<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 July 31, 2000 Commission File Number O-7607
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FAIR GROUNDS CORPORATION
------------------------
(Exact name of registrant as specified in its charter)
Louisiana 72-0361770
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1751 Gentilly Blvd., New Orleans, LA 70119
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (504) 944-5515
--------------
Not Applicable
--------------------------------------------------------------------------------
(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
468,580 Common Shares were outstanding as of September 1, 2000.
<PAGE> 2
FAIR GROUNDS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet, July 31, 2000 (Unaudited)
and Balance Sheet, October 31, 1999 3
Statements of Operations and Retained
Earnings for the Three Months Ended
July 31, 2000 and 1999 (Unaudited) 5
Statements of Operations and Retained
Earnings for the Nine Months Ended
July 31, 2000 and 1999 (Unaudited) 8
Statements of Cash Flows for the Nine
Months Ended July 31, 2000 and 1999
(Unaudited) 11
Notes to Financial Statements for the Nine
Months Ended July 31, 2000 and 1999 (Unaudited) 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 27
</TABLE>
2
<PAGE> 3
PART I
FINANCIAL INFORMATION
FAIR GROUNDS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
July 31, October 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,791,105 $ 8,488,808
Cash and cash equivalents
- restricted 131,068 125,665
Accounts receivable 773,020 1,079,222
Mutuel settlements -- 181,630
Inventory 130,778 125,156
Prepaid expenses 1,239,402 468,165
Deferred Taxes 103,600 103,600
------------ ------------
Total Current Assets 11,168,973 10,572,246
------------ ------------
OTHER ASSETS 88,097 53,768
------------ ------------
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 44,297,167 44,177,698
Land improvements 4,463,899 4,463,899
Automotive equipment 995,765 963,243
Machinery and equipment 2,799,243 2,696,449
Furniture and fixtures 425,202 405,352
------------ ------------
Total 52,981,276 52,706,641
Less: accumulated depreciation
and amortization (18,913,891) (17,667,397)
------------ ------------
Depreciable property - net 34,067,385 35,039,244
Land 3,286,281 3,286,281
------------ ------------
Property, plant and
equipment - net 37,353,666 38,325,525
------------ ------------
TOTAL ASSETS $ 48,610,736 $ 48,951,539
============ ============
</TABLE>
(Continued)
3
<PAGE> 4
FAIR GROUNDS CORPORATION
BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
(Unaudited)
July 31, October 31,
2000 1999
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 369,215 $ 109,613
Accounts payable 267,107 849,288
Accrued liabilities:
Deferred purses 5,053,282 8,104,835
Host track fees 548,191 432,721
Uncashed mutuel tickets 533,856 391,790
Other 581,081 543,183
Deferred revenues 163,090 282,970
Income taxes payable 1,059,201 4,932
------------ ------------
Total Current Liabilities 8,575,023 10,719,332
------------ ------------
DEFERRED INCOME TAXES 9,652,819 9,652,819
------------ ------------
Total Liabilities 18,227,842 20,372,151
------------ ------------
STOCKHOLDERS' EQUITY
Capital stock - no par value;
authorized 600,000 shares,
469,940 shares issued and
468,580 shares outstanding 1,525,092 1,525,092
Additional paid-in-capital 1,936,702 1,936,702
Retained earnings 26,956,625 25,153,119
------------ ------------
Total 30,418,419 28,614,913
Less: treasury stock at cost,
1,360 shares (35,525) (35,525)
------------ ------------
Total Stockholders' Equity 30,382,894 28,579,388
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 48,610,736 $ 48,951,539
============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For the Three Months Ended July 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
REVENUES
Pari-mutuel commissions $ 4,833,115 $ 5,202,953
Breakage 124,497 141,970
Uncashed mutuel tickets 266,359 267,610
------------ ------------
Total 5,223,971 5,612,533
Less: pari-mutuel tax 631,779 678,765
------------ ------------
Total Mutuel Income 4,592,192 4,933,768
Concessions 335,226 295,583
Video poker (net) 412,177 416,584
Admissions (net of taxes) 42,818 73,032
Programs and forms 253,951 318,532
Miscellaneous 309,467 283,098
------------ ------------
Total Operating Revenues 5,945,831 6,320,597
------------ ------------
RACING EXPENSES
Purses 1,831,706 1,936,626
Salaries and related taxes
and benefits 1,566,156 1,730,864
Contracts and services 456,273 437,302
Host track fees 774,292 831,271
Depreciation 418,097 484,341
Cost of sales - concessions 125,101 89,431
Utilities 210,200 223,855
Repairs and maintenance 199,994 145,506
Programs, forms and other
supplies 360,145 324,599
Advertising and promotion 61,246 373,885
Rent 141,454 101,579
Miscellaneous 63,388 67,742
------------ ------------
Total Racing Expenses $ 6,208,052 $ 6,747,001
------------ ------------
</TABLE>
(Continued)
5
<PAGE> 6
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(CONTINUED)
