<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 April 30, 1995 Commission File Number O-7607
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FAIR GROUNDS CORPORATION
------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Louisiana 72-0361770
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1751 Gentilly Blvd., New Orleans, LA 70119
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(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number including area code (504) 944-5515
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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
----- -----
468,180 Common Shares were outstanding as of June 30, 1995.
<PAGE> 2
FAIR GROUNDS CORPORATION
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet, April 30, 1995 (Unaudited)
and Balance Sheet, October 31, 1994 . . . . . . . . . . . . . . . . . 1
Statements of Operations and Retained
Earnings for the Three Months Ended
April 30, 1995 and 1994 (Unaudited) . . . . . . . . . . . . . . . . . 3
Statements of Operations and Retained
Earnings for the Six Months Ended
April 30, 1995 and 1994 (Unaudited) . . . . . . . . . . . . . . . . . 6
Statements of Cash Flows for the Six
Months Ended April 30, 1995 and 1994
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Notes to Financial Statements (Unaudited) . . . . . . . . . . . . . . 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 24
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
<PAGE> 4
FAIR GROUNDS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
April 30 October 31
1995 1994
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,147,199 $ 8,039,310
Accounts receivable 921,505 691,760
Investment securities -
available for sale 1,387,287 1,376,297
Insurance proceeds receivable - 487,341
Inventory 77,724 73,858
Deferred income taxes 20,940 20,940
Refundable income taxes 113,461 566,289
Prepaid expenses 423,321 360,387
----------- -----------
Total Current Assets 4,091,437 11,616,182
----------- -----------
OTHER ASSETS 40,749 34,574
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 13,731,328 10,206,873
Construction in progress 4,806,110 4,723,474
Land improvements 4,215,076 4,188,282
Temporary facilities 2,679,369 2,680,917
Automotive equipment 783,642 783,642
Machinery and equipment 792,685 680,562
Furniture and fixtures 167,933 155,672
----------- -----------
Total 27,176,143 23,419,422
Less: accumulated depreciation
and amortization 12,914,439 11,886,137
----------- -----------
Depreciable property - net 14,261,704 11,533,285
Land 3,286,281 3,286,281
----------- -----------
Property - net 17,547,985 14,819,566
----------- -----------
TOTAL ASSETS $21,680,171 $26,470,322
=========== ===========
</TABLE>
(Continued)
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<PAGE> 5
FAIR GROUNDS CORPORATION
BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
(Unaudited)
April 30 October 31
1995 1994
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 2,000,000 $ 1,000,000
Accounts payable 720,540 694,827
Contracts payable 514,773 1,654,820
Accrued liabilities:
Deferred purses 1,187,082 5,500,485
Property taxes 289,326 300,000
Uncashed mutuel tickets 256,968 284,388
Other 444,766 247,009
Deferred revenues 14,430 53,580
----------- -----------
Total Current Liabilities 5,427,885 9,735,109
----------- -----------
NOTES PAYABLE - 1,000,000
DEFERRED INCOME TAXES 4,199,886 4,199,886
----------- -----------
Total Liabilities 9,627,771 14,934,995
----------- -----------
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 8,721,917 8,113,858
Unrealized loss on investment
securities - available for sale (90,986) -
----------- -----------
Total 12,098,373 11,581,300
Less: treasury stock at cost,
1,760 shares (45,973) (45,973)
----------- -----------
Total Stockholders' Equity 12,052,400 11,535,327
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $21,680,171 $26,470,322
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 6
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For the Three Months Ended April 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
39 Days of 41 Days of
Live Racing Live Racing
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<S> <C> <C>
REVENUES
Pari-mutuel commissions $ 4,954,125 $ 5,505,062
Breakage 100,226 106,408
Uncashed mutuel tickets 66,658 54,978
----------- -----------
Total 5,121,009 5,666,448
Less: pari-mutuel tax 660,198 785,594
----------- -----------
Commission income 4,460,811 4,880,854
Host track fees 1,157,788 948,414
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Total Mutuel Income 5,618,599 5,829,268
Concessions 537,707 549,022
Video poker (net) 195,441 229,008
Admissions (net of taxes) 86,994 147,321
Parking 7,191 6,527
Programs and forms 364,834 433,208
Miscellaneous 187,164 268,066
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Total Operating Revenues 6,997,930 7,462,420
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RACING EXPENSES
