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 MARCH 31, 1997 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO
____________
Commission file number 0-19322
VIDEO LOTTERY TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 81-0470853
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2311 South Seventh Avenue
Bozeman, Montana 59715
(Address of principal executive officers) (Zip code)
(406) 585-6600
(Registrant's telephone number, including area code)
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 report(s), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes 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. 10,318,730 shares of Common
Stock, $.01 par value, outstanding as of March 31, 1997.
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<PAGE>
VIDEO LOTTERY TECHNOLOGIES, INC.
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Page
ITEM 1. Financial Statements
Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1996 4
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 5
Consolidated Statement of Stockholders' Equity
Three Months Ended March 31, 1997 6
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 7
Notes to Consolidated Financial Statements 8
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 17
ITEM 2. Changes in Securities 17
ITEM 3. Defaults Upon Senior Securities 17
ITEM 4. Submission of Matters to a Vote of Securities Holders 17
ITEM 5. Other Information 17
ITEM 6. Exhibits and Reports on Form 8-K 19
Signatures 20
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<PAGE>
Video Lottery Technologies, Inc. (the "Company") was incorporated in
Delaware in May 1991. The Company acts as a holding company for eleven active
corporations. Unless the context otherwise requires, references to the "Company"
or "VLT" refer to Video Lottery Technologies, Inc. and its subsidiaries;
references to "AWI" refer to Automated Wagering International, Inc., one of the
Company's three principal operating subsidiaries, which provides on-line lottery
systems and services primarily to governmental lottery authorities; references
to "VLC" refer to Video Lottery Consultants, Inc., another of the Company's
three principal operating subsidiaries, which designs, manufactures and markets
casino and video lottery gaming machines and central control systems; references
to "UWS" or "United Tote" refer to United Wagering Systems, Inc., the Company's
third principal operating subsidiary whose operating units provide computerized
pari-mutuel wagering systems for horse and greyhound racetracks, off-track
betting facilities and jai alai frontons. The Company also owns and operates a
racetrack facility in Sunland Park, New Mexico, which is accounted for as part
of the UWS operating segment. References to the "Subsidiaries" refer to AWI,
VLC, UWS and the other subsidiaries of the Company.
Certain statements in this Report on Form 10-Q constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: general economic
and business conditions; competitive factors in the industry, including
additional competition from existing competitors or future entrants to the
industry; social and economic conditions; local, state and federal regulations;
changes in business strategy or development plans; the Company's indebtedness;
quality of management; availability, terms and deployment of capital; business
abilities and judgment of personnel; availability of qualified personnel; and
other factors.
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIDEO LOTTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(in thousands except for per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
---- ----
<S> <C> <C>
REVENUES:
On-line lottery $22,994 23,232
Gaming machine and route operations 17,739 14,811
Wagering systems and racetrack operations 7,271 6,702
------- ------
Total revenues 48,004 44,745
------- ------
COSTS AND EXPENSES:
On-line lottery 15,155 14,500
Gaming machine and route operations 9,238 8,181
Wagering systems and racetrack operations 5,639 5,403
Selling, general and administrative 7,694 7,679
Research and development 2,497 1,192
Other charges --- 6,000
Depreciation and amortization 6,035 5,865
------- ------
Total costs and expenses 46,258 48,820
------- ------
Earnings (loss) from operations 1,746 (4,075)
------- ------
OTHER INCOME (EXPENSE):
Interest and other income 235 489
Interest expense (994) (936)
------- ------
(759) (447)
------- ------
Earnings (loss) before income taxes and extraordinary items 987 (4,522)
Income tax (expense) benefit (703) 985
------- ------
Net earnings (loss) before extraordinary items 284 (3,537)
Extraordinary gain, net 13,269 4,014
------- ------
Net earnings $13,553 477
======= ======
Net earnings (loss) per share:
Before extraordinary items $ .03 (.28)
From extraordinary items 1.26 .32
------ ----
$1.29 .04
===== ====
Weighted average shares 10,498 12,601
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
VIDEO LOTTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
BALANCE SHEETS
(in thousands except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,233 4,322
Restricted short-term deposits 1,364 1,364
Accounts receivable, net 19,865 19,353
Current installments of notes receivable, net 3,064 2,818
Inventories 17,196 18,297
Prepaid expenses 1,305 1,027
Income tax refund receivable --- 3,551
Deferred income taxes 10,292 15,500
-------- -------
Total current assets 57,319 66,232
-------- -------
Property, plant and equipment 148,553 153,124
Less accumulated depreciation (75,919) (78,417)
-------- -------
Net property, plant and equipment 72,634 74,707
-------- -------
Restricted cash deposits 2,537 2,521
Notes receivable, excluding current installments 2,398 2,216
Goodwill, net 9,929 10,134
Intangible and other assets, net 11,767 12,233
-------- -------
$156,584 168,043
======== =======
LIABILITIES
Current liabilities:
Notes payable $ 1,650 7,650
Current installments of long-term debt 10,683 10,604
Accounts payable 5,924 6,646
Accrued expenses 14,354 13,249
Income taxes payable 4,028 ---
-------- -------
Total current liabilities 36,639 38,149
-------- -------
Long-term debt, excluding current installments 32,360 9,312
Other liabilities --- 38,025
Deferred income taxes 10,724 10,326
-------- -------
Total liabilities 79,723 95,812
-------- -------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value. Authorized 10,000,000
shares; no shares issued --- ---
Series A Junior Preferred stock, $.01 par value, convertible
non-cumulative. Authorized 1,912,728 shares 19 19
Common stock, $.01 par value. Authorized 25,000,000
shares 109 108
Paid-in capital 97,891 97,765
Treasury stock (9,100) ---
Deferred restricted stock compensation (367) (417)
Accumulated deficit (11,691) (25,244)
-------- -------
Total stockholders' equity 76,861 72,231
-------- -------
$156,584 168,043
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
VIDEO LOTTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Series A Restricted Total
Preferred Common Stock Stock-
Stock Stock Paid-in Treasury Compen- Accumu- holders'
par value par value Capital Stock sation lated Deficit Equity
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, $19 108 97,765 --- (417) (25,244) 72,231
1996
Net earnings --- --- --- --- --- 13,553 13,553
EDS settlement --- 1 126 (9,100) --- --- (8,973)
Amortization of
deferred
restricted stock
compensation --- --- --- --- 50 --- 50
--- --- ------ ------ ---- ------- ------
March 31, 1997 $19 109 97,891 (9,100) (367) (11,691) 76,861
=== === ====== ====== ==== ======= ======
- ---------------------------------------------------------------------------------------------------------
1997 Share Data
Series A Treasury Common
Balance Preferred Stock Issued Stock* Stock Issued
Beginning of period 1,913 --- 10,829
EDS settlement --- (2,458) 35
----- ------ ------
End of period 1,913 (2,458) 10,864
===== ====== ======
*Includes 1,913 Series A Preferred Stock and 545 of Common Stock.
