<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
<TABLE>
<S> <C>
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, 1997
------------------------------------------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period to
from ------------------------------------------------------------------------------------
Commission file number 0-1365
------------------------------------------------------------------------------------
SCIOTO DOWNS, INC.
----------------------------------------------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Ohio 31-4440550
---------------------------------- ------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
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
---------------------------------- ------------------------------------------------------
---------------------------------- ------------------------------------------------------
</TABLE>
<PAGE> 2
FORM 10-K, CONTINUED
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 December 22, 1997 was $2,801,073 or $12.25 per
share.
Registrant has only one class of shares outstanding, namely, common
shares. The number of common shares outstanding as of December 29, 1997 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, 1997 are incorporated by reference in Part II.
2. Portions of Scioto Downs, Inc.'s definitive Proxy Statement furnished
to stockholders in connection with the Annual Meeting of Stockholders
to be held February 25, 1998 are incorporated by reference in Part
III.
The Exhibit index is on page 11.
<PAGE> 3
PART I
ITEM 1. BUSINESS
The 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 started in 1959 and there
has been no material change in the method of conducting this business. In
addition to the racetrack itself, there are parking, grandstand, clubhouse and
eating facilities for Registrant's customers and barn and stable facilities for
the horses. Revenue is derived primarily from commissions on parimutuel wagering
(net of parimutuel taxes), admission fees to enter the facilities and
concessions, programs and parking. In 1997, commissions on parimutuel wagering
net of parimutuel taxes represented 65% of revenues, in 1996 61%, and in 1995
61%. In 1997, admissions represented 2% of revenues, in 1996 3%, and in 1995 4%.
In 1997, revenues from concessions, parking and programs amounted to 11% of
revenues, in 1996 12%, and in 1995 12%. During each off-season period in 1997,
1996 and 1995, the Registrant employed 17 persons. During the last three years,
average daily attendance has declined from 3,606 in 1995 to 3,295 in 1996 and to
2,219 in 1997. However, during 1997, because of the full-card simulcasting
program, Registrant did not track attendance for people entering the facility
prior to 6:00 p.m. The number of races conducted during a live racing program
varies from 9 races during the week to 11 or 12 races on weekends. The nearest
racetrack competition is Beulah Park, a thoroughbred horse racetrack
approximately 6 miles away. Beulah Park typically conducts live racing from the
middle of September until the first weekend of May, during which time Registrant
is not open. Registrant conducts its business pursuant to a permit issued
annually by the Ohio Racing Commission. All of the racing conducted by
Registrant is conducted in accordance with applicable Ohio statutes and the
rules and regulations of the Ohio Racing Commission. The Ohio Racing Commission
regulates and controls the forms of
2
<PAGE> 4
wagering that are permitted at the racetrack, the procedures to be followed as
to wagering, the wagering information to be provided to the public, the number
of races permitted during a racing program and the days and time of day racing
will be permitted. The Commission also approves full-card simulcasting
schedules. All persons who work at the racetrack must be licensed by the Ohio
Racing Commission. All owners, trainers, drivers and other persons involved in
the racing program must be licensed by the Ohio Racing Commission. For the
period covered by this report, Registrant was issued a permit by the Ohio Racing
Commission to conduct harness live racing at its facilities for a period of 61
days together with full-card simulcasting on those days and an additional 11
days (Sundays). Except on special occasions such as Memorial Day, July 4 and
Labor Day, Registrant conducts its racing at night 6 days a week. The 61 day
period in 1997 commenced May 3rd and continued through July 13th. Registrant
then leased its facilities to Mid-America Racing Association, Inc. for 54 days
of live racing, which period ended September 13, 1997. Mid-America Racing
conducted full-card simulcasting on live racing days and on an additional 8 days
(Sundays). This lease generated 5% of total revenue in 1997. This lease is on
file with the Commission. During 1997, major racing programs conducted at
Registrant's facilities included the Little Brown Jug Preview, the Scarlet
O'Hara, the Pink Bonnet, the Ohio Sires Stakes events and Ohio Fair stakes
events. Other forms of competition faced by Registrant during its summer racing
schedule include, in addition to the normal summer events, professional baseball
(minor league in Columbus and major league in Cincinnati and Cleveland), outdoor
music concerts and other similar entertainment events. Riverboat gambling has
been approved in Indiana and land-based casinos have been approved in Michigan.
These are recent developments and at the present time there is not sufficient
information to determine if these new gambling opportunities will have any
noticeable effect upon the wagering conducted at Registrant's facility.
Legalized gambling in the form of the Ohio lottery has been in existence for
many years and has had an adverse effect upon wagering at Registrant's facility.
