UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JANUARY 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition from ________________ to ___________________
Commission File number: 0-13063
AUTOTOTE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 81-0422894
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
750 Lexington Avenue, New York, New York 10022
----------------------------------------------
(Address of principal executive offices)
(Zip Code)
(212)-754-2233
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports 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 March 10 1998:
Class A Common Stock: 35,494,312
Class B Common Stock: None
Page 1 of 16
AUTOTOTE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER INFORMATION
QUARTER ENDED JANUARY 31, 1998
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Balance Sheets as of January 31, 1998
and October 31, 1997 3
Statements of Operations for the Three Months Ended
January 31, 1998 and 1997 4
Statements of Cash Flows for the Three Months Ended
January 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8K 15
2
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
JANUARY 31, OCTOBER 31,
1998 1997
----------------- -----------------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents........................................................... $ 18,449 18,207
Restricted cash..................................................................... 567 512
Accounts receivable, net............................................................ 13,068 13,560
Inventories......................................................................... 6,166 6,653
Prepaid expenses, deposits and other current assets................................. 3,726 2,276
----------------- -----------------
Total current assets............................................................. 41,976 41,208
----------------- -----------------
Property and equipment, at cost....................................................... 183,238 180,170
Less accumulated depreciation....................................................... 108,238 103,781
----------------- -----------------
Net property and equipment....................................................... 75,000 76,389
----------------- -----------------
Goodwill, net of amortization......................................................... 5,281 5,916
Operating right, net of amortization.................................................. 15,598 15,848
Other assets and investments.......................................................... 14,268 14,180
----------------- -----------------
$ 152,123 153,541
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt.............................................. $ 2,472 2,609
Accounts payable.................................................................... 9,673 8,698
Accrued liabilities................................................................. 27,998 24,411
----------------- -----------------
Total current liabilities........................................................ 40,143 35,718
----------------- -----------------
Deferred income taxes................................................................. 2,336 2,551
Other long-term liabilities........................................................... 1,243 1,264
Long-term debt, excluding current installments........................................ 111,987 112,248
Long-term debt, convertible subordinated debentures................................... 35,000 35,000
----------------- -----------------
Total liabilities................................................................ 190,709 186,781
----------------- -----------------
Stockholders' equity (deficit):
Preferred stock, par value $1.00 per share, 2,000 shares authorized, none
outstanding...................................................................... -- --
Class A common stock, par value $0.01 per share, 99,300 shares authorized,
35,417 and 35,335 shares outstanding at January 31, 1998 and October 31,
1997, respectively............................................................... 355 354
Class B non-voting common stock, par value $0.01 per share, 700 shares
authorized, none outstanding...................................................... -- --
Additional paid-in capital.......................................................... 148,367 148,238
Accumulated losses.................................................................. (186,545) (181,351)
Treasury stock, at cost............................................................. (102) (102)
Currency translation adjustment..................................................... (661) (379)
----------------- -----------------
Total stockholders' equity (deficit)............................................. (38,586) (33,240)
----------------- -----------------
$ 152,123 153,541
================= =================
See accompanying notes to consolidated financial statements.
3
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1998 AND 1997
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1998 1997
----------------- -----------------
Operating revenues:
Services............................................................................ $ 31,327 31,420
Sales............................................................................... 3,104 4,095
----------------- -----------------
34,431 35,515
----------------- -----------------
Operating expenses (exclusive of depreciation and amortization shown below):
Services............................................................................ 19,377 18,742
Sales............................................................................... 1,793 2,813
----------------- -----------------
21,170 21,555
----------------- -----------------
Total gross profit............................................................... 13,261 13,960
Selling, general and administrative expenses.......................................... 7,487 7,538
Depreciation and amortization......................................................... 7,385 9,709
----------------- -----------------
Operating loss................................................................... (1,611) (3,287)
Other deductions:
Interest expense.................................................................... 3,829 3,634
Other (income) expense.............................................................. (371) 107
----------------- -----------------
3,458 3,741
----------------- -----------------
Loss before income tax expense...................................................... (5,069) (7,028)
Income tax expense.................................................................... 125 395
----------------- -----------------
Net loss.............................................................................. $ (5,194) (7,423)
================= =================
Net loss per basic share and diluted share............................................ $ (0.15) (0.23)
================= =================
Number of shares used in per share calculation........................................ 35,389 32,734
================= =================
See accompanying notes to consolidated financial statements.
