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: APRIL 30, 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, New York, New York 10022
----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(212)-754-2233
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
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 June 11, 1997:
Class A Common Stock: 35,334,868
Class B Common Stock: None
Page 1 of 14
AUTOTOTE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER INFORMATION
QUARTER ENDED APRIL 30, 1997
Page
-------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Balance Sheets as of April 30, 1997
and October 31, 1996 3
Statements of Operations for the Three Months Ended
April 30, 1997 and 1996 4
Statements of Operations for the Six Months Ended
April 30, 1997 and 1996 5
Statements of Cash Flows for the Six Months Ended
April 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8K 12
2
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
APRIL 30, OCTOBER 31,
1997 1996
--------------------------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents.............................. $ 3,599 5,988
Restricted cash........................................ 524 611
Accounts receivable, net............................... 13,564 18,257
Inventories............................................ 5,129 5,780
Unbilled receivables................................... -- 6,901
Prepaid expenses, deposits and other current assets.... 3,766 3,131
--------- --------
Total current assets................................. 26,582 40,668
--------- --------
Property and equipment, at cost.......................... 179,178 186,249
Less accumulated depreciation.......................... 94,522 90,369
--------- --------
Net property and equipment............................. 84,656 95,880
--------- --------
Goodwill, net of amortization............................ 7,341 21,024
Operating right, net of amortization..................... 16,348 16,848
Other assets and investments............................. 12,870 22,373
--------- --------
$147,797 196,793
========= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current installments of long-term debt................. $ 31,060 9,234
Accounts payable....................................... 8,917 14,242
Accrued liabilities.................................... 22,424 20,436
--------- --------
Total current liabilities............................ 62,401 43,912
--------- --------
Deferred income taxes.................................... 2,797 7,675
Other long-term liabilities.............................. 1,433 5,612
Long-term debt, excluding current installments........... 70,599 119,790
Long-term debt, convertible subordinated debentures...... 40,000 40,000
--------- --------
Total liabilities.................................... 177,230 216,989
--------- --------
Stockholders' 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, 35,282 and 31,474 shares
outstanding at April 30, 1997 and October 31, 1996,
respectively........................................... 353 315
Class B non-voting common stock, par value $0.01
per share, 700 shares authorized, none outstanding..... -- --
Additional paid-in capital............................. 148,011 143,369
Accumulated deficit.................................... (175,778) (163,664)
Treasury stock, at cost................................ (102) (102)
Translation adjustment................................. (1,917) (114)
--------- --------
Total stockholders' deficit.......................... (29,433) (20,196)
--------- --------
$147,797 196,793
========= ========
See accompanying notes to consolidated financial statements.
3
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED
APRIL 30, APRIL 30,
1997 1996
-----------------------------------------
Operating revenues:
Services.............................. $34,969 35,406
Sales................................. 6,952 10,335
------- ------
41,921 45,741
------- ------
Operating expenses (exclusive of
depreciation and amortization):
Services.............................. 20,587 22,224
Sales................................. 4,620 7,442
------- ------
25,207 29,666
------- ------
Total gross profit................. 16,714 16,075
------- ------
Selling, general and administrative 7,667 8,378
expenses................................
Depreciation and amortization............ 10,143 9,558
------- ------
Operating loss..................... (1,096) (1,861)
------- ------
Other deductions (income):
Interest expense...................... 3,680 3,670
Other income.......................... (232) (149)
------- ------
3,448 3,521
------- ------
Loss before income tax expense........ (4,544) (5,382)
Income tax expense....................... 147 512
------- ------
Net loss................................. $(4,691) (5,894)
======= ======
Net loss per common share................ $(0.14) (0.19)
======= ======
Weighted average number of common
shares outstanding...................... 34,498 31,373
======= ======
See accompanying notes to consolidated financial statements.