In
3
<PAGE> 5
1996, the Ohio legislature approved legislation which permits full card
simulcasting at racetracks in Ohio. This legislation enables Ohio racetracks to
bring in to their facilities via television day and night full race programs
conducted at racetracks located outside the State of Ohio. As a result of this
legislation, during its regular racing meet from May to July, Registrant, in
addition to its regular live racing program in the evening shows at its facility
via television during the day and night races being conducted at other tracks in
Ohio and tracks outside of Ohio. Customers at Registrant's facility are able to
wager on all of these races. As a result of this legislation, Registrant and its
nearest racetrack competitor Beulah Park could be open year round conducting
both live racing and bringing racing in from out of state in competition with
each other. This situation would not be advantageous to either track and, as a
result, Registrant and Beulah Park entered into an agreement to not be open at
the same time and to share simulcasting revenues. Pursuant to this agreement,
during 1997 Beulah Park operated from the middle of September to the first of
May while Registrant was closed. During that period of time revenues derived
from simulcasting at Beulah Park at night when it is not conducting live racing
was, after deducting of certain expenses, shared with Scioto Downs ($228,503
during 1997). During the period that Registrant was open from May through the
middle of September while Beulah Park was closed, revenues derived by Registrant
from simulcasting during the afternoon hours when it is not conducting live
racing was, after deducting of certain expenses, shared with Beulah Park
($178,629). Overall, during 1997, as a result of full card simulcasting,
wagering on live racing declined and the additional wagering on simulcast races
offset the decline in wagering on live racing. No live racing or full card
simulcasting has been conducted at Registrant's facilities since September 13,
1997. The 1998 racing season will commence May 2, 1998. During the racing
season, the Registrant has employed approximately 350 people, most all of whom
are parimutuel clerks employed during the hours the track is open for
simulcasting and live racing which is approximately twelve noon to midnight. As
a part of the full card simulcast racing program, Registrant sends its
4
<PAGE> 6
live races via television to all other tracks in Ohio and as many facilities
outside the State of Ohio that it can contract with to receive the signal, which
could be as many as 25 facilities. Registrant will receive a percentage (in most
instances 3%) of the amount wagered on its races at these other facilities
outside the State of Ohio. Total export signal revenue was $212,594 in 1997.
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 (including simulcasting), 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 134 days
commencing in May and ending in mid-September.
5
<PAGE> 7
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.
6
<PAGE> 8
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,
1997:
<TABLE>
<CAPTION>
ANNUAL REPORT TO
STOCKHOLDERS SEQUENTIAL PAGES
<S> <C> <C>
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
18
Item 6. SELECTED FINANCIAL DATA 16
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
13-16
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
4-12
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable
</TABLE>
7
<PAGE> 9
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
TRANSACTIONS
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 26, 1998, relating to the Annual Meeting of Stockholders to be held on
February 25, 1998.
8
<PAGE> 10
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 1997 Annual Report
to Stockholders of Scioto Downs, Inc.:
Report of Independent Accountants on Financial Statements 13
Balance Sheets as of October 31, 1997 and 1996 4
Statements of Operations for the years ended October 31,
1997, 1996 and 1995 5
Statements of Stockholders' Equity for the years ended
October 31, 1997, 1996 and 1995 6
Statements of Cash Flows for the years ended October 31,
1997, 1996 and 1995 7
Notes to the Financial Statements 8-12
(a) 2. Financial Statement Schedules
---------------------------------------------------------------
Financial statement schedules are omitted because they are not
required or are not applicable.
(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) Not applicable or not required
(e) Not applicable.
</TABLE>
9
<PAGE> 11
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)
-----------------------------------------
By /s/ Robert S. Steele
-----------------------------------------
President & Chief Operating Officer and a
Director
-----------------------------------------
Title
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.
-----------------------------------------
Date: January 30, 1998 By /s/ Robert S. Steele
-----------------------------------------
President & Chief Operating Officer and a
Director
-----------------------------------------
Title
-----------------------------------------
Date: January 30, 1998 By /s/ LaVerne A. Hill
-----------------------------------------
Vice President and a Director
-----------------------------------------
Title
-----------------------------------------
Date: January 30, 1998 By /s/ William C. Heer
-----------------------------------------
Treasurer and a Director
-----------------------------------------
Title
-----------------------------------------
Date: January 30, 1998 By /s/ John J. Chester
-----------------------------------------
Director
-----------------------------------------
Title
-----------------------------------------
Date: January 30, 1998 By /s/ John F. Fissell
-----------------------------------------
Director
-----------------------------------------
Title
-----------------------------------------
Date: January 30, 1998 By /s/ Robert E. Suchy
-----------------------------------------
Controller
-----------------------------------------
Title
10
<PAGE> 12
INDEX TO EXHIBITS ANNUAL REPORT ON FORM 10-K
for the year ended October 31, 1997
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C> <C>
3A Articles of Incorporation of the Registrant, as amended to date *
3B Code of Regulations of the Registrant, as amended to date *
10A Lease with Hilliard Raceway, Inc., now Mid-America Racing *
Association, Inc., and amendment thereto
10B Simulcasting agreement with Beulah Park *
13 Annual Report to Stockholders
27 Financial Data Schedule
</TABLE>
* Previously filed with Securities and Exchange Commission
11
<PAGE> 1
SCIOTO DOWNS, INC.
