<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, 1996 Commission File Number O-7607
-------------- ------
FAIR GROUNDS CORPORATION
------------------------
(Exact name of registrant as specified in its charter)
Louisiana 72-0361770
- ------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1751 Gentilly Blvd., New Orleans, LA 70119
- ------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (504) 944-5515
-----------------
Not Applicable
- ----------------------------------------------------------------------------
(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 15, 1996
<PAGE> 2
FAIR GROUNDS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C> <C>
Balance Sheet, April 30, 1996 (Unaudited)
and Balance Sheet, October 31, 1995 . . . . . . . . . . . . . . . . . 1
Statements of Operations and Retained
Earnings for the Three Months Ended
April 30, 1996 and 1995 (Unaudited) . . . . . . . . . . . . . . . . . 3
Statements of Operations and Retained
Earnings for the Six Months Ended
April 30, 1996 and 1995 (Unaudited) . . . . . . . . . . . . . . . . . 5
Statements of Cash Flows for the Six
Months Ended April 30, 1996 and 1995
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Notes to Financial Statements (Unaudited) . . . . . . . . . . . . . . 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 26
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
<PAGE> 4
FAIR GROUNDS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
April 30, October 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,451,316 $ 1,118,590
Cash and cash equivalents -
restricted 42,142 154,909
Accounts receivable 1,406,405 854,281
Mutuel settlements 452,719 172,385
Investment securities -
available for sale 224,625 457,900
Inventory 92,094 80,565
Deferred income taxes 59,940 59,940
Prepaid expenses 715,105 557,033
------------ ------------
Total Current Assets 4,444,346 3,455,603
------------ ------------
OTHER ASSETS 68,934 71,264
------------ ------------
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 13,653,277 13,881,970
Construction in progress 15,675,453 15,207,395
Land improvements 4,267,529 4,270,535
Temporary facilities 2,977,000 2,686,044
Automotive equipment 818,111 818,111
Machinery and equipment 872,490 789,347
Furniture and fixtures 171,630 171,497
------------ ------------
Total 38,435,490 37,824,899
Less: accumulated depreciation
and amortization (14,768,113) (13,683,393)
------------ ------------
Depreciation property net 23,667,377 24,141,506
Land 3,286,281 3,286,281
------------ ------------
Property - net 26,953,658 27,427,787
------------ ------------
TOTAL ASSETS $ 31,466,938 $ 30,954,654
============ ============
</TABLE>
(Continued)
-1-
<PAGE> 5
FAIR GROUNDS CORPORATION
BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
(Unaudited)
April 30 October 31
1996 1995
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable - current $ 10,047,522 $ 3,706,143
Accounts payable 2,243,595 897,016
Construction contract payable 249,895 4,864,199
Accrued liabilities:
Deferred purses 1,411,594 5,666,212
Uncashed mutuel tickets 408,620 259,606
Other 221,835 522,967
Deferred revenues 333,333 50,149
------------ ------------
Total Current Liabilities 14,916,394 15,966,292
------------ ------------
DEFERRED INCOME TAXES 4,540,035 4,020,035
------------ ------------
Total Liabilities 19,456,429 19,986,327
------------ ------------
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 8,615,415 7,601,742
Unrealized loss on investment
securities - available for sale (26,375) (54,884)
------------ ------------
Total 12,056,482 11,014,300
Less: treasury stock at cost,
1,760 shares (45,973) (45,973)
------------ ------------
Total Stockholders' Equity 12,010,509 10,968,327
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 31,466,938 $ 30,954,654
============ ============
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE> 6
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For the Three Months Ended April 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
40 Days of 39 Days of
Live Racing Live Racing
----------- -----------
<S> <C> <C>
REVENUES
Pari-mutuel commissions $ 5,721,991 $ 4,954,125
Breakage 127,169 100,226
Uncashed mutuel tickets 21,031 66,658
------------ ------------
Total 5,870,191 5,121,009
Less: pari-mutuel tax 752,487 660,198
------------ ------------
Commission income 5,117,704 4,460,811
Host track fees 1,256,436 1,157,788
------------ ------------
Total Mutuel Income 6,374,140 5,618,599
Concessions 469,426 537,707
Video poker (net) 308,531 195,441
Admissions (net of taxes) 102,787 86,994
Parking 7,020 7,191
Programs and forms 404,926 364,834
Miscellaneous 258,649 187,164
------------ ------------
Total Operating Revenues 7,925,479 6,997,930
------------ ------------
RACING EXPENSES
Purses 2,174,764 1,871,693
Salaries and related taxes
and benefits 1,472,185 1,514,893
Contracts and services 705,462 628,697
Host track fees 533,485 309,178
Depreciation 550,914 530,819
Cost of sales - concessions 173,770 218,655
Utilities 229,742 200,934
Repairs and maintenance 73,561 78,714
Program paper, forms and other
supplies 440,090 349,704
Advertising and promotion 272,211 267,750
Rent 79,548 63,198
