<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For Quarter Ended April 30, 1999 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 Identification No.)
incorporation or organization)
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
468,580 Common Shares were outstanding as of June 1, 1999.
<PAGE> 2
FAIR GROUNDS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Balance Sheet, April 30, 1999 (Unaudited)
and Balance Sheet, October 31, 1998 ........................................ 2
Statements of Operations and Retained
Earnings for the Three Months Ended
April 30, 1999 and 1998 (Unaudited) ........................................ 3
Statements of Operations and Retained
Earnings for the Six Months Ended
April 30, 1999 and 1998 (Unaudited)......................................... 6
Statements of Cash Flows for the Six
Months Ended April 30, 1999 and 1998
(Unaudited) ................................................................ 9
Notes to Financial Statements for the Six
Months Ended April 30, 1999 and 1998 (Unaudited)............................ 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................................... 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................... 29
Item 4. Submission of Matters to a Vote of Security
Holders..................................................................... 29
Item 6. Exhibits and Reports on Form 8-K............................................ 29
SIGNATURES................................................................................................ 30
</TABLE>
<PAGE> 3
PART I
EXPLANATORY NOTE
This Form 10-Q/A is being filed to amend the Registrant's Form 10-Q for the
quarter ended April 30, 1999, which was filed with the Securities and Exchange
Commission on June 14, 1999 to reflect the effects of the restatement of the
Company's financial statements as of, and for the year ended, October 31, 1998
as set forth in the Company's Form 10-K/A for the year ended October 31, 1998.
<PAGE> 4
FINANCIAL INFORMATION
FAIR GROUNDS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
April 30, October 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,370,628 $ 7,577,730
Cash and cash equivalents
- restricted 125,665 118,218
Accounts receivable 1,593,220 1,078,638
Mutuel settlements 389,990 139,964
Inventory 127,529 118,357
Prepaid expenses 1,815,138 437,322
Deferred Taxes 59,940 59,940
------------ ------------
Total Current Assets 8,482,110 9,530,169
------------ ------------
OTHER ASSETS 277,760 283,411
------------ ------------
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 43,957,399 43,870,295
Land improvements 4,348,135 4,348,135
Automotive equipment 963,243 931,424
Machinery and equipment 2,548,797 2,432,433
Furniture and fixtures 394,118 366,575
------------ ------------
Total 52,211,692 51,948,862
Less: accumulated depreciation
and amortization (16,887,790) (15,904,346)
------------ ------------
Depreciable property - net 35,323,902 36,044,516
Land 3,286,281 3,286,281
------------ ------------
Property, plant and
equipment - net 38,610,183 39,330,797
------------ ------------
TOTAL ASSETS $ 47,370,053 $ 49,144,377
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 635,985 $ 46,894
Accounts payable 209,725 1,493,409
Construction contract payable -- 58,732
Accrued liabilities:
Deferred purses 1,381,968 7,930,825
Host track fees 544,068 374,251
Uncashed mutuel tickets 624,048 446,786
Other 246,715 369,135
Deferred revenues -- 275,701
Income taxes payable 2,712,534 515,391
------------ ------------
Total Current Liabilities 6,355,043 11,511,124
------------ ------------
DEFERRED INCOME TAXES 9,995,418 9,995,418
------------ ------------
Total Liabilities 16,350,461 21,506,542
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
------------ ------------
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 27,593,323 24,211,566
------------ ------------
Total 31,055,117 27,673,360
Less: treasury stock at cost,
1,360 shares (35,525) (35,525)
------------ ------------
Total Stockholders' Equity 31,019,592 27,637,835
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 47,370,053 $ 49,144,377
============ ============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 5
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For the Three Months Ended April 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
REVENUES
Pari-mutuel commissions $ 8,525,023 $ 7,583,440
Breakage 232,441 164,069
Uncashed mutuel tickets 90,847 61,912
----------- -----------
Total 8,848,311 7,809,421
Less: pari-mutuel tax 1,020,115 985,375
----------- -----------
Commission income 7,828,196 6,824,046
Host track fees 4,768,461 3,257,958
----------- -----------
Total Mutuel Income 12,596,657 10,082,004
Concessions 868,971 813,935
Video poker (net) 446,060 439,680
Admissions(net of taxes) 277,838 166,239
Parking 25,994 20,505
Programs and forms 440,121 419,714
Miscellaneous 279,044 154,503
----------- -----------
Total Operating Revenues 14,934,685 12,096,580
----------- -----------
RACING EXPENSES
Purses 5,434,563 4,137,271
Salaries and related taxes
and benefits 2,487,827 2,024,239
Contracts and services 979,985 774,356
Host track fees 882,577 938,787
Depreciation 484,340 453,129
Cost of sales - concessions 329,754 276,049
