<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: July 31, 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 August 28, 1996:
Class A Common Stock: 31,473,624
Class B Common Stock: None
Page 1 of 14
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER INFORMATION
QUARTER ENDED JULY 31, 1996
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Balance Sheets as of July 31, 1996
and October 31, 1995 3
Statements of Operations for the Three Months Ended
July 31, 1996 and 1995 4
Statements of Operations for the Nine Months Ended
July 31, 1996 and 1995 5
Statements of Cash Flows for the Nine Months Ended
July 31, 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
2
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1996 1995
-----------------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................................... $ 4,157 4,991
Restricted cash................................................................ 660 1,282
Accounts receivable, net....................................................... 17,843 21,700
Inventories.................................................................... 7,220 12,497
Unbilled receivables........................................................... 7,997 4,166
Prepaid expenses, deposits and other current assets............................ 5,362 3,121
------- -------
Total current assets..................................................... 43,239 47,757
------- -------
Property and equipment, at cost................................................... 189,978 186,005
Less accumulated depreciation.................................................. 85,267 67,745
------- -------
Net property and equipment............................................... 104,711 118,260
------- -------
Goodwill, net of amortization..................................................... 23,197 26,986
Operating right, net of amortization.............................................. 17,098 17,848
Other assets and investments...................................................... 24,755 30,170
------- -------
$ 213,000 241,021
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt......................................... $ 25,148 10,772
Accounts payable............................................................... 15,679 16,448
Accrued liabilities............................................................ 20,620 23,783
Income taxes payable........................................................... 1,655 1,878
------- -------
Total current liabilities................................................ 63,102 52,881
------- -------
Deferred income taxes............................................................. 7,011 5,807
Accrued litigation settlement..................................................... 4,250 --
Long-term debt, excluding current installments.................................... 109,912 126,492
Long-term debt, convertible subordinated debentures............................... 40,000 40,000
Other long-term liabilities....................................................... 1,992 3,984
------- -------
Total liabilities........................................................ 226,267 229,164
------- -------
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,
31,474 and 30,528 shares outstanding at July 31, 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..................................................... 143,321 140,050
Accumulated deficit............................................................ (156,968) (129,469)
Treasury stock, at cost........................................................ (102) (295)
Translation adjustment......................................................... 167 1,265
------- -------
Total stockholders' equity (deficit)..................................... (13,267) 11,857
------- -------
$ 213,000 241,021
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
ENDED ENDED
JULY 31, JULY 31,
1996 1995
------------------------------
<S> <C> <C>
Operating revenues:
Wagering systems........................................................... $ 34,470 34,730
Wagering equipment and other sales......................................... 7,358 3,992
------ ------
41,828 38,722
------ ------
Operating expenses (exclusive of depreciation and amortization):
Wagering systems........................................................... 21,020 20,206
Wagering equipment and other sales........................................ 4,867 4,746
------ ------
25,887 24,952
------ ------
Total gross profit....................................................... 15,941 13,770
------ ------
Selling, general and administrative expenses.................................. 8,638 9,622
Restructuring................................................................. (649) 11,601
Write-off of investments and other............................................ -- 6,640
Depreciation and amortization................................................. 11,124 8,925
------ ------
Operating loss........................................................... (3,172) (23,018)
------ ------
Other deductions (income):
Interest expense........................................................... 3,667 5,549
Other deductions (income) net.............................................. 629 (4)
------ ------
4,296 5,545
------ ------
Loss before income tax expense (7,468) (28,563)
Income tax expense 336 683
------ ------
Net loss...................................................................... $ (7,804) (29,246)
====== ======
Net loss per common share..................................................... $ (.25) (1.01)
====== ======
Weighted average number of common shares outstanding.......................... 31,459 28,928
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended July 31, 1996 And 1995
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
July 31, July 31,
1996 1995
-------------------------------
<S> <C> <C>
Operating revenues:
Wagering systems........................................................ $ 99,444 96,129
Wagering equipment and other sales...................................... 31,431 10,842
-------- -------
130,875 106,971
------- -------
Operating expenses (exclusive of depreciation and amortization):
Wagering systems........................................................ 62,091 56,177
Wagering equipment and other sales...................................... 21,007 9,190
------- -------
83,098 65,367
------- -------
