<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For Quarter Ended January 31, 1995 Commission File Number O-7607
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FAIR GROUNDS CORPORATION
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(Exact name of registrant as specified in its charter)
Louisiana 72-0361770
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1751 Gentilly Blvd., New Orleans, LA 70119
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (504) 944-5515
--------------
Not Applicable
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(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by a 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 report(s)), and (2) has been subject to such filing
requirements for the past 90 days.
x Yes No
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469,940 Common Shares were outstanding as of May 1, 1995
<PAGE> 2
FAIR GROUNDS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets, January 31, 1995
and October 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Statements of Operations and
Retained Earnings for the Three
Months Ended January 31, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Cash Flows
for the Three Months Ended
January 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Financial Statements,
January 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion
and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 23
SIGNATURES 24
</TABLE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
<PAGE> 4
FAIR GROUNDS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
January 31 October 31
1995 1994
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,953,699 $ 8,039,310
Accounts receivable 1,388,514 691,760
Investment securities -
available for sale 1,337,921 1,376,297
Insurance proceeds receivable - 487,341
Inventory 96,486 73,858
Deferred income taxes 20,940 20,940
Refundable income taxes 566,289 566,289
Prepaid expenses 553,558 360,387
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Total Current Assets 6,917,407 11,616,182
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OTHER ASSETS 35,574 34,574
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PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 13,670,321 10,206,873
Construction in progress 3,789,586 4,723,474
Land improvements 4,204,526 4,188,282
Temporary facilities 2,678,560 2,680,917
Automotive equipment 783,642 783,642
Machinery and equipment 797,370 680,562
Furniture and fixtures 163,140 155,672
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Total 26,087,145 23,419,422
Less: accumulated depreciation
and amortization 12,383,622 11,886,137
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Depreciable property - net 13,703,523 11,533,285
Land 3,286,281 3,286,281
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Property - net 16,989,804 14,819,566
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TOTAL ASSETS $23,942,785 $26,470,322
=========== ===========
(Continued)
</TABLE>
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<PAGE> 5
FAIR GROUNDS CORPORATION
BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
(Unaudited)
January 31 October 31
1995 1994
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 1,000,000 $ 1,000,000
Accounts payable 741,658 694,827
Contracts payable 309,514 1,654,820
Accrued liabilities:
Deferred purses 3,489,090 5,500,485
Property taxes 235,083 300,000
Uncashed mutuel tickets 323,701 284,388
Other 464,276 247,009
Deferred revenues 641,303 53,580
----------- -----------
Total Current Liabilities 7,204,625 9,735,109
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NOTES PAYABLE 1,000,000 1,000,000
DEFERRED INCOME TAXES 4,199,886 4,199,886
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Total Liabilities 12,404,511 14,934,995
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COMMITMENTS AND CONTINGENCIES - -
----------- -----------
STOCKHOLDERS' EQUITY
Capital stock - no par value;
authorized 600,000 shares,
issued and outstanding
469,940 shares 1,525,092 1,525,092
Additional paid-in-capital 1,942,350 1,942,350
Retained earnings 8,257,157 8,113,858
Unrealized loss on investment
securities - available for sale (140,352) -
----------- -----------
Total 11,584,247 11,581,300
Less: treasury stock at cost,
1,760 shares (45,973) (45,973)
----------- -----------
Total Stockholders' Equity 11,538,274 11,535,327
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $23,942,785 $26,470,322
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE> 6
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For the Three Months Ended January 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
48 Days of 36 Days of
Live Racing Live Racing
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<S> <C> <C>
REVENUES
Pari-mutuel commissions $ 4,643,798 $ 4,835,061
Breakage 92,191 85,090
Uncashed mutuel tickets 46,088 78,038
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Total 4,782,077 4,998,189
----------- -----------
Less: pari-mutuel tax 638,796 760,858
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Commission income 4,143,281 4,237,331
Host track fees 1,391,779 849,098
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Total Mutuel Income 5,535,060 5,086,429
Concessions 610,003 632,558
Admissions (net of taxes) 68,773 162,876
Parking 7,210 30,465
Video poker 290,766 378,252
Programs and forms 410,255 387,667
Miscellaneous 211,002 108,130
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Total Operating Revenues 7,133,069 6,786,377
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RACING EXPENSES
Purses 1,969,408 2,028,909
Salaries and related taxes
and benefits 1,594,579 1,731,339
Contracts and services 747,337 485,919
Host track fees 190,665 194,519
Depreciation 497,484 368,269
Cost of sales - concessions 286,676 199,667
Utilities 126,973 221,263
Repairs and maintenance 107,725 99,648
Program paper, forms and other
supplies 349,097 295,506
Advertising and promotion 225,311 171,400
Rent 62,700 60,100
Miscellaneous 101,147 72,523
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Total Racing Expenses 6,259,102 5,929,062
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(Continued)
</TABLE>
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<PAGE> 7
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (CONTINUED)
For the Three Months Ended January 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
48 Days of 36 Days of
Live Racing Live Racing
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<S> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and related taxes
