UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
{Mark One}
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: July 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition from ___________________________ to ________________________
Commission File number: 0-13063
AUTOTOTE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 81-0422894
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
750 Lexington Avenue, New York, New York 10022
----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(212)-754-2233
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of September 10, 1998:
Class A Common Stock: 35,943,199
Class B Common Stock: None
Page 1 of 20
AUTOTOTE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER INFORMATION
QUARTER ENDED JULY 31, 1998
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Balance Sheets as of July 31, 1998
and October 31, 1997 3
Statements of Operations for the Three Months Ended
July 31, 1998 and 1997 4
Statements of Operations for the Nine Months Ended
July 31, 1998 and 1997 5
Statements of Cash Flows for the Nine Months Ended
July 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8K 19
2
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
July 31, October 31,
1998 1997
--------------- --------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents....................................................... $ 17,260 18,207
Restricted cash................................................................. 694 512
Accounts receivable, net........................................................ 13,824 13,560
Inventories..................................................................... 12,481 6,653
Prepaid expenses, deposits and other current assets............................. 2,918 2,276
--------------- --------------
Total current assets....................................................... 47,177 41,208
--------------- --------------
Property and equipment, at cost...................................................... 195,653 180,170
Less accumulated depreciation................................................... 115,947 103,781
--------------- --------------
Net property and equipment................................................. 79,706 76,389
--------------- --------------
Goodwill, net of amortization........................................................ 4,524 5,916
Operating right, net of amortization................................................. 15,098 15,848
Other assets and investments......................................................... 16,122 14,180
--------------- --------------
$ 162,627 153,541
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt.......................................... $ 4,254 2,609
Accounts payable................................................................ 12,709 8,698
Accrued liabilities............................................................. 30,085 24,411
--------------- --------------
Total current liabilities.................................................. 47,048 35,718
--------------- --------------
Deferred income taxes................................................................ 2,169 2,551
Other long-term liabilities.......................................................... 2,369 1,264
Long-term debt, excluding current installments....................................... 120,286 112,248
Long-term debt, convertible subordinated debentures.................................. 35,000 35,000
--------------- --------------
Total liabilities.......................................................... 206,872 186,781
--------------- --------------
Stockholders' equity (deficit):
Preferred stock, par value $1.00 per share, 2,000 shares authorized, none
outstanding.................................................................. -- --
Class A common stock, par value $0.01 per share, 99,300 shares authorized,
35,937 and 35,335 shares outstanding at July 31, 1998 and October 31,
1997, respectively........................................................... 360 354
Class B non-voting common stock, par value $0.01 per share, 700 shares
authorized, none outstanding................................................. -- --
Additional paid-in capital...................................................... 149,091 148,238
Accumulated losses.............................................................. (193,024) (181,351)
Treasury stock, at cost......................................................... (102) (102)
Currency translation adjustment................................................. (570) (379)
--------------- --------------
Total stockholders' equity (deficit)....................................... (44,245) (33,240)
--------------- --------------
$ 162,627 153,541
=============== ==============
See accompanying notes to consolidated financial statements.
3
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended July 31, 1998 and 1997
(Unaudited, in thousands, except per share amounts)
1998 1997
---------- ----------
Operating revenues:
Services .............................................................. $ 34,862 32,525
Sales ................................................................. 3,933 3,293
---------- ----------
38,795 35,818
---------- ----------
Operating expenses (exclusive of depreciation and amortization shown below):
Services .............................................................. 22,790 19,675
Sales ................................................................. 2,835 1,787
---------- ----------
25,625 21,462
---------- ----------
Total gross profit ............................................... 13,170 14,356
Selling, general and administrative expenses ............................... 6,310 6,298
Gain on sale of business ................................................... -- (1,566)
Depreciation and amortization .............................................. 7,502 8,411
---------- ----------
Operating income (loss) .......................................... (642) 1,213
Other deductions:
Interest expense ...................................................... 3,838 3,410
Other income .......................................................... (141) (165)
---------- ----------
3,697 3,245
---------- ----------
Loss before income tax expense (benefit) and extraordinary items ...... (4,339) (2,032)
Income tax expense (benefit) ............................................... 74 (320)
---------- ----------
Loss before extraordinary items ....................................... (4,413) (1,712)
---------- ----------
Extraordinary items:
Write-off of deferred financing fees and expenses,
net of gain on early retirement of subordinated debt ............... -- 426
---------- ----------
Net loss ..................................................... $ (4,413) (2,138)
========== ==========
Net loss per common share:
Loss per basic share and diluted share before extraordinary items ..... $ (0.12) (0.05)
Extraordinary loss per basic share and diluted share .................. -- (0.01)
---------- ----------
Net loss per basic share and diluted share ................... $ (0.12) (0.06)
========== ==========
Weighted average number of shares used in per share calculation ............ 35,916 35,312
========== ==========
See accompanying notes to consolidated financial statements.