BALANCE SHEETS
October 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 924,176 $ 621,591
Accounts receivable 283,866 47,106
Prepaid expenses and other 59,815 36,453
Investment in joint venture 95,089 82,446
----------- -----------
Total current assets 1,362,946 787,596
----------- -----------
PROPERTY AND EQUIPMENT, AT COST:
Buildings 14,448,305 14,448,305
Land improvements 1,328,990 1,314,740
Furniture and fixtures 1,657,699 1,650,495
Machinery and equipment 2,181,802 1,556,376
----------- -----------
19,616,796 18,969,916
Less accumulated depreciation 12,691,406 11,962,780
----------- -----------
6,925,390 7,007,136
Land 299,847 299,847
----------- -----------
7,225,237 7,306,983
----------- -----------
Total assets $ 8,588,183 $ 8,094,579
=========== ===========
LIABILITIES
CURRENT LIABILITIES:
Accounts payable $ 263,762 $ 167,937
Dividends payable 29,789 29,789
Current maturities, term debt 253,548 100,000
Accrued expenses:
Property taxes 150,369 160,255
Other 31,034 45,053
----------- -----------
Total current liabilities 728,502 503,034
----------- -----------
MINIMUM PENSION LIABILITY 105,121 89,877
----------- -----------
DEFERRED INCOME TAXES 28,994 4,910
----------- -----------
TERM DEBT, NET OF CURRENT MATURITIES 3,242,001 3,025,855
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
COMMON STOCK, $1.05 PAR VALUE PER SHARE:
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 1,880,490 1,856,343
PENSION LIABILITY ADJUSTMENT, NET OF TAXES (59,780) (48,295)
----------- -----------
Total stockholders' equity 4,483,565 4,470,903
----------- -----------
Total liabilities and stockholders' equity $ 8,588,183 $ 8,094,579
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 2
SCIOTO DOWNS, INC.
STATEMENTS OF OPERATIONS
for the years ended October 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
NIGHTS OF LIVE RACING 61 61 61
---------- ---------- ----------
DARK DAYS OF SIMULCASTING 11
----------
OPERATING REVENUES:
Pari-mutuel commissions and breakage $6,031,728 $4,375,312 $4,690,408
Less pari-mutuel taxes 900,345 771,643 842,511
---------- ---------- ----------
5,131,383 3,603,669 3,847,897
Export signal revenue 212,594
Admissions 149,425 179,990 197,700
Simulcasting shared revenue 228,503
Concessions, program, parking, and other 843,921 751,606 782,743
Entry fees and purse monies added by others 750,053 782,704 888,712
Rental income from leased facilities 429,709 301,419 305,226
Pari-mutuel tax abatement earned 368,247 280,968 294,683
---------- ---------- ----------
8,113,835 5,900,356 6,316,961
---------- ---------- ----------
OPERATING EXPENSES:
Purses 2,875,409 2,510,802 2,597,178
Salaries and wages 1,199,212 1,048,031 1,030,606
Simulcasting fees 533,987
Simulcasting shared expense 178,629
Depreciation and amortization 728,626 697,196 693,583
Advertising 340,729 283,514 338,779
Real and personal property taxes 187,237 192,293 192,077
Insurance 238,262 188,540 177,440
Repairs and maintenance 231,220 174,879 165,483
Other operating and general 1,252,600 1,095,954 1,114,519
---------- ---------- ----------
7,765,911 6,191,209 6,309,665
---------- ---------- ----------
Income (loss) from racing operations 347,924 (290,853) 7,296
Equity in earnings of joint venture 12,643 23,345 15,705
Interest expense, net (246,861) (249,383) (258,855)
---------- ---------- ----------
Income (loss) before income tax (expense) benefit 113,706 (516,891) (235,854)
Income tax (expense) benefit (30,000) 185,000 106,000
---------- ---------- ----------
Net income (loss) $ 83,706 $ (331,891) $ (129,854)
========== ========== ==========
NET INCOME (LOSS) PER COMMON SHARE $ .14 $ (.56) $ (.22)
========== ========== ==========
DIVIDENDS PER COMMON SHARE $ .10 $ .10 $ .10
========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 595,767 595,767 595,767
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 3
SCIOTO DOWNS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended October 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Capital in Pension
Common Stock Excess of Liability Total
-------------------- Par Value Retained Adjustment, Stockholders'
Shares Amount of Stock Earnings Net of Taxes Equity
------- -------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, 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 1,558 1,558
------- -------- ---------- ---------- -------- ----------
Balances, October 31, 1995 595,767 625,555 2,037,300 2,247,793 (39,475) 4,871,173
Net loss (331,891) (331,891)
Cash dividends (59,559)(A) (59,559)
Pension liability adjustment, net of
taxes (8,820) (8,820)
------- -------- ---------- ---------- -------- ----------
Balances, October 31, 1996 595,767 625,555 2,037,300 1,856,343 (48,295) 4,470,903
Net income 83,706 83,706
Cash dividends (59,559)(A) (59,559)
Pension liability adjustment, net of
taxes (11,485) (11,485)
------- -------- ---------- ---------- -------- ----------
Balances, October 31, 1997 595,767 $625,555 $2,037,300 $1,880,490 $(59,780) $4,483,565
======= ======== ========== ========== ======== ==========
</TABLE>
(A) Dividends per share:
1995 $.10
====
1996 $.10
====
1997 $.10
====
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 4
SCIOTO DOWNS, INC.