4
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JANUARY 31, 1998 AND 1997
(UNAUDITED, IN THOUSANDS)
1998 1997
-------------------- ---------------
Cash flows from operating activities:
Net loss............................................................................ $ (5,194) (7,423)
-------------------- ---------------
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization.................................................... 7,385 9,709
Changes in operating assets and liabilities...................................... 3,838 108
Other............................................................................ 283 343
-------------------- ---------------
Total adjustments............................................................. 11,506 10,160
-------------------- ---------------
Net cash provided by operating activities............................................. 6,312 2,737
-------------------- ---------------
Cash flows from investing activities:
Capital expenditures................................................................ (326) (191)
Wagering systems expenditures....................................................... (3,879) (1,359)
Proceeds from asset disposals....................................................... 44 247
Increase in other assets and investments............................................ (1,446) (779)
-------------------- ---------------
Net cash used in investing activities................................................. (5,607) (2,082)
-------------------- ---------------
Cash flows from financing activities:
Payments on long-term debt.......................................................... (337) (1,306)
-------------------- ---------------
Net cash used in financing activities................................................. (337) (1,306)
-------------------- ---------------
Effect of exchange rate changes on cash............................................... (126) (185)
-------------------- ---------------
Increase (decrease) in cash and cash equivalents...................................... 242 (836)
Cash and cash equivalents, beginning of period........................................ 18,207 5,988
-------------------- ---------------
Cash and cash equivalents, end of period.............................................. $ 18,449 5,152
==================== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest....................................................................... $ 173 2,810
==================== ===============
Income taxes................................................................... $ 148 250
==================== ===============
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
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1) CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of January 31, 1998 and the consolidated
statements of operations for the three months ended January 31, 1998 and 1997,
and the consolidated statements of cash flows for the three 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 January 31, 1998 and the results of its operations for the three
months ended January 31, 1998 and 1997 and its cash flows for the three months
ended January 31, 1998 and 1997 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 1997 Annual Report on Form 10-K. The results of operations for
the period ended January 31, 1998 are not necessarily indicative of the
operating results for the full year.
Certain items in the prior year's financial statements have been
reclassified to conform with the current year presentation.
2) SALE OF THE EUROPEAN LOTTERY BUSINESS
On April 15, 1997, the Company completed the sale of its European lottery
business through the sale of its stock ownership of Tele Control Kommunikations
und Computersysteme Aktien Gesellschaft ("Tele Control") for cash consideration
of approximately $26,600, including contingent consideration of approximately
$1,600. At closing, the Company provided the purchaser with a letter of credit
to secure certain obligations under the sales agreement. At January 31, 1998,
$1,500 remained outstanding under the letter of credit, which amount reduces to
zero in specified amounts and on specified dates through October 1998.
The following unaudited information shows the revenues, expenses and
operating income of the European lottery business that were included in the
Company's Consolidated Statements of Operations for the three months ended
January 31, 1997. Interest and income tax expenses have not been included in the
table below.
1997
-----------------
Operating revenue............................................................. $ 3,656
Operating expenses, including selling, general and administrative
expenses, and depreciation and amortization expenses......................... 3,260
-----------------
Operating income.............................................................. $ 396
=================
6
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3) INVENTORIES
Inventories consist of the following:
JANUARY 31, 1998 OCTOBER 31,
1998 1997
------------------ --------------
Parts.......................................................................... $ 5,339 5,261
Work-in-process................................................................ 101 501
Finished goods................................................................. 117 244
Ticket paper................................................................... 609 647
------------------ --------------
Total.......................................................................... $ 6,166 6,653
================== ==============
Work-in-process includes costs for equipment expected to be sold.
