SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Mark One
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: July 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition from ________________ to_______________
Commission File number: 0-13063
AUTOTOTE CORPORATION
--------------------
Exact name of registrant as specified in its charter
Delaware 81-0422894
--------- ----------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
888 Seventh Avenue, New York, New York 10106-1894
-------------------------------------------------
(Address of principal executive offices)
(Zip Code)
212-541-6440
------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of September 13, 1995:
Class A Common Stock: 28,941,946
Class B Common Stock: None
Page 1 of 26
AUTOTOTE CORPORATION AND SUBSIDIARIES
QUARTER ENDED JULY 31, 1995
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
July 31, 1995 (Unaudited) and
October 31, 1994............................................. 3
Consolidated Statements of Operations
Three Months Ended July 31, 1995
and 1994 (Unaudited)......................................... 4
Consolidated Statements of Operations
Nine Months Ended July 31, 1995
and 1994 (Unaudited)......................................... 5
Consolidated Statements of Cash Flows
Nine Months Ended July 31, 1995 and
1994 (Unaudited)............................................. 6
Notes to Consolidated Financial
Statements (Unaudited)....................................... 7-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations................................................... 10-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................ 15
Item 6. Exhibits and Reports on Form 8-K................................. 15
2
AUTOTOTE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
July 31, 1995 October 31, 1994
----------------- -------------------
ASSETS
------
Current Assets:
Cash and cash equivalents $ 9,261 $ 6,743
Accounts receivable, net 17,441 27,492
Income tax receivable 419 579
Inventories 12,529 7,730
Unbilled receivables (see Note 5) 6,341 6,018
Prepaids, deposits and other 3,329 4,672
----------------- -------------------
Total current assets 49,320 53,234
----------------- -------------------
Property and equipment, at cost 190,655 162,531
Less accumulated depreciation 62,366 41,144
----------------- -------------------
Net property and equipment 128,289 121,387
----------------- -------------------
Goodwill, less amortization 25,583 23,052
Operating rights, less amortization 18,125 18,933
Other assets and investments 26,372 25,666
----------------- -------------------
$ 247,689 $ 242,272
================= ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
----------------------------------------
Current Liabilities:
Notes payable and other short term borrowings $ 2,100 $ 250
Senior credit facility (see note 6) 132,948 -
Current installments of long-term debt 1,095 792
Accounts payable 17,678 15,617
Accrued liabilities 26,238 17,164
Income taxes payable 3,356 3,548
----------------- -------------------
Total current liabilities 183,415 37,371
----------------- -------------------
Deferred income taxes 4,075 3,650
Other long-term liabilities 2,293 2,367
Long-term debt, excluding current installments 4,613 103,163
Long-term debt, convertible subordinated debentures 40,000 40,000
----------------- -------------------
Total liabilities 234,396 186,551
----------------- -------------------
Stockholders' Equity:
Common stock 290 288
Additional paid-in-capital 135,360 134,864
Accumulated deficit (123,713) (79,580)
Treasury stock (295) -
Translation adjustment 1,651 149
----------------- -------------------
Total stockholders' equity 13,293 55,721
----------------- -------------------
$ 247,689 $ 242,272
================= ===================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
AUTOTOTE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(In Thousands Except Per Share Amounts)
Three Months Ended Three Months Ended
July 31, 1995 July 31, 1994
--------------------- ---------------------
Operating Revenues:
Wagering systems $ 34,627 $ 26,564
Wagering equipment and other sales 4,095 14,572
---------------------- ----------------------
38,722 41,136
---------------------- ----------------------
Operating expenses (exclusive of depreciation
and amortization shown below):
Wagering systems 20,198 18,346
Inventory, equipment and contract adjustments - 340
Wagering equipment and other sales 4,754 11,620
---------------------- ----------------------
24,952 30,306
---------------------- ----------------------
Total gross profit 13,770 10,830
---------------------- ----------------------
Selling, general and administrative expenses 9,622 5,681
Restructuring 11,601 -
Write-off of investments and other 6,640 186
Depreciation and amortization 8,925 6,032
---------------------- ----------------------
Operating loss (23,018) (1,069)
---------------------- ----------------------
Other (income) expense
Interest expense 5,549 1,276
Other (income) expense (4) 322
---------------------- ----------------------
5,545 1,598
---------------------- ----------------------
Loss before income taxes (28,563) (2,667)
Income taxes (benefit) 683 (453)
---------------------- ----------------------
Net loss $ (29,246) $ (2,214)
====================== ======================
Loss per common share:
Net loss $ (1.01) $ (0.08)
====================== ======================
Weighted average number of common shares
outstanding 28,928 28,196