Purses 1,871,693 2,116,664
Salaries and related taxes
and benefits 1,514,893 1,520,940
Contracts and services 628,697 666,400
Host track fees 309,178 273,983
Depreciation 530,819 522,891
Cost of sales - concessions 218,655 275,189
Utilities 200,934 257,249
Repairs and maintenance 78,714 49,495
Program paper, forms and other
supplies 349,704 469,646
Advertising and promotion 267,750 324,334
Rent 63,198 62,100
Miscellaneous 192,284 264,289
----------- -----------
Total Racing Expenses 6,226,519 6,803,180
=========== ===========
</TABLE>
(Continued)
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<PAGE> 7
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(CONTINUED)
For the Three Months Ended April 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
39 Days of 41 Days of
Live Racing Live Racing
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<S> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and related taxes
and benefits $ 319,280 $ 287,538
Insurance 211,284 257,344
Property taxes 90,610 65,949
Legal, audit and director fees 298,165 210,823
Contract services 46,443 63,441
Office expenses 87,681 108,438
Litigation judgment - (200,000)
Miscellaneous 76,853 116,744
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Total General and
Administrative Expenses 1,130,316 910,277
----------- -----------
LOSS FROM OPERATIONS (358,905) (251,037)
----------- -----------
OTHER INCOME (EXPENSE)
Jazz and Heritage Festival income 473,591 922,832
Loss on sale of equity investments - (560,290)
Interest expense (45,415) (126,736)
Interest income 29,724 18,983
Equity in earnings from
unconsolidated investments
in affiliates - 39,354
Insurance settlements 365,765 -
----------- -----------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 464,760 43,106
Provision for income taxes - -
----------- -----------
INCOME BEFORE EXTRAORDINARY
ITEM (per share - 1995 $0.99,
1994 $0.09) 464,760 43,106
Extraordinary item - gain from
fire (net of income taxes) - 2,160,093
=========== ===========
</TABLE>
(Continued)
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<PAGE> 8
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(CONTINUED)
For the Three Months Ended April 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
39 Days of 41 Days of
Live Racing Live Racing
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<S> <C> <C>
NET INCOME (per share -
1995 $0.99, 1994 $4.68) $ 464,760 $ 2,203,199
RETAINED EARNINGS,
BEGINNING OF PERIOD 8,257,157 12,404,891
----------- -----------
RETAINED EARNINGS,
END OF PERIOD $ 8,721,917 $14,608,090
=========== ===========
CASH DIVIDENDS PER SHARE $ None $ None
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 469,940 469,940
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 9
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For the Six Months Ended April 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
87 Days of 77 Days of
Live Racing Live Racing
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<S> <C> <C>
REVENUES
Pari-mutuel commissions $ 9,597,923 $ 9,904,259
Breakage 192,417 179,910
Uncashed mutuel tickets 112,746 122,110
----------- -----------
Total 9,903,086 10,206,279
Less: pari-mutuel tax 1,298,994 1,470,829
----------- -----------
Commission income 8,604,092 8,735,450
Host track fees 2,549,567 1,869,804
----------- -----------
Total Mutuel Income 11,153,659 10,605,254
Concessions 1,147,710 1,142,916
Video poker (net) 375,912 458,559
Admissions (net of taxes) 155,767 301,310
Parking 14,401 36,992
Programs and forms 775,089 799,242
Miscellaneous 398,166 374,245
----------- -----------
Total Operating Revenues 14,020,704 13,718,518
----------- -----------
RACING EXPENSES
Purses 3,730,806 3,857,023
Salaries and related taxes
and benefits 3,109,472 3,182,678
Contracts and services 1,376,034 1,133,760
Host track fees 499,843 477,935
Depreciation 1,028,303 876,136
Cost of sales - concessions 505,331 457,712
Utilities 327,907 471,015
Repairs and maintenance 186,439 140,999
Program paper, forms and other
supplies 698,801 745,936
Advertising and promotion 493,061 495,734
Rent 125,898 122,200
Miscellaneous 293,431 329,496
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Total Racing Expenses 12,375,326 12,290,624
=========== ===========
</TABLE>
(Continued)
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<PAGE> 10
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(CONTINUED)
For the Six Months Ended April 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
87 Days of 77 Days of
Live Racing Live Racing
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<S> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and related taxes
and benefits $ 657,851 $ 627,975
Insurance 433,306 463,856
Property taxes 67,059 168,728
Legal, audit and director fees 518,656 329,784
Contracts and services 102,531 73,381
Office expenses 183,729 153,527
Litigation judgment (188,109) (200,000)
Miscellaneous 189,765 144,647
