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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934<PAGE>
FOR THE FISCAL YEAR ENDED COMMISSION FILE
NUMBER 33-67738
DECEMBER 31, 1997
SAM HOUSTON RACE PARK, LTD.
(Exact name of Registrant as Specified in its Charter)
TEXAS (Address of Principal
(State or other jurisdiction Executive Offices)
of incorporation or
organization) 76-0313877
(I.R.S. Employer
ONE SAM HOUSTON PLACE Identification Number)
7575 NORTH SAM HOUSTON PARKWAY
WEST 77064
HOUSTON, TEXAS (Zip Code)
Registrant's telephone number, including area code: (281)
807-8700
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Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
None.
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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 / /
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PART IITEM 1. BUSINESSGeneral
Sam Houston Race Park, Ltd., a Texas limited
partnership (the "Partnership"), owns and
operates Sam Houston Race Park, a Class 1 horse racing facility
located within the greater Houston
metropolitan area (the "Race Park"). The Race Park offers
pari-mutuel wagering on live thoroughbred and
quarter horse racing and on horse races simulcast from other
racetracks. The managing general partner of the<PAGE>
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 March 1, 1998, various wholly owned
subsidiaries of MAXXAM held an aggregate of 90.5% of the equity
in the Partnership and 74.2% of the
Partnership's 11% Senior Secured Extendible Notes (the
"Extendible Notes").
This Annual Report on Form 10-K contains statements
which constitute "forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements
appear in the sections to this Item entitled "Sources of
Revenue-Simulcasting," "-Marketing and Business
Development," "-Competition" and "-Regulation and
Taxation-Regulations on Simulcasting" and "-Taxation."
These statements also appear in a number of other places (see
Item 3. "Legal Proceedings," Item 5.
"Stockholder Matters" and Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of
Operations-Results of Operations" and "-Liquidity and Capital
Resources"). 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 thereon 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 Report identifies 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.
Industry Overview Pari-mutuel wagering is pooled
wagering, under which bettors wager against
each other, not the racetrack. Wagering pools are regular
wagering pools, multiple two wagering pools and
multiple three or more wagering pools. Examples of regular
wagers include win (a wager on a specific horse
to finish first), place (a wager on a specific horse to finish
first or second) and show (a wager on a
specific horse to finish first, second or third). Examples of
multiple two wagers include daily double (a
wager in which the bettor selects the horses that will win two
separate races), quinella (a wager in which
the bettor selects the horses that will finish first and second,
in any order) and exacta (a wager in which<PAGE>
the bettor selects the horses that
will finish first and second,
in the correct order). Examples of multiple
three or more wagers include trifecta (a wager in which the
bettor selects the horses that will finish first,
second and third, in order), superfecta (a wager in which the
bettor selects the horses that will finish
first, second, third and fourth, in order), and the pick three (a
wager in which the bettor selects the
winner of three consecutive races). A computerized totalisator
system is used to total the amounts wagered
and calculate the payouts for each pool based on the amounts
wagered on various horses and on the possible
outcomes.
Pari-mutuel wagering is conducted in a majority of
states in the United States, all
provinces in Canada and approximately 100 other countries
throughout the world. The industry includes
racetracks which conduct thoroughbred, quarter horse, harness and
greyhound racing and off-track wagering
facilities which receive simulcast broadcasts from various
racetracks but do not conduct live racing.
Off-track wagering is regulated by the individual states in the
United States and is not legal in all states,
including Texas. Simulcasting is the process by which live races
held at one racing facility are broadcast
simultaneously to other locations at which additional wagers may
be placed on the race being broadcast.
Guest simulcasting is the process whereby the Race Park receives
broadcasts from other racetracks. Host
simulcasting is the process whereby other racetracks receive
broadcasts from the Race Park. Simulcasting is
regulated by individual states in the United States and is not
currently authorized in all states.
For every dollar wagered at the Race Park, a
percentage, as defined by state law, is
returned to the winning bettors, and the remaining percentage,
referred to as the "takeout," is collected by
the racetrack. As discussed in more detail below, a percentage
of the takeout is reserved for purses to be
paid to the owners of future winning horses, as fees and taxes to
the state of Texas and as contributions to
organizations whose purpose is the furtherance of horse breeding
in Texas. The takeout remaining after these
deductions is retained by the racetrack and constitutes the
racetrack's primary source of revenue. The
Partnership's Consolidated Financial Statements and Notes thereto
appearing in Item 8 contain additional
information regarding the Partnership's revenues and costs of
pari-mutuel operations.
Over the past several years, attendance for live racing
at United States racetracks has
generally declined. Prior to the inception of simulcast wagering
and off-track wagering facilities, a
decrease in attendance for live racing directly resulted in lower
revenues and purses at that racetrack.
With the development of new wagering formats, such as the
importing and exporting of simulcast signals,<PAGE>
wagering at off-track facilities
and telephone wagering,
additional contributions to the purse funds held for
the owners of future winning horses have enabled racetracks to
maintain or increase the level of commissions
earned and purses paid. This increase in purses paid has enabled
many racetracks to expand their host
simulcast network, thereby increasing host commissions earned.
As reported in The Jockey Club 1997 Fact
Book, pari-mutuel handle on thoroughbred races increased from
$10.4 billion for 1995 to $11.6 billion for
1996, although only 25.3% of the 1996 handle amount came from
wagering at the racetrack hosting the live
performance. In addition, many racetracks have begun offering
alternative forms of gaming, such as slot
machines and video lottery machines, due to recent changes in
certain state laws. Additional revenues
generated from these machines have generally resulted in higher
revenues and purses for the racetracks that
are able to offer these alternative gaming opportunities.
Currently, none of these alternative gaming
opportunities are legal in Texas.
Racing Schedules The Race Park currently conducts live
thoroughbred or quarter horse racing
three, four or five days a week during meets and simulcasting
seven days a week. The Texas Racing Commission
(the "Racing Commission") must approve the number of live race
days that may be offered at the Race Park each
year. The number and scheduling of race days at the Race Park
will depend upon a number of factors,
including scheduling of live race days at other Texas Class 1
horse racing facilities. Under the Rules of
Racing for the state of Texas (the "Rules of Racing"), Class 1
racetracks may not have overlapping live race
schedules for the same breed of horse with other Class 1
racetracks unless each track with overlapping
schedules consents. The Racing Commission has licensed two other
Class 1 horse racetracks: Retama Park
("Retama") near San Antonio, which opened on April 7, 1995, and
Lone Star Park at Grand Prairie ("Lone Star")
near Dallas, which opened on April 18, 1997.
The Race Park conducted 143 days of live racing during
1997, consisting of 96 days of
thoroughbred racing and 47 days of quarter horse racing. For the
1998 calendar year, the Race Park has
obtained approval to conduct live racing on 118 days consisting
of (i) 49 days of thoroughbred racing
beginning on January 1, 1998 and concluding on April 5, 1998,
(ii) 34 days of quarter horse racing beginning
on July 3, 1998 and concluding on September 13, 1998 and (iii) 35
days of thoroughbred racing beginning on
October 22, 1998 and concluding on December 27, 1998. The Race
Park has not yet determined what race dates
it will request in 1999 and years thereafter. The Race Park also
expects to continue offering simulcast
wagering 364 days a year.
Sources of RevenueWagering on Live Races The Texas
Racing Act (the "Racing Act") provides for the<PAGE>
takeout percentage on live races
depending on the type of wager.
The total takeouts are approximately 18%,
21% and 25% from regular wagering pools, multiple two wagering
pools and multiple three or more wagering
pools, respectively. The Racing Act also provides that a minimum
of 7% of all live regular wagering pools
and live multiple two wagering pools and a minimum of 8.5% of all
live multiple three wagering pools be
reserved for purses to be paid to the owners of future winning
horses. Furthermore, through December 31,
1998, the state of Texas receives 1% of the first $100 million
wagered on live racing at each racetrack each
year (plus higher percentages for wagering over $100 million).
Subsequent to December 31, 1998, this tax
will be eliminated on the first $100 million wagered. Finally,
1% of live multiple wagering pools is
required to be set aside for Texas horse breeding programs.
Through December 31, 1998, the Race Park will
retain, on the first $100 million wagered on live horse racing,
10% of regular wagers, 12% of wagers
involving two horses and 14.5% of wagers involving three or more
horses after giving effect to the foregoing
payments. The betting patterns experienced by the Race Park
during its operating history have averaged
approximately 41%, 33% and 26% of dollars wagered in the regular,
multiple two and multiple three or more
waging pools, respectively.
Simulcasting The Race Park currently offers guest
simulcast wagering on horse races seven days a
week throughout the year and intends to continue doing so. As of
March 1, 1998, the Race Park had agreements
with approximately 40 racetracks pursuant to which it, at various
times, receives simulcast signals. The
maximum takeout percentages on guest simulcast racing broadcasts
from Texas racetracks are the same as those
for live racing. The takeout percentages on guest simulcast
racing broadcasts from out-of-state tracks are
established by each state but are generally within a few
percentage points of the takeout percentages in
Texas. The Race Park sets aside amounts from each wagering pool
for purses to be paid to the owners of
future winning horses in varying amounts. See "Purses and
Horsemen's Agreements" below. Furthermore, as of
September 1, 1997, the Racing Act requires the allocation of
1.25% of all simulcast wagering pools for the
state of Texas, 0.25% for the state of Texas for funds previously
appropriated to administer and enforce the
Racing Act, and 1% of all simulcast multiple wagering pools for
Texas horse breeding programs. The Race Park
also pays broadcasting racetracks a fee normally ranging from
2.5% to 4.5% of the amount wagered by its
patrons on the broadcast races. After giving effect to the
foregoing, the Race Park receives net commissions
normally ranging from 6% to 10% on guest simulcast betting at the
Race Park. In addition, the Race Park
receives 1.5% of wagers on out-of-state horse racing placed at
Gulf Greyhound Park ("Gulf Greyhound"), the
greyhound track located in the greater Houston metropolitan area.
In accordance with amendments to the<PAGE>
Racing Act enacted during 1997, the amount
reserved for purses
will be mandated by law as of January 1, 1999.
The amounts specified in the amended Racing Act will approximate
7% of all regular and multiple two horse
wagering pools and 8.5% of all multiple three horse wagering
pools. The Partnership estimates that net
pari-mutuel commissions will decrease by approximately $1.0
million when this provision of the amended Racing
Act becomes effective.
The Race Park also began offering guest simulcast
wagering on greyhound races broadcast from
a greyhound track in Corpus Christi during March 1998 under the
cross-breed simulcasting provisions contained
in the amendments to the Racing Act enacted during the 1997
legislative session. The maximum takeout
percentages on cross-breed simulcast racing broadcast from Texas
racetracks and out-of-state racetracks are
approximately equal to those percentages used for horse racing
described above. In accordance with the
provisions of the amended Racing Act, 5.5% of each wagering pool
is set aside for greyhound purses. In
addition, the amended Racing Act requires the allocation of 1.5%
of all simulcast wagering pools for the
state of Texas, 0.25% for the state of Texas for funds previously
appropriated to administer and enforce the
Racing Act and 1% of all simulcast multiple wagering pools for
Texas greyhound breeding programs. The Race
Park will also be required to pay 1.5% of amounts wagered on
out-of-state greyhound tracks to Gulf Greyhound.
Broadcasting race tracks are paid a fee by the Race Park that
normally ranges from 2.0% to 3.0% of amounts
wagered. After giving effect to the foregoing, the Race Park
expects to receive net commissions normally
ranging from 5% to 13% on cross-breed simulcast wagering at the
Race Park.
The Race Park receives commissions from host
simulcasting normally ranging from 2% to 3.25%
of the amount wagered at the receiving track on the Race Park's
races. A portion of this fee is reserved for
purses to be paid to the owners of future winning horses, as
described in "Purses and Horsemen's Agreements"
below. The Race Park also receives 4.5% of the amount wagered at
greyhound tracks located in Texas on races
conducted at the Race Park which is to be reserved for purses.
As of March 1, 1998, the Race Park had
agreements with approximately 220 racetracks and off-track
wagering outlets pursuant to which the Race Park,
at various times, broadcasts its races.
Simulcasting has become an increasingly important
component of the Race Park's revenues.
Guest simulcasting and host simulcasting accounted for
approximately 63%, 63% and 60% and 20%, 13% and 9%,
respectively, of the Race Park's net commission revenues during
the years ended December 31, 1997, 1996 and
1995, respectively.Food and Beverage Sales Food and beverage
sales
are another major source of revenue and
include catering, restaurant and concession sales. A broad
selection of food is available to the patrons of
the Race Park, from table dining at the clubhouse level to food
court fare at various concession stands
throughout the Race Park.
Other Revenues Other major sources of revenues include
admission, program and parking fees as well
as sponsorship agreements and sales of finish line boxes, tables
and luxury suites. An admission fee is
charged for entry to the Race Park. Preferred and valet parking
are available for a fee during live racing.
Free parking is also available at the Race Park during live
racing and on those days on which no live racing
is offered. The Race Park also sells programs for live and
simulcast racing, various editions of The Daily
Racing Form and "tip" sheets. The clubhouse level contains
finish line boxes (accommodating 4 to 6 people)
and eighteen finish line reserved tables (accommodating 4 to 6
people) available for sale. Luxury suites are
also available for rental on a long-term or daily basis. The
clubhouse level also contains the Jockey Club
which has a capacity of approximately 300 people and features
separate pari-mutuel windows, a bar, dining
spaces and tiered box seats. Individual and corporate
memberships are available to the Jockey Club.Purses and Horsemen's Agreements
Under the Rules of
Racing, the Racing Commission has recognized the
Texas Horsemen's Partnership, L.L.P. (the "THP") as the official
horsemen's organization for the state of
Texas. The recognized horsemen's organization is responsible for
negotiating with the Partnership on behalf
of all horsemen at the Race Park regarding, among other things,
the distribution of purses and guest and host
simulcasting agreements. The THP is comprised of two partners,
the Texas Thoroughbred HBPA, Inc. and the
Texas Horsemen's Benevolent and Protective Association which
represents owners of quarter horses. The
Partnership has entered into agreements with each partner (the
"THP Agreements"), which expire on December
31, 1999. Under the terms of the contracts during 1997, the Race
Park reserved 30% of the takeout from guest
simulcasting and 30% of the commissions received from host
simulcasting for purses to be paid to the owners
of future winning horses. The percentage reserved for purses
increases to 31% during 1998. As of January 1,
1999, the percentage reserved for purses from guest simulcasting
will be mandated by law as discussed in
"Sources of Revenue - Simulcasting" above, and the percentage
reserved for purses from host simulcasting will
increase to 32.5% of commissions received. Both contracts
specify that all guest and host simulcasting
agreements are approved by the horsemen. The horsemen have the
right to withdraw this approval only for
matters involving the integrity or best interests of racing.