4
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended July 31, 1998 and 1997
(Unaudited, in thousands, except per share amounts)
1998 1997
----------- -----------
Operating revenues:
Services .................................................................................. $ 99,114 98,914
Sales ..................................................................................... 10,327 14,340
----------- -----------
109,441 113,254
----------- -----------
Operating expenses (exclusive of depreciation and amortization shown below):
Services .................................................................................. 62,798 59,513
Sales ..................................................................................... 6,594 9,220
----------- -----------
69,392 68,733
----------- -----------
Total gross profit ................................................................... 40,049 44,521
Selling, general and administrative expenses ................................................... 19,155 20,994
Gain on sale of business ....................................................................... (684) (1,823)
Depreciation and amortization .................................................................. 22,117 28,263
----------- -----------
Operating loss ....................................................................... (539) (2,913)
Other deductions:
Interest expense .......................................................................... 11,492 10,724
Other income .............................................................................. (726) (33)
----------- -----------
10,766 10,691
----------- -----------
Loss before income tax expense and extraordinary items .................................... (11,305) (13,604)
Income tax expense ............................................................................. 368 222
----------- -----------
Loss before extraordinary items ........................................................... (11,673) (13,826)
Extraordinary items:
Write-off of deferred financing fees and expenses,
net of gain on early retirement of subordinated debt ................................... -- 426
----------- -----------
Net loss ......................................................................... $ (11,673) (14,252)
=========== ===========
Net loss per common share:
Loss per basic share and diluted share before extraordinary items ......................... $ (0.33) (0.41)
Extraordinary loss per basic share and diluted share ...................................... -- (0.01)
----------- -----------
Net loss per basic share and diluted share ....................................... $ (0.33) (0.42)
=========== ===========
Weighted average number of shares used in per share calculation ................................ 35,603 34,182
=========== ===========
See accompanying notes to consolidated financial statements.
5
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended July 31, 1998 and 1997
(Unaudited, in thousands)
1998 1997
-------------- --------------
Cash flows from operating activities:
Net loss........................................................................ $ (11,673) (14,252)
-------------- --------------
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization.............................................. 22,117 28,263
Gain on sale of business................................................... (684) (1,823)
Non-cash extraordinary items............................................... -- 426
Changes in operating assets and liabilities................................ 2,177 1,850
Other...................................................................... 792 2,514
-------------- --------------
Total adjustments..................................................... 24,402 31,230
-------------- --------------
Net cash provided by operating activities............................................ 12,729 16,978
-------------- --------------
Cash flows from investing activities:
Capital expenditures............................................................ (1,568) (2,078)
Wagering systems expenditures................................................... (18,484) (4,303)
Cash acquired in business acquisition........................................... 2,177 --
Proceeds from sale of business and asset disposals, net of cash transferred..... -- 21,050
Increase in other assets and investments........................................ (5,974) (2,650)
-------------- --------------
Net cash used in investing activities................................................ (23,849) 12,019
-------------- --------------
Cash flows from financing activities:
Net repayments under revolving credit facilities................................ -- (10,500)
Proceeds from the issuance of long-term debt, net of financing fees............. 12,000 105,623
Payments on long-term debt...................................................... (2,283) (118,428)
Net proceeds from issuance of common stock...................................... 510 962
-------------- --------------
Net cash provided (used) by financing activities..................................... 10,227 (22,343)
-------------- --------------
Effect of exchange rate changes on cash.............................................. (54) (285)
-------------- --------------
Increase (decrease) in cash and cash equivalents..................................... (947) 6,369
Cash and cash equivalents, beginning of period....................................... 18,207 5,988
-------------- --------------
Cash and cash equivalents, end of period............................................. $ 17,260 12,357
============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest........................................................................ $ 7,479 9,166
============== ==============
Income taxes.................................................................... $ 388 869
============== ==============
The Company issued 2,964 shares of Class A Common Stock during the 1997
period in connection with the settlement of its stockholder litigation.
See accompanying notes to consolidated financial statements.
6
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1998
(Unaudited, in thousands, except per share amounts)
1) Consolidated Financial Statements
The consolidated balance sheet as of July 31, 1998 and the consolidated
statements of operations for the three months and nine months ended July 31,
1998 and 1997, and the consolidated statements of cash flows for the nine months
then ended have been prepared by the Company without audit. In the opinion of
management, all adjustments necessary to present fairly the financial position
of the Company at July 31, 1998 and the results of its operations for the three
months and nine months ended July 31, 1998 and 1997 and its cash flows for the
nine months ended July 31, 1998 and 1997 have been made. In the nine months
ended July 31, 1998, the Company reversed reserves of $1.3 million in connection
with the collection of receivables previously reserved due to concerns about
their recoverability and for cost savings related to the refurbishment of
certain terminals. During the third quarter of fiscal 1998, the Company
completed the installation of approximately 3,200 new lottery terminals for the
Connecticut State Lottery under a contract with an initial five-year term plus
five one-year options to extend the contract through May 2008. Based on industry
practice of lottery contracts and the Company's historical relationship with the
Connecticut State Lottery for the past ten years, the Company expects to
depreciate the terminals and installation costs on a straight-line method over
their estimated useful lives of 10 years.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's 1997 Annual Report on Form 10-K (the "1997
10-K"). The results of operations for the period ended July 31, 1998 are not
necessarily indicative of the operating results for the full year.
Certain items in the prior year's financial statements have been
reclassified to conform with the current year presentation.
2) Fiscal 1997 Sale of the European Lottery Business
On April 15, 1997, the Company completed the sale of its European
lottery business through the sale of its stock ownership of Tele Control
Kommunikations und Computersysteme Aktien Gesellschaft ("Tele Control") for cash
consideration of approximately $26,600, including contingent consideration of
approximately $1,600. At closing, the Company provided the purchaser with a
letter of credit to secure certain obligations under the sales agreement. At
October 31, 1997, $1,500 remained outstanding under the letter of credit, which
amount was reduced to $500 at April 30, 1998 and is scheduled to expire on
October 15, 1998. In connection with the reduction of the letter of credit
balance, the Company recorded an additional $684 gain on sale of business in the
second quarter of fiscal 1998.
The following unaudited information shows the revenues, expenses and
operating income of the European lottery business that were included in the
Company's Consolidated Statements of Operations for the nine months ended July
31, 1997. Interest and income tax expenses have not been included in the table
below.
