UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
- ---------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
Commission File Number 33-67738
SAM HOUSTON RACE PARK, LTD.
(Exact name of Registrant as Specified in its Charter)
TEXAS 76-0313877
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
ONE SAM HOUSTON PLACE 77064
7575 NORTH SAM HOUSTON PARKWAY (Zip Code)
WEST
HOUSTON, TEXAS
(Address of Principal
Executive Offices)
Registrant's telephone number, including area code: (281) 807-8700
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 (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes /X/ No / /
- ---------------<PAGE>
INDEX
PAGE
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1998 and
December 31, 1997 3
Consolidated Statements of Operations for the three and
nine months ended September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and 1997 5
Condensed Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature S-1
2<PAGE>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION> September December
30, 31,
1998 1997
--------- ---------
(Unaudite
d)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,558 $ 2,728
Restricted cash 3,861 4,841
Accounts receivable, net of allowance for
doubtful accounts
of $54 and $163, respectively 760 1,508
Prepaid expenses and other current assets 422 328
------ ------
Total current assets 8,601 9,405
------- -------
Property and equipment, net of accumulated
depreciation of
$2,740 and $2,020, respectively 25,316 25,504
------ ------
$ 33,917 $ 34,909
======= =======
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Accounts payable $ 1,715 $ 2,479
Property taxes payable 863 1,118
Other liabilities 1,692 1,593
Amounts due to horsemen 2,847 3,530
------- ------
Total current liabilities 7,117 8,720
------- ------
Long-term liabilities:
Notes payable 38,952 33,393
Deferred management fees 2,577 1,861
------ -------
Total liabilities 48,646 43,974
------- ------
Commitments and contingencies (Notes 1 and
6)
Partners' deficit (14,729) (9,065)
------ -------
3<PAGE>
$ 33,917 $ 34,909
======= =======
</TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION> Three Months Nine Months Ended
Ended September 30,
September 30, ------------
------------
1998 1997 1998 1997
-------- -------- -------- -------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Pari-mutuel commissions,
net $ 3,834 $ 3,045 $11,156 $10,420
Food and beverage sales 1,275 1,041 2,847 2,628
Admissions, parking and
other 1,086 1,021 2,748 2,578
-------- -------- -------- --------
6,195 5,107 16,751 15,626
------- -------- -------- --------
Costs and expenses:
Cost of pari-mutuel
operations 550 525 1,342 1,387
Cost of food and beverage
operations 594 483 1,380 1,148
Other operating 772 598 2,226 1,808
Salaries and wages 2,285 2,261 5,955 6,267
Management and other
professional fees 380 518 1,277 1,742
Marketing and advertising 600 519 1,329 1,513
Utilities 365 313 958 870
Property taxes 313 323 918 888
Depreciation and
amortization 246 228 727 689
General and administrative 261 193 725 590
------- -------- -------- --------
6,366 5,961 16,837 16,902
-------- -------- -------- --------
Loss from operations (171) (854) (86) (1,276)
Other income (expense):
Interest income 61 41 143 138
Interest expense (1,970) (1,598) (5,721) (4,624)
-------- -------- -------- --------
(1,909) (1,557) (5,578) (4,486)
-------- -------- -------- --------
Net loss $(2,080) $(2,411) $(5,664) $(5,762)
======= ======== ======== ========
4<PAGE>
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
Nine Months Ended
September 30,
------------
1998 1997
-------- ---------
(Unaudited)
<CAPTION> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,664) $ (5,762)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 727 689
Amortization of discounts on long-term debt 1,562 1,166
Decrease in restricted cash 980 590
Decrease in accounts receivable 748 445
(Increase) decrease in prepaid expenses and
other (94) 166
Decrease in accounts payable (764) (145)
Increase in deferred management fees 716 654
Increase in accrued interest 4,009 3,351
Decrease in property taxes payable (255) (288)
Decrease in amounts due to horsemen (683) (312)
Increase (decrease) in other liabilities 99 (199)
-------- ---------
Net cash provided by operating activities 1,381 355
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to buildings and equipment (539) (250)
--------- --------
Net cash used for investing activities (539) (250)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable, net (12) (74)
--------- ---------
Net cash used for financing activities (12) (74)
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 830 31
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,728 2,634
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,558 $ 2,665
======== ========
</TABLE>
5<PAGE>
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
1. BASIS OF PRESENTATION AND FUTURE CASH REQUIREMENTS
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of Sam Houston Race Park, Ltd. (the "Partnership"), a
Texas limited partnership, and its wholly owned subsidiary, New
SHRP Capital Corp. ("New Capital"). The Partnership operates a
pari-mutuel horse racing facility in Houston, Texas (the "Race
Park"). The managing general partner of the Partnership is SHRP
General Partner, Inc. (the "Managing General Partner"), a wholly
owned subsidiary of MAXXAM Inc. ("MAXXAM"). The Partnership is
also comprised of an additional general partner, SHRP Equity, Inc.