Utilities 298,886 304,702
Repairs and maintenance 130,040 224,987
Programs, forms and other
supplies 574,444 497,469
Advertising and promotion 278,008 222,123
Rent 85,955 78,816
Miscellaneous 242,716 169,723
----------- -----------
Total Racing Expenses $12,209,095 $10,101,651
----------- -----------
</TABLE>
3
<PAGE> 6
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(CONTINUED)
For the Three Months Ended April 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and related taxes
and benefits $ 896,257 $ 328,017
Insurance 188,470 257,326
Property taxes 246,467 219,477
Legal, audit and director fees 329,023 186,056
Contracts and services 10,837 26,495
Office expenses 209,930 157,876
Miscellaneous 1,085,547 147,868
------------ ------------
Total General and
Administrative Expenses 2,966,531 1,323,115
------------ ------------
NET INCOME (LOSS) FROM OPERATIONS (240,941) 671,814
OTHER INCOME (EXPENSE)
Jazz and Heritage Festival Income 1,054,646 526,694
Interest expense (520) (20,239)
Interest income 56,133 17,223
Insurance settlement -- 56,553
------------ ------------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY ITEM 869,318 1,252,045
Provision for income taxes 521,353 463,257
------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM (per share - 1999 - $ .74,
1998 - $1.68) 347,965 788,788
Extraordinary item - gain from fire
(net of $1,521,162 of taxes
in 1999.) 2,267,118 --
------------ ------------
NET INCOME (per share
1999 - $5.58, 1998 - $1.68) $ 2,615,083 $ 788,788
RETAINED EARNINGS, BEGINNING OF
PERIOD $ 25,446,820 $ 23,554,029
</TABLE>
4
<PAGE> 7
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(CONTINUED)
For the Three Months Ended April 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
DIVIDENDS PAID (468,580) --
RETAINED EARNINGS, END OF PERIOD $ 27,593,323 $ 24,342,817
============ ============
CASH DIVIDENDS PER SHARE $ 1.00 $ NONE
============ -===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 468,580 468,580
============ ============
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 8
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For the Six Months Ended April 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
REVENUES
Pari-mutuel commissions $16,054,094 $14,392,714
Breakage 436,399 306,074
Uncashed mutuel tickets 174,024 132,860
----------- -----------
Total 16,664,517 14,831,648
Less: pari-mutuel tax 1,947,761 1,874,035
----------- -----------
Commission income 14,716,756 12,957,613
Host track fees 9,935,506 7,459,016
----------- -----------
Total Mutuel Income 24,652,262 20,416,629
Concessions 1,750,315 1,638,553
Video poker (net) 879,124 842,381
Admissions(net of taxes) 573,967 613,361
Parking 56,628 43,875
Programs and forms 870,268 881,264
Miscellaneous 652,457 302,748
----------- -----------
Total Operating Revenues 29,435,021 24,738,811
----------- -----------
RACING EXPENSES
Purses 10,811,614 8,893,741
Salaries and related taxes
and benefits 4,672,647 4,349,289
Contracts and services 1,713,985 1,510,192
Host track fees1, 646,332 1,537,884
Depreciation 980,516 963,539
Cost of sales - concessions 570,145 541,773
Utilities 498,756 560,356
Repairs and maintenance 375,254 439,862
Programs, forms and other
supplies 1,162,323 1,077,922
Advertising and promotion 731,697 559,391
Rent 164,713 175,272
Miscellaneous 458,809 302,814
----------- -----------
Total Racing Expenses $23,786,791 $20,912,035
----------- -----------
</TABLE>
(Continued)
6
<PAGE> 9
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(CONTINUED)
For the Six Months Ended April 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and related taxes
and benefits $ 1,203,270 $ 609,417
Insurance 416,081 476,444
Property taxes 479,870 361,693
Legal, audit and director fees 436,647 373,731
Loan closing costs -- 24,042
Contracts and services 64,294 117,709
Office expenses 336,268 300,254
Miscellaneous 1,190,618 233,979
------------ -----------
Total General and
Administrative Expenses 4,127,048 2,497,269
------------ -----------
NET INCOME FROM OPERATIONS 1,521,182 1,329,507
OTHER INCOME (EXPENSE)
Jazz and Heritage Festival Income 1,054,646 526,694
Interest expense (10,309) (17,215)
Interest income 69,520 68,212
------------ -----------
Insurance settlement -- 56,553
INCOME BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY ITEM 2,635,039 1,963,751
Provision for income taxes 1,174,670 726,588
------------ -----------
INCOME BEFORE EXTRAORDINARY ITEM
(per share - 1999 - $3.12,
1998 - $2.64) 1,460,369 1,237,163
Extraordinary item - gain from fire
(net of $1,593,312 and $2,849,000 2,389,968 4,851,000
of taxes in 1999 and 1998, ------------ -----------
respectively)
NET INCOME (per share
1999 - $8.22, 1998 - $12.99) $ 3,850,337 $ 6,088,163
RETAINED EARNINGS, BEGINNING OF
PERIOD $ 24,211,566 $ 18,254,654
</TABLE>
7
<PAGE> 10
FAIR GROUNDS CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(CONTINUED)
For the Six Months Ended April 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
DIVIDENDS PAID (468,580) --
RETAINED EARNINGS, END OF PERIOD $ 27,593,323 $ 24,342,817
============ ============
CASH DIVIDENDS PER SHARE $ 1.00 $ NONE
============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 468,580 468,580
============ ============
