<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 31, 1999
---------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ____________________
Commission File Number 0-1365
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SCIOTO DOWNS, INC.
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(Exact name of registrant as specified in its charter)
OHIO 31-4440550
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6000 SOUTH HIGH STREET, COLUMBUS, OHIO 43207
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(Address of principal executive offices) (Zip Code)
(614) 491-2515
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(Registrant's telephone number, including area code)
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 90 days. Yes X No
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The number of common shares outstanding at September 10, 1999:
595,767, par value $1.05
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<TABLE>
SCIOTO DOWNS, INC.
INDEX
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<CAPTION>
PAGES
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at July 31, 1999, October 31, 1998
and July 31, 1998 1-2
Statements of Operations for the three-month and nine-month
periods ended July 31, 1999 and 1998 3
Statements of Cash Flows for the nine-month periods ended
July 31, 1999 and 1998 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
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<TABLE>
SCIOTO DOWNS, INC.
BALANCE SHEETS
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<CAPTION>
JULY 31, OCTOBER 31, JULY 31,
1999 1998 1998
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,640,750 $ 1,503,240 $ 1,811,064
Accounts receivable, affiliate 161,498 248,375 404,066
Accounts receivable, trade 196,563 20,977 49,883
Prepaid expenses and other 74,050 77,729 43,339
Investment in joint venture 97,126 97,126 95,089
Deferred tax asset 50,000 -- --
----------- ----------- -----------
Total current assets 2,219,987 1,947,447 2,403,441
----------- ----------- -----------
Property and equipment, at cost 20,127,970 20,016,643 20,030,893
Less accumulated depreciation 13,908,420 13,386,843 13,216,343
----------- ----------- -----------
Total property and equipment, net 6,219,550 6,629,800 6,814,550
----------- ----------- -----------
Total assets $ 8,439,537 $ 8,577,247 $ 9,217,991
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
CONTINUED
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<TABLE>
SCIOTO DOWNS, INC.
BALANCE SHEETS
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<CAPTION>
JULY 31, OCTOBER 31, JULY 31,
1999 1998 1998
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(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable, trade $ 159,784 $ 41,123 $ 553,245
Dividends payable 29,789 29,789 --
Current maturities, term debt 120,618 281,237 277,505
Accrued expenses 180,267 217,911 245,946
Purses payable and simulcast purse fund 736,144 495,055 454,542
---------- ---------- ----------
Total current liabilities 1,226,602 1,065,115 1,531,238
---------- ---------- ----------
Minimum pension liability 115,771 115,771 105,121
---------- ---------- ----------
Net deferred income taxes 43,342 43,342 28,994
---------- ---------- ----------
Term debt, net of current maturities 2,943,843 2,925,113 3,050,604
---------- ---------- ----------
Stockholders' equity:
Common stock, $1.05 par value per share, issued
and outstanding, 595,767 shares 625,555 625,555 625,555
Capital in excess of par value 2,037,300 2,037,300 2,037,300
Retained earnings 1,515,934 1,833,861 1,898,959
Pension liability adjustment, net of taxes (68,810) (68,810) (59,780)
---------- ---------- ----------
Total stockholders' equity 4,109,979 4,427,906 4,502,034
---------- ---------- ----------
Total liabilities and stockholders' equity $8,439,537 $8,577,247 $9,217,991
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
SCIOTO DOWNS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED APRIL 30, 1999 AND 1998
(UNAUDITED)
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<CAPTION>
3 MONTH PERIOD ENDED 9 MONTH PERIOD ENDED
7/31/99 7/31/98 7/31/99 7/31/98
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<S> <C> <C> <C> <C>
Operating revenues:
Pari-mutuel commissions and breakage $6,189,260 $6,108,475 $6,189,260 $6,108,475
Less pari-mutuel taxes 973,408 924,072 973,408 924,072
---------- ---------- ---------- ----------
5,215,852 5,184,403 5,215,852 5,184,403
Export signal revenue 254,762 201,545 254,762 201,545
Admissions 212,674 184,829 212,674 184,829
Simulcasting shared revenue -- -- 70,180 75,856
Concessions, program, parking, and other 527,431 634,327 527,431 662,096
Entry fees and purse monies added by others 658,608 550,963 658,608 550,963
Rental income from leased facilities 128,345 106,621 154,345 106,621
Pari-mutuel tax abatement earned 259,455 253,392 259,455 253,392
