UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: OCTOBER 31, 1997,
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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.)
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750 LEXINGTON AVENUE, 25TH FLOOR
NEW YORK, NEW YORK 10022
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER:
(212) 754-2233
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Class A Common Stock, $.01 par value American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
As of January 23, 1998, the aggregate market value of voting stock held by nonaffiliates of the registrant was approximately $62,618,691.
Common shares outstanding as of January 23, 1998 were 35,416,534.
DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated herein by reference:
DOCUMENT PARTS INTO WHICH INCORPORATED
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Proxy Statement for the Company's Part III
1998 Annual Meeting of Stockholders
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EXHIBIT INDEX APPEARS ON PAGE 68
[LOGO OF AUTOTOTE APPEARS HERE]
1997 ANNUAL REPORT AND FORM 10-K
AUTOTOTE CORPORATION provides computerized wagering equipment, computer software, facilities management and satellite broadcast services for on-track, off-track, and inter-track pari-mutuel wagering at thoroughbred, harness and greyhound racetracks, jai alai frontons, government-sponsored lotteries and legalized sports betting facilities. The Company's systems are in use in the United States, Europe, Canada, Mexico, Latin America, New Zealand, and the Far East.
PART I
When used herein, the words "believe," "anticipate," "think," "intend," "will be" and similar expressions identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not guarantees of future performance and involve certain risks and uncertainities discussed herein, which could cause actual results to differ materially from those in the forward-looking statements. Readers are cautioned not to place undue reliance on the forward-looking statements which speak only as of the date hereof. Readers are also urged to carefully review and consider the various disclosures made by the Company which attempt to advise interested parties of the factors which affect the Company's business, including the disclosures made under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." All references to a fiscal year are to the Company's fiscal year which ends October 31. The term "pari-mutuel" is a form of wagering in which all wagers are placed in a pool and the payoff is computed based on the total amount of the pool, as compared to fixed odds wagering where the "house" sets the payoff. The pool of gross wagers is referred to as "Handle." Information with respect to Racing Industry Handle is only provided through 1995, the last year such information was available. References to "Autotote" or the "Company" include Autotote Corporation and its subsidiaries.
ITEM 1. BUSINESS
INDUSTRY OVERVIEW
Pari-mutuel wagering is currently authorized in 43 states in the United States, all provinces in Canada, and approximately 100 other countries around the world.
Despite the relative stability of total Racing Industry Handle from 1992 to 1995, OTB, telephone and intertrack wagering has experienced significant growth. This growth has been driven primarily by the expanded use of simulcasting and telecommunications technology in the North American Racing Industry, and by favorable changes in pari-mutuel wagering and simulcasting laws in various states. Further, the growth in the OTB, telephone and intertrack wagering has had the greatest impact at the largest racetracks in North America, which offer the most popular racing product (predominantly thoroughbred racing) and usually the largest pari-mutuel pools. The percentage of total North American Racing Industry Handle generated by the top 15 racetracks, as measured by annual aggregate Handle, increased from approximately 32% in 1992 to approximately 42% in 1995 and total Handle generated by these racetracks grew at a compound annual growth rate of approximately 9% from $6.2 billion in 1992 to $8.2 billion in 1995. The thoroughbred segment of the U.S. Racing Industry contributed significantly to this increase, growing from $9.6 billion in 1992 to $11.6 billion of Handle in 1996, a compound annual growth rate of approximately 5%.
Autotote Corporation ("Autotote" or the "Company") has benefited from the growth trends in the industry. The Company is the leading provider of computerized pari-mutuel wagering systems to the North American Racing Industry and is the exclusive licensed operator of substantially all off-track betting establishments ("OTBs") in the State of Connecticut. The Company is also a leading provider of computerized pari-mutuel systems worldwide, with systems in racetracks and OTBs in Europe, Central and South America, and Asia- Pacific. The Company believes its pari-mutuel wagering systems processed approximately 65% of the estimated $20 billion of North American Racing Industry Handle in 1997. The Company owns over 22,000 pari-mutuel wagering terminals in use throughout North America. In addition, the Company is the leading provider of Racing Industry simulcasting services in the United States through its broadcasting of live racing events via satellite to other racetracks and OTBs. The Company also currently provides technologically advanced video gaming machines ("VGMs") to the North American Racing Industry for use at racetracks. Further, the Company provides lottery systems and equipment both in the United States and internationally.
The Company's proprietary pari-mutuel wagering systems process the sale and cashing of wagers through ticket-issuing terminals, accumulate wagering data, calculate pari-mutuel odds, distribute information to display systems and provide management information and marketing services for its customers. The wagering systems
utilize high-volume, real-time transaction and data processing networks, managed by central computers, communications equipment, special purpose microcomputer-based terminals, peripheral and display equipment, and operations and applications software. Revenues received by the Company for providing and operating its pari-mutuel wagering systems in North America generally range up to approximately 0.55% of the Handle on a particular event with a weighted average of approximately 0.35% of the Handle. In Connecticut, where the Company owns and operates the Connecticut OTB, it retains from 15% to 25% of the Handle. In addition, the Company receives daily or monthly fees from its Racing Industry customers for the provision of simulcasting services and the use of certain Company-owned pari-mutuel equipment.
The growth in OTB, telephone and intertrack wagering, together with the Company's extensive penetration of the North American pari-mutuel wagering market, have enabled the Company to generate increased revenues. The Company has achieved this because it (i) is the leading provider of pari-mutuel wagering systems to the leading racetracks whose live racing events are in the greatest demand for off-track wagering, (ii) is a leading provider of computerized pari-mutuel wagering systems and automated telephone betting equipment to OTBs and racetracks accepting wagers on simulcasted racing events, (iii) is the leading simulcaster of live horse and greyhound racing and jai alai events to racing facilities, OTBs and casinos in North America, and (iv) owns the Connecticut OTB, including the Bradley Teletheater and Sports Haven(R) entertainment complexes, three simulcasting branches and six other OTB locations, which accept wagers on racing events at more than 30 racetracks throughout North America and which processed approximately $203 million in Handle in fiscal 1997. The Company believes that it will realize additional benefits to the extent that states enact further legislation which facilitates growth in OTB, telephone and intertrack wagering.
The Company's lottery operations (i) provide wagering equipment and services to operate the Connecticut State Lottery under an exclusive full-service facilities management contract, (ii) provide support and maintenance services for on-line lotteries, including government authorized lotteries in Israel and Italy and (iii) market new wagering systems and equipment to other on-line lotteries. On December 15, 1997, the Company signed an agreement with the Connecticut Lottery Corporation to service the Connecticut State Lottery through May 2003, with five one-year options to extend the contract through May 2008. Under the terms of the agreement, the Company will provide and operate a triplex on-line system and manufacture and install approximately 3,200 new PROBE-L lottery terminals. The Company expects to finance its obligations under this agreement by entering into a long-term financing arrangement in fiscal 1998. There can be no assurance that the Company will be able to secure such financing with terms favorable to the Company. In the event the Company is unable to secure such financing, it will need to use either some of the Company's existing cash or cash available under the Facility (see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources).
For information on the Company's business and geographic segments, see Note 18 to Consolidated Financial Statements.
PARI-MUTUEL OPERATIONS
Pari-mutuel Operations have accounted for 85%, 73% and 83% of the Company's total service revenues and product sales for the fiscal years 1997, 1996 and 1995, respectively.
North American Wagering Systems
The Company's wagering systems and/or related equipment process wagers at approximately 100 racetracks in North America, including 10 of the top 15 largest racetracks and at over 800 OTBs. In North America, the Company's customers typically enter into five-year service contracts pursuant to which the Company provides the pari-mutuel wagering system, as well as the operations, maintenance and supervisory personnel necessary to operate the pari-mutuel wagering system. The Company maintains ownership of the pari- mutuel wagering systems which enables it to employ such equipment in more than one racetrack at different times during the year.
The pari-mutuel wagering systems provided by the Company in North America typically include the terminals that issue the wagering tickets, the central processing unit which calculates the betting odds of a particular event and tabulates and accounts for the Handle, the display board which indicates the betting odds of a particular event and the communication equipment necessary for additional wagering from sources outside the wagering facility. The systems utilize high volume, real-time transaction and data processing networks managed by central computers, communications equipment, special purpose microcomputer-based terminals, peripheral and display equipment and operations and applications software. The type of central processing unit and the number of ticket issuing terminals used in a system are generally determined by the amount of wagering at, and physical layout of, the facility. Ticket issuing terminals are installed at several different racetracks or off- track facilities, respectively, and the central processing system communicates with the wagering systems at the on-track locations via telephone or data communication lines. The Company generally does not, however, employ the clerks who issue wagering tickets using the Company's teller-operated terminals. Additional software and other support functions are provided by the Company.
Revenues received by the Company for providing and operating its pari-mutuel wagering systems in North America generally range up to approximately 0.55% of the Handle on a particular event (with a weighted average of approximately 0.35% of the Handle), subject in many instances to minimum fees which are usually exceeded under normal operating conditions. Minimum fees under the Company's service contracts are generally based on the number of days the facility operates, as well as other factors, including the type of system and number of terminals installed at the facility.
In addition to payments received for wagering which takes place at a location where the Company operates a wagering system, the Company also typically receives an "Interface Fee" of 0.125% for wagers that are made from remote sites on a race that is occurring at a racetrack where the Company operates the wagering system. This Interface Fee is charged and typically collected from the remote site where the wager is placed whether or not such site is a customer of the Company. As intertrack and off-track wagering has increased, the percentage of total North American Racing Industry Handle on which Interface Fees are charged has grown.
In recent years, the Company has focused on the creation of regional networks of large and medium sized racetracks, rather than single facilities at smaller racetracks. These networks allow the Company to achieve economies of scale by centralizing its service operations and more efficiently utilizing its installed base of computer hardware. Additionally, when linked to the Company's other regional and national pari--mutuel wagering networks, these networks provide the Company's customers with access to new markets and revenue sources by increasing the number and variety of wagering opportunities that customers can offer to their patrons. The Company believes the creation of these regional networks has, in part, been responsible for the Company's increase in market share from less than 30% in 1990 to approximately 65% of the estimated total North American Racing Industry Handle in 1997. Additionally, the Company believes its established wagering networks will give the Company a competitive advantage in renewing existing contracts and winning new contracts in regions where such networks exist because of the Company's ability to offer customers greater services more efficiently than its competitors. The Company currently operates its regional pari-mutuel wagering networks in California, Connecticut, Florida, Illinois, Louisiana, Michigan, New York, Oregon, Pennsylvania, Washington, West Virginia, Puerto Rico, Alberta, British Columbia and Ontario.
An additional outlet for the Company's pari-mutuel wagering systems is the Atlantic City casino market. The Company operates pari-mutuel wagering systems for all of the casinos in Atlantic City that offer their patrons the opportunity to make wagers on racing events. Services provided to these casinos are similar to those provided directly to OTBs.
In its service contracts, the Company makes certain warranties regarding the operation, performance, implementation and reliability of its wagering systems relating to, among other things, data accuracy, repairs and validation procedures. The Company's warranties in its wagering systems contracts are negotiated, and accordingly vary on a case-by-case basis.
Connecticut OTB
In 1993, the Company purchased from the State of Connecticut the exclusive right to operate substantially all off-track betting within the state. Since the Company commenced operating the Connecticut OTB, it has implemented several important product and service enhancements, including expanded simulcasting from racetracks across the country, common pool wagering, seven day per week operations at seven locations and expanded telephone betting. These improvements have helped increase the Connecticut OTB Handle from approximately $133 million in fiscal 1993, when the State of Connecticut last operated the Connecticut OTB, to approximately $203 million in fiscal 1997. The Company believes its expertise developed in operating the Connecticut OTB provides it with a competitive advantage in obtaining future OTBs through privatization. The Company currently operates 11 Connecticut OTB locations statewide, including two simulcasting teletheaters in New Haven and Windsor Locks, three similcasting branches and a telephone account betting operation in New Haven. The Company's approximately 39,000 square feet Bradley Teletheater in Windsor Locks features simulcasts of racing events, dining facilities and other services. During fiscal 1995, the Company opened the approximately 55,000 square feet New Haven sports, simulcasting and entertainment complex called Sports Haven(R) which features pari-mutuel wagering on thoroughbred, harness, greyhound and jai alai events shown live on large screens and televisions throughout the facility. Since its opening, wagering in New Haven has increased from approximately $35.0 million to $53.5 million annually.
The exclusive right to operate the Connecticut OTB is subject to state regulations with respect to such matters as the location of OTBs, hours of operation and certain financial and operational standards. The Company must pay liquidated damages to the state if these standards are not met. The Company is also subject to a pari-mutuel tax of 3.5% of all monies wagered. The percentage of the total Handle which the Company may receive as the operating revenues from the Connecticut OTB is determined by the track where the event is held and ranges from 15% to 25%, depending on the racetrack and type of wagers.
The Company believes operation of the Connecticut OTB further strengthens its competitive position in attracting certain new racetrack customers to the extent that the Connecticut OTB does not already accept wagers for such racetrack's racing events. The Company can enhance a proposal for its services by offering the racetrack the opportunity to have its racing events wagered upon at the Connecticut OTB. In return, racetracks generally receive between 3% and 6% of pari-mutuel wagers as a payment.
In 1996, the Company received legislative approval to expand its operations to seven days a week subject to local approval. Currently seven Connecticut OTB locations operate seven days a week. In June 1997, the State of Connecticut passed legislation authorizing the Company to simulcast live racing events in up to six locations. The Company simulcasts at its Bradley Teletheater and Sports Haven(R) locations as well as at its branches in New Britain, Bristol and Hartford. Such legislation also authorized racetracks and jai alai frontons within Connecticut to retain a larger portion of the Handle from pari-mutuel pools. The Connecticut OTB typically retains the same amount as the racetrack or fronton where the event is held. As a result, the Company believes that, to the extent that the racetracks and jai alai frontons increase the amounts that they retain, the Company's gross profit will be positively affected. During fiscal 1997, the Company estimates that patrons wagered approximately $54 million at the Connecticut OTB on races and jai alai events which took place within Connecticut.
Simulcasting Systems
The Company is the leading simulcaster of live horse and greyhound racing and jai alai events to racing facilities, OTBs and casinos in North America. The Company simulcasts racing events from over 40 racetracks and jai alai frontons to over 150 racetracks and over 750 OTBs throughout North America.
Simulcasting is the process of transmitting the audio and video signal of a live racing event from one facility to a satellite for reception by wagering locations across the country. Simulcasting provides racetracks the opportunity to increase revenues by sending their signals to as many wagering locations as possible, such as other racetracks, OTBs and casinos. Sending live audio and video broadcasts of remote racing events generates
increased revenues for other parts of the Company and its customers by (i) increasing the consumer base for the remote events and (ii) maximizing the number of events available to a patron for wagering by utilizing idle time between races at racetracks to broadcast remote events.
In its simulcasting operations, the Company leases satellite transponders and uses digital compression technology to increase the number of events which may be simulcasted at one time. The Company also owns vehicles which uplink the video and audio signals of racetrack and jai alai events to Company controlled satellite transponders and owns decoders which are used by OTBs and intertrack wagering facilities to unscramble the transmission signal from other racetracks. In general, the Company receives fees as follows: (i) a daily fee charged to racetracks for the broadcast transmission services, including the uplink vehicle, operator and the use of satellite time controlled by the Company; and (ii) a fee charged to receiving sites for the use of the Company's decoders to unscramble the transmission feed of other racetracks. In addition, the Company often sells excess satellite transponder capacity to other users of satellite communications outside the Racing Industry. From time to time, the Company sells such excess capacity under long-term contracts.
International Pari-Mutuel Operations
The Company operates all aspects of the pari-mutuel wagering systems at racetracks in France, Germany and Austria, including in some cases employing the agents that issue the wagering tickets. In fiscal 1997, the Company derived approximately $11.8 million in service and sales revenues from its French pari-mutuel wagering operations and $3.0 million in service and sales revenues from its German and Austrian pari-mutuel wagering operations.
In its other international markets, the Company generally sells, delivers and installs pari-mutuel wagering systems in racetracks and OTBs rather than operating them pursuant to service contracts. The Company generally designs a customized system to meet the unique needs of each customer, including game designs, language preferences, network communication standards and other key elements. The sale of a pari-mutuel wagering system includes a license for use of the Company's proprietary system software, as well as technical assistance, support, accessories and spare parts. The Company's personnel participate in the installation and then train the customer's personnel. The Company has sold its systems in approximately 25 countries.
Video Gaming
The Company has developed a proprietary line of VGMs, which combine full gaming functionality, such as video poker, blackjack, spinning reels and keno, with full race betting functionality and picture-in-picture capabilities, providing multiple opportunities for revenue generation at racetracks where VGM wagering is permitted. The Company's latest VGM terminal, the PROBE XLC, allows patrons to play card games, wager on horse races and watch simulcasted races or other types of televised programs unrelated to wagering on the picture-in-picture video monitor, while continuing to play the selected video games. The Company currently has installed approximately 1,300 PROBE XLC terminals in two racetracks in West Virginia, for which it receives a percentage of income generated by the terminals. The Company believes its penetration of the pari-mutuel wagering business positions it to become a significant provider of VGMs if video gaming is approved in more racetracks across the country. The Company has also sold VGMs to the Manitoba Lottery Commission.
Casino/Race and Sports Wagering
In October 1996, the Company sold CBS, its casino/race and sports wagering service business ("CBS") which provided sports wagering systems to 107 of the 113 casinos in Nevada and to the leading operator of sports wagering facilities in Mexico. Through a distributor affiliated with the purchaser of CBS, the Company expects to continue to provide pari-mutuel wagering terminals and parts to the casinos and sports wagering facilities that generally use systems manufactured by the Company.
In connection with the sale of CBS, the Company has entered into an agreement not to compete anywhere in the world with respect to the purchaser's race and sports book business for a minimum of five years. In addition, the contract for the sale of CBS provides that the Company and CBS will offer each other certain rights of first refusal with respect to business opportunities in the race and sports book business internationally. The Company does not believe that these agreements will have a material impact on its ability to conduct its business.
LOTTERY OPERATIONS
Lottery Operations have accounted for 15%, 27% and 17% of the Company's total service revenues and product sales for the fiscal years 1997, 1996 and 1995, respectively.
The Company designs, installs, operates and maintains on-line computer-based lottery systems and provides equipment for lottery systems both in the United States and internationally. Lottery systems are required to process very large transaction volumes. Such high performance requirements dictate the need for sophisticated software applications that necessitate expertise in software engineering and development. In the United States, the Company's primary focus is operating the Connecticut Lottery. Internationally, the Company has provided central processing systems and/or terminals to lotteries in Israel and Italy, and has a contract to deliver a system and terminals for a lottery in Barbados. The Company has previously provided 14,000 terminals for Italy's TOTIP pari-mutuel lottery, a nationwide lottery based on horse racing, and continues to maintain and sell terminal upgrades to TOTIP.
In connection with the Connecticut State Lottery, the Company provides all equipment, personnel and services necessary to operate the lottery network of approximately 3,200 terminals while retaining title to the equipment. On December 15, 1997, the Company signed an agreement with the Connecticut Lottery Corporation to service the Connecticut State Lottery through May 2003, with five one-year options to extend the contract through May 2008. Under the terms of the agreement, the Company will provide and operate a triplex on-line system and manufacture and install approximately 3,200 new PROBE-L lottery terminals. Revenues received by the Company from its operation of the Connecticut State Lottery are based on a percentage of amounts wagered in the lottery.
The Company's lottery products consist primarily of central processing systems, including data communication networks, and on-line and on-line/off- line computer-based lottery terminals. The lottery management system portion of the product includes a lottery administration client-server network and relational database. Lottery terminals are generally on-line to the central system via telephone lines connected to the system's communication front-end processors.
Sale of European Lottery Business
On April 15, 1997, the Company completed the sale of its European lottery business for cash consideration of approximately $26.6 million, including contingent consideration of approximately $1.6 million based upon a balance sheet of the European lottery business, prepared as of such date. In addition, the Company provided the purchaser with a letter of credit to secure certain obligations of the Company under the sale agreement. At October 31, 1997, $1.5 million remains outstanding under the letter of credit which reduces to zero in accordance with a schedule on specified dates through October 1998.
Under the terms of the sale, the purchaser will have the right to license and purchase the Company's terminals for use in lottery applications. Currently neither the European lottery business nor the purchaser has on-line lottery wagering terminals. Also under the agreement, the purchaser has a right of first refusal to purchase the Company's remaining lottery business. The Company, however, currently has no plans to sell this business and remains committed to serving the North American lottery market and its existing customers.
In connection with the sale of the European lottery business, the Company agreed not to compete for three years in the on-line lottery business outside of the United States and Canada except with respect to (a) existing customers (including customers in Israel and Italy) not served by the European lottery business and (b) certain identified proposed customers of the Company. The non-competition covenants do not apply to the Company's
right to sell certain terminals for lottery applications anywhere, except to existing customers of the European lottery business.
CONTRACT PROCUREMENT
Contract awards by horse and greyhound racetracks, OTBs and casino/sports wagering facilities and from state and foreign governments often involve a lengthy competitive bid process, spanning from specification development to contract negotiation and award. Contracts have a high dollar value and are technically and commercially complex and may require substantial initial cash outlays. Start up costs associated with contract awards typically involve expenditures for items such as software development/customization, assembly of wagering systems, and installation costs including electrical and carpentry work, transportation and placement of equipment, and system implementation. Such costs are primarily comprised of labor related expenses due to the relative magnitude of software development and customization in the start up phase. In the United States, lottery authorities generally commence the contract award process by issuing a request for proposals inviting bids and proposals from various lottery vendors. Internationally, lottery authorities do not typically utilize such a formal bidding process, but rather negotiate proposals with one or more potential vendors.
The Company's contracts for the provision of pari-mutuel services are typically for terms of five years. Contracts representing 8%, 14%, 9%, and 26% of the Company's annual pari-mutuel service revenues are scheduled to expire in fiscal years 1998, 1999, 2000 and 2001, respectively. The Company's contract to operate the Connecticut State Lottery has been renewed for five years with five one-year renewal options. The Company historically has been successful in renewing its largest contracts as they have come due for renewal. However, there can be no assurance that the Company will continue to be able to renew pari-mutuel systems operating contracts with its largest customers or to further renew the lottery contract with the State of Connecticut, and, if it is unable to do so, there would be a material adverse effect on the Company.
SERVICE AND SUPPORT
The Company's staff of approximately 510 persons, including regional and national managers and trained maintenance and field service personnel, supports the operation of the Company's systems and communications networks. The Company's personnel support its systems by performing routine system maintenance and repairs of systems and equipment when needed.
RESEARCH AND PRODUCT DEVELOPMENT
The Company believes that its ability to attract new wagering system customers and retain existing customers depends in part on its ability to continue to incorporate technological advances into and to improve its product lines. The Company maintains a development program directed toward systems development as well as toward the improvement and refinement of its present products and the expansion of their uses and applications. The Company employs approximately 40 people in connection with software, engineering and product development.
INTELLECTUAL PROPERTY
The Company maintains patent protection on certain of its pari-mutuel wagering and lottery products and has a number of registered trademarks and other common law trademark rights for certain of its products. The software and control systems for the Company's wagering systems are also protected by copyright and/or trade secret laws.
PRODUCTION PROCESSES; SOURCES AND AVAILABILITY OF COMPONENTS
Production of the Company's wagering systems and component products primarily involves the assembly of electronic components into more complex systems and products. In 1997, the Company began limited terminal
assembly at its Newark, Delaware administration and development facility. In addition, limited production of certain product lines is performed at the Company's manufacturing facility in Ballymahon, Ireland. Other manufacturing is contracted out to third party vendors, as needed.
The Company normally has sufficient lead time between reaching an agreement to serve a wagering facility and commencing actual operations at such facility. In the event the current suppliers of central processing units were no longer available, the Company believes that it would be able to adapt its application software to hardware available from other sources within a time frame sufficient to allow it to meet new contractual obligations, although the price competitiveness of the Company's products might diminish. The lead time for obtaining most of the electronic components used by the Company is approximately 90 days. The Company believes that this is consistent with its competitors' lead times and is also consistent with the needs of its customers.
COMPETITION
A significant portion of the Company's revenues are generated from pari- mutuel wagering on racing events at racetracks and OTBs. The market for pari- mutuel wagering is competitive, and certain of the Company's competitors may have substantially greater financial and other resources than the Company. The Company competes primarily on the basis of design, performance, reliability and pricing of its products as well as customer service. To effectively compete, the Company expects to make continued investments in product development and/or acquisitions of technology. As new wagering products are developed, the Racing Industry may experience increased competition for wagers. Competition for wagers also comes from casino gaming, which has continued to expand, and other forms of legal and illegal gambling.
The Company's two principal competitors in the North American pari-mutuel wagering systems business are Powerhouse Technologies Inc. ("PTI"), formerly Video Lottery Technologies, Inc., which operates its pari-mutuel wagering systems business through its subsidiary United Wagering Systems, Inc., and AmTote International, Inc. Video gaming industry terminal suppliers include PTI, International Game Technology, WMS Industries Inc., Alliance Gaming, Inc. and several smaller companies. The Company's competition outside of North America is more fragmented, with competition being provided by several international and regional companies. No single company maintains the leading market position internationally, although certain companies possess regional strengths.
Competition in the simulcasting business in North America currently is fragmented. Other than the Company, only Roberts Television International, Inc. has achieved a significant share of the market.
