SEC Info  
    Home      Search      My Interests      Help      Sign In      Please Sign In

Canterbury Park Holding Corp – ‘10-Q’ for 9/30/19

On:  Wednesday, 11/13/19, at 2:10pm ET   ·   For:  9/30/19   ·   Accession #:  1672909-19-35   ·   File #:  1-37858

Previous ‘10-Q’:  ‘10-Q’ on 8/13/19 for 6/30/19   ·   Next:  ‘10-Q’ on 5/13/20 for 3/31/20   ·   Latest:  ‘10-Q’ on 11/13/23 for 9/30/23

Find Words in Filings emoji
 
  in    Show  and   Hints

  As Of               Filer                 Filing    For·On·As Docs:Size

11/13/19  Canterbury Park Holding Corp      10-Q        9/30/19   62:5.6M

Quarterly Report   —   Form 10-Q   —   Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    639K 
 5: EX-99.1     Miscellaneous Exhibit                               HTML     68K 
 2: EX-31.1     Certification -- §302 - SOA'02                      HTML     29K 
 3: EX-31.2     Certification -- §302 - SOA'02                      HTML     29K 
 4: EX-32       Certification -- §906 - SOA'02                      HTML     22K 
29: R1          Document And Entity Information                     HTML     47K 
62: R2          Condensed Consolidated Balance Sheets               HTML    143K 
42: R3          Condensed Consolidated Balance Sheets               HTML     31K 
                (Parenthetical)                                                  
22: R4          Condensed Consolidated Statements of Operations     HTML     98K 
28: R5          Condensed Consolidated Statements of Stockholders?  HTML     80K 
                Equity                                                           
61: R6          Condensed Consolidated Statements of Cash Flows     HTML    135K 
41: R7          Overview and Basis of Presentation                  HTML     38K 
21: R8          Accounting Standards and Significant Accounting     HTML     24K 
                Policies                                                         
30: R9          Stock-Based Compensation                            HTML     82K 
19: R10         Net Income Per Share Computations                   HTML     78K 
25: R11         Promissory Notes Receivable                         HTML     21K 
56: R12         General Credit Agreement                            HTML     22K 
35: R13         Operating Segments                                  HTML    184K 
20: R14         Commitments and Contingencies                       HTML     25K 
26: R15         Cooperative Marketing Agreement                     HTML     43K 
57: R16         Real Estate Development                             HTML     32K 
36: R17         Leases                                              HTML     68K 
18: R18         Related Party Receivables                           HTML     23K 
27: R19         Subsequent Events                                   HTML     21K 
53: R20         Overview and Summary of Significant Accounting      HTML     45K 
                Policies (Policies)                                              
48: R21         Accounting Standards and Significant Accounting     HTML     23K 
                Policies (Policies)                                              
14: R22         Stock-Based Compensation (Tables)                   HTML     78K 
33: R23         Net Income Per Share Computations (Tables)          HTML     76K 
54: R24         Operating Segments (Tables)                         HTML    193K 
49: R25         Cooperative Marketing Agreement (Tables)            HTML     37K 
15: R26         Leases (Tables)                                     HTML     69K 
34: R27         Overview and Basis of Presentation (Narrative)      HTML     33K 
                (Details)                                                        
55: R28         Stock-Based Compensation (Narrative) (Details)      HTML     53K 
47: R29         Stock-Based Compensation - Stock Options Activity   HTML     60K 
                (Details)                                                        
38: R30         Net Income Per Share Computations (Narrative )      HTML     23K 
                (Details)                                                        
60: R31         Net Income Per Share Computations (Details)         HTML     46K 
24: R32         Promissory Notes Receivable (Narrative) (Details)   HTML     37K 
17: R33         General Credit Agreement (Narrative) (Details)      HTML     28K 
37: R34         Operating Segments (Narrative) (Details)            HTML     24K 
59: R35         Operating Segments (Schedule of Operating           HTML     71K 
                Segments) (Details)                                              
23: R36         Operating Segments (Reconciliation Of Revenues)     HTML     26K 
                (Details)                                                        
16: R37         Operating Segments (Reconciliation Of Income        HTML     27K 
                Before Income Taxes) (Details)                                   
39: R38         Operating Segments (Reconciliation Of Assets)       HTML     26K 
                (Details)                                                        
58: R39         Commitments and Contingencies (Narrative)           HTML     32K 
                (Details)                                                        
44: R40         Cooperative Marketing Agreement (Details)           HTML     43K 
52: R41         Cooperative Marketing Agreement (Purse Enhancement  HTML     39K 
                And Marketing Payments) (Details)                                
32: R42         Real Estate Development (Details)                   HTML     34K 
13: R43         LEASES - Cost (Details)                             HTML     25K 
43: R44         LEASES - Balance Sheet Location (Details)           HTML     34K 
51: R45         LEASES - Lease terms and discount rates (Details)   HTML     28K 
31: R46         LEASES - Maturities (Details)                       HTML     62K 
12: R47         Related Party Receivables (Details)                 HTML     48K 
45: R48         Subsequent Events (Details)                         HTML     27K 
46: XML         IDEA XML File -- Filing Summary                      XML    109K 
40: EXCEL       IDEA Workbook of Financial Reports                  XLSX     61K 
 6: EX-101.INS  XBRL Instance -- cphc-20190930                       XML   1.31M 
 8: EX-101.CAL  XBRL Calculations -- cphc-20190930_cal               XML    158K 
 9: EX-101.DEF  XBRL Definitions -- cphc-20190930_def                XML    321K 
10: EX-101.LAB  XBRL Labels -- cphc-20190930_lab                     XML    852K 
11: EX-101.PRE  XBRL Presentations -- cphc-20190930_pre              XML    656K 
 7: EX-101.SCH  XBRL Schema -- cphc-20190930                         XSD    128K 
50: ZIP         XBRL Zipped Folder -- 0001672909-19-000035-xbrl      Zip    110K 