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
VIDEO LOTTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 13,553 477
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 6,035 5,865
Other charges --- 6,000
Extraordinary gain, net (13,269) (4,014)
Other, net 31 18
Changes in operating assets and liabilities:
Receivables, net (940) (217)
Inventories 3,778 (6,724)
Prepaid expenses (277) 63
Accounts payable (722) 10,118
Accrued expenses (1,231) (2,605)
Income taxes 4,504 668
-------- ------
Net cash provided by operating activities 11,462 9,649
-------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,141) (2,682)
Expenditures on intangible and other noncurrent assets (375) (2,772)
Proceeds from sales of equipment 5 15
Change in restricted cash deposits (16) 580
-------- ------
Net cash used in investing activities (2,527) (4,859)
-------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on notes to banks (6,000) (4,550)
Proceeds from issuance of long-term debt --- 4,251
Repayments of long-term debt (3,024) (3,193)
-------- ------
Net cash used in financing activities (9,024) (3,492)
-------- ------
Net (decrease) increase in cash and cash equivalents (89) 1,298
-------- ------
Cash and cash equivalents, beginning of period 4,322 1,993
-------- ------
Cash and cash equivalents, end of period $ 4,233 3,291
======== ======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
VIDEO LOTTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Presentation
The consolidated financial statements include the accounts of Video
Lottery Technologies, Inc. and subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation.
The consolidated balance sheet as of March 31, 1997 and the
consolidated statements of operations and cash flows for the three-month
periods ended March 31, 1997 and 1996 and the consolidated statement of
stockholders' equity for the three-month period ended March 31, 1997 have
been prepared by the Company, without audit. In the opinion of management,
all adjustments (consisting of normal recurring accruals) necessary to
present fairly the financial position, results of operations and cash flows
as of and for the periods indicated have been made. The December 31, 1996
consolidated balance sheet was derived from consolidated financial
statements audited by KPMG Peat Marwick LLP in connection with the
Company's annual audit.
b. Earnings (Loss) Per Common Share
Earnings per common share is computed by dividing net earnings by the
weighted average number of common shares outstanding and the common stock
equivalents of convertible preferred stock and stock options outstanding
using the treasury stock method. Common stock equivalents are excluded from
the loss per share calculation when the effect is anti-dilutive.
c. Reclassifications
Certain reclassifications have been made to the 1996 amounts to
conform to the 1997 presentation. See Note 3.
d. Adoption of Accounting Pronouncement
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" (the "Statement") issued by the
Financial Accounting Standards Board ("FASB") in June 1996, effective
January 1, 1997. This Statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. The adoption did not have an effect on the
Company's financial position or results of operations.
e. Accounting Pronouncements Not Yet Adopted
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share",
which simplifies the standards for computing earnings per share ("EPS") by
replacing the presentation of primary EPS with a presentation of basic EPS.
SFAS No. 128 requires dual presentation of basic and diluted EPS by
entities with complex capital structures. Basic EPS includes no dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution of securities that could share
in the earnings of an entity. SFAS No. 128 replaces Accounting Principles
Board Opinion 15 and is effective for financial statements issued for
periods ending after December 15, 1997. The Company has a complex capital
structure per SFAS No. 128. Consequently, the generation of earnings from
continuing operations will result in a dual presentation of basic and
diluted EPS. The Statement requires restatement of prior period EPS
presentations.
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<PAGE>
VIDEO LOTTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
2. EDS SETTLEMENT
In January 1994, Electronic Data Systems Corporation ("EDS") purchased
545,454 shares of the Company's Common Stock and 1,912,728 shares of Series A
Junior Preferred Stock (Series A Preferred Stock), each at a share price of
$27.50. The Series A Preferred Stock carries dividend rights equal to the
Company's Common Stock, is non-voting, and is convertible to 1,912,728 shares of
Common Stock after ninety days prior written notice.
In conjunction with the stock sale to EDS in 1994, the Company entered into
a ten-year agreement with EDS which, among other things, called for EDS to
provide to the Company enhanced computing, communications, system and
engineering and field maintenance services under the lottery services
subsidiary's on-line lottery contracts. In 1996, the Company withheld certain
payments to EDS primarily due to EDS performance issues and related on-line
lottery customer disputes. In mid-1996 the contract with EDS was terminated and
EDS filed a complaint against the Company seeking payment of outstanding fees.