In accordance with industry practice, the Race Park
establishes purses nearly one month in
advance of a race, based on the expected wagering pool. These
established purses are published in a
condition book which generally covers fifteen days of racing.
Horsemen then enter their horses in the
proposed races based on the conditions of the race, including the
purse offered. At any given time, purses
generated from wagering may be higher or lower than the amounts
included in the projections used to complete
the condition book. Therefore, during a live race meet, purses
may be over or under paid. Under the terms
of the THP Agreements, the Partnership has the ability to manage
the level of purses paid so that purses paid
are approximately equal to purses generated from wagering within
a certain period of time; however, there can
be no assurance that any adjustments necessary will be
sufficient. When purses paid exceed purses generated
within a certain period of time, the excess payments become an
additional expense to be paid by the
Partnership. During 1994, the Partnership paid purses in excess
of purses generated aggregating
approximately $4.0 million. Under various amendments to the
agreement in effect during 1994, the Partnership
has recovered $1.0 million of these purse overpayments. The
agreement between the Partnership and the Texas
Thoroughbred HBPA, Inc. provides for the recovery of purse
overpayments of $0.7 million and $0.6 million
during the years ended December 31, 1999 and 2000, respectively.
The Partnership will record any future<PAGE>
recoveries only as they are earned.
During the years ended December 31, 1997, 1996 and
1995, the Race Park has paid purses of
approximately $9.4 million, $9.1 million and $7.5 million,
respectively. The average daily thoroughbred
purse paid increased from $54,000 to $80,000 during the three-
year period. The average daily quarter horse
purse paid increased from $36,000 to $37,000 during the three-
year period.
Marketing and Business Development During the first few
racing meets conducted by the Race
Park, attendance and wagering were well below expected levels,
which contributed to the early financial
difficulties of the Partnership as described in Note 3 of the
Notes to Consolidated Financial Statements
included in Item 8. Management recognizes the challenge of
introducing pari-mutuel wagering to customers in
the greater Houston metropolitan area and has established the
following marketing goals to increase
attendance and the wagering handle: (i) promote the excitement of
horse racing and wagering, (ii) support and
expand the existing group of core bettors, (iii) attract new fans
currently unfamiliar with horse racing, and
(iv) pursue a program of fan education to teach these new fans
how to wager. Management uses a number of
marketing strategies to have potential customers consider the
Race Park as an entertainment alternative.
These strategies are designed to bring people out to the Race
Park for specific promotional events with a
view of turning infrequent visitors into occasional visitors and
more frequent visitors into regular
visitors. Other marketing programs have been developed to appeal
to simulcasting customers and the more
serious horseplayers.
Management utilizes a variety of marketing techniques
in support of these objectives
including, among other things: (i) maintaining a public relations
program to distribute news, information,
features, tips and results in local and national broadcast and
print media, (ii) maintaining an advertising
presence in the market, primarily through newspaper, television
and radio campaigns, (iii) coordinating
promotional efforts in cooperation with sponsors, suppliers and
vendors, (iv) developing a strong group sales
program, to appeal to large corporate, civic and affinity groups,
(v) holding specialized promotions and
on-going programs that are designed to attract unique demographic
and/or cultural groups, (vi) providing
support for Houston area community events, (vii) focusing
attention to customer service and refinements to
the Race Park's facilities, (viii) holding handicapping seminars
and tournaments both to educate fans and
promote the excitement of wagering, and (ix) producing direct
mail both to introduce the track to new groups
and communicate with existing customers (experienced bettors,
suite holders, Jockey Club members, etc.).<PAGE>
As noted in "Industry
Overview" above, racetracks in
certain states have begun offering
alternative forms of gaming, such as slot machines and video
lottery machines, in order to increase both
revenues and purses, thereby strengthening both the operations
and the racing programs. In 1997, the Race
Park invested significant effort and monies lobbying the Texas
legislature to authorize additional forms of
gaming at racetracks in Texas; however these efforts were not
successful. Management intends to continue to
invest in efforts to change existing legislation for the benefit
of pari-mutuel license holders in the next
legislative session, which is scheduled to begin in early 1999.
There can be no assurance that these efforts
will result in legislative changes.
Significant portions of the Race Park's approximately
300 acres of land remain undeveloped.
Management continues to research and study the economic viability
of proposals for the commercial development
of this property. Future development plans could include the
construction and operation of businesses such
as restaurants, night clubs, retail shops, hotels or other types
of entertainment facilities.
Competition The Partnership faces competition from a
variety of wagering and gaming sources,
including Gulf Greyhound, the Texas State Lottery, numerous
charity operated bingo facilities located in the
Houston area and Louisiana casinos located approximately 125 to
150 miles from Houston.
Although the Race Park competes with the greyhound
track for pari-mutuel wagering dollars,
prior to September 1, 1997, the Race Park had the exclusive right
to simulcast horse racing in the greater
Houston metropolitan area. During 1997, the Texas Legislature
authorized cross-breed simulcasting between
horse tracks and greyhound tracks at Texas pari-mutuel
facilities. This now allows greyhound tracks to
display and accept wagers on races broadcast from horse tracks
and horse tracks to display and accept wagers
on races broadcast from greyhound tracks. Gulf Greyhound began
simulcasting horse races as of September 1,
1997 when the legislation became effective. Therefore, the Race
Park now competes with Gulf Greyhound for
horse racing customers in the Houston market. During March 1998,
the Race Park began experimenting with
simulcasting greyhound races on a limited basis by importing
simulcast races from a greyhound track located
in Corpus Christi. See "Item 3. Legal Proceedings" for the
description of an action the Partnership has
filed asserting that when two racetracks are operating in close
proximity to one another, the cross-breed
provisions of the Racing Act are preempted by the Federal
Interstate Horseracing Act. Although the long-term
net impact of cross-breed simulcasting cannot be determined with
certainty, the Partnership believes that the
competition within its market for horseracing customers created
by the implementation of cross-breed<PAGE>
simulcasting may have a negative overall
impact on thePartnership's share of pari-mutuel commissions
generated from on-track wagering.
The Race Park also competes for wagering dollars with
the Texas State Lottery (the
"Lottery") and charity operated bingo facilities. The Lottery
began in 1992 and has become the largest
lottery in the United States and the fourth largest lottery in
the world. Gross sales for the Lottery as of
August 31, 1997 were $15.4 billion since inception and $3.7
billion for the fiscal year ended August 31, 1997
according to the Texas Lottery Commission. The greater Houston
area also contains approximately 130 charity
operated bingo sites. Total gross bingo sales for the entire
state of Texas were $596.0 million for the year
ended December 31, 1997 according to the Texas Lottery
Commission. Both the lottery and bingo are relatively
easy games to learn versus the more complex nature of
handicapping and wagering on horse racing, which places
the Race Park at a competitive disadvantage to these forms of
wagering. The Race Park attempts to mitigate
these factors by providing fan education programs and through the
use of automated wagering machines, which
can be less intimidating for some first time patrons. Also, as
of March 1998, the Race Park began leasing a
portion of its facilities for the conduct of charitable bingo.
The Race Park also competes for wagering dollars with
casinos located in the state of
Louisiana. Publicly available information indicates that the
majority of the customers at riverboat casinos
located in Lake Charles, Louisiana come from Houston. Management
believes that the location of the Race
Park, within a one hour drive of the majority of the population
of Houston, is a competitive advantage for
the Race Park over the casinos, which are located two hours away
for most Houston residents. However, as
with the Lottery and bingo, many casino gaming opportunities are
easier to learn than horse racing.
The Race Park also competes for customers with other
forms of entertainment, including the
Houston Livestock Show and Rodeo, held annually in February and
March, and a wide range of live and televised
professional, collegiate and high school sporting events that are
available in the Houston area. The Race
Park could, in the future, also compete with other forms of
gambling in Texas, including casino gambling or
other forms of gaming on Indian reservations.
Races broadcast from the Race Park compete for wagering
dollars and commissions with races
simulcast from other racetracks throughout the United States and
around the world. The ability of the Race
Park to compete with other racetracks for these wagering dollars
is dependent on several factors, including
the quality and quantity of horses and the timing of live meets.
The quality and quantity of the Race Park's<PAGE>
horses is dependent on the Race
Park's ability to pay purses at a
high enough level to attract the highest
quality of horses in a sufficient quantity to fill the races
conducted by the Race Park. Races broadcast
from the Race Park compete with races broadcast from other
racetracks where the quality of horses is higher
than the quality of horses racing at the Race Park. Management
believes that the increase in simulcasting
activity which has resulted in increased purses paid has improved
the quality of the racing program conducted
at the Race Park. Although the Race Park has historically
experienced lower average daily attendance and
live handle during the winter racing season, the quality of the
thoroughbred racing program conducted at the
Race Park relative to other racetracks conducting live racing is
higher than it would be at other times of
the year when more of the stronger racetracks are conducting live
racing. Also, the mild winter conditions
in the Houston area ensure uninterrupted training and racing for
horsemen compared to racetracks in the
Midwest and East Coast regions, which may be closed temporarily
due to inclement weather. By conducting
thoroughbred racing during the winter season, the Race Park also
faces less competition for simulcast
wagering dollars at locations across the country. Thus, the Race
Park has a competitive advantage in
attracting higher quality horses which increases the ability of
the Race Park to expand the simulcast handle
wagered on its thoroughbred races.
The Race Park has annually conducted a summer quarter
horse meet. Although quarter horse
racing does not command the same level of wagering across the
United States as thoroughbred racing, the Race
Park has been able to export its quarter horse racing signal to
approximately 90 racetracks and off-track
facilities around the country. This is primarily due to the fact
that the level of quarter horse purses paid
puts the Race Park among the top quarter horse tracks in the
United States. This level of purse payments
enables the Race Park to attract high quality quarter horses.
The Race Park conducts its live racing for all
thoroughbred and quarter horse races in the
evenings and at night. As the majority of racetracks in the
United States conduct racing during the day,
management believes that night racing significantly increases the
ability of the Race Park to export its
racing signal to simulcasting facilities at racetracks and
off-track locations.
Another competitive factor faced by the Race Park
includes the allocation of a sufficient
number of live race days by the Racing Commission. While the
Class 1 racetracks in Texas are each entitled
to approximately 17 weeks of live racing per breed (thoroughbred
and quarter horse), many factors are
considered in the actual granting of race days. Input is
solicited by the Racing Commission from the<PAGE>
racetracks, racehorse owners and
trainers, and horse breeding
organizations. Management works closely with
all of the individuals and groups involved in order to try to
obtain a schedule that contains an optimal
number of live race days and that is in the best economic
interest of the Race Park.
Seasonality of Racing Handle and commissions from live
racing and host simulcasting are affected
by the breed of horse running at the Race Park. Generally,
revenues generated from thoroughbred racing are
higher than revenues generated from quarter horse racing.
Approximately 80% of the Race Park's net
pari-mutuel commissions from live racing and host simulcasting
are derived from thoroughbred racing.
Increased revenues from thoroughbred racing are primarily due to
two factors, the overall popularity of
thoroughbred races and the timing of the Race Park's thoroughbred
meets. Also, as discussed above, the Race
Park conducts a winter thoroughbred meet during which the Race
Park is able to broadcast its racing signal to
a large number of facilities. Races broadcast during the summer
quarter horse meet must compete with much
stronger thoroughbred signals from around the country.
Guest simulcast wagering at the Race Park is also
affected by the seasonality of racing
throughout the United States. The Triple Crown races in May and
June and the Breeders' Cup program in the
fall, in addition to the high quality racing programs held at
United States racetracks throughout the spring,
summer and early fall, help to increase guest wagering and
attendance during those time periods. As a
result, the Partnership's net pari-mutuel commissions from guest
simulcasting have been highest in the second
quarter of the year.
Thoroughbred and quarter horse racing are conducted in
all types of weather; however, racing
may be canceled due to extreme local weather conditions.
Although the Race Park has rarely been forced to
cancel live racing, inclement weather does negatively effect the
level of attendance at the Race Park.
Employees As of March 1, 1998, the Race Park had
approximately 120 year-round full-time
employees, approximately 60 year-round part-time employees and,
due to the seasonal nature of the business,
up to approximately 450 seasonal employees. The number of
seasonal employees utilized depends principally on
whether or not the Race Park is conducting live racing and varies
based upon attendance levels.
Certain individuals employed by MAXXAM and its wholly
owned subsidiaries provide management,
legal, financial, corporate development and other services to the
Partnership from time to time. These
affiliates are reimbursed for their estimated actual costs
incurred in providing these services to the<PAGE>
Partnership. The Race Park
continuously monitors its staffing
levels and its use of services provided by
MAXXAM employees.
Regulation and TaxationTexas Racing Act Under the Racing
Act, horse racetracks are classified as
Class 1, Class 2, Class 3 or Class 4 racetracks. A Class 1
racetrack must operate in a county with a
population of at least 750,000. Only three Class 1 racetracks
may be licensed in the state of Texas. The
Racing Commission does not limit the number of Class 2 racetracks
that may be licensed and operated in Texas
or where those racetracks may be located. A Class 2 racetrack is
entitled to conduct 60 days of live racing
in a calendar year. Class 3 and Class 4 racetracks are generally
operated by county fairs for short periods
of time.
Ownership and operation of horse racetracks in Texas
are subject to significant regulation
as set forth in the Racing Act and administered by the Racing
Commission. The Racing Act provides, among
other things, for the allocation of each wagering pool among
betting participants, the state of Texas,
purses, special equine programs and racetracks. The Racing Act
also empowers the Racing Commission to
license and regulate substantially all aspects of horse racing in
the state. The Racing Commission, among
other things, licenses all employees and workers at a racetrack
(including jockeys, trainers and
veterinarians); regulates the transfer of ownership interests;
allocates live race days; approves race
programs; regulates the conduct of races; oversees the
administration of drugs to horses; sets specifications
for the racing surfaces, animal facilities, employee quarters and
public areas of racetracks; regulates the
types of wagers on horse races and approves all material
contracts with racetracks, including management
agreements, simulcast agreements, totalisator contracts and
concessionaire agreements. The ability of the
Race Park to conduct live racing and pari-mutuel wagering is
dependent on continued governmental approval of
these activities as legalized forms of gaming.