‘10-Q’   —   Quarterly Report
Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Table of Contents
"Part I
"Financial Information
"Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018
"Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018
"Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2019
"Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2019 and 2018
"Notes to Condensed Consolidated Financial Statements
"Item 2
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Item 3
"Quantitative and Qualitative Disclosures about Market Risk
"Item 4
"Controls and Procedures
"Part Ii
"Item 1
"Legal Proceedings
"Item 1A
"Risk Factors
"Unregistered Sales of Equity Securities and Use of Proceeds
"Defaults Upon Senior Securities
"Mine Safety Disclosures
"Item 5
"Other Information
"Item 6
"Exhibits
"Signatures

This is an HTML Document rendered as filed.  [ Alternative Formats ]



 C:   C: 
  cphc_Current_Folio_10Q  

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

☒           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019.

 

OR

 

☐           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____.

 

Commission File Number:  001‑37858

 

Picture 1

CANTERBURY PARK HOLDING CORPORATION


(Exact Name of Registrant as Specified in Its Charter)

 

 

 

 

Minnesota

             

47‑5349765

(State or Other Jurisdiction of Incorporation or
Organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

 

1100 Canterbury Road 

 

 

Shakopee, MN  55379

 

 

(Address of principal executive offices and zip code)

 

Securities registered pursuant Section 12(b) of the Act:

 

 

 

 

Title of Each Class

Trading Symbol

Name of each exchange on which registered

Common Stock Common stock, $.01 par value

CPHC

Nasdaq

 

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

 

NO

 

 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).

 

 

 

 

 

 

 

 

 

YES

 

NO

 

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b‑2 of the Exchange Act.

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b‑2).

 

 

 

 

 

 

 

 

 

YES

 

NO

 

 

The Company had 4,625,421 shares of common stock, $.01 par value, outstanding as of November 1, 2019.

