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: January 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition from _____________ to ___ _________
Commission File number: 0-13063
AUTOTOTE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 81-0422894
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
750 Lexington Avenue, 25th Floor
New York, New York 10022
(Address of principal executive offices)
(212) 754-2233
(Registrant's telephone number)
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 __
---
As of March 7, 1997, 34,437,214 shares of the registrant's Class A Common
Stock, $.01 par value per share, were issued and outstanding.
Page 1 of 10
AUTOTOTE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER INFORMATION
QUARTER ENDED JANUARY 31, 1997
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Balance Sheets as of January 31, 1997 and October 31, 1996 3
Statements of Operations for the Three Months Ended
January 31, 1997 and 1996 4
Statements of Cash Flows for the Three Months Ended
January 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8K 9
2
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)
JANUARY 31, OCTOBER 31,
1997 1996
------------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 5,152 5,988
Restricted cash...................................................................... 537 611
Accounts receivable, net............................................................. 20,263 18,257
Inventories.......................................................................... 6,629 5,780
Unbilled receivables................................................................. 3,258 6,901
Prepaid expenses, deposits and other current assets.................................. 3,429 3,131
--------- ---------
Total current assets............................................................. 39,268 40,668
--------- ---------
Property and equipment, at cost.......................................................... 182,887 186,249
Less accumulated depreciation........................................................ 92,043 90,369
--------- ---------
Net property and equipment...................................................... 90,844 95,880
--------- ---------
Goodwill, net of amortization............................................................ 19,594 21,024
Operating right, net of amortization..................................................... 16,598 16,848
Other assets and investments............................................................. 20,151 22,373
--------- ---------
$ 186,455 196,793
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current installments of long-term debt.............................................. $ 10,169 9,234
Accounts payable.................................................................... 14,196 14,242
Accrued liabilities................................................................. 20,448 20,436
--------- ---------
Total current liabilities....................................................... 44,813 43,912
--------- ---------
Deferred income taxes.................................................................... 7,272 7,675
Other long-term liabilities.............................................................. 1,977 5,612
Long-term debt, excluding current installments........................................... 117,448 119,790
Long-term debt, convertible subordinated debentures...................................... 40,000 40,000
--------- ---------
Total liabilities................................................................ 211,510 216,989
------- -------
Stockholder's 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, 34,437 and 31,474 shares outstanding at January 31, 1997 and October
31, 1996, respectively............................................................... 345 315
Class B non-voting common stock, par value $0.01 per share, 700 shares
authorized, none outstanding......................................................... -- --
Additional paid-in capital........................................................... 146,938 143,369
Accumulated deficit.................................................................. (171,087) (163,664)
Treasury stock, at cost.............................................................. (102) (102)
Translation adjustment............................................................... (1,149) (114)
--------- ---------
Total stockholder's deficit...................................................... (25,055) (20,196)
-------- --------
$ 186,455 196,793
======== ========
See accompanying notes to consolidated financial statements.
3
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended January 31, 1997 and 1996
(In Thousands, Except Per Share Amounts)
(Unaudited)
1997 1996
-------- --------
Operating revenues:
Services................................................................ $ 31,420 29,568
Sales................................................................... 4,095 13,738
------ ------
35,515 43,306
------ ------
Operating expenses (exclusive of depreciation and amortization):
Services ............................................................... 18,742 18,847
Sales .................................................................. 2,813 8,698
------ -------
21,555 27,545
------ -------
Total gross profit................................................. 13,960 15,761
------ -------
Selling, general and administrative expenses................................. 7,538 8,170
Depreciation and amortization................................................ 9,709 9,436
------ -------
Operating loss..................................................... (3,287) (1,845)
------ -------
Other deductions:
Interest expense........................................................ 3,634 3,662
Litigation settlement................................................... -- 6,800
Other expense.. ........................................................ 107 292
------ -------
3,741 10,754
------ -------
Loss before income tax expense ......................................... (7,028) (12,599)
Income tax expense........................................................... 395 1,202
------ -------
Net loss..................................................................... $ (7,423) (13,801)
====== =======
Net loss per common share.................................................... $ (0.23) (0.45)
====== ======
Weighted average number of common shares outstanding......................... 32,734 30,905
====== ======
See accompanying notes to consolidated financial statements.