STATEMENTS OF CASH FLOWS
for the years ended October 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 83,706 $(331,891) $(129,854)
--------- --------- ---------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Equity in earnings of joint venture (12,643) (23,345) (15,705)
Depreciation and amortization 728,626 732,139 728,526
Deferred income taxes 30,000 (185,000) (106,000)
Change in accounts receivable (236,760) 23,954 (41,096)
Change in prepaid expenses and other (25,519) 6,211 7,304
Change in accounts payable, trade 81,575 545 31,746
Change in accrued expenses (23,905) (3,407) 3,435
--------- --------- ---------
Total adjustments 541,374 551,097 608,210
--------- --------- ---------
Net cash provided by operating activities 625,080 219,206 478,356
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, net (632,630) (204,286) (200,312)
--------- --------- ---------
Net cash used in investing activities (632,630) (204,286) (200,312)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 538,500
Payments on term debt (168,806) (121,556) (115,804)
Dividends paid (59,559) (59,559) (59,539)
--------- --------- ---------
Net cash provided by (used in)
financing activities 310,135 (181,115) (175,343)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 302,585 (166,195) 102,701
Cash and cash equivalents, beginning of year 621,591 787,786 685,085
--------- --------- ---------
Cash and cash equivalents, end of year $ 924,176 $ 621,591 $ 787,786
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year:
Interest paid $ 284,694 $ 250,224 $ 228,896
========= ========= =========
Income taxes refunded $ 0 $ 0 $ 1,372
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITY:
The Company increased (reduced) its net
minimum pension liability, which is net of
taxes. $ 11,485 $ 8,820 $ (1,558)
========= ========= =========
The Company incurred accounts payable for
leasehold improvements. $ 14,250
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 5
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 horseracing facility located in central Ohio. Revenues are
earned from commissions on pari-mutuel wagering and various 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: Cash and cash equivalents represent amounts
on deposit with financial institutions, including money market
investments with original maturities of three months or less. At
October 31, 1997 and 1996, cash and cash equivalents included
investments of approximately $860,000 and $612,000, respectively, held
at one financial institution.
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:
ESTIMATED
CLASS OF ASSETS USEFUL LIVES
(YEARS)
Buildings 10 to 40
Land improvements 6 to 20
Furniture and fixtures 4 to 20
Machinery and equipment 5 to 15
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 operations.
During March 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to Be Disposed Of. The Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that full
recoverability is questionable. Management evaluates the
recoverability of long-lived assets using several factors in the
valuation including, but not limited to, management's plans for future
operations, recent operating results and projected cash flows. The
Company adopted SFAS No. 121 in 1997, the adoption of which had no
effect on the Company's results of operations or financial condition.
C. INCOME TAXES: The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. Under SFAS 109, deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to "temporary differences" between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized.
D. NET INCOME (LOSS) PER COMMON SHARE: Net income (loss) per share of
common stock is based on the weighted average number of shares
outstanding during each of the respective years.
E. USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
8
<PAGE> 6
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
F. REVENUE RECOGNITION: The Company recognizes commission revenue based
upon various percentages of pari-mutuel wagering. Other revenues are
recognized when services are performed.
G. NEW ACCOUNTING PRONOUNCEMENTS: In February 1997, the FASB issued SFAS
No. 128, Earnings Per Share. SFAS 128 is effective for financial
statements issued for periods ending after December 15, 1997,
including interim periods. Early adoption is not permitted and the
statement requires restatement of all prior period earnings per share
data presented after the effective date. The Company will adopt SFAS
128 in the first quarter of fiscal year 1998. The adoption of SFAS 128
will presently have no impact on the Company's earnings per share
computations.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. SFAS 130 is effective for financial statements issued for
periods beginning after December 15, 1997, with earlier application
encouraged. The Company intends to adopt SFAS 130 in fiscal year 1998.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments
of an Enterprise and Related Information. SFAS 131 is effective for
financial statements issued for periods beginning after December 15,
1997, with earlier application encouraged. The Company intends to
adopt SFAS 131 in fiscal year 1999.
H. RECLASSIFICATIONS: Certain prior year amounts have been reclassified
to conform with the 1997 presentation.
I. ADVERTISING COSTS: Advertising costs are expensed as incurred.
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 on percentages
of daily pari-mutuel wagering during the meet with a minimum annual rental
payment of $7,200. During 1997, 1996 and 1995, Mid-America paid to the
Company additional rents of $76,346, $57,763 and $57,763, respectively.
These additional payments are based on two months of the Company's required
debt service during the period in which Mid-America rents the Company's
facilities. In addition, commencing in 1997, Mid-America paid the Company
$18,583 in additional rents for the debt service on the simulcasting
equipment during the period in which Mid-America utilizes the equipment.
These additional payments are subject to annual approval by Mid-America.
The gross lease income was $429,709 in 1997, $301,419 in 1996 and $305,226
in 1995. 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 $169,517 in 1997, $126,621 in 1996 and $128,964 in 1995. In
addition, the lessee is required to pay certain operating expenses.
Revenues from this lease are accounted for on the operating method.
The Company collects simulcasting purse pool funding and other monies on
behalf of Mid-America and remits such funding to Mid-America on a periodic
basis. In addition, amounts are due from Mid-America for the portion of
certain shared corporate overhead expenses paid by the Company, and
subsequently reimbursed by Mid-America. Accounts receivable from
Mid-America were $283,866 and $6,836 at October 31, 1997 and 1996,
respectively, and such reimbursed expenses were $143,369 in 1997, $277,000
in 1996 and $257,920 in 1995.
