<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: April 30, 1996
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 May 24, 1996:
Class A Common Stock: 31,456,164
Class B Common Stock: None
Page 1 of 14
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER INFORMATION
QUARTER ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Balance Sheets as of April 30, 1996
and October 31, 1995 3
Statements of Operations for the Three Months Ended
April 30, 1996 and 1995 4
Statements of Operations for the Six Months Ended
April 30, 1996 and 1995 5
Statements of Cash Flows for the Six Months Ended
April 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7-8
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 8K 13
</TABLE>
2
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
April 30, October 31,
1996 1995
--------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents............. $ 4,138 4,991
Restricted cash....................... 574 1,282
Accounts receivable, net.............. 19,311 21,700
Inventories........................... 6,681 12,497
Unbilled receivables.................. 8,629 4,166
Prepaid expenses, deposits and other
current assets...................... 4,800 3,121
--------- --------
Total current assets.............. 44,133 47,757
--------- --------
Property and equipment, at cost......... 186,077 186,005
Less accumulated depreciation......... 77,188 67,745
--------- --------
Net property and equipment........ 108,889 118,260
--------- --------
Goodwill, net of amortization........... 24,486 26,986
Operating right, net of amortization.... 17,348 17,848
Other assets and investments............ 27,664 30,170
--------- --------
$ 222,520 241,021
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term
debt................................ $ 25,564 10,772
Accounts payable...................... 13,435 16,448
Accrued liabilities................... 21,713 23,783
Income taxes payable.................. 2,043 1,878
--------- --------
Total current liabilities......... 62,755 52,881
--------- --------
Deferred income taxes................... 6,706 5,807
Accrued litigation settlement........... 5,500 --
Other long-term liabilities............. 2,261 3,984
Long-term debt, excluding current
installments.......................... 111,324 126,492
Long-term debt, convertible
subordinated debentures............... 40,000 40,000
--------- --------
Total liabilities................. 228,546 229,164
--------- --------
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,
31,456 and 30,520 shares outstanding at
April 30, 1996 and October 31, 1995,
respectively.......................... 315 306
Class B non-voting common stock, par
value $0.01 per share, 700 shares
authorized, none outstanding.......... -- --
Additional paid-in capital............ 143,221 140,050
Accumulated deficit................... (149,164) (129,469)
Treasury stock, at cost............... (102) (295)
Translation adjustment................ (296) 1,265
--------- --------
Total stockholders' equity
(deficit)....................... (6,026) 11,857
--------- --------
$ 222,520 241,021
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended April 30, 1996 and 1995
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
April 30, April 30,
1996 1995
-----------------------------------------
<S> <C> <C>
Operating revenues:
Wagering systems...................... $35,406 32,423
Wagering equipment and other sales.... 10,335 4,709
------- ------
45,741 37,132
------- ------
Operating expenses (exclusive of
depreciation and amortization):
Wagering systems...................... 22,224 19,224
Wagering equipment and other sales.... 7,442 2,948
------- ------
29,666 22,172
------- ------
Total gross profit.................. 16,075 14,960
------- ------
Selling, general and administrative
expenses.............................. 8,378 9,909
Depreciation and amortization........... 9,558 8,781
------- ------
Operating loss...................... (1,861) (3,730)
------- ------
Other deductions (income):
Interest expense...................... 3,670 4,308
Other deductions (income)............. (149) 253
------- ------
3,521 4,561
------- ------
Loss before income tax expense........ (5,382) (8,291)
Income tax expense...................... 512 667
------- ------
Net loss................................ $(5,894) (8,958)
======= ======
Net loss per common share............... $(0.19) (0.31)
======= ======
Weighted average number of common
shares outstanding.................... 31,373 28,913
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended April 30, 1996 and 1995
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
April 30, April 30,
1996 1995
-------------------------------------
<S> <C> <C>
Operating revenues:
Wagering systems...................... $ 64,974 61,399
Wagering equipment and other sales.... 24,073 6,850
-------- -------
89,047 68,249
-------- -------
Operating expenses (exclusive of
depreciation and amortization):
Wagering systems...................... 41,071 35,971
Wagering equipment and other sales.... 16,140 4,444
-------- -------
57,211 40,415
-------- -------
Total gross profit.................. 31,836 27,834
-------- -------
Selling, general and administrative
expenses.............................. 16,548 17,604
Depreciation and amortization........... 18,994 16,498
-------- -------
Operating loss...................... (3,706) (6,268)
