<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, 1999
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
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 ith 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 Name of each exchange on which
12(b) of the Act: Title of each class registered
- ------------------------------------- ---------------------------------------
- ------------------------------------- ---------------------------------------
<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 January 2000 was $4,374,598 or $12.25 per
share.
Registrant has only one class of shares outstanding, namely, common
shares. The number of common shares outstanding as of January 3, 2000 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, 1999 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 29, 1999 are incorporated by reference in Part
III.
The Exhibit index is on page 10.
<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 the 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 1999, commissions on parimutuel wagering
net of parimutuel taxes represented 65% of revenues, in 1998 64%, and in 1997
65%. In 1999, admissions represented 2% of revenues, in 1998 2%, and in 1997 2%.
In 1999, revenues from concessions, parking and programs amounted to 10% of
revenues, in 1998 10%, and in 1997 11%. During each off-season period in 1999,
1998 and 1997, the Registrant employed 17 persons. During the last three years,
average daily attendance has declined from 2,219 in 1997 to 2,187 in 1998 and to
2,151 in 1999. However, 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 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
2
<PAGE> 4
racing at night 6 days a week. The 71-day period in 1999 commenced May 1st and
continued through July 10th. Registrant then leased its facilities to
Mid-America Racing Association, Inc. for 60 days of live racing, which period
ended September 18, 1999. Mid-America Racing conducted full-card simulcasting on
live racing days and on an additional 10 days (Sundays). This lease generated 6%
of total revenue in 1999. This lease is on file with the Commission.
During 1999, 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. 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, Kentucky
and West Virginia and land-based casinos have been approved in Michigan. At the
present time there is not sufficient information to determine if these gambling
opportunities had a noticeable effect upon the wagering conducted at
Registrant's facility.
In 1997, 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 inside and outside the State of
Ohio. During its regular racing meet from May to July, Registrant 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 not to be open at the same
time. Pursuant to this agreement, during 1999 Beulah Park operated from the
middle of September to the first of May while Registrant was closed. During this
period of time, simulcasting revenues derived from simulcasting at Beulah Park
when it is not conducting live racing was, after deducting of certain expenses,
shared with Scioto Downs ($70,180 during 1999, $70,915 during 1998, $49,874
during 1997). Overall, during 1999, 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 18,
1999. The 2000 racing season will commence May 6, 2000.
3
<PAGE> 5
During racing seasons, the Registrant employed approximately 350
people, most 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 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 receives 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 $241,959 in 1999.
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 covers 141 days
commencing in May and ending in mid-September.
4
<PAGE> 6
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.
5
<PAGE> 7
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,
1999:
ANNUAL REPORT TO
STOCKHOLDERS SEQUENTIAL PAGES
Item 5. MARKET FOR THE REGISTRANT'S
COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS x
Item 6. SELECTED FINANCIAL DATA x
Item 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS x
Item 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK Not applicable
Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA x
Item 9. CHANGES IN AND
DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE Not applicable
6
<PAGE> 8
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
February 10, 2000 relating to the Annual Meeting of Stockholders to be held on
February 29, 2000.
7
<PAGE> 9
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
1998 Annual Report to Stockholders of
Scioto Downs, Inc.:
Report of Independent Accountants on
Financial Statements 17
Balance Sheets as of October 31, 1999 and 1998 4
Statements of Operations for the years ended
October 31, 1999, 1998 and 1997 6
Statements of Stockholders' Equity for the years
ended October 31, 1999, 1998 and 1997 7
Statements of Cash Flows for the years ended
October 31, 1999, 1998 and 1997 8
Notes to the Financial Statements 9
(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 10.
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 10.
(d) Not applicable or not required
(e) Not applicable.
</TABLE>
8
<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)
------------------------------------------------
By /s/ Robert S. Steele
------------------------------------------------
President, Chief Operating Officer,
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 28, 2000 By /s/ Robert S. Steele
------------------------------------------------
President, Chief Operating Officer,
Director
------------------------------------------------
Title
------------------------------------------------
Date: January 28, 2000 By /s/ LaVerne A. Hill
------------------------------------------------
Vice President, Director
------------------------------------------------
Title
------------------------------------------------
Date: January 28, 2000 By /s/ William C. Heer
------------------------------------------------
Treasurer, Director
------------------------------------------------
Title
------------------------------------------------
Date: January 28, 2000 By /s/ Richard H. McClelland
------------------------------------------------
Director
------------------------------------------------
Title
------------------------------------------------
Date: January 28, 2000 By /s/ John F. Fissell
------------------------------------------------
Director
------------------------------------------------
Title
------------------------------------------------
Date: January 28, 2000 By /s/ Richard J. Fiore
------------------------------------------------
Chief Financial Officer
------------------------------------------------
Title
9
<PAGE> 11
INDEX TO EXHIBITS ANNUAL REPORT ON FORM 10-K
for the year ended October 31, 1999
<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
10
<PAGE> 1
Exhibit 13
SCIOTO DOWNS, INC.