4. INCOME TAXES:
Income tax expense (benefit) includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Federal income taxes (benefit):
Deferred $30,000 $(185,000) $(106,000)
------- --------- ---------
Total $30,000 $(185,000) $(106,000)
======= ========= =========
</TABLE>
9
<PAGE> 7
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
A summary of the effective income tax rates is as follows:
PERCENTAGE OF PRETAX LOSS
-------------------------
1997 1996 1995
---- ---- ----
Statutory federal rate 34 % (34)% (34)%
Surtax exemption (10) 5
Permanent differences 7 7 3
Deferred tax rate and other adjustments (5) (9) (19)
--- --- ---
Effective tax rate 26 % (36)% (45)%
=== === ===
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>
1997 1996
<S> <C> <C>
Deferred tax assets arising from:
AMT credit/net operating loss carryovers $478,753 $511,153
Valuation allowance (95,682) (97,071)
Pension liability adjustment 30,796 24,880
-------- --------
Total deferred tax assets $413,867 $438,962
======== ========
Deferred tax liabilities arising from:
Depreciation $442,861 $443,872
-------- --------
Total deferred tax liabilities $442,861 $443,872
======== ========
</TABLE>
The Company has recorded a valuation allowance of $95,682 and $97,071 at
October 31, 1997 and 1996, respectively, related to net operating loss
carryforwards for state income taxes and contribution carryforwards 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, 1997, the Company has, for federal income tax purposes,
approximately $59,000 in alternative minimum tax credit carryforwards and
approximately $1,200,000 in net operating loss carryforwards. The tax
operating loss carryforwards expire over the years 2008 through 2011. 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 that expires April 30, 1998. Rental expense was $118,628 in
1997, $115,871 in 1996 and $116,854 in 1995. Under the agreement, the
Company is obligated to pay the third party processor a minimum charge per
program of $1,600 (approximately $97,600 for one year).
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 $22,204 in 1997, $26,537 in 1996 and $26,169 in
1995.
10
<PAGE> 8
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
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.
Net pension expense includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost--benefits earned during
the year $ 8,731 $ 14,627 $ 13,648
Interest cost on projected benefit
obligations 33,150 32,381 31,155
Actual (gain) loss on plan assets (32,026) (17,709) (35,674)
Net amortization relating to the
deferral of initial transitional
obligation and subsequent gains
and losses 12,349 (2,762) 17,040
-------- -------- --------
Net pension expense $ 22,204 $ 26,537 $ 26,169
======== ======== ========
</TABLE>
The Company's portion of the funded status of the plan and accrued pension
expense at October 31 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits $ 455,267 $ 421,432 $ 405,023
Nonvested benefits 3,988 9,477 8,486
--------- --------- ---------
Accumulated benefit obligation 459,255 430,909 413,509
Impact of future salary increases 19,859 29,136 27,963
--------- --------- ---------
Projected benefit obligation 479,114 460,045 441,472
Plan assets at fair value, primarily a
diversified income fund and
cash equivalents 352,693 334,520 330,935
--------- --------- ---------
Plan assets in deficiency of
projected benefit obligation (126,421) (125,525) (110,537)
Items not recognized in income:
Unrecognized prior service cost 2,275 2,547 2,803
Unrecognized net gain from past
experience different from that
assumed and effects of
changes in assumptions 110,435 102,311 87,767
Initial transitional obligation, which is
being amortized over 17.5 years 12,270 14,155 15,959
--------- --------- ---------
Accrued pension expense $ (1,441) $ (6,512) $ (4,008)
========= ========= =========
</TABLE>
Assumptions used for the plan are as follows:
1997 1996 1995
Discount rate 7.00% 7.50% 7.50%
Rate of increase in compensation
levels 5.00% 5.50% 5.50%
Long-term rate of return on assets 8.00% 8.00% 8.00%
11
<PAGE> 9
NOTES TO THE FINANCIAL STATEMENTS, CONTINUED
Plan assets have been valued at market value.
The Company and Mid-America have a 401(k) savings plan covering
substantially all full-time employees. The Company expensed matching
contributions of $5,750 in 1997, $7,656 in 1996 and $7,202 in 1995.
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 a
fraction 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, 1997,
the Company had $1,383,327 of abatement available for recovery in future
periods.
The Company earned pari-mutuel tax abatement (including amounts remitted by
Mid-America) of $368,247 in 1997, $280,968 in 1996 and $294,683 in 1995.
Tax abatement less applicable income taxes had the following favorable
impact on earnings per share: $0.41 per share in 1997, $0.31 per share in
1996 and $0.33 per share in 1995.
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 (8.5% at October 31, 1997). The Company borrowed
and subsequently repaid approximately $254,000 and $415,000 during 1997 and
1996, respectively. At October 31, 1997 and 1996, the line had no
outstanding balance.
In October 1996, the Company refinanced its five-year term loan with the
same financial institution. The revised term loan agreement calls for a
fifteen-year amortization of the principal at a fixed rate of 8.15%, with a
minimum annual principal reduction of $100,000. A balloon payment for the
remaining principal is due in November 2001. Interest is payable monthly.
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.
In July 1997, the Company entered into a three-year term loan with the same
financial institution to finance the installation of simulcasting
equipment. The term loan agreement calls for a three-year amortization of
the principal at a fixed rate of 8.17%. The Company is required to make
monthly payments of principal and interest.
The aggregate amount of the required annual principal payments on related
term debt obligations at October 31, 1997 is as follows:
1998 $ 253,548
1999 281,237
2000 267,673
2001 100,000
2002 2,593,091
----------
Total $3,495,549
==========
9. JOINT VENTURE:
The Company maintains 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 50%
investment under the equity method of accounting. The Company recorded
$12,643 in 1997, $23,345 in 1996 and $15,075 in 1995, as its proportionate
share of the joint venture's earnings in its statements of operations.