</TABLE>
See accompanying notes to financial statements
8
<PAGE> 11
FAIR GROUNDS CORPORATION
STATEMENTS OF CASH FLOWS
For the Six Months Ended April 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,850,337 $ 6,088,163
------------ ------------
Adjustments to reconcile net income
to net cash used for
operating activities:
Extraordinary item -
gain from fire (3,983,280) (7,700,000)
Depreciation 980,516 963,539
Deferred income taxes -- 3,575,588
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable (761,680) (694,806)
Inventory (9,172) (67,911)
Prepaid expenses (1,377,816) (587,433)
Restricted cash (7,447) --
Increase (decrease) in
Accounts payable and
accrued liabilities (1,236,287) (79,968)
Deferred revenue (275,701) --
Deferred purses (6,548,857) (6,172,476)
Income taxes payable 2,197,143 --
Uncashed mutuel tickets 177,262 --
Contracts Payable (58,732) --
Total adjustments (10,904,051) (10,763,467)
------------ ------------
Net cash used for operating
activities (7,053,714) (4,675,304)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from litigation
settlement 3,983,280 7,700,000
Capital expenditures (262,830) (3,618,537)
Decrease in deposits 5,651 2,504
Proceeds provided by sale of
investment securities -- 391,053
Decrease in restricted cash -- 2,553,714
------------ ------------
Net cash provided by investing
activities 3,726,101 7,028,734
------------ ------------
</TABLE>
(Continued)
9
<PAGE> 12
FAIR GROUNDS CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
For the Six Months Ended April 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Loan proceeds $ 200,627 $ --
Principal repayments on loans (111,536) (5,224,562)
Advances from third party 1,000,000 1,000,000
Repayments to third party (500,000) (640,840)
Dividends Paid (468,580)
----------- -----------
Net cash provided by (used for)
financing activities 120,511 (4,865,402)
----------- -----------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (3,207,102) (2,511,972)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 7,577,730 5,192,756
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 4,370,628 $ 2,680,784
----------- -----------
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 10,309 $ 17,215
----------- -----------
Income taxes paid $ 1,112,000 $ --
=========== -----------
</TABLE>
10
<PAGE> 13
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 AND 1998
(UNAUDITED)
NOTE 1 - COMMITMENTS AND CONTINGENCIES
Fire Related Litigation
The Company has been 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 that were concluded during the six
months ended April 30, 1999 or have not yet been concluded:
Travelers Litigation
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. Accordingly, the Company maintained
that Travelers was liable for the difference between $24.2 million
and the amount which had been paid at that time (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 insurance broker who arranged for
the insurance were liable to the Company for any damages sustained
including any damages sustained because the amount of coverage is
less than that claimed by the Company. Travelers' position is that
its liability under such policy is 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 pursuant to which the insurance agent
and broker
11
<PAGE> 14
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 AND 1998
(UNAUDITED)
NOTE 1 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
agreed to pay a total of $10,000,000 to the Company. Such amount was
placed in escrow until April 9, 1997, when the Company utilized such
funds in connection with the closing of its construction financing
previously reported. The settlement agreement included a "Mary
Carter" provision whereby the liability insurers of the insurance
agent and broker would be entitled to share in the Company's
recovery from Travelers in that litigation.
The Company's action against Travelers was tried in September 1997,
and in April 1998, the trial court entered judgment in favor of the
Company and against Travelers, awarding the Company an additional
$2,410,905 in business interruption insurance, legal interest on
that sum from May 13, 1994 until paid, statutory penalties in the
amount of $222,128 and attorney's fees in an amount to be set by the
Court. In August 1998, the Court denied all post trial motions and
certified the judgment as being immediately appealable. The court
later fixed the amount of attorney's fees at $75,000. Appeals by
both the Company and Travelers are now pending before the state
court of appeals. Under the Mary Carter agreement referenced above,
the liability insurers of the agent and broker are entitled to share
in any recovery from Travelers.
ADT Litigation
In December 1994, the Company filed an action in the Civil District
Court for the Parish of Orleans, State of Louisiana against ADT
Security Systems, Mid-South, Inc. ("ADT"), the company which
provided and maintained the fire alarm system at the race track,
12
<PAGE> 15
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 AND 1998
(UNAUDITED)
NOTE 1 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
and other defendants. The complaint sought damages that were
allegedly caused by the negligence of one or more of the defendants.