REPORT ON AUDITS OF
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
OCTOBER 31, 1999, 1998 AND 1997
<PAGE> 2
Exhibit 13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Scioto Downs, Inc.
Columbus, Ohio
In our opinion, the accompanying balance sheets and the related statements of
operations and stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Scioto Downs, Inc. at October 31,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended October 31, 1999, in conformity with
accounting principles generally accepted in the United States. 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 of these statements in accordance with
auditing standards generally accepted in the United States which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
January 26, 2000
<PAGE> 3
SCIOTO DOWNS, INC.
BALANCE SHEETS
OCTOBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,235,461 $ 1,048,849
Restricted cash 288,591 454,391
Accounts receivable, net of allowance for doubtful
accounts of $127,864 at October 31, 1999 53,614 20,977
Prepaid expenses and other 37,785 77,729
------------- ------------
Total current assets 1,615,451 1,601,946
------------- ------------
Property and equipment, at cost:
Buildings and improvements 14,544,312 14,548,305
Construction in progress 67,649 -
Land improvements 1,326,554 1,328,990
Furniture and fixtures 1,641,167 1,657,699
Machinery and equipment 2,231,366 2,181,802
------------- ------------
19,811,048 19,716,796
Less accumulated depreciation 13,902,577 13,386,843
------------- ------------
5,908,471 6,329,953
Land 299,847 299,847
------------- ------------
6,208,318 6,629,800
------------- ------------
Accounts receivable-related party 483,654 248,375
Investment in joint venture 60,812 97,126
------------- ------------
Total assets $ 8,368,235 $ 8,577,247
============= ============
</TABLE>
CONTINUED
-2-
<PAGE> 4
SCIOTO DOWNS, INC.
BALANCE SHEETS
OCTOBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
LIABILITIES
<S> <C> <C>
Current liabilities:
Accounts payable, trade $ 185,542 $ 41,123
Purses payable and simulcast purse fund 346,517 495,055
Dividends payable - 29,789
Current maturities, term debt 123,700 281,237
Accrued expenses:
Property taxes 156,913 166,090
Other 108,156 51,821
----------- -----------
Total current liabilities 920,828 1,065,115
----------- -----------
Minimum pension liability 186,770 115,771
----------- -----------
Deferred income taxes 30,637 43,342
----------- -----------
Term debt, net of current maturities 2,911,513 2,925,113
----------- -----------
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 1,772,400 1,833,861
Pension liability adjustment, net of taxes (116,768) (68,810)
----------- -----------
Total stockholders' equity 4,318,487 4,427,906
----------- -----------
Total liabilities and stockholders' equity $ 8,368,235 $ 8,577,247
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 5
SCIOTO DOWNS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Nights of live racing 61 61 61
----------- ----------- -----------
Dark days of simulcasting 10 11 11
----------- ----------- -----------
Operating revenues:
Pari-mutuel commissions and breakage $ 6,219,168 $ 6,108,475 $ 6,031,728
Less pari-mutuel taxes 967,702 930,613 900,345
----------- ----------- -----------
5,251,466 5,177,862 5,131,383
----------- ----------- -----------
Export signal revenue 241,959 243,216 212,594
Admissions 119,428 132,172 149,425
Simulcasting shared revenue, net 70,180 70,915 49,874
Concessions, program, parking, and other 778,157 796,784 843,921
Entry fees and purse monies added by others 688,058 728,915 750,053
Rental income from leased facilities 508,705 551,582 429,709
Pari-mutuel tax abatement earned 412,330 394,062 368,247
----------- ----------- -----------
8,070,283 8,095,508 7,935,206
----------- ----------- -----------
Operating expenses:
Purses 3,063,308 3,073,960 2,875,409
Salaries and wages 1,193,837 1,182,815 1,199,212
Simulcasting fees 700,561 673,151 562,787
Depreciation and amortization 562,549 695,437 728,626
Advertising 248,033 312,649 311,929
Real and personal property taxes 187,631 193,551 187,237
Insurance 207,902 209,943 238,262
Repairs and maintenance 209,421 199,948 231,220
Other operating and general 1,504,490 1,271,423 1,252,600
----------- ----------- -----------
7,877,732 7,812,877 7,587,282
----------- ----------- -----------
Income from racing operations 192,551 282,631 347,924
Equity in earnings of joint venture 3,686 2,036 12,643
Interest expense, net (215,910) (252,737) (246,861)
----------- ----------- -----------
(Loss) income before income tax expense (19,673) 31,930 113,706
Income tax expense (12,000) (19,000) (30,000)
----------- ----------- -----------
Net (loss) income $ (31,673) $ 12,930 $ 83,706
=========== =========== ===========
Basic and diluted (loss) earnings per common share $ (.05) $ .02 $ .14
=========== =========== ===========
Dividends per common share $ .05 $ .10 $ .10
=========== =========== ===========
Weighted average shares outstanding, basic and diluted 595,767 595,767 595,767
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 6
SCIOTO DOWNS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL IN
COMMON STOCK EXCESS OF
------------------------ PAR VALUE RETAINED
