-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Dtwp1Ejf/DIbX2A+p1p5FbbIyLLyuW4m4pQ3tJMg4MaI55BXFxPE3EHuWaswlyRT f2O+9Xj0nJeUUepcjm/eeg== 0000950109-96-003475.txt : 19960530 0000950109-96-003475.hdr.sgml : 19960530 ACCESSION NUMBER: 0000950109-96-003475 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960430 FILED AS OF DATE: 19960529 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUTOTOTE CORP CENTRAL INDEX KEY: 0000750004 STANDARD INDUSTRIAL CLASSIFICATION: CALCULATING & ACCOUNTING MACHINES (NO ELECTRONIC COMPUTERS) [3578] IRS NUMBER: 810422894 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11693 FILM NUMBER: 96574002 BUSINESS ADDRESS: STREET 1: 888 7TH AVENUE CITY: NEW YORK STATE: NY ZIP: 10106-1894 BUSINESS PHONE: 3027374300 MAIL ADDRESS: STREET 1: 100 BELLEVUE ROAD CITY: NEWARK STATE: NJ ZIP: 19714 FORMER COMPANY: FORMER CONFORMED NAME: UNITED TOTE INC DATE OF NAME CHANGE: 19920317 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-Q Mark One [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: April 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition from ______________________ to _________________________ Commission File number: 0-13063 AUTOTOTE CORPORATION -------------------- (Exact name of registrant as specified in its charter) Delaware 81-0422894 --------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 750 Lexington Avenue, New York, New York 10022 ---------------------------------------------- (Address of principal executive offices) (Zip Code) (212)-754-2233 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as of May 24, 1996: Class A Common Stock: 31,456,164 Class B Common Stock: None Page 1 of 14 AUTOTOTE CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION QUARTER ENDED APRIL 30, 1996
Page ---- PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Balance Sheets as of April 30, 1996 and October 31, 1995 3 Statements of Operations for the Three Months Ended April 30, 1996 and 1995 4 Statements of Operations for the Six Months Ended April 30, 1996 and 1995 5 Statements of Cash Flows for the Six Months Ended April 30, 1996 and 1995 6 Notes to Consolidated Financial Statements 7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 6. Exhibits and Reports on Form 8K 13
2 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Per Share Amounts)
April 30, October 31, 1996 1995 -------------------------- ASSETS (Unaudited) Current assets: Cash and cash equivalents............. $ 4,138 4,991 Restricted cash....................... 574 1,282 Accounts receivable, net.............. 19,311 21,700 Inventories........................... 6,681 12,497 Unbilled receivables.................. 8,629 4,166 Prepaid expenses, deposits and other current assets...................... 4,800 3,121 --------- -------- Total current assets.............. 44,133 47,757 --------- -------- Property and equipment, at cost......... 186,077 186,005 Less accumulated depreciation......... 77,188 67,745 --------- -------- Net property and equipment........ 108,889 118,260 --------- -------- Goodwill, net of amortization........... 24,486 26,986 Operating right, net of amortization.... 17,348 17,848 Other assets and investments............ 27,664 30,170 --------- -------- $ 222,520 241,021 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current installments of long-term debt................................ $ 25,564 10,772 Accounts payable...................... 13,435 16,448 Accrued liabilities................... 21,713 23,783 Income taxes payable.................. 2,043 1,878 --------- -------- Total current liabilities......... 62,755 52,881 --------- -------- Deferred income taxes................... 6,706 5,807 Accrued litigation settlement........... 5,500 -- Other long-term liabilities............. 2,261 3,984 Long-term debt, excluding current installments.......................... 111,324 126,492 Long-term debt, convertible subordinated debentures............... 40,000 40,000 --------- -------- Total liabilities................. 228,546 229,164 --------- -------- Stockholders' equity (deficit): Preferred stock, par value $1.00 per share, 2,000 shares authorized, none outstanding........................... -- -- Class A common stock, par value $0.01 per share, 99,300 shares authorized, 31,456 and 30,520 shares outstanding at April 30, 1996 and October 31, 1995, respectively.......................... 315 306 Class B non-voting common stock, par value $0.01 per share, 700 shares authorized, none outstanding.......... -- -- Additional paid-in capital............ 143,221 140,050 Accumulated deficit................... (149,164) (129,469) Treasury stock, at cost............... (102) (295) Translation adjustment................ (296) 1,265 --------- -------- Total stockholders' equity (deficit)....................... (6,026) 11,857 --------- -------- $ 222,520 241,021 ========= ========
