<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
MARK ONE
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE
REQUIRED]
For the fiscal year ended October 31, 1995
----------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the transition period
from to
----------------------------------------------
Commission file number 0-1365
----------------------------------------------
SCIOTO DOWNS, INC.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Ohio 31-4440550
---------------------------- ------------------------------------
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or
organization)
6000 South High Street, Columbus, Ohio 43207
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (614) 491-2515
---------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ---------------------------- ------------------------------------------
- ---------------------------- ------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT
Common Stock
- -------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES X NO
------ ------
The aggregate market value of the Registrant's voting stock held by
nonaffiliated stockholders as of November 29, 1995 was $5,255,172 or $12.00 per
share.
Registrant has only one class of shares outstanding, namely, common
shares. The number of common shares outstanding as of November 29, 1995 was
595,767.
Portions of the following documents are incorporated by reference:
1. Portions of the Annual Report to Stockholders for the year ended
October 31, 1995 are incorporated by reference in Part II.
2. Portions of Scioto Downs, Inc. definitive Proxy Statement
furnished to stockholders in connection with the Annual Meeting of
Stockholders to be held February 14, 1996 are incorporated by reference
in Part III.
The Exhibit index on page 11.
<PAGE> 2
PART I
ITEM 1. BUSINESS
Registrant's sole business is the ownership and operation of a harness
horse racing facility located at 6000 South High Street, Columbus, Ohio. Racing
operations at the South High Street facility were started in 1959, and there has
been no material change in the method of conducting its business. In addition
to the race track itself, there are parking, grandstand, clubhouse, and eating
facilities for Registrant's customers and barn and stable facilities for the
horses. Revenue is derived principally from commissions on pari-mutuel wagering
(net of pari-mutuel taxes), admission fees to enter the facilities, and
concessions, programs, parking, and other. These items represent 60.8%, 3.1%
and 36.1% of total revenues, respectively, in 1995. The nearest race track
competition is Beulah Park, approximately six miles away, a thoroughbred horse
race track. Beulah Park typically races from November until the first weekend
of May. During fiscal 1995, there was only one day on which both tracks were
open. Registrant conducts its business pursuant to a permit issued annually by
The Ohio State Racing Commission. The Commission prescribes what forms of
wagering are permissible, the number of races allowed, the procedures on
wagering, and the wagering information to be provided to the public. For the
period covered by this report, Registrant was issued a permit by The Ohio State
Racing Commission to conduct harness horse racing at its facilities for a period
of sixty-one days. Racing is primarily conducted at night six days a week. The
sixty-one-day period in 1995 commenced May 6 and continued through July 15.
Registrant then leased its facilities to Mid-America Racing Association, Inc.
for fifty-four days of racing, which period ended September 16, 1995. This
lease generated 4.8% of total revenue. This lease is on file with the
Commission. No racing has been conducted at Registrant's facilities since
September 16, 1995. The
2
<PAGE> 3
1996 racing season will commence May 4, 1996. During the racing season,
Registrant employs approximately 350 people, most of whom are pari-mutuel
clerks employed only during the racing meet. During the fiscal year covered by
this report, there was no material change in the business conducted by
Registrant.
ITEM 2. PROPERTIES
Registrant's place of business is located at 6000 South High Street,
Columbus, Ohio. Registrant owns in fee approximately 173 acres of land at this
location. Situated thereon are the physical facilities necessary for the
operation of a harness horse racing business, including the race track,
grandstand with a capacity of 10,000 and enclosed clubhouse buildings with a
capacity of 1,500 for customers, in which are located eating and pari-mutuel
wagering facilities, barns, a paddock, and related facilities for the horses,
drivers, and trainers. In addition, a substantial (approximately 6,000-space)
parking area is provided for customers. These facilities are used fully during
the racing season which covered 115 days commencing in May and ending in
mid-September.
ITEM 3. LEGAL PROCEEDINGS
Registrant is not a party to any material pending legal proceedings other
than routine litigation incidental to its business, most of which is covered by
insurance.
Registrant has no knowledge of any material pending legal proceedings to
which any director, officer or affiliate of the Registrant, any owner of record
or beneficiary of more than five percent of the voting securities of the
Registrant, or any associate of any such director, officer or security holder is
a party adverse to the Registrant or has a material interest adverse to the
Registrant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
3
<PAGE> 4
PART II
The following items are incorporated herein by reference from the
indicated pages of the Annual Report to Stockholders for the fiscal year ended
October 31, 1995:
<TABLE>
<CAPTION>
ANNUAL REPORT TO
STOCKHOLDERS PAGES
<S> <C> <C>
Item 5. MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER
MATTERS 15
Item 6. SELECTED FINANCIAL DATA 14
Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 12-14
Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA 4-11
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE Not applicable
</TABLE>
4
<PAGE> 5
PART III
ITEMS 10, 11, 12 and 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED
TRANSACTION
Information called for by Items 10, 11, 12 and 13 is incorporated herein
by reference to the definitive Proxy Statement of the Registrant dated January
22, 1996, relating to the Annual Meeting of Stockholders to be held on February
14, 1996.
5
<PAGE> 6
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
SCIOTO DOWNS, INC.
Index to Financial Statements and Financial Statement Schedules
<TABLE>
<CAPTION>
REFERENCE PAGE
------------------------------------
FORM 10-K ANNUAL REPORT
ANNUAL REPORT TO STOCKHOLDERS
------------- --------------
<S> <C> <C>
(a) 1 . Financial Statements
---------------------------------------------------
Data incorporated by reference from the attached
1995 Annual Report to Stockholders of Scioto
Downs, Inc.:
Report of Independent Accountants on
Financial Statements 12
Balance Sheets at October 31, 1995 and 1994 4
Statements of Operations for the years ended
October 31, 1995, 1994 and 1993 5
Statements of Stockholders' Equity for the
years ended October 31, 1995, 1994 and
1993 6
Statements of Cash Flows for the years ended
October 31, 1995, 1994 and 1993 7
Notes to the Financial Statements 8-11
(a) 2. Financial Statement Schedules
---------------------------------------------------
Data submitted herewith:
Report of Independent Accountants on
Financial Statement Schedule 8
Schedules for the years ended October 31,
1995, 1994 and 1993:
X - Supplementary Income Statement
Information 9
Schedules other than those listed above are
omitted because they are not required or are
not applicable.
