<PAGE>
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, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition from __________________________ to __________________________
Commission File number: 0-13063
AUTOTOTE CORPORATION
--------------------
Exact name of registrant as specified in its charter
Delaware 81-0422894
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
888 Seventh Avenue, New York, New York 10106-1894
-------------------------------------------------
(Address of principal executive offices)
(Zip Code)
212-541-6440
------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date:
Class A Common Stock: 28,922,446
Class B Common Stock: None
Page 1 of 13
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
QUARTER ENDED JANUARY 31, 1995
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
January 31, 1995 (Unaudited) and
October 31, 1994.......................... 3
Consolidated Statements of Operations
Three Months Ended January 31, 1995
and 1994 (Unaudited)...................... 4
Consolidated Statements of Cash Flows
Three Months Ended January 31, 1995 and
1994 (Unaudited).......................... 5
Notes to Consolidated Financial
Statements (Unaudited).................... 6-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations............................... 9-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................... 13
Item 6. Exhibits and Reports on Form 8-K............ 13
2
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
January 31, 1995 October 31, 1994
------------------ -----------------
<S> <C> <C>
Assets (Unaudited)
- ------
Current Assets:
Cash and cash equivalents $ 7,884 $ 6,743
Accounts receivable, net 31,611 34,476
Income tax receivable 579 579
Inventories 16,167 10,346
Prepaids, deposits and other 4,309 4,672
------------------ -----------------
Total current assets 60,550 56,816
------------------ -----------------
Property and equipment, at cost 178,360 162,531
Less accumulated depreciation 47,152 41,144
------------------ -----------------
Net property and equipment 131,208 121,387
------------------ -----------------
Goodwill, less amortization 27,195 23,052
Operating rights, less amortization 18,708 18,933
Other assets and investments 33,416 25,666
------------------ -----------------
$ 271,077 $ 245,854
================== =================
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities:
Notes payable and other short term borrowings 1,145 250
Senior credit facility (See note 4) 123,448 ---
Current installments of long-term debt 1,486 792
Accounts payable 23,886 19,199
Accrued liabilities 18,888 17,164
Income taxes payable 1,714 3,548
------------------ -----------------
Total current liabilities 170,567 40,953
------------------ -----------------
Deferred income taxes 4,522 3,650
Other long-term liabilities 2,841 2,367
Long-term debt, excluding current installments 3,622 103,163
Long-term debt, convertible subordinated debentures 40,000 40,000
------------------ -----------------
Total liabilities 221,552 190,133
------------------ -----------------
Stockholders' equity:
Common stock 290 288
Additional paid in capital 135,320 134,864
Accumulated deficit (85,511) (79,580)
Treasury stock (295) ---
Translation adjustment ( 279) 149
------------------ ------------------
Total stockholders' equity 49,525 55,721
------------------ -----------------
$ 271,077 $ 245,854
================== =================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
January 31, 1995 January 31, 1994
-------------------- --------------------
(RESTATED)
<S> <C> <C>
Operating Revenues:
Wagering systems $ 28,442 $ 20,647
Wagering equipment and other sales 2,675 7,642
-------------------- --------------------
31,117 28,289
-------------------- --------------------
Operating expenses (exclusive of depreciation
and amortization shown below):
Wagering systems 16,719 12,070
Inventory, equipment and contract adjustments --- 112
Wagering equipment and other sales 1,524 4,901
-------------------- --------------------
18,243 17,083
-------------------- --------------------
Total gross profit 12,874 11,206
-------------------- --------------------
Selling, general and administrative expenses 7,695 4,599
Write-off of investments and other --- 467
Depreciation and amortization 7,717 5,121
-------------------- --------------------
Operating income (loss) (2,538) 1,019
-------------------- --------------------
Other (income) deductions
Interest expense 2,849 1,296
Other income (108) (118)
-------------------- --------------------
2,741 1,178
-------------------- --------------------
Loss before income taxes (benefit) (5,279) (159)
Income taxes (benefit) 652 (56)
-------------------- --------------------
Net loss $ (5,931) $ (103)
==================== ====================
Loss per common share $ (0.21) $ 0.00