====================== ======================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
AUTOTOTE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(In Thousands Except Per Share Amounts)
Nine Months Ended Nine Months Ended
July 31, 1995 July 31, 1994
---------------------- ----------------------
Operating Revenues:
Wagering systems $ 95,030 $ 71,769
Wagering equipment and other sales 11,941 36,102
---------------------- ----------------------
106,971 107,871
---------------------- ----------------------
Operating expenses (exclusive of depreciation
and amortization shown below):
Wagering systems 56,103 44,512
Inventory, equipment and contract adjustments - 3,073
Wagering equipment and other sales 9,264 24,078
---------------------- ----------------------
65,367 71,663
---------------------- ----------------------
Total gross profit 41,604 36,208
---------------------- ----------------------
Selling, general and administrative expenses 27,226 15,603
Restructuring 11,601 -
Write-off of investments and other 6,640 1,081
Depreciation and amortization 25,423 17,218
---------------------- ----------------------
Operating income (loss) (29,286) 2,306
---------------------- ----------------------
Other (income) expense
Interest expense 12,706 3,912
Other (income) expense 141 117
---------------------- ----------------------
12,847 4,029
---------------------- ----------------------
Loss before income taxes and
extraordinary item (42,133) (1,723)
Income taxes (benefit) 2,002 (359)
---------------------- ----------------------
Net loss before extraordinary item (44,135) (1,364)
Extraordinary item
(Write-off of financing fees and expenses) - 4,222
---------------------- ----------------------
Net loss $ (44,135) $ (5,586)
====================== ======================
Loss per common share:
Loss before extraordinary item (1.53) (0.05)
Extraordinary item - (0.15)
---------------------- ----------------------
Net loss per common share $ (1.53) $ (0.20)
====================== ======================
Weighted average number of common shares
outstanding 28,884 28,097
====================== ======================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
AUTOTOTE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
Nine Months Ended Nine Months Ended
July 31, 1995 July 31, 1994
---------------------- ----------------------
Cash flows from operating activities:
Net loss $ (44,135) $ (5,586)
---------------------- ----------------------
Adjustments to reconcile net loss to cash
provided by (used in) operating activities:
Depreciation and amortization 25,423 17,218
Write-off of financing fees & expense 321 4,222
Restructuring 11,478
Write-off of investments and other 6,640 1,081
Loss on sale of assets 302
Changes in operating assets and liabilities
Accounts receivable 11,501 (12,408)
Inventories (9,183) (5,342)
Prepaids, deposits and other (218) (2,861)
Accounts payable 5,341 (2,155)
Accrued liabilities 914 1,397
Income taxes payable (493) (1,654)
Other 2,123 1,729
---------------------- ----------------------
Total adjustments 54,149 1,227
---------------------- ----------------------
Net cash provided by (used in) operating activities 10,014 (4,359)
---------------------- ----------------------
Cash flows from investing activities:
Capital expenditures (8,861) (12,072)
Expenditures for equipment under wagering system
contracts (9,588) (28,247)
Increase in other assets and investments (7,667) (4,251)
Purchase of companies, net of cash acquired (15,996) -
Proceeds from the sale of assets 684 -
---------------------- ----------------------
Net cash used in investing activities (41,428) (44,570)
---------------------- ----------------------
Cash flows from financing activities:
Net borrowings (repayments) on lines-of-credit and other
short-term facilities 33,600 -
Proceeds from issuance of long-term debt 1,332 42,060
Payments on long-term debt (1,205) -
Net proceeds from issuance of common stock 205 773
---------------------- ----------------------
Net cash provided by financing activities 33,932 42,833
---------------------- ----------------------
Increase/(Decrease) in cash and cash equivalents 2,518 (6,096)
Cash and cash equivalents, beginning of period 6,743 10,524
---------------------- ----------------------
Cash and cash equivalents, end of period $ 9,261 $ 4,428
====================== ======================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 9,817 $ 2,238
====================== ======================
Income taxes $ 311 $ 1,287
====================== ======================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
AUTOTOTE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1) CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of July 31, 1995 and the consolidated
statements of operations for the three and nine month periods ended July 31,
1995 and 1994, and consolidated statements of cash flows for the nine months
then ended have been prepared by the Company, without audit. In the opinion of
management, all adjustments necessary to present fairly the financial position,
results of operations and cash flows at July 31, 1995 and for all periods
presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These consolidated financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's October 31, 1994 Annual Report on form 10-K. The results of
operations for the period ended July 31, 1995 are not necessarily indicative of
the operating results for the full year.