and benefits $ 338,571 $ 342,066
Insurance 222,022 213,979
Property taxes (23,551) 106,129
Legal, audit and director fees 276,579 126,651
Litigation judgment (188,109) -
Office expenses 96,048 48,233
Miscellaneous 112,912 37,843
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Total General and
Administrative Expenses 834,472 874,901
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INCOME (LOSS) FROM OPERATIONS 39,495 (17,586)
OTHER INCOME (EXPENSE)
Interest expense (52,294) (125,810)
Interest income 52,098 14,281
Equity in loss from unconsolidated
investments in affiliates - (11,873)
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INCOME (LOSS) BEFORE MINORITY
INTEREST, EXTRAORDINARY ITEM,
AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING FOR
INVESTMENTS 39,299 (140,988)
Minority interest in earnings of subsidiary - (16,759)
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INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING FOR
INVESTMENTS 39,299 (157,747)
(Continued)
</TABLE>
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<PAGE> 8
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (CONTINUED)
For the Three Months Ended January 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
48 Days of 36 Days of
Live Racing Live Racing
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<S> <C> <C>
Extraordinary item - insurance proceeds
in excess of book value of assets
destroyed by fire - 12,162,709
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Charge for Cumulative Effect of
Change in Accounting for
Investments 104,000 -
NET INCOME 143,299 12,004,962
RETAINED EARNINGS,
BEGINNING OF PERIOD 8,113,858 399,929
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RETAINED EARNINGS, END OF PERIOD $ 8,257,157 $12,404,891
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 469,940 469,940
=========== ===========
PER SHARE OF COMMON STOCK:
Income (loss) before extraordinary
item and cumulative effect of
change in accounting for investments $ 0.08 $ (0.34)
Extraordinary item .- 25.88
Charge for cumulative effect of change
in accounting for investments 0.22 .-
---------- ----------
Net Income $ 0.30 $ 25.54
========== ==========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 9
FAIR GROUNDS CORPORATION
STATEMENTS OF CASH FLOWS
For the Three Months Ended January 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 39,299 $12,004,962
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Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Extraordinary item - gain from
fire - (12,162,709)
Depreciation 497,484 368,269
Minority interest in earnings of
subsidiary - 16,759
Equity in loss from unconsolidated
investments in affiliates - 11,873
Unrealized loss on marketable equity
securities 2,025 -
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable (696,754) (474,688)
Accounts receivable - insurance
proceeds 487,341 -
Inventory (22,628) 49,902
Prepaid expenses (193,171) (178,205)
Restricted cash - 7,505
Other - (1,788)
Increase (decrease) in:
Accounts payable and
accrued liabilities (1,106,812) 1,435,607
Deferred revenues (55,500) (41,132)
Deferred purses (2,011,395) (877,611)
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Total adjustments (3,099,410) (11,846,218)
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Net cash provided by (used
for) operating activities (3,060,111) 158,744
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(Continued)
</TABLE>
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<PAGE> 10
FAIR GROUNDS CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
For the Three Months Ended January 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
CASH FLOWS FROM (USED FOR)
INVESTING ACTIVITIES
Capital expenditures (2,667,723) (2,358,914)
Deposits (1,000) 535
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Net cash used for
investing activities (2,668,723) (2,358,379)
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CASH FLOWS FROM FINANCING ACTIVITIES
Advances from third party 1,000,000 1,000,000
Repayments to third party (356,777) (111,000)
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Net cash provided by
financing activities 643,223 889,000
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NET DECREASE IN CASH AND
CASH EQUIVALENTS (5,085,611) (1,310,635)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 8,039,310 4,484,608
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 2,953,699 $ 3,173,973
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 52,294 $ 125,810
=========== ===========
Non-Cash Activity:
Accrued insurance proceeds $ - $16,617,723
=========== ===========
Net assets destroyed by fire $ - $ 4,455,014
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-7-
<PAGE> 11
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Three Months Ended January 31, 1995 and 1994
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
In March 1994, the Company sold its interests in Intertrack Partners of
Madison, Rapides, and Ouachita Parishes partnerships and FAST, Inc., including
all obligations owed to the Company by such partnerships and FAST, Inc., to
Delta Downs Racing Association. Prior to such date, the Company owned a
majority partnership interest in Intertrack Partners of Madison Parish
("Madison") and accordingly, the Company's financial statements for the three
months ended January 31, 1994 are presented on a consolidated basis with the
financial statements of Madison. All significant intercompany accounts and
transactions were eliminated in consolidation in that period.
NOTE 2 - EXTRAORDINARY ITEM - THE DECEMBER 17, 1993 FIRE
On December 17, 1993, a fire completely destroyed the grandstand area at the
Fair Grounds Race Course. Included in that area was the grandstand with a
seating capacity of approximately 10,000, the racing paddock, and substantially
all of the administrative, racing operations and other offices of the Company.
Also destroyed were numerous racing artifacts, computer, printer, and
totalisator equipment, and the Company's financial, operating, personnel and
other records. The clubhouse area, which seats approximately 2,500 persons was
not destroyed, but sustained substantial water and smoke damage, which has
rendered this facility useless. As a result of the fire, the Company and its
tele-tracks were forced to cease operations for ten racing days until temporary
facilities could be installed. Temporary facilities were installed at an
aggregate cost of approximately $2.68 million. The Company reopened its
tele-track facilities on December 29, 1993 and resumed live racing operations
on January 5, 1994.