The Company's three fire insurers and a third party's insurance
company, which insured the operator of the video poker machines
destroyed in the fire, intervened in the suit asserting subrogation
claims against the same defendants.
In late 1996, the Company and the three insurance companies entered
into settlements with the manufacturer of a lighting ballast and an
architect. After division of the settlement proceeds among the
Company and the three insurance companies and the payment of various
litigation expenses, the Company received approximately $268,000. In
March 1997, a jury trial was held on the remaining claims and
resulted in an award in favor of the Company and the subrogated
insurance companies of approximately $49.8 million in the aggregate
in damages against ADT, plus interest, of which approximately $31.8
million, plus interest, was awarded to the Company and the balance
to the subrogated insurance companies, including approximately $4.25
million to the Company's primary property insurer. The judgment was
appealed to the Court of Appeals of Louisiana, Fourth Circuit, by
ADT, the Company and three of the subrogated insurance companies. In
June 1997, the insurance company that insured the initial layer of
ADT's liability tendered approximately $9.3 million in partial
settlement of the action. After a dispute with the subrogated
insurers over the division of these funds was resolved in August
1997, the Company received approximately $4 million of those
proceeds after litigation expenses.
In December 1997, the Company entered into a settlement
13
<PAGE> 16
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 AND 1998
(UNAUDITED)
NOTE 1 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
with ADT and ADT's excess coverage insurers pursuant to which the
Company was paid $37 million and agreed to indemnify ADT and its
insurers against the judgment creditor claims of the four subrogated
insurers. In December 1997, the Company received $7.7 million of such
funds net of litigation expenses, and the balance of the settlement
funds was placed in escrow pending resolution of the subrogation
claims. In July 1998, the Company settled the subrogation claims of
three of the four insurers, as well as an action filed in April 1997
in United States District Court for the Eastern District of Louisiana
by those three insurers against the Company seeking a declaratory
judgement that a contract had been entered into by the parties
respecting the distribution of funds recovered in the ADT litigation.
Under the terms of this settlement, the three insurers received a
total of $12.97 million from the funds in escrow. At that time, the
Company received an additional $2.2 million from the funds in escrow,
net of litigation expenses. Approximately $6.3 million was held in
escrow pending resolution of the claims between the Company and its
primary property insurer.
In September 1998, the Court of Appeals, among other things, reversed
the trial court's award of $4.25 million to the Company's primary
property insurer on its subrogation claim, concluding that the trial
court had erred in making that award to the insurer when the Company
had not been fully compensated for its property loss. This decision
rendered moot the remainder of the appeals. The insurer appealed this
decision to the Louisiana Supreme Court which denied the appeal. In
February and March 1999, the Company received additional funds
totaling $3.79 million, net of
14
<PAGE> 17
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 AND 1998
(UNAUDITED)
NOTE 1 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
litigation expenses, from the funds held in escrow.
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. This suit is
currently in the discovery stages. Management of the Company believes the
action is without merit. Livingston had previously filed a series of
other legal actions against the Company which were resolved in the
Company's favor. The amount in question in this action has not yet been
determined but could be substantial.
A suit was filed in 1996 by the Louisiana Horsemen's Benevolent and
Protective Association ("HBPA") against the Company, the State of
Louisiana, and all other pari-mutuel wagering facilities operating in
Louisiana. The HBPA is seeking a larger portion of video poker proceeds.
The Company believes it is currently in compliance with the guidelines
established by the Louisiana State Police Gaming Division, which regulates
compliance with the State of Louisiana video poker law.
In July 1997, Evelyn Allen and other present or former security or
concessions employees of the Company filed an action in the United States
District Court in New Orleans claiming that the plaintiffs were entitled,
under the Fair Labor Standards Act, to overtime for hours worked over 40 in
each work week from July 1994 to July 1997. Two of the plaintiffs also
sought to recover damages for alleged
15
<PAGE> 18
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 AND 1998
(UNAUDITED)
NOTE 1 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
retaliatory discharge. In December 1998, the Company and the plaintiffs
reached a settlement agreement and in May 1999 the Company paid the
plaintiffs $100,000 in full settlement of all claims for overtime pay. The
retaliatory discharge claims were tried in December 1998. At the
conclusion of evidence, the court dismissed those claims. The plaintiffs'
claim for attorneys fees has not yet been resolved.
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 2 - ADVANCE
In January 1999, the Company received a non-interest bearing advance of
$1,000,000 from Video Services, Inc., and is being repaid in six equal
monthly installments beginning in February 1999. The unpaid balance of
the advance is included in notes payable in the financial statements.