Costs incurred for equipment associated with specific wagering system service
contracts not yet placed in service are classified as construction in progress
in property and equipment.
4) DEBT
There were no borrowings outstanding under the Company's revolving Credit
Facility (the "Facility") at January 31, 1998. All letters of credit guaranteed
under the Facility, including $1,500 issued in connection with the sale of the
European lottery business, were collateralized with available cash at January
31, 1998. At January 31, 1998, the Company had $25,000 available for borrowing
under the Facility. See Note 7 to the Consolidated Financial Statements for the
year ended October 31, 1997 included in the Company's 1997 Annual Report on Form
10-K.
5) EARNINGS PER SHARE
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128") which the Company adopted
in the first quarter of fiscal 1998. Under SFAS 128, the Company is required to
present two earnings or loss per share amounts for each period presented, and
all prior period earnings or loss per share amounts are required to be restated
to conform with the provisions of SFAS 128. Basic earnings or loss per common
share is computed by dividing net earnings or loss by the weighted average
number of common shares outstanding during the period. Diluted earnings per
share gives effect to all dilutive potential common shares that were outstanding
during the period. Potential common shares are not included in the calculation
of the dilutive net loss per share in the first quarter of fiscal 1998 and the
first quarter of fiscal 1997, since their inclusion would be anti-dilutive.
Basic and diluted net loss per common share for the first quarter of fiscal 1998
and the restated basic and diluted net loss per common share for the first
quarter of fiscal 1997, therefore, are essentially the same. At January 31, 1998
and 1997, the Company had outstanding stock options, warrants, convertible
subordinated debentures, Performance Accelerated Restricted Stock Units, and
deferred shares which could potentially dilute basic earnings per share in the
future.
6) FINANCIAL INFORMATION FOR GUARANTOR SUBSIDIARIES AND NON-GUARANTOR
SUBSIDIARIES
The Company conducts substantially all of its business through its domestic
and foreign subsidiaries. In July 1997, the Company issued $110 million
aggregate principal amount of Senior Notes bearing interest at an annual rate of
10 7/8% (the "Notes"). The Notes are jointly and severally guaranteed by
substantially all of the Company's wholly-owned domestic subsidiaries (the
"Guarantor Subsidiaries").
Presented below is condensed consolidating financial information for
Autotote Corporation (the "Parent Company"), the Guarantor Subsidiaries and the
wholly-owned foreign subsidiaries and the non-wholly owned domestic and foreign
subsidiaries (the "Non-Guarantor Subsidiaries") as of January 31, 1998
(unaudited) and October 31, 1997 (audited) and for the three month periods
7
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6) FINANCIAL INFORMATION FOR GUARANTOR SUBSIDIARIES AND NON-GUARANTOR
SUBSIDIARIES(CONTINUED)
ended January 31, 1998 and 1997 (unaudited). The condensed consolidating
financial information has been presented to show the nature of assets held,
results of operations and cash flows of the Parent Company, Guarantor
Subsidiaries and Non-Guarantor Subsidiaries assuming the guarantee structure of
the Notes was in effect at the beginning of the periods presented. Separate
financial statements for Guarantor Subsidiaries are not presented based on
management's determination that they would not provide additional information
that is material to investors.
The condensed consolidating financial information reflects the investments
of the Parent Company in the Guarantor and Non-Guarantor Subsidiaries using the
equity method of accounting. In addition, corporate interest and administrative
expenses have not been allocated to the subsidiaries.