Miscellaneous 296,702 192,284
----------- -----------
Total Racing Expenses 7,002,434 6,226,519
----------- -----------
</TABLE>
(Continued)
-3-
<PAGE> 7
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(CONTINUED)
For the Three Months Ended April 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
40 Days of 39 Days of
Live Racing Live Racing
----------- -----------
<S> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and related taxes
and benefits $ 273,100 $ 319,280
Insurance 322,526 211,284
Property taxes 98,664 90,610
Legal, audit and director fees 205,739 298,165
Loan closing fees 57,376 -
Contract services 29,021 46,443
Office expenses 111,835 87,681
Miscellaneous 22,564 76,853
------------ ------------
Total General and
Administrative Expenses 1,120,825 1,130,316
------------ ------------
LOSS FROM OPERATIONS (197,780) (385,905)
------------ ------------
OTHER INCOME (EXPENSE)
Jazz and Heritage Festival income 660,098 473,591
Loss on sale of equity investments (36,364) -
Interest expense (246,966) (45,415)
Interest income 6,044 29,724
Video poker tax relief 344,137 -
Insurance settlements - 365,765
------------ ------------
INCOME BEFORE INCOME TAXES 529,169 464,760
Provision for income taxes 180,000 -
------------ -----------
NET INCOME (per share -
1996 $.74, 1995 $0.99) $ 349,169 $ 464,760
RETAINED EARNINGS,
BEGINNING OF PERIOD 8,266,246 8,257,157
------------ ------------
RETAINED EARNINGS,
END OF PERIOD $ 8,615,415 $ 8,721,917
============ ============
CASH DIVIDENDS PER SHARE $ None $ None
============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING $ 469,940 $ 469,940
============ ============
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE> 8
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For the Six Months Ended April 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
88 Days of 87 Days of
Live Racing Live Racing
------------ -----------
<S> <C> <C>
REVENUES
Pari-mutuel commissions $ 11,004,236 $ 9,597,923
Breakage 237,891 192,417
Uncashed mutuel tickets 97,120 112,746
------------ ------------
Total 11,339,247 9,903,086
Less: pari-mutuel tax 1,430,926 1,298,994
------------ ------------
Commission income 9,908,321 8,604,092
Host track fees 2,653,055 2,549,567
------------ ------------
Total Mutuel Income 12,561,376 11,153,659
Concessions 988,696 1,147,710
Video poker (net) 579,872 375,912
Admissions (net of taxes) 187,237 155,767
Parking 14,967 14,401
Programs and forms 805,332 775,089
Miscellaneous 474,394 398,166
------------ ------------
Total Operating Revenues $ 15,611,874 $ 14,020,704
------------ ------------
RACING EXPENSES
Purses $ 4,206,659 $ 3,730,806
Salaries and related taxes
and benefits 3,021,292 3,109,472
Contracts and services 1,340,849 1,376,034
Host track fees 907,066 499,843
Depreciation 1,084,720 1,028,303
Cost of sales - concessions 358,861 505,331
Utilities 388,716 327,907
Repairs and maintenance 172,510 186,439
Program paper, forms and other
supplies 840,127 698,801
Advertising and promotion 562,771 493,061
Rent 158,646 125,898
Miscellaneous 412,717 293,431
------------ ------------
Total Racing Expenses $ 13,454,934 $ 12,375,326
------------ ------------
</TABLE>
(Continued)
-5-
<PAGE> 9
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(CONTINUED)
For the Six Months Ended April 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
88 Days of 87 Days of
Live Racing Live Racing
------------ -----------
<S> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and related taxes
and benefits $ 598,039 $ 657,851
Insurance 586,182 433,306
Property taxes 192,723 67,059
Legal, audit and director fees 367,478 518,656
Loan closing fees 57,376 -
Contracts and services 72,679 102,531
Office expenses
186,150 183,729
Litigation judgment - (188,109)
Miscellaneous 92,621 189,765
------------ ------------
Total General and
Administrative Expenses 2,153,248 1,964,788
------------ ------------
INCOME LOSS FROM OPERATIONS 3,692 (319,410)
------------ ------------
OTHER INCOME (EXPENSE)
Jazz and Heritage Festival income 660,098 473,591
Video poker tax relief 1,285,410 -
Interest expense (388,320) (97,709)
Interest income 9,157 81,822
Insurance related settlements - 365,765
Loss on sale of investments (36,364) -
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 1,533,673 504,059
Provision for income taxes 520,000 -
------------ ------------
CHARGE FOR CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING
FOR INVESTMENTS $ - $ 104,000
------------ ------------
NET INCOME (per share - 1996
$2.16, 1995 $1.30) 1,013,673 608,059
RETAINED EARNINGS,
BEGINNING OF PERIOD 7,601,742 8,113,858
------------ ------------
RETAINED EARNINGS,
END OF PERIOD $ 8,615,415 $ 8,721,917
============ ============
</TABLE>
(Continued)
-6-
<PAGE> 10
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(CONTINUED)
For the Six Months Ended April 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
88 Days of 87 Days of
Live Racing Live Racing
<S> <C> <C>
CASH DIVIDENDS PER SHARE $ None $ None
=============== =================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING $ 469,940 $ 469,940
=============== ================
</TABLE>
See accompanying notes to financial statements.