</TABLE>
6
<PAGE> 7
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K, Continued
<TABLE>
<S> <C>
(a) 3. Exhibits
---------------------------------------
See Index to Exhibits at Page 11.
(b) Reports on Form 8-K
---------------------------------------
No reports on Form 8-K have been filed during the last quarter of the period covered by
this report.
(c) See Index to Exhibits at Page 11.
(d) See Index to Financial Statements and Financial Statement Schedules.
(e) Not applicable.
</TABLE>
7
<PAGE> 8
Coopers Coopers & Lybrand L.L.P.
&Lybrand
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
Scioto Downs, Inc.
Our report on the financial statements of Scioto Downs, Inc. has been
incorporated by reference in this Form 10-K from page 12 of the 1995 Annual
Report to Stockholders of Scioto Downs, Inc. In connection with our audits of
such financial statements, we have also audited the related financial statement
schedule listed in the index on page 6 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
November 29, 1995
8
<PAGE> 9
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
for the years ended October 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
COLUMN A COLUMN B
CHARGED TO COSTS AND EXPENSES
-----------------------------------------------
ITEM 1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Maintenance and repairs $ 165,483 $ 142,020 $ 155,926
Taxes, other than payroll and income taxes (see Note
below) 1,075,411 1,327,834 1,311,467
Advertising 338,779 338,111 310,755
Note:
----
Detail of taxes included above:
Pari-mutuel $ 842,511 $ 1,076,533 $ 1,066,663
Real estate and personal property 192,077 206,783 198,174
Other 40,823 44,518 46,630
----------- ----------- -----------
$ 1,075,411 $ 1,327,834 $ 1,311,467
=========== =========== ===========
</TABLE>
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SCIOTO DOWNS, INC. (Registrant)
Robert S. Steele
-----------------------------------------
By /s/ Robert S. Steele
-----------------------------------------
President & Chief Operating Officer and a
Director
-----------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant, and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
Date: January 16, 1996 Robert S. Steele
-----------------------------------------
By /s/ Robert S. Steele
-----------------------------------------
President & Chief Operating Officer and a
Director
-----------------------------------------
Title
Date: January 16, 1996 LaVerne A. Hill
-----------------------------------------
By /s/ LaVerne A. Hill
-----------------------------------------
Director
-----------------------------------------
Title
Date: January 16, 1996 William C. Heer
-----------------------------------------
By /s/ William C. Heer
-----------------------------------------
Treasurer and a Director
-----------------------------------------
Title
Date: January 16, 1996 Russel G. Means
-----------------------------------------
By /s/ Russel G. Means
-----------------------------------------
Director
-----------------------------------------
Title
Date: January 16, 1996 John J. Chester
-----------------------------------------
By /s/ John J. Chester
-----------------------------------------
Director
-----------------------------------------
Title
Date: January 16, 1996 Timothy V. Luther
-----------------------------------------
By /s/ Timothy V. Luther
-----------------------------------------
Controller
-----------------------------------------
Title
</TABLE>
10
<PAGE> 11
INDEX TO EXHIBITS ANNUAL REPORT ON FORM 10-K
for the year ended October 31, 1995
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C> <C>
3A Articles of Incorporation of the Registrant, as amended to date Incorporated by
reference
3B Code of Regulations of the Registrant, as amended to date Incorporated by
reference
10A Lease with Hilliard Raceway, Inc., now Mid-America Racing Incorporated by
Association, Inc., and amendment thereto reference
13 Annual Report to Stockholders Pages 12-36
27 Financial Data Schedule
</TABLE>
11
<PAGE> 1
EXHIBIT 13
Coopers Coopers & Lybrand L.L.P.
&Lybrand a professional services firm
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Scioto Downs, Inc.
We have audited the accompanying balance sheets of Scioto Downs, Inc. as of
October 31, 1995 and 1994, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended October 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Scioto Downs, Inc. as of
October 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended October 31, 1995, in conformity
with generally accepted accounting principles.
As discussed in Note 4 to the financial statements, the Company changed its
method of accounting for income taxes in 1994.
/s/ Coopers & Lybrand L.L.P.
Columbus, Ohio
November 29, 1995
12
<PAGE> 2
SCIOTO DOWNS
BALANCE SHEETS
October 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 787,786 $ 685,085
Accounts receivable (Note 3) 71,060 29,964
Prepaid expenses and other 77,950 121,004
Investment in joint venture (Note 10) 59,101 43,396
---------- ---------
Total current assets 995,897 879,449
---------- ---------
Property and equipment, at cost (Notes 2 and 3):
Buildings 14,441,531 14,304,220
Land improvements 1,314,740 1,297,540
Furniture and fixtures 1,649,689 1,636,883
Machinery and equipment 1,373,104 1,290,596
---------- -----------
18,779,064 18,529,239
Less accumulated depreciation 11,279,018 10,585,435
---------- ---------
7,500,046 7,943,804
Construction in progress (Note 9) 49,513
Land 299,847 299,847
---------- ---------
7,799,893 8,293,164
---------- ---------
Total assets $ 8,795,790 $ 9,172,613
=========== ==========
</TABLE>
CONTINUED
13
<PAGE> 3
SCIOTO DOWNS
BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES 1995 1994
<S> <C> <C>
Current liabilities:
Accounts payable, trade $ 167,392 $ 135,646
Dividends payable 29,789 29,789
Current maturities, term debt (Note 8) 3,247,411 100,000
Deferred income taxes (Note 4) 11,880 22,520
Accrued expenses:
Property taxes 160,177 160,804
Other 48,538 44,476
-------------- --------------
Total current liabilities 3,665,187 493,235
-------------- --------------
Minimum pension liability 78,566 83,123
-------------- --------------
Deferred income taxes (Note 4) 180,864 274,032
-------------- --------------
Term debt, net of current maturities (Note 8) 3,263,215
--------------
Commitments (Note 5)
STOCKHOLDERS' EQUITY
Common stock, $1.05 par value:
Authorized: 3,600,000 shares
Issued and outstanding: 595,767 shares 625,555 625,555
Capital in excess of par value of stock 2,037,300 2,037,300
Retained earnings 2,247,793 2,437,186