Total gross profit.................................................... 47,777 41,604
------- -------
Selling, general and administrative expenses............................... 25,186 27,226
Restructuring.............................................................. (649) 11,601
Write-off of investments and other......................................... -- 6,640
Depreciation and amortization.............................................. 30,118 25,423
------- -------
Operating loss........................................................ (6,878) (29,286)
------- -------
Other deductions:
Interest expense........................................................ 10,999 12,706
Litigation settlement................................................... 6,800 --
Other deductions........................................................ 772 141
------- -------
18,571 12,847
------- -------
Loss before income tax expense.......................................... (25,449) (42,133)
Income tax expense......................................................... 2,050 2,002
------- -------
Net loss................................................................... $ (27,499) (44,135)
======= =======
Net loss per common share.................................................. $ (.88) (1.53)
======= =======
Weighted average number of common shares outstanding....................... 31,246 28,884
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended July 31, 1996 And 1995
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE NINE
MONTHS MONTHS
ENDED ENDED
JULY 31, JULY 31,
1996 1995
-------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................................................... $ (27,499) (44,135)
------- -------
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization................................................. 30,118 25,423
Write-off of financing fees & expenses........................................ -- 321
Restructuring................................................................. (649) 11,478
Write-off of investments and other............................................ -- 6,640
Litigation settlement, net of cash payments................................... 4,250 --
Loss on sale of assets........................................................ 446 302
Non-cash interest charges..................................................... 636 --
Change in deferred income taxes............................................... 355 2,259
Changes in operating assets and liabilities, net of effects of acquisitions... 470 2,657
Other......................................................................... 1,274 958
-------- -------
Total adjustsments........................................................ 36,900 50,038
-------- -------
Net cash provided by operating activities........................................... 9,401 5,903
-------- -------
Cash flows from investing activities:
Capital expenditures............................................................. (1,935) (8,861)
Expenditures for equipment under wagering systems contracts...................... (5,797) (9,588)
Proceeds from asset disposals.................................................... 1,026 684
Increase in other assets and other liabilities................................... (1,819) (5,403)
Purchase of companies, net of cash acquired...................................... -- (15,996)
-------- -------
Net cash used in investing activities............................................... (8,525) (39,164)
-------- -------
Cash flows from financing activities:
Net borrowings under revolving credit facility................................... 2,260 33,600
Proceeds from issuance of long-term debt......................................... 2,168 1,332
Payments on long-term debt....................................................... (6,234) (1,205)
Net proceeds from issuance of common stock....................................... -- 205
-------- -------
Net cash provided (used) by financing activities.................................... (1,806) 33,932
-------- -------
Effect of exchange rate changes on cash............................................. 96 1,165
-------- -------
Increase/(Decrease) in cash and cash equivalents.................................... (834) 1,836
Cash and cash equivalents, beginning of period...................................... 4,991 6,110
-------- -------
Cash and cash equivalents, end of period............................................ $ 4,157 7,946
======== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest......................................................................... $ 10,232 9,817
======== =======
Income taxes..................................................................... $ 1,201 311
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996
(UNAUDITED)
1) CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of July 31, 1996 and the consolidated
statements of operations for the three months and nine months ended July 31,
1996 and 1995, and consolidated statements of cash flows for the nine 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 July 31, 1996, and the results of its operations for the three
and nine months ended July 31, 1996 and 1995, and its cash flows for the nine
months ended July 31, 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 July 31, 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) UNUSUAL ITEMS
The third quarter 1996 consolidated statement of operations includes
charges in other deductions of $647,000 for costs incurred in connection with
the Company's unsuccessful third quarter 1996 debt offering, and charges in
selling, general and administrative expense of $569,000 for contractual payments
related to the departure of the President of the Company. Partially offsetting
these costs is the reversal of $649,000 of 1995 restructuring cost accruals
because of the Company's current plan to continue limited manufacturing of
wagering terminals at its Ireland plant.
3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1996 1995
---------------------------------
(IN THOUSANDS)
<S> <C> <C>
Parts................................... $ 3,171 4,667
Work-in-process......................... 1,557 4,724
Finished goods.......................... 1,791 2,541
------ ------
6,519 11,932
Ticket paper............................ 701 565
------ ------
Total................................... $ 7,220 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.
4) 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.