 

 

 

Table of Contents

Canterbury Park Holding Corporation

INDEX

 

 

 

 

Page

 

 

 

 

PART I. 

FINANCIAL INFORMATION 

 

 

 

 

 

 

Item 1.

Financial Statements (unaudited) 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018

2

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018

3

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019

4

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2019 and 2018

5

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

6

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

25

 

 

 

 

 

Item 4.

Controls and Procedures

25

 

 

 

 

PART II. 

   OTHER INFORMATION 

 

 

 

 

 

 

Item 1.

Legal Proceedings

26

 

 

 

 

 

Item 1A.

Risk Factors

26

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

26

 

 

 

 

 

Item 4.

Mine Safety Disclosures

26

 

 

 

 

 

Item 5.

Other Information

26

 

 

 

 

 

Item 6.

Exhibits

27

 

 

 

 

 

Signatures

 

27

 

 

1

Table of Contents

PART 1 – FINANCIAL INFORMATION

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

September 30, 

 

December 31, 

 

    

2019

    

2018

ASSETS

 

 

  

 

 

  

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

  

 

 

  

Cash and cash equivalents

 

$

1,269,243

 

$

4,895,359

Restricted cash

 

 

1,791,592

 

 

5,058,639

Short-term investments

 

 

103,886

 

 

206,545

Accounts receivable, net of allowance of $19,250 for both periods

 

 

611,999

 

 

241,743

Current portion of notes receivable

 

 

1,084,003

 

 

1,063,650

Inventory

 

 

399,311

 

 

297,209

Prepaid expenses

 

 

468,553

 

 

625,024

Income taxes receivable

 

 

280,038

 

 

417,004

Due from Minnesota horsemen associations

 

 

1,093,742

 

 

 —

Total current assets

 

 

7,102,367

 

 

12,805,173

 

 

 

 

 

 

 

LONG-TERM ASSETS

 

 

  

 

 

  

Deposits

 

 

49,500

 

 

49,500

Restricted cash - long-term portion

 

 

1,259,567

 

 

1,250,000

TIF receivable

 

 

7,921,847

 

 

1,908,065

Notes receivable - long-term portion

 

 

 —

 

 

1,078,861

Related party receivable

 

 

3,386,500

 

 

3,208,400

Operating lease right-of-use assets

 

 

76,816

 

 

 —

Equity investment

 

 

2,992,633

 

 

2,995,010

Land, buildings and equipment, net

 

 

43,049,675

 

 

38,131,052

TOTAL ASSETS

 

$

65,838,905

 

$

61,426,061

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

  

 

 

  

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

  

 

 

  

Accounts payable

 

 

3,736,940

 

 

3,587,328

Card Casino accruals

 

 

2,189,768

 

 

1,740,926

Accrued wages and payroll taxes

 

 

1,515,237

 

 

2,268,351

Cash dividend payable

 

 

322,863

 

 

316,938

Accrued property taxes

 

 

1,236,906

 

 

1,001,200

Deferred revenue

 

 

1,632,318

 

 

979,358

Payable to horsepersons

 

 

 —

 

 

706,122

Line of credit

 

 

1,671,990

 

 

 —

Current portion of finance lease obligations

 

 

24,097

 

 

23,216

Current portion of operating lease obligations

 

 

29,697

 

 

 —

Total current liabilities

 

 

12,359,816

 

 

10,623,439

 

 

 

 

 

 

 

LONG-TERM LIABILITIES

 

 

  

 

 

  

Deferred income taxes

 

 

4,456,200

 

 

3,970,000

Finance lease obligations, net of current portion

 

 

80,087

 

 

98,272

Operating lease obligations, net of current portion

 

 

47,119

 

 

 —

Total long-term liabilities

 

 

4,583,406

 

 

4,068,272

TOTAL LIABILITIES

 

 

16,943,222

 

 

14,691,711

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

  

Common stock, $.01 par value, 10,000,000 shares authorized, 4,619,421 and 4,527,685 respectively, shares issued and outstanding

 

 

46,194

 

 

45,277

Additional paid-in capital

 

 

22,442,735

 

 

21,420,886

Retained earnings

 

 

26,406,754

 

 

25,268,187

Total stockholders’ equity

 

 

48,895,683

 

 

46,734,350

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

65,838,905

 

$

61,426,061

See notes to condensed consolidated financial statements.