4
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
SIX MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
1997 1996
-------------------------------------
Operating revenues:
Services................................ $ 66,389 64,974
Sales................................... 11,047 24,073
-------- -------
77,436 89,047
-------- -------
Operating expenses (exclusive of
depreciation and amortization):
Services................................ 39,329 41,071
Sales................................... 7,433 16,140
-------- -------
46,762 57,211
-------- -------
Total gross profit.................... 30,674 31,836
-------- -------
Selling, general and administrative
expenses................................. 15,205 16,548
Depreciation and amortization............. 19,852 18,994
-------- -------
Operating loss........................ (4,383) (3,706)
-------- -------
Other deductions (income):
Interest expense........................ 7,314 7,332
Litigation settlement................... -- 6,800
Other deductions (income)............... (125) 143
-------- -------
7,189 14,275
-------- -------
Loss before income tax expense.......... (11,572) (17,981)
Income tax expense........................ 542 1,714
-------- -------
Net loss.................................. $(12,114) (19,695)
======== =======
Net loss per common share................. $ (0.36) (0.63)
======== =======
Weighted average number of common shares
outstanding............................... 33,616 31,139
======== =======
See accompanying notes to consolidated financial statements.
5
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 1997 AND 1996
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
1997 1996
-------------------------------------
Cash flows from operating activities:
Net loss................................ $(12,114) (19,695)
-------- -------
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization........ 19,852 18,994
Litigation settlement, net of cash
payments............................ -- 5,800
Changes in operating assets and
liabilities......................... 1,837 (2,256)
Other................................ 134 2,813
-------- -------
Total adjustments.................. 21,823 25,351
-------- -------
Net cash provided by operating
activities............................... 9,709 5,656
-------- -------
Cash flows from investing activities:
Capital expenditures.................... (649) (1,075)
Wagering systems expenditures........... (2,773) (4,051)
Proceeds from sale of business and
asset disposals, net of cash
transferred............................ 19,451 997
Increase in other assets and other
liabilities............................ (1,606) (2,134)
-------- -------
Net cash used in investing
activities............................... 14,423 (6,263)
-------- -------
Cash flows from financing activities:
Net borrowings (repayments) under
revolving credit facilities............ (4,487) 2,195
Payments on long-term debt.............. (22,701) (2,571)
Net proceeds from issuance of common
stock.................................. 956 --
-------- -------
Net cash used by financing
activities............................... (26,232) (376)
-------- -------
Effect of exchange rate changes on
cash..................................... (289) 130
-------- -------
Decrease in cash and cash equivalents..... (2,389) (853)
Cash and cash equivalents, beginning of
period.................................... 5,988 4,991
-------- -------
Cash and cash equivalents, end of
period.................................... $ 3,599 4,138
======== =======
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest................................ $ 6,785 5,579
======== =======
Income taxes............................ $ 825 636
======== =======
The Company issued 2,964 shares of
Class A Common Stock during the 1997
period in connection with the settlement
of its stockholder litigation.
See accompanying notes to consolidated financial statements.
6
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997
(UNAUDITED)
1) CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of April 30, 1997 and the
consolidated statements of operations for the three months and six months ended
April 30, 1997 and 1996, and the consolidated statements of cash flows for the
six months then ended have been prepared by the Company without audit. In the
opinion of management, all adjustments necessary to present fairly the financial
position of the Company at April 30, 1997, and the results of its operations for
the three and six months ended April 30, 1997 and 1996, and its cash flows for
the six months ended April 30, 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 omitted. 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 periods ended April 30, 1997 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) SALE OF THE EUROPEAN LOTTERY BUSINESS
On April 15, 1997, the Company completed the sale of its European
lottery business through the sale of its stock ownership of Tele Control
Kommunikations und Computersysteme Aktien Gesellschaft ("Tele Control") for cash
consideration of approximately $25.0 million. The sales price is subject to an
upward adjustment of up to approximately $1.6 million based upon, among other
items, the closing balance sheet. Concurrently at closing, the Company provided
the purchaser with a letter of credit in the amount of $2.5 million to secure
certain obligations under the sales agreement. The letter of credit reduces to
zero in specified amounts and on specified dates through October 1998. The
Company recorded a gain of $0.3 million on the sale in the second quarter of
fiscal 1997.