12
<PAGE> 10
- --------------------------------------------------------------------------------
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, 1997 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended October 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended October 31, 1997, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
January 16, 1998
- --------------------------------------------------------------------------------
1997 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
OVERVIEW
Any forward looking statements contained in the following discussion or
elsewhere in this document involve risks and uncertainties which may cause
actual results to differ materially from those discussed. A wide range factors
could contribute to those differences, including those discussed in this
document. The following discussion should be read in conjunction with the
Selected Financial Data and the Financial Statements of Scioto Downs, Inc.
("Scioto Downs" or "the Company") including the respective notes thereto, all of
which are included herein.
GENERAL
The results of operations of the Company are dependent upon the operations of
Scioto Downs as a live harness horse racing facility and as a simulcast wagering
facility. 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
racing 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, 72 days (which included 11 simulcasting days in which no live racing
occurred or more commonly referred to as "dark days"), and Mid-America Racing
Association (Mid-America), 62 days (which included 8 simulcasting dark days). As
a result, the entire racing season for the Company falls within the third
quarter ending July 31st. The majority of rental income from leasing the
facility and simulcasting equipment to Mid-America is earned during the fourth
quarter ending October 31st.
13
<PAGE> 11
PARI-MUTUEL COMMISSIONS AND BREAKAGE REVENUES
The Company's annual revenue is mainly derived from the pari-mutuel commissions
and breakage revenue that it receives from wagers made by the public during its
racing meet. Wages at Scioto Downs are placed under the pari-mutuel wagering
system whereby individual bettors wager against each other in a pool. The
Company merely acts as the stakeholder for the wagers made by the public and
deducts a commission which is fixed by Ohio law, and which is shared principally
by the State of Ohio, horsemen (in the form of purses to horse owners and in
various incentive awards) and the Company when conducting the race meet. The
Company, as the race track operator, has no interest in the order of finish in
any given race.
Pari-mutuel revenues are derived from three sources: commissions and breakage
(generally 20%) from wagers made at Scioto Downs on live racing; commissions and
breakage (generally 20%) from wagers made at Scioto Downs on the audio-visual
signal received of races conducted in Ohio and at out-of-state locations
(imported simulcast races); and commissions (generally 3%) of wages made at
other track locations when Scioto Downs exports its live racing signal to other
track locations (commonly referred to as "export signal revenue").
RESULTS OF OPERATIONS
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Revenue from pari-mutuel commissions and breakage increased by 40% or $1,656,416
due to a $3,625,522 increase in pari-mutuel commissions and breakage from
simulcasting, offset by a decrease in live racing pari-mutuel commissions and
breakage of $1,969,106. Overall, the Company had an additional 11 racing days
which directly attributed to the increases in revenue from pari-mutuel
commissions and breakage. Pari-mutuel taxes increased 16.7% or $128,702 due to
the direct increase in the pari-mutuel handle. Consequently, purse expense
increased $364,607 since, by agreement with the horsemen, purses are calculated
based on commissions net of pari-mutuel taxes. Purses include $206,310 of
expense directly attributed to the Company paying into the horseman' purse pool
on simulcasting dark days. Entry fees and purse monies added by others decreased
by 4.2% or $32,651, due to a lower number of horses entered in stake events
during the current race meet. Concession, program, parking and other increased
$92,315 primarily due to the increase in unclaimed tickets income and increases
in program sales due to simulcasting. The decline in average on-track attendance
has attributed directly to the decrease in admissions income of $30,565 or
16.9%. Rental income and tax abatement earned increased by $128,290 and $87,279,
respectively, due to increases in handle for Mid-America in 1997.
As a result of enacted legislation, Beulah Park, the Company's nearest
competitor, could be open year round conducting both live racing and
simulcasting racing in from out of state tracks in direct competition with the
Company. This situation would not be advantageous to either track and, as a
result, during 1997 the Company and Beulah Park entered into an agreement to not
be open at the same time and to share simulcasting revenues. Pursuant to the
agreement, Beulah Park operated from the middle of September to the first of May
while the Company was closed. During that period of time, revenues derived from
simulcasting at Beulah Park at night when it was not conducting live racing was,
after deducting certain expenses, shared with the Company. Revenue
("simulcasting shared revenues") under this agreement was $228,503 during 1997.
During the period in which the Company was open while Beulah Park was closed,
revenues derived by the Company from simulcasting during the afternoon hours
when it is not conducting live racing was, after deducting certain expenses,
shared with Beulah Park. Expense ("simulcasting shared expenses") under this
agreement was $178,629 during 1997.
Operating expenses such as salaries and wages, advertising, insurance and
repairs and maintenance increased as a result of the new simulcasting business
activities (e.g. racetrack is open additional hours as a result of
simulcasting). Depreciation expense increased 4.5% or $31,430 as a result of the
new simulcast equipment additions. Other operating and general expenses
increased by 14.3% or $156,646 due to general increases in business activities,
primarily related to simulcasting. Simulcasting fees were $533,987 which
includes $443,596 in expense for importing races into the facility (generally 3%
of handle wagered) and $90,391 of expenses to operate the television equipment,
decoding, transmission, etc.