See accompanying notes to consolidated financial statements. 3 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended April 30, 1996 and 1995 (In Thousands, Except Per Share Amounts) (Unaudited)
Three Months Ended Three Months Ended April 30, April 30, 1996 1995 ----------------------------------------- Operating revenues: Wagering systems...................... $35,406 32,423 Wagering equipment and other sales.... 10,335 4,709 ------- ------ 45,741 37,132 ------- ------ Operating expenses (exclusive of depreciation and amortization): Wagering systems...................... 22,224 19,224 Wagering equipment and other sales.... 7,442 2,948 ------- ------ 29,666 22,172 ------- ------ Total gross profit.................. 16,075 14,960 ------- ------ Selling, general and administrative expenses.............................. 8,378 9,909 Depreciation and amortization........... 9,558 8,781 ------- ------ Operating loss...................... (1,861) (3,730) ------- ------ Other deductions (income): Interest expense...................... 3,670 4,308 Other deductions (income)............. (149) 253 ------- ------ 3,521 4,561 ------- ------ Loss before income tax expense........ (5,382) (8,291) Income tax expense...................... 512 667 ------- ------ Net loss................................ $(5,894) (8,958) ======= ====== Net loss per common share............... $(0.19) (0.31) ======= ====== Weighted average number of common shares outstanding.................... 31,373 28,913 ======= ======
See accompanying notes to consolidated financial statements. 4 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Six Months Ended April 30, 1996 and 1995 (In Thousands, Except Per Share Amounts) (Unaudited)
Six Months Ended Six Months Ended April 30, April 30, 1996 1995 ------------------------------------- Operating revenues: Wagering systems...................... $ 64,974 61,399 Wagering equipment and other sales.... 24,073 6,850 -------- ------- 89,047 68,249 -------- ------- Operating expenses (exclusive of depreciation and amortization): Wagering systems...................... 41,071 35,971 Wagering equipment and other sales.... 16,140 4,444 -------- ------- 57,211 40,415 -------- ------- Total gross profit.................. 31,836 27,834 -------- ------- Selling, general and administrative expenses.............................. 16,548 17,604 Depreciation and amortization........... 18,994 16,498 -------- ------- Operating loss...................... (3,706) (6,268) -------- ------- Other deductions (income): Interest expense...................... 7,332 7,157 Litigation settlement................. 6,800 -- Other deductions...................... 143 145 -------- ------- 14,275 7,302 -------- ------- Loss before income tax expense........ (17,981) (13,570) Income tax expense...................... 1,714 1,319 -------- ------- Net loss................................ $(19,695) (14,889) ======== ======= Net loss per common share............... $ (0.63) (0.52) ======== ======= Weighted average number of common shares outstanding.................... 31,139 28,862 ======== =======
See accompanying notes to consolidated financial statements. 5 AUTOTOTE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended April 30, 1996 and 1995 (In Thousands) (Unaudited)
Six Months Ended Six Months Ended April 30, April 30, 1996 1995 ------------------------------------- Cash flows from operating activities: Net loss............................ $(19,695) (14,889) -------- ------- Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization..... 18,994 16,498 Loss on disposal of building...... 455 -- Change in deferred income taxes... 906 2,259 Litigation settlement, net of cash payments........................ 5,800 -- Non-cash interest charges......... 636 -- Changes in operating assets and liabilities, net of effects of acquisitions.................... (2,256) 1,509 Other............................. 816 1,863 -------- ------- Total adjustments............. 25,351 22,129 -------- ------- Net cash provided by operating activities.......................... 5,656 7,240 -------- ------- Cash flows from investing activities: Capital expenditures................ (1,075) (8,235) Expenditures for equipment under wagering systems contracts........ (4,051) (5,468) Proceeds from asset disposals....... 997 -- Increase in other assets and other liabilities....................... (2,134) (3,881) Purchase of companies, net of cash acquired.......................... -- (15,978) -------- ------- Net cash used in investing activities. (6,263) (33,562) -------- ------- Cash flows from financing activities: Net borrowings under revolving credit facility.......................... 