During the 1997 session of the Texas Legislature, the
Racing Act was amended to, among other
things, increase the Racing Commission's inspection and
enforcement powers, increase the Racing Commission's
oversight of programs funded through provisions of the Racing
Act, expand the enforcement powers of the
Racing Commission and continue the Racing Commission for another
eight years. In common with most
administrative agencies, the Racing Commission is subject to the
Texas Sunset Act and is periodically
reviewed by the Texas Legislature. Under the Racing Act, as
amended, the Racing Commission will be abolished
in 2005 unless the Texas Legislature continues its existence or
extends its Sunset review.Restrictions on Ownership
The Racing Act requires that a
majority of the ownership interests
of a license holder be held at all times by persons who are
United States citizens and who have been
continuous residents of the state of Texas for the preceding ten
years. Additionally, it is illegal under
the Racing Act for any person to own a 5% or greater interest in
more than two racetrack licenses in the
state of Texas (both horse tracks and greyhound tracks are
grouped together for this purpose). The Race
Park's license (the "License") is not transferable but is subject
to a negative pledge (as security for the
Partnership's Extendible Notes). In the event of a foreclosure
by the Trustee for the Extendible Notes (the
"Trustee") or the holders of Extendible Notes (the "Noteholders")
following an event of default, a number of
restrictions and procedural requirements apply to any proposed or
subsequent transfer or use of the License.
The Racing Act generally requires pre-approval by the Racing
Commission of all transfers or issuances of
"pecuniary interests" in the holder of a racetrack license.
Interests in the Partnership constitute
"pecuniary interests" and generally any transfer of an interest
in the Partnership would require the prior
approval of the Racing Commission.
Regulations on Simulcasting The Race Park is authorized to
conduct guest and host simulcasting
under the Racing Act and the Federal Interstate Horseracing Act
of 1978 (the "Federal Horseracing Act"). In
Texas, simulcast broadcasts may only be sent to licensed
racetracks, as the Racing Act does not currently
provide for off-track wagering. All simulcast contracts must be
approved by the Racing Commission. In
accordance with the Rules of Racing, all guest and host
simulcasting contracts must also be approved by the
horsemen. Since the Race Park is unable to conduct simulcast
wagering without the approval of the Racing
Commission and the horsemen, the revocation or non-renewal of the
approval of either the Racing Commission or
the horsemen could have a material adverse effect on the Race
Park's consolidated financial position, results
of operations or liquidity.
The Racing Commission also regulates cross-breed
simulcasting at horse and greyhound
racetracks in Texas, which became legal effective September 1,
1997 with the passage of amendments to the
Racing Act during the 1997 legislative session. The Partnership
has filed an action against the Racing
Commission asserting that the Federal Horseracing Act preempts
the cross-breed provisions included in the
amendments to the Racing Act. See "Item 3. Legal Proceedings -
Cross-breed Simulcasting" for more
information regarding this lawsuit. Under the cross-breed
provisions of the Racing Act, all cross-breed
simulcasting contracts must be approved by the Racing Commission.
The Race Park began offering wagering on
greyhound races broadcast from a racetrack in Corpus Christi
during March of 1998. The long-term net impact<PAGE>
of cross-breed simulcasting
cannot be determined with certainty
as of the date of this report.
Class 1 and Class 2 horse tracks must take signals from
Texas Class 1 horse tracks when such
signals are made available to them, in preference to signals from
other tracks. Class 1 racetracks are not
required to take simulcast signals from Class 2 racetracks.
Under the Racing Act, a Texas horse track that
offers wagering on greyhounds, must take all signals available
from Texas greyhound tracks in preference to
out-of-state greyhound signals. Likewise, a Texas greyhound
track that offers wagering on horses, must take
all signals made available from Texas horse tracks in preference
to out-of-state horse signals.
Taxation The Partnership is subject to significant taxes
and fees from state and local
agencies. These taxes and fees may be increased at any time as
the prospect of significant additional
revenue is one of the primary reasons that taxing jurisdictions
allow legalized gaming. From time to time,
various taxing jurisdictions, including the Texas Legislature,
have proposed and enacted changes in the laws
and the administration of such laws affecting the taxes and fees
paid by the Race Park. Prior to September
1, 1997, the Partnership was required to set aside 0.25% of each
simulcast wagering pool for the Texas
Commission on Alcohol and Drug Abuse. Under amendments to the
Racing Act enacted during 1997, this 0.25% is
now designated to repay the state of Texas for funds previously
appropriated to administer and enforce the
Racing Act. This tax will be in effect until all amounts due the
state of Texas from the Racing Commission,
including interest, are paid in full. Also, in accordance with
amendments to the Racing Act, the pari-mutuel
wagering tax on guest simulcasting was increased from 1% to
1.25%. This tax increase will be in effect until
January 1, 1999. The Partnership estimates that this additional
tax will decrease net pari-mutuel
commissions for 1998 by approximately $250,000 based on the
current level of wagering. Also, as of January
1, 1999, the 1% pari-mutuel wagering tax due to the state of
Texas from live racing will be eliminated on the
first $100 million wagered. The Partnership estimates that the
elimination of this tax will increase net
pari-mutuel commissions for 1999 and future years by
approximately $200,000 based on current levels of
wagering. There can be no assurance that further changes to the
taxes and fees assessed on the Race Park will
not be made or that such charges will not have a material adverse
effect on the Race Park's consolidated
financial position, results of operations or liquidity.
Other Regulations The Race Park is required to file
certain reports with the Commissioner of
the Internal Revenue Service regarding certain cash transactions
and certain wagering winnings by patrons.
The Race Park is also subject to a variety of environmental and
other laws and regulations, including laws<PAGE>
and regulations dealing with animal
waste management and
wetlands. The Race Park is subject to other
federal, state and local regulations and, on a periodic basis,
must obtain various licenses and permits,
including those required to sell alcoholic beverages. The Race
Park derives significant revenues from the
sale of alcoholic beverages. The interruption or termination of
the Race Park's ability to sell alcoholic
beverages could have a material adverse effect on the Race Park's
consolidated financial position, results of
operations or liquidity.
ITEM 2. PROPERTIES The Race Park is located on
approximately 300 acres of land (the
"Site") owned by the Partnership. The Site is located in Harris
County approximately 18 miles from downtown
Houston and approximately 15 miles from Houston Intercontinental
Airport. The Site currently includes
approximately 90 acres of undeveloped land. The Race Park fronts
Sam Houston Parkway, a major tollway,
providing ready access to residents of the greater Houston
metropolitan area.
The Race Park's buildings and grounds have an aggregate
capacity of approximately 18,000
patrons and 10,000 cars. The Grandstand building at the Race
Park is an air-conditioned, fully-enclosed
structure of approximately 196,700 square-feet with a variety of
viewing and simulcasting facilities on three
levels. The Grandstand has seating for 6,000 patrons and is
designed to accommodate approximately 10,000
total patrons. There are numerous television monitors, an
electronic message board, video walls, video
replay libraries and odds information boards throughout the
Grandstand to increase the flow of information to
bettors. Simulcast races are shown on designated television
monitors. Each patron level has numerous
pari-mutuel betting windows, automated betting machines and
concession areas.
In addition to the Grandstand, there are three
additional areas from which patrons can watch
the races: the standee ramp or apron between the Grandstand and
the racing ovals; the 30,000 square foot
enclosed, air-conditioned pavilion which is located immediately
north of the Grandstand; and the infield area
of the racetrack. The pavilion is typically the only portion of
the Race Park that is open to the public on
days that only simulcasting is being conducted. These other
areas have concession stands and pari-mutuel
facilities nearby. A tunnel provides access to the infield.
ITEM 2. PROPERTIES (Continued) The Race Park has
two racing ovals - a one and one-quarter
mile dirt track and a one and one-eighth mile turf course. Each
racing oval features straightaways or
"chutes" to accommodate varying race lengths. The surface of the
tracks and the rails have been designed to
lessen the risk of injuries to horses and jockeys and are
generally considered to be of high quality. The
backside contains 16 barns capable of housing a total of
approximately 1,200 horses. Each barn contains
stalls for onsite stabling, tack rooms, hay and feed storage
areas, grooms' quarters, wash racks and four
outdoor walkers. The Race Park also has a stakes barn for
visiting horses, a receiving barn, a holding barn
and an isolation facility. An equine veterinary facility is also
located at the Race Park.
Under the indenture governing the Partnership's
Extendible Notes (the "Indenture"),
substantially all of the Partnership's assets, including the
Partnership's properties, are pledged as
collateral on the Extendible Notes. The racing license held by
the Partnership is also subject to a negative
pledge for the benefit of the holders of the Extendible Notes.
ITEM 3. LEGAL PROCEEDINGS This section contains
statements which constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. See
Item 1. "Business General" for cautionary information with
respect to such forward-looking statements.
Cross-breed Simulcasting On August 19, 1997, the
Partnership filed an action, entitled Sam
Houston Race Park, Ltd. v. Dan Morales, et al., Civil Action No.
H-97-2817, seeking a declaratory judgment
against the Racing Commission in the United States District Court
for the Southern District of Texas, Houston
Division. This lawsuit asserts that the Federal Interstate
Horseracing Act preempts the cross-breed
simulcasting provisions included in the amendments to the Racing
Act enacted by the Texas Legislature during
1997. The Partnership requested a preliminary injunction to
prevent the greyhound track located in the
greater Houston market area from displaying and accepting wagers
on horse races. This request was denied by
the court. On October 10, 1997, the Partnership filed its notice
of appeal of the denial with the United
States Court of Appeals for the Fifth Circuit. The appeal is
pending, however, as of the filing date of this
report, no ruling has been received from the Court of Appeals.
1995 Plan of Reorganization On April 17, 1995, SHRP, Ltd.
and two affiliates (the "Debtors)
filed voluntary petitions to reorganize under the provisions of
Chapter 11 of the United States Bankruptcy
Code. On September 22, 1995, the Bankruptcy Court entered an
order confirming the Debtors' plan of<PAGE>
reorganization (the "Plan").
All transactions called for by the
Plan were completed on October 6, 1995 (the
"Effective Date") and the case was closed on December 19, 1996.
The Plan called for, among other things, a
reduction in the Partnership's long-term debt, a significant cash
infusion, contribution of additional
property and a reorganization of the Partnership.
Under the terms of the Plan, the Extendible Notes were
issued in exchange for the
Partnership's 11-3/4% Senior Secured Notes (the "Original
Notes"). The Original Notes had an aggregate
principal amount of $75.0 million, would have matured on July 15,
1999 and bore interest at the rate of 11%
per annum. The Extendible Notes had an initial aggregate
principal amount of $37.5 million, mature on
September 1, 2001 and bear interest at the rate of 11% per annum.
The maturity date of the Extendible Notes
may be extended to September 1, 2003 (with an increase in the
rate of interest to 13% per annum) if the Texas
legislature passes significant gaming legislation (as defined)
between January 1, 2001 and August 15, 2001.
Interest on the Extendible Notes accrues in-kind and is not
payable in cash until a certain level of cash
flow from operations has been achieved. Once cash interest
payments commence, interest payments may not
thereafter be paid in-kind. The Indenture limits the
Partnership's ability to incur additional indebtedness
and liens, to engage in transactions with affiliates, to make
investments and to make distributions, although
the Indenture does allow the Partnership to become involved in
certain gaming, entertainment and other
ventures.
On the Effective Date, a new investor group (the "New
Investor Group") made a capital
contribution of cash in the aggregate amount of $5.9 million.
Additionally, a wholly owned subsidiary of
MAXXAM contributed an approximately 87 acre tract of adjoining
land having a fair market value of $2.3
million. Each member of the New Investor Group also provided its
pro rata share of a $1.7 million line of
credit. This line of credit would be used to fund future cash
flow requirements should the cash infusion be
insufficient. Each member of the New Investor Group has secured
such investor's portion of the line of
credit with cash held in an escrow account (other than MAXXAM's
wholly owned subsidiaries, whose portion of
the line of credit is secured by the guaranty of MAXXAM).
Borrowings on the line of credit would bear
interest at 11% per annum and would be subordinate to the
Extendible Notes. Also, a wholly owned subsidiary
of MAXXAM provided the holders of the Extendible Notes with
Instruments of Adherence ("Instruments of
Adherence"). The Instruments of Adherence were executed by
MAXXAM and Mr. Charles Hurwitz, Chairman of the
Board and Chief Executive Officer of MAXXAM and provide that
MAXXAM and Mr. Hurwitz will not, in certain
circumstances, make certain investments in specified gaming
ventures in the Houston area unless certain<PAGE>
holders of the Extendible Notes are
afforded a specified
opportunity to make an investment in such ventures
in an amount at least equal to 19.9% of the aggregate investment
made in such ventures by MAXXAM, Mr. Hurwitz
and such holders.
The Plan provided for the elimination of all existing
partnership interests. The
Partnership has issued 33.3% of the equity in the Partnership to
certain holders of allowed unsecured
bankruptcy claims (the "Creditor Equity"), a majority of which
relates to the unsecured deficiency claims
attributable to the Original Notes. The Creditor Equity is held
in the form of common stock in the
Additional General Partner. On the Effective Date, the New
Investor Group received 66.7% of the equity in
the Partnership. The Managing General Partner was issued a 1%
interest in the Partnership in exchange for
contributing its pro rata share of the investment made by the New
Investor Group. See Note 3 to the
Partnership's Consolidated Financial Statements appearing in Item
8 for further information concerning the
bankruptcy proceedings.
The Partnership is involved in various other claims,
lawsuits and other proceedings relating
to a variety of matters. While uncertainties are inherent in the
final outcome of such matters and while 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS Not applicable.<PAGE>
ITEM 5. STOCKHOLDER MATTERS This section contains
statements which constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. See
Item 1. "Business General" for cautionary information with
respect to such forward-looking statements.
There is no established public trading market for the
Partnership's ownership interests.
The Partnership has eight limited partners in addition to the two
general partners. The Partnership
interests are not transferable without the consent of the
Managing General Partner. Under the Indenture,
distributions are restricted except for amounts necessary to pay
taxes on income of the Partnership allocated
to a partner. The Partnership has not made distributions to its
partners since the commencement of
operations and it is doubtful that the Partnership will be able
to make any distributions to its partners for
at least the foreseeable future. See "Item 7. Management's
Discussion and Analysis of Financial Condition
and Results of Operations" and "Item 8. Financial Statements and
Supplementary Data."<PAGE>
PART IIITEM 6. SELECTED FINANCIAL DATA The selected
financial data of the Partnership for
each of the years in the five-year period ended December 31, 1997
presented below, should be read in
conjunction with "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations" and with the Partnership's Consolidated Financial
Statements and Notes thereto appearing in Item
8.