SHARES AMOUNT OF STOCK EARNINGS
--------- -------- ----------- --------
<S> <C> <C> <C> <C>
Balances, October 31, 1996 595,767 $ 625,555 $ 2,037,300 $ 1,856,343
Net income - - - 83,706
Minimum pension liability adjustment, net of taxes - - - -
Comprehensive loss - - - -
Cash dividends - $ .10 per share - - - (59,559)
--------- ---------- ----------- -----------
Balances, October 31, 1997 595,767 625,555 2,037,300 1,880,490
Net income - - - 12,930
Minimum pension liability adjustment, net of taxes - - - -
Comprehensive loss - - - -
Cash dividends - $ .10 per share - - - (59,559)
--------- ---------- ----------- -----------
Balances, October 31, 1998 595,767 625,555 2,037,300 1,833,861
Net loss - - - (31,673)
Minimum pension liability adjustment, net of taxes - - - -
Comprehensive loss - - - -
Cash dividends - $ .05 per share - - - (29,788)
--------- ---------- ----------- -----------
Balances, October 31, 1999 595,767 $ 625,555 $ 2,037,300 $ 1,772,400
========= ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE STOCKHOLDERS'
LOSS EQUITY
------------- -------------
<S> <C> <C>
Balances, October 31, 1996 $ (48,295) $ 4,470,903
Net income - 83,706
Minimum pension liability adjustment, net of taxes (11,485) (11,485)
-----------
Comprehensive income - 72,221
-----------
Cash dividends - $ .10 per share - (59,559)
---------- -----------
Balances, October 31, 1997 (59,780) 4,483,565
Net income - 12,930
Minimum pension liability adjustment, net of taxes (9,030) (9,030)
-----------
Comprehensive income - 3,900
-----------
Cash dividends - $ .10 per share - (59,559)
---------- -----------
Balances, October 31, 1998 (68,810) 4,427,906
Net loss - (31,673)
Minimum pension liability adjustment, net of taxes (47,958) (47,958)
-----------
Comprehensive loss - (79,631)
-----------
Cash dividends - $ .05 per share - (29,788)
---------- -----------
Balances, October 31, 1999 $ (116,768) $ 4,318,487
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 7
SCIOTO DOWNS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (31,673) $ 12,930 $ 83,706
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Equity in earnings of joint venture (3,686) (2,037) (12,643)
Loss on disposal of assets 14,986
Depreciation and amortization 562,549 695,437 728,626
Provision for losses on accounts receivable 127,864 -- --
Deferred income taxes 12,000 19,000 30,000
Change in accounts receivable (160,501) (20,977) 40,270
Change in accounts receivable - related party (235,279) 35,491 (277,030)
Change in prepaid expenses and other 38,280 (20,946) (25,519)
Change in accounts payable, trade and
purses payable and simulcast purse fund (4,121) 272,416 81,575
Change in accrued expenses 47,158 36,508 (23,905)
----------- ----------- -----------
Net cash provided by operating activities 367,577 1,027,822 625,080
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net restricted cash (receipts) disbursements 165,800 (354,702) (85,746)
Purchase of property and equipment (156,050) (100,000) (632,630)
Dividend from joint venture 40,000 -- --
----------- ----------- -----------
Net cash provided by (used in)
investing activities 49,750 (454,702) (718,376)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt -- -- 538,500
Payments on term debt (171,137) (289,199) (168,806)
Dividends paid (59,578) (59,559) (59,559)
----------- ----------- -----------
Net cash (used in) provided by
financing activities (230,715) (348,758) 310,135
----------- ----------- -----------
Net increase in cash and cash equivalents 186,612 224,362 216,839
Cash and cash equivalents, beginning of year 1,048,849 824,487 607,648
----------- ----------- -----------
Cash and cash equivalents, end of year $ 1,235,461 $ 1,048,849 $ 824,487
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest paid $ 261,380 $ 299,723 $ 284,694
=========== =========== ===========
Supplemental schedule of noncash financing activity:
The Company incurred accounts payable for
leasehold improvements in 1997 and
construction in progress in 1999 $ 43,218 $ 14,250
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE> 8
SCIOTO DOWNS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
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 on live
races and simulcasting and various related revenues including
simulcasting export signal revenue, admissions, concessions and
parking.
2. ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed
in the preparation of the financial statements.
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, 1999 and 1998, cash and cash equivalents and restricted
cash included deposits of approximately $1,524,000 and $1,503,000,
which are held at one financial institution.
Restricted cash. The Company is required to hold funds related to
horsemen's fines and certain simulcasting funds in separate accounts,
and their use is restricted. Reclassifications from prior-year cash and
cash equivalent balances have been made to present restricted cash
balances separately.
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> <C>
Buildings and improvements 10 to 40
Land improvements 6 to 20
Furniture and fixtures 4 to 20
Machinery and equipment 5 to 15
</TABLE>
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.