1,660 25,500 Proceeds from issuance of long-term debt.............................. 535 1,055 Payments on long-term debt.......... (2,571) (613) Net proceeds from issuance of common stock............................. -- 194 -------- ------- Net cash provided (used) by financing activities.......................... (376) 26,136 -------- ------- Effect of exchange rate changes on cash................................ 130 705 -------- ------- Increase/(Decrease) in cash and cash equivalents......................... (853) 519 Cash and cash equivalents, beginning of period.............................. 4,991 6,110 -------- ------- Cash and cash equivalents, end of period.............................. $ 4,138 6,629 ======== ======= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest............................ $ 5,579 5,304 ======== ======= Income taxes........................ $ 636 432 ======== =======
See accompanying notes to consolidated financial statements. 6 AUTOTOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 30, 1996 (Unaudited) 1) Consolidated Financial Statements The consolidated balance sheet as of April 30, 1996 and the consolidated statements of operations for the three months and six months ended April 30, 1996 and 1995, and consolidated statements of cash flows for the six months then ended have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present fairly the financial position of the Company at April 30, 1996, and the results of its operations for the three and six months ended April 30, 1996 and 1995, and its cash flows for the six months ended April 30, 1996 and 1995 have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's 1995 Annual Report on Form 10-K. The results of operations for the periods ended April 30, 1996 are not necessarily indicative of the operating results for the full year. Certain items in the prior year's financial statements have been reclassified to conform with the current year presentation. 2) Inventories Inventories consist of the following:
April 30, October 31, 1996 1995 -------------------------- (in thousands) Parts................................... $4,203 4,667 Work-in-process......................... 1,283 4,724 Finished goods.......................... 782 2,541 ------ ------ 6,268 11,932 Ticket paper............................ 413 565 ------ ------ Total................................... $6,681 12,497 ====== ======
Work-in-process includes costs for equipment expected to be sold. Costs incurred for equipment associated with specific wagering system contracts not yet placed in service are classified as construction in progress in property and equipment. 3) Debt On January 26, 1996, the Company entered into an Amended and Restated Credit Agreement (the "Amended and Restated Senior Bank Credit Facility") with lenders (the "Lenders") to the Company's previous senior bank credit facility pursuant to which current commitments of each Lender under the previous senior bank credit facility, totaling $135 million, were continued as the Amended and Restated Senior Bank Credit Facility. This facility provides for: 1) a $55 million term loan (the "A Term Loan"), 2) a $5 million term loan (the "B Term Loan"), and 3) a $75 million revolving credit facility (the "Revolver"), which includes a $25 million sublimit for letters of credit, and contains various financial and other covenants. See Note 10 to the Consolidated Financial Statements for the year ended October 31, 1995 included in the Company's 1995 Annual Report on Form 10-K. In March 1996, the Company entered into a First Amendment and Consent (the "Amendment") to the Amended and Restated Senior Bank Credit Facility. The Amendment permitted the settlement of the shareholder litigation and payment of the Company's $1.0 million obligation in connection therewith as set forth in Note 5 below and, accordingly, adjusted certain financial covenants and deferred an aggregate of $1.0 million of A Term Loan and B Term Loan payments scheduled for April 30, 1996 until July 31, 1996. Through April 30, 1996, the Company made scheduled payments of $0.75 million on the A Term Loan and $0.75 million on the B Term Loan. As of April 30, 1996, the Company had approximately $0.9 million available for borrowing under its Revolver, with $3.2 million in outstanding letters of credit and $129.4 million in outstanding borrowings. 