The on-line lottery business is also highly competitive. State and foreign governments normally award contracts based on competitive bidding procedures. Significant factors which influence the award of lottery contracts include price, the ability to optimize lottery revenues through marketing capability and applications knowledge, the quality, dependability and upgrade capability of the network, the experience, financial condition and reputation of the vendor, and the satisfaction of other requirements and qualifications which the lottery authority may impose. There can be no assurance that the Company will achieve the technological advances necessary, have the financial resources or otherwise have the ability to effectively compete in this market. The Company's principal competitors in the on-line lottery business are Gtech Holdings Corp. and PTI, through its subsidiary Automated Wagering, Inc.
The market for the Company's products is affected by changing technology, new legislation and evolving industry standards. The Company's ability to anticipate such changes and to develop and introduce new and enhanced products on a timely basis will be a significant factor in the Company's ability to expand, remain competitive, attract new customers and retain existing contracts. There can be no assurance that the Company will have the financial or other resources to respond to such changes or to develop and introduce new products on a timely basis.
In connection with the sales of CBS and the European lottery business, the Company entered into certain agreements not to compete which the Company believes will not have a material impact on the Company's ability to conduct its business.
REGULATION
General
Pari-mutuel wagering, sports wagering, video gaming and on-line lotteries may be conducted in jurisdictions that have enacted enabling legislation. In jurisdictions which currently permit various wagering activities, regulation is extensive and evolving. Regulators in such jurisdictions review many facets of an applicant/holder of a license including, among other items, financial stability, integrity and business experience. The Company believes that it is currently in substantial compliance with all regulatory requirements in the jurisdictions where it operates. Any failure to receive a material license or the loss of a material license that the Company currently holds could have a material adverse effect on the overall operations and financial condition of the Company.
In 1996, the United States Congress passed legislation authorizing a comprehensive study of gaming, including segments of the gaming industry served by the Company. The Company is unable to predict whether this study will result in legislation that would impose regulations on gaming industry operators, including the Company, or whether such legislation, if any, would have a material adverse effect on the Company.
The Company has developed and implemented an extensive internal compliance program in an effort to assure the Company's compliance with legal requirements imposed in connection with its wagering-related activities, as well as legal requirements generally applicable to all publicly traded corporations. The compliance program is run on a day-to-day basis by a full- time compliance officer, and is overseen by the Compliance Committee of the Company's Board of Directors. While the Company is firmly committed to full compliance with all applicable laws, there can be no assurance that such steps will prevent the violation of one or more laws or regulations, or that a violation by the Company or an employee of the Company will not result in the imposition of a monetary fine or suspension or revocation of one or more of the Company's licenses.
Pari-Mutuel Wagering
Forty-three states, Puerto Rico, all of the Canadian provinces, Mexico and many other foreign countries have authorized pari-mutuel wagering on horse races and 19 states and many foreign countries, including Mexico, have authorized pari-mutuel wagering on dog races. In addition, Connecticut, Rhode Island, Nevada, Florida and Mexico also allow pari-mutuel betting on jai alai matches.
Companies which manufacture, distribute and operate pari-mutuel wagering systems in these jurisdictions are subject to the regulations of the applicable regulatory authorities there. These authorities generally require the Company, as well as its directors, officers, certain employees and holders of 5% or more of the Company's common stock, to obtain various licenses, permits and approvals. Regulatory authorities may also conduct background investigations of the Company and its key personnel and stockholders in order to insure the integrity of the wagering system. These authorities have the power to refuse, revoke or restrict a license for any cause they deem reasonable. The loss of a license in one jurisdiction may cause the Company's licensing status to come under review in other jurisdictions as well.
A subsidiary of the Company that provides pari-mutuel wagering equipment and/or services to certain casinos located in Atlantic City, New Jersey is licensed by the New Jersey Casino Control Commission ("New Jersey Commission") as a gaming related casino service industry in accordance with the New Jersey Casino Control Act ("Casino Control Act") for an initial period of two years and then for renewable periods of four years thereafter. An applicant for a gaming related casino service industry license is required to establish, by clear and convincing evidence, financial stability, integrity and responsibility; good character, honesty and integrity; and sufficient business ability and experience to conduct a successful operation. The Company must
also qualify under the standards of the Casino Control Act. The Company and its licensed subsidiary may also be required to produce such information, documentation and assurances as required by the regulators to establish the integrity of all financial backers, who may be required to seek qualification or waiver of qualification. For casino holding companies, the New Jersey Commission traditionally has granted informal waivers at the staff level for non institutional investors holding less than 15% of a debt issue and for institutional investors holding less than 50% of a debt issue and less than 20% of the issuer's overall debt.
The New Jersey Commission has broad discretion in licensing matters and may at any time condition a license or suspend or revoke a license or impose fines upon a finding of disqualification or non-compliance. The New Jersey Commission may require that persons holding five percent or more of the Class A Common Stock of the Company qualify under the Casino Control Act. Under the Casino Control Act, a security holder is rebuttably presumed to control a publicly-traded corporation if the holder owns at least five percent of such corporation's equity securities; however, for passive institutional investors, qualification is generally not required for a position of less than 10%, and upon a showing of good cause, qualification may be excused for a position of 10% or more. Failure to qualify could jeopardize the Company's license. In addition, the New Jersey Racing Commission also licenses this subsidiary and retains concurrent regulatory oversight over this subsidiary with the New Jersey Commission.
The Company's rights to operate the Connecticut OTB system shall continue as long as the Company holds all licenses required for the operation of the system. In addition, the officers and directors and certain other employees of the Company must be licensed. Licensees are generally required to submit to background investigations and provide required disclosures. The Division of Special Revenue of the State of Connecticut (the "Division") may revoke the license to operate the system under certain circumstances, including a false statement in the licensing disclosure materials, a transfer of ownership of the licensed entity without Division approval and failure to meet financial obligations. The Company has also agreed to comply with regulations proposed by the Division which regulate certain aspects of the system's operation. The approval of the Connecticut regulatory authorities is required before any offtrack betting facility is closed or relocated or any new branch or simulcast facility is established.
While in the past and at present the Company has been the subject of enforcement proceedings instituted by one or more regulatory bodies, the Company has been able to consensually resolve any such proceedings upon its implementation of remedial measures and/or the payment of settlements or monetary fines to such bodies. The Company does not believe that any of these proceedings, past or pending, will have a materially adverse effect on the Company. However, there can be no assurance that similar proceedings in the future will be similarly resolved, or that such proceedings will not have a material adverse impact on the Company's ability to retain and renew existing licenses or to obtain new licenses in other jurisdictions.
Video Gaming
Coin or voucher operated gambling devices offering electronic, video versions of slots, poker, black-jack and similar games are known as VGMs, video lottery terminals ("VLTs") or slot machines, depending on the jurisdiction. These devices represent a growing area in the wagering industry. The Company or its subsidiaries manufacture and supply terminals and wagering systems designed for use as VGMs, VLTs or slot machines.
Twenty-four states and Puerto Rico authorize wagering on VGMs, VLTs or slot machines at casinos, riverboats, racetracks and/or other licensed facilities. Although some states, such as Rhode Island and West Virginia, currently restrict VGMs or VLTs to already existing wagering facilities, others permit these devices to be placed at bars and restaurants as well. Several Indian tribes throughout the United States are also authorized to operate these devices on reservation lands. In addition, several Canadian provinces and various foreign countries have authorized their use.
Government officials in other states are considering proposals to legalize or expand video gaming, video lottery or slot machines in their states. Legislators have been enthusiastic about the potential of video gaming to
raise significant additional revenues. Some officials, however, are reluctant to expand gaming industry opportunities or have expressed a desire to limit video gaming to established wagering facilities if video gaming is authorized in their jurisdiction at all.
Companies that manufacture, sell or distribute VGMs, VLTs or slot machines are subject to various provincial, state, county and municipal laws and regulations. The primary purposes of these rules are (i) to insure the responsibility, financial stability and character of equipment manufacturers and their key personnel and stockholders through licensing requirements, (ii) to insure the integrity and randomness of the machines, and (iii) to prohibit the use of VGMs, VLTs or slot machines at unauthorized locations or for the benefit of undesirable individuals or entities. The regulations governing VGMs, VLTs and slot machines generally resemble the pari-mutuel and sports wagering regulations in all the basic elements described above.
However, every jurisdiction has differing terminal design and operational requirements, and terminals generally must be certified by local regulatory authorities before being distributed in any particular jurisdiction. These requirements may require the Company or its subsidiaries to modify its terminals to some degree in order to achieve certification in particular locales. In addition, the intrastate movement of such devices in a jurisdiction where they will be used by the general public is usually allowed only upon prior notification and/or approval of the relevant regulatory authorities.
West Virginia has licensed the Company or its subsidiaries to supply VLTs to authorized locations in that state. The Company intends to apply for all necessary licenses in other jurisdictions that may now or in the future authorize video gaming industry, video lottery or slot machine operations. The Company cannot predict the nature of the regulatory schemes or the terminal requirements that will be adopted in any of these jurisdictions, nor whether the Company or any subsidiaries can obtain any required licenses and equipment certifications or will be found suitable.
Federal law also affects the Company's video gaming industry activities. The Federal Gambling Devices Act of 1962 (the "Devices Act") makes it unlawful for any person to manufacture, deliver or receive gambling devices, including VGMs, VLTs and slot machines, across interstate lines unless that person has first registered with the Attorney General of the United States, or to transport such devices into jurisdictions where their possession is not specifically authorized by state law. The Devices Act permits states to exempt themselves from its prohibition on transportation, and several states that authorize the manufacture or use of such devices within their jurisdictions have done so. Certain of the Company's products, such as the PROBE XLC terminal, are gaming devices subject to the Devices Act and state laws governing such devices. The Devices Act does not apply to machines designed for pari-mutuel betting at a racetrack, such as the Company's pari-mutuel wagering terminal. The Company has registered under the Devices Act, and believes that it is substantially in compliance with all of the Devices Act's record-keeping and equipment identification requirements.
Lottery Operations
At the present time, 37 states, the District of Columbia, Puerto Rico, all the Canadian provinces, Mexico and many other foreign countries authorize lotteries. Once authorized, the award of lottery contracts and ongoing operation of lotteries in the United States is highly regulated. Although certain of the features of a lottery, such as the percentage of gross revenues which must be paid back to players in prize money, are usually established by legislation, the lottery authorities generally exercise significant authority, including the determination of the types of games played, the price of each wager, the manner in which the lottery is marketed and the selection of the vendors of equipment and services.
To ensure the integrity of the contract award and wagering process, most jurisdictions require detailed background disclosure on a continuous basis from, and conduct background investigations of, the vendor, its subsidiaries and affiliates and its principal shareholders. Background investigations of the vendor's employees who will be directly responsible for the operation of the system are also generally conducted, and most states reserve the right to require the removal of employees whom they deem to be unsuitable or whose presence they
believe may adversely affect the operational security or integrity of the lottery. Certain jurisdictions also require extensive personal and financial disclosure and background checks from persons and entities beneficially owning a specified percentage (typically five percent or more) of the Company's securities. The failure of such beneficial owners to submit to such background checks and provide such disclosure could result in the imposition of penalties upon such beneficial owners and could jeopardize the award of a lottery contract to the Company or provide grounds for termination of an existing lottery contract.
The international jurisdictions in which the Company markets its lottery systems also usually have legislation and regulations governing lottery operations. The regulation of lotteries in these international jurisdictions typically varies from the regulation of lotteries in the United States. In addition, restrictions are often imposed on foreign corporations seeking to do business in such jurisdictions. United States and international regulations affecting lotteries are subject to change. The Company cannot predict with certainty the impact on its business of changes in regulations.
Simulcasting
The Federal Communications Commission (the "FCC") regulates the use and transfer of earth station licenses used to operate the Company's simulcasting operations. To obtain an earth station license, the applicant must file an application with the FCC. The FCC then places the application on public notice and solicits comments for a thirty-day period, during which no action is taken on the application. At the expiration of the public notice period, assuming no objections are received from the public, the FCC usually will grant the application within two to three weeks if it determines that the granting of such applications is in the public interest.
At present, 43 states, Puerto Rico, all of the Canadian provinces, Mexico and many other foreign countries authorize inter-state and/or intra-state pari-mutuel wagering, which may involve the simulcasting of such races. Licensing and other regulatory requirements associated with such simulcasting activities are similar to those governing pari-mutuel wagering, and are generally enforced by pari-mutuel regulators. In addition, contracts with host tracks whose races are simulcast by the Company or its subsidiaries to other facilities within or outside the jurisdictions in which such races are held may be subject to approval by regulatory authorities in the jurisdictions from and/or to which the races are simulcast. The Company believes that it and/or its subsidiaries are in substantial compliance with applicable regulations and that the Company, its subsidiaries, and/or the appropriate third parties have entered into contracts and obtained the necessary regulatory approvals to lawfully conduct current simulcast operations.
Casino/Race and Sports Wagering
Sports wagering is currently authorized in numerous foreign countries, including Mexico and as a permitted lottery scheme in Canada. The State of Nevada also permits sports wagering in casinos. In addition, the State of Oregon currently sponsors a lottery based on the outcome of sporting events; Montana authorizes betting on fantasy sports leagues; and North Dakota permits certain sports wagering pools.
The Federal Professional and Amateur Sports Protection Act (the "Sports Protection Act") prohibits a governmental entity from sponsoring, operating, advertising, promoting, licensing or authorizing sports betting on professional or amateur athletic games, subject to several exceptions. The Sports Protection Act does not terminate state-authorized sports betting schemes which were already in operation prior to October 1991, such as those in Nevada, or which existed between January 1, 1976 and August 31, 1990. The Sports Protection Act is also inapplicable to pari-mutuel betting on horse and dog racing and jai alai.
Companies which manufacture, sell or distribute sports wagering equipment are subject to the various laws and regulations of the countries and states which permit sports wagering. These rules primarily concern the responsibility, financial stability and character of the sports wagering equipment companies, as well as the individuals financially interested or involved in the gaming industry operations. The rules generally resemble the
regulations which govern the pari-mutuel wagering industry. Companies and individuals are required to be licensed before they may manufacture, distribute, own or operate sports wagering equipment; they are subject to background investigations designed to protect the integrity of the gaming industry; they may have their licenses denied, revoked or restricted for any cause deemed reasonable; and the loss of their license in one jurisdiction could adversely affect their licensing status in other jurisdictions.
The Company believes that it is in substantial compliance with all regulations now governing sports wagering in the United States and the various foreign countries where the Company conducts business. There can be no assurance that subsequent regulations will not be burdensome to the Company, its personnel or its stockholders.
EMPLOYEES
As of October 31, 1997, the Company employed approximately 880 persons. Of this total, approximately 510 persons were engaged in full-time field operations, 200 in part-time tellering/cashiering, approximately 40 in engineering and software product development, approximately 20 in marketing and approximately 110 in financial, administration and other positions. Most of the North American pari-mutuel employees of the Company involved in field operations and repairs are represented by the International Brotherhood of Electrical Workers under two separate contracts which have been renewed through May 2000 and October 2001. The Company considers its employee relations to be satisfactory.
EXECUTIVE OFFICERS OF THE COMPANY
Certain information concerning the executive officers of the Company as of October 31, 1997 is set forth below:
NAME AGE POSITION ---- --- -------- A. Lorne Weil........... 51 Chairman of the Board, President and Chief Executive Officer William Luke............ 50 Vice President and Chief Financial Officer Gerald Lawrence......... 58 Vice President Martin E. Schloss....... 51 Vice President, General Counsel and Secretary |
Executive Officers of the Company hold office for an indefinite term, subject to the discretion of the Board of Directors of the Company.
Mr. A. Lorne Weil has been a director of the Company since December 1989, Chairman of the Board since October 31, 1991 and Chief Executive Officer since April 1992. From 1982 until 1989, Mr. Weil was a director and consultant to the holding company of one of the Company's current subsidiaries. From October 1990 until April 1992, Mr. Weil held various senior management positions at the Company and its subsidiaries. From 1979 to November 1992 he was the President of Lorne Weil, Inc., a firm providing strategic planning and corporate development services to the high technology industry. Mr. Weil is currently a director of Fruit of the Loom, Inc. and General Growth Properties, Inc.
Mr. William Luke has been Vice President and Chief Financial Officer of the Company since February 1996. Mr. Luke served as Vice President-Finance and Chief Financial Officer of Nashua Corporation from August 1984 through November 1995.
Mr. Gerald Lawrence has been Vice President of the Company since November 1994 and President of North American Systems, a division of the Company, since March 1996. From April 1995 to March 1996, he served as President of Autotote Gaming Industry Group, a division of the Company. From January 1991 to August 1994, he held the position of Executive Vice President of The New York Racing Association, Inc. From November 1984 through December 1990, he served as Executive Vice President and Chief Operating Officer of Churchill Downs Incorporated.
Mr. Martin E. Schloss has been Vice President and General Counsel of the Company since December 1992 and Secretary since May 1995. From July 1992 until December 1992, Mr. Schloss provided consulting services to and was employed by the Company. From 1976 to 1992, Mr. Schloss served in various positions in the legal department of General Instrument Corporation, with the exception of a hiatus of approximately one and one-half years.
ITEM 2. PROPERTIES
The Company leases approximately 12,000 square feet for its corporate headquarters in New York; 40,000 square feet for its administration and development facility in Newark, Delaware; 16,000 square feet of office and warehouse space in Rocky Hill, Connecticut in order to operate the Connecticut State Lottery; 2,000 square feet of office space for its operations center in Gelsenkirchen, Germany; 2,900 square feet of office space in Owings Mills, Maryland; 3,000 square feet of warehouse space in Englewood, New Jersey; approximately 10,000 square feet for its manufacturing facility in Ballymahon, Ireland; and 20,800 square feet of warehouse space in Newark, Delaware. The Company leases approximately 44,000 square feet of space for its Connecticut OTB locations in Norwalk, Bridgeport, West Haven, East Haven, Meriden, New Britain, Bristol, Waterbury and Torrington. The Company owns the Bradley Teletheater in Windsor Locks and the Sports Haven(R) complex in New Haven, encompassing approximately 39,000 square feet and 55,000 square feet, respectively, both of which are used for OTB operations. The Company's Sports Haven(R) facility in New Haven also houses its central off-track betting computer operations and telephone wagering systems for the Connecticut OTB. The Company leases an additional 2,000 square feet for its OTB administrative offices and approximately 7,700 square feet for warehousing in New Haven. In addition, the Company owns approximately 10,000 square feet of office space in Cedex, France.
The Company's lease in Newark, Delaware resulted from the sale and leaseback of its facility in January 1996. The sale-leaseback arrangement established a sale price of $1.0 million and provided the Company with a lease term of up to ten years. See Note 9 to Consolidated Financial Statements for more information about the Company's leases.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the stockholders of the Company was held on August 13, 1997 to elect five directors of the Company, to approve the Autotote Corporation 1997 Incentive Compensation Plan and to ratify the appointment of KPMG Peat Marwick LLP as auditors for the Company's next fiscal year. All matters put before the stockholders passed as follows:
DIRECTOR NOMINEES/OTHER MATTERS FOR AGAINST ABSTAIN ------------------------------- ---------- --------- ------- A. Lorne Weil..................................... 27,453,373 334,514 -- Marshall Bartlett................................. 27,431,307 338,580 -- Larry Lawrence.................................... 27,456,316 313,571 -- Sir Brian Wolfson................................. 27,455,809 314,078 -- Alan J. Zakon..................................... 27,457,101 312,786 -- Approval of Autotote Corporation 1997 Incentive Compensation Plan................................ 22,314,993 4,979,581 68,377 Ratification of appointment of KPMG Peat Marwick LLP.............................................. 27,556,480 125,419 87,988 |
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Class A Common Stock is traded under the symbol "TTE" on the American Stock Exchange. The following table sets forth, for the periods indicated, the range of high and low closing prices of the Company's Class A Common Stock.
HIGH LOW
----- ----
Fiscal 1996
First Quarter................................................ $3.81 2.81
Second Quarter............................................... 3.81 2.88
Third Quarter................................................ 3.50 1.50
Fourth Quarter............................................... 2.00 1.00
Fiscal 1997
First Quarter................................................ $1.75 1.06
Second Quarter............................................... 1.50 1.00
Third Quarter................................................ 2.06 1.06
Fourth Quarter............................................... 3.13 1.63
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On January 23, 1998, the last reported sales price for the Class A Common Stock on the American Stock Exchange was $2.31 per share. The approximate number of holders of record of the Class A Common Stock as of January 23, 1998 was 2,383.
The Company has never paid any cash dividends on its Class A Common Stock. The Board presently intends to retain all earnings for use in the Company's business. Any future determination as to payment of dividends will depend upon the financial condition and results of operations of the Company and such other factors as are deemed relevant by the Board. Further, under the terms of the Indenture governing the Company's 10 7/8% Senior Notes due 2004, the Company and its Restricted Subsidiaries are not permitted to pay any cash dividends or make certain other restricted payments (other than stock dividends) on its Class A Common Stock.
RECENT SALES OF UNREGISTERED SECURITIES; USES OF PROCEEDS FROM REGISTERED SECURITIES
In December 1996, the Company issued 2,963,590 shares of unrestricted Class A Common Stock as part of the settlement of its stockholder litigation. The shares were issued in reliance upon the exemption from registration provided for under Section 3(a)(10) of the Securities Act of 1933, as amended (the "Act").
In March 1997, the Company sold 797,500 shares of Class A Common Stock in connection with an offering to its management and members of its Board of Directors. The shares were issued in reliance upon the exemption from registration provided for under Section 4(2) of the Act.
In April 1997, the Company issued 5,000 shares of Class A Common Stock in connection with a consulting agreement. The shares were issued in reliance upon the exemption from registration provided for under Section 4(2) of the Act.
In July 1997, the Company issued $110 million aggregate principal amount of
10 7/8% Series A Senior Notes due 2004 to "qualified institutional buyers"
pursuant to Rule 144A under the Act, which were exchanged for $110 million
aggregate principal amount of 10 7/8% Series B Notes due 2004. The exchange
offer was completed in October 1997 pursuant to a registration statement on S-
4 (Registration No. 333-34465) which was declared effective on September 12,
1997 (see Note 7 to the Consolidated Financial Statements).
ITEM 6. SELECTED FINANCIAL DATA
Selected historical financial data presented below as of and for the five years ended October 31, 1997 have been derived from the audited consolidated financial statements of the Company, which financial statements have been audited by KPMG Peat Marwick LLP, independent certified public accountants. The following financial information reflects the acquisitions and dispositions of certain businesses during the period 1992 through 1997 and should be read in conjunction with Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements of the Company and the notes thereto, included in Item 8.
FIVE YEAR SUMMARY OF SELECTED
FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED OCTOBER 31,
--------------------------------------------
1997 1996 1995 1994 1993
-------- ------- ------- ------- -------
SELECTED STATEMENT OF OPERATIONS
DATA:
Operating Revenues:
Services...................... $132,989 137,794 132,260 98,592 59,792
Sales......................... 24,343 38,441 20,924 50,458 25,070
-------- ------- ------- ------- -------
157,332 176,235 153,184 149,050 84,862
-------- ------- ------- ------- -------
Costs and Expenses:
Cost of services.............. 79,488 85,742 78,569 61,158 36,513
Cost adjustments and strike
expenses..................... -- -- -- 6,781 --
Cost of sales................. 15,396 25,864 15,661 35,753 11,679
Selling, general & administra-
tive......................... 29,452 32,853 36,540 25,298 10,956
Restructuring and write-off of
assets....................... -- (649) 18,241 8,576 --
Depreciation and amortiza-
tion......................... 36,728 40,853 35,463 25,418 11,809
Interest expense.............. 14,367 14,837 16,362 6,408 3,473
Other (income) expense........ 79 560 (436) (952) (298)
Litigation settlement......... -- 6,800 -- -- --
(Gain) loss on sale of busi-
ness......................... (1,823) 1,127 -- -- --
-------- ------- ------- ------- -------
Total costs and expenses.... 173,687 207,987 200,400 168,440 74,132
-------- ------- ------- ------- -------
Earnings (loss) before income
tax expense (benefit) and ex-
traordinary item............... (16,355) (31,752) (47,216) (19,390) 10,730
Income tax expense (benefit).... 906 2,443 2,673 (1,462) 1,292
-------- ------- ------- ------- -------
Earnings (loss) before extraor-
dinary item.................... (17,261) (34,195) (49,889) (17,928) 9,438
Extraordinary item.............. (426) -- -- (4,222) --
-------- ------- ------- ------- -------
Net earnings (loss)............. $(17,687) (34,195) (49,889) (22,150) 9,438
======== ======= ======= ======= =======
Net earnings (loss) per common
share.......................... $ (0.51) (1.09) (1.72) (0.79) 0.33
======== ======= ======= ======= =======
SELECTED BALANCE SHEET DATA (END
OF PERIOD):
Total assets.................... $153,541 196,793 241,021 241,597 187,105
Total long-term debt, including
current installments........... $149,857 169,024 177,264 143,955 76,987
Stockholders' equity (deficit).. $(33,240) (20,196) 11,857 55,721 76,079
Weighted average shares out-
standing....................... 34,469 31,305 28,965 28,174 28,210
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND
The Company operates in two business segments, Pari-mutuel Operations and Lottery Operations. Pari-mutuel Operations include the North American and international on-track and OTB pari-mutuel operations, simulcasting services, Connecticut OTB operations, video gaming and CBS (the Company's sports wagering service business which was sold in October 1996.) Lottery Operations include both domestic and international lottery operations (including Tele Control, the Company's European lottery business which was sold in April 1997), as well as systems and equipment sales.
The Company is the leading provider of computerized pari-mutuel wagering systems to the North American Racing Industry and is also a leading provider of such systems worldwide. The Company also owns and operates the Connecticut OTB and is the leading provider of Racing Industry simulcasting services in the United States. Additionally, the Company provides technologically advanced VGMs to the North American Racing Industry for use at racetracks. The Company also provides lottery systems and equipment in the United States and internationally.