8
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
January 31, 1998
(in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
----------- -------------- --------------- ------------- --------------
ASSETS
Cash and cash equivalents........ $ 14,894 656 2,899 -- 18,449
Accounts receivable, net......... -- 10,532 2,536 -- 13,068
Other current assets............. 1,922 6,830 2,042 (335) 10,459
Property and equipment, net...... 204 66,332 8,593 (129) 75,000
Investment in subsidiaries....... 55,874 -- -- (55,874) --
Goodwill......................... 209 2,289 2,783 -- 5,281
Other assets..................... 5,818 24,827 553 (1,332) 29,866
----------- -------------- --------------- ------------- --------------
Total assets.................. $ 78,921 111,466 19,406 (57,670) 152,123
=========== ============== =============== ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current installments of
long-term debt.................. $ 1,250 404 839 (21) 2,472
Current liabilities.............. 17,559 16,433 3,512 167 37,671
Long-term debt, excluding
current installments............ 145,000 255 1,732 -- 146,987
Other non-current liabilities.... 952 515 2,112 -- 3,579
Intercompany balances............ (47,254) 51,107 (3,853) -- --
Stockholders' equity (deficit)... (38,586) 42,752 15,064 (57,816) (38,586)
----------- -------------- --------------- ------------- --------------
Total liabilities and
stockholders' equity
(deficit).................... $ 78,921 111,466 19,406 (57,670) 152,123
=========== ============== =============== ============= ==============
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
October 31, 1997
(in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
----------- -------------- --------------- ------------- --------------
ASSETS
Cash and cash equivalents........ $ 15,582 328 2,297 -- 18,207
Accounts receivable, net......... -- 10,547 3,013 -- 13,560
Other current assets............. 711 6,223 2,791 (284) 9,441
Property and equipment, net...... 161 67,071 9,302 (145) 76,389
Investment in subsidiaries....... 54,760 -- -- (54,760) --
Goodwill......................... 211 2,635 3,070 -- 5,916
Other assets..................... 5,937 24,895 528 (1,332) 30,028
----------- -------------- --------------- ------------- --------------
Total assets.................. $ 77,362 111,699 21,001 (56,521) 153,541
=========== ============== =============== ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current installments of
long-term debt.................. $ 1,250 474 910 (25) 2,609
Current liabilities.............. 14,812 14,515 3,921 (139) 33,109
Long-term debt, excluding
current installments............ 145,000 323 1,925 -- 147,248
Other non-current liabilities.... 1,111 538 2,166 -- 3,815
Intercompany balances............ (51,571) 54,467 (3,112) 216 --
Stockholders' equity (deficit)... (33,240) 41,382 15,191 (56,573) (33,240)
----------- -------------- --------------- ------------- --------------
Total liabilities and
stockholders' equity
(deficit).................... $ 77,362 111,699 21,001 (56,521) 153,541
=========== ============== =============== ============= ==============
9
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Three Months Ended January 31, 1998
(in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
----------- ------------ ------------- ----------- ------------
Operating revenues.................. $ -- 30,065 6,310 (1,944) 34,431
Operating expenses.................. -- 19,211 3,782 (1,823) 21,170
----------- ------------ ------------- ----------- ------------
Gross profit..................... -- 10,854 2,528 (121) 13,261
Selling, general and administrative
expenses........................... 2,980 3,079 1,338 90 7,487
Depreciation and amortization....... 27 6,433 1,007 (82) 7,385
----------- ------------ ------------- ----------- ------------
Operating income (loss).......... (3,007) 1,342 183 (129) (1,611)
Interest expense.................... 3,757 (10) 90 (8) 3,829
Other (income) expense.............. (317) (16) (46) 8 (371)
----------- ------------ ------------- ----------- ------------
Income (loss) before equity in
income of subsidiaries,
and income taxes................. (6,447) 1,368 139 (129) (5,069)
Equity in income of subsidiaries... 1,316 -- -- (1,316) --
Income tax expense.................. 63 -- 62 -- 125
----------- ------------ ------------- ----------- ------------
Net income (loss)................... $ (5,194) 1,368 77 (1,445) (5,194)
=========== ============ ============= =========== ============