-7-
<PAGE> 11
FAIR GROUNDS CORPORATION
STATEMENTS OF CASH FLOWS
For the Six Months Ended April 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,013,673 $ 608,059
Adjustments to reconcile net income
to net cash used for
operating activities:
Depreciation 1,084,720 1,028,303
Deferred income taxes 520,000 -
Unrealized gain on marketable
equity securities - (36,212)
Loss on sale of securities 36,363 -
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable (832,457) (229,745)
Inventory (11,529) (3,866)
Refundable income taxes - 452,828
Accounts receivable - insurance
proceeds - 421,576
Prepaid expenses (158,072) (62,934)
Restricted cash 112,767 -
Interest receivable - -
Increase (decrease) in
Accounts payable and
accrued liabilities 1,194,461 185,376
Contracts payable (4,614,304) (1,140,047)
Deferred revenue (50,149) (39,150)
Deferred purses (4,254,618) (4,313,403)
----------- ----------
Total adjustments (6,972,819) (3,737,274)
----------- ----------
Net cash used for
operating activities (5,959,145) (3,129,215)
----------- ----------
CASH FLOWS FROM (USED FOR)
INVESTING ACTIVITIES
Capital expenditures (610,591) (3,756,721)
Proceeds from sale of securities 225,420 -
Deposits 2,330 (6,175)
----------- ----------
Net cash provided by (used for)
investing activities (382,841) (3,762,896)
----------- ----------
</TABLE>
(Continued)
-8-
<PAGE> 12
FAIR GROUNDS CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
For the Six Months Ended April 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Loan proceeds $ 8,556,725 -
Principal repayments on
short term borrowings (2,215,346) -
Advances from third party 1,000,000 1,000,000
Repayments to third party (666,667) (1,000,000)
----------
Net cash provided from
financing activities 6,674,712 -
------------ ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 332,726 (6,892,111)
------------ ----------
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,118,590 8,039,310
------------ ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 1,451,316 $1,147,199
============ ==========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 388,320 $ 97,709
============ ==========
</TABLE>
See accompanying notes to financial statements.
-9-
<PAGE> 13
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Six Months Ended April 30, 1996 and 1995
(Unaudited)
NOTE 1 - SUMMARY OF NEW SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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 Court in
the State of Louisiana against Travelers Indemnity Company of Illinois
("Travelers"), 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 the
insurance agent and the insurance broker who arranged for the insurance
are 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. The
case is set for trial in November 1996.
-10-
<PAGE> 14
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Six Months Ended April 30, 1996 and 1995
(Unaudited)
NOTE 2 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
2. 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. This case is set for
trial in March 1997.
3. The Company is a defendant, along with its general liability insurance
carrier, United National Insurance Company ("United National"), 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 ("St.
Paul"), the insurer of the computerized betting equipment at the
racetrack. The complaint alleges that St. Paul is subrogated to its
insured's rights to collect damages and that it has paid in excess of $1
million for the loss of equipment in the fire. Subsequently, United
National filed suit against the Company seeking to deny coverage for such
subrogation claim. The two suits have been consolidated and are set for
trial in May 1997.
As to the pending matters described above, there can be no assurance that the
Company will be successful in any of its claims or defenses. 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.
STATUS OF CONSTRUCTION OF FACILITIES
A new tele-track facility and temporary clubhouse area were opened on December
22, 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. The total cost of the facility, together with furniture, fixtures,
equipment and certain fees and permit costs, was anticipated to be
approximately $25.3 million at the time construction commenced.
-11-
<PAGE> 15
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Six Months Ended April 30, 1996 and 1995
(Unaudited)
NOTE 2 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
As of April 30, 1996, construction of the facility was approximately 60%
completed, and the Company had incurred construction costs of approximately
$15.7 million. Insurance proceeds recovered to date and interim bank financing
provided the source of funds used in such construction. However, for the
reasons described below, further construction work on the project has been
halted. As a result, the cost and timing to complete the project cannot now be
determined with any certainty.
CONSTRUCTION FINANCING
As previously reported, the Company received and accepted a commitment letter
dated February 6, 1995 from First National Bank of Commerce of New Orleans
("FNBC") for a non-revolving line of credit to be used as an interim
construction loan, convertible to a term loan. The aggregate principal amount
of such loan under the terms of such commitment was to have been $17.5 million.
The commitment from FNBC provided that the interim construction loan was to
have closed on or before March 31, 1995. However, the parties agreed to
various extensions of such closing date. FNBC indicated that the principal
reason for the delay was FNBC's concern with restrictions on and the possible
elimination of video poker gaming in Louisiana. Inasmuch as video poker
franchise tax monies generated by the Company and its tele-tracks were to be
used for the repayment of the FNBC loan, in accordance with the tax relief
legislation described below, any changes in the video poker gaming laws which
restricts or limits video poker as a source of revenue may have an adverse
impact on such source of repayment.
In 1994, legislation was adopted 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
-12-
<PAGE> 16
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Six Months Ended April 30, 1996 and 1995
(Unaudited)
NOTE 2 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
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. During 1995,
the Joint Legislation Committee on the Budget approved the dedication of funds
received from the franchise tax relief described above toward the exclusive use
by the Company for making principal and interest payments to FNBC.