Historically, the Company's revenues have been derived from two principal sources: service revenues pursuant to multi-year contracts to provide wagering systems and other services, which are typically based on a percentage of Handle and/or daily or monthly fees, and sales contracts for wagering equipment and software. The first quarter of the fiscal year and a portion of the second fiscal quarter traditionally comprise the weakest season for wagering service revenue. Wagering equipment sales revenues usually reflect a limited number of large transactions which do not recur on an annual basis, but which historically have given rise to additional terminal and systems software sales to existing customers. Consequently, revenues and operating results could vary substantially from period to period as a result of the timing of revenue recognition for major equipment sales.
The Company's business strategy over the past several years has been to refocus its activities on its core businesses, which generate recurring revenues rather than one-time equipment sales, and to reduce its operating expenses. Consistent with this strategy, the Company (i) in October 1996, sold its casino/sports wagering business for approximately $3.0 million and (ii) in April 1997, sold its European lottery business for approximately $26.6 million. The proceeds from the sales of these businesses were used to reduce the Company's outstanding indebtedness.
The sales of the casino/sports wagering business and the European lottery business described above, as well as the acquisitions of simulcasting operations and the French pari-mutuel business in fiscal 1995, which were accounted for as purchases, affect the comparability of operations from period to period (see Note 2 to Consolidated Financial Statements).
RESULTS OF OPERATIONS:
YEARS ENDED OCTOBER 31,
------------------------
1997 1996 1995
-------- ------- -------
(IN THOUSANDS)
PARI-MUTUEL OPERATIONS
Operating Revenues:
Service revenue.................................... $119,360 118,267 111,797
Sales revenue...................................... 14,866 10,172 15,539
-------- ------- -------
Total Revenue.................................... $134,226 128,439 127,336
======== ======= =======
Gross Profit (excluding depreciation and amortiza-
tion)............................................... $ 52,717 49,620 45,302
======== ======= =======
LOTTERY OPERATIONS
Operating Revenues:
Service revenue.................................... $ 13,629 19,527 20,463
Sales revenue...................................... 9,477 28,269 5,385
-------- ------- -------
Total Revenue.................................... $ 23,106 47,796 25,848
======== ======= =======
Gross Profit (excluding depreciation and amortiza-
tion)............................................... $ 9,731 15,009 13,652
======== ======= =======
COMPANY TOTAL
Operating Revenues:
Service revenue.................................... $132,989 137,794 132,260
Sales revenue...................................... 24,343 38,441 20,924
-------- ------- -------
Total Revenue.................................... $157,332 176,235 153,184
======== ======= =======
Gross Profit (excluding depreciation and amortiza-
tion)............................................... $ 62,448 64,629 58,954
======== ======= =======
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FISCAL 1997 COMPARED TO FISCAL 1996
Revenue Analysis
Revenues decreased 10.7% or $18.9 million to $157.3 million in the fiscal year ended October 31, 1997 from $176.2 million in fiscal 1996.
Pari-mutuel Operations service revenues of $119.4 million for the fiscal year 1997 improved $1.1 million or 1% from $118.3 million in the prior year. This improvement reflects revenue increases of $4.6 million as a result of growth in Handle in the Company's North American pari-mutuel and Connecticut OTB operations, and the addition of new customers in the simulcasting business. These increases were partially offset by the absence of $2.4 million in revenue provided in the prior year period by the casino/sports wagering business which was sold in October 1996 and a loss of $1.5 million in sales of excess transponder time due to the unanticipated shutdown of one of the satellites leased by the Company. The growth in Handle during fiscal 1997 compared to fiscal 1996 is attributable to the addition of six new North American racetrack and OTB sites, full card simulcasting at three North American racetrack customers, the increase in the number of VGM machines, and the expansion of OTB operations in Connecticut to seven days a week in the first quarter of fiscal 1997. Sales revenue in fiscal 1997 of $14.9 million increased $4.7 million from $10.2 million in the prior year, due in part to a $5.5 million export sale of a totalisator system to the Jockey Club of Peru.
Lottery Operations service revenues decreased $5.9 million during fiscal 1997 from $19.5 million to $13.6 million primarily because of the sale of the European lottery business in April 1997. Sales revenues decreased significantly in fiscal 1997 to $9.5 million from $28.3 million in fiscal 1996. This decrease is primarily attributable to the delivery of systems by the European lottery business to several German lottery contract sites coupled with deliveries by the Company of terminals and parts to Italy's TOTIP pari- mutuel lottery pool in fiscal 1996, partially offset by the delivery of approximately 450 terminals to the Israel lottery in fiscal 1997.
Gross Profit Analysis
Total gross profits earned by the Company, exclusive of depreciation and amortization, decreased $2.1 million, or 3%, to $62.5 million in fiscal 1997 as compared to $64.6 million in fiscal 1996.
Gross profits earned by the Pari-mutuel Operations of $52.7 million in fiscal 1997 increased $3.1 million from $49.6 million in fiscal 1996, principally due to increased North American pari-mutuel revenues and improved simulcasting margins resulting from lower equipment costs. These increases were partially offset by $0.4 million lower margins from the loss of sales of excess transponder time, the absence of margin provided in the prior year by the casino/sports wagering business which was sold in October 1996, and lower profit on the Company's European pari-mutuel operations as the result of the strengthening of the U.S. dollar early in the year.
Gross profits earned by the Lottery Operations totaled $9.7 million for fiscal 1997, a decrease of $5.3 million compared to the fiscal 1996 level of $15.0 million. This decline is attributable to the non-recurring delivery of computer systems to the German Lottery in fiscal 1996, coupled with lower European lottery service revenues due to the sale of the business unit in April 1997 and a decrease in the number of terminals delivered to Italy's TOTIP pari-mutuel lottery. Partly offsetting these declines were margins earned on equipment delivered to the Company's customer in Israel.
Total gross profits on equipment sales were 37% for the year, as compared to gross profits on such sales of 33% in fiscal 1996 as a result of a change in product mix. Gross profits on services were approximately 40% for fiscal 1997, a 2% improvement over margins earned in fiscal 1996, reflecting higher revenues and improved operating efficiencies in the North American pari- mutuel, OTB and simulcasting operations.
Expense Analysis
Selling, general and administrative expenses decreased $3.4 million or 10% to $29.5 million in fiscal 1997 from $32.9 million in fiscal 1996, primarily reflecting the absence of expenses for businesses sold in fiscal years 1996 and 1997. Excluding businesses sold, selling general and administrative expenses increased 1% or $0.3 million, reflecting higher compensation costs, partially offset by lower litigation expenses.
Depreciation and amortization expenses decreased $4.1 million or 10% to $36.8 million in fiscal 1997 compared to $40.9 million in fiscal 1996. The decrease resulted primarily from the absence of expenses related to the businesses sold in fiscal 1996 and 1997. Excluding businesses sold, depreciation and amortization expenses decreased $1.3 million or 4% as a result of the non-recurring effect of depreciation on certain assets in fiscal 1996, partially offset by higher depreciation on fiscal 1996 and fiscal 1997 capital additions for North America's pari-mutuel and video gaming operations.
Interest expense was $14.4 million in fiscal 1997, as compared to $14.8 million in fiscal 1996. The $0.4 million decrease reflects lower borrowing levels as a result of asset sales, partially offset by higher interest rates.
Income Taxes
Income tax expense was $0.9 million in fisca1 1997 compared to $2.4 million in fiscal 1996. Income tax expense principally reflects foreign tax expense, since no U.S. Federal tax benefit has been recognized on domestic operating losses. The decrease in income tax expense principally reflects the sale of the European lottery business.
FISCAL 1996 COMPARED TO FISCAL 1995
Revenue Analysis
Revenues increased 15% or $23.1 million to $176.2 million in the fiscal year ended October 31, 1996 from $153.2 million in fiscal 1995.
Pari-mutuel Operations service revenues of $118.3 million for the fiscal year ended October 31, 1996 improved $6.5 million or 6% compared to the prior year principally because of the growth in Handle at Connecticut OTB attributable to operation of the Sports Haven(R) simulcast/multi-entertainment facility for the full fiscal year, coupled with higher revenues from the sale of excess transponder time due to increased signal capacity, as well as increased Handle at certain North American racetracks. Sales revenue declined $5.4 million to $10.2 million for the fiscal year ended October 31, 1996 reflecting the decrease in international equipment sales during the year.
Lottery Operations service revenues were down slightly for the fiscal year ended October 31, 1996 because of the change in the revenue mix of the Company's European lottery operation from primarily service to sales during 1996 coupled with reduced wagering on the Connecticut State Lottery. Equipment sales improved significantly in fiscal 1996 to $28.3 million from $5.4 million in fiscal 1995. This improvement is attributable to the delivery of computer equipment by the Company's European lottery operations to six German lottery contract sites, as well as the delivery of terminals and parts to Italy's TOTIP pari-mutuel lottery.
Gross Profit Analysis
Total gross profits earned by the Company, exclusive of depreciation and amortization, increased $5.7 million, or 10%, to $64.6 million in fiscal 1996 as compared to $58.9 million in fiscal 1995.
Gross profits earned by the Pari-mutuel Operations of $49.6 million in fiscal 1996 increased $4.3 million from $45.3 million in fiscal 1995, principally due to the growth in Handle at Connecticut OTB. Other gross profit increases resulting from increased North American pari-mutuel and off-track betting revenues and higher simulcasting revenues were largely offset by higher expenses in the Company's European pari-mutuel operations.
Gross profits earned by the Lottery Operations totaled $15.0 million for fiscal 1996, an increase of $1.4 million compared to fiscal 1995 reflecting the delivery of equipment by the Company's European lottery operations and an increase in the number of terminals delivered to Italy's TOTIP pari-mutuel lottery.
Gross profits on equipment sales were 33% for the year, a significant improvement over fiscal 1995. Gross margins on services were approximately 38% for 1996, down 3% from margins earned in fiscal 1995 reflecting the change in revenue mix in the Company's European lottery operations.
Expense Analysis
Selling, general and administrative expenses decreased $3.6 million or 10% to $32.9 million in the fiscal year ended October 31, 1996 from $36.5 million in fiscal 1995. Expense reductions resulting from fiscal 1995 restructuring activities and other cost reduction programs were partially offset by increased expenses for legal compliance, litigation and compensation costs, and contractual costs incurred upon the departure of the former President of the Company.
Depreciation and amortization expenses increased 15% to $40.9 million in the fiscal year ended October 31, 1996 compared to $35.5 million in fiscal 1995. The increase was primarily due to capital additions for North America's pari- mutuel video gaming operations, new terminals and software installed at the Connecticut State Lottery, investment in European lottery software, the January 1995 acquisition by the Company of simulcasting assets, and the increased investment in the Sports Haven(R) facility.
Interest expense decreased 9% from $16.4 million in fiscal 1995 to $14.8 million in the fiscal year ended October 31, 1996 reflecting a $0.3 million increase due to additional borrowings, and a $0.5 million increase in amortization of deferred financing costs. These increases were offset by a $0.1 million decrease due to lower interest rates, and a decrease of $2.3 million due to bank waiver and amendment fees incurred in fiscal 1995.
Income Taxes
Income tax expense was $2.4 million in the 1996 period compared to an expense of $2.7 million in the 1995 period. Income tax expense principally reflects foreign tax expense, since no tax benefit has been recognized on domestic operating losses.
Unusual Charges
Unusual charges were recorded in the amount of $1.2 million in fiscal 1996, partially offset by the reversal of $0.6 million of 1995 restructuring cost accruals because of the Company's plan to continue limited manufacturing of wagering terminals at its Ireland manufacturing facility. These charges consist of (i) $0.6 million for costs incurred in connection with the Company's proposed but uncompleted third quarter 1996 debt offering, and (ii) $0.6 million in selling, general and administrative expenses for contractual payments related to the departure of the former President of the Company.
In fiscal 1995, the Company recorded $20.9 million of unusual charges resulting substantially from the Companys restructuring and from certain asset valuation adjustments, which costs have been allocated to the Pari-mutuel Operations ($7.5 million) and Lottery Operations ($13.4 million).
The restructuring charges totaled $11.6 million and were attributable to the closing of the Owings Mills Lottery support facility and the scaling back of certain international activities, including the planned closing of the Company's manufacturing facility in Ballymahon, Ireland. The decision to close the aforementioned facilities resulted in the elimination of approximately 105 full-time positions. The restructuring charge of $11.6 million included $2.0 million in employee termination benefits; $1.1 million attributable to the cancellation of certain leasehold contracts; $3.2 million in connection with the write-down of inventory and equipment previously used in the lottery terminal manufacturing process including the repayment of certain foreign capital equipment economic development grants; $4.3 million in capitalized software systems development costs written-off in connection with the Company's decision to terminate support for certain of its domestic lottery products and $1.0 million in other miscellaneous asset valuation adjustments and expenses. The Company estimated that the restructuring plans will result in annual savings of approximately $5.0 million.
The Company wrote-off $6.6 million relating to certain investments and other non-current assets principally associated with its Pari-mutuel Operations which included $2.7 million attributable to the Company's Mexican VGM contracts. The decision to write-off the Company's investment in Mexican VGM contracts was based on the continued economic and political turmoil in Mexico which repeatedly interfered with the Company's ability to complete implementation of the contracts. Also included in the write-off of investments and other non-current assets was $2.6 million primarily attributable to lottery terminals, and $1.3 million attributable to other assets. Technical limitations led to the Company's re-evaluation of the continued viability of the lottery terminals. The remaining $2.7 million of unusual charges included miscellaneous asset valuation adjustments, principally consisting of receivable write-offs of $1.6 million and severance costs of $0.4 million. In addition, the Company recorded $1.7 million of unusual charges for bank credit agreement costs primarily relating to a waiver of certain financial covenants under the Company's existing credit agreement.
As a result of these charges, the Company anticipated total cash obligations of approximately $5.9 million, of which $4.6 million was paid through October 31, 1997 and $0.6 million was reversed in fiscal 1996 because of the Company's decision to continue limited manufacturing in Ireland. The restructurings were completed in fiscal 1996 and the Company has satisfied all cash obligations with respect to the 1995 restructuring charges.
LIQUIDITY AND CAPITAL RESOURCES
On July 28, 1997, the Company issued $110 million of 10 7/8% Senior Notes due August 1, 2004 (see Note 7 to Consolidated Financial Statements), which were exchanged for $110 million of 10 7/8% Series B Notes due 2004 (the "Notes") in connection with the Company's exchange offer in October 1997. The Notes bear interest at a rate of 10 7/8% per annum payable semi-annually on each February 1 and August 1. The Notes are senior,
unsecured obligations of the Company, ranking senior in right and priority of payment to all indebtedness of the Company that by its terms is expressly subordinated to the Notes. The Notes are jointly and severally guaranteed by substantially all of the Company's wholly-owned U.S. subsidiaries. The Notes will be redeemable, in whole or in part, at the option of the Company, at any time on or after August 1, 2001, at redemption prices of 105.438% in fiscal year 2001, 102.719% in fiscal year 2002, and 100.000% in fiscal year 2003 and thereafter, plus accrued and unpaid interest, if any, to the date of redemption. In addition, at any time prior to August 1, 2000, the Company may, at its option, redeem up to 35% of the aggregate principal amount of the Notes originally issued with the net cash proceeds of one or more public equity offerings, as defined, at a redemption price equal to 110.875% of the principal amount to be redeemed plus accrued and unpaid interest to the date of redemption, if any, provided, however, that at least 65% of the original aggregate principal amount of the Notes remains outstanding immediately after any such redemption. The indenture governing the Notes contains certain covenants that, among other things, limit the ability of the Company and its restricted subsidiaries, as defined, to incur additional indebtedness, create certain liens, pay dividends, consummate certain asset sales, enter into certain transactions with affiliates and merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company. The net proceeds from the offering, after deducting fees and expenses of approximately $4.9 million, were approximately $105.1 million, of which approximately $93.6 million was used to repay $91.4 million of indebtedness and $2.2 million of accrued interest under the Company's previously existing senior bank credit facility (the "Senior Facility"). In addition, approximately $4.1 million of the net proceeds were used to repurchase, at a discount, Subordinated Debentures totaling $5.0 million plus accrued interest and fees (see Note 7 to the Consolidated Financial Statements). The balance of the net proceeds was used for general corporate purposes.
In connection with the issuance of the Notes, the Company also entered into a new revolving credit facility (the "Facility") with certain lenders which matures in February 2001. The Facility provides for borrowings of up to $25 million, with a $15 million sublimit for letters of credit, subject to compliance with certain covenants. The Facility requires mandatory commitment reductions upon the occurrence of certain events, including asset sales and the incurrence of certain indebtedness, in each case, in excess of specified thresholds. In addition, the Company may make optional prepayments and commitment reductions. Borrowings under the Facility are available for working capital and general corporate purposes and will bear interest at the Base Rate (as defined) plus a margin ranging from 1.00% to 1.75% per annum, or the Eurodollar Rate (as defined) plus a margin ranging from 2.00% to 2.75% per annum, in each case depending on the Company's performance as measured by the ratio of debt (as defined) to EBITDA (as defined). Fees will be payable on outstanding letters of credit equal to the applicable Eurodollar Rate margin (2.5% as of October 31, 1997), plus a facing fee of 1/8% per annum. A commitment fee of 1/2% per annum is payable on the unused amount of the Facility. Obligations under the Facility are jointly and severally guaranteed by substantially all of the Company's U.S. subsidiaries. In addition, the Facility is 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. The Facility contains certain covenants which limit the ability of the Company to incur additional indebtedness; create liens; make restricted payments, including dividends; engage in mergers, consolidations and asset sales; make acquisitions, investments and capital expenditures; and engage in certain transactions with certain subsidiaries and affiliates, in each case beyond certain thresholds. The Facility also requires compliance with certain financial covenants, including maintenance of minimum EBITDA and interest coverage levels, and a maximum debt to EBITDA ratio. Although there were no borrowings outstanding under the Facility at October 31, 1997, approximately $1.9 million of letters of credit, including $1.5 million issued in connection with the sale of the European lottery business are guaranteed under the new Facility. As of October 31, 1997, the Company had approximately $23.1 million available for borrowing under the Facility.
At October 31, 1997, the Company's available cash and borrowing capacity totaled $41.3 million compared to $6.0 million at October 31, 1996. Net cash provided by operating activities was $23.7 million for the year ended October 31, 1997. Utilizing $7.5 million of cash provided by operating activities, the Company invested principally in contract expenditures and software systems development. The balance of the cash provided by
operating activities of $16.2 million, together with approximately $20.8 million of cash proceeds from the sale of the European lottery business and the cash balance on hand at the business unit at the closing of the sale, plus $1.0 million of proceeds from the sale of common stock, were used to reduce borrowings by $32.5 million under the Company's Senior Facility prior to the refinancing and by $0.9 million on other long-term loans.
As described in Note 7 to the Consolidated Financial Statements, the Company had $23.1 million of cash borrowing availability under the Facility at October 31, 1997. 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 should provide sufficient liquidity to meet scheduled interest payments and anticipated capital expenditures during the next twelve months. The Company believes that additional financing will be required thereafter for capital expenditures and to enable it to meet its debt service obligations, including principal payments under the Notes, the Facility and the Subordinated Debentures.
The Company has been awarded a contract to service the Connecticut Lottery and expects to finance its obligations under the contract to provide approximately 3,200 lottery terminals by entering into a long-term financing arrangement in fiscal 1998. There can be no assurance that the Company will be able to secure such financing with terms favorable to the Company. In the event the Company is unable to secure such financing, it will need to use either some of the Company's existing cash or cash available under the Facility.
EXTRAORDINARY ITEMS
In connection with the issuance of the Notes in the third quarter of fiscal 1997, and the subsequent repayment of all amounts outstanding under the Senior Facility (see Notes 7 and 8 to the Consolidated Financial Statements), the Company wrote-off $1.4 million of deferred financing fees associated with the Senior Facility. The Company also used a portion of the net proceeds from the offering of the Notes to repurchase $5.0 million of its Subordinated Debentures for $4.1 million, resulting in a $0.9 million gain on the early retirement of this debt. There were no tax benefits recognized on the net extraordinary loss because the Company is currently in a tax loss carryforward position.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). This statement simplifies the standards for computing earnings per share ("EPS") and makes them comparable to international EPS standards. It replaces the presentation of primary EPS with a presentation of basic EPS and requires dual presentation of basic and diluted EPS on the face of the income statement of all entities with complex capital structures. SFAS 128 also requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. The Company intends to implement SFAS 128, as required, in fiscal 1998.
Since the Company has experienced net losses in fiscal years 1997, 1996 and 1995, stock options and stock warrants are anti-dilutive. Therefore, they have been and would continue to be excluded from the denominator of the earnings per common share calculation as reported in the accompanying financial statements and as contemplated under SFAS 128. Earnings per common share in fiscal years 1997, 1996 and 1995 as computed under SFAS 128 are thus equal to earnings per share as presented in the accompanying financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131").
SFAS 130 establishes standards for the reporting and display of comprehensive income in the financial statements. Comprehensive income is the total of net income and all other non-owner changes in equity. SFAS 131 requires that companies disclose segment data based on how management makes decisions about allocating resources to segments and measuring their performance. SFAS 130 and 131 are effective for fiscal 1998.
Adoption of these standards is expected to result in additional disclosures, but will not have an effect on the Company's financial position or results of operations.
In October 1997, the American Institute of Certified Public Accountants issued Statement of Position 97-2, "Software Revenue Recognition" (the "SOP"). The SOP established criteria for recognizing revenue in certain software sales arrangements. The SOP is effective for fiscal year 1998 and will be adopted by the Company on a prospective basis. The Company does not expect the SOP to have a significant effect on the Company's financial position or results of operations.
YEAR 2000
The Company is in the process of evaluating the effect of modifying computer software systems to accommodate year 2000 transactions. These modifications may result in additional programming expenses, but as the majority of the Company's wagering systems are designed to process transactions that are settled on a daily basis, it is expected that these added expenses will not significantly affect the Company's financial position or operating results.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
AUTOTOTE CORPORATION AND SUBSIDIARIES
FORM 10-K
(PAGE)
---------
Independent Auditors' Report......................................... 27
Consolidated Financial Statements:
Balance Sheets as of October 31, 1997 and 1996..................... 28
Statements of Operations for the years ended October 31, 1997, 1996
and 1995.......................................................... 29
Statements of Stockholders' Equity (Deficit) for the years ended
October 31, 1997, 1996 and 1995................................... 30
Statements of Cash Flows for the years ended October 31, 1997, 1996
and 1995.......................................................... 31
Notes to Consolidated Financial Statements........................... 33
Schedule:
II. Valuation and Qualifying Accounts.............................. 62
|
All other schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders Autotote Corporation:
We have audited the consolidated financial statements of Autotote Corporation and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Autotote Corporation and subsidiaries as of October 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three- year period ended October 31, 1997, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Short Hills, New Jersey
December 12, 1997
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1997 1996
--------- --------
ASSETS
Current assets:
Cash and cash equivalents............................... $ 18,207 5,988
Restricted cash......................................... 512 611
Accounts receivable, net of allowance for doubtful ac-
counts of $1,976 and $2,053 in 1997 and 1996, respec-
tively................................................. 13,560 18,257
Inventories............................................. 6,653 5,780
Unbilled receivables.................................... -- 6,901
Prepaid expenses, deposits and other current assets..... 2,276 3,131
--------- --------
Total current assets.................................. 41,208 40,668
--------- --------
Property and equipment, at cost........................... 180,170 186,249
Less accumulated depreciation........................... 103,781 90,369
--------- --------
Net property and equipment............................ 76,389 95,880
--------- --------
Goodwill, net of amortization............................. 5,916 21,024
Operating right, net of amortization...................... 15,848 16,848
Other assets and investments.............................. 14,180 22,373
--------- --------
$ 153,541 196,793
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt.................. $ 2,609 9,234
Accounts payable........................................ 8,698 14,242
Accrued liabilities..................................... 24,092 20,057
Income taxes payable.................................... 319 379
--------- --------
Total current liabilities............................. 35,718 43,912
--------- --------
Deferred income taxes..................................... 2,551 7,675
Other long-term liabilities............................... 1,264 5,612
Long-term debt, excluding current installments............ 112,248 119,790
Long-term debt, convertible subordinated debentures....... 35,000 40,000
--------- --------
Total liabilities..................................... 186,781 216,989
--------- --------
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, 35,335 and 31,474 shares outstanding
at October 31, 1997 and 1996, respectively............. 354 315
Class B non-voting common stock, par value $0.01 per
share, 700 shares authorized, none outstanding......... -- --
Additional paid-in capital.............................. 148,238 143,369
Accumulated losses...................................... (181,351) (163,664)
Treasury stock, at cost................................. (102) (102)
Currency translation adjustment......................... (379) (114)
--------- --------
Total stockholders' equity (deficit).................. (33,240) (20,196)
--------- --------
Commitments and contingencies (Notes 7, 9, 12 and 13)..... $ 153,541 196,793
========= ========
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See accompanying notes to consolidated financial statements.