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF OPERATIONS
Three Months Ended January 31, 1997
(in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
----------- ------------ ------------- ----------- ------------
Operating revenues.................. $ -- 26,235 10,298 (1,018) 35,515
Operating expenses.................. -- 16,717 5,521 (683) 21,555
----------- ------------ ------------- ----------- ------------
Gross profit..................... -- 9,518 4,777 (335) 13,960
Selling, general and administrative
expenses........................... 2,857 2,939 1,626 116 7,538
Depreciation and amortization....... 13 6,773 3,112 (189) 9,709
----------- ------------ ------------- ----------- ------------
Operating income (loss).......... (2,870) (194) 39 (262) (3,287)
Interest expense.................... 3,648 4 61 (79) 3,634
Other (income) expense.............. -- (209) 237 79 107
----------- ------------ ------------- ----------- ------------
Income (loss) before equity in loss
of subsidiaries,
and income taxes................. (6,518) 11 (259) (262) (7,028)
Equity in loss of subsidiaries...... (905) -- -- 905 --
Income tax expense.................. -- -- 460 (65) 395
----------- ------------ ------------- ----------- ------------
Net income (loss)................... $ (7,423) 11 (719) 708 (7,423)
=========== ============ ============= =========== ============
10
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended January 31, 1998
(in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
----------- ------------ ------------- ----------- ------------
Net income (loss)................... $ (5,194) 1,368 77 (1,445) (5,194)
Depreciation and amortization.... 27 6,433 1,007 (82) 7,385
Equity in income of subsidiaries. (1,316) -- -- 1,316 --
Changes in operating assets and
liabilities..................... 1,322 1,651 790 75 3,838
Other non-cash adjustments....... 345 11 (73) -- 283
----------- ------------ ------------- ----------- ------------
Net cash provided by (used in )
operating activities............... (4,816) 9,463 1,801 (136) 6,312
----------- ------------ ------------- ----------- ------------
Cash flows from investing
activities:
Capital and wagering systems
expenditures.................... (56) (4,047) (169) 67 (4,205)
Proceeds from asset disposal..... -- -- 44 -- 44
Other assets and investments..... (108) (1,265) (72) (1) (1,446)
----------- ------------ ------------- ----------- ------------
Net cash provided by (used in)
investing activities............... (164) (5,312) (197) 66 (5,607)
----------- ------------ ------------- ----------- ------------
Cash flows from financing
activities:
Payments on long-term debt....... -- (138) (203) 4 (337)
Other, principally intercompany
balances........................ 4,284 (3,698) (635) 49 --
----------- ------------ ------------- ----------- ------------
Net cash provided by (used in)
financing activities............... 4,284 (3,836) (838) 53 (337)
----------- ------------ ------------- ----------- ------------
Effect of exchange rate changes on
cash............................... 8 13 (164) 17 (126)
----------- ------------ ------------- ----------- ------------
Increase/(decrease) in cash and
cash equivalents................... (688) 328 602 -- 242
Cash and cash equivalents,
beginning of year.................. 15,582 328 2,297 -- 18,207
----------- ------------ ------------- ----------- ------------
Cash and cash equivalents, end of
period............................. $ 14,894 656 2,899 -- 18,449
=========== ============ ============= =========== ============
11
AUTOTOTE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended January 31, 1997
(in thousands)
Parent Guarantor Non-Guarantor Eliminating
Company Subsidiaries Subsidiaries Entries Consolidated
----------- ------------ ------------- ----------- ------------
Net income (loss)................... $ (7,423) 11 (719) 708 (7,423)
Depreciation and amortization.... 13 6,773 3,112 (189) 9,709
Equity in loss of subsidiaries... 905 -- -- (905) --
Changes in operating assets and
liabilities..................... 1,620 (2,924) 1,177 235 108
Other non-cash adjustments....... 458 38 (153) -- 343
----------- ------------ ------------- ----------- ------------
Net cash provided by (used in )
operating activities............... (4,427) 3,898 3,417 (151) 2,737
----------- ------------ ------------- ----------- ------------
Cash flows from investing
activities:
Capital and wagering systems
expenditures.................... (20) (1,469) (68) 7 (1,550)
Proceeds from asset disposals.... -- 246 1 -- 247