-------- -------
Other deductions (income):
Interest expense...................... 7,332 7,157
Litigation settlement................. 6,800 --
Other deductions...................... 143 145
-------- -------
14,275 7,302
-------- -------
Loss before income tax expense........ (17,981) (13,570)
Income tax expense...................... 1,714 1,319
-------- -------
Net loss................................ $(19,695) (14,889)
======== =======
Net loss per common share............... $ (0.63) (0.52)
======== =======
Weighted average number of common
shares outstanding.................... 31,139 28,862
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended April 30, 1996 and 1995
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
April 30, April 30,
1996 1995
-------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................ $(19,695) (14,889)
-------- -------
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization..... 18,994 16,498
Loss on disposal of building...... 455 --
Change in deferred income taxes... 906 2,259
Litigation settlement, net of cash
payments........................ 5,800 --
Non-cash interest charges......... 636 --
Changes in operating assets and
liabilities, net of effects of
acquisitions.................... (2,256) 1,509
Other............................. 816 1,863
-------- -------
Total adjustments............. 25,351 22,129
-------- -------
Net cash provided by operating
activities.......................... 5,656 7,240
-------- -------
Cash flows from investing activities:
Capital expenditures................ (1,075) (8,235)
Expenditures for equipment under
wagering systems contracts........ (4,051) (5,468)
Proceeds from asset disposals....... 997 --
Increase in other assets and other
liabilities....................... (2,134) (3,881)
Purchase of companies, net of cash
acquired.......................... -- (15,978)
-------- -------
Net cash used in investing activities. (6,263) (33,562)
-------- -------
Cash flows from financing activities:
Net borrowings under revolving credit
facility.......................... 1,660 25,500
Proceeds from issuance of long-term
debt.............................. 535 1,055
Payments on long-term debt.......... (2,571) (613)
Net proceeds from issuance of common
stock............................. -- 194
-------- -------
Net cash provided (used) by financing
activities.......................... (376) 26,136
-------- -------
Effect of exchange rate changes on
cash................................ 130 705
-------- -------
Increase/(Decrease) in cash and cash
equivalents......................... (853) 519
Cash and cash equivalents, beginning of
period.............................. 4,991 6,110
-------- -------
Cash and cash equivalents, end of
period.............................. $ 4,138 6,629
======== =======
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest............................ $ 5,579 5,304
======== =======
Income taxes........................ $ 636 432
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996
(Unaudited)
1) Consolidated Financial Statements
The consolidated balance sheet as of April 30, 1996 and the
consolidated statements of operations for the three months and six months ended
April 30, 1996 and 1995, and 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, 1996, and the results of its operations for
the three and six months ended April 30, 1996 and 1995, and its cash flows for
the six months ended April 30, 1996 and 1995 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 1995 Annual Report on Form 10-K. The results
of operations for the periods ended April 30, 1996 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) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
April 30, October 31,
1996 1995
--------------------------
(in thousands)
<S> <C> <C>
Parts................................... $4,203 4,667
Work-in-process......................... 1,283 4,724
Finished goods.......................... 782 2,541
------ ------
6,268 11,932
Ticket paper............................ 413 565
------ ------
Total................................... $6,681 12,497
====== ======
</TABLE>
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.
3) Debt
On January 26, 1996, the Company entered into an Amended and Restated
Credit Agreement (the "Amended and Restated Senior Bank Credit Facility") with
lenders (the "Lenders") to the Company's previous senior bank credit facility
pursuant to which current commitments of each Lender under the previous senior
bank credit facility, totaling $135 million, were continued as the Amended and
Restated Senior Bank Credit Facility. This 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, and contains various
financial and other covenants. See Note 10 to the Consolidated Financial
Statements for the year ended October 31, 1995 included in the Company's 1995
Annual Report on Form 10-K.
In March 1996, the Company entered into a First Amendment and Consent (the
"Amendment") to the Amended and Restated Senior Bank Credit Facility. The
Amendment permitted the settlement of the shareholder litigation and payment of
the Company's $1.0 million obligation in connection therewith as set forth in
Note 5 below and, accordingly, adjusted certain financial covenants and deferred
an aggregate of $1.0 million of A Term Loan and B Term Loan payments scheduled
for April 30, 1996 until July 31, 1996.