(the "Additional General Partner") and limited partner interests.
As of September 30, 1998, wholly owned subsidiaries of MAXXAM held,
directly or indirectly, an aggregate 98.3% interest in the
Partnership, consisting of a 33.5% general partner interest
(including a 32.5% interest by virtue of its ownership of 97.5% of
the common stock of the Additional General Partner) and a 64.8%
limited partner interest.
The information contained herein is condensed from that which
would appear in the annual financial statements; accordingly, the
consolidated financial statements included herein should be
reviewed in conjunction with the consolidated financial statements
and related notes thereto contained in the Annual Report on Form
10-K filed by the Partnership with the Securities and Exchange
Commission for the fiscal year ended December 31, 1997 (the "Form
10-K"). Any capitalized terms used but not defined herein have the
same meaning given to them in the Form 10-K. Accounting
measurements at interim dates inherently involve greater reliance
on estimates than at year end. The results of operations for the
interim periods presented are not necessarily indicative of the
results which can be expected for the entire year. Certain
reclassifications of prior period information were made to conform
to the current presentations. All significant intercompany
transactions have been eliminated in consolidation. The
accompanying financial information is unaudited; however, the
information includes all adjustments of a normal recurring nature
which are, in the opinion of management, necessary to present
fairly the consolidated financial position of the Partnership at
September 30, 1998, the consolidated results of its operations for
the three and nine months ended September 30, 1998 and 1997, and
its consolidated cash flows for the nine months ended September 30,
1998 and 1997.
FUTURE CASH REQUIREMENTS
Although the Partnership incurred a loss from operations of $171
and $86 during the three and nine month periods ended September 30,
6<PAGE>
1998, respectively, the Partnership has generated cash flow from
operations of $1,381 during the first nine months of 1998. Also,
at September 30, 1998 the Partnership had cash and cash equivalents
of $3,558 and a $1,700 line of credit available to fund the
operating activities of the Partnership. In addition, the
Partnership is able to defer cash interest payments on the
Extendible Notes until certain conditions are met and to defer the
payment of management fees until two consecutive interest payments
on the Extendible Notes have been paid in cash. The deferral of
these items has significantly improved the liquidity of the
Partnership.
The Partnership is continuing to undertake marketing efforts to
increase attendance and pari-mutuel handle at the Race Park in
order to generate additional income. Also, management intends to
undertake further efforts aimed toward the adoption of legislation
legalizing additional forms of gaming at the Race Park in order to
increase revenues. Management is analyzing various proposals to
develop new forms of businesses at the Race Park in an effort to
raise new sources of income and to draw additional attendance to
the Race Park. Nonetheless, there can be no assurance that any of
these efforts will be successful.
The Extendible Notes, together with accrued interest, must be
retired in September 2001, unless the applicable extension
provisions apply. To the extent the Partnership is unable to
refinance the Extendible Notes, alternative sources of funding will
be necessary. Although 97.5% of the Extendible Notes are owned by
MAXXAM, there can be no assurance that the Partnership will be able
to refinance the Extendible Notes or that alternative sources of
funding will be available to the Partnership, if needed.
2. RESTRICTED CASH
The Partnership's restricted cash, as shown on the accompanying
consolidated balance sheets at September 30, 1998 and December 31,
1997, includes deposits held for the benefit of horsemen for
purses, stakes and awards and amounts reserved for the payment of
property taxes.
3. RACING OPERATIONS
The Race Park offers pari-mutuel wagering on live thoroughbred
or quarter horse racing during meets and on simulcast horse and
greyhound racing throughout the year. The Race Park earns revenues
on live racing and on simulcasting racing as both a guest and host
track. Under the Racing Act, the Partnership's net commission
revenue on live racing is a designated portion of the pari-mutuel
handle. The Race Park receives broadcasts of live racing from
other racetracks under various guest simulcasting agreements and
provides broadcasts of live racing conducted at the Race Park to
other wagering outlets under various host simulcasting agreements.
Under these agreements, the Partnership receives pari-mutuel
commissions of varying percentages of simulcast pari-mutuel handle.