Pension liability adjustment, net of taxes (Note 6) (39,475) (41,033)
-------------- --------------
Total stockholders' equity 4,871,173 5,059,008
-------------- --------------
Total liabilities and stockholders' equity $ 8,795,790 $ 9,172,613
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE> 4
SCIOTO DOWNS
STATEMENTS OF OPERATIONS
for the years ended October 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
61 61 61
Nights of racing -------------- -------------- ---------------
Operating revenues:
Pari-mutuel commissions and breakage $ 4,690,408 $ 4,660,088 $ 4,647,173
Less pari-mutuel taxes 842,511 1,076,533 1,066,663
-------------- -------------- ---------------
3,847,897 3,583,555 3,580,510
Admissions 197,700 204,384 228,103
Concessions, program, parking, and other 782,743 814,755 799,233
Entry fees and purse monies added by others 888,712 812,299 753,601
Rental income from leased facilities (Note 3) 305,226 316,009 358,282
Pari-mutuel tax abatement earned (Note 7) 294,683 301,316 317,633
-------------- -------------- ---------------
6,316,961 6,032,318 6,037,362
-------------- -------------- ---------------
Operating expenses:
Purse awards 2,597,178 2,493,017 2,470,281
Salaries and wages 1,030,606 1,043,284 1,019,485
Depreciation 693,583 709,403 701,300
Advertising 338,779 338,111 310,754
Real and personal property taxes 192,077 206,783 198,174
Insurance 177,440 201,545 212,660
Repairs and maintenance 165,483 142,020 155,926
Other operating and general 1,114,519 970,215 906,726
-------------- -------------- ---------------
6,309,665 6,104,378 5,975,306
-------------- -------------- ---------------
Income (loss) from racing operations 7,296 (72,060) 62,056
Equity in earnings of joint venture (Note 10) 15,705 21,018 9,858
Interest expense, net (258,855) (292,078) (352,596)
Gain on sale of equipment 3,500
-------------- -------------- ---------------
Loss before income tax benefit and change in
accounting principle (235,854) (343,120) (277,182)
Income tax benefit of operating loss (Note 4) 106,000 104,000 90,000
-------------- -------------- ---------------
Loss before cumulative effect of change in
accounting principle (129,854) (239,120) (187,182)
Cumulative effect of change in accounting for
income taxes 41,000
-------------- -------------- ---------------
Net loss $ (129,854) $ (198,120) $ (187,182)
============== =============== ===============
</TABLE>
CONTINUED
15
<PAGE> 5
SCIOTO DOWNS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Loss per common share:
Loss before cumulative effect of change in
accounting principle $ (.22) $ (.40) $ (.31)
Cumulative effect of change in accounting for
income taxes .07
------------ ------------ ------------
Net loss per common share (Note 2) $ (.22) $ (.33) $ (.31)
============ ============ ============
Average common shares outstanding 595,767 595,767 595,767
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE> 6
SCIOTO DOWNS
STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended October 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN PENSION TOTAL
EXCESS OF RETAINED LIABILITY STOCKHOLDERS'
SHARES AMOUNT PAR VALUE EARNINGS ADJUSTMENT EQUITY
---------- ---------- ----------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1992 595,767 $ 625,555 $ 2,037,300 $ 2,941,604 $ 5,604,459
Net loss (187,182) (187,182)
Cash dividends (59,538)(A) (59,538)
---------- ---------- ------------ ------------ -------------
Balance, October 31, 1993 595,767 625,555 2,037,300 2,694,884 5,357,739
Net loss (198,120) (198,120)
Cash dividends (59,578)(A) (59,578)
Pension liability adjustment, net of
taxes (Note 6) $ (41,033) (41,033)
---------- ---------- ------------ ------------ ----------- -------------
Balance, October 31, 1994 595,767 625,555 2,037,300 2,437,186 (41,033) 5,059,008
Net loss (129,854) (129,854)
Cash dividends (59,539)(A) (59,539)
Pension liability adjustment, net of
taxes (Note 6) 1,558 1,558
---------- ---------- ------------ ------------ ----------- -------------
Balance, October 31, 1995 595,767 $ 625,555 $ 2,037,300 $ 2,247,793 $ (39,475) $ 4,871,173
========== ========== ============ ============ =========== =============
<FN>
(A) Dividends per share:
1993 $.10
----
1994 $.10
----
1995 $.10
----
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE> 7
SCIOTO DOWNS
STATEMENTS OF CASH FLOWS
for the years ended October 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (129,854) $ (198,120) $ (187,182)
--------------- -------------- ---------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Equity in earnings of joint venture (15,705) (21,018) (9,858)
Cumulative effect of change in accounting for
income taxes (41,000)
Depreciation and amortization 728,526 753,346 701,300
Gain on sale of equipment (3,500)
Deferred income taxes (106,000) (104,000) (33,986)
Change in refundable income taxes 59,430 78,808
Change in accounts receivable (41,096) (19,336) 9,820
Change in prepaid expenses and other 7,304 12,781 414
Change in accounts payable, trade 31,746 52,058 (135)
Change in accrued expenses 3,435 (9,469) 46,875
--------------- -------------- ---------------
Total adjustments 608,210 682,792 789,738
--------------- -------------- ---------------
Net cash provided by operating activities 478,356 484,672 602,556
--------------- -------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment, net (200,312) (198,224) (371,308)
Proceeds from sale of property and equipment 3,500
--------------- -------------- ---------------
Net cash used in investing activities (200,312) (198,224) (367,808)
--------------- -------------- ---------------
Cash flows from financing activities:
Payments on term debt (115,804) (106,105) (105,835)
Dividends paid (59,539) (59,578) (59,538)
Payment of refinancing fee (104,829)
--------------- -------------- ---------------
Net cash used in financing activities (175,343) (270,512) (165,373)
--------------- -------------- ---------------
Net increase in cash and cash equivalents 102,701 15,936 69,375
Cash and cash equivalents, beginning of year 685,085 669,149 599,774
--------------- -------------- ---------------
Cash and cash equivalents, end of year $ 787,786 $ 685,085 $ 669,149
=============== ============== ===============
</TABLE>
CONTINUED
18
<PAGE> 8
SCIOTO DOWNS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest paid $ 228,896 $ 258,514 $ 360,171
=============== ============== ===============
Income taxes refunded $ 1,372 $ 57,728 $ 137,808
=============== ============== ===============
Supplemental schedule of noncash financing activity:
The Company reduced its net minimum pension
liability by $1,558 in 1995, which is net of
taxes.