Through April 30, 1996, the Company made scheduled payments of $0.75
million on the A Term Loan and $0.75 million on the B Term Loan.
As of April 30, 1996, the Company had approximately $0.9 million available
for borrowing under its Revolver, with $3.2 million in outstanding letters of
credit and $129.4 million in outstanding borrowings.
7
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
April 30, 1996
(Unaudited)
4) Capital Stock
In November 1995, the Company entered into an agreement with holders of its
5.5% Convertible Subordinated Debentures whereby the holders would receive
unregistered shares of Class A Common Stock in lieu of cash for interest
payments due in August 1995 and February 1996 in the amount of $1,100,000 each.
In November 1995, the Company issued 422,500 shares of Class A Common Stock in
payment of the interest due in August 1995. In March 1996, the Company issued
513,869 shares of Class A Common Stock in payment of the interest due in
February 1996.
On January 26, 1996, pursuant to the Amended and Restated Senior Bank
Credit Facility, the Company issued to the Lenders warrants to purchase an
aggregate of 525,000 shares of Class A Common Stock at an exercise price of
$1.25 per share. See Note 10 to the Consolidated Financial Statements for the
year ended October 31, 1995 included in the Company's 1995 Annual Report on Form
10-K.
Effective April 15, 1996, the Company's Class A Common Stock began trading
on the American Stock Exchange under the symbol TTE. Prior to this, the
Company's Class A Common Stock traded on the National Market of the National
Association of Securities Dealers, Inc. Automated Quotation System.
5) Litigation
A) The Company and certain of its officers and directors were named
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 "Class
Action"). On March 5, 1996, the parties to the Class Action reached an agreement
in principle (the "Agreement in Principle") to settle all claims related to the
Class Action without any admission of liability on the part of any defendant.
Pursuant to the terms of the Agreement in Principle, the plaintiffs
would receive $7.5 million in cash and shares of preferred stock to be issued by
the Company having an aggregate value of $4.25 million. Insurance companies
providing directors and officer insurance would contribute 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). As a result of the Agreement in Principle, the Company accrued a
charge of $6.5 million to reflect the terms of the Agreement in Principle and
$0.3 million for anticipated related legal fees in the accompanying consolidated
financial statements. Of the anticipated settlement amount, $1.0 million was
placed by the Company into an escrow account during the second quarter of fiscal
1996, pending court approval of the Agreement in Principle.
The parties to the Agreement in Principle are currently in discussions
which may result in certain modification to the Agreement in Principle. It is
not now anticipated that any such modifications to the Agreement in Principle
would change the above-described accrued charges. The Agreement in Principle and
any modifications of it are subject to the execution of certain agreements and
court approval, as to which there can be no assurances.
B) The Company and its subsidiary Autotote Systems, Inc. ("ASI") were
defendants in a 1994 arbitration claim in Singapore by Multivest (PTE) Limited
("Multivest"). The claim, which sought damages in the amount of $250 million for
an alleged breach of contract by ASI in connection with a joint venture with
Multivest, was dismissed on October 12, 1995, and Multivest was ordered to pay
the Company US $120,000 for costs and expenses incurred and Singapore $62,235 as
reimbursements for money paid by the Company for expenses of the arbitration
panel. On February 29, 1996, ASI was awarded approximately US $772,000 on its
counterclaim against Multivest. Because of current uncertainties about the
collectability of the awards, the Company has not recognized the awards in its
financial statements.
8
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
The following discussion addresses the financial condition of the Company
as of April 30, 1996 and the results of operations for the three and six month
periods ended April 30, 1996, 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, 1995 ("fiscal 1995")
included in the Company's 1995 Annual Report on Form 10-K.
For purposes of this discussion, the business segments of Pari-
Mutuel/Sports Betting, Off-Track Betting and Simulcasting Services will be
collectively referred to and analyzed under the caption "Pari-mutuel Group".
The Lottery Operations segment will be separately discussed and analyzed.