A summary of the pari-mutuel operations for the three and nine
7<PAGE>
months ended September 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION> Three Months Ended Nine Months Ended
September 30, September 30,
------------ ------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Number of live race
days 43 47 92 125
Live handle $ 5,977 $ 5,938 $ 15,343 $ 17,099
Guest simulcasting
handle 30,181 23,035 81,027 70,251
Host simulcasting
handle 15,459 14,577 100,535 105,914
--------- --------- --------- --------
$ 51,617 $ 43,550 $ 196,905 $ 193,264
========= ========= ========= ========
Net commissions from
live racing $ 707 $ 696 $ 1,828 $ 2,020
Net commissions from
guest simulcasting 2,841 2,072 7,375 6,277
Net commissions from
host simulcasting 286 277 1,953 2,123
--------- --------- -------- ---------
$ 3,834 $ 3,045 $ 11,156 $ 10,420
========= ========= ========= =========
</TABLE>
4. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION> September December
30, 31,
1998 1997
<S> <C> <C>
11% Senior Secured Extendible Notes due
September 1, 2001 (net of unamortized
discount of $13,380 in 1998 and $14,942 in
1997) $ 36,023 $ 31,886
Accrued interest to be paid in-kind 2,717 1,288
--------- ---------
38,740 33,174
Unsecured promissory notes 197 208
Payable to Limited Partners 23 23
--------- ---------
8<PAGE>
Total 38,960 33,405
Less current portion included in other
liabilities (8) (12)
--------- ---------
$ 38,952 $ 33,393
========= =========
</TABLE>
The Partnership is amortizing the difference between the
aggregate principal amount of the Extendible Notes and their
estimated fair value as of the date of implementation of the
reorganization of the Partnership as additional interest expense
using the effective interest method.
The Extendible Notes are non-recourse to the partners; however,
they are secured by virtually all of the Partnership's property,
including rents, revenues, profits and income from the operation of
the Race Park. In addition, the Class 1 racing license for the
Race Park is subject to a negative pledge in favor of the trustee
for the Extendible Notes.
5. RELATED PARTY TRANSACTIONS
Management and other professional fees include $188 for the
three months ended September 30, 1998 and 1997, respectively, and
$563 for the nine months ended September 30, 1998 and 1997,
respectively, in management fees due to the Managing General
Partner. Payment of management fees, including accrued interest,
is deferred until two consecutive interest payments on the
Extendible Notes have been paid in cash; accordingly, these fees
have been shown on the accompanying consolidated balance sheet as
deferred management fees under long-term liabilities.
The Partnership incurred service fees and related costs of $72
and $91 for the three months ended September 30, 1998 and 1997,
respectively, and $338 and $343 for the nine months ended September
30, 1998 and 1997, respectively, related to the costs incurred for
services provided by MAXXAM and certain of its subsidiaries. The
Partnership also incurred fees of $18 and $12 during the three
months ended September 30, 1998 and 1997, respectively, and $77 and
$147 for the nine months ended September 30, 1998 and 1997,
respectively, for legal and other consulting services performed by
other affiliates.
6. CONTINGENCIES
The Partnership is involved in claims and litigation arising in
the ordinary course of business. While uncertainties are inherent
in the final outcome of such matters and it is presently impossible
to determine the actual costs that ultimately may be incurred,
management believes that the resolution of such uncertainties and
the incurrence of such costs should not have a material adverse
effect upon the Partnership's consolidated financial position,
results of operations or liquidity.
9<PAGE>
Also, see Note 1 for a discussion of the future cash
requirements of the Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS
The following should be read in conjunction with the unaudited
consolidated financial statements contained elsewhere herein and in
the Form 10-K. Any capitalized terms used but not defined herein
have the same meaning given to them in the Form 10-K.
This section contains statements which constitute "forward-
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements can be identified
by the use of forward-looking terminology such as "believes,"
"expects," "may," "estimates," "will," "should," "plans" or
"anticipates" or the negative thereof or other variations thereof
or comparable terminology, or by discussions of strategy. Readers
are cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks and
uncertainties, and that actual results may vary materially from
those in the forward-looking statements as a result of various
factors. These factors include the effectiveness of management's
strategies and decisions, general economic and business conditions,
new or modified statutory or regulatory requirements, and changing
prices and market conditions. This section and the Partnership's
Form 10-K identify other factors that could cause such differences.
No assurance can be given that these are all of the factors that
could cause actual results to vary materially from the forward-
looking statements.
RESULTS OF OPERATIONS
Results of operations between periods are generally not
comparable due to the timing, varying lengths and types of racing
meets held; accordingly, results of operations for interim periods
are not necessarily indicative of the results which can be expected
for the entire year. Historically, the Race Park has derived a
majority of its net pari-mutuel commissions from live racing and
host simulcasting on thoroughbred racing. Therefore, net pari-
mutuel commissions have typically been highest during the first and
fourth quarters of the year.
