote in
obtaining certain financing commitments in the form of warrants to acquire
up to 2,900 shares shares of common stock; (iii) purchase accounting
adjustments in the amount of approximately $15,000 which will be
included in goodwill and amortized over a period of 20 years.
The effect of such items will be reflected in the consolidated
statements of Autotote in the periods subsequent to the date of
acquisition of Scientific Games.
-33-
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JULY 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
SCIENTIFIC
AUTOTOTE GAMES PRO FORMA
ASSETS HISTORICAL(1) HISTORICAL(2) ADJUSTMENTS(3) PRO FORMA
---------------- ----------------- ------------------- -------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 3,181 $11,296 $ (12,522) (a) $1,955
Accounts receivable, net.............. 23,645 46,669 (1,955) (b) 68,359
Inventories........................... 8,452 15,648 1,136 (b) 25,236
Other current assets.................. 3,933 4,674 1,396 (i) 10,003
---------------- ----------------- ------------------- -------------
Total current assets............. 39,211 78,287 (11,945) 105,553
Property and equipment, net................ 91,367 86,447 8,131 (c) 185,945
Goodwill, net.............................. 3,992 29,819 111,438 (d) 145,249
Operating right, net....................... 13,098 -- -- 13,098
Intangible assets.......................... -- -- 137,800 (e) 137,800
Other assets............................... 27,036 18,462 11,045 (f) 56,543
---------------- ----------------- ------------------- -------------
Total assets.......................... $174,704 $213,015 $256,469 $644,188
================ ================= =================== =============
Current Liabilities:
Current installments of long-term debt..... $ 877 $ -- $ 3,300 (g) $4,177
Accounts payable and accrued expenses...... 41,814 38,582 (5,133) (h) 75,263
---------------- ----------------- ------------------- -------------
Total current liabilities................ 42,691 38,582 (1,833) 79,440
Long-term debt, excluding
current installments....................... 169,882 28,900 236,180 (g) 434,962
Other long-term liabilities.................. 5,344 16,073 57,500 (i) 78,917
---------------- ----------------- ------------------- -------------
Total liabilities........................ 217,917 83,555 291,847 593,319
---------------- ----------------- ------------------- -------------
STOCKHOLDERS' EQUITY (DEFICIT)
Convertible preferred stock... -- -- 106,378 (j) 106,378
Common stockholders' equity... (43,213) 129,460 (141,756) (k)(l) (55,509)
---------------- ----------------- ------------------- -------------
Total stockholders' equity (deficit).... (43,213) 129,460 (35,378) 50,869
---------------- ----------------- ------------------- -------------
Total liabilities and stockholders'
equity (deficit)....................... $174,704 $213,015 $256,469 $644,188
================ ================= =================== =============
</TABLE>
The accompanying notes are an integral part of this unaudited pro
forma condensed combined balance sheet.
-34-
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
1. The historical balances in this column represent the consolidated balance
sheet of Autotote as of July 31, 2000 as reported in the unaudited
historical consolidated financial statements of Autotote.
2. The historical balances in this column represent the consolidated balance
sheet of Scientific Games as of June 30, 2000 as reported in the unaudited
historical consolidated financial statements of Scientific Games.
3. The pro forma adjustments reflected in the unaudited pro forma condensed
combined balance sheet give effect to the following:
(a) The use of $12,522 of Autotote and Scientific Games cash on hand to
fund a portion of the cash required in connection with the acquisition
of Scientific Games and related financing transactions including
employee payments and payments to fund certain retirement and deferred
compensation plans of Scientific Games in the amount of approximately
$8,600 directly attributable to the acquisition.
(b) Decrease in accounts receivable and increase in inventories as a
result of conforming Scientific Games' accounting policy with regard
to revenue recognition on prepaid phone cards to that of Autotote.
(c) Based on preliminary appraisal information, the fair market values of
the acquired property and equipment exceeds the historical net book
values of these assets by $8,131. As a result, this amount has been
reflected as an increase to property and equipment.
(d) The incremental increase in goodwill resulting from the Scientific
Games acquisition is as follows:
<TABLE>
<S> <C>
Cost in excess of the estimated fair value of net assets acquired...... $141,257
Elimination of historical goodwill, net, of Scientific Games........... (29,819)
--------
$111,438
========
</TABLE>
(e) Based on preliminary appraisal information, the fair market value of
acquired intangible assets amounts to $137,800.