4
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JANUARY 31, 1997 AND 1996
(IN THOUSANDS)
(UNAUDITED)
1997 1996
---------- ---------
Cash flows from operating activities:
Net loss......................................................... $ (7,423) (13,801)
Adjustments to reconcile net loss to cash provided
by operating activities:
Depreciation and amortization................................. 9,709 9,436
Loss on disposal of assets.................................... 37 454
Litigation settlement......................................... -- 6,800
Non-cash interest charges..................................... -- 554
Changes in operating assets and liabilities................... 108 1,279
Other......................................................... 306 212
-------- -------
Total adjustments........................................ 10,160 18,735
-------- -------
Net cash provided by operating activities.......................... 2,737 4,934
-------- -------
Cash flows from investing activities:
Capital expenditures............................................. (191) (338)
Expenditures for equipment under wagering systems contracts...... (1,359) (2,420)
Proceeds from asset disposals.................................... 247 987
Increase in other assets and other liabilities, net.............. (779) (441)
-------- -------
Net cash used in investing activities.............................. (2,082) (2,212)
-------- -------
Cash flows from financing activities:
Net borrowings under revolving credit facility................... -- 760
Proceeds from issuance of long-term debt......................... 8 538
Payments on long-term debt....................................... (1,314) (1,587)
-------- -------
Net cash used by financing activities.............................. (1,306) (289)
-------- -------
Effect of exchange rate changes on cash............................ (185) (415)
-------- -------
Increase/(decrease) in cash and cash equivalents................... (836) 2,018
Cash and cash equivalents, beginning of period..................... 5,988 4,991
-------- -------
Cash and cash equivalents, end of period........................... $ 5,152 7,009
======== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest...................................................... $ 2,810 3,449
======== =======
Income taxes.................................................. $ 250 237
======== =======
The Company issued 2,964 shares of Class A Common Stock during the
1997 period in connection with the settlement of its stockholder
litigation.
See accompanying notes to consolidated financial statements.
5
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997
(UNAUDITED)
1) CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of January 31, 1997 and the consolidated
statements of operations for the three months ended January 31, 1997 and 1996,
and consolidated statements of cash flows for the three months then ended have
been prepared by the Company and have not been audited. In the opinion of
management, all adjustments necessary to present fairly the financial position
of the Company at January 31, 1997, and the results of its operations for the
three months ended January 31, 1997 and 1996, and its cash flows for the three
months ended January 31, 1997 and 1996 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 ommitted. These consolidated financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's 1996 Annual Report on Form 10-K. The results of operations for
the period ended January 31, 1997 are not necessarily indicative of the
operating results for the full year.
2) INVENTORIES
Inventories consist of the following:
JANUARY 31, OCTOBER 31,
1997 1996
----------- -----------
(in thousands)
Parts................................. $ 2,938 3,295
Work-in-process....................... 1,249 909
Finished goods........................ 2,048 1,028
Ticket paper.......................... 394 548
----- -----
Total................................. $ 6,629 5,780
===== =====
3) DEBT
The Company's senior bank credit facility is governed by the Amended and
Restated Credit Agreement dated January 26, 1996 ("the Senior Facility") for
which Bankers Trust is agent. The Senior Facility provides for: 1) a $55 million
term loan (the "A Term Loan"), 2) a $5 million term loan (the "B Term Loan"),
and 3) a $75 million revolving credit facility ("the Revolver"), which includes
a $25 million sublimit for letters of credit. On January 29, 1997, the Company
amended the Senior Facility (the "Amendment") to revise the maturity and
amortization of the A and B Term Loans, the maturity of the Revolver, the
borrowing rate, certain financial covenants and to revise how proceeds from
asset sales reduce scheduled principal payments. The maturity of the Revolver
and A Term Loan were changed to February 13, 1998 and scheduled quarterly
principal payments on the A Term Loan was reduced to $7.0 million in fiscal 1997
with the balance of $44.0 million due in fiscal 1998. The maturity of the B Term
Loan was extended to April 30, 1997 with the remaining balance of $1.0 million
due in equal installments of $.5 million in January 1997 and April 1997.