<TABLE>
<CAPTION> Years Ended December 31,
1997 1996 1995 1994 1993
(In thousands of dollars, except for
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Revenues (a) $20,027 $20,752 $19,679 $20,565 $ -
Cost and expenses (22,250 (23,342 (24,144 (32,463 (2,736)
(b) (c) ) ) ) )
Loss before (1,295) (1,704) (2,193) (9,875) (2,556)
depreciation (c)
Loss before (2,223) (2,590) (4,465) (11,898 (2,736)
reorganization )
items
and other income
(expense) (a)
Reorganization - (83) (48,915 - -
items (d) )
Loss from (2,223) (2,673) (53,380 (11,898 (2,736)
operations (a), (d) ) )
Extraordinary item - - 63,780 - -
(e)
Net income (loss) (8,406) (7,622) 5,608 (20,154 (6,165)
)
Balance Sheet Data (at
end of period):
Current assets 9,030 7,797 8,384 7,257 14,408
Total assets (d) 34,534 33,937 34,956 77,640 92,744
Current liabilities 8,345 6,456 5,645 16,297 17,351
Notes payable 33,393 27,162 22,171 73,244 72,753
(including
notes
to affiliates), less
current portion (e)
Partner's equity (9,065) (659) 6,963 (11,901 2,015
(deficit) )
Distributions paid to $ - $ - $ - $ - $ -
partners
Other Data:
Total attendance 608,120 684,122 665,981 805,648 -
(a)
Live handle (a) $20,175 $25,620 $27,983 $49,961 $ -
Guest handle (a) 93,543 88,579 82,381 30,455 -
Host handle (a) 128,252 109,648 51,451 35,945 -
Net pari-mutuel $13,276 $12,917 $10,566 $8,910 $ -
commissions (a)
<FN>
(a) The Race Park began operations on April 29, 1994. Amounts
for 1997, 1996 and 1995 represent twelve
months of operations and amounts for 1994 represent eight months
of operations.
(b) Includes depreciation expense of $928, $886, $2,272, $2,023
and $180 for 1997, 1996, 1995, 1994 and
1993, respectively.
(c) Includes accrued management fees of $750, $750 and $183 for
1997, 1996 and 1995, respectively, which
cannot be paid until two consecutive interest payments on the
Extendible Notes have been paid in
cash.
(d) Reorganization items recorded to implement the Plan.
Adjustment of assets to fair value represents
the reduction of property and equipment and other assets to their
estimated recoverable amounts and
reorganization expenses represent the professional fees and
expenses necessary to implement the Plan.
(e) Extraordinary gain on discharge of liabilities recorded in
connection with the Plan represents the
gain recognized due to the discharge of current liabilities and
long-term debt.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS The
following should be read in conjunction with the Partnership's
Consolidated Financial
Statements and Notes thereto appearing in Item 8.
This section contains statements which constitute
"forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
See Item 1. "Business General" for
cautionary information with respect to such forward-looking
statements.
Loss from Operations The loss from operations for the
years ended December 31, 1997 and 1996 is
not comparable to the loss from operations for the year ended
December 31, 1995 due to the effect of the
bankruptcy proceedings, the resulting restructuring of
indebtedness and adjustments to reduce the carrying
value of assets recorded during 1995.
The following table presents selected operational
information for the years ended December
31, 1997, 1996 and 1995:
<TABLE>
<CAPTION> December 31,
------------
1997 1996 1995
----- ----- -----
--- --- ---
<S> <C> <C> <C>
Number of live race days 143 146 150
Simulcast only days 222 219 214
Average daily attendance - live race days 3,176 3,624 3,362
Average daily attendance - simulcast only days 694 708 755
Average live per capita wager $ 44 $ 48 $ 56
Average combined live and guest per capita 145 139 132
Average guest per capita wager - simulcast 310 263 266
(Amounts in millions)
Live handle $20.2 $25.6 $28.0
Guest simulcasting handle 93.5 88.6 82.4
Host simulcasting handle 128.3 109.6 51.5
Net pari-mutuel commissions 13.3 12.9 10.6
</TABLE>
Revenues.The Partnership's principal source of revenues is net
pari-mutuel commissions earned on live
thoroughbred and quarter horse racing and on simulcast racing as
both a guest and host track. During periods
between the live racing dates, the Partnership's principal source
of revenues is from wagering by Race Park<PAGE>
patrons on simulcasted thoroughbred
meets being conducted at
other tracks. Other sources of revenue are food
and beverage sales, admission and parking fees, corporate
sponsorships and advertising, club memberships,
suite rentals and other miscellaneous items.
Total revenues for the years ended December 31, 1997,
1996, and 1995 were $20.0, $20.8 and
$19.7 million, respectively. Handle and commissions generated
from both guest and host simulcasting have
continued to increase over the three year period. The decrease
in handle and commissions from live racing
during 1997 as compared to 1996 levels was primarily due to lower
average daily attendance and a decrease in
the live per capita wager. The decrease in average daily
attendance was partially due to the extreme weather
conditions during the 1997 spring thoroughbred meet, which
negatively impacted attendance on live race days,
and the addition of Wednesday racing during the spring
thoroughbred meet and Thursday racing during the
summer quarter horse meet, both of which generate lower average
daily attendance than weekend race days.
Management expects handle and commissions from live racing to
decrease during 1998 as compared to 1997 due to
the allocation by the Racing Commission of fewer race days during 1998.
In 1999, the Partnership's share of net pari-mutuel commissions from
live racing is expected to increase by 1% due to the elimination of the
wagering tax on the first $100 million wagered on live racing. Although
wagering on live racing decreased during 1997, the combined average live and
guest per capita wager has continued to increase over the three
year period. Per capita wagering on guest
simulcasting is typically higher than per capita wagering on live
racing due to increased wagering
opportunities from guest simulcasting as compared to live racing.
The average combined live and guest per
capita wager has shown a 4% increase from 1997 to 1996 and a 5%
increase from 1996 to 1995.
Guest simulcasting handle increased by 6% during 1997
as compared to 1996; however, net pari-mutuel commissions from guest
simulcasting only increased by
2% for the same time period. This decrease
in the ratio of net pari-mutuel commissions to handle is
primarily due to an increase in the allocation to
purses in accordance with the THP Agreement
which became effective on January 1, 1997 and an increase in the
pari-mutuel wagering tax which became effective on September 1, 1997.
From 1995 to 1996, net pari-mutuel commissions from guest
simulcasting increased by 29% primarily due to the effects of a
guest simulcasting fee arrangement with the
horsemen which was in effect during 1996 and to a 3% increase in
guest handle. Although management expects guest simulcasting handle to
continue to increase over the next two years, the resulting increase in
net pari-mutuel commissions is expected to be substantialy offset by the
increased pari-mutuel tax and by increases in the allocation of takeout to
purses. In 1999 and 2000, net pari-mutuel commissions are expected to increase
due to reduction in pari-mutuel wagering taxes and to a recovery of previously
overpaid purses as allowed under the THP Agreement.
Net pari-mutuel commissions from host simulcasting
increased by 50% during 1997 as compared
to 1996 due to increased wagering at the majority of the racetracks and
off-track wagering facilities receiving the Race Park's simulcast
signal and a change in the commission split from host wagering. Net pari-mutuel
commissions from host simulcasting increased by 83% during 1996 as compared
to 1995 primarily due to an increase in the number of racetracks
and off-track facilities receiving the Partnership's simulcast
signal. Although, management expects average daily host handle to continue
to increase during 1998, this increase is expected to be partially offset
due to the allocation of fewer race days during 1998.
Revenues generated from food and beverage sales during
the year ended December 31, 1997
decreased from 1996 levels primarily due to the decrease in
average daily attendance on live race days.
Revenues generated from admission and parking fees, program sales
and other miscellaneous sources have
declined over the three year period primarily due to a decrease
in sponsorship revenue and to a decrease in
the number of and prices of sales of luxury suites and seasonal
boxes and seat packages. Many of the
agreements signed prior to or during the initial thoroughbred
meeting in 1994 have expired or have been
renewed at lower prices.
Loss Before Reorganization Items and Other Income
(Expense).Operating losses have continued to decrease over
the three year period. The improvement in 1997 operating losses
from 1996 levels is due to the continued
decrease in operating costs and expenses, especially salaries and
wages and marketing and advertising.
Salaries and wages decreased in 1997 over 1996 primarily due to
the reduction in staffing in several
operating departments and positions that went unfilled during the
year. Marketing and advertising decreased
in 1997 over 1996 as the advertising program curtailed spending
on or eliminated several high cost
promotions. These decreases were offset by an increase in
management and other professional fees. <PAGE>
Management and other professional fees
increased primarily due to
the cost of lobbying efforts undertaken in
1997 in connection with the 1997 session of the Texas legislature
as well as increased legal costs related to
the cross-breed simulcasting lawsuit discussed in "Item 3. Legal
Proceedings."
The $1.9 million improvement in 1996 operating losses
from 1995 levels is due to an increase
in revenues as well as a decrease in operating costs and
expenses, especially depreciation and amortization
and general and administrative expenses. Depreciation and
amortization declined by $1.4 million in 1996 due
to the write down of assets to estimated fair value associated
with implementing the Plan during 1995.
General and administrative expenses declined by $1.1 million
primarily due to the elimination of several
non-recurring items included in the 1995 results. These
decreases were partially offset by increases in
other operating expenses, including management and other
professional fees and salaries and wages.
Management and other professional fees increased due to the
inclusion of twelve months of management fees
during 1996 versus approximately five months of management fees
during 1995 and an increase in the fees paid
to consultants in preparation for the 1997 Texas legislative
session. Salaries and wages increased in 1996
over 1995 primarily due to expanded hours of operation for guest
simulcasting and to additions to the Race
Park's management team in late 1995.
Reorganization items.Reorganization items in 1995 in the amount
of $48.9 million represent the expense
related to the adjustment of long-term assets to estimated fair
value and professional fees and expenses
necessary to develop and implement the Plan.
Other Income (Expense).Other income (expense) reflects interest
earned net of interest expense, including
amortization of the original issue and the re-issue discounts on
the Original Notes and the Extendible Notes.
Interest expense has continued to increase over the three year
period due to the increasing balance of the
Extendible Notes related to the payment in-kind of accrued
interst and the amortization of the discount on
the Extendible Notes.
Extraordinary gain on discharge of liabilities.The extraordinary
item in 1995 in the amount of $63.8 million
represents the gain from the discharge of liabilities pursuant to
the implementation of the Plan, net of the
expense related to the write off of the deferred financing costs.
See Note 3 to the Consolidated Financial
Statements appearing in Item 8.
Net Income (Loss).Net income (loss) reflects the loss before
reorganization items and other income (expense),
reorganization items, other income (expense) and the
extraordinary gain on discharge of liabilities as
described above.Liquidity and Capital Resources The net cash provided by
operating activities during 1997 of
$474,000 was $1.7 million more than in 1996 and $6.2 million more
than in 1995. Cash provided by operating
activities improved during 1997 compared to 1996 and 1995
primarily due to a decrease in the loss from
operations discussed above and the elimination of restructuring
costs paid in 1996 and 1995.
Restricted cash consists of deposits held for the
benefit of horsemen and funds held for the
payment of property taxes. The increase in restricted cash from
December 31, 1996 to December 31, 1997 is
due to an increase in the deposits held for the benefit of
horsemen related to the difference in timing of
the thoroughbred meets from 1996 to 1997.
Although the Partnership continues to project a loss
from operations for the foreseeable
future, the Partnership had cash and cash equivalents of $2.8
million and a $1.7 million line of credit at
December 31, 1997 available to fund the operating activities of
the Partnership. Also, 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
operating income. Also, management intends to
undertake further legislative efforts to legalize additional
forms of gaming at the Race Park in order to
increase revenues. Further, 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 74.2% 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK Not applicable.<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORSPartners of Sam Houston
Race Park, Ltd.,
We have audited the accompanying consolidated balance
sheets of Sam Houston Race Park, Ltd.