On January 30, 1997, the Company and EDS settled all claims against each other
and agreed to transition the EDS services to the Company. The settlement
resulted in a net of taxes extraordinary gain on debt extinguishment of
approximately $13,269,000 for the Company. The terms of the settlement include
the receipt by the Company of all of the common and preferred shares owned by
EDS (545,454 common and 1,912,728 preferred shares) certain inventories
(approximately $1,200,000) and property, plant and equipment (approximately
$2,700,000) used in the provision of EDS services to on-line lottery customers
and the extinguishment of approximately $38,000,000 of outstanding fees in
return for a note payable with a present value of $26,100,000. The note payable
calls for interest payments only for the first two years and principal and
interest payments in years three through seven (maturity). The note is secured
by the 2,458,182 shares of redeemed Common and Preferred Stock, certain
inventories, fixed assets and software technology and carries prepayment
provisions upon the disposal of substantially all the assets or stock of the
Company or certain of its subsidiaries. The transition of the EDS services and
related employees to the Company is anticipated to be completed in the second
quarter of 1997.
3. DISCONTINUED OPERATIONS
On May 3, 1994, the Company completed the purchase of all of the
outstanding stock of United Wagering Systems, Inc. ("UWS"). The original
purchase price included the issuance of $10,000,000 notes, payable over a
three-year period.
During the fourth quarter 1994 and the first quarter 1995, certain negative
developments affecting UWS and the pari-mutuel wagering industry became
increasingly apparent. During 1995, the Company did not pay principal and
interest obligations under the terms of the promissory notes to the sellers. On
March 25, 1996, the Company reached an agreement with the sellers settling all
outstanding claims and disputes, including dismissal of all outstanding
litigation, resulting in a $4,014,000 gain on debt extinguishment.
The Company, in the fourth quarter 1995, made a decision to sell UWS,
exclusive of the racetrack in Sunland Park, New Mexico; however, due to
operational improvements and industry and market conditions, the Company decided
to no longer actively pursue the disposal of the wagering systems segment. In
accordance with the requirements outlined in Financial Accounting Standards
Board Emerging Issues Task Force issue No. 90-16 "Accounting for Discontinued
Operations Subsequently Retained," the results of operations of the wagering
systems segment have been reclassified to continuing operations in all periods
presented.
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<PAGE>
VIDEO LOTTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
4. INVENTORIES
A summary of inventory follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Manufacturing:
Raw materials $ 4,585,000 5,462,000
Work-in-process 628,000 733,000
Finished goods 9,588,000 11,322,000
Customer service and other 2,395,000 780.000
----------- ----------
$17,196,000 18,297,000
=========== ==========
</TABLE>
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Note payable at prime with interest only payments through 1998.
Thereafter due in monthly installments, including interest,
through January 2004. Secured by certain inventories and
property and equipment and treasury stock $26,150,000 ---
8.25% note payable in monthly installments, including interest,
through September 2001 (see Note 3) 5,465,000 5,729,000
7.2% to 10.4% capital lease obligations, due in monthly install-
ments of $4,573 to $26,567 including interest, maturing
through November 1999 1,458,000 1,753,000
9.0% note payable in monthly installments including interest
through December 1998, secured by assets leased to others 4,200,000 5,164,000
LIBOR plus 2.25% notes payable in equivalent monthly installments
of $250,000 plus interest through February 1998. Secured by
stock of subsidiaries 5,770,000 7,270,000
----------- ----------
43,043,000 19,916,000
Less current installments 10,683,000 10,604,000
----------- ----------
Long-term debt, excluding current installments $32,360,000 9,312,000
=========== ==========
</TABLE>
The aggregate maturities of long-term debt are as follows:
Twelve months ending March 31,
1998 $10,683,000
1999 4,070,000
2000 7,000,000
2001 6,518,000
2002 5,830,000
Thereafter 8,942,000
===========
6. COMMITMENTS AND CONTINGENCIES
The Company periodically sells notes receivable from gaming machine
equipment sales to banks and other third parties. The notes are secured by the
underlying equipment. The receivables sold are subject to recourse provisions in
the event of default by the primary obligor. The outstanding balance of the
notes receivable sold with recourse was approximately $2,899,000 at March 31,
1997. The Company has established reserves for estimated losses under the
recourse provisions. At March 31, 1997, the Company had guaranteed or pledged
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<PAGE>
VIDEO LOTTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
security for the indebtedness of others in the amount of approximately
$3,304,000 (including $2,899,000 notes receivable sold to banks and other third
parties).
The Company is obligated to provide services and/or equipment under certain
of its contracts. In addition, the various state on-line lottery and video
gaming contracts contain provisions under which the Company may be subject to
monetary penalties for central computer downtime, terminal failures, delays in
servicing inoperable terminals within specified time periods and ticket stock
shortages among other things. The Company accrues any net losses in fulfilling
the terms of these contracts when the loss is probable and can be reasonably
estimated. At March 31, 1997 and December 31, 1996, respectively, the Company
had accrued liabilities of approximately $2,408,000 and $3,115,000 representing
billings and estimated costs to fulfill its obligations to deliver products and
services under certain customer contracts.