NOTE 3 - RECLASSIFICATION
In the three months and the six months ended April 30, 1999, host track
fee income was reported at its contractual rate of approximately 3% of the
betting handle. In the prior comparable periods, host track fee income was
shown net of related purse expenses. The April 30, 1998 host track fees
and related purse expenses have been reclassified to conform to the
current three months and six months presentations. This reclassification
has no effect on the earnings for the three months or six months ended
April 30, 1998.
16
<PAGE> 19
FAIR GROUNDS CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 1999 AND 1998
(UNAUDITED)
NOTE 4 - RESTATEMENT OF 1998 FINANCIAL STATEMENTS
The financial statements for the quarter ended April 30, 1999 have been
restated to correct for an error in the calculation of deferred income taxes
occurring during the fiscal year ended October 31, 1998. The Company's
statement of operations for the fiscal year ended October 31, 1998 erroneously
reflected a benefit for income taxes of $3,364,232 and net income for fiscal
1998 of $8,973,671. The benefit for income taxes was primarily related to the
insurance and litigation recoveries arising out of a fire at the Company's race
track in 1993 and the reinvestment of those recoveries in the Company's new
facilities. Had this error not occurred, net income would have been reduced by
$3,016,759, or $6.38 per share, to $5,956,912, or $12.69 per share.
Stockholders' equity at October 31, 1998 would have been $27,637,835 as
compared to the previously reported amount of $30,654,594. The Company's
financial statements as of, and for the year ended, October 31, 1998 have been
restated to reflect this adjustment. This restatement affected income taxes
payable, deferred income taxes and retained earnings at April 30, 1999 and
resulted in stockholders' equity at April 30, 1999 totaling $31,019,592 as
compared to the previously reported amount of $34,036,351. This adjustment had
no effect on the Company's Statement of Operations for the six months ended
April 30, 1999. The Company's financial statements as of, and for the quarter
ended, April 30, 1999 have been restated to reflect the effects of this
adjustment.
17
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED APRIL 30, 1999 AND 1998
Revenues. During the fiscal quarters ended April 30, 1999 and 1998,
the Company derived its pari-mutuel income by conducting live racing
41 and 42 days, respectively, during each fiscal quarter and in the
operation of its tele-tracks for off-track wagering. During each such
fiscal quarter, in addition to live racing conducted at the Fair
Grounds Race Course in New Orleans, 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, the Company operated tele-track facilities in
Terrebonne, St. Tammany, and Jefferson Parishes, Louisiana.
For the fiscal quarter ended April 30, 1999, the Company reported
total in-state pari-mutuel wagering of $40,852,671 compared to
$38,402,692 in the same quarter in fiscal 1998.
Comparative pari-mutuel wagering and attendance figures for the
quarters ended April 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Pari-mutuel wagering:
On-track handle $ 13,126,751 $ 12,577,916
Off-track handle 27,725,920 25,824,776
-------------- --------------
Total in-state wagering $ 40,852,671 $ 38,402,692
============== ==============
Out-of-state simulcast handle $ 156,644,135 $ 98,940,282
============== ==============
Total On-Track Attendance 163,551 179,022
============== ==============
</TABLE>
18
<PAGE> 21
The Company attributes the $548,835, or 4.4%, increase in the
on-track handle in the current fiscal quarter primarily to [the
amenities provided by the new racing facility and] the improved
quality of racing resulting from increased purses paid in the current
fiscal quarter. The Company believes that the $1,901,144, or 7.3%,
increase in off-track handle is primarily due to the Company
transmitting better simulcasting signals and to higher quality horses
racing in the Company's 1998-99 live racing meet. The $57,703,853, or
58.3%, increase in out-of-state handle is believed to be the result
of those same factors. In addition, during the second quarter of
fiscal 1999, the Company's races were sometimes simulcasted to some
locations that do not generally simulcast the Company's races because
certain other tracks were unable to race due to severe winter
weather, thus increasing the Company's simulcasting handle. During
the quarter ended April 30, 1999, the Company experienced significant
handle increases from California and New York. These two markets
accounted for approximately $35.9 million of the handle increase.
As a result of the increases in total handle, the Company's operating
revenues in the quarter ended April 30, 1999 increased by $2,838,105,
or 23.5%, from the prior comparable fiscal quarter. This included
increases of $941,583, or 12.4%, in pari-mutuel commissions, $68,372,
or 41.7%, in breakage, $28,935, or 46.7%, in uncashed mutuel tickets,
$1,510,503, or 46.4%, in host track fees, $6,380, or 1.5%, in video
poker revenues, $5,439, or 26.5%, in parking revenues, $20,407, or
4.9% in programs and forms revenue, $111,599, or 67.1% in admissions
revenue, and $124,541, or 81%, in miscellaneous revenues.
As previously reported, in fiscal 1998, all box and suite admissions
revenues were recognized in the quarter ended January 31, 1998,
rather than pro-rated
19
<PAGE> 22
over the racing season as is being done in fiscal 1999. As a result,
the increase in admissions during the current fiscal quarter relates
only to a timing of revenue recognition.