The following table presents selected attendance and wagering
information for the three and nine months ended September 30, 1998
and 1997:
<TABLE>
<CAPTION> Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Number of live race days 43 47 92 125
10<PAGE>
Number of simulcast only
days 49 45 181 148
Average daily attendance
- - live race days 4,213 3,666 3,657 3,149
Average daily attendance
- - simulcast only days 815 574 809 669
Average live per capita
wager $ 33 $ 34 $ 46 $ 43
Average combined live and
guest per capita gross
wager - live race days 138 124 157 147
Average guest per capita
gross wager - simulcast
only days 281 299 294 300
(Amounts in thousands)
Live handle $ 5,977 $ 5,938 $ 15,343 $ 17,099
Guest simulcasting handle 30,181 23,035 81,027 70,251
Host simulcasting handle 15,459 14,577 100,535 105,914
--------- --------- --------- --------
$ 51,617 $ 43,550 $ 196,905 $193,264
========= ========= ======== ========
Net commissions from live
racing $ 707 $ 696 $ 1,828 $ 2,020
Net commissions from
guest simulcasting 2,841 2,072 7,375 6,277
Net commissions from host
simulcasting 286 277 1,953 2,123
--------- --------- --------- --------
Total net pari-mutuel
commissions $ 3,834 $ 3,045 $ 11,156 $ 10,420
========= ========= ========= ========
</TABLE>
Revenues. The Partnership's principal source of revenue is from
pari-mutuel commissions generated from wagering on live races and
simulcast races as both a guest and host track. The Race Park
conducted four fewer live racing performances during the three
months ended September 30, 1998, compared to the same period of
1997. However, live and host simulcasting handle and net pari-
mutuel commissions increased slightly during the three months ended
September 30, 1998 as compared to the same period in 1997. Live
handle and commissions increased due to a 15% increase in average
daily attendance on live racing days for the three months ended
September 30, 1998 compared to the three months ended September 30,
1997. The increase in average attendance was primarily a result of
the popularity of the Race Park's Friday Night Summer Concert
Series and increased attendance for other promotional events. Host
simulcasting handle and commissions increased due to an increase in
the number of racetracks and off-track wagering facilities
receiving the Race Park's quarter horse simulcast signal. The 42%
increase in average daily attendance on simulcast only days for the
three months ended September 30, 1998 resulted in an increase in
11<PAGE>
handle and net pari-mutuel commissions from guest simulcasting
compared to the same period in 1997.
During March, 1998, the Partnership began offering wagering on
greyhound racing broadcasts from Corpus Christi Greyhound and in
June, 1998, the Partnership began offering wagering on races
broadcast from certain out-of-state greyhound tracks. During July,
1998, the Partnership began offering wagering on races broadcast
from the greyhound track located in the greater Houston market area
(Gulf Greyhound), which contributed to an increase in average daily
wagering on simulcast greyhound signals to $69,000 per day for the
three months ended September 30, 1998. Such wagering was not legal
during the three month period ended September 30, 1997. The
increase in both guest simulcasting handle and net pari-mutuel
commissions during the second and third quarters of 1998 is
primarily a result of the addition of this cross-breed
simulcasting. However, guest simulcasting handle on horses also
increased slightly during the second and third quarters of 1998.
It is uncertain how the introduction of cross-breed wagering
impacted guest simulcasting on horses and to what extent , if any,
that its growth was slowed by greyhound wagering. Through
September 30, 1998, wagering on greyhound racing contributed
$8,309,000 of guest simulcasting handle, of which $6,356,000 was
wagered in the third quarter of 1998. The Partnership plans to
continue to offer a similar schedule of greyhound racing signals
under the laws passed during the 1997 legislative session and the
rules promulgated by the Texas Racing Commission.
During the nine months ended September 30, 1998, live and host
simulcasting handle and net pari-mutuel commissions decreased
compared to the nine months ended September 30, 1997 due to a
decrease in the number of live racing days. The Race Park
conducted thirty-three fewer live racing performances during the
nine months ended September 30, 1998 compared to the same period of
1997. The decrease in live racing days was due to the length of
the Partnership's spring thoroughbred meet, which ended on April 5,
1998 versus May 4, 1997, and due to the elimination of live racing
on Wednesdays and on certain Thursdays. However, live race days
scheduled for the fourth quarter of 1998 will exceed the number of
live race days conducted during the same period of 1997 by 19 days.
The impact of fewer live race days was partially offset by an
increase in average daily live and host simulcasting handle and
commissions. Average daily live handle increased due to both a 16%
increase in attendance and a 7% increase in per capita wagering on
live race days. The increase in average attendance was primarily a
result of the discontinuation of live racing on Wednesdays in 1998,
which have historically generated lower average attendance levels.