Other operating revenues 15,555 32,102 --
---------- ---------- ---------- ----------
7,272,682 7,116,080 7,385,409 7,219,705
Operating expenses:
Purses 3,327,719 3,050,817 3,327,719 3,050,817
Salaries and wages 835,906 843,321 1,102,658 1,083,341
Simulcasting fees 679,827 619,595 679,827 619,595
Depreciation and amortization 173,859 174,979 521,577 524,937
Other operating and general 1,274,116 1,040,593 1,932,831 1,641,866
---------- ---------- ---------- ----------
6,291,427 5,729,305 7,564,612 6,920,556
Income (loss) from racing operations 981,255 1,386,775 (179,203) 299,149
Interest expense (60,731) (69,929) (189,854) (232,091)
Dividend and interest income 10,429 1,323 30,919 10,200
---------- ---------- ---------- ----------
Income (loss) before income tax (expense) benefit 930,953 1,318,169 (338,138) 77,258
Income tax (expense) benefit (140,000) (396,000) 50,000 (29,000)
---------- ---------- ---------- ----------
Net income (loss) $ 790,953 $ 922,169 $ (288,138) $ 48,258
---------- ---------- ---------- ----------
Net income (loss) per common share $ 1.33 $ 1.55 $ (0.48) $ 0.08
---------- ---------- ---------- ----------
Dividends per common share $ 0.05 $ 0.05 $ 0.05 $ 0.05
---------- ---------- ---------- ----------
Weighted average shares outstanding,
basic and diluted 595,767 595,767 595,767 595,767
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SCIOTO DOWNS, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 1999 AND 1998 (UNAUDITED)
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<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net (loss) income $ (288,138) $ 48,258
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 521,577 524,937
Changes in current assets and liabilities:
Accounts receivable, affiliate 107,854 (120,200)
Accounts receivable, trade (196,563) (49,883)
Prepaid expenses and other 3,679 16,476
Accounts and purses payable and simulcast purse fund 359,750 744,025
Accrued expenses (37,644) 64,543
Deferred income taxes (50,000) --
---------- ----------
Net cash provided by operating activities 420,515 1,228,156
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (111,327) (114,250)
---------- ----------
Net cash used in investing activities (111,327) (114,250)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on term debt (141,889) (167,440)
Cash dividends paid (29,789) (59,578)
---------- ----------
Net cash used in financing activities (171,678) (227,018)
---------- ----------
Net increase in cash and cash equivalents 137,510 886,888
Cash and cash equivalents, beginning of period 1,503,240 924,176
---------- ----------
Cash and cash equivalents, end of period $1,640,750 $1,811,064
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SCIOTO DOWNS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED JULY 31, 1999 AND 1998
(UNAUDITED)
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1. BASIS OF PRESENTATION
The financial information furnished reflects all adjustments which are,
in the opinion of management, necessary to present a fair statement of
the results for the interim periods on a basis consistent with that of
prior periods. All such adjustments are of a normal recurring nature.
The accompanying unaudited financial statements are presented in
accordance with the requirements of Form 10-Q and, consequently, do not
include all the disclosures normally required by generally accepted
accounting principles or those normally made in Scioto Downs, Inc.'s
(the Company) annual report on Form 10-K. Reference should be made to
the Company's 1998 Form 10-K for additional disclosures, including a
summary of the Company's accounting policies.
The year-end balance sheet was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
Certain reclassifications of prior period amounts have been made in the
financial statements to conform to the July 31, 1999 presentation.
2. NEW ACCOUNTING STANDARD
The Company adopted the provisions of Statement of Financial Accounting
Standard No. 130, Reporting Comprehensive Income, during the quarter
ended January 31, 1999. There was no effect on the financial statements
of adopting this standard as of and for the three months and nine
months ended July 31, 1999.
3. INCOME TAXES
The Company's estimated annual effective tax rate differs from the
statutory rate due to the application of surtax exemptions.
4. DEBT REFINANCING
In April 1999, the Company refinanced and consolidated its term debt on
the clubhouse enclosure and simulcasting equipment with a financial
institution. The revised term loan agreement calls for a
fourteen-and-one-half-year amortization of the principal of $3,103,000
at a fixed rate of 7.79%. Principal and interest is payable monthly in
the amount of $30,026. The term loan is collateralized by a first
mortgage on the Company's real property facilities, as well as other
personal property, and an assignment of the rents from the Company's
lease arrangements.