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 Tele Control nor the purchaser has on-line lottery wagering
terminals. Also under the agreement, the purchaser will have 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 for the three months and six
months ended April 30, 1997 and 1996. Interest and income tax expenses have not
been included in the table below.
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
(IN THOUSANDS)
Operating revenue............................ $2,463 9,344 6,119 19,518
Operating expenses, including selling,
general and administrative expenses,
and depreciation and amortization
expenses.................................... 2,772 9,171 6,181 16,723
------ ------ ------ ------
Operating income............................. $ (309) 173 (62) 2,795
====== ====== ====== ======
3) INVENTORIES
Inventories consist of the following:
APRIL 30, OCTOBER 31,
1997 1996
-----------------------------------
(IN THOUSANDS)
Parts........................... $ 3,580 3,295
Work-in-process................. 519 909
Finished goods................. 440 1,028
Ticket paper................... 590 548
----- -----
Total........................... $ 5,129 5,780
===== =====
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.
7
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
APRIL 30, 1997
(UNAUDITED)
4) 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 were 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.
Through April 30, 1997, the Company made scheduled payments of $1.5
million on the A Term Loan and $0.5 million on the B Term Loan. Additionally, on
April 15, 1997, as a result of the sale of the European lottery business, the
Company made payments mandated under the Senior Facility of $0.5 million on the
B Term Loan and $19.5 million on the A Term Loan, as well as discretionary
payments of $5.0 million on the Revolver. Because the Company made the mandated
payments on schedule, the maturity of the Revolver was extended to July 31,
1998; the interest rate margin applicable to borrowings under the Senior
Facility was fixed at 0.75%; scheduled repayments were reduced by $2.0 million
in fiscal 1997 and $18.0 million in fiscal 1998; certain contingent fees were
waived; and certain financial covenants were revised.
As of April 30, 1997, the Company had approximately $3.2 million
available for borrowing under its Revolver, with $4.4 million in outstanding
letters of credit including $2.5 million issued in connection with the sale of
the European lottery business, and $97.4 million in outstanding borrowings.
5) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board 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.
Since the Company has experienced net losses in each quarter of fiscal
1996 and in the first and second quarters of fiscal 1997, 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 the second quarter and first six months
of fiscal 1996 and 1997 as computed under SFAS 128 are thus equal to basic
earnings per share as presented in the accompanying financial statements.
8
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 April 30, 1997 and the results of operations for the three and six month
periods ended April 30, 1997, 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, 1996 ("fiscal 1996")
included in the Company's 1996 Annual Report on Form 10-K.
THREE MONTHS ENDED APRIL 30, 1997 COMPARED TO THREE MONTHS ENDED APRIL 30, 1996
SECOND QUARTER FISCAL 1997 SECOND QUARTER FISCAL 1996
Pari- Pari-
Mutuel Lottery Mutuel Lottery
Operations Operations Total Operations Operations Total
------------------------------------------------------------------
REVENUE:
Services $30,302 4,667 34,969 29,417 5,989 35,406
Sales 1,949 5,003 6,952 3,128 7,207 10,335
------- ----- ------ ------ ------ ------
Total Revenue $32,251 9,670 41,921 32,545 13,196 45,741
------- ----- ------ ------ ------ ------
GROSS MARGIN (EXCLUDING DEPRECIATION
and amortization) $13,176 3,538 16,714 13,182 2,893 16,075
------- ----- ------ ------ ------ ------
SECOND QUARTER REVENUE ANALYSIS
Revenues decreased 8% or $3.8 million to $41.9 million in the second
quarter of the fiscal year ended October 31, 1997 from $45.7 million in the
second quarter of the fiscal year ended October 31, 1996.