14
<PAGE> 12
Interest expense is a result of debt required to finance the construction of the
clubhouse enclosure, draws on the line of credit for operations during the off
season and simulcasting equipment. Overall interest expense increased $12,410
which was offset by increases in interest and dividend income of 14,932. The
additions to interest expense were a result of a increases in the interest rate
on the line of credit and $11,180 of new financing interest relating to
simulcasting equipment, offset by recurring payments for principal reductions of
debt. Interest income and dividends increased as a result of higher average
investment and cash deposit balances throughout the year.
RESULTS OF OPERATIONS
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Revenue from pari-mutuel commissions and breakage decreased by 6.7% or $315,096
due to poor weather experienced during the first part of the live racing season.
Admissions income decreased by 9.0% or $17,710 due to a decrease in attendance.
Pari-mutuel taxes decreased 8.4% or $70,868 due to the decrease in the
pari-mutuel handle. Consequently, purse expense decreased $86,376 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 decreased by
11.9% or $106,008, due to a lower number of horses entered in stake events
during the current race meet. Concession, programs and other decreased primarily
due to the decrease in attendance. Rental income and tax abatement passed
through from Mid-America decreased by $3,807 and $13,715, respectively, due to a
decrease in handle for Mid-America in 1996.
Interest expense is a result of debt required to finance the construction of the
clubhouse enclosure and draws on the line of credit for operations during the
off season. The decrease of $9,472 is a result of the increase in the prime
lending rate on the line of credit, offset by recurring payments for principal
reductions of debt. Other operating and general expenses decreased by 1.7% or
$18,565 due to a reduction in the simulcasting expense in the current year.
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. In October 1996, the Company refinanced the
five-term loan with the same financial institution. The revised term loan
agreement calls for a fifteen-year amortization of the principal at a fixed rate
of 8.15% and interest, with a minimum annual principal reduction of $100,000. A
balloon payment of $2,593,091 for the remaining principal is due in November
2001. The Company anticipates that it will need to refinance the balloon payment
based upon current anticipated cash flow estimates.
The simulcasting equipment installation project was completed during 1997 at a
total cost of $615,195. The Company financed the project with a combination of
internal funds of $76,695 and $538,500 from a term note agreement with its
principal financial institution. The terms of the loan were agreed upon in July,
1997 with a principal amount of $538,500 at an interest rate of 8.17% for three
years.
Excluding the simulcasting equipment, during 1997, 1996 and 1995, the Company
invested $17,435, $204,286 and $200,312, respectively, for purchases of property
and equipment. During 1997, 1996 and 1995 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 1998. The Company borrowed
and subsequently repaid approximately $254,000 during 1997.
In addition, the Company continued to generate positive cash flow from
operations during 1997, 1996 and 1995 of $625,080, $219,206 and $478,356,
respectively. Cash provided by operating activities during 1997 increased by
$405,874 from 1996 as a result of increases in net income of $415,597 and
deferred income taxes of $215,000, offset by decreases in accounts receivable of
$260,714 and increases on other operating assets and liabilities of $35,991.
Cash provided by operating activities decreased during 1996 by $57,113 due to an
increase in the net loss as a result of poor weather conditions. 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 anticipated to continue based on
the Company's stable current ratios of 1.87, 1.57 and 1.92 (excluding the
balloon portion of long-term debt at October 31, 1995) as of October 31, 1997,
1996 and 1995, respectively, and other long-term plans.
During 1997, 1996 and 1995, the Company has paid cash dividends despite a net
loss that is due principally to depreciation and amortization of $728,626,
$732,139 and $728,526, respectively, and deferred income taxes of $30,000,
$(185,000) and $(106,000). Although the Company cannot anticipate future
performance, the Company anticipates that the pattern of cash dividends paid in
1997 will be maintained in the near future.
15
<PAGE> 13
RECENT DEVELOPMENTS AND OUTLOOK
During 1998, the Company anticipates completing the construction of four
off-track parlors as state law requires that four parlors be open by March 19,
1998. The Company is coordinating with Northfield Park and Thistledowns to
complete the openings. The Company anticipates that the off-track parlors will
have a favorable impact on the Company's operations.
In addition, the Company has finalized a new agreement with Beulah Park, whereby
the Company will receive a share of proceeds from simulcasting generated during
a dark period at Beulah during the winter. However, at no time in which the
Company is racing and conducting simulcasting will the Company share proceeds
with Beulah Park.
INFLATION
Inflation is not expected to materially impact the Company.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share.
SFAS 128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. Early adoption is not permitted
and the statement requires restatement of all prior period earnings per share
data presented after the effective date. The Company will adopt SFAS 128 in the
first quarter of fiscal year 1998. The adoption of SFAS 128 will presently have
no impact on the Company's earnings per share computations.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. SFAS
130 is effective for financial statements issued for periods beginning after
December 15, 1997, with earlier application encouraged. The Company intends to
adopt SFAS 130 in fiscal year 1998.
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS 131 is effective for financial
statements issued for periods beginning after December 15, 1997, with earlier
application encouraged. The Company intends to adopt SFAS 131 in fiscal year
1999.