Nine Months
Ended
July 31, 1997
--------------------
Operating revenue....................................................................... $ 6,119
Operating expenses, including selling, general and administrative
expenses, and depreciation and amortization expenses....................................... 6,181
--------------------
Operating loss.............................................................................. $ (62)
====================
7
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
July 31, 1998
(Unaudited, in thousands, except per share amounts)
3) Purchase of Netherlands Subsidiary
On July 1, 1998, the Company completed the purchase of Hippo Toto B.
V., which was renamed Autotote Netherlands B. V. This wholly-owned subsidiary
holds an exclusive five-year license to operate all on-track and off-track
pari-mutuel wagering in the Netherlands. The initial license, granted by the
Dutch Ministry of Agriculture, extends through June 30, 2003. The purchase was
for nominal consideration and the acquisition was recorded using the purchase
method of accounting, and accordingly, the assets and liabilities of the
acquired entities have been recorded at their estimated fair value at the date
of acquisition. The operating results of Autotote Netherlands B. V. have been
included in the consolidated statements of operations since the date of
acquisition.
4) Inventories
Inventories consist of the following:
July 31, October 31,
1998 1997
-------------- --------------
Parts and work-in-process.......................................... $ 11,588 5,762
Finished goods..................................................... 114 244
Ticket paper....................................................... 779 647
-------------- --------------
Total.............................................................. $ 12,481 6,653
============== ==============
Inventory includes costs for equipment expected to be sold. At July 31,
1998, parts and work-in-process inventory increased due to the commencement of
production under a terminal sales agreement with an Italian distributor. Costs
incurred for equipment associated with specific wagering system service
contracts not yet placed in service are classified as construction in progress
in property and equipment.
5) Debt
At July 31, 1998, the Company had approximately $22,005 available for
borrowing under the Company's revolving Credit Facility (the "Facility"). There
were no borrowings outstanding under the Facility at July 31, 1998, however,
approximately $2,995 in letters of credit were issued under the Facility.
On May 22, 1998, the Company and Autotote Lottery Corporation entered
into a $12 million, three-year term loan arrangement (the "Term Loan") to
finance the development and installation of a lottery system for the Connecticut
State Lottery, including the manufacture of approximately 3,200 new lottery
terminals. The Term Loan bears interest at a fixed rate of 8.87% payable
quarterly and at maturity on February 15, 2001, with principal payments of $600
due quarterly through January 31, 2001 with a final principal payment of $6,000
due at maturity. In addition to scheduled principal payments, the Term Loan
requires mandatory principal prepayments upon the occurrence of certain events,
including asset sales, the incurrence of certain indebtedness, Recovery Events
(as defined), and Autotote Lottery Corporation Excess Cash Flow (as defined), in
each case, in excess of specified thresholds. The Term Loan was extended in
conjunction with the July 28, 1997 revolving credit facility (the "Facility")
and is subject to certain restrictive and financial covenants contained in the
Facility. (See Note 7 to the Consolidated Financial Statements for the year
ended October 31, 1997 included in the Company's 1997 Annual Report on Form
10-K.) Obligations under the Facility and Term Loan are jointly and severally
guaranteed by substantially all of the Company's U.S. subsidiaries and are
secured by (i) first priority security interests in substantially all tangible
and intangible assets of the Company and its U.S. subsidiaries, and (ii) a first
priority lien on all of the capital stock of the Company's U.S. subsidiaries and
on 65% of the capital stock of the Company's non-U.S. subsidiaries. In addition,
the Term Loan is secured by a first priority security interest in substantially
all of the Connecticut lottery assets now owned or hereafter acquired.
8
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
July 31, 1998
(Unaudited, in thousands, except per share amounts)
6) Earnings per Share
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128") which the Company adopted
in the first quarter of fiscal 1998. Under SFAS 128, the Company is required to
present two earnings per share amounts for each period presented, and all prior
period earnings per share amounts are required to be restated to conform with
the provisions of SFAS 128. Basic net loss per common share is computed by
dividing net loss by the weighted average number of common shares outstanding
during the period. Diluted earnings per share gives effect to all dilutive
potential common shares that were outstanding during the period. Potential
common shares are not included in the calculation of the dilutive net loss per
share in the third quarter and first nine months of fiscal 1998 and the third
quarter and first nine months of fiscal 1997, since their inclusion would be
anti-dilutive. Basic and diluted net loss per common share for the third quarter
and first nine months of fiscal 1998 and the restated net loss per common share
for the third quarter and first nine months of fiscal 1997, therefore, are
essentially the same. At July 31, 1998 and 1997, the Company had outstanding
stock options, warrants, convertible subordinated debentures, Performance
Accelerated Restricted Stock Units and deferred shares which could potentially
dilute basic earnings per share in the future. Quarterly and year-to date
computations of per share amounts are made independently; therefore, the sum of
per share amounts for the quarters may not equal per share amounts for the year.
7) Financial Information for Guarantor Subsidiaries and Non-Guarantor
Subsidiaries
The Company conducts substantially all of its business through its
domestic and foreign subsidiaries. In July 1997, the Company issued $110 million
aggregate principal amount of Senior Notes bearing interest at an annual rate of
10 7/8% (the "Notes"). The Notes are jointly and severally guaranteed by
substantially all of the Company's wholly-owned U.S. subsidiaries (the
"Guarantor Subsidiaries").
Presented below is condensed consolidating financial information for
Autotote Corporation (the "Parent Company") which includes the activities of
Autotote Management Corporation, the Guarantor Subsidiaries and the wholly-owned
foreign subsidiaries and the non-wholly owned domestic and foreign subsidiaries
(the "Non-Guarantor Subsidiaries") as of July 31, 1998 (unaudited) and October
31, 1997 (audited) and for the three month and nine month periods ended July 31,
1998 and 1997 (unaudited). The condensed consolidating financial information has
been presented to show the nature of assets held, results of operations and cash
flows of the Parent Company, Guarantor Subsidiaries and Non-Guarantor
Subsidiaries assuming the guarantee structure of the Notes was in effect at the
beginning of the periods presented. Separate financial statements for Guarantor
Subsidiaries are not presented based on management's determination that they
would not provide additional information that is material to investors.