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE> 9
SCIOTO DOWNS
NOTES TO THE FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS:
Scioto Downs, Inc.'s (the Company) business is the ownership and operation
of a harness-horse racing facility. Revenues are earned from commissions
on pari-mutuel wagering and various other related revenues including
admissions, concessions and parking.
2. ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed in
the preparation of the financial statements.
a. CASH AND CASH EQUIVALENTS: The Company includes money market funds as
cash equivalents.
b. PROPERTY AND EQUIPMENT: The Company records asset acquisitions at
cost. Depreciation is recognized on the straight-line method over the
estimated useful lives of the applicable assets as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
CLASS OF ASSETS (YEARS)
<S> <C>
Buildings 10 to 40
Land improvements 6 to 20
Furniture and fixtures 4 to 20
Machinery and equipment 5 to 15
</TABLE>
For income tax purposes, assets are depreciated using accelerated
methods over periods established by tax law.
Maintenance, repairs and minor renewals are charged to expense as
incurred, while major renewals and betterments are capitalized. The
cost and related accumulated depreciation of assets sold or otherwise
disposed of are removed from the related accounts, and resulting gains
or losses are reflected in income.
20
<PAGE> 10
SCIOTO DOWNS
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
c. INCOME TAXES: The Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting
for Income Taxes, which requires a change from the deferred method to
the asset and liability method of accounting for income taxes. Under
the asset and liability method, deferred income taxes are recognized
for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax bases of
existing assets and liabilities. Under SFAS No. 109, the effect on
deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. Under the deferred method,
deferred taxes were recognized using the tax rate applicable to the
year of the calculation and were not adjusted for subsequent changes
in tax rates.
The Company adopted SFAS No. 109 in 1994 and has reported the
cumulative effect of the change in the method of accounting for income
taxes as of the beginning of 1994 in the statement of operations.
d. NET INCOME (LOSS) PER SHARE: Net income (loss) per share of common
stock is based upon the weighted average number of shares outstanding
during each of the respective years.
e. RECLASSIFICATIONS: Certain 1994 and 1993 amounts have been
reclassified to conform with the 1995 presentation.
3. AFFILIATED ENTITY:
The Company leases its racing facilities to Mid-America Racing
Association, Inc. (Mid-America), which has common management and certain
common stockholders with the Company. The facilities are leased for the
period of time necessary to conduct an annual racing meet under the terms
of a 25-year lease agreement which expires on December 31, 2013. The lease
agreement provides for rental payments to the Company based upon
percentages of daily pari-mutuel wagering during the meet with a minimum
annual rental payment of $7,200. During 1995, Mid-America paid to the
Company additional rents of $57,763. These additional payments are based
upon two months of the Company's required debt service during the period
in which Mid-America rents the Company's facilities. These additional
payments are subject to annual approval by Mid-America. As discussed in
Note 7, the lessee remits its portion of the pari-mutuel tax abatement to
the Company. Such tax abatement remitted amounted to $128,964 in 1995,
$135,860 in 1994 and $152,710 in 1993. In addition, the lessee is
committed to pay certain operating expenses. Revenues from this lease are
accounted for on the operating method.
Accounts receivable include amounts due from Mid-America for the portion
of certain shared corporate overhead expenses paid by Scioto Downs, Inc.
and subsequently reimbursed by Mid-America. Such receivables were $45,506
and $19,172 as of October 31, 1995 and 1994,
21
<PAGE> 11
SCIOTO DOWNS
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
respectively, and such reimbursed expenses were $257,920 in 1995, $192,009
in 1994 and $293,263 in 1993.
4. INCOME TAXES:
As discussed in Note 2, the Company adopted SFAS No. 109 as of the
beginning of 1994. The cumulative effect on prior years of adopting this
change in accounting principle increased net income by $41,000 and is
reported separately in the statement of operations for the year ended
October 31, 1994.
Income tax benefit includes the following components:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Federal income taxes (benefit):
Current refundable $ (59,000)
Current benefit $ (59,000) $ (143,000)
Deferred (47,000) 39,000 (31,000)
-------------- --------------- -------------
Total $ (106,000) $ (104,000) $ (90,000)
============== ============== =============
</TABLE>
A summary of the effective income tax rates is as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF PRETAX LOSS/INCOME
-----------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Statutory federal rate (34)% (34)% (34)%
Surtax exemption 5 1 1
Permanent differences 3 3 1
Deferred tax rate adjustment (19)
-------- -------- --------
Effective tax rate (45)% (30)% (32)%
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at October 31
are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred tax liabilities arising from:
Depreciation $ 517,547 $ 537,827
Other, net 9,791 20,940
-------------- ---------------
Total deferred tax liabilities $ 527,338 $ 558,767
============== ===============
Deferred tax assets arising from:
AMT credit/net operating loss carryovers $ 393,046 $ 309,715
Valuation allowance (78,775) (68,650)
Pension liability adjustment 20,323 21,150
-------------- ---------------
Total deferred tax assets $ 334,594 $ 262,215
============== ===============
</TABLE>
22
<PAGE> 12
SCIOTO DOWNS
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
The Company has recorded a valuation allowance of $78,775 and $68,650 at
October 31, 1995 and 1994, respectively, related to net operating loss
carryforwards for state income taxes and contribution carryforward not
expected to be utilized. Deferred tax assets, liabilities, and federal
income tax expense in future years can be significantly affected by
changes in enacted tax rates and the rates at which net operating loss
carryforwards are utilized.