For the Three Months Ended July 31, 2000 and 1999
(Unaudited)
<TABLE>
2000 1999
------------ ------------
<S> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and related taxes
and benefits $ 1,106,191 $ 373,965
Insurance 217,549 241,632
Property taxes 239,522 244,680
Legal, audit and director fees 146,523 359,250
Contracts and services 33,192 33,027
Office expenses 97,511 96,458
Miscellaneous 54,212 83,468
------------ ------------
Total General and
Administrative Expenses 1,894,700 1,432,480
------------ ------------
NET LOSS FROM OPERATIONS (2,156,921) (1,858,884)
OTHER INCOME (EXPENSE)
Jazz and Heritage Festival Income 1,082,802 193,674
Interest expense (3,170) (6,712)
Interest income 56,523 45,403
------------ ------------
Total Other Income (Expense) 1,136,155 232,365
------------ ------------
LOSS BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES (1,020,766) (1,626,519)
Provision (Benefit) for income taxes (377,684) (662,994)
------------ ------------
NET LOSS (per share
2000 - $1.37, 1999 - $2.06) $ (643,082) $ (963,525)
RETAINED EARNINGS, BEGINNING OF
PERIOD $ 27,599,707 $ 30,610,082
</TABLE>
(Continued)
6
<PAGE> 7
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(CONTINUED)
For the Three Months Ended July 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
RETAINED EARNINGS, END OF PERIOD $ 26,956,625 $ 29,646,557
============ ============
CASH DIVIDENDS PER SHARE $ NONE $ NONE
============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 468,580 468,580
============ ============
</TABLE>
See accompanying notes to financial statements
7
<PAGE> 8
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For the Nine Months Ended July 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
REVENUES
Pari-mutuel commissions $ 20,491,668 $ 20,881,549
Breakage 540,562 578,369
Uncashed mutuel tickets 420,481 441,634
------------ ------------
Total 21,452,711 21,901,552
Less: pari-mutuel tax 2,580,986 2,626,526
------------ ------------
Commission income 18,871,725 19,275,026
Host track fees 11,356,149 10,311,004
------------ ------------
Total Mutuel Income 30,227,874 29,586,030
Concessions 2,014,660 2,045,898
Video poker (net) 1,321,624 1,295,708
Admissions(net of taxes) 573,258 647,019
Parking 53,904 56,606
Programs and forms 1,121,312 1,188,800
Miscellaneous 843,748 935,555
------------ ------------
Total Operating Revenues 36,156,380 35,755,616
------------ ------------
RACING EXPENSES
Purses 13,108,809 12,748,240
Salaries and related taxes
and benefits 6,779,616 6,403,511
Contracts and services 2,409,633 2,331,287
Host track fees 2,470,319 2,477,603
Depreciation 1,246,494 1,464,857
Cost of sales - concessions 716,403 659,576
Utilities 788,088 722,611
Repairs and maintenance 533,561 520,760
Programs, forms and other
supplies 1,409,643 1,486,922
Advertising and promotion 1,004,223 1,105,582
Rent 451,015 266,292
Miscellaneous 440,267 526,551
------------ ------------
Total Racing Expenses $ 31,358,071 $ 30,713,792
------------ ------------
</TABLE>
(Continued)
8
<PAGE> 9
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(CONTINUED)
For the Nine Months Ended July 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and related taxes
and benefits $ 1,622,613 $ 1,577,235
Insurance 608,885 657,713
Property taxes 721,727 724,550
Legal, audit and director fees 480,955 795,897
Contracts and services 95,149 97,321
Office expenses 370,236 252,726
Miscellaneous 398,784 1,274,084
------------ ------------
Total General and
Administrative Expenses 4,298,349 5,379,526
------------ ------------
NET INCOME (LOSS) FROM OPERATIONS 499,960 (337,702)
OTHER INCOME (EXPENSE)
Jazz and Heritage Festival Income 1,953,306 1,248,320
Interest expense (13,746) (17,021)
Interest income 96,040 114,923
------------ ------------
Total Other Income (Expense) 2,035,600 1,346,222
------------ ------------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY ITEM 2,535,560 1,008,520
Provision for income taxes 938,157 511,676
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INCOME BEFORE EXTRAORDINARY ITEM
(per share - 2000 - $3.41,
1999 - $1.06) 1,597,403 496,844
Extraordinary item - gain from fire
(net of $121,044 and $1,593,312
of taxes in 2000 and 1999,
respectively) 206,103 2,389,968
------------ ------------
NET INCOME (per share
2000 - $3.84, 1999 - $6.16) $ 1,803,506 $ 2,886,812
RETAINED EARNINGS, BEGINNING OF
PERIOD $ 25,153,119 $ 27,228,325
</TABLE>
9
<PAGE> 10
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(CONTINUED)
For the Nine Months Ended July 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
DIVIDENDS PAID $ -- $ (468,580)
------------ ------------
RETAINED EARNINGS, END OF PERIOD $ 26,956,625 $ 29,646,557
============ ============
CASH DIVIDENDS PER SHARE $- $ 1.00
============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 468,580 468,580
============ ============
</TABLE>
See accompanying notes to financial statements
10
<PAGE> 11
FAIR GROUNDS CORPORATION
STATEMENTS OF CASH FLOWS