Certain items in the prior year's financial statements have been
reclassified to conform with the current year presentation.
2) UNUSUAL ITEMS
The third quarter results included unusual charges of $22.8 million,
substantially resulting from the Company's restructuring, certain valuation
adjustments, and bank credit agreement fees. As a result of these charges, the
Company anticipates total cash obligations of approximately $5.9 million, $.1
million of which was made in the third quarter and the balance to be made over
the next twelve months. Restructuring charges of $11.6 million were attributable
to the closure of the Owings Mills Lottery support facility and the scaling back
of certain international activities, including the closure of the Company's
manufacturing facility in Ballymahon, Ireland. The write-off of investments and
other noncurrent assets of $6.6 million included $2.7 million attributable to
the Company's Mexican video gaming machine contracts, $2.6 million attributable
to European wagering terminals, and $1.3 million attributable to other assets.
The third quarter included $1.7 million in bank financing costs primarily
relating to a waiver of certain financial covenant violations of the Company's
senior bank credit facility agreement. The remaining charges included
miscellaneous asset valuation adjustments and severance.
3) ACQUISITIONS
In January 1995, the Company acquired substantially all of the assets of
the Simulcast Division of LDDS Corporation (formerly IDB Communications Group
Inc.) ("IDB") and the rights and obligations under leases relating to eight (8)
C-band satellite transponders for a purchase price of $13.7 million in cash. The
acquisition has been accounted for by the purchase
7
3) ACQUISITIONS (CONTD.)
method of accounting, and accordingly, the purchase price has been allocated to
the assets acquired based on preliminary estimates of fair values at the date of
acquisition. The excess of the purchase price over the estimated fair values of
the net assets acquired was $2.8 million and has been recorded as goodwill,
which is being amortized over 5 years.
In November 1994, the Company acquired 80% of the outstanding stock of the
holding company of SEPMO S.A., ("SEPMO"), a French supplier of wagering systems
and services to the French off-track betting network and other customers, for
$2.3 million. The acquisition has been accounted for by the purchase method of
accounting and, accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on preliminary estimates of fair values
at the date of acquisition. The excess of the purchase price over the estimated
fair values of the net assets acquired was $1.3 million and has been recorded as
goodwill, which is being amortized over 5 years.
The operating results of these acquisitions are included in the Company's
consolidated results of operations from the respective dates of the
acquisitions.
4) INVENTORIES
Inventories consist of the following:
JULY 31, OCTOBER 31,
1995 1994
---- ----
Parts $ 4,938 $ 3,579
Work-in-Process 6,106 3,271
Finished Goods 1,164 443
---------- -----------
12,208 7,293
Ticket Paper 321 437
---------- -----------
Total $ 12,529 $ 7,730
========== ===========
5) UNBILLED RECEIVABLES
Unbilled receivables represents costs and related earnings in excess of
payments made by customers on software development contracts in Europe.