Management believes that an increase in average daily purses paid
and the continuation of the Partnership's fan education program
were the principal reasons for the increase in per capita wagering
on live race days during the spring thoroughbred meet. Also,
during the spring thoroughbred meet, average daily host
simulcasting handle increased due to increased wagering at the
majority of the racetracks and off-track wagering facilities
receiving the Race Park's simulcast signal due to an improvement in
the quality of the racetrack's racing program primarily as a result
12<PAGE>
of an increase in average daily purses paid. The 21% increase in
average daily attendance on simulcast only days for the nine months
ended September 30, 1998 resulted in an increase in guest
simulcasting handle and net pari-mutuel commissions compared to the
nine months ended September 30, 1997. These increases primarily
are attributable to the addition of cross-breed simulcasting as
discussed in the preceding paragraph.
Food and beverage revenues increased during the three and nine
months ended September 30, 1998 compared to the same periods in
1997 due to the increases in average daily attendance discussed
above. Admissions, parking and other revenue also increased for
the three and nine months ended September 30, 1998 compared to the
same periods in 1997 due primarily to the increase in average daily
attendance and the sale of additional corporate sponsorships and
advertising packages. Other revenues for the nine months ended
September 30, 1998 were comparable to those for the same period
during 1997, even with the decrease in the number of live race days
during the period, due to the increase in average daily attendance.
Loss from Operations. The loss from operations for the three
months ended September 30, 1998 was $171,000 compared to $854,000
for the same period in 1997, as revenues increased by 21% while
expenses were up by only 7%. The Partnership reported a loss from
operations of $86,000 for the nine months ended September 30, 1998,
versus a loss from operations of $1,276,000 for the same period of
1997. In addition to the factors affecting revenues between the
periods discussed above, operating expenditures declined as a
percent of revenue for both the three and nine months ended
September 30, 1998 as compared to the same periods in 1997.
Overall, costs and expenses generally decreased with the reduction
in the number of live race days. Management and consulting fees
were lower as a result of reduced lobbying efforts upon the
adjournment of the 1997 Texas State legislature.
Net loss. Net loss reflects the income or loss from operations
as described above, interest income and interest expense, including
amortization of the discount on the Extendible Notes. Interest
expense increased during the three and nine month periods ended
September 30, 1998 as compared to the prior periods due to the
continuing increase in the balance of Extendible Notes as accrued
interest is paid in-kind with additional Extendible Notes.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Partnership had cash and cash
equivalents of $3,558,000 compared to $2,728,000 at December 31,
1997. The increase in cash and cash equivalents is due to the
accumulation of cash generated from operating activities, offset by
capital expenditures made during the period. At September 30,
1998, the Partnership also had restricted cash of $3,861,000
compared to $4,841,000 at December 31, 1997. The decline in
restricted cash was due to the annual payment of property taxes in
the first quarter along with the payment of amounts due to horsemen
for purses, stakes and awards related to the spring thoroughbred
meet and the summer quarter horse meet. The balance of Extendible
13<PAGE>
Notes has increased during the nine months ended September 30, 1998
due to the issuance of additional Extendible Notes as payment in-
kind for accrued interest and the amortization of the discount on
the Extendible Notes as described in Note 4 to the Consolidated
Financial Statements included in Item 1.
See Note 1 to the Consolidated Financial Statements for a
discussion of the future cash requirements of the Partnership.
YEAR 2000
The Partnership is currently in the process of assessing both its
information technology systems and its embedded technology in order
to determine that they are, or will be, Year 2000 compliant.
Management has already determined that its financial data
processing hardware and software are compliant and is presently
working with certain key third parties and support groups of its
embedded technology to ensure that they are taking appropriate
measures to assure compliance. Management believes that the total
cost of remediation to the Partnership will not exceed $100,000.
The most significant area still being evaluated pertains to certain
key third parties, in particular, the firm that provides
totalisator services to it and others in the horse racing industry.
These data processing services are required in order for the Race
Park to conduct pari-mutuel wagering in the State of Texas.
Management, as well as the thoroughbred racing industry's
association, has received assurances that such systems will be
compliant by the third quarter of 1999. However, management is
evaluating other third party providers of these and other services
and equipment in the event that any such vendors cannot provide
evidence of Year 2000 compatibility in sufficient time to effect a
change.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership is involved in various claims, lawsuits and
other proceedings. While uncertainties are inherent in the final
outcome of such matters and it is presently impossible to determine
the actual costs that ultimately may be incurred, management
believes that the resolution of such uncertainties and the
incurrence of such costs should not have a material adverse effect
on the Partnership's consolidated financial position, results of
operations or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
10.1 Amendment to Agreement dated December 30, 1998 between the
Partnership and International Sound Corporation.
10.2 Amendment of Agreement dated January 1, 1997 between the
Partnership and the Texas Horsemen's Benevolent and Protective
Association, Inc.
27 Financial Data Schedule
B. REPORTS ON FORM 8-K:
14
None.