At October 31, 1995, the Company has, for federal income tax purposes,
approximately $59,000 in alternative minimum tax credit carryforwards and
$843,457 in net operating loss carryforwards. The tax operating loss
carryforwards expire over the years 2006 through 2009. The alternative
minimum tax credit can be carried forward indefinitely.
5. COMMITMENTS:
The Company leases pari-mutuel equipment under a five-year noncancelable
operating lease which expires April 30, 1998. Rental expense was $116,854
in 1995, $106,339 in 1994 and $107,785 in 1993. The aggregate of the
minimum rental payment for pari-mutuel equipment is based upon an annual
minimum lease payment of $97,600 plus additional rental payments if
pari-mutuel wagering exceeds certain predetermined levels.
6. RETIREMENT PLANS:
The Company and Mid-America sponsor a noncontributory defined benefit
pension plan covering all full-time employees meeting certain age and
service requirements. The Company and Mid-America share proportionately
the costs and related assets of the plan. The Company's total pension
expense, which includes both current service costs and amortization of
prior years' service costs, amounted to $26,169 in 1995, $20,880 in 1994
and $18,118 in 1993.
The Company's funding policy is to contribute annually an amount
sufficient to fund the plan's current service cost on a current basis, and
to fund estimated past service costs over a thirty-year period using a
different actuarial cost method and different assumptions from those used
for financial reporting.
23
<PAGE> 13
SCIOTO DOWNS
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
Net pension expense includes the following components:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost--benefits earned during
the year $ 13,648 $ 13,487 $ 14,568
Interest cost on projected benefit
obligations 31,155 30,454 24,879
Actual (gain) loss on plan assets (35,674) 5,318 (30,213)
Net amortization relating to the
deferral of initial transitional
obligation and subsequent gains
and losses 17,040 (28,379) 8,884
-------------- -------------- --------------
Net pension expense $ 26,169 $ 20,880 $ 18,118
============== ============== ==============
</TABLE>
The Company's portion of the funded status of the plan and (accrued)
prepaid pension expense at October 31 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits $ 405,023 $ 385,603 $ 325,974
Nonvested benefits 8,486 12,901 13,858
-------------- -------------- --------------
Accumulated benefit obligation 413,509 398,504 339,832
Impact of future salary increases 27,963 27,360 27,757
-------------- -------------- --------------
Projected benefit obligation 441,472 425,864 367,589
Plan assets at fair value, primarily a
diversified income fund and
cash equivalents 330,935 312,640 325,167
-------------- -------------- --------------
Plan assets in (deficiency) excess of
projected benefit obligation (110,537) (113,224) (42,422)
Items not recognized in income:
Unrecognized prior service cost 2,803 3,075 3,313
Unrecognized net gain from past
experience different from that
assumed and effects of
changes in assumptions 87,767 89,544 19,963
Initial transitional obligation which is
being amortized over 17.5 years 15,959 17,864 19,574
-------------- -------------- --------------
(Accrued) prepaid pension
expense $ (4,008) $ (2,741) $ 428
============== ============== ==============
</TABLE>
24
<PAGE> 14
SCIOTO DOWNS
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
Assumptions used for the plan are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Discount rate 7.50% 7.50% 7.50%
Rate of increase in compensation
levels 5.50% 5.50% 5.50%
Long-term rate of return on assets 8.00% 8.00% 8.00%
</TABLE>
Plan assets have been valued at market value.
During 1994, the Company recognized a minimum pension liability of
$83,123, which is equal to the excess of the accumulated benefit
obligation over plan assets. Also, the Company recognized a pension
liability adjustment net of taxes of $41,033 as a charge to stockholders'
equity, which is equal to the minimum pension liability, net of a pension
asset.
The Company and Mid-America have a 401(k) savings plan covering
substantially all full-time employees. Company matching contributions
expensed were $7,202 in 1995, $7,529 in 1994 and $7,154 in 1993.
7. PARI-MUTUEL TAX ABATEMENT:
To encourage the improvement of racing facilities in Ohio, permit holders
are allowed to recover 70% of the cost of qualified improvements as
determined by the Ohio State Racing Commission. Such recovery is
accomplished by reducing each day's pari-mutuel tax paid to the state by
3/4 of 1% of pari-mutuel wagering and continues for 15 years (10 years if
construction of the improvements commenced after March 29, 1988), or until
the total tax reduction reaches 70% of the cost of the improvement,
whichever occurs first. Such abatement is available to all permit holders
who race at the improved facility. By agreement, Mid-America remits its
portion of the abatement to the Company (see Note 3). At October 31, 1995,
the Company had $2,032,542 of abatement available for recovery in future
periods.
The Company earned pari-mutuel tax abatement (including amounts remitted
by Mid-America) of $294,683 in 1995, $301,316 in 1994, and $317,633 in
1993. Tax abatement less applicable income taxes had the following
favorable impact on earnings per share: $.33 per share in 1995, $.33 per
share in 1994, and $.35 per share in 1993.
8. DEBT FINANCING ARRANGEMENTS:
The Company has available for its use a line of credit with a financial
institution for $1,000,000. The line, which is renewed annually, calls for
interest at the prime rate. At October 31, 1995 and 1994, the line had no
outstanding balance.
25
<PAGE> 15
SCIOTO DOWNS
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
In November 1993, the Company refinanced its five-year term loan with the
same financial institution. The Company paid a prepayment penalty of
approximately $104,000 to refinance the loan. This prepayment penalty is
being amortized on a straight-line basis over the remaining term of the
loan. The revised term loan agreement calls for a 20-year amortization of
the principal at a fixed rate of 6.875% and interest, with a minimum
annual principal reduction of $100,000. A balloon payment for the
remaining principal balance of $3,247,411 is due in October 1996, at which
time the Company intends to refinance the loan.
The term loan is collateralized by a first mortgage on the Company's real
property facilities, as well as all other personal property, and an
assignment of the rents from the Company's lease arrangements.
9. CONSTRUCTION IN PROGRESS:
The Company is in the process of completing a multi-phase project of
improvements to the grandstand roof. The first and second phases were
completed in May 1993 and April 1995 at a cost of $330,978 and $118,028,
respectively. The total cost of the first two phases of the project was
capitalized to buildings. Management estimates that the total cost of the
project will approximate $550,000. At October 31, 1995, the Company had
not entered into any construction contracts for the remaining phase of
construction.