For the Nine Months Ended July 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,803,506 $ 2,886,812
------------ ------------
Adjustments to reconcile net income
to net cash used for
operating activities:
Extraordinary item -
gain from fire (327,147) (3,983,280)
Depreciation 1,246,494 1,464,857
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable 487,832 586,633
Inventory (5,622) (3,656)
Prepaid expenses (771,237) (1,429,997)
Restricted cash (5,403) (7,447)
Increase (decrease) in
Accounts payable and
accrued liabilities (428,813) (1,180,220)
Deferred revenue (119,880) (38,091)
Deferred purses (3,051,553) (2,939,691)
Income taxes payable 1,054,269 1,546,535
Uncashed mutuel tickets 142,066 28,826
Contracts Payable -- (58,732)
Total adjustments (1,778,994) (6,014,263)
------------ ------------
Net cash provided by operating
activities 24,512 (3,127,451)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from litigation
settlement 327,147 3,983,280
Capital expenditures (274,635) (460,883)
Decrease (Increase) in deposits (34,329) 11,609
------------ ------------
Net cash provided by investing
activities 18,183 3,534,006
------------ ------------
</TABLE>
(Continued)
11
<PAGE> 12
FAIR GROUNDS CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
For the Nine Months Ended July 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Loan proceeds $ 426,253 $ 346,131
Principal repayments on loans (166,651) (199,275)
Advances from third party 1,000,000 1,000,000
Repayments to third party (1,000,000) (1,000,000)
Dividends Paid -- (468,580)
------------ ------------
Net cash provided by (used for)
financing activities 259,602 (321,724)
------------ ------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 302,297 84,831
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 8,488,808 7,577,730
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 8,791,105 $ 7,662,561
============ ============
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 13,746 $ 17,021
============ ============
Income taxes paid $ 345,000 $ 1,283,000
============ ============
</TABLE>
12
<PAGE> 13
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended July 31, 2000 and 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying Financial Statements have been prepared in accordance with the
instructions to Form 10-Q and reflect all adjustments which management believes
necessary (which adjustments are of a normal recurring nature) to present fairly
the results for the periods stated.
The Company's business is seasonal, and interim results are not necessarily
indicative of results which may be expected for any other interim period or for
the year as a whole.
For further information refer to the Financial Statements and footnotes included
in the Company's Annual Report on Form 10-K for the fiscal year ended October
31, 1999.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
Fire Related Litigation
The following is a brief description of the Traveler's Litigation that arose as
a result of the December 1993 fire and in connection with the Company's efforts
to collect insurance proceeds after the fire and that was concluded during the
first nine months of fiscal 2000: 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 contended that the
insurance policy provided by Travelers provided the Company with blanket
coverage in the amount of $24.2 million in excess of the $10 million of
underlying coverage, and, accordingly, that Travelers was liable for the
difference between $24.2 million and the amount previously paid by Travelers
(approximately $9.5 million), plus statutory penalties of 10% of the amount not
paid, interest, attorney's fees and costs. The Company further contended that
the insurance agent and the
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended July 31, 2000 and 1999
(Unaudited)
NOTE 2 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
insurance broker who arranged for the insurance were liable to the Company for
any damages sustained because the amount of coverage was less than that claimed
by the Company. Travelers' position was that its liability under such policy was
limited to the amount which it had previously paid. In November 1996, the
Company entered into a joint settlement with the insurance agent and broker,
whereby the Company received a total of $10 million from those parties. The
settlement also included a "Mary Carter" provision whereby the insurance agent
and broker became entitled to share in certain recoveries that the Company might
eventually obtain on its remaining claims against Travelers. The litigation
against Travelers was concluded in January 2000 and the Company was awarded an
additional $327,147 in attorneys fees, penalties and interest which was paid by
Travelers. Under the Mary Carter provision, the Company was entitled to retain
the full amount of such payment. This recovery of $206,103 (net of $121,044 of
income taxes) is shown as an extraordinary item on the Company's statement of
operations for the nine months ended July 31, 2000.