The condensed consolidating financial information reflects the
investments of the Parent Company in the Guarantor and Non-Guarantor
Subsidiaries using the equity method of accounting. In addition, corporate
interest and administrative expenses have not been allocated to the
subsidiaries.
9
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
July 31, 1998
(Unaudited, in thousands)
Non-
Parent Guarantor Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
------------ ------------ ----------- ------------ ------------
ASSETS
Cash and cash equivalents............... $ 12,406 (250) 5,104 -- 17,260
Accounts receivable, net................ -- 11,711 2,113 -- 13,824
Other current assets.................... 860 11,611 3,928 (306) 16,093
Property and equipment, net............. 399 72,504 7,104 (301) 79,706
Investment in subsidiaries.............. 60,190 -- -- (60,190) --
Goodwill................................ 206 1,968 2,350 -- 4,524
Other assets............................ 5,494 26,569 660 (1,503) 31,220
------------- ------------ ------------ ------------ -------------
Total assets............................ $ 79,555 124,113 21,259 (62,300) 162,627
============= ============ ============ ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities..................... $ 15,361 20,940 6,415 78 42,794
Current installments of long-term debt.. 1,250 2,710 307 (13) 4,254
Long-term debt, excluding current
installments........................... 145,000 9,714 572 -- 155,286
Other non-current liabilities........... 952 1,836 1,750 -- 4,538
Intercompany balances................... (38,763) 40,992 (2,229) -- --
Stockholders' equity (deficit).......... (44,245) 47,921 14,444 (62,365) (44,245)
------------ ------------ ------------ ------------ ------------
Total liabilities and
Stockholders' equity (deficit)......... $ 79,555 124,113 21,259 (62,300) 162,627
============= ============ ============ ============ =============
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
October 31, 1997
(Audited, in thousands)
Non-
Parent Guarantor Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------ ------------ ------------
ASSETS
Cash and cash equivalents............... $ 15,582 328 2,297 -- 18,207
Accounts receivable, net................ -- 10,547 3,013 -- 13,560
Other current assets.................... 711 6,223 2,791 (284) 9,441
Property and equipment, net............. 161 67,071 9,302 (145) 76,389
Investment in subsidiaries.............. 54,760 -- -- (54,760) --
Goodwill................................ 211 2,635 3,070 -- 5,916
Other assets............................ 5,937 24,895 528 (1,332) 30,028
------------ ----------- ------------- ------------ -----------
Total assets............................ $ 77,362 111,699 21,001 (56,521) 153,541
============ =========== ============= ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities..................... $ 14,812 14,515 3,921 (139) 33,109
Current installments of long-term debt.. 1,250 474 910 (25) 2,609
Long-term debt, excluding current
installments........................... 145,000 323 1,925 -- 147,248
Other non-current liabilities........... 1,111 538 2,166 -- 3,815
Intercompany balances................... (51,571) 54,467 (3,112) 216 --
Stockholders' equity (deficit).......... (33,240) 41,382 15,191 (56,573) (33,240)
----------- ----------- ------------- ------------ -----------
Total liabilities and stockholders'
equity (deficit)....................... $ 77,362 111,699 21,001 (56,521) 153,541
============ =========== ============= ============ ===========
10
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended July 31, 1998
(Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
------------ ------------ ------------- ----------- -------------
Operating revenues......................... $ -- 33,733 7,049 (1,987) 38,795
Operating expenses......................... -- 21,977 5,514 (1,866) 25,625
------------ ------------ ------------- ----------- -------------
Gross profit............................ -- 11,756 1,535 (121) 13,170
Selling, general and administrative
expenses.................................. 2,178 3,519 613 -- 6,310
Depreciation and amortization.............. 39 6,632 936 (105) 7,502
------------ ------------ ------------- ----------- -------------
Operating income (loss)................. (2,217) 1,605 (14) (16) (642)
Interest expense........................... 3,757 10 79 (8) 3,838
Other (income) expense..................... (79) (84) 14 8 (141)
------------ ------------ ------------- ----------- -------------
Income (loss) before equity in income of
subsidiaries, and income taxes............ (5,895) 1,679 (107) (16) (4,339)
Equity in income of subsidiaries........... 1,487 -- -- (1,487) --
Income tax expense......................... 5 -- 69 -- 74
------------ ------------ ------------- ----------- -------------
Net income (loss).......................... $ (4,413) 1,679 (176) (1,503) (4,413)
============ ============ ============= =========== =============
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended July 31, 1997
(Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
------------ ------------ ------------- ----------- ------------
Operating revenues......................... $ -- 31,262 5,007 (451) 35,818
Operating expenses......................... -- 18,946 2,961 (445) 21,462
------------ ------------ ------------- ----------- ------------
Gross profit............................ -- 12,316 2,046 (6) 14,356
Selling, general and administrative
expenses................................. 2,354 2,875 1,069 -- 6,298
Gain on sale of business................... (1,566) -- -- -- (1,566)
Depreciation and amortization.............. 13 7,071 1,406 (79) 8,411
------------ ------------ ------------- ----------- ------------
Operating income (loss)................. (801) 2,370 (429) 73 1,213
Interest expense........................... 3,230 73 47 60 3,410
Other (income) expense..................... 9 (105) (9) (60) (165)
------------ ------------ ------------- ----------- ------------
Income (loss) before equity in income of
subsidiaries, income taxes and
extraordinary items...................... (4,040) 2,402 (467) 73 (2,032)
Equity in income of subsidiaries........... 950 -- -- (950) --