The net book value of assets destroyed in the fire was approximately $4.5
million. The Company believes that its property and casualty insurance
policies provide coverage in the aggregate amount of approximately $34 million
for buildings, contents, fixtures, equipment, items of personal property, loss
of income from operations ("business interruption"), and loss of works of art.
The Company submitted claims to its insurance carriers and to date has
recovered an aggregate of $19,325,897. The Company has filed a civil action
against certain of its insurance carriers to recover an additional approximate
$14.8 million. (See Note 3 below as to fire related litigation.)
-8-
<PAGE> 12
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Three Months Ended January 31, 1995 and 1994
(Unaudited)
NOTE 2 - EXTRAORDINARY ITEM - THE DECEMBER 17, 1993 FIRE (CONTINUED)
As a result of the fire, the Company recorded in the quarter ended January 31,
1994 an extraordinary gain of $12.2 million, resulting from insurance proceeds
in excess of the net book value of the assets destroyed by the fire.
At January 31, 1994, the Company owed, in the aggregate, the principal amount
of $7,000,000 to Louie J. Roussel, III and Victory Life Insurance Company, who
held collateral mortgages on the Company's equipment and real property as
security for the debt. As a result of the fire, Mr. Roussel, III and Victory
Life Insurance Company renegotiated the indebtedness and during 1994, the
Company paid $5,000,000 of the debt using proceeds of the Company's fire
insurance. The Company was scheduled to pay an additional $1 million by March
31, 1995; however, such payment has been extended. The remaining $1,000,000 of
the indebtedness is to be paid at the closing of the construction loan.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
Fire Related Litigation
The Company is a party to a number of legal proceedings which have arisen as a
result of the December 1993 fire or in connection with the Company's efforts to
collect insurance proceeds after the fire. The following is a brief
description of such fire-related proceedings:
1. On May 14, 1994 the Company filed an action in the 24th Judicial District
Court in the State of Louisiana against Travelers Indemnity Company of
Illinois ("Travelers"), Powell Insurance Agency and others. The Company
contends that the insurance policy provided by Travelers provides the
Company with blanket coverage in the amount of $24.1 million in excess of
the $10 million of underlying coverage provided by Allianz Underwriters
Insurance Company ("Allianz") and Royal Indemnity Company ("Royal");
accordingly, the Company maintains that Travelers is liable for the
difference between $24.1 million and the amount already paid
(approximately $9.3 million), plus statutory penalties of 10% of the
amount not paid, interest, attorney's fees and costs. The Company further
contends that, in the event the court determines that the amount of
coverage is less than that claimed by the Company, then Powell Insurance
Agency is liable to the Company for any damages. Travelers' position is
that the excess policy did not provide blanket coverage, and that its
liability under such policy is limited to the amount which it has already
paid.
-9-
<PAGE> 13
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Three Months Ended January 31, 1995 and 1994
(Unaudited)
NOTE 3 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Travelers filed a separate action in June 1994 in the U.S. District Court
for the Eastern District of Louisiana, asking for a declaratory judgment
that the policy did not provide blanket coverage. The state court
proceedings were temporarily stayed; however, the federal court action has
now been dismissed and the state court action is proceeding.
2. The Company filed an action against Allianz in March 1994 in the Civil
District Court for Orleans Parish. Such action was removed from State
Court to the U.S. District Court for the Eastern District of Louisiana by
Allianz. The Company contends that Allianz, which was the Company's
primary insurer, failed to pay the policy benefits of $5 million on a
timely basis, thereby subjecting it to statutory penalties of 10% of the
amount not paid, plus interest, attorney's fees and costs. The Company
also alleges that Allianz acted in bad faith in its handling of the claim.
The action was scheduled for trial commencing on April 3, 1995, however,
such matter was settled out of court in March 1995 resulting in a payment
to the Company.
3. The Company filed an action against Royal in December 1994, in the U.S.
District Court for the Eastern District of Louisiana, alleging that Royal
also failed to pay on a timely basis under its policy. The issues in this
proceeding are substantially similar to the issues in the litigation
against Allianz described above, and the action has been assigned to the
same judge.
4. The Company filed an action in December 1994, in the Civil District Court
for Orleans Parish, against ADT Security Systems, the company which
provided and maintained the fire alarm system at the Fair Grounds Race
Course, and other defendants. The complaint seeks unspecified damages,
not otherwise compensated for by insurance, that were allegedly caused by
the negligence of one or more of the defendants.
5. The Company is a defendant, along with its general liability insurance
carrier, United National Insurance Company, in a civil action filed in
December 1994 in the United States District Court for the Eastern District
of Louisiana by St. Paul Mercury Insurance Company, the insurer for
AutoTote. The complaint alleges that such insurance company is subrogated
to the rights of AutoTote to collect damages, and that it has paid
AutoTote in excess of $1 million for the loss of totalisator equipment at
the Fair Grounds Race Course which was destroyed in the fire.
Subsequently, United has filed suit against the Company seeking a
declaratory judgment that the subrogation claim and certain other third
party claims are not covered by United's general liability policy. The
Company filed a counter claim seeking a ruling that such coverage exists.