7 AUTOTOTE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) April 30, 1996 (Unaudited) 4) Capital Stock In November 1995, the Company entered into an agreement with holders of its 5.5% Convertible Subordinated Debentures whereby the holders would receive unregistered shares of Class A Common Stock in lieu of cash for interest payments due in August 1995 and February 1996 in the amount of $1,100,000 each. In November 1995, the Company issued 422,500 shares of Class A Common Stock in payment of the interest due in August 1995. In March 1996, the Company issued 513,869 shares of Class A Common Stock in payment of the interest due in February 1996. On January 26, 1996, pursuant to the Amended and Restated Senior Bank Credit Facility, the Company issued to the Lenders warrants to purchase an aggregate of 525,000 shares of Class A Common Stock at an exercise price of $1.25 per share. See Note 10 to the Consolidated Financial Statements for the year ended October 31, 1995 included in the Company's 1995 Annual Report on Form 10-K. Effective April 15, 1996, the Company's Class A Common Stock began trading on the American Stock Exchange under the symbol TTE. Prior to this, the Company's Class A Common Stock traded on the National Market of the National Association of Securities Dealers, Inc. Automated Quotation System. 5) Litigation A) The Company and certain of its officers and directors were named defendants in a number of lawsuits commenced in February 1995 as class actions in the United States District Court for the District of Delaware. These lawsuits were consolidated into one class action in June 1995 (the "Class Action"). On March 5, 1996, the parties to the Class Action reached an agreement in principle (the "Agreement in Principle") to settle all claims related to the Class Action without any admission of liability on the part of any defendant. Pursuant to the terms of the Agreement in Principle, the plaintiffs would receive $7.5 million in cash and shares of preferred stock to be issued by the Company having an aggregate value of $4.25 million. Insurance companies providing directors and officer insurance would contribute approximately $6.5 million of the cash portion of the settlement (with $1.25 million of that amount in the form of a loan to the Company, with the payment terms subject to negotiation). As a result of the Agreement in Principle, the Company accrued a charge of $6.5 million to reflect the terms of the Agreement in Principle and $0.3 million for anticipated related legal fees in the accompanying consolidated financial statements. Of the anticipated settlement amount, $1.0 million was placed by the Company into an escrow account during the second quarter of fiscal 1996, pending court approval of the Agreement in Principle. The parties to the Agreement in Principle are currently in discussions which may result in certain modification to the Agreement in Principle. It is not now anticipated that any such modifications to the Agreement in Principle would change the above-described accrued charges. The Agreement in Principle and any modifications of it are subject to the execution of certain agreements and court approval, as to which there can be no assurances. B) The Company and its subsidiary Autotote Systems, Inc. ("ASI") were defendants in a 1994 arbitration claim in Singapore by Multivest (PTE) Limited ("Multivest"). The claim, which sought damages in the amount of $250 million for an alleged breach of contract by ASI in connection with a joint venture with Multivest, was dismissed on October 12, 1995, and Multivest was ordered to pay the Company US $120,000 for costs and expenses incurred and Singapore $62,235 as reimbursements for money paid by the Company for expenses of the arbitration panel. On February 29, 1996, ASI was awarded approximately US $772,000 on its counterclaim against Multivest. Because of current uncertainties about the collectability of the awards, the Company has not recognized the awards in its financial statements. 8 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS The following discussion addresses the financial condition of the Company as of April 30, 1996 and the results of operations for the three and six month periods ended April 30, 1996, compared to the same periods last year. This discussion should be read in conjunction with the Management's Discussion and Analysis section for the fiscal year ended October 31, 1995 ("fiscal 1995") included in the Company's 1995 Annual Report on Form 10-K. For purposes of this discussion, the business segments of Pari- Mutuel/Sports Betting, Off-Track Betting and Simulcasting Services will be collectively referred to and analyzed under the caption "Pari-mutuel Group". The Lottery Operations segment will be separately discussed and analyzed. Three Months Ended April 30, 1996 Compared to Three Months Ended April 30, 1995
Second Quarter Fiscal 1996 Second Quarter Fiscal 1995 Pari- Pari- Mutuel Lottery Mutuel Lottery Group Operations Total Group Operations Total ------------------------------------------------------------------ Revenue: Wagering systems $29,417 5,989 35,406 27,716 4,707 32,423 Wagering equipment and other sales 3,128 7,207 10,335 3,068 1,641 4,709 ------- ------ ------ ------ ----- ------ Total Revenue $32,545 13,196 45,741 30,784 6,348 37,132 ------- ------ ------ ------ ----- ------ Gross Margin (excluding depreciation and amortization) $13,182 2,893 16,075 11,955 3,005 14,960 ------- ------ ------ ------ ----- ------