Income tax expense......................... (2) -- (318) -- (320)
------------ ------------ ------------- ----------- ------------
Net income (loss) before extraordinary
items.................................... (3,088) 2,402 (149) (877) (1,712)
Extraordinary items:
(Write-off) of deferred financing fees
and expenses, net of gain on early
retirement of debt........................ 950 (1,376) -- -- (426)
------------ ------------ ------------- ----------- ------------
Net income (loss).......................... $ (2,138) 1,026 (149) (877) (2,138)
============ ============ ============= =========== ============
11
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine Months Ended July 31, 1998
(Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
------------ ------------ ------------- ----------- ------------
Operating revenues......................... $ -- 97,897 18,175 (6,631) 109,441
Operating expenses......................... -- 62,544 13,019 (6,171) 69,392
------------ ------------ ------------- ----------- ------------
Gross profit............................ -- 35,353 5,156 (460) 40,049
Selling, general and administrative
expenses................................. 6,976 9,742 2,437 -- 19,155
Gain on sale of business................... (684) -- -- -- (684)
Depreciation and amortization.............. 95 19,640 2,652 (270) 22,117
------------ ------------ ------------- ----------- ------------
Operating income (loss)................. (6,387) 5,971 67 (190) (539)
Interest expense........................... 11,280 57 180 (25) 11,492
Other (income) expense..................... (555) (144) (52) 25 (726)
------------ ------------ ------------- ----------- ------------
Income (loss) before equity in income of
subsidiaries, and income taxes........... (17,112) 6,058 (61) (190) (11,305)
Equity in income of subsidiaries.......... 5,596 -- -- (5,596) --
Income tax expense......................... 157 -- 211 -- 368
------------ ------------ ------------- ----------- ------------
Net income (loss).......................... $ (11,673) 6,058 (272) (5,786) (11,673)
============ ============ ============= =========== ============
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine Months Ended July 31, 1997
(Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
------------ ------------ ------------- ----------- ------------
Operating revenues......................... $ -- 91,438 23,486 (1,670) 113,254
Operating expenses......................... -- 56,793 13,570 (1,630) 68,733
------------ ------------ ------------- ----------- ------------
Gross profit............................ -- 34,645 9,916 (40) 44,521
Selling, general and administrative
expenses................................. 8,031 8,693 4,154 116 20,994
Gain on sale of business................... (1,823) -- -- -- (1,823)
Depreciation and amortization.............. 38 21,110 7,378 (263) 28,263
------------ ------------ ------------- ----------- ------------
Operating income (loss)................. (6,246) 4,842 (1,616) 107 (2,913)
Interest expense........................... 10,632 88 158 (154) 10,724
Other (income) expense..................... (326) (511) 650 154 (33)
------------ ------------ ------------- ----------- ------------
Income (loss) before equity in income of
subsidiaries, income taxes and
extraordinary items...................... (16,552) 5,265 (2,424) 107 (13,604)
Equity in income of subsidiaries........... 1,348 -- -- (1,348) --
Income tax expense (benefit)............... (2) 7 217 -- 222
------------ ------------ ------------- ----------- ------------
Net income (loss) before extraordinary
items.................................... (15,202) 5,258 (2,641) (1,241) (13,826)
Extraordinary items:
(Write-off) of deferred financing fees
and expenses, net of gain on early
retirement of debt....................... 950 (1,376) -- -- (426)
------------ ------------ ------------- ----------- ------------
Net income (loss).......................... $ (14,252) 3,882 (2,641) (1,241) (14,252)
============ ============ ============= =========== ============
12
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended July 31, 1998
(Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
----------- ------------ ------------- ----------- ------------
Net income (loss).......................... $ (11,673) 6,058 (272) (5,786) (11,673)
Depreciation and amortization........... 95 19,640 2,652 (270) 22,117
Equity in income of subsidiaries........ (5,596) -- -- 5,596 --
Gain on sale of business................ (684) -- -- -- (684)
Other non-cash adjustments.............. 996 (115) (89) -- 792
Changes in working capital.............. 870 1,803 (375) (121) 2,177
----------- ------------ ------------- ----------- ------------
Net cash provided by (used in) operating
activities............................... (15,992) 27,386 1,916 (581) 12,729
----------- ------------ ------------- ----------- ------------
Cash flows from investing activities:
Capital and wagering systems
expenditures.......................... (294) (18,363) (1,821) 426 (20,052)
Cash acquired in business acquisition... -- -- 2,177 -- 2,177
Other assets and investments............ (238) (5,830) (77) 171 (5,974)
----------- ------------ ------------- ----------- ------------
Net cash provided by (used in) investing
activities............................... (532) (24,193) 279 597 (23,849)
----------- ------------ ------------- ----------- ------------
Cash flows from financing activities:
Net proceeds from issuance of long-term
debt.................................. -- 12,000 -- -- 12,000
Payments on long-term debt.............. -- (2,001) (294) 12 (2,283)
Other, principally intercompany
balances.............................. 13,343 (13,771) 974 (36) 510
----------- ------------ ------------- ----------- ------------
Net cash provided by (used in) financing
activities............................... 13,343 (3,772) 680 (24) 10,227
----------- ------------ ------------- ----------- ------------
Effect of exchange rate changes on cash.... 5 1 (68) 8 (54)
----------- ------------ ------------- ----------- ------------
Increase/(decrease) in cash and cash
equivalents.............................. (3,176) (578) 2,807 -- (947)
Cash and cash equivalents, beginning of