Long-lived assets. The Company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of assets. To
date, no such impairment has been recognized.
-7-
<PAGE> 9
SCIOTO DOWNS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
Income taxes. The Company accounts for income taxes on the liability
method. Under this method, 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.
Net (loss) income per common share. Net (loss) income per share of
common stock is based on the weighted average number of shares
outstanding during each of the respective years. The Company has no
common stock equivalents. Accordingly, the weighted average shares
outstanding are the same for calculation of basic and diluted per-share
computations.
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.
Revenue recognition. The Company recognizes commission revenue based
upon various percentages of pari-mutuel wagering. Other revenues are
recognized when services are performed.
Recent accounting pronouncements. 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 has adopted SFAS
130 in fiscal year 1999 and has presented comprehensive income for all
periods presented in the statement of stockholders' equity.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits - an amendment of FASB
Statements No. 87, 88, and 106. SFAS 132 is effective for financial
statements issued for periods beginning after December 15, 1997. The
Company has adopted SFAS 132 in fiscal year 1999.
Reclassifications. Certain prior-year amounts have been reclassified to
conform with the 1999 presentation.
-8-
<PAGE> 10
SCIOTO DOWNS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
3. AFFILIATED ENTITIES
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. Also, during 1999, 1998 and
1997, Mid-America incurred additional rents of $103,310, $156,243, and
$94,929, respectively. These additional rents are based on two months
of the Company's required debt service on the clubhouse enclosure
during the period in which Mid-America rents the Company's facilities,
and beginning in fiscal year 1997, 47% of the annual payments of
principal and interest on debt incurred to purchase simulcasting
equipment. These additional rents are subject to annual approval by
Mid-America. The gross lease income was $508,705 in 1999, $551,582 in
1998, and $429,709 in 1997. As discussed in Note 7, the lessee remits
its portion of the pari-mutuel tax abatement to the Company. Such tax
abatement amounted to $205,533 in 1999, $192,354 in 1998, and $169,517
in 1997. 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 $434,431, $248,375, and $283,866 at
October 31, 1999 , 1998 and 1997, respectively, and such reimbursed
expenses were $326,754 in 1999, $241,519 in 1998, and $143,369 in 1997.
Interest on the outstanding balance is charged at the prime lending
rate. Interest income of $26,375 and $10,750 was recorded for 1999 and
1998, respectively. The Company also has accounts receivable of $49,233
due from MARA Enterprises, Inc., which has certain common stockholders
within the Company. The Company's related party receivable has been
collateralized by a pledge by the shareholders of Mid-America of
certain investments.
4. INCOME TAXES
Income tax expense includes the following components:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- ---------------
<S> <C> <C> <C>
Federal income tax expense:
Deferred $ 12,000 $ 19,000 $ 30,000
-------------- -------------- ---------------
Total $ 12,000 $ 19,000 $ 30,000
-------------- -------------- ---------------
</TABLE>
-9-
<PAGE> 11
SCIOTO DOWNS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
A summary of the effective income tax rates is as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF PRETAX INCOME (LOSS)
----------------------------------
1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
Statutory federal rate (34)% 34% 34%
Surtax exemption 19 (19) (10)
Permanent differences 71 24 7
Deferred tax rate and other adjustments 21 21 (5)
------ ------ -------
Effective tax rate 77% 60% 26%
</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>
1999 1998
----------------- -----------------
<S> <C> <C>
Deferred tax assets arising from:
AMT credit/net operating loss carryovers $ 414,041 $ 475,507
Valuation allowance (96,671) (96,671)
Pension liability adjustment 60,153 35,448
Allowance for doubtful accounts 34,523
----------------- -----------------
Total deferred tax assets $ 412,046 $ 414,284
----------------- -----------------
Deferred tax liabilities arising from:
Depreciation $ 442,683 $ 457,626
----------------- -----------------
Total deferred tax liabilities $ 30,637 $ 457,626
================= =================
</TABLE>
The Company has recorded a valuation allowance of $96,671 at October
31, 1999 and 1998, 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, 1999, the Company has, for federal income tax purposes,
approximately $59,000 in alternative minimum tax credit carryforwards
and approximately $956,000 in net operating loss carryforwards. The tax
operating loss carryforwards expire over the years 2008 through 2013.
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 with an automatic extension as long as
the Company conducts pari-mutuel wagering. Rental expense was $125,939
in 1999, $121,432 in 1998, and $118,628 in 1997. 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).
-10-
<PAGE> 12
SCIOTO DOWNS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
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 $44,463 in 1999, $28,127 in
1998, and $22,204 in 1997.
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.
The fair value of the plan assets is less than the accumulated benefit
obligation of the plan. Accordingly, the Company has recognized a
minimum pension liability of $186,770 and $115,771 at October 31, 1999
and 1998, respectively.