Other Litigation
In 1996, a suit was filed in U.S. District Court in Baton Rouge by Livingston
Downs Racing Association ("Livingston") naming the Company and other defendants
in an antitrust/civil RICO suit alleging the Company participated in a
conspiracy to prevent the plaintiff from entering the live racing, off-track
betting and video poker markets. The Company filed a motion for summary judgment
in late 1998, but that motion has not been decided by the U.S. District Court.
Livingston had previously filed a series of other legal actions against the
Company which were resolved in the Company's favor. Management believes that
Livingston's claims in this case are without merit. However, there is no
assurance that the Company will successfully defend all of Livingston's claims.
Because the amount in question has not yet been determined but could be
substantial and because there is no assurance that there will be insurance
coverage or that it will be adequate, as discussed below, the failure of the
Company to prevail in this
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended July 31, 2000 and 1999
(Unaudited)
NOTE 2 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
lawsuit could have a material adverse effect on the Company's operations,
financial condition and cash flows. In a declaratory judgment action related to
the Livingston suit brought by insurers for the Company and several of its
affiliates, which case has been consolidated with the suit filed by Livingston,
on January 14, 1999 the U. S. District Court granted the Company's motion for
summary judgment, finding that coverage exists under certain of the Company's
insurance policies for claims asserted by Livingston and that the insurers have
a duty to defend. The insurers have filed a motion for new trial that is pending
in the U. S. District Court. There is no assurance that the motion for new trial
will be denied or, if denied, that the decision of the U. S. District Court will
be affirmed on appeal or that the insurance policies will provide sufficient
coverage to indemnify the Company fully.
A suit was filed in 1996 by the Louisiana Horsemen's Benevolent and Protective
Association ("LHBPA"), an association of horsemen organized to promote the
dissemination of information on issues critical to horsemen and the exchange of
ideas and information, against the Company, the State of Louisiana, and all
other pari-mutuel wagering facilities operating in Louisiana. The LHBPA is
seeking a larger portion of video poker proceeds on the grounds that the State
of Louisiana and the horse racing tracks in Louisiana have misinterpreted a
Louisiana statute specifying the amount of revenues from video poker machines at
pari-mutuel wagering facilities that are to be used as purse supplements. A
motion for summary judgment seeking dismissal of this action was filed in April
1999 and is pending before the court. On August 8, 2000, the court denied a
motion for summary judgment filed by another pari-mutuel wagering facility. In
the process of denying that motion, the court indicated that it appeared that
the pari-mutuel wagering facilities were improperly deducting tax payments in
calculating the amount of revenues to be used in determining purse supplements.
Notwithstanding such indication by the court, management believes that the
Company is in compliance with the Louisiana statute and the guidelines
established by the Louisiana State Police Gaming Division, which
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
For the Nine Months Ended July 31, 2000 and 1999
(Unaudited)
NOTE 2 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
regulates compliance with the State of Louisiana video poker law, and that the
Company has sufficient defenses to all claims. However, there is no assurance
that the Company will successfully defend the LHBPA's claims. Because the amount
in question could be substantial, the failure by the Company to prevail in this
lawsuit could have a material adverse effect on the Company's operations,
financial condition and cash flows. 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.
NOTE 3 - ADVANCE
In January 2000, the Company received a non-interest bearing advance of
$1,000,000 from Video Services, Inc., which was repaid in full in six equal
monthly installments beginning in February 2000.