Pari-mutuel Operations service revenues of $30.3 million for the second
quarter of fiscal 1997 improved $0.9 million or 3% during the quarter as
compared to the prior year. This improvement reflects revenue increases of $1.8
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 second quarter of 1997 compared to
the second 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 in the first quarter of fiscal
1997. Sales revenue in the second quarter of fiscal 1997 decreased $1.2 million
to $1.9 million from $3.1 million in the second quarter of fiscal 1996
principally due to the decline in equipment sales to the international market.
Lottery Operations service revenues decreased $1.3 million during the
second quarter of fiscal 1997 from $6.0 million to $4.7 million primarily
because of the sale of the European lottery business in April 1997. Sales
revenues decreased significantly in the second quarter of fiscal 1997 to $5.0
million from $7.2 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 partially offset by the delivery of approximately 450
terminals to the Israel lottery in the second quarter of fiscal 1997.
GROSS PROFIT ANALYSIS
The total gross profit of $16.7 million for the second quarter of fiscal
1997 increased by $0.6 million, or 4% compared to the second quarter of fiscal
1996, principally reflecting profit improvements in the Company's pari-mutuel
business. Gross profit from the delivery of approximately 450 terminals to the
Israel lottery in the second quarter of fiscal 1997 was comparable to gross
profit from lottery systems sales in the second quarter of fiscal 1996. Gross
margins on equipment sales were 33% in the second quarter of 1997, up from
margins of 28% earned in the second quarter of fiscal 1996 as a result of a
change in the mix of equipment and systems being sold. Gross margins on service
revenues improved to 41% during the second quarter of fiscal 1997 compared to
37% for the second quarter of 1996 due to higher volumes and improved margins in
the North American pari-mutuel business and Connecticut OTB operations.
9
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 $0.7 million or
8% to $7.7 million in the second quarter of fiscal 1997 from $8.4 million in the
second 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, the sale
of the European lottery business in April 1997, and the continuing effects from
the Company's cost containment and reduction programs.
Depreciation and amortization expenses increased 6% to $10.1 million in
the second quarter of 1997 compared to $9.6 million in the second quarter of
fiscal 1996. The increase is primarily due to the Company's investment in
equipment to service new customers in the North American pari-mutuel and
simulcasting business in fiscal 1996.
Interest expense increased slightly in the second quarter of 1997
primarily as a result of higher interest costs under the Company's Senior
Facility, mostly offset by reduced borrowings.
INCOME TAXES
Income tax expense was $0.1 million in the 1997 period as compared to an
expense of $.5 million in the 1996 period. Income tax expense principally
reflects foreign tax expense, since no tax benefit has been recognized on
domestic operating losses.
SIX MONTHS ENDED APRIL 30, 1997 COMPARED TO SIX MONTHS ENDED APRIL 30, 1996
SIX MONTHS FISCAL 1997 SIX MONTHS FISCAL 1996
Pari- Pari-
Mutuel Lottery Mutuel Lottery
Operations Operations Total Operation Operations Total
--------------------------------------------------------------------------
REVENUE:
Services $56,917 9,472 66,389 55,088 9,886 64,974
Sales 3,195 7,852 11,047 6,895 17,178 24,073
------- ------ ------ ------ ------ ------
Total Revenue $60,112 17,324 77,436 61,983 27,064 89,047
------- ------ ------ ------ ------ ------
GROSS MARGIN (EXCLUDING DEPRECIATION
AND AMORTIZATION) $23,577 7,097 30,674 23,236 8,600 31,836
------- ------ ------ ------ ------ ------
SIX MONTH REVENUE ANALYSIS
Revenues decreased 13% or $11.6 million to $77.4 million in the first
six months of the fiscal year ended October 31, 1997 from $89.0 million in the
first six months of the fiscal year ended October 31, 1996.
Pari-mutuel Operations service revenue of $56.9 million for the first
six months of fiscal 1997 improved $1.8 million or 3% during the period as
compared to the prior year. This improvement reflects revenue increases of $3.5
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 absence of
$1.2 million in revenue provided in the prior year period by the casino/sports
wagering business that was sold in October 1996. The growth in handle during the
first half of fiscal 1997 compared to the first half of fiscal 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 fiscal 1997 than in the
prior year. Sales revenue in the first six months of fiscal 1997 decreased $3.7
million to $3.2 million from the first six months of fiscal 1996 principally due
to the decline in equipment sales to the international market.