-10-
<PAGE> 14
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Three Months Ended January 31, 1995 and 1994
(Unaudited)
NOTE 3 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
As to items 1 - 4 described above, there can be no assurance that the Company
will be successful in any of its claims.
It is possible that additional third parties who owned property which was
destroyed in the fire will make a claim against the Company or the Company's
insurance carriers for the loss of their property, or that any insurance
carrier for such third parties will be subrogated to any claim that such third
parties may have against the Company for loss of their property. Accordingly,
no assurance can be given that additional recoveries of insurance proceeds, if
any, will reimburse the Company adequately for the loss or destruction of its
property in the fire.
Except as described above, there are no material pending legal proceedings,
other than ordinary routine litigation incidental to its business, to which the
Company is a party or of which any of its property is the subject.
Completed and Planned Construction
The Company believes that it will be necessary to maintain the temporary
facilities through the beginning of the 1995-96 racing season. However, the
Company is committed to the rebuilding of the Fair Grounds Race Course. To
that end, the Company completed and opened a new tele-track facility at the
Fair Grounds Race Course in December 1994 and has commenced the construction of
a new grandstand building.
The new tele-track facility and temporary clubhouse area was opened on December
22, 1994. It is a two-story building of concrete and steel construction,
aggregating approximately 20,000 square feet. Construction of the tele-track
facility commenced in July 1994. The total cost for debris removal and the
construction of the tele-track was approximately $3.2 million.
During the Summer of 1994, the Company approved the plans for a new main
facility, and commenced construction of the foundation thereof in August 1994.
The plans call for the facility to be principally a multi-tiered concrete and
steel structure, with a total capacity of approximately 10,000. It is
anticipated that the size of the new facility, together with the new tele-track
building just completed, will be 220,000 square feet in the aggregate. The old
facility contained over 300,000 square feet. It is anticipated that
-11-
<PAGE> 15
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Three Months Ended January 31, 1995 and 1994
(Unaudited)
NOTE 3 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
the foundation for the main facility will be completed in the Spring of 1995.
The total cost of the facility, together with furniture, fixtures, equipment
and certain fees and permit costs, is currently anticipated to be approximately
$24.3 million, in addition to the cost of the tele-track facility.
Construction Financing
During 1994, the Louisiana legislature passed, and Governor Edwards signed, an
act which provides that owners of video poker devices that are located in
licensed establishments owned or operated by licensed racing associations
eligible for emergency relief under the statute are exempt from the franchise
payment otherwise due under the Video Draw Poker Devices Control Law for a
period not to exceed 15 years. The amount of the franchise payment which
otherwise would have been paid to the State of Louisiana during the exemption
period is to be remitted directly to the licensed racing association, in an
amount up to $2.5 million annually, and such funds are to be used for providing
emergency relief to the licensed racing association. The use of funds by the
licensed racing association is subject to review and oversight by a legislative
committee, which may reduce the amount of the authorized exemption if the
racing association cannot satisfy the committee that the exemption is necessary
for its ongoing economic viability. The legislation also provides that at such
time as the emergency relief granted under the act exceeds the required annual
debt service on any indebtedness incurred to address the emergency situation,
such indebtedness not to exceed $25 million, the excess of such funds is to be
remitted to the state treasury.
The total amount of funds required for the construction of the new tele-track
and grandstand facility is approximately $27.5 million. Of such amount, the
Company has utilized insurance proceeds of approximately $4 million to complete
debris removal, construct the tele-track facility and commence construction of
the grandstand facility. Of the remaining $23.5 million presently anticipated
to be required, the Company has received commitments from the sources described
below for financing in the aggregate amount of $21 million and, as described
below, the Company is negotiating a possible commitment by AutoTote to lend or
advance an additional $2.5 million.
-12-
<PAGE> 16
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Three Months Ended January 31, 1995 and 1994
(Unaudited)
NOTE 3 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company has received and accepted a commitment dated February 6, 1995, from
First National Bank of Commerce ("FNBC") of New Orleans for a non-revolving
line of credit to be used as an interim construction loan, convertible to a
term loan. The principal amount of the loan is to be lesser of (i) $17.5
million, (ii) 65% of the total cost of construction of the new facility or
(iii) 65% of the total appraised value of the Fair Grounds Race Course which
value is $29 million according to an appraisal prepared in October 1994 on
behalf of FNBC. The interim construction loan is to bear interest at the prime
rate plus 1/2% per annum, with interest payable monthly, and the entire
principal balance and all accrued and unpaid interest payable upon the earlier
of one year from the date of the loan or the completion of construction. The
term loan will be in an amount equal to the outstanding principal balance due
on the construction loan on the maturity date thereof, and will bear interest
at the prime rate plus 1% per annum. The term loan will be payable in monthly
installments of principal and interest, based on a 15 year amortization;
however, the loan will mature five years from the closing of the interim
construction loan. Notwithstanding such payment terms, the minimum debt
service on the loan will not be less than $2.5 million during any year in which
the video poker franchise tax rebates described above are available to the
Company.