NOTE 4 - SUBSEQUENT EVENT
On August 29, 2000, the Company's Board of Directors adopted a resolution to
amend the Company's Articles of Incorporation to provide for a reverse stock
split that would have the effect of reducing the number of shareholders of
record of the Company below 300 and enabling the Company to deregister its
common shares under the Securities Exchange Act of 1934. The proposed amendment,
which is subject to shareholder approval, calls for a reverse stock split in
which each 200 common shares outstanding at the effective time of the amendment
will be combined into one share but also provides for a reduction in the one for
200 ratio if that ratio results in the transaction being classified as a
"business combination" under certain provisions of the Business Corporation Law
of Louisiana. The proposed amendment also provides that no fractional shares
will be issued in the reverse stock split and that $40.00 cash will be paid for
each common share outstanding immediately prior to the effective time of the
reverse stock split that is not combined into a whole share as a
16
<PAGE> 17
result of the reverse stock split. The Company anticipates that a special
meeting of shareholders will be held in October or November 2000 to take action
on the proposed amendment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JULY 31, 2000 AND 1999
Revenues. During the fiscal quarters ended July 31, 2000 and 1999, the Company
derived its pari-mutuel income from the operation of its tele-tracks for
off-track wagering. During each such fiscal quarter, the Company operated
tele-tracks in New Orleans at the Fair Grounds Race Course and on Bourbon
Street, and at locations in Jefferson, Lafourche, St. Bernard and St. John
Parishes, Louisiana. Through Finish Line Management Corporation, an affiliated
company ("Finish Line"), the Company operated tele-track facilities in
Terrebonne, St. Tammany, and Jefferson Parishes, Louisiana. In late July 2000,
the Company closed its Bourbon Street tele-track. However, the Company believes
that this closure will not have a material adverse effect on the Company's
operations based upon the lack of profitability of that tele-track in the past.
Comparative pari-mutuel wagering and attendance figures for the quarters ended
July 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Pari-mutuel wagering:
Off-track handle $ 23,955,491 $ 25,835,364
------------ ------------
Total On-Track Attendance 101,169 117,459
============ ============
</TABLE>
The Company believes the $1,879,873, or 7.3%, decrease in handle and the 16,290,
or 13.8%, decrease in attendance during the third quarter of fiscal 2000 are
primarily due to the opening in May 2000 of a new tele-track facility owned by
Finish Line in Kenner, Louisiana. The Kenner tele-track is located approximately
eight miles from the Company's Metairie, Louisiana tele-track. The Company is
planning to open a new tele-track in late 2000 in
17
<PAGE> 18
Harahan, Louisiana and believes that the handle and attendance at that facility
will partially or completely offset the decreases in handle and attendance
attributable to the new Kenner tele-track.
The Company's total operating revenues in the third quarter of fiscal 2000
decreased $374,766, or 5.9%, from the comparable quarter in the prior year,
including decreases of $369,838, or 7.1%, in commissions; $17,473, or 12.3%, in
breakage; $30,214, or 41.4%, in admissions; and $64,581, or 20.3%, in programs
and forms revenues. These decreases are primarily the result of the declines in
handle and attendance at the Company's Metairie tele-track, as well as the
closing of the Bourbon Street tele-track on July 23, 2000 and the termination of
the practice of charging for admission at the Company's St. Bernard Parish
tele-track.
These decreases were partially offset by increases in concessions revenue in the
third quarter of the current fiscal year attributable to increased concessions
sales in the grandstand building at the Fair Grounds Race Course during the 2000
Jazz and Heritage Festival. This increase in concession sales was due, in part,
to a timing difference for revenues attributable to the Jazz and Heritage
Festival, as discussed below, as well as an increase in the price of beverages
at the 2000 Festival compared to the 1999 Festival.
Louisiana has recently enacted legislation that will permit the Company to
accept telephone and Internet wagers. While the Company is optimistic about the
long term benefits of such wagering, the Company has not yet installed systems
to accept such wagering, and the Company does not anticipate generating revenue
from such sources in the current fiscal year.
Racing Expenses. Total racing expenses for the quarter ended July 31, 2000
decreased $538,949, or 8%, from the comparable quarter in the prior fiscal year,
including decreases of $104,920, or 5.4%, in purses; $164,708, or 9.5%, in
salaries and benefits; and $56,979, or 6.9%, in host track fees. The decreases
in mutuel expenses are primarily the result of the decreased mutuel handle
described above. Salaries and benefits were higher in the comparable quarter in
fiscal 1999 due to a settlement of overtime wages that was paid in that period.
Depreciation expense in the third quarter of fiscal 2000 decreased from the
comparable quarter in fiscal 1999 primarily as a result of many tele-track
improvements becoming fully depreciated in the prior fiscal year.