Lottery Operations service revenue decreased $0.4 million during the
first six months of fiscal 1997 from $9.9 million to $9.5 million primarily
because of the sale of the European lottery business in April 1997. Sales
revenues decreased significantly in the first six months of fiscal 1997 to $7.9
million from $17.2 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
10
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
SIX MONTH REVENUE ANALYSIS, CONTINUED
parts to EIS for sale to Italy's TOTIP pari-mutuel lottery pool, partially
offset by the delivery of approximately 450 terminals to the Israel lottery in
the second quarter of fiscal 1997.
GROSS PROFIT ANALYSIS
The total gross profit of $30.7 million for the first six months of
fiscal 1997 decreased by $1.2 million, or 4% compared to the first six months of
fiscal 1996, principally reflecting delivery of the German lottery systems
during the fiscal 1996 period, partially offset by the second quarter 1997
terminal sale to the Israel lottery, coupled with profit improvements in the
Company's North American pari-mutuel business in fiscal 1997. Gross margins on
equipment sales were 33% in the first six months of 1997, comparable to the
margins earned in the first six months of fiscal 1996. Gross margins on service
revenues improved to 41% during the first six months of fiscal 1997 compared to
37% for the first six months of 1996 due to higher volumes and improved margins
in the North American pari-mutuel business and improved margins in the European
lottery business.
EXPENSE ANALYSIS
Selling, general and administrative expenses decreased $1.3 million or
8% to $15.2 million in the first six months of fiscal 1997 from $16.5 million in
the first six months of fiscal 1996 as a result of the sale of the Company's
casino/sports wagering business in the fourth quarter of fiscal 1996, the sale
of the European lottery business in April 1997, and the continuing effects of
the Company's cost containment and reduction programs.
Depreciation and amortization expenses increased 4.5% to $19.9 million
in the first six months of 1997 compared to $19.0 million in the first six
months of fiscal 1996. The increase is primarily due to the Company's investment
in UNIBET and other software development programs in fiscal 1996.
Interest expense increased slightly in the first six months of 1997
primarily due to higher interest costs under the Company's Senior Facility,
partially offset by reduced borrowings as the result of asset sales.
INCOME TAXES
Income tax expense was $0.5 million in the 1997 period as compared to an
expense of $1.7 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 April 30, 1997, the Company's available cash and borrowing capacity
totaled $6.8 million compared to $6.0 million at October 31, 1996. Net cash
provided by operating activities was $9.7 million for the six months ended April
30, 1997. Utilizing $5.0 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 $4.7
million, coupled with the $25.0 million of cash proceeds from the sale of the
European lottery business, net of contingent payments and the cash balance on
hand at the business unit at closing, and $1.0 million of proceeds from the sale
of stock, were used to reduce borrowings by $26.5 million under the Company's
Senior Facility, and by $.7 million on other long-term loans.
As described in Note 4 to the Consolidated Financial Statements above,
the Company had $3.2 million of availability under its Senior Facility at April
30, 1997. The Company believes that, although it will incur a net loss in fiscal
1997, its cash resources at April 30, 1997 and its forecasted cash flows from
operations for the balance of the year provide sufficient liquidity to meet
scheduled payments and anticipated capital expenditures in the current fiscal
year. 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 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.
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AUTOTOTE CORPORATION AND SUBSIDIARIES
QUARTER ENDED APRIL 30, 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
27 Financial Data Schedule.
(b) A Form 8-K Report, reporting a disposition of assets pursuant to
Item 2, was filed on April 30,1997 in connection with the sale by
the Company of its stock ownership in Tele Control Kommunikations
und Computersysteme Aktien Gesellschaft.
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AUTOTOTE CORPORATION AND SUBSIDIARIES
QUARTER ENDED APRIL 30, 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: June 13, 1997
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