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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(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, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition from to
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Commission file number: 0-13063
AUTOTOTE CORPORATION
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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, Ste. 1808, New York, New York 10106-1894
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(Address of principal executive offices)
(Zip Code)
(212) 541-6440
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required 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: 27,598,437
Class B Common Stock: None
Page 1 of 12
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AUTOTOTE CORPORATION AND SUBSIDIARIES
QUARTER ENDED JANUARY 31, 1994
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
January 31, 1994 (Unaudited) and
October 31, 1993................................. 3
Consolidated Statements of Operations
Three Months Ended January 31, 1994
and 1993 (Unaudited)............................. 4
Consolidated Statements of Cash Flows
Three Months Ended January 31, 1994 and
1993 (Unaudited)................................. 5
Notes to Consolidated Financial
Statements (Unaudited)........................... 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations.................................... 8-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................ 11
Item 4. Submission of Matters to Vote of Security Holders........ 11
Item 6. Exhibits and Reports on Form 8-K......................... 11
SIGNATURES ................................................. 12
2
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AUTOTOTE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
January 31, 1994 October 31, 1993
----------------- -----------------
(Restated) (Restated)
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,830 $ 10,524
Accounts receivable, net 20,334 17,912
Inventories 13,812 13,616
Prepaids, deposits and other 2,800 2,745
-------- --------
Total current assets 44,776 44,797
-------- --------
Property and equipment, at cost 120,661 102,224
Less accumulated depreciation 34,214 29,394
-------- --------
Net property and equipment 86,447 72,830
-------- --------
Goodwill, less amortization 24,185 28,502
Marketing rights, less amortization 19,708 19,833
Other assets and investments 21,395 21,143
-------- --------
$196,511 $187,105
======== ========
<CAPTION>
Liabilities and Stockholders' Equity (Deficiency)
-------------------------------------------------
<S> <C> <C>
Notes payable and other short term borrowings 149 1,034
Current installments of long-term debt 990 725
Accounts payable 14,798 12,806
Accrued liabilities 10,480 11,136
Income taxes payable 1,399 2,460
-------- --------
Total current liabilities 27,816 28,161
-------- --------
Deferred income taxes 7,359 4,380
Other long-term liabilities 3,080 2,223
Long-term debt, convertible subordinated debentures 40,000 40,000
Long-term debt, excluding current installments 41,813 36,262
-------- --------
Total liabilities 120,068 111,026
-------- --------
Stockholders' equity:
Common Stock 281 279
Additional paid-in-capital 133,899 133,390
Accumulated deficit (57,533) (57,430)
Translation adjustment (204) (160)
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Total stockholders' equity 76,443 76,079
-------- --------
$196,511 $187,105
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
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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, 1994 January 31, 1993
------------------- ------------------
(Restated) (Restated)
<S> <C> <C>
Operating revenues:
- -------------------
Wagering systems $20,647 $ 9,468
Wagering equipment and other sales 7,642 3,892
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28,289 13,360
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Operating expenses (exclusive of depreciation and
- ------------------
amortization shown below):
Wagering systems 12,070 5,299
Inventory, equipment and contract adjustments 112 -
Wagering equipment and other sales 4,901 1,679
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17,083 6,978
------- -------
Total gross profit 11,206 6,382
Selling, general and administrative expenses 4,599 2,051
Write-off of investments and other 467 -
Depreciation and amortization 5,121 2,025
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Operating income 1,019 2,306
Other (income) expenses
- -----------------------
Interest expense 1,296 1,329
Other (income) / expense (118) -
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Earnings/(loss) before income taxes / (benefit) (159) 977
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Income taxes (benefit) (56) 371
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Net earnings / (loss) $ (103) $ 606
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Earnings per common share $ - $ 0.03
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Weighted average number of common shares outstanding 27,987 20,142
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
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AUTOTOTE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