The commitment from FNBC provides that the interim construction loan and term
loan are to be secured by, among other things, the following: (i) a mortgage
lien and security interest in all land, buildings, equipment, fixtures,
furnishings and improvements at both the Fair Grounds Race Course and at the
former Jefferson Downs racing facility; (ii) a security interest in and
assignment of the video poker franchise tax rebates described above; (iii) an
assignment of all contracts to operate the Company's tele-tracks; (iv) a
security interest in and pledge of the common shares of the Company held by the
Masoni Trust and the Krantz family; and (v) a security interest in and pledge
of all insurance proceeds, which are to be applied upon receipt as a mandatory
prepayment of the loan.
The commitment from FNBC is subject to the execution and delivery of definitive
documentation, and to several other conditions, including a satisfactory
appraisal and an environmental assessment of the Fair Grounds Race Course and
the former Jefferson Downs racing facility. Although the commitment provides
that the interim construction loan was to be closed on or before March 31,
1995, the parties have extended such closing date.
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<PAGE> 17
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Three Months Ended January 31, 1995 and 1994
(Unaudited)
NOTE 3 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company also has received a commitment from Video Services, Inc. (VSI) to
provide a non-interest bearing loan in the principal amount of $1.5 million, in
consideration for which the Company is to agree to extend both the term of the
agreement with VSI and the term of the option period thereunder by two years.
The Company has also received an advance of $1 million under its agreement with
VSI. The loan from VSI is conditioned upon the closing of the anticipated bank
financing.
In addition to the foregoing, Marie G. Krantz has committed to make a $1
million loan to the Company, which would be subordinate in right to payment to
the FNBC financing described above. Although specific terms of such loan have
not been discussed, it is likely that the loan will be interest-bearing, and
that payments will be made after the repayment of the FNBC financing. The
Company is also engaged in discussions with AutoTote concerning a possible
commitment by AutoTote to lend or advance $2.5 million to the Company, such
amount to be repaid through a subordinated loan arrangement or through an
extension of the lease terms relating to the totalisator equipment.
In the event that all of the financing described above is obtained, the Company
believes that it will be able to complete the construction of its new facility
as presently planned, and that cash from operations together with the annual
video poker franchise tax rebates, will be sufficient to pay the principal of,
and interest on, such indebtedness. It should be noted that the Company
currently is negotiating the terms and conditions of the definitive agreements
relating to such financing, and there can be no assurance that the definitive
agreements will be in accordance with the terms described above.
-14-
<PAGE> 18
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Comparison of the Three Months Ended January 31, 1995 and 1994
General Note. As previously reported, on the night of Friday, December 17,
1993, the 17th racing day in the Company's 87 racing day schedule for 1993-94,
after the conclusion of live racing for the day at the Fair Grounds Race
Course, a fire swept through and destroyed the main grandstand building and all
of its contents. Included in that area was the grandstand with a seating
capacity of approximately 10,000, the racing paddock, and substantially all of
the administrative, racing operations, and other offices of the Company. As a
result of the fire, racing operations at the Fair Grounds Race Course, and all
operations at the Company's tele-track facilities, were temporarily suspended.
Immediately after the fire, management determined that it would be in the
Company's best interest to attempt to reopen the Fair Grounds Race Course, in
order to continue the live racing schedule, as soon as possible. Accordingly,
during the remainder of December 1993, the Company made arrangements for the
installation of temporary racing and patron facilities. During the two and
one-half week period from the date of the fire to January 5, 1994, the
temporary facilities were installed and the property was readied for the
reopening of racing. Tele-track operations were reopened on December 29, 1993,
and the Fair Grounds Race Course was reopened for live racing on January 5,
1994.
Intertrack Partners of Madison Parish. For the quarter ended January 31, 1994,
the Company consolidated the financial statements of Intertrack Partners of
Madison Parish (Madison) due to the Company's ownership of 66.66% of such
partnership. In March 1994, the Company sold its partnership interest in
Madison and accordingly, the Company no longer consolidates such partnership's
financial statements.
Revenues. During the quarters ended January 31, 1995 and 1994, the Company
derived its pari-mutuel income and other operating revenues by conducting live
racing meets of 48 and 36 days, respectively, and in the operation of
tele-tracks for off-track wagering. The significant difference in the number of
racing days was attributable to the suspension of operations during the quarter
ended January 31, 1994 as a result of the fire. For the quarters ended January
31, 1995 and 1994, the Company also operated tele-tracks in New Orleans at the
Fair Grounds Race Course and on Bourbon Street, and at locations in Lafourche,
St. Bernard and St. John Parishes, Louisiana. Through Finish Line Management
Corporation ("Finish Line"), an affiliate, the Company operated tele-track
facilities in Terrebonne, St. Tammany and Jefferson Parishes, Louisiana, which
were formerly operated by Jefferson Downs Corporation.
-15-
<PAGE> 19
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Comparison of the Three Months Ended January 31, 1995 and 1994
The Company's net income for the quarter ended January 31, 1995 was $143,299
compared to net income of $12,004,962 for the quarter ended January 31, 1994.
The significant difference in net income for the two quarters is the direct
result of the Company's recognition during 1994 of an extraordinary gain
attributable to the Company's claims for insurance proceeds arising from the
December 1993 fire. The Company recorded in the fiscal quarter ended January
31, 1994 an extraordinary gain of $12.2 million, comprised of insurance
proceeds of $16,617,723 partially offset by a loss of $4,455,014, which
represents the net book value of assets destroyed by the fire.