Other assets and investments..... (2) (86) (734) 43 (779)
----------- ------------ ------------- ----------- ------------
Net cash provided by (used in)
investing activities............... (22) (1,309) (801) 50 (2,082)
----------- ------------ ------------- ----------- ------------
Cash flows from financing
activities:
Payments on long-term debt....... -- (1,121) (185) -- (1,306)
Other, principally intercompany
balances........................ 1,091 (1,495) 299 105 --
----------- ------------ ------------- ----------- ------------
Net cash provided by (used in)
financing activities............... 1,091 (2,616) 114 105 (1,306)
----------- ------------ ------------- ----------- ------------
Effect of exchange rate changes on
cash............................... 294 (2) (473) (4) (185)
----------- ------------ ------------- ----------- ------------
Increase/(decrease) in cash and
cash equivalents................... (3,064) (29) 2,257 -- (836)
Cash and cash equivalents,
beginning of year.................. 3,376 261 2,351 -- 5,988
----------- ------------ ------------- ----------- ------------
Cash and cash equivalents, end of
period............................. $ 312 232 4,608 -- 5,152
=========== ============ ============= =========== ============
12
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, 1998 and the results of its operations for the three month
period ended January 31, 1998, compared to the same periods last year. This
discussion should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations for the fiscal year
ended October 31, 1997 ("fiscal 1997") included in the Company's 1997 Annual
Report on Form 10-K.
THREE MONTHS ENDED JANUARY 31, 1998 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1997
First Quarter Fiscal 1998 First Quarter Fiscal 1997
------------------------------------------- ---------------------------------------------
Pari- Pari-
Mutuel Lottery Mutuel Lottery
Operations Operations Total Operations Operations Total
------------- ------------ ---------- ------------ ------------ ----------
REVENUES:
Services $ 29,096 2,231 31,327 26,615 4,805 31,420
Sales 2,393 711 3,104 1,246 2,849 4,095
------------- ------------ ---------- ------------ ------------ -----------
Total Revenues $ 31,489 2,942 34,431 27,861 7,654 35,515
============= ============ ========== ============ ============ ===========
GROSS PROFIT (excluding
depreciation and amortization) $ 12,082 1,179 13,261 10,401 3,559 13,960
============= =========== ========== ============ ============ ===========
FIRST QUARTER REVENUE ANALYSIS
Revenues decreased 3% or $1.1 million to $34.4 million in the first quarter
of the fiscal year ending October 31, 1998 from $35.5 million in the first
quarter of the fiscal year ended October 31, 1997.
Pari-mutuel Operations service revenues of $29.1 million for the first
quarter of fiscal 1998 improved $2.5 million or 9% compared to the first quarter
of the prior year. This improvement reflects revenue increases resulting from
the growth in handle in the Company's North American pari-mutuel, simulcasting
and Connecticut OTB operations. The growth in handle during the first quarter of
fiscal 1998 compared to the first quarter of fiscal 1997 is attributable to the
addition of three new racetracks and OTB sites, the addition of full card
simulcasting at one North American racetrack customer, the addition of eight new
simulcasting customers, the running of the Breeders' Cup in the first quarter of
fiscal 1998 and the growth in video gaming. Sales revenues in the first quarter
of fiscal 1998 of $2.4 million increased $1.1 million or 92% compared to the
first quarter of the prior year due primarily to the sales of terminals to the
Company's international customers.
Lottery Operations service revenues decreased $2.6 million in the first
quarter of fiscal 1998 to $2.2 million primarily because of the absence of $2.7
million in revenue provided in the prior year period by the Company's European
lottery business which was sold in April 1997. Sales revenues decreased
significantly in the first quarter of fiscal 1998 to $0.7 million from $2.8
million in the same period in fiscal 1997. This decrease is primarily
attributable to the absence of $1.0 million in equipment sales provided by the
Company's European lottery business and $1.5 million of terminal sales to our
Italian distributor for sale to Italy's TOTIP pari-mutuel lottery pool in fiscal
1997, partially offset by sales of $0.3 million to international customers in
fiscal 1998.