Net pension expense includes the following components:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- ---------------
<S> <C> <C> <C>
Service cost--benefits earned during
the year $ 22,513 $ 13,057 $ 8,731
Interest cost on projected benefit
obligations 36,353 32,453 33,150
Expected gain on plan assets (25,578) (29,238) (32,026)
Net amortization relating to the
deferral of initial transitional obligation
and subsequent gains and losses 11,175 11,855 12,349
============== ============== ===============
Net pension expense $ 44,463 $ $28,127 $ 22,204
============== ============== ===============
</TABLE>
-11-
<PAGE> 13
SCIOTO DOWNS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
The Company's portion of the funded status of the plan and accrued pension
expense at October 31 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Accumulated benefit obligation $ 519,548 $ 463,568 $ 459,255
Impact of future salary increases 29,935 28,929 19,859
----------------- ----------------- -----------------
Projected benefit obligation 549,483 492,497 479,114
Plan assets at fair value, primarily a
diversified income fund and cash equivalents 316,885 334,175 352,693
----------------- ----------------- -----------------
Plan assets in deficiency of
projected benefit obligation (232,598) (158,322) (126,421)
Items not recognized in income:
Unrecognized prior service cost 1,656 1,859 2,275
Unrecognized net gain from past
experience different from that assumed and
effects of changes in assumptions 206,856 133,187 110,435
Initial transitional obligation, which is
being amortized over 17.5 years 8,193 9,654 12,270
----------------- ----------------- -----------------
Accrued pension expense $ (15,893) $ (13,622) $ (1,441)
================= ================= =================
</TABLE>
Assumptions used for the plan are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Discount rate 7.50% 6.75% 7.00%
Rate of increase in compensation
levels 5.50% 4.75% 5.00%
Long-term rate of return on assets 8.00% 8.00% 8.00%
</TABLE>
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 $36,281
in 1999, $8,122 in 1998, and $5,750 in 1997.
-12-
<PAGE> 14
SCIOTO DOWNS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
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 must remit its portion of the abatement to the
Company (see Note 3). At October 31, 1999, the Company had $576,935 of
abatement available for recovery in future periods. The Company earned
pari-mutuel tax abatement (including amounts from Mid-America) of
$412,330 in 1999, $394,062 in 1998, and $368,247 in 1997.
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, 1999 and 1998, 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
provided 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 was due in November 2001.
Interest was payable monthly. The term loan was 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 provided for a three-year
amortization of the principal at a fixed interest rate of 8.17%. The
Company was required to make monthly payments of principal and interest
of $16,946 per month.
In April 1999, the Company consolidated the above loans into a modified
loan with the same financial institution. The revised term loan
agreement provides for monthly payments of principle and interest of
$30,025 through September 2013. Interest is fixed at 7.79%. The 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.
-13-
<PAGE> 15
SCIOTO DOWNS, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
The aggregate amount of the required annual principal payments on term
debt obligations at October 31, 1999 is as follows:
2000 $ 123,700
2001 135,832
2002 146,280
2003 158,247
2004 170,662
Thereafter 2,300,492
-----------
Total $ 3,035,213
===========
9. JOINT VENTURE
The Company is a member of a joint venture established 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 $3,686 in 1999, $2,036 in 1998, and $12,643 in
1997, as its proportionate share of the joint venture's earnings in its
statements of operations.
10. COMMITMENTS AND CONTINGENCIES
At October 31, 1999, the Company has an outstanding receivable from its
concessionaire of $127,864. The Company is in dispute with the
concessionaire and has fully reserved the receivable as of October 31,
1999. Under the agreement with the concessionaire, the Company is
obligated to purchase certain equipment and licenses if it terminates
the agreement. The purchase price would be $433,967 as of October 31,
1999. As of January 26, 2000 the Company has not formally terminated
the agreement.
-14-
<PAGE> 16
SCIOTO DOWNS, INC.