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<PAGE> 19
Advertising and promotional expenses decreased by $312,639, or 83.6%, in the
third quarter of fiscal 2000 as a result of the timing of payments of race
related advertising expenses. In the current year, those advertising bills were
paid in the second fiscal quarter while payments covering similar advertising
expenses were made in the third quarter of fiscal 1999. There are no significant
differences in year to date advertising expenses.
The decreases in the above-enumerated racing expenses were partially offset by
increases in cost of concessions, repairs and maintenance, and rent. As
previously reported, the Company is now paying rent for a new tele-track
location in Harahan, Louisiana which is expected to open later in 2000.
General and Administrative Expenses. General and administrative expenses in the
third quarter of fiscal 2000 increased by $462,220, or 32.3%, which includes an
increase in salaries and benefits partially offset by a decrease in legal fees.
The increase in salaries was primarily attributable to a timing difference, with
bonuses being paid in the third quarter of fiscal 2000 while bonuses were paid
in the first quarter of fiscal 1999. Legal fees decreased $212,727, or 59.2%, as
a result in a decrease in fire and other litigation discussed elsewhere herein.
Other Income. Other income increased $903,790, or 389%, in the third quarter of
fiscal 2000 primarily as a result of an increase of $889,128 in Jazz and
Heritage Festival income. The increase in Jazz and Heritage Festival income was
partially attributable to a timing difference, with four days of the 2000
Festival falling in the third quarter of the current fiscal year compared to two
days of the 1999 Festival falling in the comparable period in fiscal 1999. The
increase in other income was also attributable to an increase in beverage prices
at the 2000 Festival.
Income Taxes. For the quarter ended July 31, 2000, the income tax benefit was
$377,684, compared to $662,994 in the comparable quarter in fiscal 1999. The
difference between periods reflects changes in pre-tax income between the
respective periods.
Net Income (Loss). The Company reported a net loss of $643,082 for the quarter
ended July 31, 2000, compared to a net loss of $963,525 for the quarter ended
July 31, 1999.
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<PAGE> 20
COMPARISON OF THE NINE MONTHS ENDED JULY 31, 2000 AND 1999
Revenues. During the nine months ended July 31, 2000 and 1999, the Company
derived its pari-mutuel income by conducting 88 live racing days during each
nine month period and in the operation of its tele-tracks for off-track
wagering. During each such period, the Company operated tele-tracks in New
Orleans at the Fair Grounds Race Course and on Bourbon Street, and at locations
in Jefferson, Lafourche, St. Bernard and St. John Parishes, Louisiana. Through
Finish Line, the Company operated tele-track facilities in Terrebonne, St.
Tammany, and Jefferson Parishes, Louisiana. In late July 2000, the Company
closed its Bourbon Street tele-track. However, the Company believes that this
closure will not have a material adverse effect on the Company's operations
based upon the lack of profitability of that tele-track in the past.
For the nine months ended July 31, 2000, the Company reported total in-state
pari-mutuel wagering of $101,807,095, compared to $104,372,668, in the
comparable period in fiscal 1999.
Comparative pari-mutuel wagering and attendance figures for the nine months
ended July 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Pari-mutuel wagering:
On-track handle $ 26,136,189 $ 27,412,562
Off-track handle 75,670,906 76,960,106
------------ ------------
Total in-state wagering $101,807,095 $104,372,668
============ ============
Out-of-state simulcast handle $366,467,601 $321,342,925
============ ============
Total On-Track Attendance 412,081 453,925
============ ============
</TABLE>
The Company believes that the $1,276,373, or 4.6%, decrease in on-track handle
is primarily due to the increased competition locally from the land-based casino
which opened in October 1999 and from other simulcast signals competing with the
Company's signal.
The Company believes that the $1,289,200, or 1.7%, decrease in off-track handle
is primarily due to the opening in May 2000 of a new tele-track facility by
Finish Line in Kenner, Louisiana. The Kenner tele-track is located approximately
eight miles from the Company's tele-track in Metairie, Louisiana. The Company is
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<PAGE> 21
planning to open a new tele-track in late 2000 in Harahan, Louisiana and
believes that the handle and attendance at that facility will partially or
completely offset the decreases in handle and attendance attributable to the new
Kenner tele-track. The Company believes that the $45,124,676, or 14%, increase
in out-of-state handle is primarily due to the continued high quality of racing
at the Fair Grounds Race Course. In addition, during the nine months ended July
31, 2000, the Company experienced significant handle increases from California,
as the Company's races became one of the two featured simulcasts signals in that
state starting in January 2000.