Revenue Analysis Revenues increased 23% or $8.6 million to $45.7 million in the second quarter of the fiscal year ended October 31, 1996 from $37.1 million in the second quarter of the fiscal year ended October 31, 1995. The Pari-mutuel Group's wagering systems revenues of $29.4 million for the second quarter of fiscal 1996 improved $1.7 million or 6% during the quarter as compared to the prior year principally because of the growth in handle at Connecticut OTB attributable to the opening of the Company's Sports Haven/TM/ simulcast/multi-entertainment facility in April 1995. Wagering equipment sales in the second quarter of fiscal 1996 remained comparable to the second quarter of fiscal 1995. Lottery Operations wagering systems revenues increased $1.3 million during the second quarter of fiscal 1996 from $4.7 million to $6.0 million primarily because of higher service revenues as a result of additional programming services provided under the German Lottery contract. Wagering equipment sales improved significantly in the second quarter of fiscal 1996 to $7.2 million from $1.6 million in fiscal 1995. This improvement is attributable to the continued delivery of systems by the Company to several German lottery contract sites, as well as the delivery of additional terminals and parts to EIS for sale to Italy's TOTIP pari-mutuel lottery pool. Gross Profit Analysis The total gross margin of $16.1 million for the second quarter of fiscal 1996 improved $1.1 million, or 7.5% compared to the second quarter of fiscal 1995, principally reflecting delivery of additional systems by the Company during the quarter. Gross margins on equipment sales were 28% in the second quarter of 1996, down from the margins of 37% earned in the first quarter of fiscal 1996 and in the second quarter of fiscal 1995 as a result of a change in the mix of equipment being sold; gross margins on services remained stable at approximately 37% for each of the first two quarters of fiscal 1996, down slightly from the same periods in 1995. 9 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS - (Continued) Expense Analysis Selling, general and administrative expenses include marketing, sales, administrative, engineering and software development, finance, legal and other expenses. Selling, general and administrative expenses decreased $1.5 million or 16% to $8.4 million in the second quarter of fiscal 1996 from $9.9 million in the second quarter of fiscal 1995 reflecting expense reductions resulting from fiscal 1995 restructuring activities and other cost reduction programs. Depreciation and amortization expenses increased 9% to $9.6 million in the second quarter of 1996 compared to $8.8 million in the second quarter of fiscal 1995. The increase was primarily due to capital additions for North America's pari-mutuel video gaming operations, new terminals and software installed at the Connecticut State Lottery, investment in UNIBET software, and the increased investment in the new Sports Haven/TM/ facility. Interest expense decreased $0.6 million or 15% to $3.7 million in the second quarter of 1996 as a result of expensing $.7 million of bank waiver and amendment fees in the second quarter of fiscal 1995. Excluding the effect of the fiscal 1995 bank waiver and amendment fees, interest rate declines during the quarter were offset by increased interest costs due to higher borrowings and increased amortization costs of deferred financing fees attributable to the first quarter 1996 debt refinancing. Income Taxes Income tax expense was $.5 million in the 1996 period as compared to an expense of $.7 million in the 1995 period. Income tax expense principally reflects foreign tax expense, since no tax benefit has been recognized on domestic operating losses. Six Months Ended April 30, 1996 Compared to Six Months Ended April 30, 1995
Six Months Fiscal 1996 Six Months Fiscal 1995 Pari- Pari- Mutuel Lottery Mutuel Lottery Group Operations Total Group Operations Total ------------------------------------------------------------------ Revenue: Wagering systems $55,088 9,886 64,974 51,549 9,850 61,399 Wagering equipment and other sales 6,895 17,178 24,073 4,802 2,048 6,850 ------- ------ ------ ------ ------ ------ Total Revenue $61,983 27,064 89,047 56,351 11,898 68,249 ------- ------ ------ ------ ------ ------ Gross Margin (excluding depreciation and amortization) $23,236 8,600 31,836 21,399 6,435 27,834 ------- ------ ------ ------ ------ ------