INTERIM FINANCING
FNBC provided the Company with a short-term interim construction loan of $2.15
million on July 17, 1995. In addition, as further described in Note 4, FNBC
provided the Company with an additional $4 million on November 7, 1995, and $1
million on November 30, 1995. As also described in Note 4, all of such
financing was then reflected in a Loan Agreement dated December 18, 1995
between the Company and FNBC, pursuant to which the Company borrowed an
aggregate amount of $9,493,050 and utilized a portion of such funds to repay
the principal amount of the prior loans that was outstanding on December 18,
1995. The remaining amount borrowed was utilized to pay construction costs.
POSSIBLE FUTURE FINANCING
The Company believes that it was unable during 1995 to obtain the full amount
of financing originally committed by FNBC due to the uncertainty regarding the
future of video poker as a continuing source of revenue. In a special session
held in March, 1996, the legislature passed legislation requiring local
elections to be held in November 1996 as a condition to the continuation of
video poker operations in Louisiana. The Company's ability to obtain future
financing will depend on the outcome of these elections.
The Company has 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 its agreement with VSI
and the term of the option period thereunder by two years. The loan from VSI
is conditioned upon the receipt of the long-term bank financing.
-13-
<PAGE> 17
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Six Months Ended April 30, 1996 and 1995
(Unaudited)
NOTE 2 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
In addition to the foregoing, Marie G. Krantz (Chairman of the Board of
Directors and Treasurer of the Company) has committed to make a $1 million loan
to the Company, which would be subordinate in right to payment to the permanent
FNBC financing. Although specific terms of such loan have not been discussed,
it is likely that the loan would be interest-bearing, and that payments would
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 arrangement or through an extension of the
lease terms relating to the totalisator equipment.
NOTE 3 - CONTINGENCIES - GOING CONCERN
The accompanying financial statements for the six months ended April 30, 1996
have been prepared assuming that the Company will continue as a going concern.
In view of the cessation of construction and the additional expense which is
likely to be incurred as a result of construction delays, it is not certain
that if all of the financing, as described in Note 2, is consummated, including
the long-term financing by FNBC in accordance with the terms of the original
commitment, the Company will be able to complete the construction of its new
facility as presently planned. It may be necessary to (i) obtain funds from
other sources, (ii) attempt to increase the amount of long-term financing from
FNBC, or (iii) seek to effect savings in the construction costs related to the
completion of the facility. The Company has had no discussions with any other
possible source of such financing, nor has it reached any understanding with
FNBC regarding any increase in the financing which the Company hopes to obtain
from FNBC as originally committed by FNBC. It should also be noted that FNBC
and the Company are not currently engaged in any discussions concerning the
terms and conditions of the definitive agreements relating to such long-term
financing given the uncertain climate regarding the future of video poker and
other forms of wagering. The fact that the local option elections described
above are not to be held until November 1996, after the indebtedness to FNBC
becomes due and payable, adds additional uncertainty to the Company's ability
to obtain long-term financing. Accordingly, there can be no assurance that
definitive agreements will be reached, or, if reached, that they will be in
accordance with the terms of the original commitment. The foregoing
uncertainties raise substantial doubt about the Company's ability to continue
as a going concern in the event that such long-term financing is not completed
by October 31, 1996, or that the funds provided through all sources of such
financing are insufficient to meet the Company's needs.
-14-
<PAGE> 18
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Six Months Ended April 30, 1996 and 1995
(Unaudited)
NOTE 4 - NOTES PAYABLE
On December 18, 1995, First National Bank of Commerce of New Orleans ("FNBC")
provided the Company with a short-term interim construction loan in the amount
of $9,493,050, which included approximately $921,300 of the remaining principal
balance of the $2,150,000 previously loaned to the Company in July 1995 and
approximately $5,000,000 loaned to the Company in November 1995, for
construction costs relating to the rebuilding of the grandstand and clubhouse
facilities.
Pursuant to the loan agreement, FNBC agreed to extend credit to the Company up
to an aggregate principal amount of $9,493,050 until October 31, 1996. The
loan agreement states that such commitment is not a revolving credit facility,
and the commitment is only to make loans up to such aggregate principal amount.
Accordingly, FNBC has no obligation under the loan agreement to lend additional
funds to the Company.
Payment of the principal and interest under the loan agreement is to be made on
demand, or if no demand is made, then in 10 monthly installments of $52,740
principal plus interest, beginning January 17, 1996, and one final payment of
all principal plus accrued interest on October 31, 1996. The loan bears
interest at 9% per annum. On each monthly payment date, payment of principal
and interest is to be made from the proceeds of the funds received as a result
of the video poker tax relief legislation, which funds are to be on deposit in
a separate lockbox, in accordance with a Disbursement Agreement entered into
among the Company, FNBC and Video Services, Inc. ("VSI") dated July 17, 1995.
The Disbursement Agreement provides that VSI acknowledges that the first $2.5
million in video poker franchise fee payments otherwise due annually to the
State of Louisiana are to be remitted to the Company under the terms of the tax
relief legislation. For each annual period from July 1 through June 30, such
funds are to be debited from VSI's bank account and deposited into a lockbox at
FNBC. Such proceeds are to be used solely for the purpose of making payments
of principal and interest from time to time due under the terms of the loan
agreement. Any amount in excess of the amount of debt service, up to $2.5
million annually, is to be applied as a prepayment of the principal amount of
the loan, and any excess of the debt service is to be returned to the Treasury
of the State of Louisiana. The loan agreement also provides that any fire
insurance proceeds (not including proceeds payable to any third party),
received by the Company are to be used to prepay the loan.