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Total General and
Administrative Expenses 1,964,788 1,761,898
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LOSS FROM OPERATIONS (319,410) (334,004)
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OTHER INCOME (EXPENSE)
Jazz and Heritage Festival income 473,591 922,832
Loss on sale of equity investments - (560,290)
Interest expense (97,709) (242,242)
Interest income 81,822 38,065
Equity in earnings from
unconsolidated investments
in affiliates - 60,998
Insurance related settlements 365,765 -
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 504,059 (114,641)
Provision for income taxes - -
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NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM (per share - 1995 $1.08,
1994 ($0.24) 504,059 (114,641)
Extraordinary item - gain from
fire (net of income taxes) - 14,322,802
=========== ===========
</TABLE>
(Continued)
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<PAGE> 11
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(CONTINUED)
For the Six Months Ended April 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
87 Days of 77 Days of
Live Racing Live Racing
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<S> <C> <C>
CHARGE FOR CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING
FOR INVESTMENTS $ 104,000 $ -
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NET INCOME (per share - 1995
$1.30, 1994 $30.23) 608,059 14,208,161
RETAINED EARNINGS,
BEGINNING OF PERIOD 8,113,858 399,929
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RETAINED EARNINGS,
END OF PERIOD $ 8,721,917 $14,608,090
=========== ===========
CASH DIVIDENDS PER SHARE $ None $ None
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 469,940 469,940
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-8-
<PAGE> 12
FAIR GROUNDS CORPORATION
STATEMENTS OF CASH FLOWS
For the Six Months Ended April 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 608,059 $14,208,161
Adjustments to reconcile net income
to net cash used for
operating activities:
Extraordinary item - gain from
fire - (14,322,802)
Depreciation 1,028,303 876,136
Equity in earnings from
unconsolidated investments
in affiliates - (60,998)
Unrealized gain on marketable
equity securities (36,212) -
Loss on sale of equity investments - 560,290
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable (229,745) (358,704)
Inventory (3,866) 18,101
Refundable income taxes 452,828 -
Accounts receivable - insurance
proceeds 421,576 -
Prepaid expenses (62,934) 55,820
Restricted cash - (2,682,689)
Interest receivable - 5,264
Increase (decrease) in:
Accounts payable and
accrued liabilities 185,376 936,115
Contracts payable (1,140,047) -
Deferred revenue (39,150) (133,613)
Deferred purses (4,313,403) (3,989,969)
Litigation judgment - (200,000)
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Total adjustments (3,737,274) (19,297,049)
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Net cash used for
operating activities (3,129,215) (5,088,888)
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CASH FLOWS FROM (USED FOR)
INVESTING ACTIVITIES
Capital expenditures (3,756,721) (3,732,501)
Proceeds from insurance claims - 16,617,273
</TABLE>
(Continued)
-9-
<PAGE> 13
FAIR GROUNDS CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
For the Six Months Ended April 30, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Proceeds from sale of equity
investments in affiliates $ - $ 425,000
Payment to affiliate for sale
of investments - (170,000)
Repayments on loans to
affiliates - 78,635
Deposits (6,175) (5,785)
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Net cash provided by (used for)
investing activities (3,762,896) 13,212,622
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from third party 1,000,000 1,000,000
Repayments to third party (1,000,000) (444,444)
Principal repayments of long term
borrowings - (5,000,000)
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Net cash used for
financing activities - (4,444,444)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (6,892,111) 3,679,290
----------- -----------
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 8,039,310 4,368,034
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 1,147,199 $ 8,047,324
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 97,709 $ 242,240
=========== ===========
NON-CASH ACTIVITY:
Accrued insurance proceeds $ - $ 2,221,283
=========== ===========
Net assets destroyed by fire $ - $ 4,515,754
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 14
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Six Months Ended April 30, 1995 and 1994
(Unaudited)
NOTE 1 - 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 $19,478,791. The
Company has filed a civil action against certain of its insurance carriers
to recover an additional approximate $14.7 million. (See Note 2 below as to
fire related litigation.)