10. JOINT VENTURE:
On January 14, 1992, the Company entered into a joint venture agreement
for the purpose of installing and operating outdoor advertising at the
Company's facilities. Revenues and expenses, as well as cash shortfalls,
are shared equally by both participants in the joint venture. The Company
accounts for its investment under the equity method of accounting. The
Company recorded $15,075 in 1995, $21,018 in 1994, and $9,858 in 1993, as
its proportionate share of the joint venture's earnings in its statements
of operations.
26
<PAGE> 16
SCIOTO DOWNS
FIVE-YEAR SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
OCTOBER 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Operating revenues:
Pari-mutual commissions and breakage $ 4,690,408 $ 4,660,088 $ 4,647,173 $ 4,714,886 $ 4,684,947
Less pari-mutual taxes 842,511 1,076,533 1,066,663 1,079,526 1,060,266
------------ ------------ ------------ ------------ ------------
3,847,897 3,583,555 3,580,510 3,635,360 3,624,681
Admissions 197,700 204,384 228,103 261,374 317,036
Concessions, program, parking, and other 782,743 814,755 799,233 835,227 792,336
Entry fees and purse monies added by others 888,712 812,299 753,601 733,394 790,252
Rental income from leased facilities 305,226 316,009 358,282 355,475 263,954
Pari-mutuel tax abatement earned 294,683 301,316 317,633 316,754 304,884
------------ ------------ ------------ ------------ ------------
6,316,961 6,032,318 6,037,362 6,137,584 6,093,143
------------ ------------ ------------ ------------ ------------
Operating expense:
Purse awards 2,597,178 2,493,017 2,470,281 2,450,020 2,486,239
Salaries and wages 1,030,606 1,043,284 1,019,485 1,023,592 1,047,538
Depreciation 693,583 709,403 701,300 700,957 599,493
Advertising 338,779 338,111 310,754 327,362 413,793
Real and personal property taxes 192,077 206,783 198,174 186,155 164,394
Insurance 177,440 201,545 212,660 187,418 193,294
Repairs and maintenance 165,483 142,020 155,926 177,562 165,277
Other operating and general 1,114,519 970,215 906,726 889,468 866,487
------------ ------------ ------------ ------------ ------------
6,309,665 6,104,378 5,975,306 5,942,534 5,936,515
------------ ------------ ------------ ------------ ------------
Income (loss) from racing operations 7,296 (72,060) 62,056 195,050 156,628
Equity in earnings of joint venture 15,705 21,018 9,858 9,535
Interest expense, net (258,855) (292,078) (352,596) (381,947) (157,498)
Gain on sale of equipment 3,500
------------ ------------ ------------ ------------ ------------
Loss before income tax benefit and change in
accounting principle (235,854) (343,120) (277,182) (177,362) (870)
Income tax benefit of operating loss 106,000 104,000 90,000 56,000
------------ ------------ ------------ ------------ ------------
Loss before cumulative effect of change in
accounting principle (129,854) (239,120) (187,182) (121,362) (870)
Cumulative effect of change in accounting for
income taxes 41,000
------------ ------------ ------------ ------------ ------------
Net loss $ (129,854) $ (198,120) $ (187,182) $ (121,362) $ (870)
============ ============ ============ ============ ============
</TABLE>
27
<PAGE> 17
SCIOTO DOWNS
FIVE-YEAR SUMMARY OF OPERATIONS, CONTINUED
QUARTERLY SHARE DATA:
Set forth below are the high and low closing bid prices of Scioto Downs, Inc.
as reported by Tradeline and the cash dividends paid and declared on a fiscal
quarter basis for the two years ended October 31, 1995. These bid prices do not
include retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
LOW HIGH DIVIDENDS
<S> <C> <C> <C>
1995 First Quarter 01/31 $10.50 $11.00
Second Quarter 04/30 $10.50 $10.88
Third Quarter 07/31 $10.88 $12.25 $.05
Fourth Quarter 10/31 $12.25 $15.25 $.05
1994 First Quarter 01/31 $13.00 $16.50
Second Quarter 04/30 $13.00 $15.00
Third Quarter 07/31 $13.00 $15.00 $.05
Fourth Quarter 10/31 $11.00 $15.00 $.05
</TABLE>
The market for the Company's common stock is generally inactive.
The approximate number of common stockholders of the Company as of October 31,
1995 totaled 1,759.
The Company anticipates that the pattern of cash dividends paid in 1995 will be
maintained in the near future.
28
<PAGE> 18
SCIOTO DOWNS
SELECTED FINANCIAL DATA
FOR THE FIVE YEARS ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net loss per common share (a) $ (.22) $ (.33)$ (.31) $ (.20) $ (NIL)
========== ========== ========== ========== ===========
Total assets $8,795,790 $9,172,613 $9,621,762 $9,961,563 $10,088,674
========== ========== ========== ========== ===========
Cash dividends per common share $ .10 $ .10 $ .10 $ .10 $ .44
========== ========== ========== ========== ===========
Average common shares outstanding 595,767 595,767 595,767 595,767 595,767
========== ========== ========== ========== ===========
Term obligations $3,247,411 $3,263,615 $3,369,320 $3,475,155 $3,570,237
========== ========== ========== ========== ===========
(a) See Note 2 to the financial statements.
</TABLE>
<TABLE>
<CAPTION>
TWENTY-YEAR PER SHARE SUMMARY OF (LOSS) EARNINGS, DIVIDENDS, AND BOOK VALUE
(LOSS) BOOK
YEAR EARNINGS DIVIDENDS VALUE
<S> <C> <C> <C>
1995 $ (.22) $ .10 $8.18
1994 (.33) .10 8.49
1993 (.31) .10 8.99
1992 (.20) .10 9.41
1991 .00 .44 9.71
1990 .21 .44 10.15
1989 .71 .44 10.38
1988 .68 .42 10.11
1987 .44 .40 9.85
1986 .76 .40 9.81
1985 .51 .40 9.45
1984 .83 .40 9.22
1983 .62 .40 8.79
1982 .47 .40 8.49
1981 .53 .40 8.37
1980 .54 .40 8.21
1979 .74 .38 8.06
1978 .82 .36 7.70
1977 .72 .35 7.23
1976 .56 .32 6.85
</TABLE>
29
<PAGE> 19
SCIOTO DOWNS, INC.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
GENERAL:
Scioto Downs, Inc.'s (the Company) operations are limited by the race dates
assigned to it by the Ohio State Racing Commission. In Ohio, each permit holder
may be granted 61 race days within a specified time period. The entire racing
season at Scioto downs commencing in May and ending in September was divided
between Scioto Downs, 61 days, and Mid-America Racing Association, Inc.