-15-
<PAGE> 19
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Six Months Ended April 30, 1996 and 1995
(Unaudited)
NOTE 4 - NOTES PAYABLE (CONTINUED)
The indebtedness under the loan agreement is secured by (i) a second mortgage
by the Company of all of its real property; (ii) a mortgage by Marie G. Krantz
of all the real property formerly constituting the Jefferson Downs Race Course;
(iii) a security interest in all the Company's accounts, inventory, equipment,
fire insurance proceeds, tax relief monies, construction property, material
contracts and all deposit accounts; (iv) a security interest in certain
investment securities owned by Marie G. Krantz; (v) a security interest in all
furniture, fixtures and equipment owned by the Company, Finish Line and
Jefferson Downs; (vi) a pledge by Richard Katcher, as Trustee u/t/a between
John G. Masoni and John G. Masoni, Trustee, pursuant to a restatement of his
Trust Agreement dated April 19, 1991 as modified on October 24, 1992 (the
"Trust"), Marie G. Krantz, individually and as Voting Trustee, Bryan G. Krantz,
Vickie Krantz and Jefferson Downs of an aggregate of 342,584 shares of common
stock of the Company beneficially owned by them; (vii) a limited guaranty of
such indebtedness by Marie G. Krantz and Finish Line; and (viii) a guaranty of
such indebtedness by Finish Line. As further discussed in Note 5, effective
April 24, 1996, the Trust mentioned in "vi" above transferred 339,604 shares of
common stock to Bryan G. Krantz.
The loan agreement provides that, commencing January 20, 1996, the Company will
deposit monthly into an account at FNBC all "Excess Cash Flow" generated during
the immediately preceding month. Excess Cash Flow is defined as all net income
for the month; plus or minus non-cash-items such as depreciation and
amortization; plus or minus the changes in accounts receivable, inventory,
prepaid expenses, accounts payable and accrued expenses, and any other
operating balance sheet related activity affecting the cash position; and plus
or minus capital expenditures. This obligation ceases if the 1996 regular
session of the Louisiana Legislature adjourns without having passed any statute
that adversely affects the status of the video poker tax relief or the existing
video poker operations of the Company or Finish Line, or that would allow for
or require local elections as a condition to the continuation of video poker
operations; or if there is any such legislation requiring local elections, the
voters fail to approve any such adverse change. Prior to the cessation of such
obligation, the Company may not withdraw any funds in such account, and FNBC
has a security interest in such funds.
The loan agreement contains certain negative covenants pursuant to which the
Company has agreed that it will not (i) resume construction activities without
first providing FNBC with satisfactory evidence of the source of funding for
the balance of
-16-
<PAGE> 20
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For the Six Months Ended April 30, 1996 and 1995
(Unaudited)
NOTE 4 - NOTES PAYABLE (CONTINUED)
such construction; (ii) enter into any agreement with any affiliate except to
the extent that such agreements are commercially reasonable and provide for
terms which would normally be obtainable in an arm's length transaction with an
unrelated third party; and (iii) incur capital expenditures during any fiscal
year in excess of $200,000 without the consent of FNBC.
On December 26, 1995, the Company paid $1,000,000 of principal on the
$2,000,000 remaining balances related to its promissory notes held by Louis J.
Roussel, III and agreed to pay the remaining $1,000,000 in principal on October
31, 1996.
In January 1996, the Company received an advance of $1,000,000 from VSI, which
the Company plans to repay in six equal monthly installments beginning in
February 1996. The unearned portion of this advance is recorded as deferred
revenue at April 30, 1996.
NOTE 5 - MAJORITY STOCK TRANSFER
Effective April 24, 1996, the Masoni Trust transferred 339,604 shares of common
stock to Bryan G. Krantz for consideration of $9,984,358. A promissory note
was executed by Byran G. Krantz in favor of the Trust for $9,984,358 with
interest at 5.76% per year. The note is due in April 2005 and cannot be
prepaid in whole or in part. The note is secured by a Stock Pledge Agreement
executed by Byran G. Krantz and Marie G. Krantz, in her capacity as Voting
Trustee under the Voting Trust Agreement, in favor of the Trust. The Stock
Pledge Agreement is subject to the Pledge Agreements executed in favor of FNBC.
-17-
<PAGE> 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations
COMPARISON OF THE THREE MONTHS ENDED APRIL 30, 1996 AND 1995
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 1993-1994, 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 and clubhouse 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.
REVENUES
During the quarters ended April 30, 1996 and 1995, the Company derived its
pari-mutuel income and other operating revenues by conducting live racing meets
of 40 and 39 days, respectively, and in the operation of tele-tracks for off-
track wagering. For the quarters ended April 30, 1996 and 1995, 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. In October 1995, the Company opened a tele-track facility
in Jefferson Parish, 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.
The Company's income before income taxes for the quarter ended April 30, 1996
was $529,169 compared to income before income taxes of $464,760 for the quarter
ended April 30, 1995. The 13.8% increase in income before income taxes in the
current quarter is the result of several factors; primarily, the increase in
operating income, together with a significant increase in Jazz and Heritage
Festival revenue. These favorable variances were partially offset by the
Company's recognition of insurance settlement income for the
-18-
<PAGE> 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
quarter ended April 30, 1995.