(a Texas limited partnership referred to herein as the
"Partnership") as of December 31, 1997 and 1996 and
the related consolidated statements of operations, partners'
capital (deficit) and cash flows for each of the
three years in the period ended December 31, 1997. These
financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an
opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in
all material respects, the financial position of the Partnership
as of December 31, 1997 and 1996, and the
results of its operations and cash flows for each of the three
years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
February 18, 1998
Houston, Texas<PAGE>
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION> December 31,
------------
1997 1996
------- -------
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $2,728 $2,634
Restricted cash 4,841 3,559
Accounts receivable, net of allowance for 1,133 1,031
doubtful accounts of
$163 and $276, respectively
Prepaid expenses and other current assets 328 573
------- -------
---- ----
Total current assets 9,030 7,797
------- -------
---- ----
Property and equipment, net 25,504 26,140
------- -------
---- ----
$34,534 $33,937
======= =======
==== ====
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Accounts payable $2,104 $1,545
Property taxes payable 1,118 1,194
Other liabilities 1,581 1,363
Amounts due to horsemen 3,530 2,273
Current portion of notes payable 12 81
------- -------
---- ----
Total current liabilities 8,345 6,456
------- -------
---- ----
Long term liabilities:
Notes payable 33,393 27,162
Deferred management fees 1,861 978
------- -------
---- ----
Total liabilities 43,599 34,596
------- -------
---- ----
Commitments and contingencies (Notes 1 and 10)
Partners' deficit (9,065) (659)
------- -------
---- ----
$34,534 $33,937
======= =======
==== ====
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars)
<TABLE>
<CAPTION> Years Ended December
31,
------------
1997 1996 1995
------- ------- -------
---- ---- ----
<S>
Revenues: <C> <C> <C>
Pari-mutuel commissions, net $13,276 $12,917 $10,566
Food and beverage sales 3,366 3,577 3,541
Admissions, parking and other 3,385 4,258 4,530
Non-statutory purse recoveries - - 1,042
------- ------- -------
---- ---- ----
20,027 20,752 19,679
------- ------- -------
---- ---- ----
Costs and expenses:
Cost of pari-mutuel operations 1,756 1,811 1,725
Cost of food and beverage 1,531 1,544 1,445
operations
Other operating 2,433 2,565 2,531
Salaries and wages 8,314 8,624 8,072
Management and other professional 2,266 2,019 1,580
fees
Marketing and advertising 1,946 2,457 2,129
Utilities 1,143 1,307 1,241
Property taxes 1,113 1,185 1,135
Depreciation and amortization 928 886 2,272
General and administrative 820 944 2,014
------- ------- -------
---- ---- ----
22,250 23,342 24,144
------- ------- -------
---- ---- ----
Loss before reorganization items and (2,223) (2,590) (4,465)
other income (expense)
Reorganization items:
Reorganization expenses - (83) (2,957)
Adjustment of assets to fair value - - (45,958
------- ------- )
---- ---- -------
----
- (83) (48,915
------- ------- )
---- ---- -------
----
Loss from operations (2,223) (2,673) (53,380)
Other income (expense):
Interest income 214 203 201
Interest expense (6,397) (5,152) (4,993)
------- ------- -------
---- ---- ----
(6,183) (4,949) (4,792)
------- ------- -------
---- ---- ----
Loss before extraordinary item (8,406) (7,622) (58,172)
Extraordinary gain on discharge of - - 63,780
liabilities ------- ------- -------
---- ---- ----
Net income (loss) $(8,406) $(7,622) $5,608
======= ======= =======
==== ==== ====
</TABLE>
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
(In thousands of dollars)
<TABLE>
<CAPTION> Restructured Prior
Partnership Partnership
------------ ------------
Managi Additi Limite Genera Limite Total
ng onal d l d ------
Genera Genera Partne Partne Partne ----
l l rs rs rs
Partne Partne ------ ------ ------
r r ---- ---- ----
------ ------
---- ----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, $ - $ - $ - $(11,901) $ - $(11,901)
Capital 133 4,415 8,708 - - 13,256
contributions
Loss before
extraordinary (63) (2,097 (4,133 (51,87 - (58,17
item ) ) 9) 2)
Extraordinary
gain on - - - 63,780 - 63,780
discharge of ------ ------ ------ ------ ------ ------
liabilities ---- ---- ---- ---- ---- ----
Balance at December 70 2,318 4,575 - - 6,963
31, 1995
Net loss (729) (2,318 (4,575 - - (7,622
------ ) ) ------ ------ )
---- ------ ------ ---- ---- ------
---- ---- ----
Balance at December (659) - - - - (659)
31, 1996
Net loss (8,406 - - - - (8,406
) ------ ------ ------ ------ )
------ ---- ---- ---- ---- ------
---- ----
Balance at December $(9,065 $ - $ - $ - $ - $(9,065
31, 1997 ) ====== ====== ====== ====== )
====== ==== ==== ==== ==== ======
==== ====
/TABLE
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION> Years Ended December
31,
------------
1997 1996 1995
------- ------- -------
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(8,406) $(7,622) $ 5,608
Adjustments to reconcile net income
(loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization 928 886 2,272
Amortization of deferred
financing costs and 1,360 682 739
discounts on long-term debt
Increase in restricted cash (1,282) (555) (1,614)
(Increase) decrease in (102) (356) 338
accounts receivable
(Increase) decrease in prepaid 249 (302) (350
expenses and other
Increase (decrease) in 559 309 (903)
accounts payable
Increase in due to affiliates 883 729 226
Increase in accrued interest 4,886 4,391 4,177
Increase (decrease) in other 142 665 (478)
liabilities
Increase in amounts due to 1,257 445 1,092
horsemen
Reorganization items:
Increase (decrease) in
accrued - (526) 326
reorganization costs
Adjustment of assets to - - 45,958
fair value
Extraordinary gain on
discharge of - - (63,780
liabilities ------- ------- )
---- ---- -------
----
Net cash provided by
(used in) operating 474 (1,254) (5,689)
activities ------- ------- -------
---- ---- ----
Cash flows from investing activities:
Additions to land, buildings and (296) (455) (216)
equipment ------- ------- -------
---- ---- ----
Net cash used in (296) (455) (216)
investing activities ------- ------- -------
---- ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Partner contributions - - 5,928
Proceeds from issuance of notes - - 23
payable
Payments on notes payable (84) (91) (33)
------- ------- -------
---- ---- ----
Net cash provided by
(used in) financing (84) (91) 5,918
activities ------- ------- -------
---- ---- ----
INCREASE (DECREASE) IN CASH AND CASH 94 (1,800) 13
EQUIVALENTS
Cash and cash equivalents at beginning 2,634 4,434 4,421
of year ------- ------- -------
---- ---- ----
Cash and cash equivalents at end of year $2,728 $2,634 $4,434
======= ======= =======
==== ==== ====
Supplemental disclosure of cash flow
information:
Interest paid, net of amounts $ 8 $ 19 $ 18
capitalized
SUPPLEMENTAL DISCLOSURE OF NON-CASH
ACTIVITIES
See Notes 3, 6 and 8
/TABLE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)1. Basis of Presentation and
Organization, Use of Estimates and Future
Cash RequirementsBasis of Presentation and Organization
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 was
formed on June 17, 1990 to apply to the Texas Racing Commission
(the "Racing Commission") for a license to
acquire, construct and operate a pari-mutuel horse racing
facility in Harris County, Texas (the "Race Park"),
in accordance with the Texas Racing Act (the "Racing Act").
The Partnership was organized under the laws of the
state of Texas and will terminate on
December 31, 2090 unless it is earlier dissolved pursuant to the
Texas Revised Limited Partnership Act or
any provision of its Third Amended and Restated Limited
Partnership Agreement (the "Amended Partnership
Agreement"). 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 December 31, 1997, wholly owned subsidiaries of
MAXXAM held, directly or indirectly, a
23.7% general partner interest (including a 22.7% interest by
virtue of its ownership of 68.2% of the common
stock of the Additional General Partner) and a 64.8% limited
partner interest in the Partnership. In
February 1998, a wholly owned subsidiary of MAXXAM purchased
additional 11% Senior Secured Extendible Notes
("Extendible Notes") and the corresponding shares of common stock
of the Additional General Partner from
other noteholders, thereby increasing MAXXAM's interest from
88.5% to 90.5% of the equity in the Partnership.
Subsequent to the purchase in February 1998, wholly owned
subsidiaries of MAXXAM also hold 74.2% of the
Extendible Notes.
Use of Estimates The preparation of financial statements
in accordance with generally
accepted accounting principles requires the use of estimates and
assumptions that affect (i) the reported
amounts of assets and liabilities, (ii) disclosure of contingent
assets and liabilities known to exist as of
the date the financial statements are published, and (iii) the
reported amount of revenues and expenses
recognized during each period presented. The Partnership reviews
all significant estimates affecting its
consolidated financial statements on a recurring basis and
records the effect of any necessary adjustments
prior to their publication. Adjustments made with respect to the
use of estimates often relate to improved
information that was not previously available. Uncertainties
with respect to such estimates and assumptions are inherent in the
preparation of the Partnership's consolidated
financial statements; accordingly, it is
possible that the subsequent resolution of the liquidity issues,
described in "Future Cash Requirements"
below, could differ in material respects from current estimates.
The results of an adverse resolution of
such uncertainty could have a material effect on the reported
amounts of the Partnership's consolidated
assets and liabilities.
Future Cash Requirements Although the Partnership
continues to project a loss from
operations for the foreseeable future, the Partnership had cash
and cash equivalents of $2.8 million and a
$1.7 million line of credit at December 31, 1997 available to
fund the operating activities of the
Partnership. Also, 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
1. Basis of Presentation and Organization, Use of
Estimates and Future Cash Requirements
(Continued)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
operating income. Also, management intends to
undertake further legislative efforts to legalize additional
forms of gaming at the Race Park in order to
increase revenues. Further, 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 74.2% 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. Summary of Significant Accounting PoliciesRestricted
Cash The Partnership's
restricted cash, as shown on the accompanying consolidated
balance sheets at December 31, 1997 and 1996,
includes amounts designated for the payment of the items listed
in the following table:<PAGE>
<TABLE>
<CAPTION> December 31,
------------
1997 1996
------- -------
--- ----
<S> <C> <C>
Deposits held for the benefit of horsemen $ 3,510 $ 2,258
Property taxes and other 1,331 1,301
------- -------
---- ----
$ 4,841 $ 3,559
======= =======
==== ====
</TABLE>
Cash Equivalents and Concentration of Credit Risk Cash
equivalents consist of highly liquid money
market instruments with original maturities of three months or
less. A substantial portion of the
Partnership's cash equivalents ($2,125) at December 31, 1997 was
invested in various short-term investment
grade marketable securities. The Partnership also holds other
amounts in banks and other financial
institutions wherein some of the balances exceed federally
insured deposit levels. In the event of
nonperformance by such financial institutions, the Partnership's
exposure to credit loss is represented by
the amounts deposited plus any unpaid accrued interest thereon
minus the federally insured deposit
limitation. The Partnership mitigates its concentration of
credit risk with respect to the funds in such
accounts by maintaining them at high credit quality financial
institutions and monitoring the credit ratings
of such institutions.<PAGE>
2. Summary of Significant Accounting Policies
(Continued)Property and Equipment Property and equipment
were written down to estimated fair value as reflected in the
sixth amended
consolidated plan of reorganization ("the Plan") as of October 6,
1995 ("the Effective Date"). Additions to
property and equipment subsequent to the Effective Date are
stated at cost. Prior to the Effective Date,
property
and equipment were stated at cost. Depreciation is computed
principally utilizing the straight-line method
at rates based upon the estimated useful lives of the various
classes of assets. In accordance with SFAS 121
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of," the
Partnership reviews long-lived assets, which include property and
equipment, for impairment whenever events
or changes in circumstances indicate the carrying amounts of the
Partnership's assets may not be fully
recoverable.
Notes Payable Notes payable includes accrued interest on
the Extendible Notes which is allowed to
be paid in-kind until a certain level of cash flow from
operations has been achieved.
Other Liabilities Other liabilities include net
liabilities for unclaimed winning pari-mutuel
tickets. Unclaimed winning tickets are valid for ninety days
after the end of the year in which they are
generated. Once the tickets are no longer valid, the remaining
amounts held to pay unclaimed winning
tickets, net of allowable reimbursements, are transferred to the
Texas Racing Commission.
The Partnership receives advance payments with respect
to private suite and box rentals,
Jockey Club memberships and corporate sponsorship agreements.
The payments are recorded as deferred revenue
and are recognized as income over the term of the respective
agreements.
Purses and Awards The Racing Act, certain other
agreements, and the rules promulgated by the
Racing Commission stipulate percentages of the pari-mutuel handle
which must be used for the payment of
purses and awards depending upon the type of wagers placed. The
term "pari-mutuel handle" means the
aggregate amounts wagered. Purses are established nearly one
month in advance, based on expected pari-mutuel
handle and published in a condition book which generally covers
fifteen days of live racing. Horsemen then
enter their horses in proposed races based upon the conditions of
the race being entered, including the
purses being offered. In certain circumstances, the Partnership
may pay purses and awards in excess of the
amounts provided by the pari-mutuel handle. The Partnership may
adjust the amounts to be paid for future
races during the course of a given meet in order to minimize or
eliminate any differences between the amounts<PAGE>
provided by the pari-mutuel
handle and the actual amounts of
purses and awards paid. The agreement between
the Partnership and the Texas Thoroughbred HBPA, Inc. also allows
the Partnership to recoup various amounts
of the previous purse overpayments from certain future meets.
The Partnership expenses all purse
overpayments when they occur. Recoveries of these amounts are
recorded as revenue as they are earned.2. Summary of Significant
Accounting Policies
(Continued)Income Taxes The Partnership
has not made any provisions for income taxes in its Consolidated
Statement of Operations as they are the
responsibility of its partners. The carrying value of the
Partnership's net assets for financial statement
purposes was less than the carrying value for income tax
reporting purposes by approximately $18,837 at
December 31, 1997. The difference primarily results from (i) the
adjustment of long-term assets to estimated
fair value for financial statement purposes but not for income
tax purposes and (ii) the capitalization of
costs for income tax purposes that were expensed for financial
reporting purposes, a substantial portion of
which relates to costs incurred during the start-up period and
the reorganization pursuant to the Plan
described in Note 3.
Fair Value of Financial Instruments The carrying amounts
of the Partnership's cash and cash
equivalents (including restricted and designated cash) and other
notes payable approximate their fair value.
The Extendible Notes had a carrying amount of $31,886 and $25,770
and an estimated fair value of $27,160 and
$20,405 as of December 31, 1997 and 1996, respectively. Market
prices for the Extendible Notes at December
31, 1997 were estimated based on the trade that occurred in early
1998 as discussed in Note 1. Market prices
for the Extendible Notes at December 31, 1996 were estimated
based on the trade which occurred during early
1997.
3. 1995 Plan of ReorganizationPlan of Reorganization
On April 17, 1995, the
Partnership, SHRP Capital Corp. ("Capital") and SHRP Acquisition,
Inc., the Partnership's largest limited
partner, filed for reorganization under Chapter 11 of the United
States Bankruptcy Code. On September 22,
1995, the United States Bankruptcy Court for the Southern
District of Texas, Houston Division entered an
order confirming the Plan. The transactions called for by the
Plan were completed on the Effective Date and
the case was closed on December 19, 1996.
Under the terms of the Plan, the Extendible Notes were
issued in exchange for the
Partnership's 11-3/4% Senior Secured Notes (the "Original
Notes"). The Original Notes had an aggregate
principal amount of $75,000, would have matured on July 15, 1999
and bore interest at the rate of 11-3/4% per
annum. The Extendible Notes had an initial aggregate principal
amount of $37,500, mature on September 1,
2001 and bear interest at the rate of 11% per annum. Interest on
the Extendible Notes accrues in-kind and is
not payable in cash until a certain level of cash flow from
operations has been achieved. See Note 6 for
further information concerning the terms of the Extendible Notes.
On the Effective Date, a new investor group (the "New
Investor Group") made a capital<PAGE>
contribution of cash and other consideration
described below.
Each member of the New Investor Group also
provided its pro rata share of the $1,700 line of credit. This
line of credit would be used to fund future
cash flow requirements should the cash infusion prove to be
insufficient. Each member of the New Investor
Group has secured such investor's portion of the line of credit
with cash held in an escrow account (other
than MAXXAM's wholly owned subsidiaries, whose portion of the
line of credit is secured by the guaranty of
MAXXAM). Borrowings on the line of credit would bear interest at
11% per annum and would be subordinate to
the Extendible Notes. 3. 1995 Plan of Reorganization (Continued)Also,
a wholly
owned subsidiary of MAXXAM provided
the holders of the Extendible Notes with Instruments of Adherence
("Instruments of Adherence") having an
agreed value of $500. The Instruments of Adherence were executed
by MAXXAM and Mr. Charles Hurwitz, Chairman
of the Board and Chief Executive Officer of MAXXAM and provide
that MAXXAM and Mr. Hurwitz will not, in
certain circumstances, make certain investments in specified
gaming ventures in the Houston area unless
certain holders of the Extendible Notes are afforded a specified
opportunity to make an investment in such
ventures in an amount at least equal to 19.9% of the aggregate
investment made in such ventures by MAXXAM,
Mr. Hurwitz and such holders.