(f) The incremental increase in other assets as a result of capitalization
of deferred financing fees and costs incurred in connection with the
financing transactions partially offset by the decrease in estimated
fair value of other assets acquired:
<TABLE>
<S> <C>
Payment of deferred financing fees and costs.......................... $ 16,530
Elimination of historical financing fees and
costs of Autotote and Scientific Games................................ (3,184)
Decrease in estimated fair value of other assets acquired............. (2,301)
=========
$ 11,045
=========
</TABLE>
(g) Proceeds from the offering of senior subordinated notes, series A, and
borrowings under the new senior credit facilities less repayment of
existing debt of Autotote and existing debt of Scientific Games
calculated as follows:
<TABLE>
<S> <C>
Proceeds from 12 1/2% senior subordinated notes....................... $150,000
Proceeds from new senior credit facilities............................ 287,000
Repayment of existing debt of Autotote................................ (168,620)
Repayment of existing debt of Scientific Games........................ (28,900)
---------
$239,480
=========
</TABLE>
-35-
<PAGE>
The net increase in long-term debt of $239,480 has been classified as follows
<TABLE>
<S> <C>
Current installments of long-term debt................................ $ 3,300
Long-term debt, excluding current installments........................ 236,180
--------
$239,480
========
</TABLE>
(h) Incremental increase in estimated fair value of liabilities assumed in
the amount of $2,670 resulting from the Scientific Games acquisition,
including $1,450 recorded pursuant to EITF Issue 95-3, "Recognition of
Liabilities in Connection with a Purchase Business Combination," for
severance estimated to be incurred in the expected elimination of
duplicative personnel, net of repayment of accrued interest in the
amount of $7,587 on existing Autotote debt and $216 on existing
Scientific Games debt.
(i) Increase in non current deferred tax liabilities of $57,500 and
current deferred tax assets of $1,396 as a result of the increase in
property and equipment, the fair value of identifiable intangible
assets acquired, and an increase in the fair value of liabilities
assumed and a decrease in assets acquired in connection with the
acquisition of Scientific Games.
(j) Reflects $110,000 of 6% payment-in-kind convertible preferred stock
sold. Proceeds from the issuance were applied to the retirement of
outstanding debt. In connection with the issuance of the convertible
preferred stock, Autotote paid certain legal and related expenses of
the purchasers of convertible preferred stock in the amount of $872,
and a placement agent fee in the amount of 5% of the total gross
proceeds received from the issuance of the convertible preferred
stock. The placement agent fee was paid half in shares of convertible
preferred stock and half in cash. Accordingly, the cash available from
the issuance of the convertible preferred stock and stockholders'
equity (deficit) are each reduced by $3,622. There is no impact on the
accompanying pro forma condensed combined balance sheet for the
portion of the fee paid in shares of convertible preferred stock other
than to increase the ultimate number of issued and outstanding shares
of convertible preferred stock.
(k) In connection with the repayment of existing debt of Autotote,
unamortized deferred financing fees and costs were written-off in the
amount of $2,899 associated with this existing debt. The write-off of
such deferred financing fees and costs and the tender premium paid
with respect to existing debt of Autotote in the amount of $9,702 will
be recorded as an extraordinary loss on early extinguishment of debt.
There are no tax benefits recognized on the extraordinary loss because
Autotote and Scientific Games are in a tax loss carryforward position
on a pro forma basis.
(l) Reflects adjustments to historical stockholders' equity as follows:
<TABLE>
<S> <C>
Elimination of Scientific Games' historical stockholders' equity.......$(129,460)
Loss on write-off of deferred financing fees and costs................. (2,899)
Loss on tender premium paid with respect to existing debt of Autotote.. (9,702)
Fair value of warrants issued for services............................. 305
---------
$(141,756)
=========
</TABLE>
Upon consummation of the acquisition of Scientific Games and financing
transactions, Autotote issued warrants to purchase up to 2,900 shares
of common stock to certain financial advisors in connection
with their services to Autotote in obtaining certain financing
commitments. The warrants were exercisable until September 6, 2007 at
a nominal price determined by a formula set forth in the warrant and
had an estimated fair market value at the date of issue of
approximately $7,530. The issuance of the warrants will be recorded as
interest expense, with a corresponding increase to additional paid in
capital. Consequently, there is no net impact to the accompanying pro
forma condensed combined balance sheet as of July 31, 2000. The
warrants were retired in exchange for the issuance of 2,900 million
shares of common stock as of October 6, 2000.
In connection with the acquisition of Scientific Games, Autotote
issued warrants to purchase up to 250,000 shares of common stock to
certain financial advisors in connection with their services to
Autotote. The warrants are exercisable until October 1, 2004 at a
price equal to the fair market value of Autotote's common stock on the
date of issue. The estimated fair market value of the warrants was
$305 on the date of issue. The issuance of the warrants will
be recorded as an increase to goodwill with a corresponding increase
to additional paid in capital.
-36-
<PAGE>
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
By: /s/ Martin E. Schloss
---------------------------------
Martin E. Schloss
Vice President and General Counsel
Date: November 21, 2000
-37-
<PAGE>
Exhibit Index
Exhibit
Number Description
-------- -----------
23.1 Consent of Ernst & Young LLP, dated November 20, 2000
-38-