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1997 1996 1995
-------- ------- -------
Operating revenues:
Services......................................... $132,989 137,794 132,260
Sales............................................ 24,343 38,441 20,924
-------- ------- -------
157,332 176,235 153,184
-------- ------- -------
Operating expenses (exclusive of depreciation and
amortization shown below):
Services......................................... 79,488 85,742 78,569
Sales............................................ 15,396 25,864 15,661
-------- ------- -------
94,884 111,606 94,230
-------- ------- -------
Total gross profit............................. 62,448 64,629 58,954
Selling, general and administrative expenses....... 29,452 32,853 36,540
Gain on sale of business........................... (1,823) -- --
Restructuring and write-off of assets.............. -- (649) 18,241
Depreciation and amortization...................... 36,728 40,853 35,463
-------- ------- -------
Operating loss................................. (1,909) (8,428) (31,290)
Other deductions:
Interest expense................................. 14,367 14,837 16,362
Litigation settlement............................ -- 6,800 --
Other (income) expense........................... 79 1,687 (436)
-------- ------- -------
14,446 23,324 15,926
-------- ------- -------
Loss before income tax expense and extraordinary
item............................................ (16,355) (31,752) (47,216)
Income tax expense................................. 906 2,443 2,673
-------- ------- -------
Loss before extraordinary item................... (17,261) (34,195) (49,889)
Extraordinary item--write-off of deferred financing
fees and expenses, net of gain on early retirement
of subordinated debt.............................. (426) -- --
-------- ------- -------
Net loss......................................... $(17,687) (34,195) (49,889)
======== ======= =======
Loss per common share:
Loss per common share before extraordinary item.. $ (0.50) (1.09) (1.72)
Extraordinary loss per common share.............. (0.01) -- --
-------- ------- -------
Loss per common share............................ $ (0.51) (1.09) (1.72)
======== ======= =======
Weighted average number of common shares
outstanding....................................... 34,469 31,305 28,965
======== ======= =======
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See accompanying notes to consolidated financial statements.
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
ADDITIONAL CURRENCY TOTAL
COMMON PAID-IN ACCUMULATED TREASURY TRANSLATION STOCKHOLDERS'
STOCK CAPITAL LOSSES STOCK ADJUSTMENT EQUITY (DEFICIT)
------ ---------- ----------- -------- ----------- ----------------
Balance, October 31,
1994................... $288 134,864 (79,580) -- 149 55,721
Exercise of stock
options................ 2 439 -- (235) -- 206
Issuance of Class A
common stock, net of
issuance expenses...... 16 4,521 -- -- -- 4,537
Exercise of warrants.... -- 60 -- (60) -- --
Deferred compensation... -- 166 -- -- -- 166
Currency translation
adjustment............. -- -- -- -- 1,116 1,116
Net loss................ -- -- (49,889) -- -- (49,889)
---- ------- -------- ---- ------ -------
Balance, October 31,
1995................... 306 140,050 (129,469) (295) 1,265 11,857
Issuance of Class A
common stock, net of
issuance expenses...... 9 1,961 -- 193 -- 2,163
Issuance of warrants in
lieu of cash........... -- 1,012 -- -- -- 1,012
Deferred compensation... -- 346 -- -- -- 346
Currency translation
adjustment............. -- -- -- -- (1,379) (1,379)
Net loss................ -- -- (34,195) -- -- (34,195)
---- ------- -------- ---- ------ -------
Balance, October 31,
1996................... 315 143,369 (163,664) (102) (114) (20,196)
Issuance of Class A
common stock, net of
issuance expenses...... 9 952 -- -- -- 961
Issuance of Class A
common stock in
litigation settlement.. 30 3,470 -- -- -- 3,500
Deferred compensation... -- 447 -- -- -- 447
Currency translation
adjustment............. -- -- -- -- (265) (265)
Net loss................ -- -- (17,687) -- -- (17,687)
---- ------- -------- ---- ------ -------
Balance, October 31,
1997................... $354 148,238 (181,351) (102) (379) (33,240)
==== ======= ======== ==== ====== =======
|
See accompanying notes to consolidated financial statements.
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
1997 1996 1995
-------- ------- -------
Cash flows from operating activities:
Net loss.......................................... $(17,687) (34,195) (49,889)
-------- ------- -------
Adjustments to reconcile net loss to cash provided
by operating activities:
Depreciation and amortization................... 36,728 40,853 35,463
Restructuring charges and asset write-offs, net
of cash payments............................... -- (649) 17,359
Change in deferred income taxes, net of effects
of businesses sold............................. (784) 1,868 854
Litigation settlement, net of cash payments..... -- 4,250 --
(Gain) loss on sales of assets.................. (1,823) 1,401 314
Non-cash interest charges....................... -- 636 1,564
Non-cash extraordinary items.................... 426 -- --
Changes in operating assets and liabilities, net
of effects of acquisitions/dispositions of sub-
sidiaries:
Restricted cash............................... 99 671 (649)
Accounts receivable........................... 1,339 1,977 6,576
Inventories................................... (1,585) 5,920 (4,276)
Unbilled receivables.......................... 2,553 (3,182) 2,264
Accounts payable.............................. (3,314) (1,834) (616)
Accrued liabilities........................... 5,125 (3,110) (2,578)
Other........................................... 2,641 262 1,604
-------- ------- -------
Total adjustments............................. 41,405 49,063 57,879
-------- ------- -------
Net cash provided by operating activities........... 23,718 14,868 7,990
-------- ------- -------
Cash flows from investing activities:
Capital expenditures.............................. (2,262) (2,103) (9,990)
Wagering systems expenditures..................... (5,226) (7,138) (8,150)
Increase in other assets and investments.......... (2,336) (3,007) (13,262)
Purchase of companies, net of cash acquired....... -- -- (14,400)
Proceeds from sale of business and assets, net of
cash transferred................................. 21,056 4,684 1,000
Other............................................. (351) (325) 988
-------- ------- -------
Net cash provided by (used in) investing activi-
ties............................................... 10,881 (7,889) (43,814)
-------- ------- -------
Cash flows from financing activities:
Net repayments under lines of credit.............. -- -- (250)
Net borrowings (repayments) under revolving credit
facility......................................... (71,890) 2,610 27,832
Proceeds from issuance of long-term debt, net of
financing fees................................... 106,334 2,550 4,198
Payments on long-term debt........................ (57,395) (10,829) (2,367)
Net proceeds from issuance of common stock........ 961 -- 4,495
-------- ------- -------
Net cash provided (used) by financing activities.... (21,990) (5,669) 33,908
-------- ------- -------
Effect of exchange rate changes on cash............. (390) (313) 797
-------- ------- -------
Increase (decrease) in cash and cash equivalents.... 12,219 997 (1,119)
Cash and cash equivalents, beginning of year........ 5,988 4,991 6,110
-------- ------- -------
Cash and cash equivalents, end of year.............. $ 18,207 5,988 4,991
======== ======= =======
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(Continued)
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
NON-CASH INVESTING AND FINANCING ACTIVITIES
1997
See notes 7, 8, 9 and 11 for a description of the gain on early retirement of subordinated debt, the write-off of deferred financing fees, capital lease transactions and the issuance of common stock in settlement of a stockholder litigation.
1996 and 1995
See notes 7, 9, 11 and 12 for a description of the issuance of shares of common stock in lieu of cash for interest payments, capital lease transactions, the exchange of services for common stock and, in 1995, the exchange of stock options for Performance Accelerated Restricted Stock.
Supplemental cash flow information
Cash paid during the year for:
OCTOBER 31,
---------------------
1997 1996 1995
------- ------ ------
Interest............................................... $10,199 14,318 12,504
Income taxes........................................... $ 938 2,291 3,260
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See accompanying notes to consolidated financial statements.
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of the Business
Autotote Corporation (the "Company") is the leading provider of computerized pari-mutuel wagering systems to the North American Racing Industry and is the exclusive licensed operator of substantially all OTBs in the State of Connecticut. The Company is also a leading provider of computerized pari-mutuel systems worldwide, with systems in racetracks and OTBs in Europe, Central and South America, and Asia- Pacific. In addition, the Company is the leading provider of Racing Industry simulcasting services in the United States through its broadcasting of live racing events via satellite to other racetracks and OTBs. The Company also provides technologically advanced VGMs to the North American Racing Industry for use at racetracks, as well as lottery systems and equipment both in the United States and internationally.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and subsidiaries in which the Company's ownership is greater than 50%. Investments in other entities where the Company has the ability to exercise significant influence over the investee are accounted for principally on the equity basis. Under the equity method, investments are stated at cost plus the Company's equity in undistributed earnings after acquisition. All significant inter-company balances and transactions have been eliminated in consolidation.
(c) Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an original maturity at the date of purchase of three months or less to be cash equivalents.
(d) Restricted Cash
Restricted cash represents amounts on deposit by customers for TeleBet wagering. State regulations require the Company to maintain such balances until deposited amounts are wagered or returned to the customer.
(e) Inventories
Inventories are stated at the lower of cost or market. Cost is determined as follows:
ITEM COST METHOD
---- -----------
Parts................... First-in, first-out or weighted moving average.
Work-in-process &
Finished goods......... Specific identification or weighted moving average
for direct material and labor; other fixed and
variable production costs are allocated as a
percentage of direct labor cost.
Ticket paper............ First-in, first-out.
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The Company adjusts inventory accounts on a periodic basis to reflect the impact of potential obsolescence.
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(f) Unbilled Receivables
Unbilled receivables represent costs and related earnings in excess of payments made by customers.
(g) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets as follows:
ESTIMATED LIFE
ITEM IN YEARS
---- --------------
Machinery and equipment................................... 3-10
Buildings................................................. 15-40
Transportation............................................ 3-7
Furniture and fixtures.................................... 5-10
Building and leasehold improvements....................... 5-30
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Depreciation expense includes the amortization of capital leased assets.
(h) Deferred Installation Costs
Certain installation costs consisting of installation materials, customer contracted software and installation labor associated with leased systems are deferred and amortized over the lives of the leases unless such costs are reimbursed by the lessee, in which case such amounts are included in revenue and cost of sales. Deferred installation costs, net of accumulated depreciation, included in property and equipment were approximately $4,904 and $7,034 at October 31, 1997 and 1996, respectively.
(i) Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net assets of acquired companies. The excess of costs over net assets acquired arising from the Company's acquisition of its North American lottery business, French pari-mutuel wagering business, and simulcasting business is being amortized on a straight-line basis over five years. The excess of costs over net assets acquired for its German pari-mutuel wagering business is being amortized on a straight-line basis over 10 years. The excess of costs over net assets acquired for the European lottery business (which was sold in April 1997) was being amortized on a straight-line basis over 7 years. Total goodwill amounted to $5,916 and $21,024 net of accumulated amortization of $7,904 and $13,822 as of October 31, 1997 and 1996, respectively.
The Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future cash flows of the acquired operation and other considerations. The amount of impairment of goodwill, if any, is measured based on projected discounted future cash flows.
(j) Operating Right
On July 1, 1993, the Company acquired the exclusive right to operate the Connecticut off-track betting system. This operating asset is being amortized on a straight-line basis over twenty years and amounted to $15,848 and $16,848 net of accumulated amortization of $4,357 and $3,357 at October 31, 1997 and 1996, respectively.
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(k) Other Assets and Investments
The Company capitalizes costs associated with internally developed and/or purchased software systems for new products and enhancements to existing products that meet technological feasibility and recoverability tests. The Company also capitalizes costs associated with the procurement of long- term financing, and costs attributable to transponder leases, patents, trademarks, marketing rights, and non-competition and employment agreements arising primarily from business acquisitions. These capitalized costs are amortized on the straight-line basis over their useful lives.
(l) Revenue Recognition
Revenues from wagering system, simulcast and lottery service contracts are recognized over the contract period pursuant to the terms of the contracts. Costs of providing operating services under contracts are charged to earnings in the period incurred. Revenue from the operation of off-track betting concerns is recognized based on a percentage of amounts wagered.
Revenues from major contracts for the sale of wagering systems and revenues for contracted software development are recognized on the percentage of completion method of accounting based on the ratio of costs incurred to the total estimated costs. Any anticipated losses on fixed price contracts are charged to earnings when such losses can be estimated. The Company recognizes revenue from software licenses upon shipment if post-delivery obligations are insignificant and if the terms of the agreement are such that the payment obligation is non-cancelable and non- refundable. Revenue arising from the sale of component equipment and supplies is recognized when shipped.
(m) Income Taxes
Income taxes are calculated using the asset and liability method under Statement of Financial Accounting Standard (SFAS) No. 109. Under this method, deferred income taxes are calculated by applying enacted statutory tax rates to cumulative temporary differences between financial statement carrying amounts and the tax basis of existing assets and liabilities. Under SFAS 109, the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
(n) Loss Per Common Share
Loss per common share is based on the weighted average number of shares of common stock outstanding during the period. Common stock equivalents are not included in the calculation of loss per share since their inclusion would be anti-dilutive.
(o) Foreign Currency Translation
Assets and liabilities of foreign operations are translated at year-end rates of exchange and operations are translated at the average rates of exchange for the year. Gains or losses resulting from translating the foreign currency financial statements are accumulated as a separate component of stockholders' equity (deficit). Gains or losses resulting from foreign currency transactions are included in other income (deductions) in the consolidated statements of operations.
(p) Stock-Based Compensation
Stock-based compensation is recognized using the intrinsic value method. For disclosure purposes, pro forma net income and earnings per share data are provided in accordance with Financial
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" as if the fair value method had been applied.
(q) Financial Statement Preparation
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates being made involve percentage of completion for contracted software development projects, capitalization of software development costs, evaluation of the recoverability of assets and assessment of litigation and contingencies, including income and other taxes. Actual results could differ from those estimates.
(r) Reclassification
Certain reclassifications have been made to the prior years consolidated financial statements to conform to the current presentation.
(2) ACQUISITIONS AND DISPOSITIONS
Sale of 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 remains outstanding under the letter of credit which reduces to zero in specified amounts and on specified dates through October 1998. The Company recorded a gain on the sale of its European lottery business in the amount of $1,823 in fiscal 1997.
Under the terms of the sale, the purchaser has the right to license and purchase the Company's terminals for use in lottery applications. Also under the agreement, the purchaser has the right of first refusal to purchase the Company's remaining lottery business. The Company, however, has no plans to sell this business at the present time and remains committed to serving the North American lottery market and its existing customers.
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 fiscal years ended October 31, 1997 and 1996. Interest and income tax expenses have not been included in the table below.
YEAR ENDED
OCTOBER 31,
--------------
1997 1996
------ ------
Operating revenue............................................ $6,119 27,126
Operating expenses, including selling, general and
administrative expenses, and depreciation and amortization
expenses.................................................... 6,181 25,877
------ ------
Operating (loss) income...................................... $ (62) 1,249
====== ======
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AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(2) ACQUISITIONS AND DISPOSITIONS--(CONTINUED)
Acquisitions
In January 1995, the Company acquired substantially all of the assets of the Simulcast Division of LDDS Corporation and the rights and obligations under leases relating to eight C-band satellite transponders for a purchase price of approximately $13,700 in cash. The excess of the purchase price over the estimated fair values of the net assets acquired was approximately $5,300, and has been recorded as goodwill which is being amortized over 5 years.
On November 1, 1994, the Company acquired 80% of the outstanding capital stock of the holding company of SEPMO S.A., ("SEPMO"), a French supplier of wagering systems and services to the French pari-mutuel network and other customers, for cash of approximately $281, plus acquisition related costs. In addition to the purchase consideration, the Company concurrently advanced the SEPMO holding company approximately $2,000 for purposes of repaying certain convertible debt and purchasing the minority holdings in certain subsidiary companies. The remaining 20% of the capital stock of the holding company of SEPMO was purchased in fiscal 1996 for approximately $600. The excess of the purchase price plus acquisition related costs over the estimated fair values of the net assets acquired was approximately $3,200, and has been recorded as goodwill which is being amortized over 5 years.
The acquisitions have been accounted for by the purchase method of accounting, and accordingly, the purchase price has been allocated to the assets acquired based on estimates of fair values at the date of acquisition. The operating results of these acquisitions are included in the Company's consolidated results of operations from the respective dates of the acquisitions.
(3) INVENTORIES
Inventories consist of the following:
OCTOBER 31,
------------
1997 1996
------ -----
Parts........................................................... $5,261 3,295
Work-in-process................................................. 501 909
Finished goods.................................................. 244 1,028
Ticket paper.................................................... 647 548
------ -----
$6,653 5,780
====== =====
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Work-in-process includes costs for equipment expected to be sold. Costs incurred for equipment associated with specific wagering system contracts not yet placed in service are classified as construction in progress in property and equipment (see Note 4).
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(4) PROPERTY AND EQUIPMENT
Property and equipment, including assets under capital leases, consist of the following:
OCTOBER 31,
----------------
1997 1996
-------- -------
Machinery, equipment and deferred installation costs....... $153,852 156,816
Land and buildings......................................... 14,379 14,967
Transportation equipment................................... 355 414
Furniture and fixtures..................................... 3,083 4,739
Leasehold improvements..................................... 4,523 4,621
Construction in progress................................... 3,978 4,692
-------- -------
$180,170 186,249
======== =======
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Depreciation expense for the years ended October 31, 1997, 1996, and 1995 amounted to $21,790, $23,632, and $19,208, respectively.
For financial reporting purposes, at October 31, 1997 and 1996, costs for equipment associated with specific wagering systems contracts not yet placed in service are recorded as construction in progress. When the equipment is placed in service at wagering facilities, the related costs are transferred from construction in progress to machinery and equipment.
(5) OTHER ASSETS AND INVESTMENTS
Other assets and investments (net) consist of the following:
OCTOBER 31,
--------------
1997 1996
------- ------
Software systems development costs............................ $ 4,596 12,132
Deferred financing costs...................................... 4,823 2,056
Deferred transponder costs.................................... 1,406 2,531
Other intangible assets....................................... 885 921
Other assets.................................................. 2,470 4,733
------- ------
$14,180 22,373
======= ======
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In 1997 and 1996, excluding costs related to the Company's European lottery business, the Company capitalized $1,513 and $524, respectively, of costs related primarily to the development of video gaming and pari-mutuel terminal applications. Capitalized costs are amortized on a straight-line basis over a period of five years. Amortization of capitalized software systems development costs was $4,962, $5,417 and $4,274 for the years ended October 31, 1997, 1996 and 1995, respectively.
Deferred financing costs relate to those costs associated with the procurement of long term financing by the Company. Such costs are amortized over the life of the financing agreements. In 1997, the Company capitalized $5,411 in deferred financing fees, including $4,160 in deferred financing fees and expenses related to the sale of the Notes. The Company also wrote-off, as an extraordinary charge, $1,376 of previously deferred financing costs in connection with the Company's repayment of its prior Senior Facility. Amortization of deferred financing costs amounted to $1,268, $1,654 and $785 for the fiscal years ended October 31, 1997, 1996 and 1995, respectively.
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(5) OTHER ASSETS AND INVESTMENTS--(CONTINUED)
Deferred transponder costs arose in connection with the acquisition of the Company's simulcasting business and are being amortized over a four year period. Amortization expense amounted to $1,125, $1,125 and $844, for the years ended October 31, 1997, 1996 and 1995, respectively.
(6) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
OCTOBER 31,
--------------
1997 1996
------- ------
Compensation and benefits..................................... $ 7,325 6,600
Taxes, other than income...................................... 1,778 1,367
Interest...................................................... 3,759 647
Other......................................................... 11,230 11,443
------- ------
$24,092 20,057
======= ======
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(7) LONG-TERM DEBT
Long-term debt consists of the following:
OCTOBER 31,
----------------
1997 1996
-------- -------
10 7/8% Series B Senior Notes Due 2004.................... $110,000 --
Revolver and Term Loans-prior Senior Facility............. -- 123,890
5.5% convertible subordinated debentures due August 2001.. 35,000 40,000
Secured term loans payable monthly through June 2002,
interest at 8%........................................... 1,590 787
Capital lease obligations, payable monthly through January
2000, interest from 7.93% to 12.0%....................... 893 1,516
Term Loan due in November 1999, interest at 8%............ 1,250 1,250
Various loans and bank facilities, interest from 5% to
11%...................................................... 1,124 1,581
-------- -------
Total long-term debt.................................... 149,857 169,024
Less current installments............................... 2,609 9,234
-------- -------
Long-term debt, excluding current installments.......... $147,248 159,790
======== =======
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On July 28, 1997, the Company issued $110 million of 10 7/8% Senior Notes due August 1, 2004, which were exchanged for $110 million of 10 7/8% Series B Notes due 2004 (the "Notes") in connection with the Company's exchange offer in October 1997. The Notes bear interest at a rate of 10 7/8% per annum payable semi-annually on each February 1 and August 1. The Notes are senior, unsecured obligations of the Company, ranking senior in right and priority of payment to all indebtedness of the Company that by its terms is expressly subordinated to the Notes. The Notes are jointly and severally guaranteed by substantially all of the Company's wholly-owned U.S. subsidiaries (see Note 22). The Notes will be redeemable, in whole or in part, at the option of the Company, at any time on or after August 1, 2001, at redemption prices of 105.438% in fiscal year 2001, 102.719% in fiscal year 2002, and 100.000% in fiscal year 2003 and thereafter, plus accrued and unpaid interest, if any, to the date of redemption. In addition, at any time prior to August 1, 2000, the Company may, at its option, redeem up to 35% of the aggregate principal amount of the Notes originally issued with the net cash proceeds of one or more public equity offerings, as defined, at a redemption price equal to 110.875% of the principal amount to be redeemed plus accrued and unpaid interest to the date of redemption, if any, provided,
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(7) LONG-TERM DEBT--(CONTINUED)
however, that at least 65% of the original aggregate principal amount of the Notes remains outstanding immediately after any such redemption. The indenture governing the Notes contains certain covenants that, among other things, limit the ability of the Company and its restricted subsidiaries, as defined, to incur additional indebtedness, create certain liens, pay dividends, consummate certain asset sales, enter into certain transactions with affiliates and merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company. The net proceeds from the offering, after deducting fees and expenses of approximately $4,900 were approximately $105,100, of which approximately $93,590 was used to repay $91,390 of indebtedness and approximately $2,200 of accrued interest under the Company's previously existing senior bank credit facility (the "Senior Facility"). In addition, approximately $4,050 of the net proceeds were used to repurchase, at a discount, Subordinated Debentures plus accrued interest and fees. The balance of the net proceeds was used for general corporate purposes.
In connection with the issuance of the Notes, the Company also entered into a new revolving credit facility (the "Facility") with certain lenders which matures in February 2001. The Facility provides, subject to certain terms and conditions, for borrowings of up to $25,000 with a $15,000 sublimit for letters of credit. The Facility requires mandatory commitment reductions upon the occurrence of certain events, including asset sales and the incurrence of certain indebtedness, in each case, in excess of specified thresholds. In addition, the Company may make optional prepayments and commitment reductions. Borrowings under the Facility are available for working capital and general corporate purposes and will bear interest at the Base Rate (as defined) plus a margin ranging from 1.00% to 1.75% per annum, or the Eurodollar Rate (as defined) plus a margin ranging from 2.00% to 2.75% per annum, in each case depending on the Company's performance as measured by the ratio of debt (as defined) to EBITDA (as defined). Fees will be payable on outstanding letters of credit equal to the applicable Eurodollar Rate margin (2.5% as of October 31, 1997), plus a facing fee of 1/8% per annum. A commitment fee of 1/2% per annum is payable on the unused amount of the Facility. Obligations under the Facility are jointly and severally guaranteed by substantially all of the Company's U.S. subsidiaries. In addition, the Facility is 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. The Facility contains certain covenants which limit the ability of the Company to incur additional indebtedness; create liens; make restricted payments, including dividends; engage in mergers, consolidations and asset sales; make acquisitions, investments and capital expenditures; and engage in certain transactions with certain subsidiaries and affiliates, in each case beyond certain thresholds. The Facility also requires compliance with certain financial covenants, including maintenance of minimum EBITDA and interest coverage levels, and a maximum debt to EBITDA ratio. Although there were no borrowings outstanding under the Facility at October 31, 1997, approximately $1,900 of letters of credit were guaranteed under the Facility, including $1,500 issued in connection with the sale of the European lottery business. As of October 31, 1997, the Company had approximately $23,100 available for borrowing under the Facility.
The Company's prior senior bank credit facility (the "Senior Facility") at October 31, 1996, after giving effect to a January 29, 1997 amendment and the April 15, 1997 sale of the European lottery business, provided for: 1) a $55,000 term loan (the "A Term Loan"), of which $51,000 was outstanding at October 31, 1996, which required principal repayments of $7,000 in fiscal 1997 with the balance of $44,000 due in fiscal 1998; 2) a $5,000 term loan (the "B Term Loan"), of which $1,000 was outstanding at October 31, 1996, which matured April 30, 1997, and 3) a $75,000 revolving credit facility (the "Revolver") which was to mature July 31, 1998. The outstanding balance under the Revolver was $71,890 at October 31, 1996. Interest on borrowings under the Senior Facility was calculated at the Prime lending rate plus a margin of 0.75%. A commitment fee of 0.5% per
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(7) LONG-TERM DEBT--(CONTINUED)
year was payable on the unused amount under the Revolver. A letter of credit fee equal to 2.75% plus a facing fee of 1/8 of 1% per year was payable on each letter of credit issued. In fiscal 1997, prior to the issuance of the Notes and entering into the Facility, utilizing the net proceeds from operations and the April 15, 1997 sale of the European lottery business, the Company made the required $1,000 payment under the B Term Loan, a $21,000 payment under the A Term Loan, and net repayments of $10,500 under the Revolver.
The 5.5% convertible subordinated debentures due 2001 (the "Debentures") are convertible into 1,750 shares of Class A Common Stock at a conversion price of $20.00 per share.
Upon consummation of the issuance of the Notes, the Company used a portion of the proceeds to repurchase $5,000 aggregate principal amount of the Debentures for $4,050 plus accrued interest, resulting in a $950 gain on early retirement (see Note 8).
On November 6, 1995, the Company entered into a Letter Agreement (the "1995 Letter Agreement") with holders of the Debentures whereby the holders agreed to accept 936 unregistered shares of the Company's Class A Common Stock in lieu of cash for the August 1995 and February 1996 interest payments totaling $2,200, plus demand and piggy-back registration rights with respect to the unregistered shares.