As a result of the fire, the Company recorded in the six months ended April
30, 1994 an extraordinary gain of $14.3 million, resulting from insurance
proceeds in excess of the net book value of the assets destroyed by the
fire.
At October 31, 1993, 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, a verbal agreement was made whereby
Mr. Roussel agreed to be paid the remainder of the note balance out of the
proceeds of the construction loan as discussed further in Note 2 below.
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<PAGE> 15
NOTE 2 - 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 $9.4 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.
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 the Parish of Orleans, State of Louisiana.
Allianz subsequently removed the action from state court to the
United States District Court for the Eastern District of Louisiana.
The Company contended that Allianz, which was the Company's primary
property insurer, failed to pay the policy benefits of $5 million on
a timely basis, thereby subjecting it to a statutory penalty of 10%
of the amount not paid, interest, attorney's fees and costs. The
Company also alleged that Allianz acted in bad faith in its handling
of the claim. Allianz denied the Company's allegations. The case
was scheduled for trial on April 3, 1995. However, in March 1995,
the parties settled their differences pursuant to an agreement
whereby Allianz without admitting liability, paid an agreed upon
amount to the Company.
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<PAGE> 16
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 is also subject to statutory penalties of 10% of the
amount not paid on time, interest, attorney's fees and costs on
account of delays in paying $5,000,000 of proceeds to the Company.
Royal has denied liability. The case is scheduled for trial in
November 1995.
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. Both cases
are scheduled for trial in February 1996.
As to items 1, 3, 4 and 5 described above, there can be no assurance that
the Company will be successful in any of its claims or contentions.
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 at least through the beginning of the 1995-96 racing season.
The Company has 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, which also serves as a temporary clubhouse
area, was opened on December 22, 1994. It is a two-story
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<PAGE> 17
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 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 attendance 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. 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. As of April 30, 1995, construction of the new
grandstand facility had begun. Total cost incurred at that date on the
facility was approximately $4.8 million with approximately $19.5 million
estimated to complete the facility. Management believes the grandstand
will be open to the public in mid-January 1996 if the Company is able to
complete promptly the arrangements for the financing discussed below.
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
total amount, the Company had, as of April 30, 1995, incurred expenses of
approximately $8 million to complete debris removal, construct the tele-
track facility and commence construction of the grandstand facility. Of
the remaining $19.5 million presently anticipated to be required, the
Company has
-14-
<PAGE> 18
received commitments from the sources described below for financing in the
aggregate amount of $20 million and, as described below, the Company is
negotiating a possible commitment by AutoTote to lend or advance an
additional $2.5 million.