Three Months Ended April 30, 1996 Compared to Three Months Ended April 30, 1995
<TABLE>
<CAPTION>
Second Quarter Fiscal 1996 Second Quarter Fiscal 1995
Pari- Pari-
Mutuel Lottery Mutuel Lottery
Group Operations Total Group Operations Total
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Wagering systems $29,417 5,989 35,406 27,716 4,707 32,423
Wagering equipment and other sales 3,128 7,207 10,335 3,068 1,641 4,709
------- ------ ------ ------ ----- ------
Total Revenue $32,545 13,196 45,741 30,784 6,348 37,132
------- ------ ------ ------ ----- ------
Gross Margin (excluding depreciation
and amortization) $13,182 2,893 16,075 11,955 3,005 14,960
------- ------ ------ ------ ----- ------
</TABLE>
Revenue Analysis
Revenues increased 23% or $8.6 million to $45.7 million in the second
quarter of the fiscal year ended October 31, 1996 from $37.1 million in the
second quarter of the fiscal year ended October 31, 1995.
The Pari-mutuel Group's wagering systems revenues of $29.4 million for the
second quarter of fiscal 1996 improved $1.7 million or 6% during the quarter as
compared to the prior year principally because of the growth in handle at
Connecticut OTB attributable to the opening of the Company's Sports Haven/TM/
simulcast/multi-entertainment facility in April 1995. Wagering equipment sales
in the second quarter of fiscal 1996 remained comparable to the second quarter
of fiscal 1995.
Lottery Operations wagering systems revenues increased $1.3 million during
the second quarter of fiscal 1996 from $4.7 million to $6.0 million primarily
because of higher service revenues as a result of additional programming
services provided under the German Lottery contract. Wagering equipment sales
improved significantly in the second quarter of fiscal 1996 to $7.2 million from
$1.6 million in fiscal 1995. This improvement is attributable to the continued
delivery of systems by the Company to several German lottery contract sites, as
well as the delivery of additional terminals and parts to EIS for sale to
Italy's TOTIP pari-mutuel lottery pool.
Gross Profit Analysis
The total gross margin of $16.1 million for the second quarter of fiscal
1996 improved $1.1 million, or 7.5% compared to the second quarter of fiscal
1995, principally reflecting delivery of additional systems by the Company
during the quarter. Gross margins on equipment sales were 28% in the second
quarter of 1996, down from the margins of 37% earned in the first quarter of
fiscal 1996 and in the second quarter of fiscal 1995 as a result of a change in
the mix of equipment being sold; gross margins on services remained stable at
approximately 37% for each of the first two quarters of fiscal 1996, down
slightly from the same periods in 1995.
9
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
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 $1.5 million or
16% to $8.4 million in the second quarter of fiscal 1996 from $9.9 million in
the second quarter of fiscal 1995 reflecting expense reductions resulting from
fiscal 1995 restructuring activities and other cost reduction programs.
Depreciation and amortization expenses increased 9% to $9.6 million in the
second quarter of 1996 compared to $8.8 million in the second quarter of fiscal
1995. The increase was primarily due to capital additions for North America's
pari-mutuel video gaming operations, new terminals and software installed at the
Connecticut State Lottery, investment in UNIBET software, and the increased
investment in the new Sports Haven/TM/ facility.
Interest expense decreased $0.6 million or 15% to $3.7 million in the
second quarter of 1996 as a result of expensing $.7 million of bank waiver and
amendment fees in the second quarter of fiscal 1995. Excluding the effect of
the fiscal 1995 bank waiver and amendment fees, interest rate declines during
the quarter were offset by increased interest costs due to higher borrowings and
increased amortization costs of deferred financing fees attributable to the
first quarter 1996 debt refinancing.
Income Taxes
Income tax expense was $.5 million in the 1996 period as compared to an
expense of $.7 million in the 1995 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, 1996 Compared to Six Months Ended April 30, 1995
<TABLE>
<CAPTION>
Six Months Fiscal 1996 Six Months Fiscal 1995
Pari- Pari-
Mutuel Lottery Mutuel Lottery
Group Operations Total Group Operations Total
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Wagering systems $55,088 9,886 64,974 51,549 9,850 61,399
Wagering equipment and other sales 6,895 17,178 24,073 4,802 2,048 6,850
------- ------ ------ ------ ------ ------
Total Revenue $61,983 27,064 89,047 56,351 11,898 68,249
------- ------ ------ ------ ------ ------
Gross Margin (excluding depreciation
and amortization) $23,236 8,600 31,836 21,399 6,435 27,834
------- ------ ------ ------ ------ ------
</TABLE>
Revenue Analysis
Revenues increased 31% or $20.8 million to $89 million in the six months
ended April 30, 1996 from $68.2 million in the six months ended April 30, 1995.