Primarily as a result of the out-of-state handle increase, the Company's total
operating revenues in the nine months ended July 31, 2000 increased $400,764, or
1.1%, from the comparable period in the prior fiscal year, including an increase
of $1,045,145, or 10.1%, in host track fees. In addition, net video poker
revenues in the current fiscal year period increased by $25,916, or 2.0% from
the comparable period in fiscal 1999. The increases in host track fees and net
video poker revenue in the current fiscal year period were partially offset by
decreases of $389,881, or 1.9%, in pari-mutuel commissions; $37,807, or 6.5%, in
breakage; $31,238, or 1.5%, in concessions revenue; $73,761, or 11.4%, in
admissions revenues; and $2,702, or 4.8%, in parking revenue. These decreases
are mainly attributable to declines in on-track attendance and handle during the
current fiscal year period as well as the termination of the practice of
charging for admission at the Company's St. Bernard Parish tele-track.
Racing Expenses. Total racing expenses for the nine months ended July 31, 2000
increased $644,279, or 2.0%, over the comparable period in the prior fiscal
year, primarily as a result of the increased out-of-state pari-mutuel
activities. The increase in racing expenses was attributable to an increase of
$360,569, or 2.8%, in purses, as well as increases in salaries and related taxes
and benefits, contracts and services, utilities, and rent, partially offset by
decreases in depreciation, advertising and promotions, programs, forms and other
supplies, and miscellaneous expenses.
The increase in rent was due to the increased monthly rent at the Bourbon Street
tele-track location until its closure in July 2000, as well as rent payments,
beginning in February 2000, for a new tele-track location to be opened in
Harahan, Louisiana. Depreciation decreased in the current fiscal year period due
to
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<PAGE> 22
many of the tele-track's leasehold improvements becoming fully depreciated in
the prior fiscal year.
General and Administrative Expenses. General and administrative expenses
decreased by $1,081,177, or 20%, in the current fiscal year period primarily as
a result of decreases in legal, audit and director fees, insurance, and
miscellaneous expenses. Legal, audit and director fees decreased in the current
fiscal year period as a result of the conclusion prior to the period of most of
the fire-related litigation. In the fiscal 1999 period, miscellaneous expenses
included a guarantee fee of approximately $988,000 paid in connection with a
guaranty of corporate indebtedness. No guaranty fee was paid in the current
fiscal year period.
Other Income (Expense). Other income increased in the nine months ended July 31,
2000 by $689,378, or 51.2%, compared to the first nine months of fiscal 1999
primarily as a result of a $704,986 increase in Jazz and Heritage Festival
income. The increase is attributable to an increase in the sales prices of
beverages sold at the 2000 Festival.
Extraordinary Items. During the nine months ended July 31, 1999, the Company
received settlement payments in connection with the fire-related litigation in
the aggregate amount of $3,983,280. These proceeds were reported net of
$1,593,312 of related taxes. In the comparable period in the current fiscal
year, the Company received $327,147 in connection with the fire-related
litigation, which is shown net of $121,044 of related taxes.
Income Taxes. For the nine months ended July 31, 2000, the income tax provision
was $938,157, compared to $511,676 in the comparable period in fiscal 1999. The
difference between periods reflects changes in pre-tax income between the
respective periods.
Net Income. The Company reported net income of $1,803,506 for the nine months
ended July 31, 2000 compared to net income of $2,886,812 for the nine months
ended July 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
General
Cash and cash equivalents increased $302,297 during the nine months ended July
31, 2000 compared to an increase of $84,831
22
<PAGE> 23
during the nine months ended July 31, 1999. The increase in cash and cash
equivalents in fiscal 2000 was the result of cash provided by operating
activities of $24,512, cash provided by investing activities of $18,183 and cash
provided by financing activities of $259,602.
In November 1999, the Company entered into a working capital line of credit
agreement with First Bank and Trust. The line of credit is for $2.5 million with
a variable interest rate on amounts outstanding. No amounts were drawn or
outstanding on the line of credit during the nine months ended July 31, 2000.