==================== ====================
Weighted average number of common shares
outstanding 28,810 27,987
==================== ====================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
January 31, 1995 January 31, 1994
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,931) $ (103)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation and amortization 7,717 5,121
Write-off of investments and other 467
Changes in operating assets and liabilities
Accounts receivable 3,496 (2,422)
Inventories (4,306) (196)
Prepaids, deposits and other 811 (55)
Accounts payable 3,185 1,992
Accrued liabilities (245) (656)
Income taxes payable (1,185) (1,061)
Other 157 229
------------------ ------------------
Total adjustments 9,630 3,419
------------------ ------------------
Net cash provided by operating activities 3,699 3,316
------------------ ------------------
Cash flows from investing activities:
Capital expenditures (2,832) (990)
Expenditures for equipment under wagering system (3,323) (9,362)
Increase in other assets and investments (3,502) (1,100)
Purchase of companies and assets (15,826) ---
------------------ ------------------
Net cash used in investing activities (25,483) (11,452)
------------------ ------------------
Cash flows from financing activities:
Net borrowings on lines-of-credit and other short-term
facilities 22,895 4,862
Proceeds from issuance of long-term debt 233 246
Payments on long-term debt (366) (177)
Net proceeds from issuance of common stock 163 511
------------------ ------------------
Net cash provided by financing activities 22,925 5,442
------------------ ------------------
Increase/(Decrease) in cash and cash equivalents 1,141 (2,694)
Cash and cash equivalents, beginning of period 6,743 10,524
------------------ ------------------
Cash and cash equivalents, end of period 7,884 7,830
================== ==================
Supplemental disclosure of non-cash financing activities:
Interest $ 1,400 $ 779
================== ==================
Income taxes $ --- $ 825
================== ==================
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS.
5
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1) Consolidated Financial Statements
The consolidated balance sheet as of January 31, 1995 and the
consolidated statements of operations and cash flows for the three months ended
January 31, 1995 and 1994 have been prepared by the Company, without audit. In
the opinion of management, all adjustments (consisting only of normal, recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at January 31, 1995 and for all periods presented have
been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's October 31, 1994 Annual Report on
Form 10-K. The results of operations for the period ended January 31, 1995 are
not necessarily indicative of the operating results for the full year.
2) Restatement
The Company has restated its interim financial results for the first,
second and third quarters of fiscal 1994. The restatement relates principally
to: (i) inclusion in wagering equipment operating expenses in the third quarter
of $5.9 million out of a total of $7.5 million non-tax deductible payment in
1994 made to former Tele Control Group stockholders pursuant to contingent
payment provisions in the Tele Control Group acquisition agreement as a result
of the award of certain lottery contracts to the Tele Control Group in the third
quarter, (ii) an annualized increase of $5.3 million in amortization and
depreciation as a result of the final review of the allocation of purchase price
and the useful life of goodwill and certain other assets, recorded in connection
with the 1993 acquisitions of the Tele Control Group, the ETAG Group, Autotote
Lottery and the right to operate the Connecticut OTB (the "1993 Acquisitions");
(iii) $3.3 million in corrections consisting of inventory, equipment and
contract adjustments resulting in charges to the financial statements delivered
by the sellers in connection with the Company's acquisition on July 20, 1994 of
Marvin H. Sugarman Productions, Inc., and Racing Technology, Inc., for periods
prior to the acquisition; and other factors.
3) Acquisitions
In January 1995, the Company acquired substantially all of the assets
of the Simulcast Division of LDDS Corporation (formerly IDB Communications Group
Inc.) ("IDB"), and the rights and obligations under leases relating to eight C-
band satellite transponders for $13.5 million in cash. The acquisition has been
accounted for by the purchase method of accounting, and accordingly, the
purchase price has been allocated to the assets acquired based on preliminary
estimates of fair values at the date of acquisition. The excess of the purchase
price over the estimated fair values of the net assets acquired was $2.6 million
and has been recorded as goodwill, which will be amortized over 5 years.