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SCIOTO DOWNS, INC.
OTHER INFORMATION
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PART I. FINANCIAL INFORMATION, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Management Discussion and Analysis of Financial Condition
and Results of Operations and other parts of this report
contain forward-looking statements that involve risks and
uncertainties. The Company's actual results in 1999 and future
periods may differ significantly from the prospects discussed
in the forward-looking statements.
GENERAL
Due to the seasonal nature of the business, the Company
experiences net operating losses during the first two quarters
of the fiscal year. In addition, the Company uses this period
to perform routine repairs and maintenance and facility
improvements. During the first and second quarters of 1999,
the Company continued to service the debt on the clubhouse and
the simulcasting equipment with funds generated during the
1999 racing season.
The racing season at Scioto Downs annually falls within the
third quarter, ending in July. The majority of rental income
from leasing the facility to Mid-America Racing Association is
earned during the fourth quarter of the year, ending in
October.
THREE MONTHS ENDED JULY 31, 1999 COMPARED TO THE THREE MONTH
PERIOD ENDED JULY 31, 1998
Income (loss) from racing operations was $930,953, which was a
decrease of $386,816 or 29.3%. The decrease resulted from a
rise in operating expenses of $562,122, offset by an increase
in operating revenues of $156,602.
Operating revenues increased primarily due to an increase in
entry fees and purses monies added by others $107,645, from
sires stakes entry fees and an increase of $53,217, in the
simulcasting export signal revenue, which is an increase in
the number of racetracks receiving Scioto Downs' signal and
paying commissions for doing so.
Operating expenses increased primarily due to an increase of
purse expense of $276,902, offset by a reduction in salaries
and wages of $7,415, resulting from the employment of fewer
pari-mutuel clerks and a reduction in the administrative
staff. Simulcasting fees increased $60,232, due to an increase
in the total handle of imported races into the facility.
Interest expense decreased $9,198 due to the refinancing of
the clubhouse and simulcasting equipment note completed in
April 1999.
The Company recorded income tax expense of $156,000 and
$396,000 for the three months ended July 31, 1999 and 1998,
respectively. The expense has been recorded at the anticipated
effective tax rates for fiscal years 1999 and 1998,
respectively.
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SCIOTO DOWNS, INC.
OTHER INFORMATION
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NINE MONTHS ENDED JULY 31, 1999 COMPARED TO THE NINE MONTHS
ENDED JULY 31, 1998
Net loss from racing operations was $179,203 which was a
decrease of $478,352, or 159.9%. The decrease resulted from an
increase in operating revenues of $165,704, and a rise in
operating expenses of $644,056.
Operating revenues increased due to an increase in export
signal revenue of $53,217, earned from an increase in the
number of racetracks receiving Scioto Downs' signal, an
overall increase in admissions received of $27,845, and an
increase of entry fees received from horses entered by
$107,645. Net pari-mutuel commissions and breakage increased
by $31,449. Other operating revenues increased $32,102.
However, these increases were offset by a decrease in
concessions, program, parking, and other of $134,665.
Operating expenses increased primarily due to an increase in
purse expense of $276,902 and an increase in salaries and
wages of $19,317 due to an increase in administrative
staffing. Other operating and general expenses increased
$290,965 due mainly to increases in the use of outside
consultants in the implementation of new Year 2000 compliant
software, accounting fees and other miscellaneous expense
items. Simulcasting fees paid by the Company increased by
$60,232. Interest expense decreased $42,237 due to the
refinancing of the clubhouse and simulcasting equipment note
completed in April 1999.
The Company recorded an income tax benefit of $50,000 and an
expense of $29,000 for the nine months ended July 31, 1999 and
1998, respectively. The expense (benefit) has been recorded at
the anticipated effective tax rates for fiscal years 1999 and
1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $420,515 for the
nine months ended July 31, 1999 as compared to cash provided
by operations of $1,228,156 for the nine months ended July 31,
1998. The decrease of $807,641 in cash provided by operating
activities was a result of a decrease in income (loss) from
racing operations of $478,352 and an increase in accounts and
purses payable and simulcast purse fund of $359,750.