Racing Expenses. Total racing expenses for the quarter ended April
30, 1999 increased $2,107,444, or 20.9%, over the prior comparable
fiscal quarter, primarily as a result of the increased pari-mutuel
activities. These included an increase of $1,297,292, or 31.4%, in
purses. Other increases included salaries and related taxes and
benefits, contracts and services, programs, forms and other supplies,
advertising and promotions, and miscellaneous racing expenses. These
increases were partially offset by decreases in host track fees paid
by the Company and repair and maintenance. Maintenance costs were
higher in the prior comparable fiscal quarter due to certain costs
associated with the move to the new facilities.
General and Administrative Expenses. General and administrative
expenses increased by $1,643,416, or 124%, in the current fiscal
quarter primarily as a result of an increase in salaries due to
performance bonuses paid to key personnel, increased office expenses,
and increased legal fees relating to ongoing litigation discussed
elsewhere herein. Miscellaneous expenses increased in the current
fiscal quarter as a result of a guaranty fee of [approximately]
$988,000 paid to Marie G. Krantz for her guaranty of, and pledge of
personal assets to secure, the Company's reconstruction debt from
1994 through completion in late 1997. These increases were partially
offset by decreases in insurance costs due to lower property and
general liability premiums.
Other Income (Expenses). Other income increased in the current fiscal
quarter by $530,028, or 91.3%, primarily as a result of a $527,952
increase in Jazz and Heritage
20
<PAGE> 23
Festival income. The increase in Jazz and Heritage Festival income
was primarily attributable to five days of the 1999 Jazz and Heritage
Festival falling in the second quarter of fiscal 1999 compared to
three days of the 1998 Jazz and Heritage Festival falling in the
second quarter of fiscal 1998.
Extraordinary Items. During fiscal quarter ended April 30, 1999, the
Company received settlement payments in connection with the fire
related litigation previously reported in the aggregate amount of
$3.86 million. These proceeds were reported net of related taxes of
approximately $1.52 million. In the prior comparable fiscal quarter,
no settlement proceeds were received.
Income Taxes. For the fiscal quarter ended April 30, 1999 income tax
expense was $521,353 compared to income tax expense of $463,257 in
the comparable quarter in fiscal 1998
Net Income. The Company reported net income of $2,615,083 for the
fiscal quarter ended April 30, 1999 compared to $788,788 for the
fiscal quarter ended April 30, 1998. Excluding the extraordinary
items discussed above, net income in the current year quarter was
$347,965 compared to $788,788 in the quarter ended April 30, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED APRIL 30, 1999 AND 1998
Revenues. During the six months ended April 30, 1999 and 1998, the
Company derived its pari-mutuel income by conducting live racing 88
days during each six month
21
<PAGE> 24
period and in the operation of its tele-tracks for off-track
wagering. During each six month period, the Company utilized its new
grandstand and clubhouse facilities, which were completed in November
1997. 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 Management Corporation, an
affiliated company, the Company operated tele-track facilities in
Terrebonne, St. Tammany, and Jefferson Parishes, Louisiana.
For the six months ended April 30, 1999, the Company reported total
in-state pari-mutuel wagering of $105,949,866 compared to $99,302,551
in the same period in fiscal 1998.
Comparative pari-mutuel wagering and attendance figures for the six
months ended April 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Pari-mutuel wagering:
On-track handle $ 27,412,562 $ 25,789,351
Off-track handle 78,537,304 73,513,200
-------------- --------------
Total in-state wagering $ 105,949,866 $ 99,302,551
============== ==============
Out-of-state simulcast handle $ 321,342,925 $ 219,770,183
============== ==============
Total On-Track Attendance 336,466 365,617
============== ==============
</TABLE>
The Company attributes the $1,623,211, or 6.3%, increase in the
on-track handle in the current six month period primarily to the
amenities provided by the new racing facility and the improved
quality of racing resulting from increased purses paid in the current
six month period.
The Company believes that the $6,647,315, or 6.7%, increase in
off-track handle is primarily due to the
22
<PAGE> 25
Company transmitting better simulcasting signals and higher quality
horses racing in the Company's 1998-99 live racing meet. The
$101,572,742, or 46.2%, increase in out-of-state handle is believed
to be the result of those same factors. In addition, the Company's
races were sometimes simulcasted to some locations that do not
generally simulcast the Company's races because certain other tracks
were unable to race due to severe winter weather, thus increasing the
Company's simulcasting handle. During the six months ended April 30,
1999, the Company experienced significant handle increases from
California and New York. These two markets accounted for
approximately $46.4 million of the handle increase.