FIVE-YEAR SUMMARY OF OPERATIONS
OCTOBER 31, 1999, 1998, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
Operating revenues:
<S> <C> <C> <C> <C> <C>
Pari-mutuel commissions and breakage $ 6,219,168 $ 6,108,475 $ 6,031,728 $ 4,375,312 $ 4,690,408
Less pari-mutuel taxes 967,702 930,613 900,345 771,643 842,511
----------- ----------- ----------- ----------- -----------
5,251,466 5,177,862 5,131,383 3,603,669 3,847,897
Export signal revenue 241,959 243,216 212,594 - -
Admissions 119,428 132,172 149,425 179,990 197,700
Simulcasting shared revenue, net 70,180 70,915 49,874 - -
Concessions, program, parking, and other 778,157 796,784 843,921 751,606 782,743
Entry fees and purse monies added by others 688,058 728,915 750,053 782,704 888,712
Rental income from leased facilities 508,705 551,582 429,709 301,419 305,226
Pari-mutuel tax abatement earned 412,330 394,062 368,247 280,968 294,683
----------- ----------- ----------- ----------- -----------
8,070,283 8,095,508 7,935,206 5,900,356 6,316,961
----------- ----------- ----------- ----------- -----------
Operating expense:
Purses 3,063,308 3,073,960 2,875,409 2,510,802 2,597,178
Salaries and wages 1,193,837 1,182,815 1,199,212 1,048,031 1,030,606
Simulcasting fees 700,561 673,151 562,787 - -
Depreciation 562,549 695,437 728,626 697,196 693,583
Advertising 248,033 312,649 311,929 283,514 338,779
Real and personal property taxes 187,631 193,551 187,237 192,293 192,077
Insurance 207,902 209,943 238,262 188,540 177,440
Repairs and maintenance 209,421 199,948 231,220 174,879 165,483
Other operating and general 1,504,490 1,271,423 1,252,600 1,095,954 1,114,519
----------- ----------- ----------- ----------- -----------
7,877,732 7,812,877 7,587,282 6,191,209 6,309,665
----------- ----------- ----------- ----------- -----------
Income (loss) from racing operations 192,551 282,631 347,924 (290,853) 7,296
Equity in earnings of joint venture 3,686 2,036 12,643 23,345 15,705
Interest expense, net (215,910) (252,737) (246,861) (249,383) (258,855)
----------- ----------- ----------- ----------- -----------
Income (loss) before income tax
(expense) benefit (19,673) 31,930 113,706 (516,891) (235,854)
Income tax (expense) benefit (12,000) (19,000) (30,000) 185,000 106,000
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (31,673) $ 12,930 $ 83,706 $ (331,891) $ (129,854)
----------- ----------- ----------- ----------- -----------
</TABLE>
-15-
<PAGE> 17
SCIOTO DOWNS, INC.
SELECTED FINANCIAL DATA
FOR THE YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
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, 1999. These bid prices do not
include retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
LOW HIGH DIVIDENDS
------------ ------------ ------------
<S> <C> <C> <C>
1999 First Quarter 1/31 $ 12.25 $ 12.75
Second Quarter 4/30 12.25 15.25
Third Quarter 7/31 12.25 12.75 $ .05
Fourth Quarter 10/31 12.25 13.38
1998 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
</TABLE>
The market for the Company's common stock is generally inactive.
The number of common stockholders of the Company as of October 31, 1999
approximated 1,592.
-16-
<PAGE> 18
SCIOTO DOWNS, INC.
SELECTED FINANCIAL DATA
FOR THE YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Operating revenues $ 8,070,283 $ 8,095,508 $ 8,113,835 $ 5,900,356 $ 6,316,961
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (31,673) $ 12,930 $ 83,706 $ (331,891) $ (129,854)
----------- ----------- ----------- ----------- -----------
Net income (loss) per common share (a) $ (0.05) $ 0.02 $ 0.14 $ (0.56) $ (0.22)
----------- ----------- ----------- ----------- -----------
Cash dividends per common share $ .05 $ .10 $ .10 $ .10 $ .10
----------- ----------- ----------- ----------- -----------
Average common shares outstanding 595,767 595,767 595,767 595,767 595,767
----------- ----------- ----------- ----------- -----------
Total assets $ 8,368,235 $ 8,577,247 $ 8,588,183 $ 8,094,579 $ 8,795,790
----------- ----------- ----------- ----------- -----------
Term obligations $ 3,035,213 $ 3,206,350 $ 3,495,549 $ 3,125,855 $ 3,247,411
----------- ----------- ----------- ----------- -----------
</TABLE>
(a) Based upon weighted average shares outstanding, basic and diluted
<TABLE>
<CAPTION>
TWENTY-YEAR PER SHARE SUMMARY OF EARNINGS (LOSS), DIVIDENDS, AND BOOK VALUE
EARNINGS BOOK
YEAR (LOSS) DIVIDENDS VALUE
-------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
1999 $ (0.05) $ 0.05 $ 7.25
1998 0.02 0.10 7.43
1997 0.14 0.10 7.53
1996 (0.56) 0.10 7.50
1995 (0.22) 0.10 8.18
1994 (0.33) 0.10 8.49
1993 (0.31) 0.10 8.99
1992 (0.20) 0.10 9.41
1991 0.00 0.44 9.71
1990 0.21 0.44 10.15
1989 0.71 0.44 10.38
1988 0.68 0.42 10.11
1987 0.44 0.40 9.85
1986 0.76 0.40 9.81
1985 0.51 0.40 9.45
1984 0.83 0.40 9.22
1983 0.62 0.40 8.79
1982 0.47 0.40 8.49
1981 0.53 0.40 8.37
1980 0.54 0.40 8.21
</TABLE>
-17-
<PAGE> 19
1999 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 of
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, 71 days (which included 10 simulcasting days in which no live racing
occurred or, more commonly referred to as, "dark days"), and Mid-America Racing
Association (Mid-America), 70 days (which included 10 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.