The Company typically posts bid, litigation, and performance bonds for
on-line lottery contracts. At March 31, 1997, the Company had collateral in
support of the various bonds outstanding consisting of $3,350,000 of restricted
deposits and $9,500,000 of irrevocable standby letters of credit. Should the
Company fail to meet contractually specified obligations during the contract
term, the lottery authority may assess damages and exercise its right to collect
on the applicable bond. The Company has had disputes with customers over
implementation schedules, deliverables and other issues. The Company works with
these customers to resolve these differences; however, should the Company be
unable to resolve any disputes in a mutually satisfactory manner, the Company
may suffer negative consequences in its relationships with these and other
customers and its pursuit of future business. The ultimate cost to the Company
of such damages (if any) would be net of its claims under risk management
policies.
Historically, the Company has met its cash flow requirements primarily with
cash provided by operations, public offerings of equity securities, and from
borrowings from financial institutions. The Company, in 1996, was named the
successful bidder for a new on-line lottery contract with the Florida lottery.
The award by the Florida Lottery has been protested by a competitor. If the
award is upheld, the Company will begin negotiations of a new contract. Sizable
capital expenditures in excess of current capital sources may be required in
advance of any anticipated capital generated by the new Florida contract,
accordingly, the Company may need additional financing, the availability and the
terms of which are subject to various uncertainties, with no assurance that such
financing can be obtained.
The recovery of a significant amount of the Company's investment in the
racetrack operations in New Mexico is largely contingent upon the implementation
of gaming legislation in the state. On March 21, 1997, the New Mexico
legislature voted to allow casino gaming at pari-mutuel racetracks in New
Mexico, including the Company's racetrack in Sunland Park, New Mexico. The bill
allows, among other things, the operation of up to 300 video gaming machines per
pari-mutuel racetrack facility for up to twelve hours per day. The
implementation of gaming is subject to the timing and satisfaction of conditions
of the legislation, including the state's formation of a separate commission to
oversee the gaming and other regulatory matters (including the grant of
necessary licenses to the Company). Consequently, the Company does not
anticipate that any revenues will be generated from the approved gaming until
early 1998.
A significant percentage of the Company's consolidated revenues are derived
from sales to customers in jurisdictions that have enacted legislation
permitting various types of gaming. Such enacted legislation may change due to
political and economic conditions within the jurisdiction which could have a
material adverse effect upon the Company's financial position and results of
future operations.
As previously reported, a purported class action, alleging violations of
the federal antitrust laws, was filed in June 1994, in the federal district
court in South Dakota against the Company and certain video lottery machine
operators in South Dakota by a group of other video lottery machine operators,
alleging, among other things, a combination and conspiracy to unlawfully
restrain trade in video lottery machines by fixing lease prices for such
machines, allocating territories and refusing to deal with other operators.
Unspecified treble damages were sought, along with injunctive relief to bar the
alleged practices. On November 6, 1996, the court granted the Company's and
other defendants' motion for summary judgment and dismissed, with prejudice, all
claims of the plaintiffs. In
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<PAGE>
VIDEO LOTTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
December 1996, plaintiffs filed an appeal of this ruling with the Eighth Circuit
of the U. S. Court of Appeals. The Company cannot predict the outcome of the
appeal.
The Company is involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these other matters
will not have a material adverse effect on its consolidated financial position
or results of operations.
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<PAGE>
VIDEO LOTTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Revenue from the on-line lottery segment consists primarily of a
contractual percentage of lottery ticket sales in seven states as well as
revenue from on-line lottery equipment sales. The segment revenue will
experience fluctuations depending on relative sizes of jackpots and the number
of terminals on-line and selling tickets in the states in which the Company
operates. The Company expects on-line lottery services revenue to continue to be
a significant component of total revenues. On-line lottery revenue is generated
by the Company's AWI subsidiary.
Revenue from the gaming machine and route operations segment consists of
sales and lease of video gaming machines, sales of parts, central control site
hardware and software, service of terminals, license fees, and from the
operation of gaming machine routes. Route operations revenue consists primarily
of gaming machine wagers net of pay-outs to patrons and state gaming taxes.
Revenue from gaming machine sales is subject to potentially significant
fluctuations. When and if new jurisdictions approve legislation for video
lottery gaming operations or forms of casino gaming, and if the Company is
awarded a contract in any such jurisdictions, the segment may experience a surge
in sales revenue that may or may not decline dramatically depending on the
jurisdiction and gaming venue. Gaming machine and route operations includes
lease revenue which is derived from the lease of terminals to the Oregon and
Rhode Island lotteries which implemented video lottery programs in 1992. The
Rhode Island program is a limited form of video lottery at two pari-mutuel
facilities. In December 1995 the Company began leasing video gaming machines to
the Delaware Lottery. The Company expects video lottery and route operations
revenue to continue to be a major component of total revenues. Gaming machine
revenue is primarily generated by the Company's VLC subsidiary.
Revenue from wagering systems and racetrack operations is generated
primarily from a contractual percentage of handle processed through computerized
pari-mutuel wagering systems from approximately 124 contracts in North America,
international sales and lease of pari-mutuel wagering systems, and ownership and
operation of a racetrack in Sunland Park, New Mexico. While on-track attendance
and handle from pari-mutuel wagering in the United States has markedly decreased
over the last decade as jurisdictions have legalized other forms of gaming,
there has also been a substantial increase in simulcast and off-track wagering
handle during the same period. Due to the significant increase of alternate
forms of gaming during the last several years, there can be no assurance that
such historical patterns will remain the same in the future, nor can the Company
predict the magnitude of any resulting net economic effects on this segment of
its business. The Company expects wagering systems and racetrack operations
revenue to be a significant component of total revenues. Wagering systems and
racetrack operations revenue is generated by the Company's UWS subsidiary.