year..................................... 15,582 328 2,297 -- 18,207
----------- ------------ ------------- ----------- ------------
Cash and cash equivalents, end of period... $ 12,406 (250) 5,104 -- 17,260
=========== ============ ============= =========== ============
13
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended July 31, 1997
(Unaudited, in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
------------ ------------ ------------- ----------- ------------
Net income (loss)......................... $ (14,252) 3,882 (2,641) (1,241) (14,252)
Depreciation and amortization.......... 38 21,110 7,378 (263) 28,263
Equity in income of subsidiaries....... (1,348) -- -- 1,348 --
Gain on sale of business............... (1,823) -- -- -- (1,823)
Non-cash extraordinary items........... (950) 1,376 -- -- 426
Other non-cash adjustments............. 2,962 40 (488) -- 2,514
Changes in working capital............. 2,374 (4,572) 4,079 (31) 1,850
------------ ------------ ------------- ----------- ------------
Net cash provided by (used in) operating
activities.............................. (12,999) 21,836 8,328 (187) 16,978
------------ ------------ ------------- ----------- ------------
Cash flows from investing activities:
Capital and wagering systems
expenditures......................... (40) (4,457) (1,897) 13 (6,381)
Proceeds from sale of business and
asset disposals...................... 23,216 247 (2,413) -- 21,050
Other assets and investments........... (308) (1,171) (1,071) (100) (2,650)
------------ ------------ ------------- ----------- ------------
Net cash provided by (used in) investing
activities.............................. 22,868 (5,381) (5,381) (87) 12,019
------------ ------------ ------------- ----------- ------------
Cash flows from financing activities:
Net borrowings under lines of credit... -- (10,500) -- -- (10,500)
Net proceeds from issuance of
long-term debt....................... 105,100 -- 523 -- 105,623
Payments on long-term debt............. (4,350) (113,480) (608) 10 (118,428)
Other, principally intercompany
balances............................. (102,963) 106,908 (3,260) 277 962
------------ ------------ ------------- ----------- ------------
Net cash provided by (used in) financing
activities.............................. (2,213) (17,072) (3,345) 287 (22,343)
------------ ------------ ------------- ----------- ------------
Effect of exchange rate changes on cash... 39 1 (312) (13) (285)
------------ ------------ ------------- ----------- ------------
Increase/(decrease) in cash and cash
equivalents............................. 7,695 (616) (710) -- 6,369
Cash and cash equivalents, beginning of
year.................................... 3,376 261 2,351 -- 5,988
------------ ------------ ------------- ----------- ------------
Cash and cash equivalents, end of period.. $ 11,071 (355) 1,641 -- 12,357
============ ============ ============= =========== ============
14
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion addresses the financial condition of the
Company as of July 31, 1998 and the results of its operations for the three
month and nine month periods ended July 31, 1998, compared to the same periods
last year. This discussion should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
fiscal year ended October 31, 1997 ("fiscal 1997") included in the Company's
1997 Annual Report on Form 10-K.
Three Months Ended July 31, 1998 Compared to Three Months Ended July 31, 1997
Third Quarter Fiscal 1998 Third Quarter Fiscal 1997
-------------------------------------------- ---------------------------------------------
Pari- Pari-
Mutuel Lottery Mutuel Lottery
Operations Operations Total Operations Operations Total
-------------- ----------- ---------- ------------ ----------- -----------
Revenues:
Services $ 31,917 2,945 34,862 30,476 2,049 32,525
Sales 3,586 347 3,933 2,857 436 3,293
-------------- ----------- ---------- ------------ ----------- -----------
Total Revenues $ 35,503 3,292 38,795 33,333 2,485 35,818
============== =========== ========== ============ =========== ===========
Gross Profit (excluding
depreciation and amortization) $ 12,196 974 13,170 13,324 1,032 14,356
============== =========== ========== ============ =========== ===========
Third Quarter Revenue Analysis
Revenues increased 8% or $3.0 million to $38.8 million in the third
quarter of the fiscal year ending October 31, 1998 ("fiscal 1998") from $35.8
million in the third quarter of fiscal 1997.
Pari-mutuel Operations service revenues of $31.9 million for the third
quarter of fiscal 1998 improved $1.4 million or 5% compared to the third quarter
of the prior year. $1.1 million of this improvement is due to the inclusion of
revenue from the recently acquired Netherlands operations. The balance of the
improvement reflects revenue increases resulting from the growth in handle in
the Company's North American pari-mutuel and Off Track Betting operations. The
growth in handle during the third quarter of fiscal 1998 compared to the third
quarter of fiscal 1997 is attributable to the addition of four new racetracks
and OTB sites, the addition of full card simulcasting at one North American
racetrack customer, an increase in interface fees, the addition of three new
simulcasting customers, the growth in video gaming and the increase in
simulcasting in Germany. These increases were partially offset by lower revenues
in the North American simulcasting operations due to lower ad hoc sales of
satellite time following the reduction in number and realignment of leased
transponders due to the failure of the Galaxy IV satellite, and the loss of a
service contract in the Company's French operations. Pari-mutuel operations
equipment sales revenues in the third quarter of fiscal 1998 of $3.6 million
increased $0.7 million or 26% compared to the third quarter of the prior year
due primarily to sales of terminals to the Company's international customers.
Lottery Operations service revenues increased $0.9 million in the third
quarter of fiscal 1998 to $2.9 million primarily because of the record Powerball
Lottery sales in the period. Lottery equipment sales revenues decreased slightly
in the third quarter of fiscal 1998 to $0.3 million from $0.4 million in the
same period in fiscal 1997.