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. Wagers 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 wagers 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 1999 COMPARED TO FISCAL YEAR 1998
Revenue from pari-mutuel commissions and breakage increased by 1.7% or $110,693
due to a $106,714 increase in pari-mutuel commissions and breakage from
simulcasting. Pari-mutuel taxes increased 3.9% or $37,089 due to the increase in
the pari-mutuel handle. Entry fees and purse monies added by others decreased by
5.6% or $40,857, due to a lower number of horses entered in stake events during
the current race meet. Revenue from concessions, program sales, parking and
other decreased $18,627 primarily due to the decrease in concession sales. The
decline in average on-track attendance contributed directly
-18-
<PAGE> 20
1999 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
to the decrease in admissions income of $12,744 or 9.6%. Rental income decreased
by $42,877 due to changes in the amount paid by Mid-America related to the
simulcast equipment loan. Tax abatement earned increased by $18,268 due to the
increase in handle for Mid-America.
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 not to
be open at the same time. Pursuant to the agreement, Beulah Park operates from
the middle of September to the first of May while the Company is closed. During
that period of time, revenues derived from simulcasting at Beulah Park at night
when it is not conducting live racing are, after deducting certain expenses,
shared with the Company. Beulah Park paid shared revenues to the Company during
the Beulah Park's racing season and the Company was not required to remit
amounts to Beulah Park during its racing season. Revenue ("simulcasting shared
revenue") under the agreement was $70,180 during 1999 and $70,915 during 1998.
Operating expenses, such as purses and simulcasting fees, increased as a result
of additional simulcasting business activities. Purses include $204,966 of
expense directly attributed to the Company's paying into the horseman's purse
pool on simulcasting dark days, which is comparable to $211,949 in 1998. Purses
decreased $10,652. Simulcasting fees increased $27,410 or 4.1% due to an
increase in the number of races simulcasted into the racetrack during the
Company's meet. Insurance expense decreased $2,041 or 1.0% due to a reduction in
current year rates. Repairs and maintenance expense increased $9,473 or 4.7% due
to an increase in general maintenance program.
Interest expense is a result of debt required to finance the construction of the
clubhouse enclosure and simulcasting equipment. Overall interest expense
decreased $36,827, which includes increases in interest income of $32,047, due
to the Company's refinancing of its debt at lower interest rates.
Income from racing operations decreased $75,094 due mainly to the reasons listed
above.
Income tax expense decreased from $19,000 in 1998 to $12,000 in 1999. The
effective tax rate changed from 60% in 1998 to 77% in 1999. The effective income
tax expense rate of 77% differs from the statutory federal rate of (34%) due to
a surtax exemption of 19%, permanent differences related mainly to lobbying
expense, which increased the statutory rate by 71%, and an increase in the
statutory rate of 21% related to a difference in the rate at which the deferred
tax assets and liabilities are recorded.
Net income decreased from $12,930, or $.02 per share in 1998 to a loss of
$31,673, or ($.05) per share in 1999, due mainly to the reserve in the
receivable from the concessionaire.
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
Revenue from pari-mutuel commissions and breakage increased by 1.3% or $76,747
due to a $325,112 increase in pari-mutuel commissions and breakage from
simulcasting, offset by a decrease in live racing pari-mutuel commissions and
breakage of $248,365 caused by a trend towards increases in other forms of
gambling. Pari-mutuel taxes increased 3.4% or $30,268 due to the increase in the
pari-mutuel handle. Entry fees and purse monies added by others decreased by
2.8% or $21,638, due to a lower number of horses entered in stake events during
the current race meet. Revenue from concessions, program sales, parking and
other decreased $47,137 primarily due to the decrease in concessionaire sales.
The decline in average on-track attendance contributed directly to the decrease
in admissions income of $17,253 or 11.5%. Rental income and tax abatement earned
increased by $121,873 and $25,815, respectively, due to increases in handle for
Mid-America in 1998 and changes in the rental agreement.
-19-
<PAGE> 21
1999 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
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. 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. Beulah Park paid shared revenues to the Company during
the Beulah Park's racing season and the Company was not required to remit
amounts to Beulah Park during its racing season. Revenue ("simulcasting shared
revenue") under the agreement was $70,915 during 1998 and $49,874 during 1997.
Operating expenses such as purses and simulcasting fees increased as a result of
additional simulcasting business activities. Purses include $211,949 of expense
directly attributed to the Company paying into the horseman's purse pool on
simulcasting dark days which is comparable to $206,310 in 1997. Purses increased
$198,551 or 6.9% due mainly to increases in total handle which caused a
reduction in the usage of dark day funds. Simulcasting fees increased $110,364
or 19.6% due to an increase in the number of races simulcasted into the
racetrack during the Company's meet. Insurance expense decreased $28,319 or
11.9% due to a reduction in current year rates. Repairs and maintenance expense
decreased $31,272 or 13.5% due mainly to a mild winter in 1998, precautionary
measures taken by the Company in the barn areas, and less upkeep required on the
facilities as a result of decreased attendance.