January 31, 1994 January 31, 1993
------------------- -------------------
(Restated) (Restated)
<S> <C> <C>
Cash flows from operating activities:
Net earnings / (loss) $ (103) $ 606
-------- --------
Adjustments to reconcile net earnings (loss) to
cash provided by (used in) operating activities:
Depreciation and amortization 5,121 2,025
Write-off of investments and other 467 -
Changes in operating assets and liabilities:
Accounts receivable (2,422) (564)
Inventories (196) (10,390)
Prepaids, deposits and other (55) 129
Accounts payable 1,992 1,839
Accrued liabilities (656) (2,195)
Income taxes payable (1,061) 15
Other 229 (478)
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Total adjustments 3,419 (9,619)
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Net cash provided by (used in) operating activities 3,316 (9,013)
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Cash flows from investing activities:
Capital expenditures (990) (455)
Expenditures for equipment under wagering system
contracts (9,362) -
Increase in other assets and investments (1,100) (513)
-------- --------
Net cash used in investing activities (11,452) (968)
-------- --------
Cash flows from financing activities:
Net borrowings on lines-of-credit 4,862 5,721
Proceeds from issuance of long-term debt 246 4,800
Payments on long-term debt (177) (684)
Net proceeds from issuance of common stock 511 87
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Net cash provided by financing activities 5,442 9,924
-------- --------
Decrease in cash and cash equivalents (2,694) (57)
Cash and cash equivalents, beginning of period 10,524 1,207
-------- --------
Cash and cash equivalents, end of period $ 7,830 $ 1,150
======== ========
Cash paid during the nine months ended:
Interest, net of amounts capitalized $ 779 $ 1,312
======== ========
Income taxes $ 825 $ 170
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
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AUTOTOTE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Restatement
The Company has restated its previously issued financial results for all of
the quarters in the fiscal year ended October 31, 1994. The restated financial
results relate principally to: (i) payments 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; (ii) additional 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) corrections
to inventory, equipment and contract adjustments resulting in charges to the
financial statements delivered by the sellers in connection with the Company's
simulcasting acquisition on July 20, 1994 of Marvin H. Sugarman Productions,
Inc. (MHSP), and Racing Technology, Inc. (RTI), for periods prior to the
acquisition; and other factors. The acquisition of MHSP and RTI was accounted
for as a pooling of interests and, accordingly, the accompanying consolidated
financial statements have been restated to include the accounts and operations
for all periods prior to the acquisition.
This Form 10-Q/A should be read in conjunction with the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1994, which was filed
with the Securities and Exchange Commission on February 24, 1995, and
Form 10-Q/A filed for all of the quarters in the fiscal year ended October
31, 1994.
For more information regarding the effect on the Company's consolidated
financial statements related to the acquisition of MHSP and RTI, see Note 3 to
the Annual Report on Form 10-K for the year ended October 31, 1994.
2. Summary of Significant Accounting Principles
(a) Principles of Consolidation
The consolidated balance sheet as of January 31, 1994 and the consolidated
statements of operations and cash flows for the three month periods ended
January 31, 1994 and 1993 have been prepared by the Company, without audit. In
the opinion of management, all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows as of and for the periods indicated have been made.
The October 31, 1993 financial information was taken from statements audited by
KPMG Peat Marwick LLP in connection with the Company's annual audit.
6
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(b) Effect of Stock Splits
Weighted average common shares and earnings per share have been adjusted to
reflect the Company's 3 for 2 and 2 for 1 stock splits in the form of stock
dividends effected in 1993.
3. Inventories
<TABLE>
<CAPTION>
(In Thousands)
(Unaudited)
January 31, 1994 October 31, 1993
---------------- ----------------
<S> <C> <C>
Parts............... $ 7,809 $ 9,230
Work in process..... 5,230 3,721
Ticket paper........ 773 665
------- -------
Total.......... $13,812 $13,616
======= =======
</TABLE>
Prior to 1993, the Company utilized inventory accounts to accumulate all
costs associated with the production of its products. During 1993, the Company
began to identify the association between production assembly jobs and specific
wagering systems contracts. For financial reporting purposes, at January 31,
1994 and October 31, 1993 costs for equipment associated with specific wagering
systems equipment contracts not yet placed in service are recorded as work in
process. When the equipment is placed in service at wagering facilities, the
related costs are transferred from work in process to machinery and equipment.