The Plan provided for the elimination of all existing
partnership interests. The
Partnership has issued 33.3% of the equity in the Partnership to
certain holders of allowed unsecured
bankruptcy claims (the "Creditor Equity"), a majority of which
relates to the unsecured deficiency claims
attributable to the Original Notes. The
Creditor Equity is held in the form of common stock in the
Additional General Partner. On the Effective
Date, the New Investor Group received 66.7% of the equity in the
Partnership. The Managing General Partner
was issued a 1% interest in the Partnership in exchange for
contributing its pro rata share of the investment
made by the New Investor Group.
Changes to Consolidated Financial Statements due to
Implementation of the Plan On the Effective
Date, all transactions called for in the Plan were completed.
These transactions have resulted in
significant changes to the Partnership's consolidated financial
statements. A summary of the major effects
on the Partnership's consolidated financial statements is
described below.
Cash and Cash Equivalents On the Effective Date, the New
Investor Group contributed cash of
$5,928 to the Partnership in return for a portion of their equity
investment. The Partnership also paid
bankruptcy related claims and fees of $2,775 on the Effective
Date.
Property and Equipment, Net Property and equipment was
reduced by approximately $40,390 in
order to adjust long-term assets to the estimated fair value as
reflected in the Plan. Additionally, the
Partnership received an approximately 87 acre tract of land
valued at $2,300 as part of the contribution of
the New Investor Group.
Other Assets All long-term assets related to the financing
of the Original Notes or the formation
of the Partnership were expensed on the Effective Date. On the
Effective Date, the New Investor Group contributed the Instrument of
Adherence, valued at $500, to the
Partnership. An intangible asset in the
amount of $4,415 was recorded on the Effective Date for the
estimated value of the Creditor Equity as
determined by the Amended Partnership Agreement. Due to the
significant uncertainty associated with the
recoverability of this intangible asset, it was expensed and
included as a component of the adjustment of
assets to fair value.3. 1995 Plan of Reorganization (Continued)Current
Liabilities Current liabilities were
decreased by approximately $11,377, primarily due to the
discharge of interest accrued on the Original Notes.
Also, management fees and interest due to Race Track Management
Enterprises ("RTME"), the former manager of
the Race Park, were discharged. On the Effective Date,
approximately $1,091 of current liabilities related
to payments necessary to cure contract deficiencies and priority
claims were settled.
Notes Payable Notes payable were reduced by approximately
$53,077 in order to adjust the balance
of the Original Notes to the estimated fair value of the
Extendible Notes. The Partnership also issued
Extendible Notes in the amount of $355 as payment in-kind of
interest on the Extendible Notes from September
5, 1995 through the Effective Date.
Partners' Capital Partners' capital was adjusted to
reflect the contributions made to the
Partnership on the Effective Date. The New Investor Group
contributed cash, land and other assets valued at
approximately $8,841. The Creditor Equity was also created on
the Effective Date and had an estimated value
of $4,415. Partners' capital at December 31, 1995 also includes
the fourth quarter adjustment of assets to
fair value and extraordinary gain reflecting the effects of
implementing the Plan.
Consolidated Statement of Operations The 1995
Consolidated Statement of Operations reflects the
aggregate net impact of the above transactions. Reorganization
expenses of $2,957 represent the professional
fees and expenses necessary to implement the Plan including $439
of expenses paid to an affiliate. See Note
9 for additional information. Adjustment of assets to fair value
in the amount of $45,958 represents the
reduction of property and equipment and other assets to their
estimated recoverable amounts. Extraordinary
gain on discharge of liabilities in the amount of $63,780
represents the gain recognized due to the discharge
of current liabilities and long-term debt during the bankruptcy
proceedings, net of the expenses related to
the write off of capitalized costs for the financing of the
Original Notes.
The adjustments resulting from the implementation of
the Plan effect the comparability of
the Partnership's consolidated financial statements with those of
other periods. The write down of long-term
assets has significantly decreased the depreciable value of the
Partnership's assets, thereby reducing
depreciation expense. Also, the discharge of a significant
portion of the Partnership's debt in accordance
with the Plan has significantly reduced the amount of annual
interest expense.<PAGE>
4. Property and Equipment The major classes of
property and equipment are as follows:
<TABLE>
<CAPTION> Estimat December 31,
ed ------------
Useful
------- 1997 1996
---- ------- -------
Lives ---- ----
<S> <C> <C> <C>
Buildings 5 - 30 $14,390 $14,368
years
Equipment, furniture and fixtures 3 - 15 2,127 1,865
years
Race track and other land improvements 5 - 30 3,049 3,045
years
Land 7,958 7,958
------- -------
---- ----
27,524 27,236
Less accumulated depreciation (2,020) (1,096)
------- -------
---- ----
$25,504 $26,140
======= =======
==== ====
</TABLE>
Depreciation expense for the years ended December 31,
1997, 1996 and 1995 was $928, $886 and
$2,110, respectively. As discussed in Note 3, the Partnership
reduced the net carrying value of property and
equipment by $40,390 as of the Effective Date, in accordance with
the asset values described in the Plan.
5. Racing Operations The Partnership conducted 143,
146, and 150 days of live
racing during 1997, 1996, and 1995, respectively. Under the
Racing Act, the Partnership's commission revenue
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.
The Race Park also provides broadcasts of live
racing conducted at the Race Park to other racetracks under
various host simulcasting agreements. Under
these contracts, the Partnership receives pari-mutuel commissions
of varying percentages of simulcast
pari-mutuel handles. 5. Racing Operations (Continued) A summary
of the
pari-mutuel handle, commissions
and deductions for the years ended December 31, 1997, 1996 and
1995 is as follows:
<TABLE>
<CAPTION> 1997 1996 1995
------- ------- -------
---- ---- ----
<S> <C> <C> <C>
Live handle $20,175 $25,620 $27,983
Return to public (15,830 (20,113 (21,977
) ) )
Purses and breeders awards (1,608) (2,043) (2,222)
State taxes and fees (202) (256) (280)
Breakage (150) (181) (214)
------- ------- -------
---- ---- ----
Net commissions from live racing 2,385 3,027 3,290
------- ------- -------
---- ---- ----
Guest handle 93,543 88,579 82,381
Return to public (74,252 (70,650 (65,776
) ) )
Purses and breeders awards (6,237) (5,282) (5,934)
Host Fee (2,982) (2,836) (2,735)
State taxes and fees (1,246) (1,107) (1,036)
Breakage (526) (539) (565)
------- ------- -------
---- ---- ----
Net commissions from guest simulcasting 8,300 8,165 6,335
------- ------- -------
---- ---- ----
Host handle 128,252 109,648 51,451
Receiving track expenses (124,09 (105,88 (49,859
6) 7) )
Purses and breeders awards (1,565) (2,036) (651)
------- ------- -------
---- ---- ----
Net commission from host simulcasting 2,591 1,725 941
------- ------- -------
---- ---- ----
Total pari-mutuel commissions, net $13,276 $12,917 $10,566
======= ======= =======
==== ==== ====
</TABLE>
Non-statutory Purse Funding In accordance with the
agreement with the horsemen in effect during
1994, the Partnership paid purses in excess of statutory amounts
aggregating approximately $4,042. Various
amendments to this agreement increased the Partnership's ability
to manage the level of purses paid so that
future significant purse overpayments could be avoided. The
amendments also allowed the Partnership to<PAGE>
recover a portion of the purses
paid in excess of statutory
amounts. During 1995, the Partnership recovered
$1,042 of purses previously paid in excess of statutory amounts.
On November 26, 1996, the Race Park entered
into a new agreement with the Texas Thoroughbred HBPA, Inc. (the
"TTHBPA"). The TTHBPA is a partner of the
Texas Horsemen's Partnership, L.L.P. (the "THP"), the official
horsemen's organization currently recognized
by the Racing Commission. This new agreement provides for the
recovery of purse overpayments of $660 and
$631 during
the years ended December 31, 1999 and 2000, respectively. The
Partnership will record any future recoveries
only as they are earned.6. Notes Payable Notes payable consist
of the
following:
<TABLE>
<CAPTION> December, 31
------------
1997 1996
------- -------
---- ----
<S> <C> <C>
11% Senior Secured Extendible Notes due
September 1, 2001 (net of unamortized $31,886 $25,770
discount of $14,942 and $16,302 as of December
31, 1997 and 1996, respectively)
Accrued interest to be paid in-kind 1,288 1,157
------- -------
---- ----
33,174 26,927
Unsecured promissory notes 205 240
Equipment leases 3 53
Payable to Limited Partners 23 23
------- -------
---- ----
Total 33,405 27,243
Less current portion (12) (81)
------- -------
---- ----
$33,393 $27,162
======= =======
==== ====
</TABLE>
The Extendible Notes had an initial aggregate principal
amount of $37,500, mature on
September 1, 2001, bear interest at the rate of 11% per annum
and are secured by substantially all the
assets of the Partnership. The maturity date of the Extendible
Notes may be extended to September 1, 2003
(with an increase in the rate of interest to 13% per annum) if
the Texas legislature passes significant
gaming legislation (as defined) between January 1, 2001 and
August 15, 2001. The indenture governing the
Extendible Notes (the "Indenture") limits the Partnership's
ability to incur indebtedness and liens, to
engage in transactions with affiliates, to make investments and
to make distributions, although the Indenture
does allow the Partnership to become involved in certain gaming,
entertainment and other ventures.
The Partnership is amortizing the difference between
the aggregate principal amount of the
Extendible Notes and their estimated fair value as additional
interest expense using the effective interest
method.
Interest on the Extendible Notes accrues in-kind and is
not payable in cash until a certain
level of cash flow from operations has been achieved. Once cash
interest payments commence, interest payments may not thereafter be paid
in-kind. The Partnership
issued $4,755 and $4,217 of Extendible Notes
during the years ended December 31, 1997 and 1996, respectively,
as payment in-kind for accrued interest.
Interest payments are due on the Extendible Notes on April 1 and
October 1 of each year until the Extendible
Notes mature.
The Partnership has entered into an unsecured
promissory note. The note earns interest at
6-1/2% per annum and is due and payable in thirty equal annual
installments to the Harris County Toll Road
Authority, operator of the Sam Houston Parkway. This note
represents one-half of the costs incurred to
construct the entrance and
exit ramps adjacent to the Race Park. Payments of approximately
$8 plus accrued interest are due annually on
April 30 through the year 2024. 6. Notes Payable (Continued)
The New Investor
Group has provided the
Partnership with a $1,700 line of credit. This line of credit
would be used to fund future cash flow
requirements should the Partnership require it. Each member of
the New Investor Group, other than MAXXAM
wholly owned subsidiaries, has secured their portion of the line
of credit with cash in the amount of $23,
which is held in an escrow account. The portion of the line of
credit provided by wholly owned subsidiaries
of MAXXAM is secured by the guarantee of MAXXAM. Borrowings on
the line of credit would bear interest at 11%
per annum and would be subordinate to the Extendible Notes. The
cash collateral for the line of credit is
reflected as restricted cash in the balance sheet.
The scheduled maturities for the Partnership's notes
payable outstanding at December 31,
1997 are as follows: December 31, 1998 - $12; 1999 - $8; 2000 -
$8; 2001 - $48,147; 2002 - $8; thereafter
$164. In the event the Partnership continues to issue additional
Extendible Notes as payment in-kind for
accrued interest, the total amount due on the Extendible Notes at
maturity in September 2001 will be $71,242.
7. Partners' Deficit The Partnership is currently
comprised of the Managing
General Partner, the Additional General Partner and eight limited
partners.
The profits and losses of the Partnership are allocated
to the partners in accordance with
their percentage interests, after giving effect to certain
special allocations. However, all net losses
(other than nonrecourse deductions) in excess of the positive
capital account balance of any limited partner
or the Additional General Partner are to be allocated to the
Managing General Partner. Income is to be
specially allocated to restore a partner's deficit capital
account prior to allocating net profits based on
the partner's percentage interest.
In the event of a capital call by the Partnership to
fund operating losses, holders of the
Extendible Notes may contribute Extendible Notes in lieu of cash
in order to maintain their equity position
in the Partnership. So long as the Extendible Notes are
outstanding, the Board of Directors of the
Additional General Partner are entitled to designate at least
one-third of the directors of the Managing
General Partner (the "Creditor Directors"), subject to the
reasonable approval of the owner of the Managing
General Partner. Certain significant events (e.g. mergers,
consolidations, the sale of all or the
substantial portion of the Partnership's assets, reorganizations,
incurrence of debt in excess of $5,000 and
voluntary acts of insolvency) require the approval of a majority
of all of the directors, including a
majority of the Creditor Directors voting as a separate class.
Prior to the consummation of the Plan, the Partnership
consisted of a general partner and
several classes of limited partnership interests, some of which
were entitled to preferred returns. The
Amended Partnership Agreement provides that profits and losses of
the Partnership for all periods through and
including the Effective Date are allocated to the persons who
were partners immediately prior to the
consummation of the Plan (the "Original Partners") using the
"closing of the books" method. Due to the
balances in the Original Partners' capital accounts when the Plan
was implemented, net income as of the
Effective Date, including the extraordinary gain on the discharge
of liabilities, was allocated to the
General Partner. Under the terms of the Plan, all former
partnership interests were extinguished during the
bankruptcy proceedings.
8. Management Agreements As of the Effective Date,
the Managing General Partner
began managing the Partnership and the Race Park in accordance
with the Amended Partnership Agreement.
Annual management fees will be the greater of (a) $750 or (b) an
incentive fee equal to .65% of all gross
revenues (as defined). Management fees are deferred until two
consecutive semi-annual cash interest payments
have been made to the holders of the Extendible Notes. Unpaid
management fees accrue interest at the rate of
11% per annum. All such management fees are subordinated to the
Extendible Notes. As of December 31, 1997
and 1996, the Partnership has accrued $1,861 and $978 of
management fees including interest due to the
Managing General Partner.
Management and other professional fees for the year
ended December 31, 1995 include $364 in
management fees for RTME. The management agreement with RTME was
rejected by the Partnership during the
bankruptcy proceedings. Management fees were not accrued by the
Partnership during the bankruptcy
proceeding. All unpaid management fees due to RTME as of April
17, 1995 were discharged when the Plan was
confirmed.
9. Related Party Transactions Management and other
professional fees for the
years ended December 31, 1997, 1996 and 1995 include $488, $511,
and $494 related to costs incurred for
services provided by MAXXAM and certain of its subsidiaries. In
addition, reorganization costs for the year
ended December 31, 1995 include $439 of such costs incurred by
the Partnership. Included in accounts payable
at December 31, 1997 and 1996, were obligations to MAXXAM for
such costs of $34 and $22, respectively.