6) DEBT
The Company has classified $132.9 million of outstanding loans under its
senior bank credit facility as a current liability as of July 31, 1995, since
the Company was in violation of certain financial covenants as of that date. The
Company's senior bank credit facility was amended by a Waiver, Consent,
Agreement and Fifth Amendment, dated as of July 19, 1995, effective July 14,
1995, and a Consent Agreement and Sixth Amendment, dated as of August 30, 1995,
(collectively, the "Amendments"), to, among other things, waive these covenant
violations through October 14, 1995 (the "Waiver Period"). Under the terms of
the Amendments, the Company is required to meet certain conditions at various
times during the Waiver Period, including (a) by September 8, 1995, making
satisfactory arrangements for the long-term deferral of all cash payments
otherwise due during the Waiver Period on the Company's subordinated debt, (b)
by September 14, 1995, making satisfactory arrangements for raising $5 million
through the issuance of equity or asset sales, (c) issuing to the bank group
warrants to purchase 385,000 shares of the Company's Class A Common Stock, which
warrants were issued on September 13, 1995, and (d) satisfying certain revised
financial covenants. The Amendments also restrict the Company's capital
expenditures, acquisitions, sale of equity and assets, and incurrence of lease
and debt obligations. On September 13, 1995, the Company received written
consents from its bank group that (i) certain arrangements with the holders of
the Company's subordinated debt for a temporary deferral of cash payments until
October 5, 1995, satisfy the condition referred to in (a) above until October 2,
1995, provided that on or prior to October 2, 1995, the Company enters into
satisfactory arrangements for such long-term deferral of certain cash payments
on its subordinated debt, and (ii) certain arrangements for a proposed issuance
of 9% Convertible Subordinated Debentures satisfy the condition referred to in
(b) above.
8
6) DEBT (CONTD)
The Company is engaged in active discussions with its bank group to address
ongoing compliance with the senior bank credit facility and to address future
financing needs and alternatives.
7) LITIGATION
The Company and certain of its officers and directors were named 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 putative class consists of
purchasers of Class A Common Stock and put and call options between March 1994
and January 1995. The consolidated class action complaint alleges that the
Company and certain of its officers and directors violated federal securities
laws and seeks remedies of unspecified monetary damages and awards of fees and
expenses. The defendants answered the complaint in August 1995, denying any
violation of federal securities law. Discovery has commenced pursuant to a
court ordered discovery plan. The likelihood of success and the ultimate
outcome of the consolidated litigation cannot be evaluated until discovery is
complete.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion addresses the financial condition of the Company
as of July 31, 1995 and the results of operations for the three and nine months
periods ended July 31, 1995, compared to the same periods last year. This
discussion should be read in conjunction with the Management's Discussion and
Analysis section for the fiscal year ended October 31, 1994 included in the
Company's Annual Report on Form 10-K
THIRD QUARTER FISCAL 1995 COMPARED TO THIRD QUARTER FISCAL 1994
REVENUE ANALYSIS
Revenues decreased 6% or $2.4 million to $38.7 million in the third quarter
of fiscal 1995 from $41.1 million in the third quarter of fiscal 1994. The
decrease is primarily attributable to a decline in wagering equipment and other
sales of $10.5 million, largely reflecting a $6.9 million sale in the third
quarter of 1994 of MAX 2000 terminals to Italy's TOTIP pool and $4.3 million in
1994 revenues associated with the commencement of certain international lottery
contracts. Offsetting this decline was an increase in wagering system revenues
of $8.0 million reflecting improvements for the Company's Connecticut off-track
betting and North American pari-mutuel operations, and significant growth in
simulcasting revenues as a result of the first quarter 1995 acquisition of
substantially all of the assets of the Simulcast Division of LDDS Corporation
(formerly the IDB Communications Group, Inc.) ("IDB"). Also, included in third
quarter 1995 results are $2.4 million in wagering system revenue and $.7 million
in wagering equipment and other sales attributable to the Company's first
quarter 1995 acquisition of a French pari-mutuel concern ("SEPMO").