For the quarter ended April 30, 1996, the Company experienced an increase in
total pari-mutuel wagering of $5,274,938 or 21.92% from the previous fiscal
1995 quarter. The significant increase in pari-mutuel wagering is the result
of a 67.5% increase in off-track wagering partially offset by a 25% decline in
on-track wagering.
Comparative pari-mutuel wagering activity for the quarters ended April 30, 1996
and 1995 is as follows:
<TABLE>
<CAPTION>
Quarter Ended
1996 1995 Difference
---- ---- ----------
<S> <C> <C> <C>
On-track wagering $ 8,847,348 $ 11,828,136 $ (2,980,788)
Off-track wagering 16,951,485 12,227,646 4,723,839
new tele-track 3,531,887 - 3,531,887
----------- ------------ ------------
$29,330,720 $ 24,055,782 $ 5,274,938
=========== ============ ============
</TABLE>
The increase in off-track wagering in the current quarter is the direct result
of the Company's implementation of full card simulcasting in January 1996, as
well as the operations of the Company's new tele-track facility in Jefferson
Parish, Louisiana. This increase in off-track wagering, however, was partially
offset by a 25% decline in on-track wagering. The decline in on-track
attendance was primarily due to the lack of a suitable facility.
As a result of the increase in total pari-mutuel wagering in the current
quarter, the Company's operating revenues increased $927,549 or 13.25% from the
quarter ended April 30, 1995. For the quarter ended April 30, 1996, the
Company reported $7,925,479 in operating revenues compared to $6,997,930 in
operating revenues for the quarter ended April 30, 1995. The operations of the
Company's new tele-track facility in the current quarter contributed
approximately $748,000 in operating revenues.
Race related expenses for the quarter ended April 30, 1996 increased $775,915
or 12.46% from the previous comparable quarter primarily due to the increase in
operating revenues. Miscellaneous expenses, however, increased by
approximately $104,418 or 54.3% from the previous comparable quarter primarily
due to an increase in the amount of open breeders awards paid by the Company at
the end of its live meet. In the current quarter the Company paid $161,830 for
breeders awards compared to $74,637 in the previous fiscal quarter.
General and administrative expenses for the quarter ended April 30, 1996
declined $9,491 or 0.84% from the quarter ended April 30, 1995. While total
general and administrative expenses remained relatively constant from the
comparable 1995 quarter, individual components of this category fluctuated
significantly. Salaries and
-19-
<PAGE> 23
Management's Discussion and Analysis of Financial Condtion
and Results of Operations (Continued)
related taxes and benefits decreased $46,180 or 14.46% due to administrative
cost-cutting measures. Insurance expense increased $111,242 or 52.6% from the
quarter ended April 30, 1995 primarily due to a general liability insurance
payment in the approximate amount of $83,000. Legal, audit and director fees
declined $92,426 or 31% primarily due to a decline in litigation services in
the current quarter. Loan closing fees in the current quarter in the amount of
$57,376 are the result of the fees associated with the Company's loan closing
with First National Bank of Commerce in December 1995.
OTHER INCOME (EXPENSE)
Other income for the quarter ended April 30, 1996 declined $96,716 or 11.7%
from the quarter ended April 30, 1995 primarily due to the Company's
recognition of $365,765 in insurance settlement income in the fiscal 1995
quarter partially offset by an increase in Jazz and Heritage Festival revenue
of $186,507 or 39.4%. Additionally, in the current fiscal quarter, the Company
reported video poker tax relief income of $344,137 offset by interest expense
related to its loan with FNBC of $232,620.
COMPARISON OF THE SIX MONTHS ENDED APRIL 30, 1996 AND 1995
REVENUES
During the six month period ended April 30, 1996 and 1995, the Company derived
its pari-mutuel income by conducting live racing meets of 88 days and in the
operation of the tele-tracks for off-track wagering.
For the six months ended April 30, 1996, the Company reported income before
income taxes of $1,533,673, compared to income before income taxes of $504,059
for the six months ended April 30, 1995. The reason for the significant
increase in income before income taxes in the current period is the result of
the Company's recognition of video poker tax relief of $1,285,410. The video
poker tax relief provides that owners of video poker devices that are located
in licensed establishments owned or operated by licensed racing associations
are eligible for emergency relief under the statute and are exempt from the
franchise payment otherwise due under the Video Draw Poker Devices Control Law.
In addition to the favorable impact of the video poker tax relief income in the
current period, the Company also operated favorably with respect to its
pari-mutuel wagering. For the six months ended April 30, 1996, the Company
reported a total pari-mutuel wagering of $56,533,849 compared to $47,594,752,
an increase of 18.8%. A comparison of pari-mutuel wagering for both on-track
and off-track activity is as follows:
-20-
<PAGE> 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
<TABLE>
<CAPTION>
1996 1995 Difference
----------- ----------- ------------
<S> <C> <C> <C>
On-track wagering $20,180,889 $25,134,326 $ (4,953,437)
Off-track wagering 30,051,594 22,460,426 7,591,168
Off-track wagering
new tele-track 6,301,366 - 6,301,366
----------- ----------- ------------
Total wagering $56,533,849 $47,594,752 $ 8,939,097
=========== =========== ============
</TABLE>
As a result of the increase in pari-mutuel wagering, the Company's total
operating revenues for the six months ended April 30, 1996, increased
$1,591,170 or 11.3% from the previous fiscal 1995 period. All of the
components of the Company's operating revenues increased with the exception of
concessions revenues. For the six months ended April 30, 1996, concessions
revenue declined $159,014 or 13.8% due to the Company's elimination of its
track kitchen operations.