The Pari-mutuel Group's wagering systems revenues of $55.1 million for the
first six months of fiscal 1996 improved $3.5 million or 7% compared to the
prior year principally because of the growth in handle at Connecticut OTB
attributable to the opening of the Sports Haven/TM/ simulcast/multi-
entertainment facility in April 1995. Wagering equipment sales improved $2.1
million to $6.9 million for the first six months of fiscal 1996 reflecting the
increase in international equipment sales during the first quarter of fiscal
1996.
10
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS - (Continued)
Lottery Operations wagering systems revenues were up slightly for the first
six months of fiscal 1996 because of the change in the revenue mix from
primarily service to sales during the first quarter of fiscal 1996 as a result
of the delivery of systems to several German lottery sites. Wagering equipment
sales improved significantly in the first six months of fiscal 1996 to $17.2
million from $2 million in fiscal 1995. This improvement is attributable to the
delivery of systems by the Company to several German lottery contract sites, as
well as the delivery of terminals and parts to EIS for sale to Italy's TOTIP
pari-mutuel lottery pool.
Gross Profit Analysis
The total gross margin of $31.8 million for the first six months of fiscal
1996 improved $4 million, or 14% compared to the first six months of fiscal
1995, principally reflecting delivery of systems by the Company during the
period. Gross margins on equipment sales were 33% in the period, down slightly
from the margins earned in the comparable period in fiscal 1995. Gross margins
on services remained stable at approximately 37% for each of the first two
quarters of fiscal 1996, down slightly from 1995.
Expense Analysis
Selling, general and administrative expenses decreased $1.1 million or 6%
to $16.5 million in the first six months of fiscal 1996 from $17.6 million in
the first six months of fiscal 1995. Expense reductions resulting from fiscal
1995 restructuring activities and other cost reduction programs of approximately
$4.0 million for the period were partially offset by increased engineering and
software systems development expenses, and increased expenses for legal
compliance, litigation and compensation costs.
Depreciation and amortization expenses increased 15% to $19 million in the
first six months of 1996 compared to $16.5 million in the first six months of
fiscal 1995. The increase was primarily due to capital additions for North
America's pari-mutuel video gaming operations, new terminals and software
installed at the Connecticut State Lottery, investment in UNIBET software, the
January 1995 acquisition of simulcasting assets, and the investment in the new
Sports Haven/TM/ facility.
Interest expense increased slightly to $7.3 million in the first six months
of 1996 reflecting a $0.1 million increase due to higher interest rates, a $0.5
million increase due to additional borrowings, and a $0.3 million increase in
amortization of deferred financing costs, which increases were mostly offset as
a result of expensing $0.7 million of bank waiver and amendment fees in the
second quarter of fiscal 1995.
Income Taxes
Income tax expense was $1.7 million in the 1996 period as compared to an
expense of $1.3 million in the 1995 period. Income tax expense principally
reflects foreign tax expense, since no tax benefit has been recognized on
domestic operating losses.
Liquidity and Capital Resources
Net cash provided by operating activities was $5.6 million for the six
months ended April 30, 1996, of which $9.3 million is attributed to current
period operations. This amount was partially offset by $2.3 million of net
decreases in working capital and the $1.0 million payment made under the terms
of the litigation settlement discussed in Note 5(a) to the Consolidated
Financial Statements above, and increased by $0.6 million from non-cash interest
charges. The working capital decrease is attributable to an increase in unbilled
receivables and reductions of accounts payable and other current liabilities
totaling $10.5 million, partially offset by a $1.5 million improvement in
accounts receivable collections and a $5.7 million reduction of inventories. At
April 30, 1996, the Company had cash and cash equivalents of $4.1 million as
compared to $5.0 million at October 31, 1995.
11
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Net cash used in investing activities was $6.3 million for the first six
months of fiscal 1996. Utilizing cash provided by operating activities, the
Company invested principally in contract expenditures and software systems
development. Additionally, the Company received approximately $1.0 million
from the sale/leaseback of its administration and development facility in
Newark, Delaware. The net proceeds from this transaction were used to reduce
borrowings under the Company's previous senior bank credit facility.