Gross profit for each segment is herein defined as revenues for that
segment less the corresponding costs and expenses (excluding depreciation and
amortization expense and any special or other charges). Costs and expenses
related to on-line lottery revenue include all direct costs and allocated
indirect costs involved in operating the on-line lottery equipment in each
jurisdiction in which the Company has a contract as well as costs of equipment
sales, inclusive of materials, labor and allocated manufacturing overhead. Costs
and expenses related to gaming machine revenue include direct costs of
production, including labor, and allocated manufacturing overhead. Costs and
expenses related to route operations include the locations owners' share of the
net machine revenues. Costs and expenses related to wagering systems operations
include direct and allocated indirect costs associated with the operation of
totalisator equipment at the racetracks at which the Company has a contract as
well as direct costs of equipment sales.
Selling, general and administrative expenses consist of labor costs,
professional fees, repairs and maintenance expense, promotion and advertising
costs, occupancy and other costs, other than those included in costs and
expenses applicable to the determination of gross profit as defined above or
research and development as discussed below.
Research and development costs represent costs incurred to gain and develop
new knowledge applicable to the Company's various gaming systems inclusive of
software and hardware technology. Included in the costs are labor, material,
consulting, occupancy and other expenses associated with the research and
development efforts. Development costs are capitalized in accordance with
Statement of Financial Accounting Standards Board Statement No. 86 for certain
software developed for sale or lease.
- 13 -
<PAGE>
VIDEO LOTTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
Other charges include special and unusual charges recorded by the Company
for restructurings, asset valuation impairments, liquidated damage assessments
and other contract losses that are considered by the Company to be non-recurring
operating expenses not specifically attributable to normal individual segment
revenues.
First Quarter 1997 Compared with First Quarter 1996
Total revenue in the first quarter 1997 increased by $3.3 million (7.3%) to
$48.0 million from $44.7 million in the first quarter 1996. Overall gross profit
increased by $1.3 million (7.8%) to $18.0 million from $16.7 million in the
first quarter 1996. The Company had net earnings from operations before
extraordinary items of $.3 million as compared to a net loss of $3.5 million in
the first quarter 1996. The increase is primarily attributable to higher
revenues and gross margin from the gaming machine segment and the absence of the
other special charges recorded in the first quarter 1996.
In conjunction with the stock sale to EDS (see Note 2 to the Financial
Statements), the Company entered into a ten-year agreement with EDS which, among
other things, called for EDS to provide to the Company enhanced computing,
communications, system and engineering and field maintenance services under the
lottery services subsidiary's on-line lottery contracts. In 1996, the Company
withheld certain payments to EDS primarily due to EDS performance issues and
related on-line lottery customer disputes. In mid-1996 the contract with EDS was
terminated and EDS filed a complaint against the Company seeking payment of
outstanding fees. On January 30, 1997, the Company and EDS settled all claims
against each other and agreed to transition the EDS services to the Company. The
settlement resulted in an extraordinary gain (net of taxes) on debt
extinguishment of approximately $13.3 million for the Company.
On March 25, 1996, the Company reached an agreement with the sellers of UWS
settling all outstanding claims and disputes between them, including dismissal
of all outstanding litigation, and a restructuring and reduction of the notes
payable, resulting in an extraordinary gain (net of taxes) on debt
extinguishment of $4.0 million.
On-line Lottery
Revenue from the on-line lottery segment decreased by $.2 million (1%) to
$23.0 million from $23.2 million in the first quarter 1996. In the first quarter
1996 the Company recorded revenues from the Arizona and Washington lottery
contracts of approximately $4.0 million. The Arizona contract was terminated and
the Washington Lottery contract expired in the second quarter 1996. The
implementation of a video gaming program in Delaware, which is operated through
the Company's on-line lottery system software MasterLink(R) Advanced Gaming
System, in December 1995 and the start-up of the on-line lottery system in
Maryland in the third quarter of 1996 has resulted in approximately $3.1 million
of additional revenue to the Company in the first quarter 1997 offsetting the
loss of Arizona and Washington contract revenues. Revenues from sales of on-line
lottery equipment increased by $.5 million to $.7 million over first quarter
1996 levels of $.2 million.
In 1996, the Company was named the successful bidder for a new on-line
lottery contract by the Florida Lottery. The award has been protested by a
competitor. If the award is upheld, the Company will begin negotiations of a new
contract with the Florida Lottery. The previous contract had an initial
expiration date of June 30, 1996. The Company's subsidiary AWI is continuing the
operation of the current on-line lottery system until the implementation of a
new contract.
The gross profit margin of the on-line lottery segment was 34% in the first
quarter 1997 as compared to 38% in the first quarter 1996. The decrease is
primarily attributable to lower margins attained on the revenues from the
Maryland contract which was implemented in the third quarter 1996. The Company
anticipates the margin levels from the contract with Maryland to improve as the
system operation matures.
In the quarter ended March 31, 1996, the Company recorded approximately
$6.0 million of special non-recurring charges for the termination of the Arizona
Lottery contract and disputes with other on-line lottery customers which have
since been resolved.
- 14 -
<PAGE>
VIDEO LOTTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
Gaming Machine and Route Operations
Revenue from the gaming machine and route operations segment increased by
$2.9 million (19.6%) to $17.7 million from $14.8 million in the first quarter
1997. The increase is due to revenues in jurisdictions in which the Company has
recently been licensed to sell gaming machines including Nevada, New Jersey and
Minnesota and increased sales in Quebec, Canada. Increases in these
jurisdictions were offset by a decrease in revenues from Alberta, Canada.