7
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JULY 31, 1996
(UNAUDITED)
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 6 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 July 31, 1996, the Company made scheduled payments of $4.5 million
on the A and B Term Loans.
As of July 31, 1996, the Company had approximately $0.2 million available
for borrowing under its Revolver, with $3.2 million in outstanding letters of
credit and $127.1 million in outstanding borrowings.
5) 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.
6) LITIGATION
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. The parties
entered into a definitive Stipulation and Agreement of Settlement dated July 19,
1996 (the "Settlement Agreement") related to these claims.
Pursuant to the terms of the Settlement Agreement, the class will receive
$7.5 million in cash plus shares of Class A Common Stock to be issued by the
Company having an aggregate value of between $3.5 million and $4.25 million,
depending on the average price of the Company's Class A Common Stock for 10
trading days preceding a final hearing in the District Court. The number of
shares of Class A Common Stock to be issued by the Company will be the lesser of
(a) the number of shares which have an aggregate value of $4.25 million or (b)
1,136,216 shares of Class A Common Stock plus (if the aggregate value of such
1,136,216 shares is less than $3.5 million) such additional number of shares as
shall be necessary to reach a total number of shares having a value of at least
$3.5 million, as determined by the average closing price of the Class A Common
Stock over the aforesaid ten trading days. Insurance companies providing
directors and officers 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).
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 terms of this Settlement Agreement
modify the stock portion of the March 1996 Agreement in Principle under which
the class would have received $4.25 million of preferred stock instead of Class
A Common Stock having a value of between $3.5 million and $4.25 million.
Based on the March 1996 Agreement in Principle, the Company accrued a
charge of $6.8 million against earnings for the quarter ended January 31, 1996
to reflect the then expected settlement and anticipated legal fees. The Company
does not anticipate further charges against earnings as a result of the
Settlement Agreement. The settlement of the suit is subject to the satisfaction
of certain conditions, including an opportunity for class members to object to
the settlement terms or ask not to be included in the class, as well as final
court approval.
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 July 31, 1996 and the results of operations for the three and nine month
periods ended July 31, 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 JULY 31, 1996 COMPARED TO THREE MONTHS ENDED JULY 31, 1995
<TABLE>
<CAPTION>
THIRD QUARTER FISCAL 1996 THIRD 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 $30,182 4,288 34,470 29,555 5,175 34,730
Wagering equipment and other sales 2,849 4,509 7,358 3,773 219 3,992
------- ----- ------ ------ ----- ------
Total Revenue $33,031 8,797 41,828 33,328 5,394 38,722
------- ----- ------ ------ ----- ------
GROSS MARGIN (excluding depreciation
and amortization) $13,031 2,910 15,941 10,856 2,914 13,770
------- ----- ------ ------ ----- ------
</TABLE>
REVENUE ANALYSIS
Revenues increased 8% or $3.1 million to $41.8 million in the third quarter
of the fiscal year ended October 31, 1996 from $38.7 million in the third
quarter of the fiscal year ended October 31, 1995.
The Pari-Mutuel Group's wagering systems revenues of $33.0 million for the
third quarter of fiscal 1996 remained comparable to the prior year. Wagering
equipment sales in the third quarter of fiscal 1996 decreased $.9 million or 24%
compared to the third quarter of fiscal 1995, primarily reflecting a shift in
sales from pari-mutuel terminals to lottery terminals.
Lottery Operations wagering systems revenues decreased $.9 million during
the third quarter of fiscal 1996 from $5.2 million to $4.3 million primarily
because of the shift from service revenues to equipment sales revenues under the
German lottery contract. Wagering equipment sales improved significantly in the
third quarter of fiscal 1996 to $4.5 million from $.2 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 $15.9 million for the third quarter of fiscal
1996 improved $2.1 million, or 16% compared to the third quarter of fiscal 1995,
principally reflecting improved margins on both service revenue and equipment
sales. Gross margins on equipment sales were 34% in the quarter, an improvement
from the margins of 28% earned in the second quarter of fiscal 1996 as a result
of a change in the mix of equipment being sold; gross margins on services
remained stable at approximately 39% for the quarter, up slightly compared to
margins of 37% earned in each of the prior two quarters in fiscal 1996, and
comparable to margins earned in the third quarter of fiscal 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 $1.0 million or
10% to $8.6 million in the third quarter of fiscal 1996 from $9.6 million in the
third quarter of fiscal 1995 primarily reflecting expense reductions resulting
from fiscal 1995 restructuring activities and other cost reduction programs,
partially offset by $.6 million of contractual payments relating to the
departure of the President of the Company.