Management and other professional fees for the years
ended December 31, 1997 and 1996
include $147 and $120 of costs incurred by an affiliate to
coordinate legislative efforts of the Partnership. Additionally, the
Partnership engages affiliates for legal and
other consulting services in the normal course
of business. During the years ended December 31, 1997, 1996 and
1995, the Partnership incurred fees of $70,
$41, and $97, respectively, with respect to these services.
10. Commitments and Contingencies During the 1997
session of the Texas Legislature,
the Racing Act was amended to, among other things, implement
various tax changes. The pari-mutuel wagering
tax on guest simulcasting was increased from 1% to 1.25% through
December 31, 1998. The Partnership
estimates that the increased wagering tax will decrease net
pari-mutuel commissions by approximately $250
during 1998. The legislation also eliminated the 1% pari-mutuel
wagering tax on the first $100,000 wagering
on live racing subsequent to December 31, 1998. The Partnership
estimates that the elimination of this
wagering tax on live racing will increase net pari-mutuel
commissions by $200 based on the current level of
wagering. In addition, the 0.25% previously paid to the Texas
Commission on Alcohol and Drug Abuse was
reallocated to the Racing Commission to repay funds previously
appropriated by the state of Texas for the
administration and enforcement of the Racing Act. This tax will
be eliminated when all amounts due to the
state of Texas, including interest, have been repaid.10. Commitments
and Contingencies (Continued) The
legislation also authorized
cross-breed simulcasting between horse tracks and greyhound
tracks at Texas pari-mutuel facilities. The
Partnership filed an action in federal court asserting that the
cross-breed provisions included in the
legislation were preempted by the Federal Interstate Horseracing
Act and seeking to prevent the greyhound
track located in the greater Houston metropolitan area from
displaying and accepting wagers on horseraces.
The Partnership's request for a preliminary injunction was denied
and the greyhound track began displaying
and accepting wagers on horse races on September 1, 1997 when the
legislation became effective. Although the
long-term net impact of cross-breed simulcasting cannot be
determined with certainty, the Partnership
believes that the competition within its market for horseracing
customers created by the implementation of
cross-breed simulcasting may have a negative overall impact on
the Partnership's share of pari-mutuel
commissions generated from on-track wagering.
In addition, the legislation mandated an increase in
the amount of purses to be reserved for
the owners of future winning horses from guest simulcasting.
This increase is effective as of January 1,
1999. These amounts will no longer be determined under contract
with the recognized horsemen's organization
and are to be set at an amount that approximates the percentages
used for live racing. The Partnership
estimates that net pari-mutuel commissions will decrease by
approximately $1,025 when this provision becomes
effective. This loss of net pari-mutuel commissions is expected
to be partially offset by recoveries of
previously overpaid purses allowed under the Partnership's
contract with the recognized horsemen's
organization in the amount of $660 and $631 during 1999 and 2000,
respectively.
The Partnership has entered into noncancellable service
and operating lease agreements with
several vendors to provide services in addition to agreements for
the use of equipment. Certain of these
agreements call for contingent rentals based upon a variety of
factors, the most significant of which are the
number of live racing days and specified percentages of amounts
wagered. Future minimum lease and commitment
payments under such noncancellable service and lease agreements,
having a remaining term in excess of one
year at December 31, 1997, are as follows: years ending December
31, 1998 - $304; 1999 - $168; 2000 - $168;
2001 - $168; 2002 - $78; thereafter $156. The Partnership
incurred approximately $1,384, $1,409, and $1,700,
including contingent fees and rentals, for the years ended
December 31, 1997, 1996 and 1995 for such services
and operating lease obligations.
The Partnership is contingently liable for liquidating
damages to one vendor with respect to a lease for services for approximately
$200 at December 31, 1997.
The amount of the contingency decreases by
approximately $8 for each month the Partnership conducts live or
simulcast racing operations.
The Partnership is involved in claims and litigation
arising in the ordinary course of
business. While there are uncertainties inherent in the ultimate
outcome of such matters and it is
impossible to presently determine the ultimate costs that may be
incurred, management believes that the
outcome of such matters should not have a material adverse effect
upon the Partnership's consolidated
financial position, results of operation or liquidity.<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS The following
table sets forth certain
information, as of March 1, 1998, with respect to the executive
officers of the Partnership and the directors
of the Managing General Partner.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
James D. Noteware 45 President (1)
Robert L. Bork 59 Senior Vice President and General
Manager (2)
Ann M. McGovern 37 Vice President of Operations
James H. Paulin, 54 Vice President
Jr.
Michael J. Vitek 35 Vice President of Accounting
</TABLE>
The Managing General Partner
<TABLE>
<CAPTION>
Name Age Position
- - ------------ ------- ------------
-----
<S> <C> <C>
Charles E. 57 Chairman of the Board
Hurwitz
D. Kent Anderson 56 Director (3)
J. Kent Friedman 54 Director (3)
James D. Noteware 45 Director
Paul N. Schwartz 51 Director
<FN>
(1) Mr. Noteware is not an employee of the Partnership, the Race
Park or the Managing General Partner.
(2) Principal Executive Officer of the Partnership
(3) Until such time as the Extendible Notes are repaid, the
Additional General Partner is entitled to
designate at least one-third of the directors of the Managing
General Partner (the "AGP Directors").
D. Kent Anderson and J. Kent Friedman currently serve as AGP
Directors. A majority vote of the AGP
Directors is required with respect to certain significant events
(e.g. mergers, consolidations, the
sale of all or the substantial portion of the Partnership's
assets, reorganizations, incurrence of
debt in excess of $5 million, and voluntary acts of insolvency).
</FN>
</TABLE>
James D. Notewarehas served as President of the Partnership since
August 1994. Mr. Noteware is also President and a Director of the Managing
General Partner. Mr.
Noteware previously served as interim General
Manager of the Partnership from November 1994 through October
1995. Mr. Noteware has served as President and
Chief Executive Officer of MAXXAM Property Company ("MPC"), a
wholly owned subsidiary of MAXXAM, since
January 1993. From November 1990 through December 1992, Mr.
Noteware was Chairman, President and Chief
Executive Officer of Phoenix Consulting, Inc., a real estate
management and consulting company. Mr. Noteware
served as a national director in the Real Estate Advisory
Services Department of Price Waterhouse from April
1991 through January 1993. Prior to November 1990, Mr. Noteware
served as National Director in the Real
Estate Advisory Services Department at Laventhol & Horwath.
Robert L. Borkhas served as Senior Vice President and General
Manager of the Partnership since October 1995.
Mr. Bork previously served four years as Vice President-General
Manager and Chief Operating Officer of
Arlington International Racecourse, Inc. in Arlington Heights,
Illinois. Prior to such time, Mr. Bork served
as Vice President-General Manager of Philadelphia Park in
Benslem, Pennsylvania and Garden State Park in
Cherry Hill, New Jersey. Mr. Bork is a director and Secretary of
the Thoroughbred Racing Association of
America, a director of the Thoroughbred Racing Protective Bureau,
Chairman of the Thoroughbred Racing
Association Technology Committee and a director of the Cy-Fair
Chamber of Commerce. Ann M. McGovernhas served as Vice President of
Operations of the
Partnership since September 1994. Ms.
McGovern previously served for 11 years with the Racing Division
of the Edward J. De Bartolo Corporation,
most recently as Director of Operations at Remington Park in
Oklahoma City, Oklahoma from April 1991 to
October 1994 and prior to that as the Assistant Director of
Operations since 1988.
James H. Paulin, Jr.has served as Vice President of the
Partnership since November 1993. Mr. Paulin has been
the Secretary-Treasurer of Federated Development Company
("Federated") since May 1983, and Secretary of
Federated since March 1977. Federated is a New York business
trust primarily engaged in the management of
real estate investments and, through its position as a
significant stockholder of MAXXAM, in the businesses
conducted by MAXXAM.
Michael J. Vitekhas served as Vice President of Accounting of the
Partnership since November 1994. Mr. Vitek
previously served from April 1994 to November 1994 as Vice
President, Finance and Chief Financial Officer of
Hysan Corporation, a chemical manufacturing and distribution
company and a subsidiary of Wedge Group, Inc., a
private investment company. Mr. Vitek previously served as
Corporate Controller of Wedge Group, Inc. from
October 1991 to March 1994. He previously served for six years
with the public accounting firm of KPMG Peat
Marwick, most recently as a Senior Manager.
Charles E. Hurwitzis a Director and the Chairman of the Board and
President of the Managing General Partner.
Mr. Hurwitz has served as a member of the Board of Directors and
the Executive Committee of MAXXAM since
August 1978 and was elected as Chairman of the Board and Chief
Executive Officer of MAXXAM in March 1980.
Mr. Hurwitz also served MAXXAM as President from January 1993 to
January 1998. Mr. Hurwitz has served as a
director of Kaiser Aluminum Corporation ("Kaiser"), a
majority-owned subsidiary of MAXXAM, since October
1988, and as a director of Kaiser Aluminum & Chemical Corporation
("KACC"), a fully integrated aluminum
producer that is a subsidiary of Kaiser, since November 1988.
Mr. Hurwitz is Chairman of the Board, Chief
Executive Officer and President of MAXXAM Group Inc. ("MGI"), a
wholly owned subsidiary of MAXXAM which is
engaged in forest products operations, and MGI's parent, MAXXAM
Group Holdings Inc. ("MGHI"). Mr. Hurwitz
has been, since January 1974, Chairman of the Board and Chief
Executive Officer of Federated.
D. Kent Andersonis a Director of the Managing General Partner per
the designation of the Additional General
Partner. Mr. Anderson has been the Executive Banking Officer of
Compass Bank since its April 1996 merger
with Post Oak Bank. From 1991 until the merger, Mr. Anderson was
Chairman of the Board and Chief Executive
Officer of Post Oak Bank. From 1988 through October 1991, Mr.
Anderson held several executive positions, including Chairman of the Board,
with First Interstate Bank of
Texas, N.A. Mr. Anderson is currently a
Trustee and member of the Board of Governors of Rice University.
He has served on several State of Texas
committees and on the Board of the Greater Houston Partnership,
the Texas Chamber of Commerce, and the Texas
Research League.
J. Kent Friedmanis a Director of the Managing General Partner per
the designation of the Additional General
Partner. Mr. Friedman has been a partner of Mayor, Day, Caldwell
& Keeton, L.L.P., a Houston law firm, since
1982. Prior to such time Mr. Friedman was a partner at Butler &
Binion, a Houston law firm. Mr. Friedman is
a member of the Executive Committee of the Board of Directors of
the Houston Symphony, President of the
Friends of Hermann Park and Co-President of the Foundation for
Jones Hall.<PAGE>
Paul N. Schwartzis a Director and Vice President of the Managing
General Partner. Mr. Schwartz was named a
director, President and Chief Operating Officer of MAXXAM in
January 1998. Mr. Schwartz has served as Chief
Financial Officer of MAXXAM since January 1995. From January
1995 to January 1998 he also served as
Executive Vice President of MAXXAM. Prior to that he served as
Senior Vice President-Corporate Development
of MAXXAM from June 1987 to January 1995, as Vice
President-Corporate Development from July 1985 to June 1987
and as Vice President since 1982. Mr. Schwartz also serves as a
director and a Vice President and Chief
Financial Officer of MGHI, MGI, The Pacific Lumber Company
("Pacific Lumber"), a subsidiary of MGI engaged in
forest products operations, and Scotia Pacific Holding Company
("Scotia Pacific"), a subsidiary of Pacific
Lumber. Mr. Schwartz is a director of SLM Funding Corporation,
which is a subsidiary of the Student Loan
Marketing Association. Mr. Schwartz also serves as the sole
director and executive officer of United
Financial Group, Inc., a Delaware corporation.
Directors of the Managing General Partner are elected
annually to serve for one year and
until their successors are duly elected, qualified, and approved
by the Racing Commission. Each director of
the Managing General Partner is required to be approved by the
Racing Commission. The current directors of
the Managing General Partner have received the approval of the
Racing Commission.<PAGE>
ITEM 11. EXECUTIVE COMPENSATIONSummary Compensation Table
The following table sets forth
compensation information, cash and non-cash, for each of the
Partnership's last three completed fiscal years
with respect to (a) all individuals serving as the Partnership's
chief executive officer during the last
fiscal year, and (b) the other most highly compensated executive
officers of the Partnership (other than the
current chief executive officer) who were serving as executive
officers of the Partnership at the end of 1997
and who received over $100,000 in aggregate salary and bonus in
respect of 1997.
<TABLE>
<CAPTION>
Annual Compensation
------------
(a) (b) (c) (d) (e) (f)
Name and Year Salary Bonus Other (1)
Principal ----- ($) ($) Annual All
Position -- -------- -------- Compensa Other
- - ------------ ---- ---- tion Compensa
(1) tion
($) ($)
-------- --------
---- ----
<S> <C> <C> <C> <C> <C>
Robert L. Bork 1997 208,000 35,000 - -0-
(2)
Senior Vice 1996 200,000 41,250 - 4,806(3)
President and
General 1995 36,923 -0- - -0-
Manager
Ann McGovern 1997 114,400 15,000 - -0-
Vice 1996 110,000 15,000 - -0-
President
of
Operat 1995 110,000 25,000 - 12,210(3)
ions
Michael J. Vitek 1997 93,600 15,000 - -0-
Vice 1996 90,000 15,000 - -0-
President
of
Accoun 1995 90,000 25,000 - -0-
ting
<FN>
(1) Excludes perquisites and other personal benefits
because the aggregate amount of such
compensation is the lesser of either $50,000 or 10% of the total
of annual salary and bonus
reported for the named executive officer.
(2) Mr. Bork served as chief executive officer of the
Partnership during 1996 and 1997. Mr. Bork commenced his
employment with the Partnership on October 25,
1995.
(3) Reflects reimbursement of moving related expenses.
</FN>
</TABLE>
Employment Contracts and Termination of Employment and
Change-in-Control Arrangements Agreements have been
entered into with each of Messrs. Bork and Vitek and Ms. McGovern
regarding their
employment. Mr. Bork's agreement provides for a base annual
salary of $200,000 and a bonus of $25,000 on the
first anniversary date of his employment. The agreement further
provides that commencing the second year of
employment he will participate in an executive compensation plan
of the Partnership. Mr. Bork's agreement
also provided for payment of certain relocation expenses. The
incentive compensation plan referred to above
was provided for in general terms pursuant to the bankruptcy
reorganization plan; however, no specific
details have been proposed or formulated to date with respect to
such an incentive plan. Ms. McGovern's
agreement provides for a base annual salary of $110,000 per year,
a discretionary bonus of $10,000 in the
first year of employment and the payment of certain relocation
expenses. The agreement also indicated that
Ms. McGovern would be considered for inclusion in the prior
employee incentive program of the Partnership.