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 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 is to be in an
amount equal to the outstanding principal balance due on the construction
loan on the maturity date thereof, and is to bear interest at the prime
rate plus 1% per annum. The term loan is to be payable in monthly
installments of principal and interest, based on a 15 year amortization;
however, the loan would mature five years from the closing of the interim
construction loan. Notwithstanding such payment terms, the minimum debt
service on the loan would not be less than $2.5 million during any year in
which the video poker franchise tax exemptions 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 exemptions 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 environmental assessment of the Fair Grounds
Race Course and the former Jefferson Downs Racing facility. The commitment
from FNBC provides that the interim construction loan was to have closed on
or before March 31, 1995; however, the parties agreed to an extension. The
Company and FNBC currently are discussing certain issues which have arisen
concerning the value of the collateral which is to secure the FNBC
financing and the provision of additional collateral. A date for the
closing of such financing has not been determined.
-15-
<PAGE> 19
At April 30, 1995, the Company owed an aggregate principal amount of $2
million to Louie J. Roussel, III, who holds a collateral mortgage on the
Company's real property and equipment. The Company has agreed with Mr.
Roussel, III that the entire balance of such indebtedness will be paid from
the proceeds of the FNBC financing.
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 exemptions, 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 executed or, if executed,
will be in accordance with the terms described above.
Moreover, in the event the Company and FNBC are unable to reach an
understanding regarding the value of the collateral to secure the FNBC
financing or if the Company is unable to arrange for additional collateral
if needed, no assurance can be given that all or any part of such financing
will be provided by FNBC or that the Company will be able to obtain
alternative sources for such financing. The Company is entirely dependent
on the anticipated financing described herein (or similar financing from
alternative sources) to complete the new facility.
In the event that the anticipated financing (or similar financing from
alternative sources) is not obtained, the Company intends to halt the
construction of the new racing facility and continue its off-track and
(commencing in November 1995) live racing operations at its tele-track and
temporary tent facilities. Although such an alternative would not be
desirable, the Company believes that it would be the best course to follow
under the circumstances and believes that cash from operations and short-
term financing which the Company believes would be available would be
sufficient to allow the Company to maintain racing operations at their
current levels for the next 12 months.
-16-
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED APRIL 30, 1995 AND 1994
REVENUES. During the quarters ended April 30, 1995 and 1994, the Company
derived its pari-mutuel income and other operating revenues by conducting
live racing meets of 39 and 41 days, respectively, and in the operation of
tele-tracks for off-track wagering.
The Company's net income for the quarter ended April 30, 1995 was $464,760
compared to net income of $2,203,199 for the quarter ended April 30, 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 of
$2.16 million attributable to the Company's claims for insurance proceeds
arising from the December 1993 fire.
The Company's income before extraordinary item for the quarter ended April
30, 1995 was $464,760 compared to $43,106 for the quarter ended April 30,
1994. The increase in income in the current quarter is attributable to an
increase in host track fee revenue and an increase in other income for the
quarter ended April 30, 1995.
For the quarter ended April 30, 1995, the Company experienced an 11.7%
decline in total pari-mutuel wagering and a 7.9% decline in total
attendance from the comparable fiscal quarter in the prior fiscal year.
The declines in total wagering and total attendance are due to fewer live
racing days in the current quarter continued use of the temporary
facilities, and continued competition from other local gaming venues.
Comparative pari-mutuel wagering and attendance figures for the quarters
ended April 30, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
For the Quarter Ended April 30
------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Pari-mutuel wagering
On-track $11,828,136 $13,897,617
Off-track 12,227,646 13,361,184
----------- -----------
Total wagering $24,055,782 $27,258,801
=========== ===========
Total attendance 134,064 145,505
=========== ===========
</TABLE>
-17-
<PAGE> 21
As a result of the declines in pari-mutuel wagering and attendance, almost
all components of the Company's operating revenues declined from the
quarter ended April 30, 1994. One component of operating revenues,
however, increased significantly over the quarter ended April 30, 1994,
impacting net income directly since there are no corresponding expenses
associated with such revenues. Host track fees increased significantly
over the fiscal 1994 quarter. Host track fee revenue increased $209,374 or
22.1% as a result of a significant increase in out-of-state wagering on the
Company's live races. Out-of-state simulcasting for the quarter ended
April 30, 1995 increased $25 million, for a total of $45 million in the
current quarter.