(Mid-America), 54 days. As a result, all of the racing season for the Company
falls within the third quarter ending July 31st. The majority of rental income
from leasing the racing facility to Mid-America is earned during the fourth
quarter ending October 31st.
RESULTS OF OPERATIONS:
Revenues from pari-mutuel commissions and breakage increased slightly at .1% or
$30,320 despite a 5.8% decrease in attendance as a result of increased wagering
from simulcasting two or four races per night in the 1995 season. Thus, per
capita (average wagering per person) increased 6.3% from $94.46 in 1994 to
$100.44 in 1995. Admissions income decreased by $6,684 due to a decrease in
attendance. Pari-mutuel taxes decreased $234,022 or 22% due mainly to a new
state tax law. Consequently, purse expense increased $104,161 since, by
agreement with the horsemen, purses are calculated based on commissions net of
pari-mutuel taxes. Entry fees and purse monies added by others increased by
$76,413, due to a higher number of horses entered in stake events during the
current race meet. Concessions, program, and other decreased primarily due to
the decrease in attendance. Rental income and tax abatement pass through from
Mid-America decreased by $10,783 and $6,633, respectively, due to a decrease in
handle for Mid-America in 1995.
Interest expense is a result of debt required to finance the construction of
the Clubhouse enclosure. The decrease of $33,223 is a result of the reduced
principal balance of the debt.
Other operating and general expenses increased by $144,304 or 14.9% for 1995,
primarily as a result of increased simulcasting expenses of $82,593 and minor
increases in utilities, and other miscellaneous expenses.
30
<PAGE> 20
SCIOTO DOWNS, INC.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994, CONTINUED
LIQUIDITY AND CAPITAL RESOURCES:
The Clubhouse enclosure project was completed prior to the 1991 racing season
at a total cost of approximately $5,316,000. The Company financed the project
with a combination of internal funds of $1,641,000 and a $3,675,000 loan with
its principal financial institution (see Note 8 of the notes to the financial
statements for further details). The Company utilized its $1,000,000 line of
credit to provide working capital during the off season and anticipates having
to draw upon the line during the off season in 1996. The Company continued to
generate positive cash flow from operations during 1995, despite the large
amount of interest expense. Positive cash flow is anticipated to continue from
operations in future years along with liquidity. The Company's ability to
generate sufficient cash to meet its needs, on both a long-term and short-term
basis, is not anticipated to be a problem based on the Company's strong current
ratio of 1.92 (excluding the balloon portion of long-term debt) and long-term
plans. The Company has paid cash dividends despite a net loss that is due
principally to depreciation, a noncash item. However, the dividend has been
reduced to offset the interest paid and to conserve cash. The term loan matures
in October of 1996, at which time the Company anticipates refinancing the debt.
The on-site planned material capital expenditures are discussed in Note 9 of
the notes to the financial statements.
RECENT DEVELOPMENTS AND OUTLOOK:
The seven Ohio race tracks are currently in negotiations with each other to
present legislation to allow "full card simulcasting." This would allow an
unlimited number of out-of-state races to be simulcast at a track or parlor
during the track's race meet dates. This will also allow cross-breed
simulcasting; thus, Scioto will show thoroughbreds, as well as harness from
out-of-state. This legislation will provide for increased utilization of
current facilities and an opportunity to increase handle by offering additional
diversified products.
31
<PAGE> 21
SCIOTO DOWNS, INC.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994, CONTINUED
During 1994, the Ohio General Assembly passed legislation authorizing the
establishment by each race track of up to two off-track betting facilities in
the state. This legislation did not become effective until after the close of
the Company's 1994 racing season. The legislation also provides that if a track
desires to establish an off-track betting facility, it must first offer all of
the other tracks the opportunity to participate in that facility. Six of the
seven Ohio tracks have elected to work together through a limited liability
company to develop at least six off-track betting facilities. The consensus of
the tracks involved is that the parlors should be opened as soon as possible
with a minimum amount of capital expenditure. However, the consensus of the
tracks now is that parlors are not viable until the "full card" legislation is
passed as discussed above. Each track is committing to make an initial capital
contribution of $100,000 to the group with the possibility of an additional
capital contribution of up to $100,000. Scioto Downs and Mid-America Racing
Association, Inc. have agreed that they will share these capital contributions
and other expenses related to the off-track betting facilities on an equal
basis. Once the off-track betting facilities are in operation, each of the
tracks must send its races by simulcast to those facilities. The cost of
sending the race signal is substantial and may be as high as $1,500 per day.
Management is currently in negotiation with the horsemen and satellite
companies to discuss ways to split the costs, as well as limit them through a
shared network with all tracks participating in the group. The legislation also
changed payment of a percentage of the handle to the Ohio Fair Fund and the
Ohio Standardbred Development Fund from the funds retained by the race track to
the funds paid to the state as a tax. The handle remained at current levels in
1995; thus, this change generated a savings of approximately $234,000 which was
divided with the horsemen.
32
<PAGE> 22
SCIOTO DOWNS, INC.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
GENERAL:
The Company's operations are limited by the race dates assigned to it by the
Ohio Racing Commission. In Ohio, each permit holder may be granted 61 race days
within a specified time period. The entire racing season at Scioto Downs
commencing in May and ending in September was divided between Scioto Downs, 61
days, and Mid-America Racing Association, Inc. (Mid-America), 54 days. As a
result, all of the racing season for the Company falls within the third quarter
ending July 31st. The majority of rental income from leasing the racing
facility to Mid-America is earned during the fourth quarter ending October
31st.