Gross Profit Analysis
The total gross profit of $13.2 million in the third quarter of fiscal
1998 decreased by $1.2 million, or 8%, compared to the third quarter of fiscal
1997. Lower margins were due to the loss of revenues coupled with higher
transponder costs in the simulcasting business as the result of the
renegotiation of transponder leases following the failure of the Galaxy IV
satellite. Also contributing were lower margins due to additional supplies
expenses related to the installation of the new Connecticut Lottery terminals,
the loss of a French service contract and lower profit margins on North American
equipment sales due to a change in product mix. These margin decreases were
partially offset by margins contributed by the new Netherlands operation and
improved margins due to the higher handle in the pari-mutuel and OTB service
businesses. Gross profit as a percent of revenues in the Company's service
businesses was 35% in the third quarter of fiscal 1998 compared to 40% in the
third quarter of fiscal 1997 and the full fiscal year 1997. Gross profit
15
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(Continued)
earned on equipment sales of $1.1 million in the third quarter of fiscal 1998
decreased by $0.4 million, or 27%, compared to the third quarter of fiscal 1997.
Gross profit as a percent of equipment sales was 28% in the third quarter of
fiscal 1998, compared to gross profit margins of 46% in the third quarter of
fiscal 1997 as a result of a change in the mix of equipment and systems sold.
Expense Analysis
Selling, general and administrative expenses include marketing, sales,
administrative, engineering and software development, finance, legal and other
expenses. Selling, general and administrative expenses remained level with the
third quarter of fiscal 1997 at $6.3 million. The expense of completing the test
phase and the initial rollout of the NASRIN communication network and the
inclusion of the new Netherlands business were offset by continuing cost
reduction efforts, primarily in Europe.
Depreciation and amortization expenses decreased 11% or $0.9 million to
$7.5 million in the third quarter of fiscal 1998 compared to $8.4 million in the
third quarter of fiscal 1997. The decrease results from the full amortization of
certain intangible assets and lower depreciation on lottery assets, partially
offset by the accelerated amortization of deferred transponder costs as a result
of the failure of a Galaxy satellite.
Interest expense of $3.8 million in the third quarter of fiscal 1998
increased $0.4 million over the third quarter of fiscal 1997, primarily
reflecting higher interest rates and larger outstanding debt balances.
Income Taxes
Income tax expense was $0.1 million in the third quarter of fiscal 1998
compared to a benefit of $0.3 million in the fiscal 1997 third quarter. Income
tax expense principally reflects foreign taxes, since no tax benefit has been
recognized on domestic operating losses.
Nine Months Ended July 31, 1998 Compared to Nine Months Ended July 31, 1997
Nine Months Fiscal 1998 Nine Months Fiscal 1997
-------------------------------------------- ---------------------------------------------
Pari- Pari-
Mutuel Lottery Mutuel Lottery
Operations Operations Total Operations Operations Total
-- ----------- ----------- ---------- ------------ ----------- -----------
Revenues:
Services $ 91,924 7,190 99,114 87,393 11,521 98,914
Sales 9,014 1,313 10,327 6,052 8,288 14,340
-------------- ----------- ---------- ------------ ----------- -----------
Total Revenues $ 100,938 8,503 109,441 93,445 19,809 113,254
============== =========== ========== ============ =========== ===========
Gross Profit (excluding
depreciation and amortization) $ 37,123 2,926 40,049 36,392 8,129 44,521
============== =========== ========== ============ =========== ===========
Nine Month Revenue Analysis
Revenues decreased 3% or $3.8 million to $109.4 million in the first
nine months of the fiscal year ending October 31, 1998 from $113.3 million in
the first nine months of the fiscal year ended October 31, 1997.
Pari-mutuel Operations service revenues of $91.9 million for the first
nine months of fiscal 1998 improved $4.5 million or 5% compared to the first
nine months of the prior year. $1.1 million of this improvement reflects the
inclusion of revenues from the recently acquired Netherlands operations. The
balance of the improvement is due to the growth in handle in the Company's North
American pari-mutuel and Connecticut OTB operations. The growth in handle during
the first nine months of fiscal 1998 compared to the first nine months of fiscal
1997 is attributable to the addition of four new racetracks and OTB sites, the
addition of full card
16
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(Continued)
simulcasting at one North American racetrack customer, an increase in interface
fees, the addition of nine new simulcasting customers, the commencement of
simulcasting in Germany, the running of the Breeders' Cup in the first nine
months of fiscal 1998 and the growth in video gaming. These increases were
partially offset by lower revenues in the North American simulcasting operations
due to lower sales of ad hoc satellite time and the loss of a service contract
in the Company's French operation. Pari-mutuel equipment sales revenues in the
first nine months of fiscal 1998 of $9.0 million increased $3.0 million or 49%
compared to the first nine months of the prior year due primarily to the sales
of terminals to the Company's international customers.
Lottery Operations service revenues decreased $4.3 million in the first
nine months of fiscal 1998 to $7.2 million primarily because of the absence of
$5.2 million in revenues provided in the prior year period by the Company's
European lottery business which was sold in April 1997. Lottery equipment sales
revenues decreased to $1.3 million in the first nine months of fiscal 1998 from
$8.3 million in the same period in fiscal 1997. This decrease is primarily
attributable to the absence in fiscal 1998 of sales of $2.7 million of terminals
to an Italian distributor for Italy's pari-mutuel lottery pool, $3.5 million of
terminals to the Israel lottery, and $0.9 million in equipment sales provided by
the Company's European lottery business.
Gross Profit Analysis
The total gross profit of $40.0 million in the first nine months of
fiscal 1998 decreased by $4.5 million, or 10%, compared to the first nine months
of fiscal 1997. Lower margins due to the absence of the Company's European
lottery service revenue of $2.7 million, the loss of a service contract in the
Company's French operation, coupled with the costs of the NASRIN startup, were
partially offset by an increase in service margins earned on increased handle in
the pari-mutuel business. Gross profit as a percent of revenues in the Company's
continuing service businesses was 37% in the first nine months of fiscal 1998,
down slightly from gross profit margins of 39% in the first nine months of
fiscal 1997, reflecting, primarily, higher operating expenses in the lottery and
communications businesses, higher signal fees in the OTB business and the NASRIN
startup costs. Gross profit earned on equipment sales was $3.7 million in the
first nine months of fiscal 1998 as compared to $5.1 million in the first nine
months of fiscal 1997 due primarily to the absence of terminal sales to the
Israel lottery and European lottery sales in fiscal 1998. Gross profit as a
percent of equipment sales was 36% in the first nine months of fiscal 1998,
equal to the gross profit margins in the first nine months of fiscal 1997.