RACE RELATED EXPENSES
For the six months ended April 30, 1996, the Company's race related expenses
increased $1,079,608 or 8.7% from the previous fiscal period ended April 30,
1995 primarily due to an increase in pari-mutuel activity.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the six months ended April 30, 1996
increased $188,460 or 9.6% from the six months ended April 30, 1995, primarily
due to the Company's recognition in the fiscal 1995 period of a favorable
litigation settlement in the amount of $188,109, an increase in insurance
expenses of $152,876 or 35.3% in the current period, and an increase in
property tax expense of $125,664 or 187.4%. These increases were partially
offset by a decrease in legal, audit and director fees in the current period of
$151,178 or 29.1%, and a decrease in contracts and services and miscellaneous
expense in the amounts of $29,852 and $97,144, respectively.
During the six months ended April 30, 1996, the Company received settlement
monies totalling $188,109 from one of its former insurance carriers. 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.
For the six ended April 30, 1996, property taxes of $192,723 are based upon the
pro-rata portion of the current tax assessment. In the prior fiscal period,
the credit in property taxes was the result of a partial reversal in the fiscal
1995 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
-21-
<PAGE> 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
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 period ended April 30, 1995.
Legal, audit and director fees for the six months ended April 30, 1996 declined
from the previous comparable period due to a decrease in legal fees relating to
various litigation services.
OTHER INCOME (EXPENSE)
For the six months ended April 30, 1996, other income was $1,529,981, an
increase of $706,512 primarily due to an increase of $1,285,410 related to the
video poker tax relief offset by an increase in interest expense in the current
period of $290,611 related to the interim financing, and the Company's
recognition of insurance related settlements of $365,765 in the previous
comparable period.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Cash and cash equivalents increased $332,726 during the six months ended April
30, 1996 compared to a decrease of $6,892,111 during the six months ended April
30, 1995. The increase in cash and cash equivalents in the first six months of
fiscal 1996 was the result of cash provided from financing activities of
$6,674,712, offset by cash used for operating activities of $5,959,145 and cash
used for investing activities of $382,841. The cash provided from financing
activities was primarily the result of $6,341,379 short term interim
construction loan activity with FNBC. The cash used for operating activities
was primarily the result of cash used to pay purses during the Company's live
racing season, as well as cash used to pay construction costs on the new
facility.
As of April 30, 1996, the Company had received $19,478,791 in insurance
proceeds resulting from fire loss claims submitted to the Company's insurance
carriers. The Company has filed suit against one of its insurance carriers, as
described elsewhere herein, seeking to recover an additional approximate $14.8
million under its insurance policy with such carrier.
The Company's new tele-track facility at the Fair Grounds Race Course, which
also serves as a temporary clubhouse area, was opened on December 22, 1994.
The total cost for debris removal and the construction of the tele-track
facility was approximately $3.2 million.
-22-
<PAGE> 26
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
During the Summer of 1994, the Company approved the plans for a new racing
facility and commenced construction of the foundation thereof in August 1994.
The total cost of the facility, together with furniture, fixtures, equipment
and certain fees and permit costs, was anticipated to be approximately $24.3
million at the time construction commenced, which is in addition to the $3.2
million relating to debris removal and construction of the tele-track facility,
as described.
As of April 30, 1996, construction of the facility was approximately 60%
completed, and the Company had incurred construction costs of approximately
$15.7 million. Insurance proceeds recovered to date and interim financing
provided by FNBC, as described below, provided the source of funds used in such
construction. However, for the reasons described below, further construction
work on the project has been halted. As a result (i) the cost to complete the
project cannot now be determined with any certainty and (ii) the Company will
utilize the temporary tent facilities and the tele-track facility during the
next racing season.
As previously reported, the Company received and accepted a commitment letter
dated February 6, 1995 from FNBC for a non-revolving line of credit to be used
as an interim construction loan, convertible to a term loan. The aggregate
principal amount of such loan under the terms of such commitment was to have
been $17.5 million. The commitment from FNBC provided that the interim
construction loan was to have closed on or before March 31, 1995. However, the
parties agreed to various extensions of such closing date. FNBC indicated that
the principal reason for the delay was FNBC's concern with restrictions on and
the possible elimination of video poker gaming in Louisiana. Inasmuch as video
poker franchise tax monies generated by the Company and its tele-tracks were to
be used for the repayment of the FNBC loan, in accordance with the tax relief
legislation described herein, any change in the video poker gaming laws which
restricts or limits video poker as a source of revenue may have an adverse
impact of such source of repayment.
During 1995 FNBC provided the Company with short-term interim construction
loans of $2.15 million on July 17, 1995, $4 million on November 7, 1995 and $1
million on November 30, 1995. All of such financing was then consolidated
under the Loan Agreement dated December 18, 1995, pursuant to which the Company
borrowed an aggregate amount of $9,493,050 and utilized a portion of such funds
to repay the principal amount of the prior loans that was outstanding on
December 18, 1995. The remaining amount borrowed was utilized to pay
construction costs.