RACE RELATED EXPENSES. For the quarter ended April 30, 1995, race related
expenses decreased $576,661 or 8.5% from the previous comparable quarter
primarily as a result of the corresponding declines in operating revenue.
GENERAL AND ADMINISTRATIVE EXPENSES. For the quarter ended April 30, 1995
general and administrative expenses increased $220,039 or 24.2% from the
prior comparable quarter primarily due to the Company's recognition of a
$200,000 reversal of a litigation judgment in the quarter ended April 30,
1994.
OTHER INCOME AND EXPENSES. For the quarter ended April 30, 1995 other
income and expenses increased $529,522 or 108% from the previous comparable
quarter primarily due to the Company's recognition of a $560,290 loss on
sale of equity investments in the comparable quarter in the prior fiscal
year. This loss was partially offset in the prior quarter by a
significantly higher Jazz and Heritage Festival revenue due to the timing
of the festival. For the quarter ended April 30, 1995, the Company
reported revenues of only three days of Jazz Festival activity compared to
six days of activity in the quarter ended April 30, 1994. Revenue for the
remaining 1995 Jazz Festival will be recorded in the quarter ending July
31, 1995. In addition, in fiscal quarter ended April 30, 1995, the Company
recorded as revenue, a late payment penalty received from one of its
insurance carriers.
COMPARISON OF THE SIX MONTHS ENDED APRIL 30, 1995 AND 1994
REVENUES. During the six month period ended April 30, 1995 and 1994, the
Company derived its pari-mutuel income by conducting live racing meets of
87 and 77 days, respectively, and in the operation of tele-tracks for off-
track wagering. The significant increase in the number of racing days in
the current period is attributable to the suspension of operations during
the racing season in the
-18-
<PAGE> 22
previous comparable period in the prior fiscal year as a result of the
December 17, 1993 fire.
The Company's net income for the six months ended April 30, 1995 was
$608,059 as compared to net income of $14,208,161 for the six months ended
April 30, 1994. The significant decrease in net income for the six months
ended April 30, 1995 is the direct result of the Company's recognition of
an extraordinary gain in the previous fiscal period attributable to the
Company's claims for insurance proceeds arising from the December 1993
fire. The Company recorded in the six months ended April 30, 1994, an
extraordinary gain of $14.3 million, comprised of insurance proceeds of
$18,839,006, partially offset by a loss of $4,516,204, which was the net
book value of assets destroyed by the fire.
The Company's income before extraordinary item for the six months ended
April 30, 1995 was $504,059 as compared to a net loss of $114,641 for the
six months ended April 30, 1994. The significant increase in income is
primarily the result of increased host track fee revenue and other income.
For the six months ended April 30, 1995, the Company reported a 4.6%
decline in total pari-mutuel wagering and a 3.8% decline in total
attendance from the six months ended April 30, 1994. Comparative pari-
mutuel wagering and attendance figures for the six months ended April 30,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
For the Six Months Ended April 30
---------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Pari-mutuel wagering
On-track $25,134,326 $26,110,964
Off-track 22,460,426 23,674,113
----------- -----------
Total wagering $47,594,752 $49,785,077
=========== ===========
Total attendance 268,535 279,292
=========== ===========
</TABLE>
Despite the declines in the Company's pari-mutuel wagering and attendance,
total operating revenues for the six months ended April 30, 1995 increased
$302,186 or 2.2% from the six months ended April 30, 1994. Operating
revenues increased in the current period as a result of an increase in host
track fee revenue. This increase was partially offset by declines in
commission income and other operating revenues.
Host track fee revenue increased $679,763 or 36.4% from the previous
comparable period due to a significant increase in out-of-state
simulcasting on the Company's live races. For the six months
-19-
<PAGE> 23
ended April 30, 1995, the Company reported $92 million in out-of-state
simulcasting compared to $42 million for the six months ended April 30,
1994.