15<PAGE>
SIGNATURE
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, who has signed this report on behalf of
the Registrant and as the principal financial and accounting
officer of the Registrant.
SAM HOUSTON RACE PARK, LTD.
Date: November 11, 1998 By:/S/ MICHAEL J. VITEK
Michael J. Vitek
Vice President of Accounting
16<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Company's
consolidated balance sheet and consolidated statement of operations and is
qualified in its entirety by reference to such consolidated financial statements
together with the related footnotes thereto.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 3558
<SECURITIES> 0
<RECEIVABLES> 814
<ALLOWANCES> 54
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<PP&E> 28056
<DEPRECIATION> 2740
<TOTAL-ASSETS> 33917
<CURRENT-LIABILITIES> 7117
<BONDS> 38952
0
0
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<TOTAL-LIABILITY-AND-EQUITY> 33917
<SALES> 0
<TOTAL-REVENUES> 6195
<CGS> 0
<TOTAL-COSTS> 6366
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 1970
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</TABLE>
AMENDMENT NUMBER TWO TO
AGREEMENT DATED DECEMBER 30, 1993
SAM HOUSTON RACE PARK, LTD
THIS AMENDMENT AGREEMENT made this 1st day of November 1998 by
and between INTERNATIONAL SOUND CORPORATION, a Maryland corporation,
having its principal place of business located at 7130 Milford
Industrial Road, Baltimore, Maryland 21208 and SAM HOUSTON RACE PARK,
LTD., Limited Partnership in the State of Texas, having its principal
place of business located at Sam Houston Race Park, Houston, Texas,
hereinafter sometimes referred to as "Sam Houston".
1. Having executed an Agreement dated December 30, 1993 and
Amendment Number one dated June 1, 1997, the parties hereby agree to
extend the term of said Agreement an Amendment One to include all
racing meets during the period beginning November 1, 1998 and ending
on December 31, 2003, and to include those amendments listed below.
The underlying Agreement, Amendment Number One and this Amendment
Agreement Number Two will terminate December 31, 2003.
2. Paragraph 1 is amended as follows:
15. One (1) RF head-end to consist of fifty-eight (58)
channels to include all satellite channels and off air
channels.
37. One (1) Beta video tape recorder, along with equipment
to incorporate the Beta recorder into the current
system.
38. Twenty-five (25) 35 inch color monitors to be located
as directed by the track.
39. Five (5) 55 inch projection televisions to be located
as directed by the track.
3. Paragraph 8 is amended as follows:
8. Subject to the termination provision herein stated this
Agreement shall remain in full force and effect for all
racing meets conducted at the aforementioned racetrack for
the years 1998 through 2003. In the event any racing
meet(s) or portion of any racing meet must be canceled
because of an emergency such as fire, or other catastrophe,
or governmental regulation due to war, the term of this
Agreement shall be extended beyond the last of the above-
mentioned years to include an amount of racing days in the
next succeeding year equivalent to the number theretofore
canceled.
6. Except as expressly stated herein, the Agreement and
Amendment Number One are not otherwise modified or amended
and remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
Agreement as of the date first written above.
INTERNATIONAL SOUND CORPORATION
By: /S/ DAVID SNYDER
SAM HOUSTON RACE PARK, LTD.
By: /S/ ROBERT L. BORK
AMENDMENT
This agreement represents an amendment to that certain contract
between the Texas Horsemen s Benevolent and Protective Association,
Inc. (the "THBPA") and Sam Houston Race Park, Ltd. ("SHRP"), effective
as of January 1, 1997 (the "THBPA Contract"), and to that certain
contract between the Texas Thoroughbred HBPA, Inc. (the "TTHBPA") and
SHRP, effective as of January 1, 1997 (the "TTHBPA Contract"). This
agreement is intended to set forth a joint recommendation by all
representative Texas horse organizations and SHRP to the Texas Racing
Commission (the "Commission") for allocation of purse revenue
generated from simulcasting among the various breeds for the period
from the effective date of this agreement through December 31, 2001,
pursuant to Section 321.234 (as amended effective September 1, 1998)
of the Texas Racing Act (the "Act"). This agreement shall remain in
effect through December 31, 2001, so long as (1) approval of the
Commission is obtained for the recommended allocation for each of such
years, (2) both the THBPA and TTHBPA Contracts are otherwise in effect
and (3) this agreement is not otherwise superseded by amendments to
the Act or by actions or rules of the Commission. Except as amended
by this agreement, the Contracts and any prior amendments thereto
shall remain in full force and effect.