In November 1994, the Company acquired 80% of the outstanding stock of
the holding company of SEPMO S.A., ("SEPMO"), a French supplier of wagering
systems and services to the French off-track betting network and other customers
for $2.3 million. The acquisition has been accounted for by the purchase method
of accounting, and accordingly, the purchase price has been allocated to the
assets acquired and liabilities assumed based on preliminary estimates of fair
values at the date of acquisition.
6
<PAGE>
3) Acquisitions (contd.)
The excess of the purchase price over the estimated fair values of the
net assets acquired was $1.3 million and has been recorded as goodwill, which
will be amortized over 5 years. The operating results of this acquisition are
included in the Company's consolidated results of operations from the date of
acquisition.
4) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
January 31, 1995 October 31, 1994
---------------- ----------------
<S> <C> <C>
Parts $ 9,063 $ 3,579
Work-in-Process 4,563 5,887
Finished Goods 2,132 443
------- -------
15,758 9,909
Ticket Paper 409 437
------- -------
Total $16,167 $10,346
------- -------
</TABLE>
5) Debt
The Company has classified $123.4 million of its senior bank credit
facility as a current liability as of January 31, 1995, as the Company was in
violation of certain financial covenants as of that date. On May 26, 1995, the
Company received a waiver from its bank group which waives these covenant
violations through July 14, 1995. The Company is engaged in active discussions
with its bank group to address ongoing compliance with the senior bank credit
facility and to address future financing needs and alternatives.
6) Litigation
As stated in the 10-K, the Company and certain of its officers and
directors have been named as defendants in fifteen lawsuits commenced in
February 1995 as class actions in the United States District Court for the
District of Delaware. The putative classes consist of purchasers of Class A
Common Stock and put and call options between March 1994 and January 1995. The
complaints allege that the Company and certain of its officers and directors
violated the federal securities laws and seek remedies of unspecified monetary
damages and awards of fees and expenses. All parties to the actions have agreed
to consolidate the litigations in the United states District Court in the
District of Delaware by jointly submitting a proposed Pre-Trial Order for
consolidation. The likelihood of success and the ultimate outcome of the
consolidated litigation cannot be evaluated before the Consolidated Complaint is
filed, and no provisions for liability, if any, that may result from the
consolidated litigation has been recognized in the accompanying consolidated
financial statements.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion addresses the financial condition of the
Company as of January 31, 1995 and the results of operations for the three
months period ended January 31, 1995, compared to the same period last year.
This discussion should be read in conjunction with the Management's Discussion
and Analysis section (pages 22-32) for the fiscal year ended October 31, 1994
included in the Company's Annual Report on Form 10-K.
Restatement
The Company has restated its interim financial results for the first,
second and third quarters of fiscal 1994. The restatement relates principally
to: (i) inclusion in wagering equipment operating expenses in the third quarter
of $5.9 million out of a total of $7.5 million non-tax deductible payment in
1994 made to former Tele Control Group stockholders pursuant to contingent
payment provisions in the Tele Control Group acquisition agreement as a result
of the award of certain lottery contracts to the Tele Control Group in the third
quarter, (ii) an annualized increase of $5.3 million in amortization and
depreciation as a result of the final review of the allocation of purchase price
and the useful life of goodwill and certain other assets, recorded in connection
with the 1993 acquisitions of the Tele Control Group, the ETAG Group, Autotote
Lottery and the right to operate the Connecticut OTB (the "1993 Acquisitions");
(iii) $3.3 million in corrections consisting of inventory, equipment and
contract adjustments resulting in charges to the financial statements delivered
by the sellers in connection with the Company's acquisition on July 20, 1994 of
Marvin H. Sugarman Productions, Inc., and Racing Technology, Inc., for periods
prior to the acquisition; and other factors.
First Quarter Fiscal 1995 Compared to First Quarter Fiscal 1994
Revenue Analysis
Revenues increased 10% or $2.8 million to $31.1 million in the first
quarter of fiscal 1995 from $28.3 million in the first quarter of fiscal 1994.
The company acquired a French pari-mutuel concern ("SEPMO") in the first quarter
of 1995 which contributed $2.5 million of revenues in the first quarter.