SELECTED FINANCIAL DATA
for the five years ended October 31, 1997
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Operating revenues $8,113,835 $5,900,356 $6,316,961 $6,032,318 $6,037,362
========== ========== ========== ========== ==========
Net income (loss) per common share (a) $ .14 $ (.56) $ (.22) $ (.33) $ (.31)
========== ========== ========== ========== ==========
Total assets $8,588,183 $8,094,579 $8,795,790 $9,172,613 $9,621,762
========== ========== ========== ========== ==========
Cash dividends per common share $ .10 $ .10 $ .10 $ .10 $ .10
========== ========== ========== ========== ==========
Average common shares outstanding 595,767 595,767 595,767 595,767 595,767
========== ========== ========== ========== ==========
Term obligations $3,495,549 $3,125,855 $3,247,411 $3,263,615 $3,369,320
========== ========== ========== ========== ==========
</TABLE>
(a) Based upon weighted average outstanding common shares
16
<PAGE> 14
TWENTY-YEAR PER SHARE SUMMARY OF EARNINGS (LOSS), DIVIDENDS, AND BOOK VALUE
EARNINGS BOOK
YEAR (LOSS) DIVIDENDS VALUE
1997 $ .14 $.10 $ 7.53
1996 (.56) .10 7.50
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
FIVE-YEAR SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
OCTOBER 31 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Operating revenues:
Pari-mutuel commissions and breakage $6,031,728 $4,375,312 $4,690,408 $4,660,088 $4,647,173
Less pari-mutuel taxes 900,345 771,643 842,511 1,076,533 1,066,663
---------- ---------- ---------- ---------- ----------
5,131,383 3,603,669 3,847,897 3,583,555 3,580,510
Export signal revenue 212,594
Admissions 149,425 179,990 197,700 204,384 228,103
Simulcasting shared revenue 228,503
Concessions, program, parking, and other 843,921 751,606 782,743 814,755 799,233
Entry fees and purse monies added by others 750,053 782,704 888,712 812,299 753,601
Rental income from leased facilities 429,709 301,419 305,226 316,009 358,282
Pari-mutuel tax abatement earned 368,247 280,968 294,683 301,316 317,633
---------- ---------- ---------- ---------- ----------
8,113,835 5,900,356 6,316,961 6,032,318 6,037,362
---------- ---------- ---------- ---------- ----------
</TABLE>
17
<PAGE> 15
FIVE-YEAR SUMMARY OF OPERATIONS, CONTINUED
<TABLE>
<S> <C> <C> <C> <C> <C>
Operating expense:
Purses 2,875,409 2,510,802 2,597,178 2,493,017 2,470,281
Salaries and wages 1,199,212 1,048,031 1,030,606 1,043,284 1,019,485
Simulcasting fees 533,987
Simulcasting shared expense 178,629
Depreciation 728,626 697,196 693,583 709,403 701,300
Advertising 340,729 283,514 338,779 338,111 310,754
Real and personal property taxes 187,237 192,293 192,077 206,783 198,174
Insurance 238,262 188,540 177,440 201,545 212,660
Repairs and maintenance 231,220 174,879 165,483 142,020 155,926
Other operating and general 1,252,600 1,095,954 1,114,519 970,215 906,726
---------- ---------- ---------- ---------- ----------
7,765,911 6,191,209 6,309,665 6,104,378 5,975,306
---------- ---------- ---------- ---------- ----------
Income (loss) from racing operations 347,924 (290,853) 7,296 (72,060) 62,056
Equity in earnings of joint venture 12,643 23,345 15,705 21,018 9,858
Interest expense, net (246,861) (249,383) (258,855) (292,078) (352,596)
Gain on sale of equipment 3,500
---------- ---------- ---------- ---------- ----------
Income (loss) before income tax (expense) benefit
and change in accounting principle 113,706 (516,891) (235,854) (343,120) (277,182)
Income tax (expense) benefit (30,000) 185,000 106,000 104,000 90,000
---------- ---------- ---------- ---------- ----------
Income (loss) before cumulative effect of change in
accounting principle 83,706 (331,891) (129,854) (239,120) (187,182)
Cumulative effect of change in accounting for income
taxes 41,000
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 83,706 $ (331,891) $ (129,854) $ (198,120) $ (187,182)
========== ========== ========== ========== ==========
</TABLE>
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, 1997. These bid prices do not
include retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
LOW HIGH DIVIDENDS
<C> <C> <C> <C>
1997 First Quarter 1/31 $12.25 $14.25
Second Quarter 4/30 12.25 13.00
Third Quarter 7/31 12.25 12.75 $.05
Fourth Quarter 10/31 12.25 14.25 .05
1996 First Quarter 1/31 $12.00 $15.25
Second Quarter 4/30 12.00 16.25
Third Quarter 7/31 12.25 14.75 $.05
Fourth Quarter 10/31 12.25 14.25 .05
</TABLE>
The market for the Company's common stock is generally inactive.
The number of common stockholders of the Company as of October 31, 1997 totaled
1,645.
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-1-1996
<PERIOD-END> OCT-31-1997
<EXCHANGE-RATE> 1
<CASH> 924,176
<SECURITIES> 0
<RECEIVABLES> 283,866
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,362,946
<PP&E> 7,225,237
<DEPRECIATION> 12,691,406
<TOTAL-ASSETS> 8,588,183
<CURRENT-LIABILITIES> 728,502
<BONDS> 0
0
0
<COMMON> 625,555
<OTHER-SE> 3,858,010
<TOTAL-LIABILITY-AND-EQUITY> 8,588,183
<SALES> 0
<TOTAL-REVENUES> 8,113,835
<CGS> 0
<TOTAL-COSTS> 7,765,911
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 246,861
<INCOME-PRETAX> 113,706
<INCOME-TAX> 30,000
<INCOME-CONTINUING> 83,706
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83,706
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