Under wagering systems contracts, the Company retains ownership of all
equipment located at wagering facilities.
4. Commitments and Contingencies
As more fully discussed in Notes 10 and 18 to the Annual Report on Form
10-K for the year ended October 31, 1994, the Company was in violation of
certain covenants of the senior bank credit facility. In addition, the Company
and certain of its officers and directors were named as defendants in lawsuits
alleging violation of certain federal securities laws.
7
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Restatement
As discussed in Note 1, the accompanying consolidated financial statements
and Management's Discussion and Analysis have been restated.
First Quarter Fiscal 1994 Compared to First Quarter Fiscal 1993
- ---------------------------------------------------------------
Revenue Analysis
Revenues increased 112% or $15 million to $28 million in the first quarter
of fiscal 1994 from $13 million in the first quarter of fiscal 1993. The
Company completed four acquisitions in the third and fourth quarters of fiscal
1993 which contributed revenues of $11.6 million in the first quarter of fiscal
1994. Wagering equipment and other sales revenues, exclusive of $0.8 million of
equipment sales revenue attributable to the recent Tele Control and GI lottery
acquisitions, increased to $6.8 million in the first quarter of fiscal 1994
compared to $3.9 million in the first quarter of fiscal 1993. Wagering
equipment sales revenue in the 1994 period included $5.8 million attributable to
delivery of MAX 2000 terminals to Italy's TOTIP pool. Wagering equipment sales
in the first quarter of fiscal 1993 included engineering fees earned on the
customized MAX 2000 TOTIP terminals. In addition, the Company delivered three
sports wagering systems and other equipment in the first quarter of fiscal 1993.
Wagering systems revenue, exclusive of $10.8 million attributable to the 1993
acquisitions, was $9.8 million in the first quarter of fiscal 1994 compared to
$9.5 million in the first quarter of fiscal 1993. Fiscal 1994 first quarter
wagering systems revenues reflect three months of operations under contracts
signed in 1993 with Santa Anita Park, Southern California Off-Track Wagering,
Inc. and Ontario Jockey Club, compared to only one month of operation in 1993.
Partly offsetting this increase was the adverse affect of the severe winter
weather in the Northeast, the earthquake in California and rate reductions
associated with contract renewals.
Expense Analysis
Gross margins on wagering equipment sales decreased from 57% in the first
quarter of fiscal 1993 to 36% in the first quarter of fiscal 1994 primarily due
to lower margin terminal sales in 1994 and the startup of the Company's Irish
manufacturing facility compared to the higher margin associated with the
engineering fees for the customization of the MAX 2000 terminals for Italy's
TOTIP pool and the delivery of high margin sports wagering systems in 1993.
Gross margin on wagering systems decreased from 44% in the first quarter of
fiscal 1993 to 42% in the first quarter of fiscal 1994. Adversely affecting
wagering systems margins in the first quarter of fiscal 1994 were the
severe weather conditions in the Northeast, the earthquake in California,
and rate reductions associated with contract renewals in fiscal 1993. In
addition, systems gross margins in the first quarter of fiscal 1994 reflect the
labor intensive nature of the operations of the Connecticut OTB.
8
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Selling, general and administrative expenses, including product development
expenses, increased $2.6 million to $4.6 million for the first quarter of fiscal
1994 from $2.0 million in the first quarter of fiscal 1993, primarily reflecting
increases in marketing efforts associated with proposal submissions to North
American and international lottery organizations by the Company's on-line
lottery business, expenses associated with the operations of the 1993
acquisitions as well as increases in management personnel and marketing expenses
associated with the expansion of the Company's North American and international
operations.
Product development expenditures in the first quarter of fiscal 1994 were
$1.8 million, up from $1.0 million in the first quarter of fiscal 1993,
reflecting increases in new product development, product enhancements and
product support. Approximately $0.6 million of the first quarter of fiscal 1994
development expense is included in the statement of operations, approximately
$0.7 million was allocated to projects and $0.5 million was reimbursed by
customers.