Pursuant to the Loan Agreement, FNBC agreed to extend credit to the Company up
to aggregate principal amount of $9,493,050 until October 31, 1996. The Loan
Agreement states that such commitment is not a revolving credit facility, and
the commitment is only to
-23-
<PAGE> 27
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
make loans up to such principal amount. Accordingly, FNBC has no obligation
under the Loan Agreement to lend additional funds to the Company.
Payment of the principal and interest under the loan agreement is to be made on
demand, or if no demand is made, then in 10 monthly installments of $52,740
principal plus interest, beginning January 17, 1996, and one final payment of
all principal plus accrued interest on October 31, 1996. The loan bears
interest at 9% per annum. On each monthly payment date, payment of principal
and interest is to be made from the proceeds of the funds received as a result
of the video poker tax relief legislation, which funds are to be on deposit in
a separate lockbox, in accordance with a Disbursement Agreement.
In December 1995, the Company made a payment to Louie J. Roussel, III of $1
million of the remaining $2 million principal balance owed to him and agreed
that the outstanding principal balance of $1 million will be due and payable on
October 31, 1996.
There is considerable uncertainty in Louisiana at the present time regarding
the future of the gaming industry. The cessation of construction and
subsequent bankruptcy of the land-based casino in New Orleans in November 1995
have adversely affected tax revenue for both the State of Louisiana and the
city of New Orleans. Notwithstanding that loss of revenue, the legislature, in
a special session held in March 1996, passed legislation calling for local
elections to be held in November 1996 to determine the future of casinos,
riverboats and video poker in Louisiana. The Company's ability to obtain
future financing will depend on the outcome of these elections.
The Company has 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 its agreement with VSI
and the term of the option period conditioned upon the closing of the
anticipated long-term bank financing.
In addition to the foregoing, Marie G. Krantz has committed to make a $1
million loan to the Company, which would be conditioned upon the closing of,
and subordinate in right of payment to, the long-term FNBC financing. Although
specific terms of such loan have not been discussed, it is likely that the loan
would be interest-bearing, and that payments would be made after the repayment
of the FNBC financing. The Company is also engaged in discussions with
AutoTote to lend or advance $2.5 million to the Company, such amount to be
repaid through a subordinate loan arrangement or through an extension of the
lease terms relating to the totalisator equipment.
In view of the cessation of construction and the additional expense
-24-
<PAGE> 28
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
which is likely to be incurred as a result of construction delays,
it is not certain that, even if all of such financing is consummated, including
the long-term financing by FNBC in accordance with the terms of the original
commitment, the Company will be able to complete the construction of its new
facility as presently planned. It may be necessary to (i) obtain funds from
other sources, (ii) attempt to increase the amount of long-term financing from
FNBC or (iii) seek to effect savings in the construction costs related to the
completion of the facility. The Company has had no discussions with any other
possible source of such financing, nor has it reached any understanding with
FNBC regarding any increase in the financing which the Company hopes to obtain
from FNBC as originally committed by FNBC. It should also be noted that FNBC
and the Company are not currently engaged in any discussions concerning the
terms and conditions of the definitive agreements relating to such long-term
financing given the uncertain climate regarding the future of video poker and
other forms of wagering. The fact that the local option elections described
above are not to be held until November 1996, after the indebtedness to FNBC
becomes due and payable, adds additional uncertainty to the Company's ability
to obtain long-term financing. Accordingly, there can be no assurance that
definitive agreements will be reached, or, if reached, that they will be in
accordance with the terms of the original commitment. In the event that such
long-term financing is not completed by October 31, 1996, or that the funds
provided through all sources of such financing are insufficient to meet the
Company's needs, the foregoing uncertainties raise substantial doubt about the
Company's ability to continue as a going concern.
IMPACT OF INFLATION
To date, inflation has not had a material effect on the Company's operations.
-25-
<PAGE> 29
PART II
OTHER INFORMATION
<PAGE> 30
Item 6. Exhibits and Reports on Form 8-K
Exhibit Description
27 Financial Data Schedule (for SEC use only).
-26-
<PAGE> 31
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 8, 1996 By: /s/ Bryan G. Krantz
----------------- -------------------------------
Bryan G. Krantz
President
Date: July 8, 1996 By: /s/ Gordon M. Robertson
----------------- -------------------------------
Gordon M. Robertson
Chief Financial Officer
-27-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FAIR GROUNDS CORP FOR THE SIX MONTHS ENDED APRIL 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<CASH> 1,451
<SECURITIES> 225
<RECEIVABLES> 1,406
<ALLOWANCES> 0
<INVENTORY> 92
<CURRENT-ASSETS> 4,444
<PP&E> 38,435
<DEPRECIATION> 14,768
<TOTAL-ASSETS> 31,467
<CURRENT-LIABILITIES> 14,916
<BONDS> 0
0
0
<COMMON> 1,525
<OTHER-SE> 12,056
<TOTAL-LIABILITY-AND-EQUITY> 31,467
<SALES> 11,339
<TOTAL-REVENUES> 15,612
<CGS> 0
<TOTAL-COSTS> 13,455
<OTHER-EXPENSES> 2,153
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 388
<INCOME-PRETAX> 1,534
<INCOME-TAX> 520
<INCOME-CONTINUING> 1,014
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,014
<EPS-PRIMARY> 2.16
<EPS-DILUTED> 2.16
</TABLE>