Restructuring costs reflect a credit of $.6 million in the third quarter of
fiscal 1996 due to the reversal of costs previously accrued in connection with
the Company's closure of its Ireland manufacturing plant. Based on the
Company's initial decision to close the plant, plant operations and personnel
were significantly curtailed. However, the Company subsequently received
sufficient orders for terminals to support continued manufacturing at the
facility at the currently scaled back level of operations. Therefore, severance
reserves and other accrued costs pertaining to the complete shut-down of the
plant have been reversed.
Depreciation and amortization expenses increased 24.6% to $11.1 million in
the third quarter of 1996 compared to $8.9 million in the third 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 and investment in UNIBET software.
Interest expense decreased $1.9 million or 34% to $3.7 million in the third
quarter of 1996 primarily as a result of expensing $1.7 million of bank waiver
and amendment fees in the third 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 amortization of additional deferred
financing fees attributed to the fiscal 1996 debt amendment.
Other expense deductions increased $.6 million in the third quarter of
fiscal 1996 as a result of costs incurred in connection with the Company's
unsuccessful debt offering.
INCOME TAXES
Income tax expense was $.3 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.
NINE MONTHS ENDED JULY 31, 1996 COMPARED TO NINE MONTHS ENDED JULY 31, 1995
<TABLE>
<CAPTION>
NINE MONTHS FISCAL 1996 NINE 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 $85,270 14,174 99,444 81,104 15,025 96,129
Wagering equipment and other sales 7,396 24,035 31,431 8,575 2,267 10,842
------- ------ ------- ------ ------ -------
Total Revenue $92,666 38,209 130,875 89,679 17,292 106,971
------- ------ ------- ------ ------ -------
GROSS MARGIN (excluding depreciation
and amortization) $35,945 11,832 47,777 32,255 9,349 41,604
------- ------ ------- ------ ------ -------
</TABLE>
REVENUE ANALYSIS
Revenues increased 22% or $23.9 million to $130.9 million in the nine
months ended July 31, 1996 from $107.0 million in the nine months ended July 31,
1995.
10
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS - (CONTINUED)
The Pari-Mutuel Group's wagering systems revenues of $85.3 million for the
nine months ended July 31, 1996 improved $4.2 million or 5% compared to the
prior year principally because of the growth in handle at Connecticut OTB
attributable to the opening of the Sports Haven simulcast/multi-entertainment
facility in April 1995, coupled with higher revenues from the sale of
transponder time. Wagering equipment sales declined $1.2 million to $7.4
million for the nine months ended July 31, 1996 reflecting the decrease in
international equipment sales during the third quarter of fiscal 1996.
Lottery Operations wagering systems revenues of $14.2 million were down $.9
million or 6% for the nine months ended July 31, 1996 because of the change in
the revenue mix from primarily service to sales as a result of the delivery of
systems to several German lottery sites. Wagering equipment sales improved
significantly in the nine months ended July 31, 1996 to $24.0 million from $2.3
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 $47.8 million for the nine months ended July 31,
1996 improved $6.2 million, or 15% compared to the comparable period in fiscal
1995, principally reflecting delivery of systems by the Company during the
period, and the growth in handle at Connecticut OTB. Gross margins on equipment
sales continued at 33% for the year, a significant improvement over fiscal 1995
gross margins. Gross margins on services remained stable at approximately 38%
for the year, down approximately 10% from margins earned in fiscal 1995.
EXPENSE ANALYSIS
Selling, general and administrative expenses decreased $2.0 million or 8%
to $25.2 million in the nine months ended July 31, 1996 from $27.2 million in
fiscal 1995. Expense reductions resulting from fiscal 1995 restructuring
activities and other cost reduction programs were partially offset by increased
expenses for legal compliance, litigation and compensation costs, and
contractual costs relating to the departure of the President of the Company.