GROSS PROFIT ANALYSIS
The total gross profit of $13.3 million in the first quarter of fiscal 1998
decreased by $0.7 million, or 5%, compared to the first quarter of fiscal 1997.
Lower margins due to the absence of the Company's European lottery service
revenue of $1.7 million were partially offset by an increase in service margins
earned on higher handle in the pari-mutuel, simulcasting and OTB businesses.
Gross profit as a percent of revenues in the Company's continuing service
businesses was 38% in both first quarter periods, down slightly from gross
profit margins of 40% in the full fiscal year 1997, reflecting, primarily, the
seasonality of the business. Gross profit earned on equipment sales was $1.3
million in both first quarter periods despite the absence of the Company's
European lottery sales in the first quarter of fiscal 1998. Gross profit as a
percent of equipment sales was 42% in the first quarter of fiscal 1998, up from
gross profit margins of 31% in the first quarter of fiscal 1997 as a result of a
change in the mix of equipment and systems sold.
13
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 were $7.5 million in the
first quarter of fiscal 1998 and approximated the first quarter of fiscal 1997
as $0.4 million in expense reductions resulting from the sale of the Company's
European lottery business were offset by higher compensation costs and
professional fees associated with the ongoing business.
Depreciation and amortization expenses decreased 24% to $7.4 million in the
first quarter of fiscal 1998 compared to $9.7 million in the first quarter of
fiscal 1997. The decrease results from the sale of the Company's European
lottery business in April 1997, full amortization of certain intangible assets
and lower depreciation on lottery assets in fiscal 1998.
Interest expense of $3.8 million in the first quarter of fiscal 1998
increased $0.2 million over the first quarter of fiscal 1997, primarily
reflecting higher interest rates, partially offset by lower borrowing levels as
a result of asset sales.
INCOME TAXES
Income tax expense was $0.1 million in the first quarter of fiscal 1998
compared to $0.4 million in the fiscal 1997 first quarter. Income tax expense
principally reflects foreign taxes, since no tax benefit has been recognized on
domestic operating losses.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1998, the Company's available cash and borrowing capacity
totaled $43.4 million compared to $41.3 million at October 31, 1997. Net cash
provided by operating activities was $6.3 million for the three months ended
January 31, 1998. Utilizing cash provided by operating activities, the Company
invested $5.6 million principally in capital and contract expenditures and in
software systems development. Of the balance of the cash provided by operating
activities of $0.7 million, $0.3 million was used to reduce other long-term
loans.
As described above in Note 4 to the Consolidated Financial Statements, the
Company had $25.0 million of borrowing availability under its Facility at
January 31, 1998. The Company believes that, although it expects to incur a net
loss in fiscal 1998, its cash resources, anticipated cash flows from operations
and borrowing availability under the Facility will provide sufficient liquidity
to meet scheduled interest payments and anticipated capital expenditures during
the next twelve months. The Company believes that additional financing will be
required to enable it to meet its debt service obligations under the Notes, the
Facility and the Subordinated Debentures, and for capital expenditures
thereafter.
The Company has signed an agreement with its Italian distributor,
Elettronica Ingegneria Sistemi, to sell approximately 20,000 Extrema terminals,
valued at approximately $64 million, to Sisal Sport Italia SpA for use in
Sisal's Italian lottery operations. The Company will manufacture the terminals
in its Irish facility and expects to begin shipping the terminals in the third
fiscal quarter of 1998 with shipments continuing through the year 2000. The
Company expects to finance the working capital required to manufacture the
terminals with cash advanced under the contract and cash available under the
Facility.
14
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule.
10.26 Employment Agreement effective November 1, 1997 of A. Lorne
Weil and Autotote Corporation.
No current reports on Form 8-K were filed during the first quarter of
fiscal 1998.
15
AUTOTOTE CORPORATION AND SUBSIDIARIES
QUARTER ENDED JANUARY 31, 1998
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 12, 1998
16