As a result of the increases in total handle, the Company's operating
revenues in the six months ended April 30, 1999 increased by
$4,696,210, or 19%, from the prior period. This included increases of
$1,661,380, or 11.5%, in pari-mutuel commissions, $130,32, or 42.6%,
in breakage, $41,164, or 31%, in uncashed mutuel tickets, $2,476,490,
or 33.2%, in host track fees, $36,473, or 4.3%, in video poker
revenues, $12,753, or 29.1%, in parking revenues, and $349,709, or
115%, in miscellaneous revenues, which included approximately
$150,000 of promotional fee revenues paid by third parties who
advertise in the Company's racing program.
Racing Expenses. Total racing expenses increased $2,874,756, or
13.7%, over the prior period, primarily as a result of the increased
pari-mutuel activities. These included an increase of $1,917,873, or
21.5%, in purses. Other increases included salaries and related taxes
and benefits, contracts and services, programs, forms and other
supplies, advertising and promotions, host track fees and
miscellaneous racing expenses. These were partially offset by
decreases in utilities and repairs and maintenance, which were higher
to the prior period as a result of the move to the new facilities.
23
<PAGE> 26
General and Administrative Expenses. General and Administrative
expenses increased by $1,629,779, or 65.3%, in the current six month
period primarily as a result of increased salaries due to performance
bonuses paid to key personnel, increased office expenses, increased
property taxes, and increased legal fees relating to ongoing
litigation discussed elsewhere herein. Miscellaneous expenses
increased in the current six month period as a result of a corporate
debt guarantee fee of approximately $988,000 paid to Marie G. Krantz
for her pledge of personal assets to secure the reconstruction debt
from 1994 through completion in late 1997. These increases were
partially offset by decreases in insurance costs due to lower
property and general liability premiums, and decreased contracts and
services.
Other Income (Expenses). Other income increased by $479,613, or
75.6%, as a result of increased Jazz and Heritage Festival income of
$527,952. In 1999, the Festival held 5 of its 7 days in April. In
prior years only 3 days were held in April.
Extraordinary Items. During the six months ended April 30, 1999, the
Company received settlement payments in connection with the fire
related litigation previously reported in the aggregate of $3.98
million. These proceeds were reported net of related taxes of
approximately $1.59 million. In the prior six month period,
settlements totaled $47.7 million and were reported net of $2.85
million of related taxes.
Income Taxes. In addition to the components of net income previously
discussed, the net income for the six months ended April 30, 1999
included income tax expense of $1,174,670, compared to income tax
expense of $726,588 for the comparable six months in fiscal 1998.
Net Income. The Company reported net income of $3,850,337 for the six
months ended April 30, 1999
24
<PAGE> 27
compared to $6,088,163 for the six months ended April 30, 1998.
Excluding the extraordinary items discussed above, net income in the
current six month period was $1,460,369 compared to $1,237,163 in the
period ended April 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
General
Cash and cash equivalents decreased $3,207,102 during the six months
ended April 30, 1999, compared to a decrease of $2,511,972 during the
six months ended April 30, 1998. The decrease in cash and cash
equivalents in fiscal 1999 was the result of cash used by operations
of $7,053,714, partially offset by cash provided by investing
activities of $3,726,101, and cash provided by financing activities
of $120,511.
Cash used in operations was primarily due to the payment of purses
during the Company's live racing meet. Cash provided by financing was
primarily the result of an advance of $1 million from the Company's
video poker operator less amounts repaid to date. Cash provided from
investing was primarily from proceeds from fire litigation
settlements described elsewhere herein.
As of April 30, 1999, the Company had received cumulatively, since
the December 1993 fire, approximately $48 million, before taxes, of
insurance proceeds resulting from fire loss claims submitted to the
Company's insurance carriers or in litigation settlements. The
Company's new main grandstand and racing facility was substantially
completed in November 1997 and was opened for the start of the
Company's 1997-98 live racing meet. The total cost of constructing
and furnishing the facility, including the tele-track facility at the
Fair Grounds Race Course that was completed in late 1994, through
April 30, 1999
25
<PAGE> 28
was in excess of $35 million.
The Company has a working capital line of credit agreement with Bank
One. The line of credit is for $2.5 million with interest at 8% on
amounts outstanding. In addition to monthly interest payments on
outstanding balances, any amounts outstanding plus unpaid accrued
interest were due on April 14, 1999. Such agreement has been extended
but terms have not yet been finalized. There were no amounts drawn
down or outstanding on this line of credit during the fiscal six
months ended April 30, 1999.
In January 1999, the Company received a $1.0 million non-interest
bearing advance from its video poker operator which it began to repay
in six equal installments beginning in February 1999.
The Company believes that the combination of existing cash, cash from
future operations, any additional amounts received in the
fire-related litigation, funds available under its working capital
line of credit, and the Company's increased 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 the repayment of the $1.0 million
advance from the Company's video poker operator. As a result of the
fire insurance and other litigation settlements received, the Company
has a total net deferred tax liability of approximately $7.08 million
at April 30, 1999. The deferred tax liability is to be paid over
approximately 39 years in accordance with Internal Revenue Service
regulations. The Company intends to fund these future tax obligations
through operations.