Depreciation and amortization expenses increased 153% to $5.1 million in
the first quarter of fiscal 1994 compared to $2.0 million in the first quarter
of fiscal 1993. The increase was principally due to the depreciation associated
with the new PROBE systems installed at customer sites in fiscal 1993 and to the
amortization of goodwill associated with the 1993 acquisitions.
Operating income was $1.0 million in the first quarter of fiscal 1994
compared to $2.3 million in the first quarter of fiscal 1993 reflecting lower
margins on the TOTIP terminal sales, adverse effect of the weather in the
Northeast on wagering systems sales, increased marketing efforts, the write-off
of certain investments and higher depreciation and amortization associated with
new wagering system contracts and 1993 acquisitions.
Net interest and other expense declined $0.1 million to $1.2 million in the
first quarter of fiscal 1994 compared to $1.3 million in the first quarter of
fiscal 1993 primarily due to the capitalization of $0.2 million of interest
associated with the construction of wagering systems equipment.
Income Taxes
The decrease in effective tax rates from 38% in 1993 to 35% in 1994 is
primarily due to 1994 foreign earnings taxed at a lower rate than the U.S. tax
rate.
Net Earnings (Loss)
The net loss for the first quarter of fiscal 1994 was $0.1 million compared
to net earnings of $0.6 million in the first quarter of fiscal 1993.
9
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Liquidity and Capital Resources
The Company's wagering system contracts are capital intensive, requiring
substantial initial cash outlays recouped over time from cash flows from the
contracts. New lottery contracts would also require substantial initial
outlays. In the first quarter of fiscal 1994, the Company invested $9.4 million
in expenditures for equipment under wagering system contracts, primarily for new
installations of PROBE systems. In the first quarter of fiscal 1994, net cash
provided by operating activities was $3.3 million, after giving effect to
increases in accounts payable of $2.0 million, partly offset by $2.4 million in
increases in accounts receivable, decreases in accrued liabilities of $0.7
million and decreases in income taxes payable of $1.1 million. The Company
generated cash of $5.5 million from net earnings and non-cash charges for
depreciation and amortization in the first quarter of fiscal 1994 and the
write-off of certain assets. During the period the Company partially financed
its capital expenditures through its senior credit facility.
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 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 the award of a
contract in a competitive bidding situation. The Company anticipates total
expenditures of approximately $14.6 million in fiscal 1994 for wagering systems
arising out of commitments at January 31, 1994. At January 31, 1994, the
Company's cash and cash equivalents were $7.8 million, versus $10.5 million at
October 31, 1993. At January 31, 1994, the acquisition/capital expenditure
portion of the Company's senior credit facility was fully utilized, and $4.1
million were available under the revolving portion of the facility. Effective
March 9, 1994, the acquisition/capital expenditure portion of the Company's
senior credit facility was increased by $15 million until June 9, 1994 (see Note
4 to the consolidated financial statements). The Company's wagering equipment
sales customers fund portions of required expenditures in the form of advance
payments. The Company's capital requirements continue to increase as a result
of continued growth in its business and the 1993 acquisitions.
The Company believes that its current capital resources including operating
cash flow, advance payments from customers and borrowings under the Company's
senior credit facility, will not be sufficient to satisfy the Company's
anticipated capital needs through fiscal 1994 and that additional sources of
capital will be required. The Company is exploring financing alternatives,
including an equity offering and additional bank borrowings to meet these
additional capital requirements.
10
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PART II
OTHER INFORMATION
Item 1 - Legal Proceedings
In addition to routine legal proceedings incidental to the conduct of its
business, the Company and certain of its officers and directors have been named
as defendants in 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 30, 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.
The Company intends to vigorously defend these proceedings. However, the
ultimate outcome of the actions cannot yet be determined, and no provision for
any liability, if any, that may result from the actions has been recognized in
the accompanying consolidated financial statements.
Item 4 - Submission of Matters to Vote of Security Holders.
None.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter.
11
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AUTOTOTE CORPORATION
(Registrant)
By: /S/ Philip G. Taggart
----------------------
Name: Philip G. Taggart
Title: Corporate Controller
Dated: June 14, 1995
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