Effective with the Amendment, borrowings under the Senior Facility bear
interest at the Prime lending rate plus a margin ranging from 0.75% to 2.00%
depending on the timing and amount of additional principal repayments made in
fiscal 1997 in excess of scheduled principal repayments. The Senior Facility
permits voluntary prepayments, and requires mandatory repayments upon the
occurrence of certain events and in certain amounts, including certain proceeds
from asset sales, equity sales and debt raised, and 75% of annual "Excess
Cashflow," as defined. A commitment fee of 0.5% per year is 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 is payable on each letter of credit issued. See
Note 7 to the Consolidated Financial Statements for the year ended October 31,
1996 included in the Company's 1996 Annual Report on Form 10-K.
In the quarter ended January 31, 1997, the Company made scheduled payments
of $0.5 million on the A Term Loan and $0.5 million on the B Term Loan. As of
January 31, 1997, the Company had approximately $21,605 available for borrowing
under its Revolver, with $3.1 million in outstanding letters of credit and
$122.9 million in outstanding borrowings.
6
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion addresses the financial condition of the Company
as of January 31, 1997 and the results of operations for the three month period
ended January 31, 1997, compared to the same period last year. This discussion
should be read in conjunction with the Management's Discussion and Analysis
section for the fiscal year ended October 31, 1996 ("fiscal 1996") included in
the Company's 1996 Annual Report on Form 10-K.
RESULTS OF OPERATIONS
Three Months Ended January 31, 1997 Compared to Three Months Ended January 31,
1996
First Quarter Fiscal 1997 First Quarter Fiscal 1996
----------------------------- -------------------------------
Pari- Pari-
Mutuel Lottery Mutuel Lottery
Operations Operations Total Operations Operations Total
----------------------------- -------------------------------
Revenue:
Service revenue..................... $26,615 4,805 31,420 25,671 3,897 29,568
Sales revenue....................... 1,246 2,849 4,095 2,420 11,318 13,738
------ ----- ------ ------ ------ ------
Total Revenue....................... $27,861 7,654 35,515 28,091 15,215 43,306
====== ===== ====== ====== ====== ======
Gross Profit (excluding depreciation and
amortization) $10,401 3,559 13,960 10,531 5,230 15,761
====== ===== ====== ====== ====== ======
Revenue Analysis
Revenues decreased 18% or $7.8 million to $35.5 million in the first
quarter of the fiscal year ended October 31, 1997 from $43.3 million in the
first quarter of the fiscal year ended October 31, 1996.
Pari-mutuel Operations service revenues of $26.6 million for the first
quarter of fiscal 1997 improved $0.9 million or 4% during the quarter as
compared to the prior year. This improvement reflects revenue increases of $1.5
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 are partially offset by the $.6 million
revenue loss because of the October 1996 sale of the casino/sports wagering
business. The growth in handle during the first quarter of 1997 compared to the
first quarter of 1996 is attributable to the addition of six new North American
racetrack and OTB sites, full card simulcasting at two North American racetrack
customers, 320 VGM machines to the lease base and the increase to seven days a
week OTB operations in Connecticut, as well as to a much milder winter in 1997
than experienced the prior year. Sales revenue in the first quarter of fiscal
1997 decreased $1.2 million compared to $2.4 million for the first quarter of
fiscal 1996, principally due to the decline in equipment sales to the
international market.
Lottery Operations service revenues increased $0.9 million during the first
quarter of fiscal 1997 from $3.9 million to $4.8 million primarily because of
higher revenues from services provided under the German Lottery contract. Sales
revenues decreased significantly in the first quarter of fiscal 1997 to $2.8
million from $11.3 million in the same period in fiscal 1996. This decrease is
primarily attributable to the fiscal 1996 delivery of systems to several German
lottery contract sites coupled with deliveries of terminals and parts to EIS for
sale to Italy's TOTIP pari-mutuel lottery pool.