EXPENSE ANALYSIS
Total gross margin improved $2.9 million, or 27% to $13.8 million in the
third quarter of 1995, largely reflecting margin improvement for international
lottery operations (including the effect of 1994 contingent payments made to
former Tele Control stockholders), simulcasting operations, and the Company's
off-track betting franchise in Connecticut. These improvements were partially
offset by inclusion in the third quarter 1994 gross margin of $2.4 million
relating to the sale of MAX 2000 terminals to Italy's TOTIP pool. Third quarter
1995 included $1.3 million attributable to the SEPMO acquisition.
Selling, general and administrative expenses increased 69% to $9.6 million
in the third quarter of 1995 compared to $5.7 million in the third quarter of
1994. The increase in SG&A expense included $1.0 million attributable to the
operations of SEPMO, and increased expenses for international lottery
operations, bad debt, severance, market development, legal and other
professional fees.
The third quarter results included restructuring charges of $11.6 million
attributable to the closure of the Owings Mills Lottery support facility and the
scaling back of certain international support activities, including the closure
of the Company's manufacturing facility in Ballymahon, Ireland. The write-off of
investments and other noncurrent assets of $6.6
10
million included $2.7 million attributable to the Company's Mexican video gaming
machine contracts, $2.6 million attributable to European wagering terminals, and
$1.3 million attributable other assets. See Note 2 to the Consolidated Financial
Statements.
Depreciation and amortization expenses increased 48% to $8.9 million in the
third quarter of 1995 compared to $6.0 million in the third quarter of fiscal
1994. The increased depreciation and amortization was primarily due to fiscal
1994 capital additions for North American pari-mutuel and video gaming
operations, and the first quarter 1995 acquisitions of SEPMO and the
simulcasting assets of IDB.
Interest expense increased $4.3 million to $5.5 million in the second
quarter of 1995, principally reflecting increased borrowings to finance 1994
capital additions in North American pari-mutuel and video gaming operations,
first quarter 1995 acquisitions, $1.7 million in bank credit agreement fees and
other financing costs primarily relating to a waiver of certain financial
covenant violations of the Company's senior bank credit facility agreement, and
the capitalization of certain 1994 interest in connection with capital projects.
NINE MONTHS ENDED JULY 31, 1995 COMPARED TO NINE MONTHS ENDED JULY 31, 1994
REVENUE ANALYSIS
Revenues marginally decreased to $107.0 million in fiscal 1995 from $107.9
million in the prior year period. Wagering system revenues increased $23.3
million or 32% to $95.0 million, compared to $71.8 million in the prior year
period. The wagering systems revenues increase reflected continued improvements
in the Company's North American pari-mutuel and off-track betting businesses;
significant growth in simulcasting operations, largely reflecting the 1995 IDB
simulcasting asset acquisition; and increased revenues for the Company's
European lottery operations. Offsetting this improvement was a decline in
wagering equipment and other sales of $24.2 million to $11.9 million, primarily
due to 1994 revenues of $20.0 million relating to the sale of MAX 2000 terminals
to Italy's TOTIP pool and $4.3 million in 1994 revenues associated with the
commencement of certain international lottery contracts. Included in the nine
month 1995 results were $6.1 million in wagering systems revenues and $2.8
million in wagering equipment and other sales attributable to the Company's
first quarter 1995 acquisition of a French pari-mutuel concern ("SEPMO").
EXPENSE ANALYSIS
Total gross margin increased $5.4 million, or 15% to $41.6 million in
fiscal 1995 as compared to $36.2 million in the prior year period. Excluding
1994 charges of $3.1 million for inventory, equipment and contract adjustments
principally relating to simulcasting operations, total gross margin increased
$2.3 million, principally reflecting improvements in simulcasting, international
lottery operations including the effect of 1994 contingent payments made to
former Tele Control stockholders, North American pari-mutuel, and the first
quarter 1995 acquisition of SEPMO. Offsetting these improvements was the
inclusion in 1994 gross margin of $7.3 million attributable to the sale of MAX
2000 terminals.