Revenue was recognized on shipments of 2,508 units in the first quarter
1997 as compared to 1,380 units in the first quarter 1996. Included in the total
units were 75 and 102 royalty unit sales in the first quarters of 1997 and 1996,
respectively. Also included in the first quarter 1997 unit sales were 1,375
units to the Oregon Lottery that were previously leased to the Oregon Lottery.
The five consecutive one-year lease terms of the gaming machines expired in the
first quarter 1997. The Company continues to have 3,375 terminals under lease
with Oregon Lottery, 440 terminals with the Rhode Island Lottery and 275
terminals under lease agreement with the Delaware Lottery.
The following table reflects domestic and foreign revenues representing 10%
or more of the segments revenues for the first quarters of 1997 and 1996
(amounts in millions):
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------------
1997 1996 $ Change % Change
---- ---- -------- --------
<S> <C> <C> <C> <C>
Domestic:
Montana routes $ 4.4 4.0 0.4 10.0
Oregon 1.7 0.1 1.6 1,600.0
Oregon lease 1.7 1.4 0.3 21.4
Other lease 1.3 1.0 0.3 30.0
Other, combined 4.1 1.8 2.3 127.8
----- ---- ---- -------
13.2 8.3 4.9 59.0
----- ---- ---- -------
Foreign:
Alberta, Canada 0.1 2.5 (2.4) (96.0)
Quebec, Canada 3.1 1.9 1.2 63.2
Other foreign, combined 1.3 2.1 (0.8) (38.1)
----- ---- ---- -------
4.5 6.5 (2.0) (30.8)
----- ---- ---- -------
$17.7 14.8 2.9 19.6
===== ==== ==== =======
</TABLE>
The gross profit margin from the gaming machine segment, which includes
equipment sales and contract revenue, as well as royalty and lease revenue was
48% and 45% for the first quarters of 1997 and 1996, respectively. The gross
profit margin from route operations was 28% in the first quarters of 1997 and
1996.
Wagering Systems and Racetrack Operations
Revenue from the wagering systems and racetrack operations segment
increased by $.6 million (9.0%) to $7.3 million from $6.7 million in the first
quarter 1996. The increase primarily reflects higher sales of wagering systems
equipment in the first quarter 1997 over 1996 levels. Wagering systems services
revenue was $3.9 million in the quarters ended March 31, 1997 and 1996,
respectively. Revenue from the operations of the racetrack in Sunland Park, New
Mexico was $2.2 million and $2.3 million in the first quarters of 1997 and 1996,
respectively.
The recovery of a significant amount of the Company's investment in the
racetrack operations in New Mexico is largely contingent upon the implementation
of gaming legislation in the state. On March 21, 1997, the New Mexico
legislature voted to allow casino gaming at pari-mutuel racetracks in New
Mexico, including the Company's racetrack in Sunland Park, New Mexico. The bill
allows, among other things, the operation of up to 300 video gaming machines per
pari-mutuel racetrack facility for up to twelve hours per day. The
implementation of gaming is subject to the timing and satisfaction of conditions
of the legislation, including the state's formation of a separate commission to
oversee the gaming and other regulatory matters (including the grant of
necessary licenses to the
- 15 -
<PAGE>
VIDEO LOTTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
Company). Consequently, the Company does not anticipate that any revenues will
be generated from the approved gaming until early 1998.
The gross profit margin from the wagering systems and racetrack operations
segment was 22% and 19%, respectively, in the first quarters of 1997 and 1996.
The increase is due to higher margins on sales of wagering systems equipment.
The gross profit margin on wagering systems service revenue was 33% in both
periods. The gross profit margin on sales of equipment was 48% and 38% in the
quarters ended March 31, 1997 and 1996, respectively. The racetrack operations
resulted in a negative gross profit margin of approximately 8% in the first
quarters of 1997 and 1996. Selling, General and Administrative
Selling, general and administrative (SG&A) expenses were $7.7 million in
the first quarters of 1997 and 1996. As a percentage of sales, SG&A expenses
were 16% and 17%, respectively, in the first quarters of 1997 and 1996. The
Company expects SG&A levels to be at or above current levels in the near future.
Research and Development
Research and development expense, net of amounts capitalized for the
development of MasterLink(R) Advanced Gaming System software was $2.5 million
and $1.2 million in the first quarters of 1997 and 1996, respectively. The
Company capitalized approximately $.3 million and $2.2 million in the first
quarters of 1997 and 1996, respectively.
Liquidity and Capital Resources
Working capital, defined as current assets less current liabilities,
decreased by $7.4 million to $20.7 million from $28.1 million at December 31,
1996. The decrease is primarily due to an increase in net current income taxes
payable resulting from pre-tax earnings from all sources of income of
approximately $23.0 million. Earnings before interest, taxes, depreciation and
amortization and extraordinary items was $7.8 million in the first quarter 1997.
Additionally, the Company invested an additional $2.5 million for property,
plant and equipment, and intangible and other assets in the first quarter 1997,
including $1.7 million for the wagering systems segment and $.3 million of
additional capitalized software development relating to MasterLink(R), the
Company's central system software used in both the on-line and gaming machine
segments of the Company.
In the first quarter 1997, the Company reduced the outstanding balance of
the revolving line of credit with First Bank to $1.7 million leaving $8.3
million available for cash advances on the credit facility. The line of credit
agreement expires in February 1998. Additionally, the Company made principal
payments on long-term debt of $3.0 million in the first quarter 1997 reducing
the Company's interest-bearing debt level (including the revolving line of
credit) to $44.7 million.