Depreciation and amortization expenses increased 19% to $30.1 million in
the nine months ended July 31, 1996 compared to $25.4 million in 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 decreased $1.7 million or 13% to $11.0 million in the nine
months ended July 31, 1996 primarily reflecting the $2.3 million of bank waiver
and amendment fees expensed in fiscal 1995, partially offset by additional
borrowings in fiscal 1996, plus increased amortization of additional deferred
financing costs attributed to the fiscal 1996 debt amendment.
INCOME TAXES
Income tax expense was $2.1 million in the 1996 period as compared to an
expense of $2.0 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 $9.4 million for the nine
months ended July 31, 1996, of which $11.2 million is attributed to current
period operations. This amount was partially offset by the $2.3 million of
payments made under the terms of the litigation settlement discussed in Note 6
to the Consolidated Financial Statements above, and increased by $0.5 million
from changes in working capital. The working capital increase is attributable to
a $2.8 million improvement in accounts receivable collections and a $5.0 million
reduction of inventories, mostly offset by an increase in unbilled receivables
and reductions of accounts payable and other current liabilities totaling $7.5
million. At July 31, 1996, the Company had cash and cash equivalents of $4.2
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 $8.5 million for the nine months
ended July 31, 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
$5.0 million and repayments of $2.7 million under the Revolver in addition to
scheduled repayments of $4.5 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 during the first six months
of fiscal 1996 in lieu of cash for interest payments.
As described in Note 4 to the Consolidated Financial Statements above, the
Company had approximately $0.2 million available to borrow under its Amended and
Restated Senior Bank Credit Facility at July 31, 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 JULY 31, 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. The parties entered into a definitive Stipulation and Agreement
of Settlement dated July 19, 1996 (the "Settlement Agreement") related to these
claims.
Pursuant to the terms of the Settlement Agreement, the class will
receive $7.5 million in cash plus shares of Class A Common Stock to be issued by
the Company having an aggregate value of between $3.5 million and $4.25 million,
depending on the average price of the Company's Class A Common Stock for 10
trading days preceding a final hearing in the District Court. The number of
shares of Class A Common Stock to be issued by the Company will be the lesser of
(a) the number of shares which have an aggregate value of $4.25 million or (b)
1,136,216 shares of Class A Common Stock plus (if the aggregate value of such
1,136,216 shares is less than $3.5 million) such additional number of shares as
shall be necessary to reach a total number of shares having a value of $3.5
million, as determined by the average closing price of the Class A Common Stock
over the aforesaid ten trading days. Insurance companies providing directors and
officers 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). 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 terms of this Settlement Agreement modify the
stock portion of the March 1996 Agreement in Principle under which the class
would have received $4.25 million of preferred stock instead of Class A Common
Stock having a value of between $3.5 million and $4.25 million.
Based on the March 1996 Agreement in Principle, the Company accrued a
charge of $6.8 million against earnings for the quarter ended January 31, 1996
to reflect the then expected settlement and anticipated legal fees. The Company
does not anticipate further charges against earnings as a result of the
Settlement Agreement. The settlement of the suit is subject to the satisfaction
of certain conditions, including an opportunity for class members to object to
the settlement terms or ask not to be included in the class, as well as final
court approval.
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 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the third quarter of
fiscal 1996.
13
<PAGE>
AUTOTOTE CORPORATION AND SUBSIDIARIES
QUARTER ENDED JULY 31, 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: August 30, 1996
14
<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> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 4,157
<SECURITIES> 0
<RECEIVABLES> 19,849
<ALLOWANCES> 2,006
<INVENTORY> 7,220
<CURRENT-ASSETS> 43,239
<PP&E> 189,978
<DEPRECIATION> 85,267
<TOTAL-ASSETS> 213,000
<CURRENT-LIABILITIES> 63,102
<BONDS> 40,000
0
0
<COMMON> 315
<OTHER-SE> (13,582)
<TOTAL-LIABILITY-AND-EQUITY> 213,000
<SALES> 130,875
<TOTAL-REVENUES> 130,875
<CGS> 83,098
<TOTAL-COSTS> 83,098
<OTHER-EXPENSES> 62,227
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,999
<INCOME-PRETAX> (25,449)
<INCOME-TAX> 2,050
<INCOME-CONTINUING> (27,499)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,499)
<EPS-PRIMARY> (0.88)
<EPS-DILUTED> 0
</TABLE>