Net cash used by financing activities consisted primarily of borrowings of
$3.5 million and repayments of $1.8 million under the Revolver in addition to
scheduled repayments of $1.5 million on the Company's Amended and Restated
Senior Bank Credit Facility term loans. Additionally, under an agreement with
the holders of its 5.5% Convertible Subordinated Debentures, the Company issued
936,369 unregistered shares of Class A Common Stock in lieu of cash for interest
payments during the first six months of fiscal 1996.
As described in Note 3 to the Consolidated Financial Statements above, the
Company had approximately $0.9 million available to borrow under its Amended and
Restated Senior Bank Credit Facility at April 30, 1996. The Company believes
that its cash resources at that date and its forecasted cash flows from
operations provide sufficient liquidity to meet scheduled payments and
anticipated capital expenditures in the current fiscal year arising from current
commitments. The Company believes that additional financing and/or asset sales
will be required to meet its scheduled payments and capital requirements in
subsequent fiscal years. The Company is currently exploring financing and asset
sales alternatives while 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.
12
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
Quarter Ended April 30, 1996
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
A) The Company and certain of its officers and directors were named
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 "Class
Action"). On March 5, 1996, the parties to the Class Action reached an agreement
in principle (the "Agreement in Principle") to settle all claims related to the
Class Action without any admission of liability on the part of any defendant.
Pursuant to the terms of the Agreement in Principle, the plaintiffs would
receive $7.5 million in cash and shares of preferred stock to be issued by the
Company having an aggregate value of $4.25 million. Insurance companies
providing directors and officer insurance would contribute 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). As a result of the Agreement in Principle, the Company accrued a
charge of $6.5 million to reflect the terms of the Agreement in Principle and
$0.3 million for anticipated related legal fees in the accompanying consolidated
financial statements. Of the anticipated settlement amount, $1.0 million was
placed by the Company into an escrow account during the second quarter of fiscal
1996, pending court approval of the Agreement in Principle.
The parties to the Agreement in Principle are currently in discussions
which may result in certain modifications to the Agreement in Principle. It is
not now anticipated that any such modifications to the Agreement in Principle
would change the above-described accrued charges. The Agreement in Principle and
any modifications of it are subject to the execution of certain agreements and
court approval, as to which there can be no assurances.
B) The Company and its Autotote Systems, Inc. subsidiary ("ASI") were
defendants in an arbitration claim in Singapore by Multivest (PTE) Limited
("Multivest"). The claim, which sought damages in the amount of $250 million
for an alleged breach of contract by ASI in connection with a joint venture with
Multivest, was dismissed on October 12, 1995, and Multivest was ordered to pay
the Company US $120,000 for costs and expenses incurred and Singapore $62,235 as
reimbursements for money paid by the company for expenses of the arbitration
panel. On February 29, 1996, ASI was awarded approximately US $772,000 on its
counterclaim against Multivest. Because of current uncertainties about the
collectability of the awards, the Company has not recorded such amounts in its
financial statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.46 - Employment Agreement dated March 21, 1996 between
Registrant and Ken Shea. (*)
Exhibit 10.47 - Promissory Note dated May 13, 1996 between
Registrant and A. Lorne Weil.
Exhibit 27 - Financial Data Schedule
(b) A Form 8-K Report, reporting an Item 5, was filed on March 7, 1996 to
extend the date to March 28, 1996 by which any proposal to be presented at
the next annual meeting of stockholders must be received by the Secretary
of the Registrant.
(*) Includes management contracts and compensation plans and arrangements.
13
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
Quarter Ended April 30, 1996
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: May 29, 1996
14
<PAGE>
[AUTOTOTE LOGO APPEARS HERE]
EXHIBIT 10.46
A. LORNE WEIL
CHAIRMAN & CEO
March 21, 1996
Mr. Kenneth Shea
20 West 72nd Street #1A
New York, NY 10024
Dear Ken:
This will confirm, in connection with your election as Vice President,
that if the Company should terminate your employment for any reason other
than cause, you will be entitled to severance of not less than one year's
salary.