For the quarter ended January 31, 1995, the Company's income from operations
was $39,495 compared to a loss of $17,586 for the quarter ended January 31,
1994. The increase in income is primarily attributable to an increase in
operating revenues, a decline in general and administrative expenses and a
decline in other expense from the quarter ended January 31, 1994.
For the quarter ended January 31, 1995, the Company experienced a $740,319 or
11.8% increase in operating revenues from the comparable quarter in fiscal
1994. The increase in operating revenues is primarily the result of an
increase in commission income of $288,685 and an increase in host track fees of
$470,389. (The comparison of operating revenues and its components is based on
unconsolidated numbers for the fiscal 1994 quarter.) The increase in
commission income is due to an increase in total on-track wagering of
$1,092,843 partially offset by a slight decline in off-track wagering of
$80,050. Host track fee revenue increased from the quarter ended January 31,
1994 due to an increase in wagering on the Company's live races from
out-of-state markets.
Comparative pari-mutuel wagering and attendance figures for the quarters ended
January 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
For the quarter ended January 31,
---------------------------------
1995 1994
------------ ------------
<S> <C> <C>
PARI-MUTUEL WAGERING
On-track $13,306,190 $12,213,347
Off-track In-state 6,504,649 8,438,472
Off-track Out-of-state 3,728,130 1,874,357
----------- -----------
$23,538,969 $22,526,176
=========== ===========
Out-of-state wagering on
the Company's live races $46,850,914 $22,428,091
=========== ===========
Total on-track attendance* 134,471 133,787
=========== ===========
</TABLE>
*NOTE: Attendance figures for on-track subsequent to the reopening of the
Fair Grounds Race Course are estimated.
-16-
<PAGE> 20
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Comparison of the Three Months Ended January 31, 1995 and 1994
Despite the additional 12 days of live racing in the quarter ended January 31,
1995, the Company's total on-track wagering increased only $1,092,843 or 8.9%
from the comparable fiscal 1994 quarter. The 8.9% increase in wagering is due
to the additional live race days offset by the significant decline in the
Company's on-track average daily wagering subsequent to the fire. Prior to the
fire, the Company's average daily on-track wagering was $439,369 compared to a
post-fire average of $250,000. For the quarter ended January 31, 1994, the
Company operated 17 days of live racing prior to the fire. Management
attributes the decline in the Company's on-track average daily wagering
primarily to patron inconveniences associated with the temporary facilities.
For the quarter ended January 31, 1995, the Company realized its most
significant increase in operating revenues from host track fee income. In the
current fiscal quarter, the Company experienced a $24,422,823 or 108.9%
increase in out-of-state wagering on the Company's live races. The increase is
primarily due to the Company's simulcasting its live races to various race
tracks in Kentucky, a market which was not available in the previous fiscal
quarter.
Programs and forms revenue increased from the previous comparable quarter due
to the 12 additional live race days. Admissions and parking revenue declined
from the quarter ended January 31, 1994 as a result of the Company's
elimination of a general admission charge to the temporary facility and the
elimination of its parking charge, with the exception of valet parking. Video
poker revenue declined as a result of competition from other forms of gaming in
the State of Louisiana.
Race Related Expenses. For the quarter ended January 31, 1995, the Company
experienced an increase in racing expenses of $330,040 or 5.6% from the quarter
ended January 31, 1994. The increase in race related expenses is primarily the
result of increases in contracts and services, depreciation expense, and
advertising and promotions, offset by declines in salaries and related taxes
and benefits and utility expense.
-17-
<PAGE> 21
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Comparison of the Three Months Ended January 31, 1995 and 1994
Purse expense for the quarter ended January 31, 1995 increased $92,427 or 5.3%
from the fiscal 1994 quarter as a result of an increase in on-track pari-mutuel
wagering. (The comparison of purse expense is based upon unconsolidated
numbers for the fiscal 1994 quarter.) Contracts and services increased
$279,977 or 60% from the quarter ended January 31, 1994 primarily due to the
additional number of race days in the quarter ended January 31, 1994. In
addition, due to the destruction of accounting records and files as a result of
the December 1993 fire, management estimated certain contracts and services
expense based on all information available as of the date of filing of the
Quarterly Report on Form 10-Q for the quarter ended January 31, 1994.
Subsequently, actual invoices and data became available which indicated that
such expenses exceeded management's original estimates. Depreciation expense
for the first quarter of fiscal 1995 increased $144,239 or 41% from the quarter
ended January 31, 1994 due to depreciation associated with the Company's
expenditure of $2.68 million for temporary facilities, which have a useful life
of approximately 30 months. Advertising and promotion expense increased
$53,911 or 31.4% due to the increase in the number of racing days for the
quarter ended January 31, 1995. Salaries and related taxes and benefits
declined $67,159 or 4% due to a reduction in the number of employees as a
result of the operation of a smaller, temporary facility. Utility expense
declined $86,793 or 40.6%, also as a result of the operations of a smaller
facility.
General and Administrative Expenses. General and administrative expenses for
the quarter ended January 31, 1995 declined $24,839 or 2.9% from the previous
comparative quarter primarily due to the Company's recognition in the current
year quarter of a favorable litigation settlement in the amount of $188,109, a
decline in property tax expense in the current year quarter of $129,680 or
122%, partially offset by an increase in legal, audit and director fees in the
current year quarter of $149,928 or 118%, and an increase in office expense and
miscellaneous expense in the current year quarter of $47,815 and $75,069,
respectively.