The aggregate maturities of long-term debt for the next five fiscal years and thereafter are as follows: 1998, $2,609; 1999, $1,109; 2000, $609; 2001, $35,310; 2002, $143; and thereafter, $110,077.
(8) EXTRAORDINARY ITEMS
In connection with the issuance of the Notes and the subsequent repayment of all amounts outstanding under the Senior Facility (see Note 7), the Company wrote-off $1,376 of deferred financing fees associated with the Senior Facility. The Company also used a portion of the net proceeds from the offering of the Notes to repurchase $5,000 of its Subordinated Debt for $4,050, resulting in a $950 gain on the early retirement of this debt. There were no tax benefits recognized on the net extraordinary loss because the Company is currently in a tax loss carryforward position.
(9) LEASES
At October 31, 1997, the Company was obligated under operating leases
covering office equipment, office space, transponders and transportation
equipment expiring at various dates through 2006. Future minimum lease payments
required under these leasing arrangements at October 31, 1997 are as follows:
1998, $8,134, 1999, $3,666; 2000, $1,371; 2001, $619; 2002, $399; and thereafter
$432. The Company also leases equipment as needed under various month-to-month
lease agreements. Total rental expense under these operating leases was $8,890,
$10,183 and $7,715 in the years ended October 31, 1997, 1996 and 1995,
respectively.
The Company entered into capital leases obligations of $141 and $1,023 during the years ended October 31, 1997 and 1995, respectively. There were no new capital leases in fiscal 1996.
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by reference to market data and other valuation techniques as appropriate. The Company believes the fair value of its financial instruments, principally cash and cash equivalents, restricted cash, accounts receivable, other current assets, accounts payable, and accrued liabilities approximates their recorded values.
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
Due to the recent issuance of the Notes the Company believes that the fair value of the Notes approximates their recorded value. The Company was, however, unable to determine the fair market value of its Senior Facility in fiscal 1996 and the Debentures in fiscal years 1997 and 1996.
(11) CAPITAL STOCK
The Company has two classes of common stock consisting of Class A Common Stock and Class B Non-voting Common Stock (Class B Common Stock). All shares of Class A Common Stock and Class B Common Stock entitle holders to the same rights and privileges except that the Class B Common Stock is non-voting. Each share of Class B Common Stock is convertible into one share of Class A Common Stock.
During 1997, the Company issued 2,964 shares of Class A Common Stock in settlement of its stockholder litigation and issued 798 shares of Class A Common Stock under an employee stock purchase offer. During 1996, the Company issued 17 shares of Class A Common Stock in settlement of a PARS obligation (see Note 12). During 1995, the Company issued 12 and 15 shares of unregistered Class A Common Stock in exchange for early termination of a services contract and in payment for services provided to the Company in relation to its simulcasting business, respectively.
In November 1995, the Company entered into an Agreement with holders of its 5.5% Convertible Subordinated Debentures whereby the holders would receive unregistered shares of Class A Common Stock in lieu of cash for interest payments due in August 1995 and February 1996 in the amount of $1,100 each. Accordingly, the Company issued 936 shares in fiscal 1996 (see Note 7).
Warrants
At October 31, 1997, the Company had the following warrants outstanding, including adjustments made in accordance with certain anti-dilution provisions:
EXERCISE
SHARES PRICE EXPIRATION
------ -------- ----------------
Warrants to purchase Class A
Common Stock:
1991 Warrants............. 2,308 $1.64 October 31, 1999
1995 Warrants............. 387 $2.98 April 30, 2000
1996 Warrants............. 525 $1.25 April 20, 1998
-----
Total Class A Common
Stock Warrants......... 3,220
=====
Warrants to purchase Class B
Common Stock............... 147 $3.83 October 30, 2003
=====
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(12) STOCK OPTIONS
The Company has four stock option plans under which shares of Class A Common Stock have been authorized and are reserved for issuance to employees, officers and directors: the 1984 Stock Option Plan (the "1984 Plan")--1,350 shares; the 1992 Equity Incentive Plan (the "1992 Plan")--3,000 shares; the 1995 Equity Incentive Plan (the "1995 Plan")--4,000 shares, and the 1997 Incentive Compensation Plan (the "1997 Plan")--1,600 shares.
In May 1995, the Company offered holders of stock options with exercise prices above market value as of May 26, 1995 the right to cancel such options in exchange for Performance Accelerated Restricted Stock Units
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(12) STOCK OPTIONS--(CONTINUED)
(the "PARS"). The PARS represent deferred shares of Class A Common Stock which vest in 20% increments on the sixth, seventh, eighth, ninth and tenth anniversaries of the date of grant, or, in certain circumstances, on an accelerated basis based on the Company's stock trading at certain per share prices, or at the discretion of the Board of Directors. Options to purchase 1,976 shares were exchanged for 504 PARS. Additionally, deferred shares with a three year vesting schedule were granted to certain non-employee directors under the 1992 Plan as follows: A total of 135 deferred shares at a fair market value of $1.3125 per share were issued in fiscal 1997, a total of 50 deferred shares at a fair market value of $3.1875 per share were issued in fiscal 1996 and 110 deferred shares at a fair market value of $4.1250 per share were issued in fiscal 1995. Accordingly, the Company has recorded compensation expense of $449, $346 and $166 in fiscal 1997, 1996 and 1995, respectively. Additional compensation expense aggregating $1,447 will be charged to expense through fiscal 2005 as the deferred shares become fully vested.
Stock options granted under the Company's equity incentive plans are exercisable at not less than the fair market value of the stock at the date of grant, and none may be exercised more than 10 years from the date of grant. Options are generally exercisable in four equal installments on the first, second, third and fourth anniversaries of the date of grant. The Committee may, in its discretion, accelerate the exercisability, the lapsing of restrictions, or the expiration of deferral or vesting period of any award under the plans. From time to time, the Company grants additional stock options to individuals outside of the 1992, 1995 and 1997 Plans in recognition of contributions made to the Company.
Information with respect to the Company's stock options are as follows:
AVERAGE
STOCK OPTIONS SHARES PRICE (1)
------------- ------ ---------
Outstanding at October 31, 1994............................. 4,209 $10.27
Granted................................................... 634 6.77
Canceled.................................................. 156 15.86
Exchanged................................................. 1,887 15.51
Exercised................................................. 169 2.60
----- ------
Outstanding at October 31, 1995............................. 2,631 5.32
Granted................................................... 2,319 2.87
Canceled.................................................. 1,143 6.20
Exchanged................................................. 89 15.51
----- ------
Outstanding at October 31, 1996............................. 3,718 3.60
Granted................................................... 2,508 1.20
Canceled.................................................. 457 2.59
----- ------
Outstanding at October 31, 1997............................. 5,769 $ 2.63
===== ======
|
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(12) STOCK OPTIONS--(CONTINUED)
Summarized information about stock options outstanding and exercisable at October 31, 1997 is as follows:
OUTSTANDING EXERCISABLE
--------------------------------- ---------------------
EXERCISABLE AVERAGE AVERAGE AVERAGE
PRICE RANGE SHARES LIFE(1) PRICE(2) SHARES PRICE(2)
----------- ------ ------- -------- ------ --------
$1.00 to 2.00 2,365 8.68 $1.12 270 $1.55
$2.01 to 3.00 1,975 7.34 2.70 862 2.58
$3.01 to 4.00 1,055 6.14 3.39 804 3.45
over $4.00 374 5.54 9.73 365 9.71
----- -----
5,769 2,301
===== =====
|
The number of shares and weighted average price of options exercisable at October 31, 1997, 1996 and 1995 were 2,301 shares at $3.90, 1,950 shares at $4.10, and 1,788 shares at $4.54, respectively. At October 31, 1997, 1996 and 1995, 3,677 shares, 2,228 shares and 3,383 shares, respectively, were available for future grants under the terms of these plans. Outstanding options expire prior to October 31, 2007, and are exercisable at prices ranging from $1.06 to $17.00 per share.
Effective November 1, 1996, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). This statement defines a fair value method of accounting for an employee stock option or similar equity instrument. However, it allows an entity to continue to measure compensation cost for those instruments using the intrinsic-value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" provided it discloses the effect of SFAS 123 in footnotes to the financial statements. The Company has chosen to continue to account for stock- based compensation using the intrinsic value method. Accordingly, no stock option related compensation expense has been recognized for its stock-based compensation plans. Had the Company, however, elected to recognize compensation cost based on fair value of the stock options at the date of grant under SFAS 123, such costs would have been recognized ratably over the vesting period of the underlying instruments and the Company's net loss and net loss per share would have increased to the pro forma amounts indicated in the table below.
Pro forma net loss and loss per common share for the years ended:
OCTOBER 31,
-----------------
1997 1996
-------- -------
Net Loss:
As reported............................................. $(17,687) (34,195)
Pro forma............................................... (19,182) (35,133)
Loss per common share:
As reported............................................. (0.51) (1.09)
Pro forma............................................... (0.56) (1.12)
|
Pro forma net loss reflects only options granted in 1996 and 1997. Therefore, the full impact of calculating compensation cost for stock options under SFAS 123 is not reflected in the pro forma net loss amounts presented above because compensation cost for options granted prior to November 1, 1995 is not considered.
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(12) STOCK OPTIONS--(CONTINUED)
The fair value of the options granted was estimated using the Black-Scholes option-pricing model based on the weighted average market price at date of grant of $1.20 in fiscal 1997 and $2.87 in fiscal 1996 and the following weighted average assumptions: risk-free interest rate of 6.1% for fiscal 1997 and 6.7% for fiscal 1996; expected option life of 7.0 years for fiscal 1997 and fiscal 1996; volatility of 81% for fiscal 1997 and fiscal 1996; and no dividend yield in either year. The average fair values of options granted during fiscal years 1997 and 1996 were $0.93 and $2.23, respectively.
(13) SERVICE CONTRACT ARRANGEMENTS
Service contracts for wagering systems in North America generally cover a five-year period and provide for substantial related services such as software, maintenance personnel, computer operators and certain operating supplies. Under such contracts, the Company retains ownership of all equipment located at the wagering facilities. The service contracts also provide for certain warranties covering operation of the equipment, machines, display equipment and central computing equipment. The breach of such warranties could result in significant liquidated damages. The equipment is placed at customer facilities under contracts generally providing for revenue based on the greater of a percentage of total amounts wagered or, if appropriate, a specified minimum.
Minimum annual payments expected to be received under service contracts in effect as of October 31, 1997 with specified minimums are as follows: 1998, $20,134; 1999, $16,040; 2000, $14,842; 2001, $11,511; 2002, $7,022; and thereafter $8,459.
(14) EXPORT SALES AND MAJOR CUSTOMERS
Sales to foreign customers amounted to $14,230, $11,119 and $9,860 in 1997, 1996 and 1995, respectively. No single customer represented more than 10% of revenues in any of these periods.
(15) PENSION PLANS
The Company has a defined benefit plan for union employees. Retirement benefits under the plan are based upon the number of years of credited service up to a maximum of thirty years for the majority of the employees. The Company's policy is to fund the minimum contribution permissible by the Internal Revenue Service.
The following are the components of pension expense related to the defined benefit plan:
1997 1996 1995
---- ---- ----
Service cost............................................... $ 67 62 63
Interest cost on projected benefit obligation.............. 97 89 82
Actual return on plan assets............................... (85) (19) (87)
Net amortization and deferral.............................. (8) (66) 16
---- --- ---
$ 71 66 74
==== === ===
|
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(15) PENSION PLANS--(CONTINUED)
The assets and obligations of the defined benefit plan at October 31, 1997 and 1996 are as follows:
1997 1996
------ -----
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$1,131 and $1,170 at October 31, 1997 and 1996,
respectively............................................... $1,498 1,349
------ -----
Projected benefit obligation for services rendered to date.. 1,498 1,349
Plan assets at fair value (invested in insurance company
general accounts guaranteed as to principal)............... 1,419 1,230
------ -----
Projected benefit obligation in excess of plan assets....... 79 119
------ -----
Funded status............................................... (79) (119)
Unrecognized net obligation................................. 46 52
Unrecognized prior service cost............................. 73 80
Unrecognized net loss....................................... 295 273
------ -----
Prepaid pension cost........................................ $ 335 286
====== =====
|
The accumulated benefit obligation represents the actuarial present value of benefits based upon the benefit multiplied by the participants' historical years of service.
The accumulated and projected benefit obligation for 1997 and 1996 were
calculated using the unit credit method and reflect the following assumptions:
discount rate of 7.25% in 1997 and 1996, with a long-term rate of return on
assets of 8% and 9% in 1997 and 1996, respectively.
In connection with its collective bargaining agreements, the Company participates with other companies in a defined benefit pension plan covering union employees. Payments made to the multi-employer plan were approximately $403, $204 and $187 during the years ended October 31, 1997, 1996 and 1995, respectively.
The Company has a 401K plan covering all employees who are not covered by a collective bargaining agreement. Company contributions to the plan are at the discretion of the Board of Directors. Pension expense for the years ended October 31, 1997, 1996 and 1995 amounted to approximately $760, $814 and $839, respectively. The Company has a 401K plan for all union employees which does not provide for Company contributions.
(16) MANAGEMENT INCENTIVE COMPENSATION
The Company has an incentive compensation plan for key management personnel based on business unit performance, overall performance of the Company and individual performance. Management incentive compensation expense amounted to $1,707, $439 and $1,157 in 1997, 1996 and 1995, respectively.
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(17) INCOME TAX EXPENSE (BENEFIT)
The consolidated loss before income tax expense (benefit) and extraordinary item, by domestic and foreign source, is as follows:
YEAR ENDED OCTOBER 31,
--------------------------
1997 1996 1995
-------- ------- -------
Domestic............................................................. $(14,367) (28,714) (45,966)
Foreign.............................................................. (1,988) (3,038) (1,250)
-------- ------- -------
Consolidated loss before income tax expense (benefit) and
extraordinary item................................................. $(16,355) (31,752) (47,216)
======== ======= =======
Income tax expense (benefit) consists of:
CURRENT DEFERRED TOTAL
------- -------- -----
1997 - Foreign.................................................... $ 938 (32) 906
====== ===== =====
1996 - Foreign.................................................... $ 575 1,868 2,443
====== ===== =====
1995 - Foreign.................................................... $1,819 854 2,673
====== ===== =====
|
Temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities that give rise to significant portions of the deferred tax liability (asset) relate to the following:
OCTOBER 31,
--------------
1997 1996
------ ------
CURRENT DEFERRED TAX LIABILITY (ASSET)
Accrued stockholder litigation costs...................................... $ -- (2,690)
Accrued vacation.......................................................... (654) (666)
Inventory reserve......................................................... (653) (670)
Other accrued liabilities................................................. (1,313) (1,240)
Reserve for doubtful accounts............................................. (533) (420)
------ ------
Current deferred tax asset.............................................. (3,153) (5,686)
Accrued foreign contract reserve.......................................... -- 2,833
------ ------
Current deferred tax asset, net......................................... (3,153) (2,853)
------ ------
|
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(17) INCOME TAX EXPENSE (BENEFIT)--(CONTINUED)
OCTOBER 31,
----------------
1997 1996
------- -------
NONCURRENT DEFERRED TAX LIABILITY (ASSET)
Intangible assets-difference in amortization periods... $ 1,020 881
Property and equipment differences in depreciation
methods............................................... 7,094 7,705
Other, net............................................. (781) 1,351
Interest charge, Domestic International Sales Corp..... 4,989 4,716
------- -------
Noncurrent deferred tax liability, net............... 12,322 14,653
------- -------
Net operating loss carryforward........................ (48,193) (41,498)
Foreign tax credit carryforward........................ (279) (474)
Alternative minimum tax credits........................ (184) (184)
Research and experimentation credits................... (135) (150)
------- -------
Noncurrent deferred tax asset........................ (48,791) (42,306)
Valuation allowance.................................... 42,173 38,181
------- -------
Noncurrent deferred tax asset, net................... (6,618) (4,125)
------- -------
Noncurrent deferred tax liability.................... 5,704 10,528
------- -------
Net deferred tax liability on balance sheet.......... $ 2,551 7,675
======= =======
|
The aggregate deferred tax assets before valuation allowance at October 31, 1997, and 1996 were $52,725 and $47,992, respectively. The aggregate deferred tax liabilities at October 31, 1997 and 1996 were $13,103 and $17,486, respectively.
The actual tax expense differs from the "expected" tax benefit (computed by applying the U.S. Federal corporate rate of 34% to loss before income taxes (benefit) and extraordinary item) as follows:
OCTOBER 31,
-------------------------
1997 1996 1995
------- ------- -------
Computed "expected" tax benefit................. $(5,561) (10,796) (16,053)
Increase (reduction) in income taxes resulting
from:
Unused net operating loss..................... 4,155 9,661 15,450
Foreign tax differential...................... 1,782 3,276 3,098
Other, net.................................... 530 302 178
------- ------- -------
$ 906 2,443 2,673
======= ======= =======
|
The Company has regular tax net operating loss carryforwards of approximately $1,794 that expire in 2005, $1,222 that expire in 2006, $954 that expire in 2008, $38,810 that expire in 2009, $40,777 that expire in 2010, $25,406 that expire in 2011, and $12,220 that expire in 2012.
The Company has minimum tax credit carryforwards (which can be carried forward indefinitely) of approximately $184, regular foreign tax credits of approximately $279 and research and experimentation credit carryforwards of approximately $135. Regular foreign tax credits of $279 expire in 1998. The research and experimentation credits expire from 1998 to 2003.
The net changes in the valuation allowance for deferred tax assets for the years ended October 31, 1997 and 1996 were increases of $3,992 and $13,808, respectively.
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(17) INCOME TAX EXPENSE (BENEFIT)--(CONTINUED)
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Because of tax losses in recent years, no deferred tax assets have been recorded.
Subsequently recognized tax benefits relating to the valuation allowance for deferred tax assets as of October 31, 1997 will be allocated as follows:
Income tax benefit that would be reported in the consolidated
statements of operations.......................................... $39,323
Additional capital (benefit from exercise of stock options)....... 2,850
-------
$42,173
=======
|
(18) BUSINESS AND GEOGRAPHIC SEGMENTS
The following tables represent revenues, profits, depreciation and assets by business and geographic segments for the years ended October 31, 1997, 1996 and 1995. Corporate expenses are allocated among industry and geographic segments.
YEAR ENDED OCTOBER 31,
--------------------------
1997 1996 1995
-------- ------- -------
BUSINESS SEGMENTS
Service revenue and product sales
Pari-mutuel operations......................... $134,226 128,439 127,336
Lottery operations............................. 23,106 47,796 25,848
-------- ------- -------
$157,332 176,235 153,184
======== ======= =======
Operating income (loss)
Pari-mutuel operations......................... $ (1,866) (10,293) (19,412)
Lottery operations............................. (43) 1,865 (11,878)
-------- ------- -------
$ (1,909) (8,428) (31,290)
======== ======= =======
Depreciation and amortization
Pari-mutuel operations......................... $ 28,413 31,068 26,861
Lottery operations............................. 8,315 9,785 8,602
-------- ------- -------
$ 36,728 40,853 35,463
======== ======= =======
Assets
Pari-mutuel operations......................... $148,154 152,868 188,220
Lottery operations............................. 5,387 43,925 52,801
-------- ------- -------
$153,541 196,793 241,021
======== ======= =======
Capital and wagering systems expenditures
Pari-mutuel operations......................... $ 7,359 8,135 14,723
Lottery operations............................. 129 1,106 3,417
-------- ------- -------
$ 7,488 9,241 18,140
======== ======= =======
|
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(18) BUSINESS AND GEOGRAPHIC SEGMENTS--(CONTINUED)
YEAR ENDED OCTOBER 31,
--------------------------
1997 1996 1995
-------- ------- -------
GEOGRAPHIC SEGMENTS
Service revenue and product sales
North America.................................. $125,402 120,589 114,943
Europe......................................... 28,780 49,656 34,227
Asia........................................... 3,150 5,990 4,014
-------- ------- -------
$157,332 176,235 153,184
======== ======= =======
Operating income (loss)
North America.................................. $ (4,744) (6,373) (25,960)
Europe......................................... 2,102 (1,573) (4,500)
Asia........................................... 733 (482) (830)
-------- ------- -------
$ (1,909) (8,428) (31,290)
======== ======= =======
Depreciation and amortization
North America.................................. $ 31,180 32,195 27,296
Europe......................................... 5,468 8,658 8,167
Asia........................................... 80 -- --
-------- ------- -------
$ 36,728 40,853 35,463
======== ======= =======
Assets
North America.................................. $139,262 146,929 180,637
Europe......................................... 13,463 49,864 60,384
Asia........................................... 816 -- --
-------- ------- -------
$153,541 196,793 241,021
======== ======= =======
Capital and wagering systems expenditures
North America.................................. $ 7,199 8,518 15,798
Europe......................................... 289 723 2,342
Asia........................................... -- -- --
-------- ------- -------
$ 7,488 9,241 18,140
======== ======= =======
|
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(19) SELECTED QUARTERLY FINANCIAL DATA--(UNAUDITED)
Selected quarterly financial data for the years ended October 31, 1997 and 1996 is as follows:
YEAR ENDED OCTOBER 31, 1997
----------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Total operating revenues................ $35,515 41,921 35,518 44,078
Gross profit............................ 13,960 16,714 14,590 17,184
Loss before extraordinary item.......... (7,423) (4,691) (1,712) (3,435)
Extraordinary item...................... -- -- (426) --
Net loss................................ (7,423) (4,691) (2,138) (3,435)
Loss per common share before
extraordinary item..................... (0.23) (0.14) (0.05) (0.09)
Extraordinary item...................... -- -- (0.01) --
Loss per common share................... $ (0.23) (0.14) (0.06) (0.09)
======= ====== ====== ======
Weighted average shares outstanding..... 32,734 34,498 35,312 35,335
======= ====== ====== ======
|
YEAR ENDED OCTOBER 31, 1996
----------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Total operating revenues................. $43,306 45,741 41,828 45,360
Gross profit............................. 15,761 16,075 15,941 16,852
Net loss................................. (13,801) (5,894) (7,804) (6,696)
Loss per common share.................... $ (0.45) (0.19) (0.25) (0.20)
======= ====== ====== ======
Weighted average shares outstanding...... 30,905 31,373 31,459 31,474
======= ====== ====== ======
|
(20) UNUSUAL ITEMS
In the third quarter of fiscal 1996, the Company recorded charges in other deductions of $647 for costs incurred in connection with the Company's proposed but uncompleted third quarter 1996 debt offering, and charges in selling, general and administrative expense of $569 for contractual payments related to the departure of the President of the Company. Partially offsetting these costs was the reversal of $649 of 1995 restructuring cost accruals because of the Company's current plan to continue limited manufacturing of wagering terminals at its plant in Ireland.
In fiscal 1995, the Company recognized unusual charges of $20,932 substantially resulting from the Company's restructuring, and certain valuation adjustments.
Restructuring charges of $11,601 were attributable to the closure of the Owings Mills Lottery support facility and the scaling back of certain international activities, including the planned closing of the Company's manufacturing facility in Ballymahon, Ireland. The decision to close the aforementioned facilities resulted in the elimination of approximately 105 full- time positions. The restructuring charge of $11,601 included $2,064 in employee termination benefits; $1,139 attributable to the cancellation of certain leasehold contracts; $3,188 in connection with the write-down of inventory and equipment previously used in the lottery terminal manufacturing process including the repayment of certain foreign capital equipment economic development grants; $4,287 in capitalized software systems development costs written-off in connection with the Company's
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(20) UNUSUAL ITEMS--(CONTINUED)
decision to terminate support for certain of its domestic lottery products and $923 in other miscellaneous asset valuation adjustments and expenses.
The Company wrote-off $6,640 relating to certain investments and other non- current assets which included $2,750 attributable to the Company's Mexican VGM contracts. The decision to write-off the Company's investment in Mexican VGM contracts was based on the continued economic and political turmoil in Mexico which repeatedly interfered with the Company's ability to complete implementation of the contracts. Also included in the write-off of investments and other non-current assets was $2,576 primarily attributable to lottery terminals, and $1,314 attributable to other assets. Technical limitations led to the Company's re-evaluation of the continued viability of the lottery terminals. The remaining $2,691 of unusual charges included miscellaneous asset valuation adjustments, principally consisting of receivable write-offs of $1,592 and severance costs of $390.
In addition, the Company recorded $1,679 of unusual charges for bank credit agreement costs primarily relating to a waiver of certain financial covenants under the Company's Senior Facility.
As a result of these charges, the Company anticipated total cash obligations of approximately $5,859, of which $4,640 was paid through October 31, 1997 and $649 was reversed in fiscal 1996 because of the Company's decision to continue limited manufacturing in Ireland. The restructurings were completed in fiscal 1996 and the Company has satisfied all cash obligations with respect to the 1995 restructuring charges.
(21) LITIGATION
In addition to routine legal proceedings incidental to the conduct of its business, the Company and certain of its officers and directors were named as defendants in a number of lawsuits commenced in February 1995 as class actions in the United States District Court for the District of Delaware. These lawsuits were consolidated into one class action in June 1995. The parties entered into a definitive Stipulation and Agreement of Settlement dated July 19, 1996 (the "Settlement Agreement") related to these claims.
The Settlement Agreement was finalized on December 24, 1996, at which time the Company paid $7,500 in cash plus 2,964 shares of Class A Common Stock which had an aggregate value of $3,500 based on the average price of the Company's Class A Common Stock for 10 trading days preceding the final hearing in the District Court. Insurance companies providing directors and officers insurance contributed approximately $6,500 of the cash portion of the settlement, with $1,250 of that amount in the form of a loan to the Company, with the payment terms subject to negotiation.