Very truly yours,
/s/ A. Lorne Weil
-----------------
A. Lorne Weil
<PAGE>
EXHIBIT 10.47
PROMISSORY NOTE
---------------
$250,000.00 New York, NY
May 13, 1996
FOR VALUE RECEIVED, A. Lorne Weil (hereinafter "Weil"), having an address at 51
East 90th Street, Penthouse B, New York, New York 10128, unconditionally
promises to pay to the order of Autotote Corporation (hereinafter "Autotote"),
without set-off of any kind, the principal amount of Two Hundred and Fifty
Thousand Dollars ($250,000.00) together with interest thereon, at the rate of
five and one-half percent (5.5%) per annum on the unpaid balance of the
principal amount from the date hereof until the same shall have been paid in
full.
Except for prepayments in accordance with the terms hereof, interest will be
payable annually on the outstanding principal balance hereof commencing on May
13, 1997, and principal will be payable in five (5) annual installments, each in
the amount of Fifty Thousand Dollars ($50,000.00), commencing on May 13, 2000
and on May 13 each year thereafter through May 13, 2004.
The principal of this Note shall be required to be repaid on the earlier to
happen of the following:
a) Termination of the employment of Weil by Autotote for any reason; and
a) All bonus monies otherwise payable by Autotote to Weil shall be applied
to the outstanding principal and interest due hereunder until payment
of this Note in full.
All installments and principal and interest due hereunder shall be made in
lawful money of the United States of America to Autotote at 750 Lexington
Avenue, New York, New York 10022 or 100 Bellevue Road, Newark, Delaware 19714 or
at such other place or to such other payee or any successor holder hereof as
Autotote shall have designated to Weil in writing.
This Note may be prepaid at any time and from time to time in whole or in part
without penalty; provided, however, that any prepayment of principal shall be
accompanied by accrued interest thereon to the date of such prepayment and shall
be applied first to the last installments of principal coming due hereunder.
Upon the thirtieth day after notice by the holder hereof to Weil of nonpayment
of any installment of interest or principal due hereunder, if such installment
has not been paid by said thirtieth day, all remaining installments shall
immediately become due and payable, plus interest at the rate provided above or
twelve percent (12%) per annum, unless such rate is higher than the maximum rate
of interest permitted by law, in which case the rate
<PAGE>
-2-
charged shall be the highest rate permitted by law. Except as otherwise set
forth herein, Weil expressly waives presentment, demand, protest and notice by
the holder hereof in connection with this Note.
No course of dealing between Weil and the holder of this Note and no delay on
the part of the holder of this Note in exercising any rights of this Note shall
operate as a waiver of any right of the holder of this Note. No provision of
this Note nor any default in connection herewith may be waived other than by a
written instrument signed by the party waiving such provision or default. This
Note may not be changed or terminated orally.
This Note and any interpretation and/or enforcement thereof shall be governed by
the internal laws of the State of New York without regard to principles of
conflict of laws.
If any provision of this Note shall be invalid or unenforceable, such invalidity
or unenforceability shall attach only to such provision and shall not in any
manner affect or render invalid or unenforceable any other provision of this
Note and the obligations of Weil shall be carried out as if such invalid or
unenforceable provision were not contained herein.
/s/ A. Lorne Weil .
--------------------------------------------
A. Lorne Weil
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AUTOTOTE CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-1-1995
<PERIOD-END> APR-30-1996
<CASH> 4,138
<SECURITIES> 0
<RECEIVABLES> 20,933
<ALLOWANCES> 1,622
<INVENTORY> 6,681
<CURRENT-ASSETS> 44,133
<PP&E> 186,077
<DEPRECIATION> 77,188
<TOTAL-ASSETS> 222,520
<CURRENT-LIABILITIES> 62,755
<BONDS> 40,000
0
0
<COMMON> 315
<OTHER-SE> (6,341)
<TOTAL-LIABILITY-AND-EQUITY> 222,520
<SALES> 89,047
<TOTAL-REVENUES> 89,047
<CGS> 57,211
<TOTAL-COSTS> 57,211
<OTHER-EXPENSES> 42,485
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,332
<INCOME-PRETAX> (17,981)
<INCOME-TAX> 1,714
<INCOME-CONTINUING> (19,695)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,695)
<EPS-PRIMARY> (0.63)
<EPS-DILUTED> 0
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