The Company's on-line subsidiary, AWI, completed negotiations with the
Minnesota Lottery in the first quarter 1997 for a new five-year contract
commencing in August 1997. The on-line lottery system currently in place in
Minnesota under the current contract will remain in use under the new contract
and the Company does not anticipate significant additional capital expenditures
to satisfy the requirements of the new contract. In 1996, AWI was named as the
successful bidder for a contract with the Florida Lottery to replace the current
contract with AWI. The award has been protested by a competitor and the protest
is still pending. If the award is upheld, the Company will begin negotiations of
a new contract which may require significant capital resources in advance of any
anticipated capital generated by a new contract. Accordingly, the Company may
need additional financing, the availability and the terms of which are subject
to various uncertainties, with no assurance that such financing can be obtained.
- 16 -
<PAGE>
VIDEO LOTTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No significant changes have occurred with regard to legal proceedings as
disclosed in Part 1, Item 3, of the Company's December 31, 1996 Form 10-K.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
The company's Annual Meeting of Stockholders was held on January 10, 1997,
and, in connection therewith, proxies were solicited by management pursuant to
Regulation 14 under the Securities Exchange Act of 1934. An aggregate of
10,682,109 shares of the Company's common stock were outstanding and entitled to
vote at the meeting, of which 6,048,490 were present in person or by proxy. At
the meeting the following matters were submitted to a vote by the stockholders,
with the results indicated below:
1. Election of two directors to serve until the 1999 Annual Meeting of
Shareholders.
Nominee For Withheld
------- --- --------
William Spier 4,407,960 1,640,530
James J. Davey 5,765,200 283,290
2. Ratification of appointment of KPMG Peat Marwick LLP as independent
auditors for the year ending December 31,1996.
For Against Abstained/Not Voted
--- ------- -------------------
5,892,822 115,438 40,230
ITEM 5. OTHER INFORMATION
On January 6, 1997, the Company announced that its Special Committee has
requested from Mr. William Spier further information in order to evaluate the
proposal made by the Spier Group to purchase shares of the Company for $6.00 per
share, and that the Company is considering other options and all proposals. On
January 15, 1997, the Company announced that Mr. Spier had withdrawn his bid.
On January 7, 1997, the Company announced that its subsidiary, VLC, has
received permanent licensing in Connecticut and Arizona. The Arizona Department
of Gaming granted VLC permanent State Certification as a provider of gaming
services allowing VLC to sell its Winning Touch(R) machines to any gaming
operation in Arizona.
On January 13, 1997, the Company announced that at its annual meeting of
shareholders on January 10, 1997, directors William Spier and James Davey were
easily reelected to three-year terms and that KPMG Peat Marwick LLP was retained
as independent auditor.
- 17 -
<PAGE>
VIDEO LOTTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
On January 15, 1997, the Special Committee of the Board of Directors of the
Company announced that it had retained the investment banking firm Raymond James
& Associates, Inc. to advise the Company in connection with certain strategic
alternatives.
On January 16, 1997, the Company announced the successful completion of the
conversion of the Atlantic Lottery Corporation's Video Lottery Central Control
System onto a Digital Equipment Corporation (DEC) platform. The system monitors
and controls over 9,000 gaming machines in the four Canadian provinces of New
Brunswick, Newfoundland, Nova Scotia and Prince Edward Island. The new central
control system was jointly developed by the Atlantic Lottery Corporation and the
Company using AWI's MasterLink(R) Advanced Gaming System as its foundation. The
Company now has its MasterLink(R) Video Lottery Central Control Systems
operating in Delaware on an IBM RS/6000 platform and in the Atlantic Lottery
provinces on a DEC ALPHA platform.
On February 4, 1997, the Company announced that it had come to agreement
with EDS, resolving all outstanding disputes between the Company and EDS. Under
the agreement, the Company settled amounts currently payable to EDS for services
provided to the Company in the amount of $39 million. The Company also received
all of EDS' 2,458,182 shares of stock in the Company along with certain
inventories and equipment from EDS in return for a $27 million note payable to
EDS over seven years. Also, approximately 400 to 450 EDS employees are expected
to be transitioned into AWI to service existing lottery customers. At the same
time, the Company revised its credit relationship with First Bank and extended
the current credit facility through February, 1998.
On February 10, 1997, the Company announced that its subsidiary, VLC, has
reached an agreement with Islenskir Sofnunarkassar (Icelandic Gaming Fund
Raising) to license and install the VLC Advanced Gaming SystemTM (AGS). The
state-of-the-art AGS is VLC's next generation of gaming machine management and
control systems software, utilizing VLC's 10 years of industry experience as
well as combining the latest in computer software and hardware developments. The
Islenskir Sofnunarkassar, a joint effort between several humanitarian agencies
in Iceland, currently operates a small VLC-supplied video lottery system that
has reached its maximum capacity. VLC's AGS is scalable and will support any
size gaming machine program. The system installation began in March 1997 and is
anticipated to be completed in the third quarter 1997.
On February 12, 1997 the Company announced that Dennis Gallagher had been
appointed General Counsel.
On February 20, 1997 the Company's subsidiary, VLC, announced that the
Office of the Liquor Licensing Commissioner of South Australia had granted VLC a
Gaming Machine Dealer's License effective February 14, 1997. The license
authorizes VLC to sell its Winning Touch(R) multi-game video machine to gaming
operations in South Australia.