Race related expenses for the six months ended April 30, 1995 increased
$84,702 or .69% from the six months ended April 30, 1994. Many components
of race related expenses fluctuated unfavorably in the current period,
including contracts and services, depreciation expense, concessions cost of
sales, and repairs and maintenance. Contracts and services for the current
period increased $242,274 or 21% from the previous comparable period due to
the ten additional race days and an increase in services related to the
temporary facility. Depreciation expense increased $152,167 or 17.4%
primarily due to depreciation associated with the $2.68 million temporary
tent facility. The current period reports six months of depreciation
associated with the temporary facility compared to three months in the
previous comparable period. Concessions cost of sales as a percent to
revenue increased from 40% to 44% in the current period primarily due to
higher cost of sales as a result of operating in the temporary facility.
Repairs and maintenance expense increased $45,440 or 32.2% as a result of
electrical repair work to the Company's totalisator board. The above
increases in these race related expenses were partially offset by declines
in purses, salaries and related taxes and benefits and miscellaneous
expense.
GENERAL AND ADMINISTRATIVE EXPENSE. For the six months ended April 30,
1995 general and administrative expenses increased $202,890 or 11.5% from
the six months ended April 30, 1994 due to an increase in legal, audit and
director fees of $188,872 or 57.3%, an increase in contracts and services
of $29,150 or 39.7%, an increase in office expense of $30,202 or 19.6%, and
an increase in miscellaneous expense of $45,118 or 31.2%. Legal, audit and
director fees increased primarily due to litigation with the Company's
insurance carriers. Contracts and services increased due to outside
services related to obtaining financing for construction. Office expense
increased in the current period primarily due to an increase in telephone
expense related to increased out-of-state activity. Miscellaneous expense
increased primarily due to expenses related to obtaining financing.
OTHER INCOME (EXPENSE). For the six months ended April 30, 1995, the
Company realized a favorable increase in other income of $604,106 or 275.4%
from the comparable period in the previous fiscal year. The favorable
increase is primarily the result of the Company's recognition of a $560,290
loss on sale of equity investments for the six months ended April 30, 1994.
This loss was partially offset by higher net Jazz & Heritage Festival
income during the fiscal 1994 period than in 1995. In addition, in fiscal
-20-
<PAGE> 24
quarter ended April 30, 1995, the Company recorded as revenue, a late
payment penalty received from one of its insurance carriers.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS. Cash and cash equivalents decreased $6,892,111 during the six
months ended April 30, 1995, compared to an increase of $3,679,290 during
the comparable period in the previous fiscal year. The decrease in cash
and cash equivalents for the six months ended April 30, 1995 was the result
of cash used for operating activities of $3,129,215 and cash used for
investing activities of $3,762,896. The cash used for operating activities
was primarily to pay purses during the live racing season. The cash used
for investing activities was for capital expenditures for the new tele-
track facility, as well as capital expenditures for the new grandstand
foundation.
As of June 15, 1995, the Company has received $19,478,791 in insurance
proceeds resulting from fire loss claims submitted to the Company's
insurance carriers. As previously reported, the Company has filed suit
against certain of its insurance carriers seeking to recover an additional
$14.7 million under its insurance policies.
The Company has completed the construction of a tele-track facility at the
Fair Grounds Race Course at a cost of $3.2 million and has begun
construction on the new grandstand and clubhouse facility. The total costs
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. Management
believes the grandstand will be open to the public in mid-January 1996 if
the Company is able to complete promptly the arrangements for the financing
discussed below.
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,
-21-
<PAGE> 25
the Company became eligible for emergency relief under the act.