Mr. Vitek's agreement provides for a base annual salary of
$90,000 and a discretionary bonus of $15,000 after
the first year of employment. Compensation of Directors and Policy Committee
Members
Messrs. Anderson and Friedman receive
$25,000 per year, plus reimbursement of expenses, as compensation
for their services. The other directors of
the Managing General Partner are reimbursed for their expenses
but are not otherwise compensated by the
Partnership for their services as such.
Compensation Committee Report SHRP General Partner, Inc. is
the managing general partner of the
Partnership, and the names appearing below are all of the
directors of SHRP General Partner, Inc. When the
Board of Directors of SHRP General Partner, Inc. (the "Board")
acts with respect to compensation matters, the
entire Board acts as no compensation committee has been
appointed.
The executive officers named in the Summary
Compensation Table have been retained and are
compensated in accordance with their respective individual
employment letter agreements. In reaching those
agreements, the customary levels and types of pay prevalent for
such positions in the horse racing industry
were considered and served as guidelines. The individual salary
histories and previous experience of the
executives were also considered as was the timing within which
the Partnership needed to replace previously
discharged executives. Other than participation in a group
health insurance program which is partially
employer-provided, the only non-salary direct compensation being
provided to such executives are incentive
bonuses. Executives may be considered for a bonus on an annual
basis. Although discretionary, bonuses
granted in the past have been generally in the range of 5% to 15%
of annual salary. The President of the
Partnership outlines functions and goals for each executive
officer and formulates bonus levels for executive
officers (with the advice and consent of the Board in certain
instances).
D. Kent
Anderson
J. Kent
Friedman
Charles E.
Hurwitz
James D.
Noteware
Paul N.
Schwartz<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENTThe Partnership The
following table sets forth the beneficial ownership of
partnership interests in the
Partnership as of March 1, 1998 of (i) each person known by the
Partnership to beneficially
own five percent or more of the outstanding partnership
interests, (ii) each director of the
Managing General Partner who owns a partnership interest, and
(iii) all directors and
officers of the Managing General Partner and the Partnership as a
group. Except as
otherwise indicated below, each of the persons named in the table
has sole voting and
investment power with respect to the partnership interest shown
as beneficially owned by
him.
<TABLE>
<CAPTION>
Name and Address of Type of Interest Aggregate
Beneficial Owner ------------ Partnership
- - ------------ Interest
------------
<S> <C> <C>
New SHRP Acquisition, Limited Partner 64.8%
Inc. (1)
SHRP Equity, Inc. (2) Additional General 33.3%
Partner
<FN>
(1) MAXXAM owns all of the issued and outstanding shares of
common stock of New SHRP
Acquisition, Inc. Mr. Charles E. Hurwitz and affiliates of
Federated Development Company
("Federated") collectively own 99% and 38.2% of MAXXAM's Class A
preferred stock and common
stock, respectively (resulting in a combined voting control of
approximately 68%). Mr.
Hurwitz is the Chairman of the Board and Chief Executive Officer
of MAXXAM and Chairman and
Chief Executive Officer of Federated. Federated is wholly owned
by Mr. Hurwitz, members of
his immediate family and trusts for the benefit thereof.
(2) The outstanding shares of stock of SHRP Equity, Inc.
were issued to the holders of allowed
unsecured claims in connection with the bankruptcy proceedings of
the Partnership. Wholly
owned subsidiaries of MAXXAM, beneficially own 74.2% of the
issued and outstanding stock of
SHRP Equity, Inc. which equates to a 24.7% interest in the
Partnership.
</FN>
/TABLE
<PAGE>
The Managing General Partner Sam Houston Entertainment
Corp., a wholly owned subsidiary of
MAXXAM, owns all of the Common Stock of the Managing General
Partner of which 3,000 shares are currently
issued and outstanding.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain individuals employed by
MAXXAM and its wholly owned subsidiaries provide management,
legal, financial, corporate development and
other services to the Partnership from time to time. These
affiliates are reimbursed for their estimated
actual costs incurred in providing services to the Partnership.
As of March 1, 1998, MAXXAM and its
subsidiaries have received an aggregate of $488,070 in respect of
such services performed in 1997.
J. Kent Friedman, AGP Director, is a partner of a law
firm that has provided services to the
Partnership. In addition, such law firm has represented MAXXAM
in various matters not related to the
Partnership. The Partnership had an agreement with Mr.
Friedman's law firm to coordinate legislative
efforts. As of March 1, 1998, Mr. Friedman's law firm has
received an aggregate of $147,480 in respect of
such services performed in 1997.
See also Notes 8 and 9 to the Consolidated Financial
Statements appearing in Item 8.<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K(a) Index to
Financial Statements Page1.FINANCIAL STATEMENTS (APPEARING IN
ITEM 8):
Report of Independent Auditors 21
Consolidated balance sheets at December 31, 1997
and 199622
Consolidated statements of operations for the
three years ended December 31, 199723
Consolidated statements of partners' capital
(deficit) for the three years ended
December 31, 199724
Consolidated statements of cash flows for the
three years ended December 31, 199725
Notes to consolidated financial statements26
2. FINANCIAL STATEMENT SCHEDULES:
All schedules are inapplicable or the required
information is included in the
financial statements or the notes thereto.
(b) Reports on Form 8-K None.
(c) Exhibits Reference is made to the Index of Exhibits
immediately preceding the
exhibits hereto (beginning on page 46) which index is
incorporated herein by reference. 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.
SAM HOUSTON RACE PARK, LTD.
Date: March 30, 1998 By: /S/ MICHAEL
J. VITEK
Michael J. Vitek, Vice
President of Accounting
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: March 30, 1998 By: /S/ ROBERT L.
BORK
Robert L. Bork, General
Manager
(Principal Executive Officer)
Date: March 30, 1998 By: /S/ MICHAEL
J. VITEK
Michael J. Vitek, Vice
President of Accounting
(Principal Financial and
Accounting Officer)
SAM HOUSTON RACE PARK, LTD.
By: SHRP General Partner, Inc.
its Managing General Partner
Date: March 30, 1998 By: /S/ CHARLES
E. HURWITZ
Charles E. Hurwitz, Chairman
of the Board
Date: March 30, 1998 By: /S/ PAUL
N. SCHWARTZ
Paul N. Schwartz, Director
Date: March 30, 1998 By: /S/ JAMES D.
NOTEWARE
James D. Noteware, Director
Date: March 30, 1998 By: /S/ D. KENT
ANDERSON
D. Kent Anderson, Director
Date: March 30, 1998 By: /S/ J. KENT
FRIEDMAN
J. Kent Friedman, Director
Description
Number
3.1 Third Amended and Restated Limited Partnership
Agreement of Sam Houston Race Park,
Ltd. dated October 6, 1995 (incorporated herein by
reference to Exhibit 3.1 to the
Partnership's Form 10-Q dated September 30, 1995)
4.1 Amended and Restated Indenture dated October 6,
1995 by and among the Partnership,
New SHRP Capital Corp., SHRP General Partner, Inc.
and First Bank National
Association, Trustee ("Trustee"), including the
related form of Note (incorporated
herein by reference to Exhibit 4.1 to the
Partnership's Form 10-Q dated September 30,
1995)
4.2 Amended and Restated Deed of Trust, Assignment,
Security Agreement and Financing
Statement dated October 6, 1995 among the
Partnership, Richard Prokosch, as Trustee,
and First Bank National Association, as Mortgagee
(incorporated herein by reference
to Exhibit 4.2 to the Partnership's Form 10-Q
dated September 30, 1995)
4.3 Deed of Trust, Assignment, Security Agreement and
Financing Statement dated October
6, 1995 among the Partnership, Richard Prokosch,
as Trustee, and First Bank National
Association, as Mortgagee (incorporated herein by
reference to Exhibit 4.3 to the
Partnership's Form 10-Q dated September 30, 1995)
4.4 Amended and Restated License Negative Pledge dated
October 6, 1995 executed by the
Partnership in favor of Trustee (incorporated
herein by reference to Exhibit 4.4 to
the Partnership's Form 10-Q dated September 30,
1995)
*4.5 Amended and Restated Real Estate Tax Escrow and
Security Agreement dated July 1, 1997
among the Partnership, Trustee and Southwest Bank
of Texas
9 Voting Agreement dated October 6, 1995 among SHRP
General Partner, Inc., Sam Houston
Entertainment Corp., SHRP Equity, Inc. and MAXXAM
Inc. (incorporated herein by
reference to Exhibit 9 to the Partnership's Form
10-Q dated September 30, 1995)
10.1 Form of Line of Credit Agreement dated October 6,
1995 between the Partnership and
certain lenders (the "Line of Credit Agreement")
(incorporated herein by reference to
Exhibit 10.1 to the Partnership's Form 10-Q dated
September 30, 1995)
10.2 Form of Cash Escrow Agreement with respect to the
Line of Credit Agreement
(incorporated herein by reference to Exhibit 10.2
to the Partnership's Form 10-Q
dated September 30, 1995)
10.3 Guaranty of MAXXAM Inc. dated October 6, 1995 in
favor of the Partnership with
respect to the obligations of SHRP General
Partner, Inc. under the Line of Credit
Agreement (incorporated herein by reference to
Exhibit 10.3 to the Partnership's Form
10-Q dated September 30, 1995)
Exhibit Description
Number
10.4 Registration Rights Agreement dated October 6,
1995 among the Partnership, SHRP
Equity, Inc. and First Bank National Association
(incorporated herein by reference to
Exhibit 10.5 to the Partnership's Form 10-Q dated
September 30, 1995)
10.5 Instrument of Adherence of MAXXAM Inc. dated
October 6, 1995 (incorporated herein by
reference to Exhibit 10.7 to the Partnership's
Form 10-Q dated September 30, 1995)
10.6 Instrument of Adherence of Charles E. Hurwitz
dated October 6, 1995 (incorporated
herein by reference to Exhibit 10.8 to the
Partnership's Form 10-Q dated September
30, 1995)
10.7 Horsemen's Agreement dated November 26, 1996
between Texas Thoroughbred HBPA, Inc.
and the Partnership (incorporated herein by
reference to Exhibit 10.13 to the
Partnership's Form 10-K dated December 31, 1996)
*10.8 Addendum dated December 1, 1997 to Horsemen's
Agreement between the Texas
Thoroughbred HBPA, Inc. and the Partnership
*10.9 Horsemen's Agreement dated March 6, 1997 between the Texas
Protectiv
Horsemen' e Association and the Partnership
s
Benevolen
t and
*10.10 Addendum dated December 1, 1997 to Horsemen's
Agreement between the Texas Horsemen's
Benevolent and Protective Association and the
Partnership
10.11 Totalisator Services Agreement dated September 8,
1997 between Autotote Systems, Inc.
and the Partnership (incorporated herein by
reference to Exhibit 10.1 to the
Partnership Form 10-Q for the quarter ended
September 30, 1997)
10.12 Promissory Note dated December 13, 1994 by the
Partnership in favor of Harris County,
Texas (incorporated herein by reference to Exhibit
10.41 to the Partnership's Form
10-K for the year ended December 31, 1994)
*10.13 Satellite Transmission Agreement dated February
24, 1998 between Autotote
Communications Services, Inc. and the Partnership
10.14 Agreement dated December 30, 1993 between the
Partnership and International Sound
Corporation (incorporated herein by reference to
Exhibit 10.45 to the Partnership's
Form 10-K for the year ended December 31, 1994)
10.15 Amendment to Agreement dated December 30, 1993
between the Partnership and
International Sound Corporation (incorporated
herein by reference to Exhibit 10.1 to
the Partnership's Form 10-Q dated June 30, 1997)
10.16 Letter Agreement dated February 23, 1996 between
Mayor Day, Caldwell & Keeton, L.L.P.
and the Partnership (incorporated herein by
reference to the Partnership's Form 10-K
dated December 31, 1996)
Exhibit Description
Number
10.17 Amendment to letter agreement dated January 31,
1997 between Mayor Day, Caldwell &
Keeton, L.L.P. and the Partnership (incorporated
herein by reference to the
Partnership's Form 10-K dated December 31, 1996)
10.18 Consulting Agreement dated January 1, 1997 between Stan
reference to the Partnership's Form 10-K dated
Schlueter December 31,
and the 1996)
Partnersh
ip
(incorpor
ated
herein by
10.19 Alcoholic Beverage Concession Agreement dated
September 19, 1996 between 97, Inc. and
the Partnership (incorporated herein by reference
to the Partnership's Form 10-K
dated December 31, 1996)
Executive Compensation Plans and Arrangements
10.20 Employment Agreement, dated November 24, 1992
between MAXXAM Property Company and
James D. Noteware (incorporated herein by
reference to Exhibit 10.33 to the
Partnership's Form 10-K for the year ended
December 31, 1994)
10.21 Letter Agreement, dated August 19, 1994 between
the Partnership and Ann M. McGovern
(incorporated herein by reference to Exhibit 10.34
to the Partnership's Form 10-K for
the year ended December 31, 1994)
10.22 Letter Agreement, dated November 11, 1994 between
the Partnership and Michael J.
Vitek (incorporated herein by reference to Exhibit
10.35 to the Partnership's Form
10-K for the year ended December 31, 1994)
10.23 Agreement between the Partnership and Robert L.
Bork. (incorporated herein by
reference to Exhibit 10.10 to the Partnership's
Form 10-Q dated September 30, 1995)
- - ---------------
* Included with this filing. <PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated balance sheet and consolidated statement of operations
and is qualified in its entirety by reference to such sonsolidated financial
statements together with the related footnotes thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2728
<SECURITIES> 0
<RECEIVABLES> 1296
<ALLOWANCES> 163
<INVENTORY> 0
<CURRENT-ASSETS> 9030
<PP&E> 27524
<DEPRECIATION> 2020
<TOTAL-ASSETS> 34534
<CURRENT-LIABILITIES> 8345
<BONDS> 33393
0
0
<COMMON> 0
<OTHER-SE> (9065)
<TOTAL-LIABILITY-AND-EQUITY> 34534
<SALES> 0
<TOTAL-REVENUES> 20027
<CGS> 0
<TOTAL-COSTS> 22250
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6397
<INCOME-PRETAX> (8406)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8406)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8406)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