Gross Profit Analysis
The total gross profit of $14.0 million for the first quarter of fiscal
1997 decreased by $1.8 million, or 11% compared to the first quarter of fiscal
1996, principally reflecting delivery of the German lottery systems during the
fiscal 1996 quarter. Gross margins on equipment sales were 31% in the first
quarter of 1997, down from the margins of 37% earned in the first quarter of
fiscal 1996 as a result of a change in the mix of equipment being sold. Gross
margins on service revenues improved to 40% during the first quarter of fiscal
1997 compared to 36% for the first quarter of 1996 due to higher volumes and
improved margins in the European lottery business.
7
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
Expense Analysis
Selling, general and administrative expenses include marketing, sales,
administrative, engineering and software development, finance, legal and other
expenses. Selling, general and administrative expenses decreased $.6 million or
8% to $7.5 million in the first quarter of fiscal 1997 from $8.2 million in the
first quarter of fiscal 1996 as a result of the sale of the Company's
casino/sports wagering business in the fourth quarter of fiscal 1996, as well as
continuing effects from the Company's cost containment and reduction programs.
Depreciation and amortization expenses increased 3% to $9.7 million in the
first quarter of 1997 compared to $9.4 million in the first quarter of fiscal
1996. The increase was primarily due to investment in UNIBET and other software
development programs in fiscal 1996.
Interest expense decreased slightly in the first quarter of 1997 primarily
as a result of the sale of the casino/sports wagering business, mostly offset by
higher interest costs under the Company's Senior Facility.
Income Taxes
Income tax expense was $.4 million in the 1997 period as compared to an
expense of $1.2 million in the 1996 period. Income tax expense principally
reflects foreign tax expense, since no tax benefit has been recognized on
domestic operating losses.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1997, the Company had cash and cash equivalents of $5.2
million as compared to $6.0 million at October 31, 1996. Net cash provided by
operating activities was $2.7 million for the three months ended January 31,
1997. Net cash used in investing activities was $2.1 million for the first three
months of fiscal 1997. Utilizing cash provided by operating activities, the
Company invested principally in contract expenditures and software systems
development. Net cash used by financing activities consisted primarily of
repayments of $1.0 million under the Company's Senior Facility A and B Term
Loans.
As described in Note 3 to the Consolidated Financial Statements above, the
Company had utilized nearly all availability under its Senior Facility at
January 31, 1997. The Company believes that its cash resources at that date and
its forecasted cash flows from operations provide sufficient liquidity to meet
scheduled payments and anticipated capital expenditures in the current fiscal
year arising from current commitments. The Company believes that additional
financing and/or asset sales will be required to meet its scheduled payments
and capital requirements in subsequent fiscal years. The Company is currently
exploring financing and asset sales alternatives while continuing to implement
cost containment and reduction programs. 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.
8
AUTOTOTE CORPORATION AND SUBSIDIARIES
Quarter Ended January 31, 1997
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As stated in the Company's 1996 Annual Report on Form 10-K, 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 Settlement Agreement was finalized on December 24, 1996, in accordance
with a definitive Stipulation and Agreement of Settlement dated July 19, 1996.
The Company paid $7.5 million in cash plus 2,963,590 shares of Class A Common
Stock which had an aggregate value of $3.5 million 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 $6.5 million of the cash portion of
the settlement (with $1.25 million 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 $6.8 million against earnings for the quarter ended January 31, 1996
to reflect the then expected settlement and anticipated legal fees. There will
be no further charges against earnings as a result of the Settlement Agreement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.26 Second Amendment and Waiver, dated as of January 29, 1997,
among the Registrant, Bankers Trust Company and other
Lenders.
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the first quarter of fiscal
1997.
9
AUTOTOTE CORPORATION AND SUBSIDIARIES
QUARTER ENDED JANUARY 31, 1997
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 by the
undersigned, thereunto duly authorized.
AUTOTOTE CORPORATION
--------------------
(Registrant)
By: /s/ William Luke
----------------
Name: William Luke
Title: Vice President & Chief Financial Officer
Dated: March 11, 1997
10