The Company accrued a charge of $6,800 against earnings in fiscal 1996 to reflect the settlement and anticipated legal fees. There will be no further charges against earnings as a result of the Settlement Agreement.
(22) FINANCIAL INFORMATION FOR GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES
The Company conducts substantially all of its business through its domestic and foreign subsidiaries. On July 28, 1997, the Company issued $110,000 aggregate principal amount of Notes bearing interest at a rate of 10 7/8%. The proceeds from the issuance of the Notes were used to repay all amounts outstanding under the Senior Facility (see Note 7). The Notes are jointly and severally guaranteed by substantially all of the Company's wholly owned domestic subsidiaries (the "Guarantor Subsidiaries").
Presented below is condensed consolidating financial information for Autotote Corporation (the "Parent Company"), the Guarantor Subsidiaries and the wholly owned foreign subsidiaries and the non-wholly owned
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(22) FINANCIAL INFORMATION FOR GUARANTOR SUBSIDIARIES AND NON-GUARANTOR SUBSIDIARIES--(CONTINUED)
domestic and foreign subsidiaries (the "Non-Guarantor Subsidiaries") as of October 31, 1997 and October 31, 1996 and for the fiscal years ended October 31, 1997, 1996 and 1995. 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.
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
OCTOBER 31, 1997
(IN THOUSANDS)
PARENT GUARANTOR NON-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
======= ======= ====== ======= =======
|
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
OCTOBER 31, 1996
(IN THOUSANDS)
PARENT GUARANTOR NON-GUARANTOR ELIMINATING
COMPANY SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------- ----------- ------------
ASSETS
Cash and cash
equivalents.......... $ 3,376 261 2,351 -- 5,988
Accounts receivable,
net.................. -- 9,557 8,700 -- 18,257
Other current assets.. 704 5,135 10,795 (211) 16,423
Property and
equipment, net....... 158 83,522 12,649 (449) 95,880
Investment in
subsidiaries......... 65,402 -- -- (65,402) --
Goodwill.............. 217 4,021 16,786 -- 21,024
Other assets.......... 3,184 29,142 8,537 (1,642) 39,221
-------- ------- ------ ------- -------
Total assets........ $ 73,041 131,638 59,818 (67,704) 196,793
======== ======= ====== ======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities... $ 9,855 16,788 7,988 47 34,678
Current installments
of long-term debt.... -- 8,478 781 (25) 9,234
Long-term debt,
excluding current
installments......... 40,000 117,983 1,832 (25) 159,790
Other non-current
liabilities.......... 3,644 778 8,557 308 13,287
Intercompany
balances............. 39,738 (46,908) 7,234 (64) --
Stockholders' equity
(deficit)............ (20,196) 34,519 33,426 (67,945) (20,196)
-------- ------- ------ ------- -------
Total liabilities
and stockholders'
equity (deficit)... $ 73,041 131,638 59,818 (67,704) 196,793
======== ======= ====== ======= =======
|
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997
(IN THOUSANDS)
NON-
PARENT GUARANTOR GUARANTOR ELIMINATING
COMPANY SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------ ----------- ------------
Operating revenues...... $ -- 129,130 30,614 (2,412) 157,332
Operating expenses...... -- 80,303 16,907 (2,326) 94,884
-------- ------- ------ ------ -------
Gross profit.......... -- 48,827 13,707 (86) 62,448
Selling, general and
administrative
expenses............... 10,963 12,696 5,694 99 29,452
Gain on sale of
business............... (1,823) -- -- -- (1,823)
Depreciation and
amortization........... 69 28,423 8,578 (342) 36,728
-------- ------- ------ ------ -------
Operating income
(loss)............... (9,209) 7,708 (565) 157 (1,909)
Interest expense........ 14,269 (228) 497 (171) 14,367
Other (income) expense.. (326) (413) 746 72 79
-------- ------- ------ ------ -------
Income (loss) before
equity in income of
subsidiaries, income
taxes, and
extraordinary items.... (23,152) 8,349 (1,808) 256 (16,355)
Equity in income of
subsidiaries .......... 4,716 -- -- (4,716) --
Income tax expense...... 201 113 592 -- 906
-------- ------- ------ ------ -------
Net income (loss) before
extraordinary items.... (18,637) 8,236 (2,400) (4,460) (17,261)
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)....... $(17,687) 6,860 (2,400) (4,460) (17,687)
======== ======= ====== ====== =======
|
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
(IN THOUSANDS)
NON-
PARENT GUARANTOR GUARANTOR ELIMINATING
COMPANY SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
--------- ------------ ------------ ----------- ------------
Operating revenues...... $ -- 121,294 57,197 (2,256) 176,235
Operating expenses...... -- 78,466 35,227 (2,087) 111,606
--------- ------- ------ ------ -------
Gross profit.......... -- 42,828 21,970 (169) 64,629
Selling, general and
administrative
expenses............... 9,771 13,443 9,766 (127) 32,853
Restructuring and write-
off of assets.......... 233 -- (882) -- (649)
Depreciation and
amortization........... 40 29,674 11,456 (317) 40,853
--------- ------- ------ ------ -------
Operating income
(loss)................. (10,044) (289) 1,630 275 (8,428)
Interest expense........ 14,499 288 391 (341) 14,837
Other (income) expense.. 8,581 (184) (335) 425 8,487
--------- ------- ------ ------ -------
Income (loss) before
equity in loss of
subsidiaries and income
taxes ................. (33,124) (393) 1,574 191 (31,752)
Equity in loss of
subsidiaries........... (671) -- -- 671 --
Income tax expense...... 400 200 1,843 -- 2,443
--------- ------- ------ ------ -------
Net income (loss)....... $ (34,195) (593) (269) 862 (34,195)
========= ======= ====== ====== =======
|
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1995
(IN THOUSANDS)
NON-
PARENT GUARANTOR GUARANTOR ELIMINATING
COMPANY SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------ ----------- ------------
Operating revenues...... $ -- 117,885 42,984 (7,685) 153,184
Operating expenses...... -- 78,701 22,184 (6,655) 94,230
-------- ------- ------ ------ -------
Gross profit.......... -- 39,184 20,800 (1,030) 58,954
Selling, general and
administrative
expenses............... 12,481 16,242 7,817 -- 36,540
Restructuring and write-
off of assets.......... 4,039 11,997 2,205 -- 18,241
Depreciation and
amortization........... 22 24,627 10,938 (124) 35,463
-------- ------- ------ ------ -------
Operating loss........ (16,542) (13,682) (160) (906) (31,290)
Interest expense........ 15,770 226 532 (166) 16,362
Other (income) expense.. -- (227) (391) 182 (436)
-------- ------- ------ ------ -------
Income (loss) before
equity in loss of
subsidiaries and income
taxes.................. (32,312) (13,681) (301) (922) (47,216)
Equity in loss of
subsidiaries........... (17,577) -- -- 17,577 --
Income tax expense...... -- -- 2,673 -- 2,673
-------- ------- ------ ------ -------
Net income (loss)....... $(49,889) (13,681) (2,974) 16,655 (49,889)
======== ======= ====== ====== =======
|
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED OCTOBER 31, 1997
(IN THOUSANDS)
NON-
PARENT GUARANTOR GUARANTOR ELIMINATING
COMPANY SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------ ----------- ------------
Net income (loss)....... $(17,687) 6,860 (2,400) (4,460) (17,687)
Depreciation and
amortization......... 69 28,423 8,578 (342) 36,728
Equity in income of
subsidiaries......... (4,716) -- -- 4,716 --
Gain on sale of
business............. (1,823) -- -- -- (1,823)
Non-cash extraordinary
items................ (950) 1,376 -- -- 426
Other non-cash
adjustments.......... 3,264 40 (658) -- 2,646
Changes in working
capital.............. 5,004 (4,531) 2,942 13 3,428
-------- ------- ------ ------ -------
Net cash provided by
(used in) operating
activities............. (16,839) 32,168 8,462 (73) 23,718
-------- ------- ------ ------ -------
Cash flows from
investing activities:
Capital and wagering
systems
expenditures......... (49) (5,415) (2,062) 38 (7,488)
Proceeds from sale of
business and assets
disposals............ 23,216 260 (2,420) -- 21,056
Other assets and
investments.......... (442) (1,463) (642) (140) (2,687)
-------- ------- ------ ------ -------
Net cash provided by
(used in) investing
activities............. 22,725 (6,618) (5,124) (102) 10,881
-------- ------- ------ ------ -------
Cash flows from
financing activities:
Net repayments under
revolving credit
facility............. -- (71,890) -- -- (71,890)
Net proceeds from
issuance of long
term-debt............ 105,100 -- 1,234 -- 106,334
Payments on long-term
debt................. (4,350) (52,224) (846) 25 (57,395)
Other, principally
intercompany
balances............. (94,432) 98,631 (3,401) 163 961
-------- ------- ------ ------ -------
Net cash provided by
(used in) financing
activities............. 6,318 (25,483) (3,013) 188 (21,990)
-------- ------- ------ ------ -------
Effect of exchange rate
changes on cash........ 2 -- (379) (13) (390)
Increase/(decrease) in
cash and cash
equivalents............ 12,206 67 (54) -- 12,219
Cash and cash
equivalents, beginning
of year................ 3,376 261 2,351 -- 5,988
-------- ------- ------ ------ -------
Cash and cash
equivalents, end of
year................... $ 15,582 328 2,297 -- 18,207
======== ======= ====== ====== =======
|
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED OCTOBER 31, 1996
(IN THOUSANDS)
NON-
PARENT GUARANTOR GUARANTOR ELIMINATING
COMPANY SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------ ----------- ------------
Net income (loss)....... $(34,195) (593) (269) 862 (34,195)
Depreciation and
amortization......... 40 29,674 11,456 (317) 40,853
Equity in loss of
subsidiaries......... 671 -- -- (671) --
Other non-cash
adjustments.......... 7,188 441 (13) 152 7,768
Changes in working
capital.............. 373 (2,274) 2,431 (88) 442
-------- ------- ------ ---- -------
Net cash provided by
(used in) operating
activities............. (25,923) 27,248 13,605 (62) 14,868
-------- ------- ------ ---- -------
Cash flows from
investing activities:
Capital and wagering
systems
expenditures......... (114) (7,863) (1,262) (2) (9,241)
Proceeds from asset
disposals............ 3,000 1,024 660 -- 4,684
Other assets and
investments.......... (1,470) 144 (2,673) 667 (3,332)
-------- ------- ------ ---- -------
Net cash provided by
(used in) investing
activities............. 1,416 (6,695) (3,275) 665 (7,889)
-------- ------- ------ ---- -------
Cash flows from
financing activities:
Net borrowings under
revolving credit
facility............. -- 2,610 -- -- 2,610
Net proceeds from
issuance of long
term-debt............ -- 1,626 924 -- 2,550
Payments on long-term
debt................. -- (8,930) (1,926) 27 (10,829)
Other, principally
intercompany
balances............. 24,112 (15,947) (7,391) (774) --
-------- ------- ------ ---- -------
Net cash provided by
(used in) financing
activities............. 24,112 (20,641) (8,393) (747) (5,669)
-------- ------- ------ ---- -------
Effect of exchange rate
changes on cash........ 386 (1) (842) 144 (313)
-------- ------- ------ ---- -------
Increase/(decrease) in
cash and cash
equivalents............ (9) (89) 1,095 -- 997
Cash and cash
equivalents, beginning
of year................ 3,385 350 1,256 -- 4,991
-------- ------- ------ ---- -------
Cash and cash
equivalents, end of
year................... $ 3,376 261 2,351 -- 5,988
======== ======= ====== ==== =======
|
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED OCTOBER 31, 1995
(IN THOUSANDS)
NON-
PARENT GUARANTOR GUARANTOR ELIMINATING
COMPANY SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED
-------- ------------ ------------ ----------- ------------
Net income (loss)....... $(49,889) (13,681) (2,974) 16,655 (49,889)
Depreciation and
amortization......... 22 24,627 10,938 (124) 35,463
Equity in loss of
subsidiaries......... 17,577 -- -- (17,577) --
Other non-cash
adjustments.......... 5,240 12,007 4,234 214 21,695
Changes in working
capital.............. 8,567 (5,868) (1,850) (128) 721
-------- ------- ------- ------- -------
Net cash provided by
(used in) operating
activities............. (18,483) 17,085 10,348 (960) 7,990
-------- ------- ------- ------- -------
Cash flows from
investing activities:
Capital and wagering
systems
expenditures......... (61) (17,134) (3,073) 2,128 (18,140)
Purchase of companies,
net of cash
acquired............. (747) (13,653) -- -- (14,400)
Other assets and
investments.......... (1,727) (3,619) (4,724) (1,204) (11,274)
-------- ------- ------- ------- -------
Net cash provided by
(used in) investing
activities............. (2,535) (34,406) (7,797) 924 (43,814)
-------- ------- ------- ------- -------
Cash flows from
financing activities:
Net borrowings under
lines of credit...... -- -- (250) -- (250)
Net proceeds from
issuance of long
term-debt............ -- 30,227 1,803 -- 32,030
Payments on long-term
debt................. -- (805) (1,562) -- (2,367)
Net proceeds from
issuance of common
stock................ 4,495 -- -- -- 4,495
Other, principally
intercompany
balances............. 20,028 (9,993) (10,071) 36 --
-------- ------- ------- ------- -------
Net cash provided by
(used in) financing
activities............. 24,523 19,429 (10,080) 36 33,908
-------- ------- ------- ------- -------
Effect of exchange rate
changes on cash........ (135) -- 932 -- 797
-------- ------- ------- ------- -------
Increase/(decrease) in
cash and cash
equivalents............ 3,370 2,108 (6,597) -- (1,119)
Cash and cash
equivalents, beginning
of year................ 15 (1,758) 7,853 -- 6,110
-------- ------- ------- ------- -------
Cash and cash
equivalents, end of
year................... $ 3,385 350 1,256 -- 4,991
======== ======= ======= ======= =======
|
SCHEDULE II
AUTOTOTE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED OCTOBER 31, 1997
(IN THOUSANDS)
ADDITIONS
---------------------
CHARGED
BALANCE AT TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER END OF
OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(2) PERIOD
---------- --------- ----------- ------------- ----------
YEAR ENDED OCTOBER 31,
1995
Allowance for doubtful
accounts............... $ 498 1,372 169 360 1,679
YEAR ENDED OCTOBER 31,
1996
Allowance for doubtful
accounts............... $1,679 1,392 -- 1,018 2,053
YEAR ENDED OCTOBER 31,
1997
Allowance for doubtful
accounts............... $2,053 1,070 -- 1,147 1,976
|
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE MATTERS
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to directors of the Company is incorporated herein by reference to the Company's proxy statement issued in connection with the 1998 Annual Meeting of Stockholders under the caption "Election of Directors." Information relating to executive officers of the Company is included in Part I of this Form 10-K as permitted in General Instruction [G3].
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation under the caption "Executive Compensation; Certain Arrangements," in the Company's proxy statement issued in connection with the 1998 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership of certain beneficial owners and management under the caption, "Security Ownership" in the Company's proxy statement issued in connection with the 1998 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information under the caption "Certain Arrangements Between the Company and its Directors and Officers" in the Company's proxy statement issued in connection with the 1998 Annual Meeting of Stockholders is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements--See Index to Consolidated Financial Statements attached hereto, page 26.
2. Financial Statements Schedule--See Index to Consolidated Financial Statements attached hereto, page 26.
Exhibits--The following is a list of exhibits:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Certificate of Incorporation of the Company, as amended through June
29, 1995.(1)
3.2 Bylaws of the Company.(2)
4.1 Indenture, dated as of July 28, 1997, among the Company, the
Guarantors and IBJ Schroder Bank & Trust Company, as Trustee.(3)
4.2 Form of 10 7/8% Series A and Series B Senior Notes Due 2004, dated as
of July 28, 1997 (incorporated by reference to Exhibit 4.1).
4.3 Registration Rights Agreement, dated as of July 28, 1997, among the
Company, the Guarantors and Donaldson, Lufkin & Jenrette Securities
Corporation.(4)
4.4 Certificate representing share of Class A Common Stock of the
Company.(1)
10.1 Credit Agreement, dated as of July 28, 1997, between the Company, the
financial institutions party thereto and DLJ Capital Funding, Inc. as
agent.(5)
10.2 1984 Stock Option Plan, as amended.(6)*
10.3 Form of Option dated March 3, 1992 issued to A. Lorne Weil.(7)*
10.4 Form of Option dated December 13, 1991 issued to Marshall
Bartlett.(8)*
10.5 Employment Agreement dated November 1, 1992, of A. Lorne Weil and
Autotote Corporation.(9)*
10.6 Stock Purchase Agreement dated July 15, 1994 among the Company, Marvin
H. Sugarman, Robert Melican, Racing Technology, Inc. and Marvin H.
Sugarman Productions, Inc.(10)
10.7 Asset Purchase Agreement dated January 12, 1995 between Autotote
Communication Services, Inc. and IDB Communications Group Inc.(11)
10.8 Purchase Agreement dated October 14, 1994 between Autotote
Corporation, Yves Alexandre, Marie A. Alexandre and Frederic
Alexandre. (English summary attached to French original.)(12)
10.9 Purchase Agreement among the Company, Autotote Enterprises, Inc., and
the State of Connecticut, Division of Special Revenue, dated June 30,
1993.(13)
10.10 Stock Purchase Agreement between the Company and General Instrument
Corporation dated May 18, 1993.(14)
10.11 Purchase and Sale Agreement between the Company and Sven Eriksson
dated May 27, 1993.(15)
10.12 Agreement among ETAG Electronic Totalisator AG, Gerhard Harwalik,
Peter Freudenschuss, Peter Tinkl and Manfred Harwalik dated July 27,
1993.(16)
10.13 Purchase Agreement among certain purchasers and Autotote Corporation
dated August 13, 1993 with respect to the 5 1/2% Convertible
Subordinated Debentures due 2001.(16)
10.14 1995 Equity Incentive Plan.(+)
10.15 1992 Equity Incentive Plan, as amended and restated.(+)
10.16 Registration Rights Agreement, dated as of November 6, 1995, between
the Company and Hartford Stock Fund and Hartford Advisers Fund, (the
"Funds") dated as of November 6, 1995.(18)
10.17 Interest Agreement, dated as of November 6, 1995, between the Company
and the Funds.(19)
|
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.18 Letter Agreement, dated as of January 3, 1995, between the Company and
Martin E. Schloss.(20)*
10.19 Agreement of Purchase and Sale, dated January 19, 1996, between
Autotote Systems, Inc. and Fusco Properties, L.P. ("Fusco").(21)
10.20 Lease Agreement, dated as of January 19, 1996, between Fusco and
Autotote Systems, Inc.(22)
10.21 Employment Agreement, dated February 22, 1996, between the Company and
William Luke.(23)*
10.22 Promissory Note dated May 13, 1996 between the Company and A. Lorne
Weil.(24)
10.23 Stock Transfer Agreement among the Company and American Wagering,
Inc., dated October 25, 1996, with respect to all outstanding stock of
Autotote CBS, Inc.(25)
10.24 Stock Purchase Agreement among the Company and Scientific Games
Holding Corp., Tele Control Kommunikations und Computersysteme Aktien
Gesellschaft.(26)
10.25 1997 Incentive Compensation Plan.(27)*
21.1 List of Subsidiaries(+).
23 Consent of KPMG Peat Marwick LLP(+).
99.7 Warrant to Purchase Class B Nonvoting Common Stock of Autotote
Corporation dated October 30, 1992 issued to Various lenders.(28)
99.8 Warrant Agreement dated as of September 14, 1995 (the "1995 Warrant
Agreement"), as amended as of January 29, 1997.(29)
99.9 Warrant Agreement dated as of January 26, 1996 (the "1996 Warrant
Agreement"), as amended as of January 29, 1997.(30)
99.10 Amendment dated January 29, 1997 amending both the 1995 Warrant
Agreement and the 1996 Warrant Agreement. (31)
99.11 Order and Final Judgment of the United States District Court for the
District of Delaware dated October 22, 1996, Amendment to Amended
Stipulation and Agreement of Settlement, dated November 7, 1996, and
Amended Stipulation and Agreement of Settlement dated July 19,
1996.(32)
|
(16) Incorporated by reference to Exhibit 2.1 to the Company's Current Report
on Form 8-K dated September 8, 1993.
(17) Incorporated by reference to Exhibit 10 to the Company's Current Report
on Form 8-K dated September 8, 1993.
(18) Incorporated by reference to Exhibit 10.36 to the 1995 10-K.
(19) Incorporated by reference to Exhibit 10.37 to the 1995 10-K.
(20) Incorporated by reference to Exhibit 10.40 to the 1995 10-K.
(21) Incorporated by reference to Exhibit 10.42 to the Company's Annual
Report on Form 10-K/A for the fiscal year ended October 31, 1995, dated
February 22, 1996 (the "1995 10-K/A").
(22) Incorporated by reference to Exhibit 10.43 to the 1995 10-K/A.
(23) Incorporated by reference to Exhibit 10.45 to the Company's Quarterly
Report on Form 10-Q for the quarter ended January 31, 1996.
(24) Incorporated by reference to Exhibit 10.47 to the Company's Quarterly
Report on Form 10-Q for the quarter ended April 30, 1996.
(25) Incorporated by reference to Exhibit 10.25 to the Company's Registration
Statement on Form S-4 (Registration No. 333-34465) which became
effective September 12, 1997 (the "1997 S-4").
(26) Incorporated by reference to Exhibit 10.27 to the Company's Current
Report on Form 8-K dated April 15, 1997.
(27) Incorporated by reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-8 (Registration No. 333-44979) which became
effective January 27, 1998.
(28) Incorporated by reference to Exhibit 10.34 to the Company's 1992 10-K.
(29) Incorporated by reference to Exhibit 99.8 to the Company's Annual Report
on Form 10-K/A for the fiscal year ended October 31, 1996, dated
November 18, 1997 (the "1996 10-K/A").
(30) Incorporated by reference to Exhibit 99.9 to the 1997 S-4.
(31) Incorporated by reference to Exhibit 99.10 to the 1997 S-4.
(32) Incorporated by reference to Exhibit 28.1 to the 1996 10-K/A.
|
(b) A Form 8-K Report, reporting on other events pursuant to Item 5, was filed on August 11, 1997, in connection with:
(i) Senior Notes Offering. On July 28, 1997, Autotote Corporation (the "Company") completed a private offering (the "Offering") under Rule 144A of the Securities Act of 1933, as amended of $110 million aggregate principal amount of 10 7/8% Senior Notes due 2004 with net proceeds to the Company of approximately $105.1 million. The Notes are guaranteed by substantially all of the Company's existing wholly owned United States subsidiaries.
(ii) Credit Facility. In connection with the Offering, the Company entered into a new 3.5 year revolving credit facility which, subject to certain terms and conditions, provides for borrowings of up to $25.0 million, with a $15.0 million sublimit for letters of credit.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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
Dated: January 28, 1998
/s/ A. Lorne Weil
By: _________________________________
A. LORNE WEIL, CHAIRMAN OF THE
BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
|
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED ON JANUARY 28, 1998.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. Lorne Weil Chairman of the Board, January 28, 1998
_____________________________________ President and Chief
A. LORNE WEIL Executive Officer, and
Director (principal
executive officer)
/s/ William Luke Vice President and Chief January 28, 1998
_____________________________________ Financial Officer
WILLIAM LUKE (principal financial officer)
/s/ DeWayne E. Laird Corporate Controller January 28, 1998
_____________________________________ (principal accounting
DEWAYNE E. LAIRD officer)
/s/ Sir Brian Wolfson Director January 28, 1998
_____________________________________
SIR BRIAN WOLFSON
/s/ Larry J. Lawrence Director January 28, 1998
_____________________________________
LARRY J. LAWRENCE
/s/ Marshall Bartlett Director January 28, 1998
_____________________________________
MARSHALL BARTLETT
/s/ Alan J. Zakon Director January 28, 1998
_____________________________________
ALAN J. ZAKON
|
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE ----------- ----------- ---- 21 List of Subsidiaries 23 Consent of KPMG Peat Marwick LLP 10.14 1995 Equity Incentive Plan, as amended. 10.15 1992 Equity Incentive Plan, as amended and restated. |
BOARD OF DIRECTORS OFFICERS TRANSFER AGENT
A. Lorne Weil A. Lorne Weil American Stock Transfer &
Chairman, President and Chief Chairman of the Board, Trust Company
Executive Officer of Autotote President and 40 Wall Street
Corporation Chief Executive Officer New York, NY 10005
Larry J. Lawrence William Luke
Vice Chairman of the Board Vice President and Chief STOCK INFORMATION
General Partner of Lawrence, Financial Officer At the close of business on
Smith & Horey III, L.P. January 23, 1998, a total of
Martin E. Schloss 35,416,534 shares of Class A
Sir Brian Wolfson Vice President Common Stock were
Former Chairman of Wembley plc General Counsel and outstanding. There were 2,383
Secretary holders of record on such date.
Alan J. Zakon
Former Managing Director of Gerald Lawrence Autotote Corporation trades on
Bankers Trust Corporation Vice President the American Stock Exchange
Pari-Mutuel Group Executive under the symbol "TTE".