RESULTS OF OPERATIONS:
Total revenues remained constant with only a .08% decrease, while operating
expenses also held steady with a 2.2% increase. A slight decrease in overall
attendance of 639 or .27% from 1993, and a large increase in passes with free
admission resulted in a decrease of $23,719 in admissions revenue. Rental
income and tax abatement pass through from Mid-America decreased by $42,273 and
$16,317, respectively, due to a decrease in handle for Mid-America in 1994 with
six less racing days. Purse awards paid increased by $22,736 as a direct result
of higher entry fees and purse monies added by others. Other operating and
general expenses increased by $63,489 primarily as a result of simulcast
expense, heating fuel cost, and group sales advertising increasing $23,260,
$10,202 and $14,410, respectively.
33
<PAGE> 23
SCIOTO DOWNS, INC.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993, CONTINUED
LIQUIDITY AND CAPITAL RESOURCES:
The Clubhouse enclosure project was completed prior to the 1991 racing season
at a total cost of approximately $5,316,000. The Company financed the project
with a combination of internal funds of $1,614,000 and a $3,675,000 loan with
its principal financial institution (see Note 8 of the notes to the financial
statements for further details). The Company utilized its $1,000,000 line of
credit to provide working capital during the off season and anticipates having
to draw upon the line during the off season in 1995. The Company continued to
generate positive cash flow from operations during 1994, despite the large
amount of interest expense and $104,000 spent on refinancing the debt. Positive
cash flow is anticipated to continue from operations in future years along with
liquidity. The Company's ability to generate sufficient cash to meet its needs,
on both a long-term and short-term basis, is not anticipated to be a problem
based on the Company's strong current ratio of 1.88 and long-term plans. The
Company has paid cash dividends despite a net loss that is due principally to
depreciation, a noncash item. However, the dividend has been reduced to offset
the interest paid and to conserve cash. The interest expense was reduced in
fiscal 1994 by approximately $60,000 as a result of refinancing completed in
the beginning of the year. The term loan matures in October of 1996 at which
time the Company anticipates having to refinance the debt. The on-site planned
material capital expenditures are discussed in Note 9 of the notes to the
financial statements.
RECENT DEVELOPMENTS AND OUTLOOK:
During 1994, the Ohio General Assembly passed legislation authorizing the
establishment by each race track of up to two off-track betting facilities in
the state. This legislation did not become effective until after the close of
the Company's 1994 racing season. The legislation also provides that if a track
desires to establish an off-track betting facility, it must first offer all of
the other tracks the opportunity to participate in that facility. Six of the
seven Ohio tracks have elected to work together through a limited liability
company to develop at least six off-track betting facilities. The consensus of
the tracks involved is that the parlors should be opened as soon as possible
with a minimum amount of capital expenditure. Each track is committing to make
an initial capital contribution of $100,000 to the group with the possibility
of an additional capital contribution of up to $100,000.
34
<PAGE> 24
SCIOTO DOWNS, INC.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993, CONTINUED
Scioto Downs and Mid-America Racing Association, Inc. have agreed that they
will share these capital contributions and other expenses related to the
off-track betting facilities on an equal basis. Once the off-track betting
facilities are in operation, each of the tracks must send its races by
simulcast to those facilities. The cost of sending the race signal is
substantial and may be as high as $1,500 per day. Management is currently in
negotiation with the horsemen and satellite companies to discuss ways to split
the costs, as well as limit them through a shared network with all tracks
participating in the group. The legislation also changed payment of a
percentage of the handle to the Ohio Fair Fund and the Ohio Standardbred
Development Fund from the funds retained by the race track to the funds paid to
the state as a tax. If the handle remains at current levels, this change could
potentially generate a savings of approximately $240,000 to be divided with the
horsemen.
35
<PAGE> 25
SCIOTO DOWNS, INC.
FISCAL YEAR 1993 COMPARED TO FISCAL YEAR 1992
GENERAL:
The Company's operations are limited by the race dates assigned to it by the
Ohio State Racing Commission. In Ohio, each permit holder may be granted a
maximum of 61 race days within a specified time period. The racing season of
Scioto Downs was divided between Scioto Downs, 61 days, and Mid-America Racing
Association, Inc. (Mid-America), 60 days. As a result, all of the racing season
at Scioto Downs annually falls within the third quarter ending July 31st. The
majority of rental income from leasing the racing facility to Mid-America is
earned during the fourth quarter ending October 31st.
RESULTS OF OPERATIONS:
A decrease in overall attendance of 18.731 or 7.40% from 1992 resulted in
decreases of $54,850, $33,272 and $35,994 in pari-mutuel commissions,
admissions and concession revenues, respectively. Rental income from
Mid-America increased by $2,807 due to a slight increase in handle for
Mid-America in 1992.
Purse awards paid increased by $29,372 as a direct result of higher entry fees
and purse monies added by others. Advertising expenses decreased by $16,608 as
a result of small cuts in dollars budgeted for such expenses. The increase in
insurance of $25,242 is a result of rising health insurance premiums.
LIQUIDITY AND CAPITAL RESOURCES:
The Clubhouse enclosure project was completed prior to the 1991 racing season
at a total cost of approximately $5,316,000. The Company financed the project
with a combination of internal funds of $1,614,000 and a $3,675,000 loan with
its principal financial institution (see Note 8 of the notes to the financial
statements for further details). The Company utilized its $1,000,000 line of
credit to provide working capital during the off season and anticipates having
to draw upon the line during the off season in 1994. The Company continued to
generate positive cash flow from operations during 1993, despite the large
amount of interest expense. Positive cash flow is anticipated to continue from
operations in future years along with liquidity. The Company's ability to
generate sufficient cash to meet its needs, on both a long-term and short-term
basis, is not anticipated to be a problem based on the Company's strong current
ratio of 1.91 and long-term plans. The Company has paid cash dividends despite
a net loss that is due principally to depreciation, a noncash item. However,
the dividend has been reduced to offset the interest paid and to conserve cash.
The interest expense is expected to be reduced in fiscal 1994 by approximately
$65,000 as a result of refinancing completed subsequent to year-end. The only
planned material capital expenditures are discussed in Note 9 of the notes to
the financial statements.
36
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<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
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