It is recognized by all parties that it is in all horsemen s and
SHRP s best interest to improve the quality of racing at SHRP. At the
same time it is important to provide adequate racing opportunities for
all breeds while maintaining and improving the purse levels. It is
also recognized that the cross species simulcasting of horse racing to
greyhound tracks, particularly when the two tracks are in the same
market area, can and does have a material effect on the wagering and
purse levels at SHRP. Therefore, it is agreed that all parties to
this agreement will request that the Commission give due consideration
to SHRP s racing opportunities and the effect of Gulf Greyhound s
close proximity to SHRP on SHRP s purse levels in making any periodic
allocation of cross-species escrowed purse account funds to horse
racetracks pursuant to Section 6.091(e) of the Act (the "Cross-Species
Escrow Allocation") from funds generated in the Houston market area at
Gulf Greyhound.
It is SHRP s intent to develop an equitable method to allocate
purse monies earned from guest simulcasting among the horse breeds.
SHRP further desires to develop a method that allows for the growth of
purses for all breeds without penalizing a specific breed. SHRP
acknowledges that, by statute and contract, the Texas Horsemen s
Partnership and its constituent partners --the TTHBPA and THBPA, are
the exclusive representatives of all horse owners and trainers
recognized by the Commission on matters relating to the conduct of
live racing and simulcasting at Texas racetracks. Additionally, SHRP
acknowledges that the Texas Quarter Horse Association and the Texas
Thoroughbred Association (collectively, the "breed organizations"), as
the official breed registries recognized by the Commission, desire a
formula that allows for the quarter horse allocation to increase
relative to the allocation to thoroughbreds if wagering increases on
quarter horses versus thoroughbreds or vice versa. All parties
recognize that Section 321.234 of the Act, as amended, provides that
SHRP annually shall recommend to the Commission, with input from the
TTHBPA, the THBPA and the breed organizations, a suggested percentage
division of purse revenue generated from simulcasting among the
various breeds, and that the percentage division is subject to the
approval of the Commission ("the Section 321.234 Purse Allocation.")
With these factors in mind, all parties agree (1) to recommend that
the Commission adopt the following formula for the Section 321.234
Purse Allocation of purse revenue generated from simulcasting among
the various breeds through December 31, 2001, and (2) to be bound by
such formula through December 31, 2001, provided (a) Commission-
approval is obtained for the recommended Section 321.234 Purse
Allocation for each of such years, (b) both the THBPA and TTHBPA
Contracts are otherwise is effect and (c) this agreement is not
otherwise superseded by amendments to the Act or by actions or rules
of the Commission:
1. Calendar year 1997 handle numbers for live and host wagering at
SHRP (representing the last full calendar year of both
thoroughbred and quarter horse racing) will be used to illustrate
the application of the proposed formula. The relative value of
wagering on thoroughbreds versus wagering on quarter horses is
calculated by adding average daily live handle to -1/8 (one-eighth) of
average daily host handle (see explanation of -1/8
factor below). These amounts (for thoroughbreds and quarter
horses) are then added together and a ratio is calulated as
follows:
<TABLE>
<CAPTION> Thoroughbred Quarter
------------ Horse
------------
<S> <C> <C>
1997 Host Handle $ 113,753,490$ 14,439,174
Divided by 8 /8 /8
------------ ------------
1997 Live Handle
Equivalent 14,219,186 1,804,897
1997 Live Handle $ 14,236,514$ 5,938,431
------------ ------------
Total adjusted handle $ 28,455,700$ 7,743,328
generated
Divided by number of /96 /47
live race days ------------ ------------
Adjusted handle wagered per $ 296,414$ 164,752
live race day
Ratio of adjusted handle
wagered per live race day
between breeds 64.3% 35.7%
<FN>
Note: The live handle equivalent factor (the one-eight adjustment) was
calculated as:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Purses generated on live 7.40%of handle
racing
Purses generated on intrastate 1.05% of intrastate handle
host handle<PAGE>
Purses generated on interstate 0.89%of interstate handle
host handle ---------
---
Weighted average based on 0.93%of total host handle
handle
Live purse percentage 7.40%
Divided by host purse /0.93%
percentage ---------
---
8
</TABLE>
Therefore, in order to calculate live handle equivalents, total host
handle must be divided by 8.