Revenue Analysis Revenues increased 31% or $20.8 million to $89 million in the six months ended April 30, 1996 from $68.2 million in the six months ended April 30, 1995. The Pari-mutuel Group's wagering systems revenues of $55.1 million for the first six months of fiscal 1996 improved $3.5 million or 7% compared to the prior year principally because of the growth in handle at Connecticut OTB attributable to the opening of the Sports Haven/TM/ simulcast/multi- entertainment facility in April 1995. Wagering equipment sales improved $2.1 million to $6.9 million for the first six months of fiscal 1996 reflecting the increase in international equipment sales during the first quarter of fiscal 1996. 10 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS - (Continued) Lottery Operations wagering systems revenues were up slightly for the first six months of fiscal 1996 because of the change in the revenue mix from primarily service to sales during the first quarter of fiscal 1996 as a result of the delivery of systems to several German lottery sites. Wagering equipment sales improved significantly in the first six months of fiscal 1996 to $17.2 million from $2 million in fiscal 1995. This improvement is attributable to the delivery of systems by the Company to several German lottery contract sites, as well as the delivery of terminals and parts to EIS for sale to Italy's TOTIP pari-mutuel lottery pool. Gross Profit Analysis The total gross margin of $31.8 million for the first six months of fiscal 1996 improved $4 million, or 14% compared to the first six months of fiscal 1995, principally reflecting delivery of systems by the Company during the period. Gross margins on equipment sales were 33% in the period, down slightly from the margins earned in the comparable period in fiscal 1995. Gross margins on services remained stable at approximately 37% for each of the first two quarters of fiscal 1996, down slightly from 1995. Expense Analysis Selling, general and administrative expenses decreased $1.1 million or 6% to $16.5 million in the first six months of fiscal 1996 from $17.6 million in the first six months of fiscal 1995. Expense reductions resulting from fiscal 1995 restructuring activities and other cost reduction programs of approximately $4.0 million for the period were partially offset by increased engineering and software systems development expenses, and increased expenses for legal compliance, litigation and compensation costs. Depreciation and amortization expenses increased 15% to $19 million in the first six months of 1996 compared to $16.5 million in the first six months of fiscal 1995. The increase was primarily due to capital additions for North America's pari-mutuel video gaming operations, new terminals and software installed at the Connecticut State Lottery, investment in UNIBET software, the January 1995 acquisition of simulcasting assets, and the investment in the new Sports Haven/TM/ facility. Interest expense increased slightly to $7.3 million in the first six months of 1996 reflecting a $0.1 million increase due to higher interest rates, a $0.5 million increase due to additional borrowings, and a $0.3 million increase in amortization of deferred financing costs, which increases were mostly offset as a result of expensing $0.7 million of bank waiver and amendment fees in the second quarter of fiscal 1995. Income Taxes Income tax expense was $1.7 million in the 1996 period as compared to an expense of $1.3 million in the 1995 period. Income tax expense principally reflects foreign tax expense, since no tax benefit has been recognized on domestic operating losses. Liquidity and Capital Resources Net cash provided by operating activities was $5.6 million for the six months ended April 30, 1996, of which $9.3 million is attributed to current period operations. This amount was partially offset by $2.3 million of net decreases in working capital and the $1.0 million payment made under the terms of the litigation settlement discussed in Note 5(a) to the Consolidated Financial Statements above, and increased by $0.6 million from non-cash interest charges. The working capital decrease is attributable to an increase in unbilled receivables and reductions of accounts payable and other current liabilities totaling $10.5 million, partially offset by a $1.5 million improvement in accounts receivable collections and a $5.7 million reduction of inventories. At April 30, 1996, the Company had cash and cash equivalents of $4.1 million as compared to $5.0 million at October 31, 1995. 