On August 29, 2000, the Company's Board of Directors adopted a resolution to
amend the Company's Articles of Incorporation to provide for a reverse stock
split that would have the effect of reducing the number of shareholders of
record of the Company below 300 and enabling the Company to deregister its
common shares under the Securities Exchange Act of 1934. The proposed amendment,
which is subject to shareholder approval, calls for a reverse stock split in
which each 200 common shares outstanding at the effective time of the amendment
will be combined into one share but also provides for a reduction in the one for
200 ratio if that ratio results in the transaction being classified as a
"business combination" under certain provisions of the Business Corporation Law
of Louisiana. The proposed amendment also provides that no fractional shares
will be issued in the reverse stock split and that $40.00 cash will be paid for
each common share outstanding immediately prior to the effective time of the
reverse stock split that is not combined into a whole share as a result of the
reverse stock split. The Company anticipates that a special meeting of
shareholders will be held in October or November 2000 to take action on the
proposed amendment. The Company estimates that the total cost to the Company of
the reverse stock split will be approximately $1,225,000.
The Company believes that the combination of existing cash, cash from future
operations, funds available under its working capital line of credit, and the
Company's capacity to incur short-term and long-term indebtedness, if necessary,
will be sufficient to fund the Company's cash requirements for the foreseeable
future, including payment of cash in lieu of fractional shares if the reverse
stock split is effected. The Company has a deferred tax liability of
approximately $9.65 million at July 31, 2000 arising from fire insurance and
other litigation settlements that is to be paid over approximately 38 years. The
Company currently
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<PAGE> 24
anticipates payment of that liability with funds obtained through the sources
outlined above.
Impact of Inflation
To date, inflation has not had a material effect on the Company's operations.
FORWARD-LOOKING STATEMENTS
The statements in this quarterly Report that are forward-looking are based upon
current expectations, and actual results may differ materially. Therefore, the
inclusion of such forward-looking information should not be regarded as a
representation by the Company that the objectives or plans of the Company will
be achieved. Such statements include, but are not limited to, the Company's
expectations regarding the source of funds for payment of its deferred tax
liability, the benefits of telephone and Internet wagering, and the adequacy of
its cash, cash equivalents and borrowings available under its new working
capital line of credit to fund the Company's future cash requirements. Words
such as "anticipates," "believes," "expects," "intends," "estimated" and
variations of such words or similar expressions are intended to identify such
forward-looking statements. Forward-looking statements contained herein involve
numerous risks and uncertainties, and there are a number of factors that could
cause actual results to differ materially including, but not limited to, the
following: changing economic, market and business conditions, the ability of the
Company to compete effectively for top horses and trainers necessary to field
high-quality horse racing; the ability of the Company to maintain and, as
opportunities are presented, grow its share of the interstate simulcast market;
a substantial change in allocation of live racing days; the impact of
competition from alternative gaming (including casinos and lotteries) and other
sports and entertainment options in those markets in which the company operates;
and the Company's success in attracting new patrons and generating additional
revenue for purses.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company utilizes an overnight sweep arrangement pursuant to which available
funds are invested in daily repurchase agreements, which are collateralized by
the U.S. government or agency
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<PAGE> 25
securities. The Company also has deposits in U.S. Treasury money market funds,
which are short-term in nature and guaranteed by the U.S. government. Because of
the short-term duration of the financial instruments held by the Company,
management does not believe that its financial instruments are materially
sensitive to changes in interest rates.
25
<PAGE> 26
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of material developments since the beginning of the third
quarter of fiscal 2000 in the Company's legal proceedings see Note 2,
"Commitments and Contingencies," in the Notes to Financial Statements which are
set forth in Part I of this Form 10-Q and incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders held on May 11, 2000, the Company's
shareholders elected directors and also ratified the Board of Directors'
appointment of Rebowe & Company, Certified Public Accountants (A Professional
Corporation), as independent accountants with 355,100 shares voted for
ratification, no shares voted against and no abstentions. The voting with
respect to the nominees for election as directors was as follows:
<TABLE>
<CAPTION>
Nominee Votes
-----------------------
For Withheld
------- --------
<S> <C> <C>
William K. Caldwell, Jr 355,100 0
Richard Katcher 355,100 0
Bryan G. Krantz 355,100 0
Marie G. Krantz 355,100 0
Ronald S. Maestri 355,100 0
Charmaine R. Morel 355,100 0
Langdon H. Stone 355,100 0
Wayne E. Thomas 355,100 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 Financial Data Schedule (for SEC use only)
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<PAGE> 27
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: September 14, 2000 By: /s/ Bryan G. Krantz
---------------------- -------------------------------
President
Date: September 14, 2000 By: /s/ Gordon M. Robertson
---------------------- -------------------------------
Chief Financial Officer
27