Marshall Bartlett
Former Executive Vice President DeWayne E. Laird
and Chief Operating Officer of Corporate Controller AUDITORS
Bourns Inc. KPMG Peat Marwick LLP
Robert C. Becker Short Hills, New Jersey
Treasurer
|
AUTOTOTE CORPORATION
750 LEXINGTON AVENUE, 25TH FLOOR
NEW YORK, NEW YORK 10022
212-754-2233
[LOGO OF AUTOTOTE CORPORATION APPEARS HERE]
Exhibit 10.14
AUTOTOTE CORPORATION
1995 EQUITY INCENTIVE PLAN, AS AMENDED
1. PURPOSE
The purpose of this 1995 Equity Incentive Plan (the "Plan") is to advance the interests of Autotote Corporation (the "Company") by enhancing its ability to attract and retain employees and other persons or entities, other than directors and executive officers of the Company, who are in a position to make significant contributions to the success of the Company and its subsidiaries through ownership of shares of the Company's Class A Common Stock ("Stock").
The Plan is intended to accomplish these goals by enabling the Company to grant awards in the form of Options, Stock Appreciation Rights, Restricted Stock or Unrestricted Stock Awards, Deferred Stock Awards, Performance Awards, Loans or Supplement Grants, or combinations thereof, all as more fully described below ("Awards").
2. ADMINISTRATION
The Plan will be administered by the Board of Directors of the Company (the
"Board"). The Board will have authority, not inconsistent with the express
provisions of the Plan and in addition to other authority granted under the
Plan, to (a) grant Awards at such time or times as it may choose; (b) determine
the size of each Award, including the number of shares of Stock subject to the
Award; (c) determine the type or types of each Award; (d) determine the terms
and conditions of each Award; (e) waive compliance by a person who has received
an Award under the Plan that remains outstanding (a "Participant") with any
obligations to be performed by the Participant under an Award and waive any term
or condition of an Award; (f) amend or cancel an existing Award in whole or in
part (and, if an award is canceled, grant another Award in its place on such
terms as the Board shall specify), except that the Board may not, without the
consent of the holder of an Award, take any action under this clause with
respect to such Award if such action would adversely affect the rights of such
holder; (g) prescribe the form or forms of instruments that are required or
deemed appropriate under the Plan, including any written notices and elections
required of Participants, and change such forms from time to time; (h) adopt,
amend and rescind rules and regulations for the administration of the Plan; and
(i) interpret the Plan and decide any questions and settle all controversies and
disputes that may arise in connection with the Plan. Such determination and
actions of the Board, and all other determinations and actions of the Board made
or taken under authority granted by any provision of the Plan, will be
conclusive and will bind all parties. Nothing in this paragraph shall be
construed as limiting the power of the Board to make adjustments under Section
7.3, Section 7.4 or Section 8.6.
The Board may, in its discretion, delegate some or all of its powers with respect to the Plan to a committee (the "Committee"), in which event all references (as appropriate) to the Board hereunder shall be deemed to refer to the Committee. The Committee, if one is appointed, shall consist of directors and executive officers, and may have one or more
members at any given time. A majority of the members of the Committee shall constitute a quorum, and all determinations of the Committee shall be made by a majority of its members. Any determination of the Committee under the Plan may be made without notice or meeting of the Committee by a writing signed by a majority of the Committee members.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan will become effective on May 26, 1995. The Plan will terminate at such time as no shares remain available for delivery under the Plan and the Company and Participants no longer have any rights or obligations with respect to outstanding Awards under the Plan.
4. SHARES SUBJECT TO THE PLAN/1/
Subject to the adjustment as provided in Section 8.6 below, the aggregate number of shares of Stock that may be delivered under the Plan will be 4 million. If any Award or portion thereof terminates without delivery of Stock or if Stock delivered in connection with any Award is forfeited (including any case in which an Award or portion thereof payable in Stock or cash is satisfied in cash rather than Stock), the number of shares of Stock subject to such Award will be available for future grants. For purposes of the Plan, shares withheld and shares equal to the number of shares surrendered in payment of the exercise price or mandatory withholding taxes relating to an Award will be deemed not to have been delivered under the Plan.
Stock delivered under the Plan may be either authorized but unissued Stock or previously issued Stock acquired by the Company and held in treasury. No fractional shares of Stock will be delivered under the Plan.
5. ELIGIBILITY AND PARTICIPATION/2/
Those persons eligible to receive Awards under the Plan will be persons in the employ of the Company or any of its subsidiaries ("Employees") and such other persons, included in the term "employee", as defined in General Instruction A (1) (a) to Form S-8, if such other person, in the opinion of the Board, is in a position to make a significant contribution to the success of the Company or its subsidiaries, provided that no person who is then serving as a director or executive officer of the Company may receive an Award under the Plan.
6. TYPES OF AWARDS
6.1. Options
1996.
(a) Nature of Options. An Option is an Award entitling the recipient on exercise thereof to purchase Stock at a specified exercise price ("Option"). Options granted under the Plan will be non-qualified options, meaning options that do not qualify as "incentive stock options" as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
(b) Exercise Price. The exercise price of an Option will be determined by the Board, subject to the following:
(1) In no case may the exercise price paid for Stock which is part of an original issue of authorized Stock be less than the par value per share of the Stock.
(2) The Board may reduce the exercise price of an Option at any time after the time of grant.
(c) Duration of Options. The latest date on which an Option may be exercised will be the tenth anniversary of the day immediately preceding the date the Option was granted, or such earlier date as may have been specified by the Board at the time the Option was granted.
(d) Exercise of Options. An Option will become exercisable at such time or times, and on such conditions, as the Board may specify. The Board may at any time accelerate the time at which all or any part of the Option may be exercised.
Any exercise of an Option must be in writing, signed by the proper person and delivered or mailed to the Company, accompanied by (1) any documents required by the Board and (2) payment in full in accordance with paragraph (e) below for the number of shares for which the Option is exercised.
(e) Payment for Stock. Stock purchased on exercise of an Option must be paid for as follows: (1) in cash or by check (acceptable to the Company in accordance with guidelines established for this purpose), bank draft or money order payable to the order of the Company or (2), if so permitted by the instrument evidencing the Option or by the Board at or after grant of the Option, (i) through the delivery of shares of Stock which have been outstanding for at least six months (unless the Board expressly approves a shorter period) and which have a fair market value on the last business day preceding the date of exercise equal to the exercise price, or (ii) by delivery of a promissory note of the Option holder to the Company, payable on such terms as are specified by the Board, or (iii) by delivery of an unconditional and irrevocable undertaking by a broker to deliver promptly to the Company sufficient funds to pay the exercise price, or (iv) by any combination of the permissible forms of payment; provided, that if the Stock delivered upon exercise of the Option is an original issue of authorized Stock, at least so much of the exercise price as represents the par value of such Stock must be paid other than by the Option holder's promissory note.
(f) Discretionary Payments. If the market price of shares of Stock subject to an Option (other than an Option which is in tandem with a Stock Appreciation Right as described in Section 6.2 below) exceeds the exercise price of the Option at the time of its exercise, the Board may cancel the Option and cause the Company to pay in cash or in shares of Common Stock (at a price per share equal to the fair market value per share) to
the person exercising the Option an amount equal to the difference between the fair market value of the Stock which would have been purchased pursuant to the exercise (determined on the date the Option is canceled) and the aggregate exercise price which would have been paid. The Board may exercise its discretion to take such action only if it has received a written request from the person exercising the Option, but such a request will not be binding on the Board.
6.2. Stock Appreciation Rights.
(a) Nature of Stock Appreciation Rights. A Stock Appreciation Right is an Award entitling the recipient on exercise of the Right to receive, an amount, in cash or Stock or a combination thereof (such form to be determined by the Board), determined in whole or in part by reference to appreciation in Stock value (a "Stock Appreciation Right").
In general, a Stock Appreciation Right entitles the Participant to receive, with respect to each share of Stock as to which the Right is exercised, the excess of the share's fair market value on the date of exercise over its fair market value on the date the Right was granted. However, the Board may provide at the time of grant that the amount the recipient is entitled to receive will be adjusted upward or downward under rules established by the Board to take into account the performance of the Stock in comparison with the performance of other stocks or an index or indices of other stocks. The Board may also grant Stock Appreciation Rights that provide that, following a Change in Control of the Company, as defined below, the holder of such Right will be entitled to receive, with respect to each share of Stock subject to the Right, an amount equal to the excess of a specified value (which may include an average of values) for a share of Stock during a period preceding such Change in Control over the fair market value of a share of Stock on the date the Right was granted. "Change in Control"/3/ is the occurrence of any of the following: (i) when any "person" as defined in Section 3(a)(9) of the Securities Exchange Act of 1934 and as used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) but excluding the Company and any subsidiary and any employee benefit plan sponsored or maintained by the Company or any subsidiary (including any trustee of such plan acting as trustee), directly or indirectly becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act) of securities of the Company representing at least 40% (or such greater percentage as the Board may specify in any grant of Stock Appreciation Rights) of the combined voting power of the Company's then outstanding securities; or (ii) the occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a subsidiary through purchase of assets, or by merger, or otherwise.
(b) Grant of Stock Appreciation Rights. Stock Appreciation Rights may be granted in tandem with, or independently of, Options granted under the Plan. A Stock Appreciation Right granted in tandem with an Option may be granted either at or after the time the Option is granted.
(c) Rules Applicable to Tandem Awards. When Stock Appreciation Rights are granted in tandem with Options, the following will apply:
1996.
(1) The Stock Appreciation Right will be exercisable only at such time or times, and to the extent, that the related Option is exercisable and will be exercisable in accordance with the procedure required for exercise of the related Option.
(2) The Stock Appreciation Right will terminate and no longer be exercisable upon the termination or exercise of the related Option, except that a Stock Appreciation Right granted with respect to less than the full number of shares covered by an Option will not be reduced until the number of shares as to which the related Option has been exercised or has terminated exceeds the number of shares not covered by the Stock Appreciation Right.
(3) The Option will terminate and no longer be exercisable upon the exercise of the related Stock Appreciation Right.
(4) The Stock Appreciation Right will be transferable only with the related Option, to the extent permitted hereunder.
(d) Exercise of Independent Stock Appreciation Rights. A Stock Appreciation Right not granted in tandem with an Option will become exercisable at such time or times, and on such conditions, as the Board may specify. The Board may at any time accelerate the time at which all or any part of the Right may be exercised.
Any exercise of an independent Stock Appreciation Right must be in writing, signed by the proper person and delivered or mailed to the Company, accompanied by any other documents required by the Board.
6.3. Restricted and Unrestricted Stock.
(a) Nature of Restricted Stock Award. Restricted Stock is an Award entitling the recipient to acquire shares of Stock subject to the restrictions described in paragraph (d) below ("Restricted Stock"), provided that, if the shares to be received are part of an original issue of authorized Stock, the recipient shall pay at least so much of the exercise price as represents the par value of such Stock in cash, services previously provided, or some other form of lawful consideration under the Delaware General Corporation Law as may be specified by the Board.
(b) Acceptance of Award. A Participant who is granted a Restricted Stock Award will have no rights with respect to such Award unless the Participant accepts the Award by written instrument, in such form as may be specified by the Board, delivered or mailed to the Company and accompanied by payment in full of the specified purchase price, if any, of the shares covered by the Award. Payment may be by certified or bank check or other instrument acceptable to the Board.
(c) Rights as a Stockholder. A Participant who receives Restricted Stock
will have all the rights of a stockholder with respect to the Stock, including
voting and dividend rights, subject to the restrictions described in paragraph
(d) below and any other conditions imposed by the Board at the time of grant.
Unless the Board otherwise determines, certificates evidencing shares of
Restricted Stock will remain in the possession of the Company until such shares
are free of all restrictions under the Plan, and shall bear such legend as the
Board may specify.
(d) Restrictions. Except as otherwise specifically provided by the Plan, Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of, and, if the Participant ceases to be an Employee or otherwise suffers a Status Change (as defined at Section 7.2 (a) below) for any reason, shall be forfeited to the Company (in which case any cash consideration paid to the Company under Section 6.3(a) above will be refunded, but no other form of such consideration shall be refunded). These restrictions will lapse at such time or times, and on such conditions, as the Board may specify. The Board may at any time accelerate the time at which the restrictions on all or any part of the shares will lapse.
(e) Notice of Election. Any Participant making an election under Section 83(b) of the Code with respect to Restricted Stock must provide a copy thereof to the Company within ten days of the filing of such election with the Internal Revenue Service.
(f) Other Awards Settled with Restricted Stock. The Board may, at the time any Award described in this Section 6 is granted, provide that any or all the Stock delivered pursuant to the Award will be Restricted Stock.
(g) Unrestricted Stock. The Board may, in its sole discretion, approve the grant or sale to any recipient of shares of Stock free of restrictions under the Plan ("Unrestricted Stock"), provided that, if the shares to be received are part of an original issue of authorized Stock, the recipient shall pay at least so much of the exercise price as represents the par value of such Stock in cash, services previously provided, or some other form of lawful consideration under the Delaware General Corporation Law as may be specified by the Board.
6.4. Deferred Stock.
A Deferred Stock Award entitles the recipient to receive shares of Stock to
be delivered in the future ("Deferred Stock"). Delivery of the Stock will take
place at such time or times, and on such conditions, as the Board may specify.
The Board may at any time accelerate the time at which delivery of all or any
part of the Stock will take place. At the time any Award described in this
Section 6 is granted, the Board may provide that, at the time Stock would
otherwise be delivered pursuant to the Award, the Participant will instead
receive an instrument evidencing the Participant's right to future delivery of
Deferred Stock.
6.5. Performance Awards; Performance Goals.
(a) Nature of Performance Awards. A Performance Award entitles the recipient to receive, without payment, an amount in cash or Stock or a combination thereof (such form to be determined by the Board) following the attainment of Performance Goals (a "Performance Award"). Performance Goals may be related to personal performance, corporate performance, departmental performance or any other category of performance deemed by the Board to be important to the success of the Company. The Board will determine the Performance Goals, the period or periods during which performance is to be measured and all other terms and conditions applicable to the Award.
(b) Other Awards Subject to Performance Condition. The Board may, at the time any Award described in this Section 6 is granted, impose the condition (in addition to
any conditions specified or authorized in this Section 6 or any other provision of the Plan) that Performance Goals be met prior to the Participant's realization of any specified payment or benefit under the Award.
6.6. Loans and Supplemental Grants.
(a) Loans. The Company may make a loan to a Participant ("Loan"), either on the date of or after the grant of any Award to the Participant. A Loan may be made either in connection with the purchase of Stock under the Award or with the payment of any Federal, state and local income tax with respect to income recognized as a result of the Award. The Board will have full authority to decide whether to make a Loan and to determine the amount, terms and conditions of the Loan, including the interest rate (which may be zero), whether the Loan is to be secured or unsecured or with or without recourse against the borrower, the terms on which the Loan is to be repaid and the conditions, if any, under which it may be forgiven. However, no Loan may have a term (including extensions) exceeding ten years in duration.
(b) Supplemental Grants. In connection with any Award, the Board may at
the time such Award is made or at a later date, provide for and grant a cash
award to the Participant ("Supplemental Grant") not to exceed an amount equal to
(1) the amount of any federal, state and local income tax on ordinary income for
which the Participant may be liable with respect to the Award, determined by
assuming taxation at the highest marginal rate, plus (2) an additional amount on
a grossed-up basis intended to make the Participant whole on an after-tax basis
after discharging all the Participant's income tax liabilities arising from all
payments under this Section 6. Any payments under this subsection (b) will be
made at the time the Participant incurs Federal income tax liability with
respect to the Award.
7. EVENTS AFFECTING OUTSTANDING AWARDS
7.1. Death.
If a Participant dies, the following will apply:
(a) All Options and Stock Appreciation Rights held by the Participant immediately prior to death, to the extent then exercisable, may be exercised by the Participant's executor or administrator or the person or persons to whom the Option or Right is transferred by will or the applicable laws of descent and distribution, at any time within the one year period ending with the first anniversary of the Participant's death (or such shorter or longer period as the Board may determine), and shall thereupon terminate. In no event, however, shall an Option or Stock Appreciation Right remain exercisable beyond the latest date on which it could have been exercised without regard to this Section 7. Except as otherwise determined by the Board, all Options and Stock Appreciation Rights held by a Participant immediately prior to death that are not then exercisable shall terminate at death.
(b) Except as otherwise determined by the Board, all Restricted Stock held by the Participant will be forfeited and transferred to the Company (and, in the event the certificates representing such Restricted Stock are held by the Company, such Restricted
Stock will be so transferred without any further action by the Participant) in accordance with Section 6.3 above.
(c) Any payment or benefit under a Deferred Stock Award, Performance Award, or Supplemental Grant to which the Participant was not irrevocably entitled prior to or upon the occurrence of death will be forfeited and the Award canceled as of the time of death, unless otherwise determined the Board.
7.2. Termination of Service (Other Than By Death).
If a Participant who is an Employee ceases to be an Employee for any reason other than death, or if there is a termination (other than by reason of death) of the consulting, service or similar relationship in respect of which a non- Employee Participant was granted an Award hereunder (such termination of the employment or other relationship being hereinafter referred to as a "Status Change"), the following will apply:
(a) Except as otherwise determined by the Board, all Options and Stock
Appreciation Rights held by the Participant that were not exercisable
immediately prior to the Status Change shall terminate at the time of the Status
Change. Any Options or Rights that were exercisable immediately prior to the
Status Change will continue to be exercisable for a period of three months (or
such longer period as the Board may determine), and shall thereupon terminate,
unless the Award provides by its terms for immediate or earlier termination in
the event of a Status Change or unless the Status Change results from a
discharge for cause which in the opinion of the Board casts such discredit on
the Participant as to justify immediate termination of the Award. In no event,
however, shall an Option or Stock Appreciation Right remain exercisable beyond
the latest date on which it could have been exercised without regard to this
Section 7. For purposes of this paragraph, in the case of a Participant who is
an Employee, a Status Change shall not be deemed to have resulted by reason of
(i) a sick leave or other bona fide leave of absence approved for purposes of
the Plan by the Board, so long as the Employee's right to reemployment is
guaranteed either by statute or by contract, or (ii) a transfer of employment
between the Company and a subsidiary or between subsidiaries.
(b) Except as otherwise determined by the Board, all Restricted Stock held
by the Participant at the time of the Status Change must be forfeited and
transferred to the Company (and, in the event the certificates representing such
Restricted Stock are held by the Company, such Restricted Stock will be so
transferred without any further action by the Participant) in accordance with
Section 6.3 above.
(c) Any payment or benefit under a Deferred Stock Award, Performance Award, or Supplemental Grant to which the Participant was not irrevocably entitled prior to the Status Change will be forfeited and the Award canceled as of the date of such Status Change, unless otherwise determined by the Board.
7.3. Acquisition Transactions.
Notwithstanding any other provision of the Plan or of any Award to the contrary, in the event of a consolidation or merger in which the Company is not the surviving corporation or which results in the acquisition of substantially all the Company's outstanding Stock by a
single person or entity or by a group of persons and/or entities acting in concert or in the event of the sale or transfer of substantially all the Company's assets (an "acquisition transaction"), all outstanding Awards will terminate as of the effective date of the acquisition transaction, and the following will apply:
(a) Each outstanding Option and Stock Appreciation Right will become exercisable in full ten days prior to the anticipated effective date of the proposed acquisition transaction unless otherwise expressly provided at the time of grant.
(b) Each outstanding share of Restricted Stock will become free of all restrictions and conditions ten days prior to the anticipated effective date of the proposed acquisition transaction.
(c) Conditions on Deferred Stock Awards, Performance Awards and Supplemental Grants which relate only to the passage of time and continued employment will be removed ten days prior to the anticipated effective date of the proposed acquisition transaction. Performance or other conditions (other than conditions relating only to the passage of time and continued employment) will continue to apply unless otherwise provided in the instrument evidencing the Awards or in any other agreement between the Participant and the Company or unless otherwise agreed to by the Board.
(d) The Board may in its sole discretion, prior to the effective date of the acquisition transaction, forgive all or any portion of the principal of or interest on a Loan.
7.4. Dissolution or Liquidation Transactions.
In the event of a dissolution or liquidation of the Company (a "covered transaction"), all outstanding Awards will terminate as of the effective date of the covered transaction, and the following rules shall apply:
(a) Subject to paragraph (b) below, the Board may in its sole discretion, prior to the effective date of the covered transaction, (1) make each outstanding Option and Stock Appreciation Right exercisable in full, (2) remove the restrictions from each outstanding share of Restricted Stock, (3) cause the Company to make any payment and provide any benefit under each outstanding Deferred Stock Award, Performance Award, and Supplemental Grant which would have been made or provided with the passage of time had the transaction not occurred and the Participant not suffered a Status Change (or died), and (4) forgive all or any portion of the principal of or interest on a Loan.
(b) If an outstanding Award is subject to performance or other conditions (other than conditions relating only to the passage of time and continued employment) which will not have been satisfied at the time of the covered transaction, the Board may in its sole discretion remove such conditions. If it does not do so, however, such Award will terminate as of the date of the covered transaction notwithstanding paragraph (a) above.
8. GENERAL PROVISIONS
8.1. Documentation of Awards.
Awards will be evidenced by such written instruments, if any, as may be prescribed by the Board from time to time. Such instruments may be in the form of agreements to be executed by both the Participant and the Company, or certificates, letters or similar instruments, which need not be executed by the Participant but acceptance of which will evidence agreement to the terms thereof.
8.2. Rights as a Stockholder, Dividend Equivalents.
Except as specifically provided by the Plan, the receipt of an Award will not give a Participant rights as a stockholder; the participant will obtain such rights, subject to any limitations imposed by the Plan or the instrument evidencing the Award, upon actual receipt of Stock. However, the Board may, on such conditions as it deems appropriate, provide that a Participant will receive a benefit in lieu of cash dividends that would have been payable on any or all Stock subject to the Participant's Award had such Stock been outstanding. Without limitation, the Board may provide for payment to the Participant of amounts representing such dividends, either currently or in the future, or for the investment of such amounts on behalf of the Participant.
8.3. Conditions on Delivery of Stock.
The Company will not be obligated to deliver any shares of Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan (a) until all conditions of the Award have been satisfied or removed, (b) until, in the opinion of the Company's counsel, all applicable federal and state laws and regulation have been complied with, (c) if the outstanding Stock is at the time listed on any stock exchange, until the shares to be delivered have been listed or authorized to be listed on such exchange upon official notice of issuance, and (d) until all other legal matters in connection with the issuance and delivery of such shares have been approved by the Company's counsel. If the sale of Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the Award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act and may require that the certificates evidencing such Stock bear an appropriate legend restricting transfer.
If an Award is exercised by the Participant's legal representative, the Company will be under no obligation to deliver Stock pursuant to such exercise until the Company is satisfied as to the authority of such representative.
8.4. Tax Withholding.
The Company will withhold from any cash payment made pursuant to an Award an amount sufficient to satisfy all federal, state and local withholding tax requirements (the "withholding requirements").
In the case of an Award pursuant to which Stock may be delivered, the Board will have the right to require that the Participant or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements
satisfactory to the Board with regard to such requirements, prior to the delivery of any Stock. If and to the extent that such withholding is required, the Board may permit the Participant or such other person to elect at such time and in such manner as the Board provides to have the Company hold back from the shares to be delivered, or to surrender and deliver to the Company, Stock having a value calculated to satisfy the withholding requirement.
8.5. Nontransferability of Awards.
No Award (other than an Award in the form of an outright transfer of cash or Unrestricted Stock) may be transferred other than by will or by the laws of descent and distribution, and during an employee's lifetime an Award requiring exercise may be exercised only by the Participant (or in the event of the Participant's incapacity, the person or persons legally appointed to act on the Participant's behalf).
8.6. Adjustments in the Event of Certain Transactions.
(a) In the event of a stock dividend, stock split or combination of shares, recapitalization or other change in the Company's capitalization, or other distribution to common stockholders other than normal cash dividends, after the effective date of the Plan, the Board will make any appropriate adjustments to the maximum number of shares and kind of shares or securities that may be delivered under the Plan under Section 4 above.
(b) In any event referred to in paragraph (a), the Board will also make any appropriate adjustments to the number and kind of shares of stock or securities subject to Awards then outstanding or subsequently granted, any exercise prices relating to Awards and any other provision of Awards affected by such change. The Board may also make such adjustments to take into account material changes in law or in accounting practices or principles, mergers, consolidations, acquisitions, dispositions or similar corporate transactions, or any other event, if it is determined by the Board that adjustments are appropriate to avoid distortion in the operation of the Plan.
8.7. Employment Rights, Etc.
Neither the adoption of the Plan nor the grant of Awards will confer upon any person any right to continued retention by the Company or any subsidiary as an Employee or otherwise, or affect in any way the right of the Company or subsidiary to terminate an employment, service or similar relationship at any time. Except as specifically provided by the Board in any particular case, the loss of existing or potential profit in Awards granted under the Plan will not constitute an element of damages in the event of termination of an employment, service or similar relationship even if the termination is in violation of an obligation of the Company to the Participant.
8.8. Deferral of Payments.
The Board may agree at any time, upon request of the Participant, to defer the date on which any payment under an Award will be made.
8.9. Past Services as Consideration.
Where a Participant purchases Stock under an Award for a price equal to the par value of the Stock, the Board may determine that such price has been satisfied by past services rendered by the Participant.
9. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a Participant will affect the Company's right to grant to such Participant awards that are not subject to the Plan, to issue to such Participant Stock as a bonus or otherwise, or to adopt other plans or arrangements under which Stock may be issued to Employees.
The Board (but not the Committee) may at any time or times amend the Plan, and the Board (or Committee) may at any time or times amend any outstanding Award, for any purpose which may at the time be permitted by law, and the Board (but not the Committee) may at any time terminate the Plan as to any further
grants of Awards.