11 AUTOTOTE CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Net cash used in investing activities was $6.3 million for the first six months of fiscal 1996. Utilizing cash provided by operating activities, the Company invested principally in contract expenditures and software systems development. Additionally, the Company received approximately $1.0 million from the sale/leaseback of its administration and development facility in Newark, Delaware. The net proceeds from this transaction were used to reduce borrowings under the Company's previous senior bank credit facility. Net cash used by financing activities consisted primarily of borrowings of $3.5 million and repayments of $1.8 million under the Revolver in addition to scheduled repayments of $1.5 million on the Company's Amended and Restated Senior Bank Credit Facility term loans. Additionally, under an agreement with the holders of its 5.5% Convertible Subordinated Debentures, the Company issued 936,369 unregistered shares of Class A Common Stock in lieu of cash for interest payments during the first six months of fiscal 1996. As described in Note 3 to the Consolidated Financial Statements above, the Company had approximately $0.9 million available to borrow under its Amended and Restated Senior Bank Credit Facility at April 30, 1996. The Company believes that its cash resources at that date and its forecasted cash flows from operations provide sufficient liquidity to meet scheduled payments and anticipated capital expenditures in the current fiscal year arising from current commitments. The Company believes that additional financing and/or asset sales will be required to meet its scheduled payments and capital requirements in subsequent fiscal years. The Company is currently exploring financing and asset sales alternatives while simultaneously developing programs to reduce its level of ongoing expenditures. The Company will be required to evaluate its capital outlays and commitments in light of the availability and timing of additional financing, which currently remains uncertain. 12 AUTOTOTE CORPORATION AND SUBSIDIARIES Quarter Ended April 30, 1996 PART II. OTHER INFORMATION Item 1. Legal Proceedings A) The Company and certain of its officers and directors were named defendants in a number of lawsuits commenced in February 1995 as class actions in the United States District Court for the District of Delaware. These lawsuits were consolidated into one class action in June 1995 (the "Class Action"). On March 5, 1996, the parties to the Class Action reached an agreement in principle (the "Agreement in Principle") to settle all claims related to the Class Action without any admission of liability on the part of any defendant. Pursuant to the terms of the Agreement in Principle, the plaintiffs would receive $7.5 million in cash and shares of preferred stock to be issued by the Company having an aggregate value of $4.25 million. Insurance companies providing directors and officer insurance would contribute approximately $6.5 million of the cash portion of the settlement (with $1.25 million of that amount in the form of a loan to the Company, with the payment terms subject to negotiation). As a result of the Agreement in Principle, the Company accrued a charge of $6.5 million to reflect the terms of the Agreement in Principle and $0.3 million for anticipated related legal fees in the accompanying consolidated financial statements. Of the anticipated settlement amount, $1.0 million was placed by the Company into an escrow account during the second quarter of fiscal 1996, pending court approval of the Agreement in Principle. The parties to the Agreement in Principle are currently in discussions which may result in certain modifications to the Agreement in Principle. It is not now anticipated that any such modifications to the Agreement in Principle would change the above-described accrued charges. The Agreement in Principle and any modifications of it are subject to the execution of certain agreements and court approval, as to which there can be no assurances. B) The Company and its Autotote Systems, Inc. subsidiary ("ASI") were defendants in an arbitration claim in Singapore by Multivest (PTE) Limited ("Multivest"). The claim, which sought damages in the amount of $250 million for an alleged breach of contract by ASI in connection with a joint venture with Multivest, was dismissed on October 12, 1995, and Multivest was ordered to pay the Company US $120,000 for costs and expenses incurred and Singapore $62,235 as reimbursements for money paid by the company for expenses of the arbitration panel. On February 29, 1996, ASI was awarded approximately US $772,000 on its counterclaim against Multivest. Because of current uncertainties about the collectability of the awards, the Company has not recorded such amounts in its financial statements. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 10.46 - Employment Agreement dated March 21, 1996 between Registrant and Ken Shea. (*) Exhibit 10.47 - Promissory Note dated May 13, 1996 between Registrant and A. Lorne Weil. Exhibit 27 - Financial Data Schedule (b) A Form 8-K Report, reporting an Item 5, was filed on March 7, 1996 to extend the date to March 28, 1996 by which any proposal to be presented at the next annual meeting of stockholders must be received by the Secretary of the Registrant. (*) Includes management contracts and compensation plans and arrangements. 