Year 2000 Compliance
A significant part of the Company's operations are dependent on
computer systems and applications. These
26
<PAGE> 29
systems are either owned by the Company or are provided under
contract by third party technology or other service providers. If
these systems are not year 2000 compliant, the Company could
experience system failures or miscalculations leading to disruption
of business operations.
In fiscal 1998 the Company began, and is now continuing, its
assessment of its data processing functions to determine if they are
year 2000 compliant. The Company has a task force which is assisting
in its assessment of year 2000 readiness. Based in part on that
assessment, in fiscal 1998 the Company purchased and installed an
updated version of its accounting software that its vendor states is
year 2000 compliant and is now in the process of testing that
compliance.
The Company has also made, and is continuing to make, inquiries to
third party providers as to their compliance and is in the process of
obtaining written assurances from certain vendors, as well as other
race tracks with which the Company interfaces, as to their year 2000
readiness. The Company's plant and equipment, as well as the
providers of services to the plant and equipment, are also being
reviewed to determine whether they are year 2000 ready. The services
of those providers, including electrical and telephone services, are
essential to the Company's ability to operate. The Company's most
significant third party technology services provider is Autotote,
which performs the totalisator functions for the Company. The
Company's contract with Autotote provides that the services are to be
year 2000 compliant. Autotote has contracted with a third party
consultant to attain such compliance. It is our understanding that
Autotote is currently undergoing testing and believes it is near year
2000 compliant. If Autotote does not become compliant, the Company's
operations could be adversely affected until another provider of the
totalisator
27
<PAGE> 30
function can be found. The video services provided by another third
party provider are also important to the Company's operations. These
services include the production of the telecast signal at the Fair
Grounds Race Course and distribution to the Company's tele-tracks and
to other wagering facilities within and outside Louisiana. The
Company is working with such provider to ensure that the software
applications that provide the graphical enhancements and other
distinguishing features to the telecast signals are year 2000
compliant. The video poker devices at the Company's facilities are
provided by another third party provider. The Company is working with
that provider to ensure that such equipment is year 2000 compliant.
To date, the Company has incurred costs of approximately $45,000,
including the cost and time of Company employees, to address year
2000 issues. Although the Company has not completed its assessment of
its facility, data processing and other equipment and, accordingly,
has not determined the total costs associated with its efforts to
prepare for year 2000, the Company currently believes that the costs
of addressing its year 2000 transition will not have a material
adverse effect on the Company's financial condition or business
operations. The Company has not yet completed a contingency plan
addressing failure to be year 2000 ready.
Impact of Inflation
To date, inflation has not had a material effect in the Company's
operations.
28
<PAGE> 31
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
There were no material developments during the first quarter of fiscal 1999 in
any of the Company's legal proceedings as described in the Form 10-K for the
fiscal year ended October 31, 1998, except that in December 1998 the Company
settled its remaining claims against United National in the case filed in the
United States District Court for the Eastern District of Louisiana by St. Paul
Mercury Insurance Company, with United National's payment of an additional
$140,000 to the Company. In February and March 1999, in the Company's action
filed against ADT Security Systems, Mid-South, Inc., the Company received
additional funds totaling $3.79 million, net of litigation expenses, from the
funds held in escrow. No material legal proceeding was instituted during the
first quarter to which the Company is a party or of which any of its property
is subject.
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 Financial Data Schedule (Filed electronically only)
29
<PAGE> 32
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: March 14, 2000 By: /s/ Bryan G. Krantz
----------------------- ------------------------------
President
30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS AMENDED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FAIR GROUNDS CORPORATION AS AT AND FOR THE QUARTER ENDED
APRIL 30, 1999, AS RESTATED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
<CASH> 4,496
<SECURITIES> 0
<RECEIVABLES> 1,983
<ALLOWANCES> 0
<INVENTORY> 128
<CURRENT-ASSETS> 8,482
<PP&E> 52,212
<DEPRECIATION> 16,888
<TOTAL-ASSETS> 47,370
<CURRENT-LIABILITIES> 6,355
<BONDS> 0
0
0
<COMMON> 1,525
<OTHER-SE> 31,020
<TOTAL-LIABILITY-AND-EQUITY> 47,370
<SALES> 24,652
<TOTAL-REVENUES> 29,435
<CGS> 0
<TOTAL-COSTS> 23,787
<OTHER-EXPENSES> 4,127
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 2,635
<INCOME-TAX> 1,175
<INCOME-CONTINUING> 1,460
<DISCONTINUED> 0
<EXTRAORDINARY> 2,390
<CHANGES> 0
<NET-INCOME> 3,850
<EPS-BASIC> 8.22
<EPS-DILUTED> 8.22
</TABLE>