11
Selling, general and administrative expenses increased 75% to $27.2 million
in the 1995 period compared to $15.6 million in the prior year period. The
increase in SG&A expense included $3.0 million attributable to the operations of
SEPMO, increased expenses for market development , legal and other professional
fees; and increases relating to the servicing of North America pari-mutuel and
video gaming customers.
The nine months of fiscal 1995 included restructuring charges of $11.6
million attributable to the closure of the Owings Mills Lottery support facility
and the scaling back of certain international support activities, including the
closure of the Company's manufacturing facility in Ballymahon, Ireland. The 1995
write-off of investments and other noncurrent assets of $6.6 million included
$2.7 million attributable to the Company's Mexican video gaming machine
contracts, $2.6 million attributable to European wagering terminals, and $1.3
million attributable other assets. See Note 2 to the Consolidated Financial
Statements. The first nine months of 1994 included $1.1 million in investments,
write-offs and other valuation adjustments.
Depreciation and amortization expenses increased 48% to $25.4 million in
the 1995 period compared to $17.2 million in the 1994 period. The increased
depreciation and amortization was primarily due to capital additions for North
American pari-mutuel and video gaming operations, and the first quarter 1995
acquisitions of SEPMO and the simulcasting assets of IDB.
Interest expense increased $8.8 million to $12.7 million in the 1995 period
compared to $3.9 million in fiscal 1994, principally reflecting increased
borrowings to finance capital additions in North American pari-mutuel and video
gaming operations, first quarter 1995 acquisitions, $2.4 million in 1995 bank
credit agreement fees and other financing costs primarily relating to a waiver
of certain financial covenant violations of the Company's senior bank credit
facility agreement, and the capitalization of certain 1994 interest in
connection with capital projects.
Fiscal 1994 results included a write-off of deferred financing fees
relating to the 1993 Senior Bank Credit facility. The write-off of these fees
was classified as an extraordinary item.
INCOME TAXES
Income tax expense was $2.0 million in the 1995 period as compared to a
benefit of $0.4 million in the 1994 period. Income tax expense for the 1995
period principally reflects foreign tax expense. No tax benefit has been
recognized on domestic operating losses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's wagering system contracts are capital intensive, requiring
substantial initial cash outlays which are recouped over time from cash flows
from the contracts. The amounts of the Company's future capital expenditures for
wagering systems equipment will depend on the Company's ability to enter into
service contracts with new customers and renewal of existing contracts with
systems upgrades. Each new customer may require the manufacture and assembly of
a new wagering system unless the dates of operations and requirements of a new
wagering facility allow an existing system to be used at such facility. Under
some circumstances, the Company may be required to begin manufacture of wagering
systems prior to award of a contract in a competitive bidding situation.
Expenditures related to the sale of the Company's wagering equipment are
generally funded, in part, by customer advance payments.
12
Net cash provided by operating activities was $10.0 million for the
nine months of fiscal 1995, primarily attributable to improved collection of
accounts receivable and timing of certain payments, partially offset by
increases in inventories. At July 31, 1995, the Company had cash and cash
equivalents of $9.3 million as compared to $6.7 million at October 31, 1994.
Net cash used in investing activities was $41.4 million for the nine months
of 1995. With proceeds from the senior bank credit facility, the Company
acquired, substantially all of the simulcasting assets of IDB and the rights and
obligations relating to eight (8) C-band satellite transponders for $13.7
million. Investments of $9.6 million were made in equipment under wagering and
simulcasting contracts. Additionally, $8.9 million was invested in capital
expenditures, of which $5.6 million represents expenditures related to the
Company's simulcasting facilities located in Connecticut and $2.3 million
represents the construction of a building in Las Vegas. Approximately $2.3
million was invested to acquire 80% of the holding company of SEPMO S.A., a
supplier of wagering systems and services to the French off-track betting
network and other customers.
