Scientific Games Corporation - Heavy Losses: 1994–96
Heavy Losses: 1994–96
By this time, however, Autotote was clearly sailing into troubled waters. Although its revenues climbed to $149 million in fiscal 1994, it lost $22.2 million and doubled its long-term debt to $144 million. As factors contributing to the loss, management cited charges of about $3.8 million resulting from closing the Newark manufacturing facility and discontinuing certain product lines, a $4.3 million writeoff of certain assets principally related to domestic and overseas projects, costs of $2.8 million attributed to a strike by employees of a subsidiary, and an extraordinary noncash writeoff of $4.2 million associated with the company's repayment of its prior senior bank credit facility, as well as payments for the acquisitions made in 1993 and 1994.
Autotote's stock fell from a year-long high of $26.50 a share to a low of $4.50 in February 1995, when the company admitted it was not in compliance with its credit covenants. Nine banks refused to lend the company additional funds for violation of these covenants in lending agreements. Several shareholders filed a class-action suit in federal court, charging that Autotote's officers and directors had violated certain securities laws. A settlement in 1996 for $11.8 million in cash and preferred stock did not require any admission of guilt on the company's part.
Thomas DeFazio was appointed chief financial officer of Autotote in May 1995 and president and chief operating officer later in the year. He restored the company's relations with its creditors and launched a restructuring program expected to save the company some $15 million by closing its North American lottery headquarters and its plant in Ballymahon, Ireland. In October, DeFazio persuaded Autotote's subordinated debtholders to accept company shares instead of $2.2 million in interest payments that it could not meet.
Nevertheless, Autotote lost $49.9 million in fiscal 1995 on revenues of $153 million. The company attributed $11.6 million of the loss to a restructuring charge taken for the closing of the support facility for lottery operations in Owings Mills, Maryland, and the scaling back of certain international activities, including the closing of the Irish plant. The company also wrote off $6.6 million in investments and assets, including $2.7 million attributable to its Mexican video-gaming-machine contracts and $2.6 million attributable to European wagering terminals. Its long-term debt swelled to $166 million.
During fiscal 1996, Autotote reduced its long-term debt by $6 million and cut its loss to a still substantial $34.2 million on revenues of $176.2 million. Its costs included a $6.6 million litigation-settlements charge. Autotote's stock dropped below $1 a share at one point during the year. In October 1996, the company sold its Autotote CBS Inc. sports-wagering subsidiary, which had provided systems to 107 of the 113 Nevada casinos and to the leading operator of sports-wagering facilities in Mexico. Three months later, Autotote signed a letter of intent to sell its European lottery business, Tele Control, to Scientific Games Holding Corp. for a price estimated at between $25 million and $30 million, using the proceeds to pay off bank debt.
In 1996, Autotote's pari-mutuel wagering systems processed approximately two-thirds of the estimated $20 billion total racing-industry handle (betting volume). Its wagering systems and/or related equipment were installed at more than 100 racetracks in North America, including 10 of the 15 largest, and in more than 800 OTB betting parlors. These company systems were also in use in many of the largest racetracks and OTB parlors in Europe—including all French, German, and Austrian racetracks—Latin America, the Far East, and New Zealand, as well as in eight Atlantic City casinos. In addition, Autotote had installed about 1,300 video-gaming machines in racetracks in West Virginia and Manitoba, Canada.
Autotote was also simulcasting live horse and greyhound racing events to approximately 50 racetracks and more than 850 OTB parlors throughout North America and to Atlantic City casinos. In its simulcasting operations, the company leased satellite transponders and owned decoders used to unscramble the transmission signal. Prior to its decision to sell its lottery operations abroad, Autotote was providing terminals for a nationwide Italian lottery based on horse racing and, with a European partner, designing and installing computer-based lottery systems in six German states. It had also been selling central processing systems and/or terminals for lotteries in Austria, Switzerland, the Netherlands, and Israel. In the United States, Autotote was operating the Connecticut Lottery and providing services to the Massachusetts State Lottery.
Of Autotote's revenues in 1996, services accounted for 78 percent and sales contracts for wagering equipment and software for the remaining 22 percent. The pari-mutuel group (including wagering and simulcasting systems, the Connecticut OTB, video gaming, and casino/sports wagering) accounted for 73 percent of revenues and lottery operations for the remaining 27 percent. The company's long-term debt was $159.7 million at the end of fiscal 1996. Officers and directors held about 26 percent of Autotote's common stock, with director Thomas H. Lee controlling nearly 13 percent.
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