13 AUTOTOTE CORPORATION AND SUBSIDIARIES Quarter Ended April 30, 1996 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AUTOTOTE CORPORATION -------------------- (Registrant) By: /s/ William Luke ---------------- Name: William Luke Title: Vice President & Chief Financial Officer Dated: May 29, 1996 14 EX-10.46 2 KENNETH SHEA LETTER - 03/21/96 [AUTOTOTE LOGO APPEARS HERE] EXHIBIT 10.46 A. LORNE WEIL CHAIRMAN & CEO March 21, 1996 Mr. Kenneth Shea 20 West 72nd Street #1A New York, NY 10024 Dear Ken: This will confirm, in connection with your election as Vice President, that if the Company should terminate your employment for any reason other than cause, you will be entitled to severance of not less than one year's salary. Very truly yours, /s/ A. Lorne Weil ----------------- A. Lorne Weil EX-10.47 3 PROMISSORY NOTE - 05/13/96 EXHIBIT 10.47 PROMISSORY NOTE --------------- $250,000.00 New York, NY May 13, 1996 FOR VALUE RECEIVED, A. Lorne Weil (hereinafter "Weil"), having an address at 51 East 90th Street, Penthouse B, New York, New York 10128, unconditionally promises to pay to the order of Autotote Corporation (hereinafter "Autotote"), without set-off of any kind, the principal amount of Two Hundred and Fifty Thousand Dollars ($250,000.00) together with interest thereon, at the rate of five and one-half percent (5.5%) per annum on the unpaid balance of the principal amount from the date hereof until the same shall have been paid in full. Except for prepayments in accordance with the terms hereof, interest will be payable annually on the outstanding principal balance hereof commencing on May 13, 1997, and principal will be payable in five (5) annual installments, each in the amount of Fifty Thousand Dollars ($50,000.00), commencing on May 13, 2000 and on May 13 each year thereafter through May 13, 2004. The principal of this Note shall be required to be repaid on the earlier to happen of the following: a) Termination of the employment of Weil by Autotote for any reason; and a) All bonus monies otherwise payable by Autotote to Weil shall be applied to the outstanding principal and interest due hereunder until payment of this Note in full. All installments and principal and interest due hereunder shall be made in lawful money of the United States of America to Autotote at 750 Lexington Avenue, New York, New York 10022 or 100 Bellevue Road, Newark, Delaware 19714 or at such other place or to such other payee or any successor holder hereof as Autotote shall have designated to Weil in writing. This Note may be prepaid at any time and from time to time in whole or in part without penalty; provided, however, that any prepayment of principal shall be accompanied by accrued interest thereon to the date of such prepayment and shall be applied first to the last installments of principal coming due hereunder. Upon the thirtieth day after notice by the holder hereof to Weil of nonpayment of any installment of interest or principal due hereunder, if such installment has not been paid by said thirtieth day, all remaining installments shall immediately become due and payable, plus interest at the rate provided above or twelve percent (12%) per annum, unless such rate is higher than the maximum rate of interest permitted by law, in which case the rate -2- charged shall be the highest rate permitted by law. Except as otherwise set forth herein, Weil expressly waives presentment, demand, protest and notice by the holder hereof in connection with this Note. No course of dealing between Weil and the holder of this Note and no delay on the part of the holder of this Note in exercising any rights of this Note shall operate as a waiver of any right of the holder of this Note. No provision of this Note nor any default in connection herewith may be waived other than by a written instrument signed by the party waiving such provision or default. This Note may not be changed or terminated orally. This Note and any interpretation and/or enforcement thereof shall be governed by the internal laws of the State of New York without regard to principles of conflict of laws. If any provision of this Note shall be invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other provision of this Note and the obligations of Weil shall be carried out as if such invalid or unenforceable provision were not contained herein. /s/ A. Lorne Weil . -------------------------------------------- A. Lorne Weil EX-27 4 FINANCIAL DATA SCHEDULE
5 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. 1,000 6-MOS OCT-31-1996 NOV-1-1995 APR-30-1996 4,138 0 20,933 1,622 6,681 44,133 186,077 77,188 222,520 62,755 40,000 0 0 315 (6,341) 222,520 89,047 89,047 57,211 57,211 42,485 0 7,332 (17,981) 1,714 (19,695) 0 0 0 (19,695) (0.63) 0
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