Interest expense is a result of debt required to finance the construction of the
clubhouse enclosure and simulcasting equipment. Overall interest expense
increased $5,876 which includes increases in interest income of $12,550.
Income from racing operations decreased $65,293 or 18.8% due mainly to the
reasons listed above.
Income tax expense decreased from $30,000 in 1997 to $19,000 in 1998. The
effective tax rate changed from 26% in 1997 to 60% in 1998. The effective income
tax expense rate of 60% differs from the statutory federal rate of 34% due to a
surtax exemption of 19%, permanent differences related mainly to lobbying
expense which increased the statutory rate by 24%, and an increase in the
statutory rate of 21% related to a difference in the rate at which the deferred
tax assets and liabilities are recorded.
Net income decreased from $83,706, or $.14 per share in 1997 to $12,930, or $.02
per share in 1998 due mainly to a decrease in income from racing operations.
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. The original five-year term loan was entered
into in October 1991 at an interest rate of 9.875%. In October 1996, the Company
refinanced the five-year term loan with the same financial institution in order
to take advantage of lower interest rates. The Company has again refinanced the
loan as of April 1, 1999, to take advantage of lower interest rates. The new
revised loan agreement is for fourteen years at a rate of interest of 7.79%. The
loan agreement has also taken the July 1997 simulcast equipment purchase loan
and combined the loans for a total of $3,103,323. By doing this the interest
rate under the prior loan of 8.17%, was reduced to the 7.79% as part of the
April 1, 1999 new loan agreement.
The Company has a credit line of $1,000,000, which was not utilized in 1999 or
1998.
-20-
<PAGE> 22
1999 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The Company continued to generate positive cash flow from operations during
1999, 1998, and 1997. Cash provided by operating activities was $367,577 for
1999 compared to $1,027,822 for 1998. This decrease was mainly a result of net
cash used in accounts receivable - related party of $235,279 in 1999 compared to
net cash received of $35,491 in 1998. Cash provided by operating activities for
1998 was $1,027,822 compared to $625,080 for 1997. The increase was due mainly a
result of net cash provided by changes in accounts receivable and accounts
payable trade and purses payable and simulcast purse fund of $287,130 in 1998
compared to cash used of $155,185 in 1997. 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 1.75, 1.50 and 1.48 as of October 31, 1999, 1998 and 1997,
respectively, and other long-term plans. During 1999, 1998 and 1997, the Company
has paid cash dividends, despite a net loss that is due principally to
depreciation and amortization of $562,549, $695,437, and $728,626, respectively.
RECENT DEVELOPMENTS AND OUTLOOK
During 2000, the Company will continue to pursue the development of off-track
betting parlors as state law requires. This effort is being undertaken with the
other racetracks in Ohio. The construction of these parlors is considered to
have a favorable impact on the Company's operations.
In addition, the Company revised its agreement with Beulah Park, whereby the
Company receives 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.
YEAR 2000
The Company had no problems related to Year 2000 that effects its financial or
general operations, all compliance needs were accomplished. The Company will
continue to monitor and evaluate compliance with the Year 2000 date issue.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995
The statements contained in this report under the caption "Recent Developments
and Outlook" and other provisions of this report which are not historical facts
are "forward-looking statements" that involve various important risks,
uncertainties and other factors which could cause the Company's actual results
for 2000 and beyond to differ materially from those expressed in such
forward-looking statements. These important factors include, without limitation,
the following risks and uncertainties: real or perceived adverse economic
conditions, the impact of other forms of gambling, the outcome of litigation,
the impact of changes in government regulations, the problems associated with
the Year 2000 issue and the other risks described in the Company's Securities
and Exchange Commission filings.
INFLATION
Inflation is not expected to materially impact the Company.
-21-
<PAGE> 23
1999 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
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. The Company adopted SFAS 130 in fiscal year 1999.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits - an Amendment of FASB Statements No.
87, 88, and 106. SFAS 132 is effective for financial statements issued for
periods beginning after December 15, 1997. The Company adopted SFAS 132 in
fiscal year 1999.
-22-
<PAGE> 24
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
SCIOTO DOWNS, INC.
COLUMBUS, OHIO
EMPLOYER I.D. NO. 31-4440550
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<CASH> 1,524,052
<SECURITIES> 0
<RECEIVABLES> 53,614
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,615,451
<PP&E> 20,110,895
<DEPRECIATION> 13,902,577
<TOTAL-ASSETS> 8,368,235
<CURRENT-LIABILITIES> 920,828
<BONDS> 0
0
0
<COMMON> 635,555
<OTHER-SE> 3,692,932
<TOTAL-LIABILITY-AND-EQUITY> 8,368,235
<SALES> 0
<TOTAL-REVENUES> 8,070,283
<CGS> 0
<TOTAL-COSTS> 7,877,732
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 215,910
<INCOME-PRETAX> (19,673)
<INCOME-TAX> (12,000)
<INCOME-CONTINUING> (31,673)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,673)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