During the quarter ended January 31, 1995, the Company received settlement
monies totalling $188,109 from one of its former insurance carriers which
currently is in liquidation. The monies represent the Company's pro-rata
distribution for claims paid by the Company as a result of the insolvency of
this insurance carrier.
-18-
<PAGE> 22
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Comparison of the Three Months Ended January 31, 1995 and 1994
For the quarter ended January 31, 1995, the Company realized a significant
decline in property tax expense due to a partial reversal in the current year
quarter of an estimated amount of property tax expense for the fiscal year
ended October 31, 1994. As of the date of issuance of the Company's fiscal
1994 financial statements, the City of New Orleans had not finalized the
Company's 1994 property tax bill due to complications with assessed values as a
result of the December 1993 fire. The Company accrued and reported for the
fiscal year ended October 31, 1994 an estimated $300,000 in property tax
liability. In February 1995, the City of New Orleans determined that the
Company's property tax liability for 1994 would be $217,000, resulting in
income of $83,000 in the fiscal quarter ended January 31, 1995.
Legal, audit and director fees in the first quarter of fiscal 1995 increased
$149,928 or 118% from the previous comparable quarter primarily due to
increases in legal fees with respect to the Company's obtaining financing for
construction and with respect to litigation with the Company's insurance
carrier.
Office expense and miscellaneous expense increased from the quarter ended
January 31, 1994 as a result of increases in telephone expense, contracts and
services, and travel and entertainment.
Other Income (Expense). For the quarter ended January 31, 1995, other income
(expense) was $(196), a decrease of net expense of $123,206 primarily due to a
decline in interest expense of $73,516 or 58.4%, and an increase in interest
income of $37,817 or 264%. Interest expense declined due to a $5 million
payment on notes payable to Louie Roussel, III and Victory Life Insurance
Company in January 1994. Interest income increased from the previous
comparable quarter due to an increase in cash available for investing as a
result of fire insurance proceeds received by the Company.
Liquidity and Capital Resources
Cash Flows. Cash and cash equivalents decreased $5,085,611 during the quarter
ended January 31, 1995 compared to a decrease of $1,310,635 during the previous
fiscal quarter. The decrease in cash and cash equivalents in the first quarter
of fiscal 1995 was the result of cash used for operating activities of
$3,060,111, and cash used for investing activities of $2,668,723, partially
offset by net cash provided by financing activities of $643,223. The cash used
for operating activities was primarily the result of cash used to pay purses
during the live racing season. The cash used for investing activities was due
to capital expenditures for the construction of the new tele-track facility as
well as capital expenditures for the new grandstand foundation. Cash provided
from financing activities was the result of a $1 million advance received by
the Company from Video Services, Inc. (VSI) according to the terms of the
Company's agreement with VSI, offset by the Company's payments to VSI.
-19-
<PAGE> 23
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Comparison of the Three Months Ended January 31, 1995 and 1994
As of March 31, 1995, the Company has received $19,325,897 in insurance
proceeds resulting from fire loss claims submitted to the Company's independent
carriers. As previously reported, the Company has filed suit against certain
of its insurance carriers seeking to recover an additional $14.8 million under
its insurance policies.
The Company has completed the removal of debris from the site of the destroyed
grandstand building and has completed construction of a tele-track facility on
the site at a cost of $3.2 million. The facility was constructed with Company
funds, including insurance proceeds received to date. The Company has begun
construction on the foundation of the new grandstand and clubhouse facility.
The total costs of the facility, together with furniture, fixtures, equipment,
and certain fees and permit cost, is currently anticipated to be approximately
$24.3 million, in addition to the cost of the tele-track facility.
During 1994, the Louisiana legislature passed, and Governor Edwards signed, an
act which provides that owners of video poker devices that are located in
licensed establishments owned or operated by licensed racing associations
eligible for emergency relief under that act are exempt from the franchise
payments otherwise due under the video poker law for a period not to exceed 15
years. The amount of the franchise payments which otherwise would have been
paid to the State is to be remitted directly to the licensed racing
association, in an amount up to $2.5 million annually, and such funds are to be
used for providing emergency relief to the licensed racing association. The
use of funds by the licensed racing association is subject to review and
oversight by a legislative committee, which may reduce the amount of the
exemption if the racing association cannot satisfy the committee that the
exemption is necessary for its ongoing economic viability. In December 1994,
the Company became eligible for emergency relief under the act.
As described elsewhere herein, the Company has utilized insurance proceeds of
approximately $4 million to complete debris removal, construct the new
tele-track facility and commence construction of the new grandstand facility.
It is presently anticipated that the Company will require approximately $23.5
million to complete such construction. To date, the Company has received
commitments from several sources for financing in the aggregate amount of $21
million. In the event that all of the financing and proposed financing
described herein is obtained, the Company believes that it will be able to
complete the construction of its new facility as planned, and that cash from
operations together with the annual video poker franchise tax rebates, will be
sufficient to pay the principal of, and interest on, such indebtedness.