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SCIOTO DOWNS, INC.
OTHER INFORMATION
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YEAR 2000
The Year 2000 problem exists because many computer programs
use only the last two digits to refer to a year. Accordingly,
such computer programs do not distinguish a year that begins
with "20" from a year that begins with "19". If not corrected,
these computer programs could fail or create erroneous
results.
The Company is in the process of developing and implementing a
plan for the identification and remediation of Year 2000
issues that could affect its business. The identification and
remediation plan has five categories: (1) mission critical
software, (2) other software, (3) information technology
hardware, (4) non-information technology systems, and (5)
third party related issues.
Mission Critical Software: The Company has identified five
mission critical software systems: horseman purse systems,
stock transfer systems, general ledger, bank services, and
accounts payable systems. In the first quarter of fiscal year
1999, the Company purchased the Accpac for Windows Corporate
Series Accounting System. The Accpac Corporate series has
represented it is Year 2000 compliant. As of May 1, 1999, the
Accpac software has been installed and is fully functional.
The initial and cross training among administrative staff has
been completed.
Other Software: The Company maintains and periodically updates
all other software utilized by it, such as word processing and
spreadsheet management. Along with the purchase of the Accpac
software, Year 2000 compliant word processing and spreadsheet
software was purchased in the first quarter of fiscal year
1999. Installation of this software has been completed and is
now operating.
Information Technology Hardware: The Company purchased from
ADC Information Technology Services, a Gateway ALR 7200 NT
network fileserver in December 1998. Five Pentium II--266
Windows personal computers were also purchased in December
1998. Installation is now complete and the staff is currently
being trained on its use. The NT 4.0 Network System is
represented as being Year 2000 compliant.
Non-Information Technology Systems: The Company has begun an
inventory of all non-information technology systems that may
have a material impact on the Company's ability to conduct
business in a usual manner. The General Manager of the Company
was informed of the need of this requirement, as was the Board
of Directors. The Company will be performing internal testing
and is gathering third party representation as to the system's
Year 2000 compliance. This process and required corrections
are to be completed by October 31, 1999.
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SCIOTO DOWNS, INC.
OTHER INFORMATION
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Third Party Related Issues: The Company has identified those
vendors whose services have a material impact on the Company's
ability to conduct normal business operations. The Company's
largest and most necessary vendor, American Totalisator, has
been contacted and has responded that its systems are Year
2000 compliant. Other vendors' compliance certifications have
been received as well. The Company will continue to request
for confirmation from other major vendors.
Costs to Address the Year 2000 Issue: The Company has
committed to spend approximately $65,000 on its Year 2000
compliance through fiscal year 1999. The Company does not
anticipate spending additional amounts after 1999 but will
make necessary expenditures as required.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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SCIOTO DOWNS, INC.
OTHER INFORMATION
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings - None
ITEM 2. Changes in Securities - None
ITEM 3. Defaults Upon Senior Securities - None
ITEM 4. Submission of Matters to a Vote of Security Holders - None
ITEM 5. Other Information - None
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits - None
(b) Reports on Form 8-K - No reports on Form 8-K were
filed during the quarter ended July 31, 1999.
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<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCIOTO DOWNS, INC.
------------------------------------
Registrant
DATE: 9/14/99 BY: /s/ Robert S. Steele
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Robert S. Steele, President
DATE: 9/14/99 BY: /s/ Robert E. Suchy
--------------- --------------------------------
Robert E. Suchy, Controller
and Principal Accounting Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JUL-31-1999
<CASH> 1,640,750
<SECURITIES> 0
<RECEIVABLES> 358,061
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,122,861
<PP&E> 20,127,970
<DEPRECIATION> 13,908,420
<TOTAL-ASSETS> 8,439,537
<CURRENT-LIABILITIES> 1,226,602
<BONDS> 0
0
0
<COMMON> 625,555
<OTHER-SE> 3,484,424
<TOTAL-LIABILITY-AND-EQUITY> 8,439,537
<SALES> 0
<TOTAL-REVENUES> 7,385,409
<CGS> 0
<TOTAL-COSTS> 7,564,612
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 189,854
<INCOME-PRETAX> (338,138)
<INCOME-TAX> (50,000)
<INCOME-CONTINUING> (288,138)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (288,138)
<EPS-BASIC> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