3. At the end of calendar year 1998, the calculation outlined in 2.
above will be done for the 1998 actual wagering amounts. To the
extent that the ratio of adjusted average daily handle increases
for wagering on quarter horse racing, the amount of guest
simulcast purse funds will be increased above the base of 20%
according to the formula outlined below:
33% or less 80% TB 20% QH
33.1%-34.0% 80% TB 21% QH
34.1%-35% 80% TB 22% QH
35.1%-36% 80% TB 23% QH
36.1%-37% 80% TB 24% QH
37.1%-38% 80% TB 25% QH
38.1%-39% 80% TB 26% QH
39.1%-40% 80% TB 27% QH
40.1%-41% 80% TB 28% QH
41.1%-42% 80% TB 29% QH
42.1%-43% 80% TB 30% QH
To the extent that the ratio of adjusted average daily handle
increases for wagering on thoroughbred racing, the amount of guest
simulcast purse funds will be increased above the base of 80%
according to the formula outlined below:
67% or less 80% TB 20% QH
67.1%-68% 81% TB 20% QH
68.1%-69% 82% TB 20% QH
69.1%-70% 83% TB 20% QH
70.1%-71% 84% TB 20% QH
71.1%-72% 85% TB 20% QH
72.1%-73% 86% TB 20% QH
73.1%-74% 87% TB 20% QH
74.1%-75% 88% TB 20% QH
75.1%-76% 89% TB 20% QH
76.1%-77% 90% TB 20% QH
4. The projected source of funding required to increase the quarter
horse share of purses generated from guest simulcasting above 20%
or the thoroughbred funding above 80% is from the portion of the
Cross-Species Escrow Allocations approved and distributed by the Commission
to SHRP for calendar years 1998, 1999 and 2001
pursuant to Section 6.091(e) of the Act. The remaining dollar
amount of SHRP s Cross-Species Escrow Allocation, if any, for
calendar years 1998, 1999, and 2001 will be split to thoroughbred
purses and to quarter horse purses in the discretion of SHRP.
The projected source of funding under this proposed formula shall
be limited to the total funds allocated to SHRP from the
Commission s Cross-Species Escrow Allocation, unless otherwise
mutually agreed by the parties.
5. The above calculations will then be performed by SHRP at the end
of calendar year 1999 for the calendar year 2000 allocation and
at the end of calendar year 2000 for the calendar year 2001
allocation, respectively.
6. If the ratio percentage of average daily adjusted live handle
exceeds 43% for quarter hoses causing an allocation of greater
than 30% of guest simulcasting purse funds to quarter horses or
if the ratio percentage of average daily adjusted live handle
exceeds 77% for thoroughbreds causing an allocation percentage of
greater than 90% of guest simulcasting purse funds to
thoroughbreds, then SHRP will develop a new allocation method,
subject to approval by the Commission and all parties to this
agreement. Further, the above agreement is based on racing
seasons for both breeds for the calendar years 1999, 2000 and
2001 being similar to the 1998 racing season. Should there be
any major variances in the racing seasons, a revised formula,
likewise subject to approval by the Commission and all parties to
this agreement, will be determined by SHRP using a fairness
technique that would recognize the variances in that particular
racing season. In the event that another unforeseen circumstance
should develop that could have an adverse effect to either breed,
then the above percentage may be amended by mutual agreement of
all parties, subject to approval by the Commission.
7. This agreement is contingent upon SHRP receiving the full support
of each breed organization for SHRP s receipt for SHRP s purse
account of the Cross-Species Escrow Allocation from funds
generated in the Houston market area at Gulf Greyhound.
8. If new THBPA and TTHBPA Contracts are not signed by the end of
the term of this agreement, the management of SHRP will be
obligated to meet with representatives of the THBPA, the TTHBPA
and the breed organizations to discuss the basis for SHRP s
proposed percentage allocations for the next year prior to SHRP s
submittal of their recommended Section 321.234 Purse Allocation
to the Commission.
This agreement will be submitted to the Texas Racing Commission
for its approval at the November, 1998 scheduled meeting.
This agreement is effective upon signature by all parties and as
of the date first signed below.
SAM HOUSTON RACE PARK, LTD.
Dated: October 22, 1998 By: /S/ ROBERT L. BORK
Its Duly Authorized Representative
TEXAS THOROUGHBRED HBPA, INC.
Dated: October 22, 1998 By: /S/ JOHN ROARK
Its President
TEXAS HBPA, INC.
Dated: October 22, 1998 By: /S/ DAVID GRAHAM
Its President
TEXAS QUARTER HORSE ASSOCIATION
Dated: October 22, 1998 By:/S/ C. BERRY MADDEN
Its Chairman of Steering Comm.
Director
TEXAS THOROUGHBRED ASSOCIATION
Dated: October 22, 1998 By:/S/ JOE ARCHER
Its President
CHAIRMAN OF THE SHRP TTHBPA S
HORSEMEN S COMMITTEE
Dated: 10/22/98 By:/S/ JAMES HUDSON
Its Chairman or Duly-Authorized
Representative (for the current or preceding live meet)
This agreement is hereby ratified and approved by the Management
Committee of the Texas Horsemen s Partnership, L.L.P., acting through
its duly authorized representative.
TEXAS HORSEMEN S PARTNERSHIP, L.L.P.
Dated: 10/22/98 By:/S/ DAVID E. ARNOLD
Its Chairman<PAGE>