-20-
<PAGE> 24
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Comparison of the Three Months Ended January 31, 1995 and 1994
The Company has received and accepted a commitment letter dated February 6,
1995 from First National Bank of Commerce (FNBC) of New Orleans for a
non-revolving line of credit to be used as an interim construction loan,
convertible to a term loan. The principal amount of the loan is to be the
lesser of (i) $17.5 million, (ii) 65% of the total cost of construction of the
new facility, or (iii) 65% of the total appraised value of the Fair Grounds
Race Course, which value is $29 million, according to an appraisal prepared in
October 1994 on behalf of FNBC. The interim construction loan is to bear
interest at the prime rate plus 1/2% per annum, with interest payable monthly,
and the entire principal balance and all accrued and unpaid interest payable
upon the earlier of one year from the date of the loan or the completion of
construction. The term loan will be in an amount equal to the outstanding
principal balance due on the construction loan on the maturity date thereof,
and will bear interest at the primae rate plus 1% per annum. The term loan
will be payable in monthly installments of principal and interest, based on a
15 year amortization; however, the loan will mature five years from the closing
of the interim construction loan. Notwithstanding such payment terms, the
minimum debt service on the loan will not be less than $2.5 million during any
year in which the video poker franchise tax rebates are available to the
Company.
The commitment from FNBC provides that the interim construction loan and term
loan are to be secured by, among other things, the following: (i) a mortgage
lien and security interest in all land, buildings, equipment, fixtures,
furnishings and improvements at both the Fair Grounds Race Course and at the
former Jefferson Downs racing facility; (ii) a security interest in and
assignment of the video poker franchise tax rebates described above; (iii) an
assignment of all contracts to operate the Company's tele-tracks; (iv) a
security interest in and pledge of the common shares of the Company held by the
Masoni Trust and the Krantz family; and (v) a security interest in and pledge
of all insurance proceeds, which are to be applied upon receipt as a mandatory
prepayment of the loan.
The commitment from FNBC is subject to the execution and delivery of definitive
documentation, and to several other conditions, including a satisfactory
appraisal and an environmental assessment of the Fair Grounds Race Course and
the former Jefferson Downs racing facility. Although the commitment provides
that the interim construction loan was to be closed on or before March 31,
1995, the parties have agreed to an extension.
-21-
<PAGE> 25
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Comparison of the Three Months Ended January 31, 1995 and 1994
The Company has also received a commitment from VSI to provide a non-interest
bearing loan in the principal amount of $1.5 million, in consideration for
which the Company is to agree to extend both the term of the agreement with VSI
and the term of the option period thereunder by two years. The Company also
has received an advance of $1 million under its agreement with VSI. The loan
from VSI is conditioned upon closing of the anticipated bank financing.
In addition to the foregoing, Marie G. Krantz has committed to make a $1
million loan to the Company, which would be subordinate in right to payment to
the FNBC financing described above. Although specific terms of such loan have
not been determined, it is likely that the loan will be interest-bearing, and
that payments will be made after the repayment of the FNBC financing. The
Company is also engaged in discussions with AutoTote concerning a possible
commitment by AutoTote to lend or advance $2.5 million to the Company, such
amount to be repaid through a subordinated loan arrangement or through an
extension of the lease terms relating to the totalisator equipment.
In the event that all of the financing described above is obtained, the Company
believes that it will be able to complete the construction of its new facility
as presently planned, and that cash from operations together with the annual
video poker franchise tax rebates, will be sufficient to pay the principal of,
and interest on, such indebtedness. It should be noted that the Company
currently is negotiating the terms and conditions of the definitive agreements
relating to such financing, and there can be no assurance that the definitive
agreements will be in accordance with the terms described above.
IMPACT OF INFLATION
To date, inflation has not had a material effect in the Company's operations.
-22-
<PAGE> 26
PART II
OTHER INFORMATION
<PAGE> 27
Item 6. Exhibits and Reports on Form 8-K
27 - Financial Data Schedule (for SEC use only)
-23-
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FAIR GROUNDS CORPORATION
-----------------------------------
(Registrant)
Date: May 12, 1995 By: /s/ Bryan G. Krantz
--------------------------------
Bryan G. Krantz
President
Date: May 12, 1995 By: /s/ Gordon M. Robertson
--------------------------------
Gordon M. Robertson
Chief Financial Officer
-24-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> JAN-31-1995
<CASH> 2,954
<SECURITIES> 1,338
<RECEIVABLES> 1,389
<ALLOWANCES> 0
<INVENTORY> 96
<CURRENT-ASSETS> 6,917
<PP&E> 26,087
<DEPRECIATION> 12,384
<TOTAL-ASSETS> 23,943
<CURRENT-LIABILITIES> 7,205
<BONDS> 1,000
<COMMON> 1,525
0
0
<OTHER-SE> 11,538
<TOTAL-LIABILITY-AND-EQUITY> 23,943
<SALES> 4,782
<TOTAL-REVENUES> 7,133
<CGS> 0
<TOTAL-COSTS> 6,259
<OTHER-EXPENSES> 834
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52
<INCOME-PRETAX> 39
<INCOME-TAX> 0
<INCOME-CONTINUING> 39
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 104
<NET-INCOME> 143
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