Wagering system revenues, exclusive of $1.8 million attributable to the SEPMO
acquisition, increased $6.0 million or 29% versus the prior year reflecting
strong performances in the Company's core North American pari-mutuel businesses
and increased revenues from the Company's European lottery operations.
Offsetting this improvement was a decline in wagering equipment and other sales,
excluding $0.7 million attributable to SEPMO, of $5.7 million or 75%, reflecting
the absence of 1994 first quarter revenues of $5.8 million relating to the sale
of MAX 2000 terminals to Italy's TOTIP pool.
Expense Analysis
Gross margins on wagering systems, excluding gross margin of $0.9
million attributable to SEPMO, were 41% in the first quarter of fiscal 1995,
which was comparable to the 1994 period. Gross margins on wagering equipment
and other sales, excluding $0.3 million attributable to the SEPMO acquisition,
increased from 36% in the first quarter of fiscal 1994 to 46% in the first
quarter of fiscal 1995, primarily attributable to the 1994 lower margin MAX 2000
terminal sales. Improvement in total gross margin of $1.7 million or 15%,
including $1.2 million attributable SEPMO, was more than offset by increases in
selling, general and administrative expense ($3.1 million), depreciation and
amortization ($2.6 million) and interest expense ($1.5 million).
Selling, general and administrative expenses, including product
development expense, increased 67% to $7.7 million in the first quarter of 1995
compared to $4.6 million in the first quarter of 1994. The increase in SG&A
expense included $.8 million attributable to the operations of SEPMO and a $.7
million increase relating to the servicing of North American pari-mutuel and
video gaming customers. Included in the balance of the SG&A increase were legal
and other professional fees incurred for market development and other corporate
requirements.
Depreciation and amortization expenses increased 51% to $7.7 million
in the first quarter of 1995 compared to $5.1 million in the first quarter of
fiscal 1994. The increased depreciation and amortization was primarily due to
fiscal 1994 capital additions for North American pari-mutuel and video gaming
operations and the acquisition of SEPMO.
8
<PAGE>
Operating loss was $2.5 million in the first quarter of fiscal 1995 as
compared to income of $1.0 million in the first quarter of fiscal 1994 as a
result of the increased selling, general and administrative, depreciation and
amortization and interest expenses.
Interest expense increased $1.5 million to $2.8 million in the first
quarter of 1995 compared to $1.3 million in the first quarter of fiscal 1994,
principally reflecting increased borrowings to finance 1994 capital additions in
North American wagering businesses.
Income Taxes
Income tax expense was $0.7 million in the first quarter of fiscal
1995 as compared to a tax benefit of $0.1 million in the first quarter of fiscal
1994. Income tax expense for the first quarter of fiscal 1995 principally
reflects foreign tax expense. No tax benefit has been recognized on domestic
operating losses.
Net Loss
Net loss for the first quarter of fiscal 1995 was $5.9 million, or
$0.21 per share compared to a net loss of $0.1 million in the first quarter of
fiscal 1994.
Liquidity and Capital Resources
The Company's wagering system contracts are capital intensive,
requiring substantial initial cash outlays which are recouped over time from
cash flows from the contracts. New lottery contracts would also require
substantial initial cash outlays. The amount of the Company's future capital
expenditures for wagering systems equipment and lottery equipment will depend on
the Company's ability to enter into service contracts with new customers and
renewal of existing contracts with systems upgrades. Each new customer may
require the manufacture and assembly of a new wagering system unless the dates
of operations and requirements of a new wagering facility allow an existing
system to be used at such facility. New lottery service contracts generally
will require the manufacture and assembly of new systems. Under some
circumstances, the Company may be required to begin manufacture of wagering
systems prior to award of a contract in a competitive bidding situation.
Expenditures related to the sale of the Company's wagering equipment are
generally funded, in part, by customer advance payments.
Net cash provided by operating activities was $3.7 million for the
first quarter of fiscal 1995 and was primarily attributable to improved
collection of accounts receivable and timing of certain payments, partially
offset by increases in inventories. At January 31, 1995, the Company had cash
and cash equivalents of $7.9 million as compared to $6.7 million at October 31,
1994.