On April 1, 1997, the Company announced that AWI had signed a new five-year
contract, totaling an estimated $45.0 million, to continue to provide on-line
services for the Minnesota State Lottery after AWI was deemed the successful
proposer in the Lottery's competitive bidding process. AWI has been the on-line
system services provider for Minnesota during the past seven years. Under the
new contract, which begins in August 1997, the Lottery will continue to use the
existing central control system and terminals to service more than 1,900
retailers in the state.
On April 23, 1997, The Company's subsidiary, United Tote Company, announced
the successful installation and operation of its Horizon SystemTM and family of
pari-mutuel wagering terminals for the inaugural weekend of Lone Star Park's
live race meet located in Grand Prairie, Texas halfway between Dallas and Fort
Worth. Total combined system handle was a record $2.7 million. United Tote
installed 500 state-of-the-art wagering terminals for Lone Star's 73-day
inaugural thoroughbred meet. United Tote has been servicing Lone Star's
simulcasting center, the Post Time Pavilion, since it opened on May 3, 1996 with
record attendance and handle numbers.
On April 24, 1997, a subsidiary of the Company announced that the Nevada
Gaming Commission unanimously approved VLC for permanent licensing to
manufacture and distribute its gaming equipment in Nevada. The company was also
granted a slot route operator license to own and operate gaming machine routes
in Nevada. In addition, the Company's subsidiary VLC gained approval from the
Ontario Gaming Control Commission as a casino gaming-related supplier authorized
to sell its gaming devices in the province. VLC obtained temporary
- 18 -
<PAGE>
VIDEO LOTTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
licensing in the state in 1995 and the Nevada Gaming Commission unanimously
approved VLC's multi-game touchscreen machine, Winning Touch(R), for sale to
Nevada casinos last April. The Winning Touch(R) machine embraces
state-of-the-art touchscreen technology pioneered by VLC and allows players to
operate the game solely by touching the screen. Unlike other touchscreen
machines currently on the market, Winning Touch(R) has no buttons and offers
players an entire menu of games available on one machine.
On May 8, 1997, the Company announced that the Florida Administrative Law
Judge has recommended to the Florida Lottery that the evaluation committee
reconvene to reevaluate certain limited aspects of both proposals submitted for
operation of the Lottery. The judge did not reverse the Lottery's selection of
the Company's subsidiary AWI, found AWI to be fully qualified and, further,
found AWI's proposal to fully comply with the requirements of the Lottery. On
November 1, 1996, the Florida Lottery awarded a new five-year contract to AWI to
continue operating its lottery system. The Lottery's evaluation committee has
ranked AWI best based on its superior technology and its pricing.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Listing of Exhibits
EX-27 Financial Data Schedule (For SEC Use Only)
EX-27.1 Financial Data Schedule - Restated (For SEC Use Only)
b. Reports on Form 8-K
Form 8-K dated January 6, 1997, reporting the response by letter of the
Board of Directors of Video Lottery Technologies, Inc., to Mr. William Spier's
letter to the Company dated December 31, 1996.
Form 8-K dated January 30, 1997, reporting the settlement of certain
disputes between EDS and the Company relating to the Master Services Agreement
dated as of January 20, 1994, by and between the Company and EDS.
- 19 -
<PAGE>
VIDEO LOTTERY TECHNOLOGIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
VIDEO LOTTERY TECHNOLOGIES, INC.
Date: May 9, 1997 /S/ RICHARD M. HADDRILL
-----------------------------------------------
Richard M. Haddrill, President, Chief Financial
Officer, Treasurer and Director (authorized to
sign on behalf of Registrant)
- 20 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,233
<SECURITIES> 0
<RECEIVABLES> 26,655
<ALLOWANCES> 1,328
<INVENTORY> 17,196
<CURRENT-ASSETS> 57,319
<PP&E> 148,553
<DEPRECIATION> 75,919
<TOTAL-ASSETS> 156,584
<CURRENT-LIABILITIES> 36,639
<BONDS> 44,693
0
19
<COMMON> 109
<OTHER-SE> 76,553
<TOTAL-LIABILITY-AND-EQUITY> 156,584
<SALES> 12,200
<TOTAL-REVENUES> 48,004
<CGS> 7,014
<TOTAL-COSTS> 30,031
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 136
<INTEREST-EXPENSE> 994
<INCOME-PRETAX> 987
<INCOME-TAX> 703
<INCOME-CONTINUING> 284
<DISCONTINUED> 0
<EXTRAORDINARY> 13,269
<CHANGES> 0
<NET-INCOME> 13,553
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 1.29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Amounts restated to reflect reversal of discontinued
operations presentation of wagering systems segment.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,291
<SECURITIES> 0
<RECEIVABLES> 31,629
<ALLOWANCES> 3,241
<INVENTORY> 33,124
<CURRENT-ASSETS> 73,926
<PP&E> 134,840
<DEPRECIATION> 65,437
<TOTAL-ASSETS> 170,662
<CURRENT-LIABILITIES> 57,565
<BONDS> 33,839
0
19
<COMMON> 107
<OTHER-SE> 86,838
<TOTAL-LIABILITY-AND-EQUITY> 170,662
<SALES> 8,840
<TOTAL-REVENUES> 44,745
<CGS> 5,352
<TOTAL-COSTS> 28,084
<OTHER-EXPENSES> 6,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 936
<INCOME-PRETAX> (4,522)
<INCOME-TAX> (985)
<INCOME-CONTINUING> (3,537)
<DISCONTINUED> 0
<EXTRAORDINARY> 4,014
<CHANGES> 0
<NET-INCOME> 477
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