Exhibit 10.15
AUTOTOTE CORPORATION
1992 EQUITY INCENTIVE PLAN
As Amended and Restated
Effective as of October 31, 1997
1. PURPOSE
The purpose of this Equity Incentive Plan (the "Plan" ) is to advance the interests of Autotote Corporation (the "Company") by enhancing its ability to attract and retain employees and other persons or entities who are in a position to make significant contributions to the success of the Company and its subsidiaries through ownership of shares of the Company's Class A Common Stock ("Stock").
The Plan is intended to accomplish these goals by enabling the Company to grant awards ("Awards") in the form of Options, Stock Appreciation Rights, Restricted Stock or Unrestricted Stock Awards, Performance Awards, Loans or Supplement Grants, or combinations thereof, all as more fully described below.
2. ADMINISTRATION
The Plan will be administered by the Board of Directors of the Company (the "Board"). The Board will have authority, not inconsistent with the express provisions of the Plan and in addition to other authority granted under the Plan, to (a) grant Awards at such time or times as it may choose; (b) determine the size of each Award, including the number of shares of Stock subject to the Award; (c) determine the type or types of each Award; (d) determine the terms and conditions of each Award; (e) waive compliance by a Participant (as defined below) with any obligations to be performed by the Participant under an Award and waive any term or condition of an Award; (f) amend or cancel an existing Award in whole or in part (and if an award is canceled, grant another Award in its place on such terms as the Board shall specify), except that the Board may not, without the consent of the holder of an Award, take any action under this clause with respect to such Award if such action would materially adversely affect the rights of such holder; (g) prescribe the form or forms of instruments that are required or deemed appropriate under the Plan, including any written notices and elections required of
Participants, and change such forms from time to time; (h) adopt, amend and rescind rules and regulations for the administration of the Plan; and (i) interpret the Plan and decide any questions and settle all controversies and disputes that may arise in connection with the Plan. Determinations and actions of the Board under the preceding sentence and all other determinations and actions of the Board made or taken under authority granted by any provision of the Plan, will be conclusive and will bind all parties. Nothing in this paragraph shall be construed as limiting the power of the Board to make adjustments under Section 7.3, Section 7.4 or Section 9.6.
The Board may, in its discretion, delegate some or all of its powers with respect to the Plan to a committee (the "Committee"), in which event all references (as appropriate) to the Board hereunder shall be deemed to refer to the Committee. The Committee, if one is appointed, shall consist of at least two directors. A majority of the members of the Committee shall constitute a quorum, and all determinations of the Committee shall be made by a majority of its members. Any determination of the Committee under the Plan may be made without notice or meeting of the Committee by a writing signed by a majority of the Committee members.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan became effective on February 18, 1993.
No Award may be granted under the Plan after December 17, 2002 (the "Term of the Plan"), but Awards previously granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
Subject to the adjustment as provided in Section 9.6 below, the aggregate number of shares of Stock, that may be delivered under the Plan will be 3,000,000. If any Award requiring exercise by the Participant for delivery of Stock terminates without having been exercised in full, or if any Award payable in Stock or cash is satisfied in cash rather than Stock, the number of shares of Stock as to which such Award was not exercised or for which cash was substituted will be available for future grants.
Stock delivered under the Plan may be either authorized but unissued Stock or previously issued Stock acquired by the Company and held in treasury. No fractional shares of Stock will be delivered under the Plan.
5. ELIGIBILITY AND PARTICIPATION
Those eligible to receive Awards under the Plan ("Participants") will be employees of the Company and its subsidiaries ("Employees") and such other persons included in the term "employee", as defined in General Instruction A(1)(a) to Form S-8, including persons who are serving as directors of the Company ("Non-Employee Directors"), if such person (other than Non-Employee Directors) is determined, in the opinion of the Board, to be in a position to make a significant contribution to the success of the Company or its subsidiaries. A "subsidiary" for purposes of the Plan will be a corporation in which the Company owns, directly or indirectly, stock possessing 50% or more of the total combined voting power of all classes of stock.
6. TYPES OF AWARDS
Both "incentive stock options," as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") (any Option intended to qualify as an incentive stock option being, hereinafter referred to as an "ISO"), and Options that are not incentive stock options, may be granted under the Plan. ISOs shall be awarded only to Employees.
(i) The exercise price of an ISO shall not be less than 100% (110% in the case of an ISO granted to a ten-percent shareholder) of the fair market value of the Stock subject to the Option, determined as of the time the Option is granted. A "ten- percent shareholder" is any person who at the time of grant owns, directly or indirectly, or is deemed to own by reason of the attribution rules of section 424(d) of the Code, stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or of any of its subsidiaries.
(ii) In no case may the exercise price paid for Stock which is part of an original issue of authorized Stock be less than the par value per share of the Stock.
(iii) The Board may reduce the exercise price of an Option (other than a Non-Employee Director Option) at any time after the time of grant, but in the case of an Option originally awarded as an ISO, only with the consent of the Participant.
Any exercise of an Option must be in writing, signed by the proper person and delivered or mailed to the Company, accompanied by (1) any documents required by the Board and (2) payment in full in accordance with paragraph (e) below for the number of shares for which the Option is exercised.
specified by the Board, or (iii) by delivery of an unconditional and irrevocable undertaking by a broker to deliver promptly to the Company sufficient funds to pay the exercise price, or (iv) by any combination of the possible forms of payment; provided, that if the Stock delivered upon exercise of the Option is an original issue of authorized Stock, at least so much of the exercise price as represents the par value of such Stock must be paid other than by the Option holder's promissory note.
In general, a Stock Appreciation Right entitles the Participant to receive, with respect to each share of Stock as to which the Right is exercised, the excess of the share's fair market value on the date of exercise over its fair market value on the date the Right was granted. However, the Board may provide at the time of grant that the amount the recipient is entitled to receive will be adjusted upward or downward under rules established by the Board to take into account the performance of the Stock in comparison with the performance of other stocks or an index or indices of other stocks. The Board may also grant Stock Appreciation Rights that provide, that following a Change in Control of the
Company, as defined below, the holder of such Right will be entitled to receive, with respect to each share of Stock subject to the Right, an amount equal to the excess of a specified value (which may include an average of values) for a share of Stock during a period preceding such Change in Control over the fair market value of a share of Stock on the date the Right was granted. "Change in Control" shall mean the occurrence of any of the following: (i) When any "person" as defined in Section 3(a)(9) of the 1934 Act and as used in Sections 13(d) and 14(d) thereof including a "group" as defined in Section 13(d) of the 1934 Act but excluding the Company and any subsidiary and any employee benefit plan sponsored or maintained by the Company or any subsidiary (including any trustee of such plan acting as trustee), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act) of securities of the Company representing at least 40 percent (or such greater percentage as the Board may specify in any grant of Stock Appreciation Rights) of the combined voting power of the Company's then outstanding securities; or (ii) The occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a subsidiary through purchase of assets, or by merger, or otherwise.
(i) The Stock Appreciation Right will be exercisable only at such time or times, and to the extent, that the related Option is exercisable and will be exercisable in accordance with the procedure required for exercise of the related Option.
(ii) The Stock Appreciation Right will terminate and no longer be exercisable upon the termination or exercise of the related Option, except that a Stock Appreciation Right
granted with respect to less than the full number of shares covered by an Option will not be reduced until the number of shares as to which the related Option has been exercised or has terminated exceeds the number of shares not covered by the Stock Appreciation Right.
(iii) The Option will terminate and no longer be exercisable upon the exercise of the related Stock Appreciation Right.
(iv) The Stock Appreciation Right will be transferable only with the related Option.
(v) A Stock Appreciation Right granted in tandem with an ISO may be exercised only when the market price of the Stock subject to the Option exceeds the exercise price of such option.
Any exercise of an independent Stock Appreciation Right must be in writing, signed by the proper person and delivered or mailed to the Company, accompanied by any other documents required by the Board.
any, of the shares covered by the Award. Payment may be by certified or bank check or other instrument acceptable to the Board.
(h) Notwithstanding the foregoing, the terms of Restricted Stock granted to Non-Employee Directors under Section 8 ("Non-Employee Director Restricted Stock") shall be as set forth in that Section.
The Board may authorize other types of stock-based awards which the Board may grant to such Participants, and in such amounts and subject to such terms and conditions, as the Board shall in its discretion determine, subject to the provisions of the Plan. Such awards may entail the transfer of actual shares of Stock to Participants,or payment in cash or otherwise of amounts based on the value of shares of Stock.
7. EVENTS AFFECTING CERTAIN OUTSTANDING AWARDS
If a Participant dies, the following will apply to Awards other than Non-Employee Director Restricted Stock:
(a) All Options and Stock Appreciation Rights held by the Participant immediately prior to death, to the extent then exercisable, may be exercised by the Participant's executor or administrator or the person or persons to whom the Option or Right is transferred by will or the applicable laws of descent and distribution, at any time within the one year period ending with the first anniversary of the Participant's death (or such shorter or longer period as the Board may determine), and shall thereupon terminate. In no event, however, shall an Option or Stock Appreciation Right remain exercisable
beyond the latest date on which it could have been exercised without regard to this Section 7. Except as otherwise determined by the Board, all Options and Stock Appreciation Rights held by a Participant immediately prior to death that are not then exercisable shall terminate at death.
(b) Except as otherwise determined by the Board, all Restricted Stock held by the Participant must be transferred to the Company (and, in the event the certificates representing such Restricted Stock are held by the Company, such Restricted Stock will be so transferred without any further action by the Participant) in accordance with Section 6.3 above.
(c) Any payment or benefit under a Performance Award or Supplemental Grant to which the Participant was not irrevocably entitled prior to death will be forfeited and the Award canceled as of the time of death, unless otherwise determined by the Board.
If a Participant who is an Employee ceases to be an Employee for any reason other than death, or if there is a termination (other than by reason of death) of the consulting, service or similar relationship in respect of which a Participant was granted an Award hereunder (such termination of the employment or other relationship being hereinafter referred to as a "Status Change"), the following will apply to Awards other than Non-Employee Director Restricted Stock:
(a) Except as otherwise determined by the Board, all Options and Stock Appreciation Rights held by the Participant that were not exercisable immediately prior to the Status Change shall terminate at the time of the Status Change. Any Options or Rights that were exercisable immediately prior to the Status Change will continue to be exercisable for a period of three months (or such longer period as the Board may determine), and shall thereupon terminate, unless the Award provides by its terms for immediate termination in the event of a Status Change or unless the Status Change results from a discharge for cause which in the opinion of the Board casts such discredit on the Participant as to justify immediate termination of the Award. In no event, however, shall an Option or Stock Appreciation Right remain exercisable beyond the latest date on which it could have been exercised
without regard to this Section 7. For purposes of this paragraph, in the case of a Participant who is an Employee, a Status Change shall not be deemed to have resulted by reason of (i) a sick leave or other bona fide leave of absence approved for purposes of the Plan by the Board, so long as the Employee's right to reemployment is guaranteed either by statute or by contract, or (ii) a transfer of employment between the Company and a subsidiary or between subsidiaries, or to the employment of a corporation (or a parent or subsidiary corporation of such corporation) issuing or assuming an option in a transaction to which section 424(a) of the Code applies.
(b) Except as otherwise determined by the Board, all Restricted Stock held by the Participant at the time of the Status Change must be transferred to the Company (and, in the event the certificates representing such Restricted Stock are held by the Company, such Restricted Stock will be so transferred without any further action by the Participant) in accordance with Section 6.3 above.
(c) Any payment or benefit under a Performance Award or Supplemental Grant to which the Participant was not irrevocably entitled prior to the Status Change will be forfeited and the Award cancelled as of the date of such Status Change unless otherwise determined by the Board.
Notwithstanding any other provision of the Plan or of any Award to the contrary (other than Section 9.10), in the event of a consolidation or merger in which the Company is not the surviving corporation or which results in the acquisition of substantially all the Company's outstanding Stock by a single person or entity or by a group of persons and/or entities acting in concert or in the event of the sale or transfer of substantially all the Company's assets (an "acquisition transaction"), all outstanding Awards will terminate as of the effective date of the acquisition transaction, and the following will apply:
(a) Each outstanding Option and Stock Appreciation Right will become exercisable in full 10 days prior to the anticipated effective date of the proposed acquisition transaction unless otherwise expressly provided at the time of grant.
(b) Each outstanding share of Restricted Stock (including Non- Employee Director Restricted Stock) will become free of all restrictions and conditions 10 days prior to the anticipated effective date of the proposed acquisition transaction.
(c) Conditions on Performance Awards and Supplemental Grants which relate only to the passage of time and continued employment will be removed 10 days prior to the anticipated effective date of the proposed acquisition transaction. Performance or other conditions (other than conditions relating only to the passage of time and continued employment) will continue to apply unless otherwise provided in the instrument evidencing the Awards or in any other agreement between the Participant and the Company or unless otherwise agreed to by the Board.
(d) The Board may, in its sole discretion, prior to the effective date of the acquisition transaction, forgive all or any portion of the principal of or interest on a Loan.
In the event of a dissolution or liquidation of the Company (a "covered transaction"), all outstanding Awards (including Non-Employee Director Restricted Stock) will terminate as of the effective date of the covered transaction, and the following rules shall apply:
(a) Subject to paragraph (b) below, the Board may in its sole discretion, prior to the effective date of the covered transaction, (1) make each outstanding Option and Stock Appreciation Right exercisable in full, (2) remove the restrictions from each outstanding share of Restricted Stock (including Non-Employee Director Restricted Stock), (3) cause the Company to make any payment and provide any benefit under each outstanding Performance Award and Supplemental Grant and (4) forgive all or any portion of the principal of or interest on a Loan.
(b) If an outstanding Award is subject to performance or other conditions (other than conditions relating only to the passage of time and continued employment) which will not have been satisfied at the time of the covered transaction, the Board may in its sole discretion remove such
conditions. If it does not do so, however, such Award will terminate as of the date of the covered transaction notwithstanding paragraph (a) above.
8. CERTAIN AWARDS TO NON-EMPLOYEE DIRECTORS
(i) On November 1, 1997 and on each anniversary of November 1, 1997 through and including November 1, 2000, in addition to shares of Non-Employee Director Restricted Stock granted pursuant to sections 8.1(a)(ii) or (iii), each Non-Employee Director shall be granted an Award of 10,000 shares of Non-Employee Director Restricted Stock upon the terms and subject to the conditions set forth in the Plan including this Section 8. With respect to any individual who becomes a Non-Employee Director after November 1, 1997 (provided such individual has not previously received a grant pursuant to the first sentence of this Section 8.1(a)(i)), such individual shall be granted as of the date of his election or appointment as a Non-Employee Director an Award of 10,000 shares of Non-Employee Director Restricted Stock upon the terms and subject to the conditions set forth in the Plan including this Section 8.
(ii) With respect to any Non-Employee Director who becomes a Vice Chairman of the Board after March 1, 1997 (provided such individual has not previously received a grant pursuant to the first clause of this Section 8.1(a)(ii)), such individual shall be granted as of the date of his election or appointment as Vice Chairman an Award of 15,000 shares of Non-Employee Director Restricted Stock upon the terms and subject to the conditions set forth in the Plan including this Section 8.
(iii) With respect to any Non-Employee Director who becomes the Chairman of the Executive Committee after March 1, 1997 (provided such individual has not previously received a grant pursuant to the first clause of this Section 8.1(a)(iii)), such individual shall be granted as of the date of his election or appointment as the Chairman an Award of 55,000 shares of Non-Employee Director Restricted Stock upon the terms and subject to the conditions set forth in the Plan including this Section 8.
(iv) If on any date when Non-Employee Director Restricted Stock is to be granted pursuant to Section 8.1(a)(i), (ii) or (iii), the total number of shares of Stock as to which Non-Employee Director Restricted Stock is to be granted exceeds the number of shares of Stock remaining available under the Plan, there shall be a pro rata reduction in the number of shares of Stock as to which each Non- Employee Director is granted on such day.
Non-Employee Director Restricted Stock may be kept in the possession of the Participant prior to the lapse of restrictions on such shares.
9. GENERAL PROVISIONS
Awards will be evidenced by such written instruments, if any, as may be prescribed by the Board from time to time. Such instruments may be in the form of agreements to be executed by both the Participant and the Company, or certificates, letters or similar instruments, which need not be executed by the Participant but acceptance of which will evidence agreement to the terms thereof.
Except as specifically provided by the Plan, the receipt of an Award will not give a Participant rights as a stockholder; the participant will obtain such rights, subject to any limitations imposed by the Plan or the instrument evidencing the Award, upon actual receipt of Stock. However, the Board may, on such conditions as it deems appropriate, provide that a Participant will receive a benefit in lieu of cash dividends that would have been payable on any or all Stock subject to the Participant's Award had such Stock been outstanding. Without limitation, the Board may provide for payment to the Participant of amounts representing such dividends, either currently or in the future, or for the investment of such amounts on behalf of the Participant.
The Company will not be obligated to deliver any shares of Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan (a) until all conditions of the Award have been satisfied or removed, (b) until, in the opinion of the Company's counsel, all applicable federal and state laws and regulation have been complied with, (c) if the outstanding Stock is at the time listed on any stock exchange, until the shares to be delivered have been listed or authorized to be listed on such exchange upon official notice of issuance, and (d) until all other legal matters in connection with the issuance and delivery of such shares have been approved by the Company's counsel. If the sale of Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the Award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act and may require that the certificates evidencing such Stock bear an appropriate legend restricting transfer.
If an Award is exercised by the Participant's legal representative, the Company will be under no obligation to deliver Stock pursuant to such exercise until the Company is satisfied as to the authority of such representative.
As a condition to the receipt of any shares of Stock pursuant to any Award or the lifting of restrictions on any Award, or in connection with any other event that gives rise to a federal or other governmental tax withholding obligation on the part of the Company relating to an award (including, without limitation, FICA tax), the Company may require that the Participant remit to the Company or the Company may withhold from any cash payment made to the Participant an amount sufficient to satisfy all federal. state and local withholding tax requirements (the "withholding requirements").
In the case of an Award pursuant to which Stock may be delivered, the Board will have the right to require that the Participant or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Board with regard to such requirements, prior to the delivery of any Stock. If and to the extent that such withholding is required, the Board may permit the Participant or such other person to elect at such time and in such manner as the Board provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Stock having a value calculated to satisfy the withholding requirement.
If at the time an ISO is exercised the Board determines that the Company could be liable for withholding requirements with respect to a disposition of the Stock received upon exercise, the Board may require as a condition of exercise that the person exercising the ISO agree (a) to inform the Company promptly of any disposition (within the meaning of section 424(c) of the Code) of Stock received upon exercise, and (b) to give such security as the Board deems adequate to meet the potential liability of the Company for the withholding requirements and to augment such security from time to time in any amount reasonably deemed necessary by the Board to preserve the adequacy of such security.
No Award (other than an Award in the form of an outright transfer of cash or Unrestricted Stock) may be transferred other than by will or by the laws of descent and distribution, and during a Participant's lifetime an Award requiring exercise may be exercised only by the Participant (or in the event of the Participant's incapacity, the person or persons legally appointed to act on the Participant's behalf).
(a) In the event of a stock dividend, stock split or combination of shares, recapitalization or other change in the Company's capitalization, or other distribution to common stockholders other than normal cash dividends, after the effective date of the Plan, the Board will make any appropriate adjustments to the maximum number of shares that may be delivered under the Plan under Section 4 above.
(b) In any event referred to in paragraph (a), the Board will also make any appropriate adjustments to the number and kind of shares of stock or securities subject to Awards then outstanding or subsequently granted, including the number and kind to be automatically granted as Non-Employee Director Deferred Stock under Section 8.1, any exercise prices relating to Awards and any other provision of Awards affected by such change. The Board may also make such adjustments to take into account material changes in law or in accounting practices or principles, mergers, consolidations, acquisitions, dispositions or similar corporate transactions, or any other event, if it is determined by the Board that adjustments are appropriate to avoid distortion in the operation of the Plan. Adjustments relating to Non-Employee Director Deferred Stock shall be made solely to preserve, without increasing, the value of such Awards, to prevent dilution or enlargement of Participants rights, and shall in any case be subject to Section 9.10.
Neither the adoption of the Plan nor the grant of Awards will confer upon any person any right to continued retention by the Company or any subsidiary as an Employee or otherwise, or affect in any way the right of the Company or subsidiary to terminate an employment, service or similar relationship at any time.
Except as specifically provided by the Board in any particular case, the loss of existing or potential profit in Awards granted under the Plan will not constitute an element of damages in the event of termination of an employment, service or similar relationship even if the termination is in violation of an obligation of the Company to the Participant.
The Board may agree at any time, upon request of the Participant, to defer the date on which any payment under an Award will be made.
Where a Participant purchases Stock under an Award for a price equal to the par value of the Stock, the Board may determine that such price has been satisfied by past services rendered by the Participant.
It is the intent of the Company that any grant of Awards to and other
transactions by a Participant who is subject to Section 16 of the 1934 Act
comply in all respects with applicable provisions of Rule 16b-3 under the 1934
Act. Accordingly, if any action pursuant to this Plan or any Award agreement
may not comply with the requirements of Rule 16b-3 as then applicable to any
such transaction, such action will be taken so as to conform to the applicable
requirements of Rule 16b-3 so that such Participant shall avoid liability under
Section 16(b).
10. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a Participant will affect the Company's right to grant to such Participant awards that are not subject to the Plan, to issue to such Participant Stock as a bonus or otherwise, or to adopt other plans or arrangements under which Stock will be issued to Employees or other persons eligible to participate in the Plan.
The Board may at any time or times amend the Plan or any outstanding Award for any purpose which may at the time be permitted by law, or may at any time terminate the Plan as to any further grants of Awards, provided that (except to the extent expressly required or permitted by the Plan) no such amendment will, without the approval of the stockholders of the Company, effectuate a change for which stockholder approval is required in order for the Plan to continue to qualify for the award of ISOs under section 422 of the Code and to continue to qualify under Rule 16b-3 promulgated under Section 16 of the 1934 Act.
11. GOVERNING LAW.
All rights and obligations under the Plan shall be construed and interpreted in accordance with the laws of the State of Delaware, without giving
effect to principles of conflict of laws.
Exhibit 21
AUTOTOTE CORPORATION SUBSIDIARIES
Autotote Management Corporation (Delaware) (100%)
Newark Holdings, Inc. (Delaware) (100%) Autotote Systems, Inc. (Delaware) (100%) Autotote International, Inc. (Delaware) (100%) Autotote Canada Inc. (Ontario) (100%) Autotote Worldwide Limited (Non-Resident Ireland (Bermuda)) (99%, 1% NHI) Autotote Worldwide Services, Limited (Ireland) (100%)
Autotote Enterprises, Inc. (Connecticut) (100%)
Autotote Keno Corporation (Nebraska) (100%) Big Red Lottery Services, Ltd. (Nebraska) (20%) Lincoln's Big Lottery Services, Ltd. (Nebraska) (20%) Gretna's Big Red Lottery Services, Ltd. (Nebraska) (20%)
Autotote Lottery Corporation (Delaware) (100%) Autotote Lottery Canada Inc. (Ottawa) (100%) Autotote Israel Ltd. (Israel) (80%)
ETAG Electronic Totalisator AG (Switzerland) (100%) TEK Turfelektronik GMBH (Germany) (100%) Datek Toto Dienstielstung GMBH (Germany) (50%) TEK Totalisator Service GMBH (Germany) (50%) ETAG Electronic Totalisator GesMBH (Austria) (100%)
Autotote Communication Services, Inc., (Delaware) (100%)
Marvin H. Sugarman Productions, Inc. (New York) (100%) SJC Video Corporation (California) (66.67%)
Racing Technology, Inc. (New York) (100%)
SOFINAX (France) (100%) SEPMO (France) (100%) SASO (France) (100%) |
Autotote Mexico, Ltd. (Delaware) (100%)
Autotote Panama, Inc. (Panama) (100%)
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Autotote Corporation:
We consent to the incorporation by reference in the registration statements (No's 33-82612, 33-46594, 33-27737, 333-05811, 333-44983 and 333-44979) on Form S-8 of Autotote Corporation of our report dated December 12, 1997, relating to the consolidated balance sheets of Autotote Corporation and subsidiaries as of October 31, 1997, and 1996, and the related consolidated statements of operations, stockholders' equity (deficit), cash flows and financial statement schedule for each of the years in the three-year period ended October 31, 1997, which report appears in the Form 10-K of Autotote Corporation for the year ended October 31, 1997.
KPMG Peat Marwick LLP
Short Hills New Jersey
January 28, 1998
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF AUTOTOTE CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | OCT 31 1997 |
| PERIOD START | NOV 01 1996 |
| PERIOD END | OCT 31 1997 |
| CASH | 18,207 |
| SECURITIES | 0 |
| RECEIVABLES | 15,536 |
| ALLOWANCES | 1,976 |
| INVENTORY | 6,653 |
| CURRENT ASSETS | 41,208 |
| PP&E | 180,170 |
| DEPRECIATION | 103,781 |
| TOTAL ASSETS | 153,541 |
| CURRENT LIABILITIES | 35,718 |
| BONDS | 35,000 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 354 |
| OTHER SE | (33,594) |
| TOTAL LIABILITY AND EQUITY | 153,541 |
| SALES | 157,332 |
| TOTAL REVENUES | 157,332 |
| CGS | 94,884 |
| TOTAL COSTS | 94,884 |
| OTHER EXPENSES | 64,436 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 14,367 |
| INCOME PRETAX | (16,355) |
| INCOME TAX | 906 |
| INCOME CONTINUING | (17,261) |
| DISCONTINUED | 0 |
| EXTRAORDINARY | (426) |
| CHANGES | 0 |
| NET INCOME | (17,687) |
| EPS PRIMARY | (0.51) |
| EPS DILUTED | (0.51) |