As of April 30, 1995, the Company had spent approximately $4.8 million in
connection with the construction of the new grandstand facility. It is
presently anticipated that the Company will require approximately $19.5
million to complete such construction. As previously reported, the Company
has received commitments from several sources for financing in the
aggregate amount of $20 million, including: (i) a commitment from First
National Bank of Commerce ("FNBC") of New Orleans, for construction and
term loan financing in the principal amount of $17.5 million; (ii) a
commitment from Video Services, Inc. ("VSI") to make a non-interest bearing
loan to the Company in the principal amount of $1.5 million, which is
conditioned upon the closing of the FNBC financing; and (iii) a commitment
from Marie G. Krantz to make a subordinated loan to the Company in the
principal amount of $1.0 million. The Company is also having discussions
with AutoTote concerning a possible subordinate loan or advance of
approximately $2.5 million.
The commitment from FNBC is subject to the execution and delivery of
definitive documentation, and to several other conditions, including a
satisfactory appraisal and environmental assessment of the Fair Grounds
Race Course and the former Jefferson Downs Racing facility. The commitment
from FNBC provides that the interim construction loan was to have closed on
or before March 31, 1995; however, the parties agreed to an extension. The
Company and FNBC currently are discussing certain issues which have arisen
concerning the value of the collateral which is to secure the FNBC
financing and the provision of additional collateral. A date for the
closing of such financing has not been determined.
At April 30, 1995, the Company owed an aggregate principal amount of $2
million to Louie J. Roussel, III, who holds a collateral mortgage on the
Company's real property and equipment. The Company has agreed with Mr.
Roussel, III that the entire balance of such indebtedness will be paid from
the proceeds of the FNBC financing.
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 exemptions, 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 executed or, if executed,
will be in accordance with the terms described above.
-22-
<PAGE> 26
Moreover, in the event the Company and FNBC are unable to reach an
understanding regarding the value of the collateral to secure the FNBC
financing or if the Company is unable to arrange for additional collateral
if needed, no assurance can be given that all or any part of such financing
will be provided by FNBC or that the Company will be able to obtain
alternative sources for such financing. The Company is entirely dependent
on the anticipated financing described herein (or similar financing from
alternative sources) to complete the new facility.
In the event that the anticipated financing (or similar financing from
alternative sources) is not obtained, the Company intends to halt the
construction of the new racing facility and continue its off-track and
(commencing in November 1995) live racing operations at its tele-track and
temporary tent facilities. Although such an alternative would not be
desirable, the Company believes that it would be the best course to follow
under the circumstances, and believes that cash from operations and short-
term financing which the Company believes would be available would be
sufficient to allow the Company to maintain racing operations at their
current levels for the next 12 months.
The temporary land-based casino in downtown New Orleans opened in May 1995
and construction of the permanent facility has commenced. While the
Company believes that its results of operations have been adversely
affected by increased competition in the gaming industry, it does not
believe that to date it has experienced any additional adverse impact from
the land based casino.
-23-
<PAGE> 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27 - Financial Data Schedule (for SEC use only)
-24-
<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: July 13, 1995 By: s\ Bryan G. Krantz
-------------------- ----------------------------
Bryan G. Krantz
President
Date: July 13, 1995 By: s\ Gordon M. Robertson
-------------------- ----------------------------
Gordon M. Robertson
Chief Financial Officer
-25-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 1,147
<SECURITIES> 1,387
<RECEIVABLES> 922
<ALLOWANCES> 0
<INVENTORY> 78
<CURRENT-ASSETS> 4,091
<PP&E> 27,176
<DEPRECIATION> 12,914
<TOTAL-ASSETS> 21,680
<CURRENT-LIABILITIES> 5,428
<BONDS> 0
<COMMON> 1,525
0
0
<OTHER-SE> 12,052
<TOTAL-LIABILITY-AND-EQUITY> 21,680
<SALES> 9,903
<TOTAL-REVENUES> 14,021
<CGS> 0
<TOTAL-COSTS> 12,375
<OTHER-EXPENSES> 1,965
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98
<INCOME-PRETAX> 504
<INCOME-TAX> 0
<INCOME-CONTINUING> 504
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 104
<NET-INCOME> 608
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
</TABLE>