9
<PAGE>
Net cash used in investing activities was $25.5 million for the first
quarter of 1995. With proceeds from the senior bank credit facility, the Company
acquired, for $13.5 million, substantially all of the assets of the Simulcast
Division of LDDS Corporation (formerly IDB Communications Group, Inc.) ("IDB")
and the rights and obligations under leases relating to eight C-Band satellite
transponders. The Company invested $2.8 million in capital expenditures, of
which $1.2 million represents the construction of facilities in Las Vegas and
$0.8 million represents expenditures related to its simulcasting facility
located in New Haven, Connecticut. Approximately $2.3 million was invested to
acquire 80% of the holding company of SEPMO S.A., a supplier of wagering systems
and services to the French off-track betting network and other customers.
Net cash provided by financing activities consisted principally of
borrowings of $22.0 million from the senior bank credit facility, of which $13.5
million was used to purchase substantially all of the assets of the Simulcast
Division of LLDS Corporation (formerly IDB Communications Group, Inc.) ("IDB")
and the rights and obligations under leases relating to eight C-Band satellite
transponders. At January 31, 1995, the unused portion of the Company's senior
bank credit facility was $7.8 million. The Company was in violation of certain
covenants of the senior bank credit facility as of January 31, 1995. On May 26,
1995, the Company received a waiver from its bank group which waives these
covenant violations through July 14, 1995. The Company is engaged in active
discussions with its bank group to address ongoing compliance with the senior
bank credit facility and to address future financing alternatives.
In fiscal 1995, the Company intends to bid on upcoming lottery
contracts in North America. These contracts and any North American OTB
privatization or start-up awards received by the Company would be capital
intensive, requiring substantial initial cash outlays. The Company believes that
additional sources of capital will be required to satisfy these potential
capital needs and its anticipated capital needs arising from current
commitments. The Company is currently exploring financing alternatives to meet
its capital requirements while simultaneously developing programs to reduce its
level of ongoing expenditures. The Company will be required to evaluate its
capital outlays and commitments in light of the availability and timing of
additional financing, which currently remains uncertain.
10
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
Quarter Ended January 31, 1995
PART II. OTHER INFORMATION
Page
Number
Item 1. Legal Proceedings
The Company and certain of its officers and directors have been named
defendants in fifteen lawsuits commenced in February 1995 as class actions in
the United States District Court for the District of Delaware. The putative
classes consist of purchasers of Class A Common Stock and put and call options
between March 1994 and January, 1995. The complaints allege that the Company
and certain of its officers and directors violated the federal securities laws
and seek remedies of unspecified monetary damages and awards of fees and
expenses. All parties to the actions have agreed to consolidate the litigations
in the United States District Court in the District of Delaware by jointly
submitting a proposed Pre-Trial Order for consolidation. The Company intends to
vigorously defend these proceedings. However, the likelihood of success and the
ultimate outcome of the consolidated litigation cannot yet be determined before
the Consolidated Complaint is filed.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule 14
(b) No information is required to be reported hereunder
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf of
the undersigned thereunto duly authorized.
AUTOTOTE CORPORATION
--------------------
(Registrant)
By: /s/ Philip G. Taggart
-----------------------
Name: Philip G. Taggart
Title: Corporate Controller and
Chief Accounting Officer
Dated: June 7, 1995
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> NOV-01-1994
<PERIOD-END> JAN-31-1995
<CASH> 7,884
<SECURITIES> 0
<RECEIVABLES> 32,893
<ALLOWANCES> 1,282
<INVENTORY> 16,167
<CURRENT-ASSETS> 60,550
<PP&E> 178,360
<DEPRECIATION> 47,152
<TOTAL-ASSETS> 271,077
<CURRENT-LIABILITIES> 171,311
<BONDS> 43,622
<COMMON> 290
0
0
<OTHER-SE> 49,525
<TOTAL-LIABILITY-AND-EQUITY> 271,077
<SALES> 31,117
<TOTAL-REVENUES> 31,117
<CGS> 0
<TOTAL-COSTS> 18,243
<OTHER-EXPENSES> 15,412
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,849
<INCOME-PRETAX> (5,279)
<INCOME-TAX> 652
<INCOME-CONTINUING> (5,931)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,931)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