Expense Analysis
Selling, general and administrative expenses include marketing, sales,
administrative, engineering and software development, finance, legal and other
expenses. Selling, general and administrative expenses decreased $1.8 million or
9% to $19.2 million in the first nine months of fiscal 1998, from $21.0 million
in the first nine months of fiscal 1997. Expense reductions of $0.5 million
resulting from the sale of the Company's European lottery business were
complimented by the collection of receivables previously reserved due to
concerns about their recoverability and cost reduction programs in Europe. These
reductions were partially offset by the expense of completing the test phase and
the initial rollout of the NASRIN communication network and increased contract
proposal costs in lottery operations.
Depreciation and amortization expenses decreased 22% to $22.1 million
in the first nine months of fiscal 1998 compared to $28.3 million in the first
nine months of fiscal 1997. The decrease results from the sale of the Company's
European lottery business in April 1997, full amortization of certain intangible
assets and lower depreciation on lottery assets in fiscal 1998, partially offset
by the accelerated amortization of deferred transponder costs as a result of the
failure of a Galaxy satellite.
Interest expense of $11.5 million in the first nine months of fiscal
1998 increased $0.8 million over the first nine months of fiscal 1997, primarily
reflecting higher interest rates.
Income Taxes
Income tax expense was $0.4 million in the first nine months of fiscal
1998 compared to $0.2 million in the first nine months of fiscal 1997. Income
tax expense principally reflects foreign taxes, since no tax benefit has been
recognized on domestic operating losses.
17
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-(Continued)
Liquidity and Capital Resources
At July 31, 1998, the Company's available cash and borrowing capacity
totaled $39.3 million compared to $41.3 million at October 31, 1997. Net cash of
$12.7 million was provided by operating activities during the nine months ended
July 31, 1998. Utilizing cash provided by operating activities and available
cash, the Company invested $14.0 million principally in capital and contract
expenditures and in software systems development. Additionally, the Company
invested $11.8 million in the construction of approximately 3,200 new PROBE-L
lottery terminals for the Connecticut State Lottery. This investment was funded
by a $12.0 million term loan agreement. The Company also acquired $2.2 million
of cash in connection with the acquisition of the company now known as Autotote
Netherlands B. V., which amount will be used to pay current obligations. In
addition to the previously described financing activities, the Company repaid
$2.3 million in long-term debt and raised $0.5 million from the sale of common
stock during the first nine months of fiscal 1998.
As described above in Note 5 to the Consolidated Financial Statements
included herein, the Company had $22.0 million of borrowing availability under
its Facility at July 31, 1998. The Company believes that, although it expects to
incur a net loss in fiscal 1998, its cash resources, anticipated cash flows from
operations and borrowing availability under the Facility will provide sufficient
liquidity to meet scheduled interest payments and anticipated capital
expenditures during the next twelve months. The Company believes, however, that
additional financing will be required to enable it to meet its debt service
obligations under the Notes, the Facility and the Subordinated Debentures, and
for capital expenditures thereafter.
The Company has signed an agreement with an Italian distributor,
Elettronica Ingegneria Sistemi, to sell up to 20,000 Extrema terminals, valued
at approximately $64 million, to Sisal Sport Italia SpA for use in Italy's
pari-mutuel lottery pool. The Company expects to manufacture the terminals in
its Irish facility and expects to begin shipping the terminals in the fourth
quarter of fiscal 1998 with shipments continuing through the year 2000. The
Company expects to finance the working capital required to manufacture the
terminals with cash advanced under the contract and cash available under the
Facility.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 standardizes the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts. Under the standard, entities are required to carry all
derivative instruments in the statement of financial position at fair value.
SFAS 133 is effective beginning in the first quarter of the Company's fiscal
year ending October 31, 2000. The Company has not determined the impact that
SFAS 133 will have on its financial statements and believes that such
determination will not be meaningful until closer to the date of initial
adoption.
In February 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 132, "Employer's
Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS
132 revises employers' disclosures about pension and other postretirement
benefit plans in order to standardize disclosure requirements to the extent
possible and requires additional information on changes in the benefit
obligations and fair values of plan assets that are intended to facilitate
financial analysis. SFAS 132 does not change the measurement or recognition of
those plans and is effective for the Company's fiscal year ending October 31,
1999. Adoption of this standard is expected to result in modification of and/or
additional disclosures, but will not have an effect on the Company's financial
position or results of operations.
18
AUTOTOTE CORPORATION AND SUBSIDIARIES
Quarter Ended July 31, 1998
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.30 Term Loan Agreement dated May 22, 1998 by and among
Autotote Corporation, Autotote Lottery Corporation,
various financial institutions and Heller
Financial, Inc., as agent.
10.31 Purchase Agreement between Autotote Corporation and
Stichting Hippo Toto dated June 29, 1998.
27 Financial Data Schedule.
No current reports on Form 8-K were filed during the third quarter of
fiscal 1998.
19
AUTOTOTE CORPORATION AND SUBSIDIARIES
Quarter Ended July 31, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AUTOTOTE CORPORATION
--------------------
(Registrant)
By: /s/ William Luke
-----------------
Name: William Luke
Title: Vice President & Chief
Financial Officer
Dated: September 14, 1998
20