Net cash provided by financing activities consisted primarily of borrowings
of $31.5 million from the senior bank credit facility, of which $13.7 was used
to purchase substantially all of the simulcasting assets of IDB and the rights
and obligations under leases relating to eight (8) C-band satellite
transponders, and $2.1 million borrowed under a construction loan facility to
fund construction of the building in Las Vegas.
The Company has classified $132.9 million of outstanding loans under its
senior bank credit facility as a current liability as of July 31, 1995, since
the Company was in violation of certain financial covenants as of that date.
The Company's senior bank credit facility was amended by a Waiver, Consent,
Agreement and Fifth Amendment, dated as of July 19, 1995, effective July 14,
1995, and a Consent Agreement and Sixth Amendment, dated as of August 30, 1995,
(collectively, the "Amendments"), to, among other things, waive these covenant
violations through October 14, 1995 (the "Waiver Period"). Under the terms of
the Amendments, the Company is required to meet certain conditions at various
times during the Waiver Period, including (a) by September 8, 1995, making
satisfactory arrangements for the long-term deferral of all cash payments
otherwise due during the Waiver Period on the Company's subordinated debt, (b)
by September 14, 1995, making satisfactory arrangements for raising $5 million
through the issuance of equity or asset sales, (c) issuing to the bank group
warrants to purchase 385,000 shares of the Company's Class A Common Stock, which
warrants were issued on September 13, 1995, and (d) satisfying certain revised
financial covenants. The Amendments also restrict the Company's capital
expenditures, acquisitions, sale of equity and assets, and incurrence of lease
and debt obligations. On September 13, 1995, the Company received written
consents from its bank group that (i) certain arrangements with the holders of
the Company's subordinated debt for a temporary deferral of cash payments until
October 5, 1995, satisfy the condition referred to in (a) above until October 2,
1995, provided that on or prior to October 2, 1995, the Company enters into
satisfactory arrangements for such long-term deferral of certain cash payments
on its subordinated debt, and (ii) certain arrangements for a proposed issuance
of 9% Convertible Subordinated Debentures satisfy the condition referred to in
(b) above. The Company is engaged in active discussions with its bank group to
address ongoing compliance with the senior bank credit facility and to address
future financing needs and alternatives.
The financial results included unusual charges of $22.8 million
substantially resulting from the Company's restructuring, certain valuation
adjustments and bank credit agreement fees. As a result of these charges, the
Company anticipates total cash obligations of approximately $5.9 million, $.1
million of which was made in the third quarter and the balance to be made over
the next twelve months.
The Company believes that additional sources of capital will be required to
satisfy anticipated capital needs arising from current commitments. The Company
is currently exploring financing alternatives and asset sales to meet its
capital requirements while simultaneously developing programs to reduce its
level of ongoing expenditures. The Company will be required to evaluate its
capital outlays and commitments in light of the availability and timing of
additional financing, which currently remains uncertain.
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AUTOTOTE CORPORATION AND SUBSIDIARIES
QUARTER ENDED JULY 31, 1995
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and certain of its officers and directors were named 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 putative class consists of
purchasers of Class A Common Stock and put and call options between March 1994
and January 1995. The consolidated class action complaint alleges that the
Company and certain of its officers and directors violated federal securities
laws and seeks remedies of unspecified monetary damages and awards of fees and
expenses. The defendants answered the complaint in August 1995, denying any
violation of federal securities law. Discovery has commenced pursuant to a
court ordered discovery plan. The likelihood of success and the ultimate
outcome of the consolidated litigation cannot be evaluated until discovery is
complete.
Page
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Number
(a) Exhibits
Exhibit 3(i) - Restated Certificate
of Incorporation as filed with the
Secretary of State of Delaware on
June 29, 1995. 17
Exhibit 27 - Financial Data Schedule 25
(b) No reports on Form 8-K were filed during
the third quarter of fiscal 1995.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
AUTOTOTE CORPORATION
--------------------
(Registrant)
By: /s/ Philip G. Taggart
-----------------------
Name: Philip G. Taggart
Title: Corporate Controller and Chief Accounting Officer
Dated: September 14, 1995
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