2

Table of Contents

 

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

 

2019

    

2018

 

2019

    

2018

OPERATING REVENUES:

 

 

  

 

 

  

 

 

  

 

 

  

Pari-mutuel

 

$

3,578,841

 

$

3,955,613

 

$

8,277,727

 

$

9,001,324

Card Casino

 

 

8,559,935

 

 

8,639,310

 

 

25,350,903

 

 

25,396,780

Food and beverage

 

 

3,838,792

 

 

3,256,566

 

 

7,735,986

 

 

6,960,917

Other

 

 

2,623,073

 

 

2,519,021

 

 

5,259,899

 

 

5,744,162

Total Net Revenues

 

 

18,600,641

 

 

18,370,511

 

 

46,624,515

 

 

47,103,183

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

  

 

 

  

 

 

  

 

 

 

Purse expense

 

 

2,085,277

 

 

2,339,588

 

 

5,441,449

 

 

5,687,347

Minnesota Breeders’ Fund

 

 

290,104

 

 

301,713

 

 

813,906

 

 

806,274

Other pari-mutuel expenses

 

 

293,742

 

 

325,680

 

 

1,013,793

 

 

1,088,956

Salaries and benefits

 

 

7,147,203

 

 

6,605,051

 

 

19,829,175

 

 

18,801,475

Cost of food and beverage and other sales

 

 

1,571,048

 

 

1,320,792

 

 

3,398,220

 

 

3,010,323

Depreciation and amortization

 

 

785,327

 

 

659,498

 

 

1,987,067

 

 

1,895,723

Utilities

 

 

567,763

 

 

575,912

 

 

1,266,681

 

 

1,276,138

Advertising and marketing

 

 

947,377

 

 

1,034,612

 

 

1,894,898

 

 

2,273,831

Professional and Contracted Services

 

 

1,773,826

 

 

1,674,958

 

 

4,078,565

 

 

3,695,176

Loss on disposal of assets

 

 

6,376

 

 

 —

 

 

114,413

 

 

99,934

Gain on insurance recoveries

 

 

 —

 

 

 —

 

 

(198,874)

 

 

(21,064)

Other operating expenses

 

 

1,659,236

 

 

1,501,062

 

 

4,229,849

 

 

4,101,203

Total Operating Expenses

 

 

17,127,279

 

 

16,338,866

 

 

43,869,142

 

 

42,715,316

INCOME FROM OPERATIONS

 

 

1,473,362

 

 

2,031,645

 

 

2,755,373

 

 

4,387,867

OTHER INCOME

 

 

  

 

 

  

 

 

  

 

 

  

Interest income, net

 

 

96,065

 

 

8,567

 

 

204,623

 

 

26,023

Net Other Income

 

 

96,065

 

 

8,567

 

 

204,623

 

 

26,023

INCOME BEFORE INCOME TAXES

 

 

1,569,427

 

 

2,040,212

 

 

2,959,996

 

 

4,413,890

INCOME TAX EXPENSE

 

 

(418,942)

 

 

(407,367)

 

 

(795,164)

 

 

(1,066,000)

NET INCOME

 

$

1,150,485

 

$

1,632,845

 

$

2,164,832

 

$

3,347,890

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.25

 

$

0.36

 

$

0.47

 

$

0.75

Diluted earnings per share

 

$

0.25

 

$

0.36

 

$

0.47

 

$

0.74

Weighted Average Basic Shares Outstanding

 

 

4,604,562

 

 

4,497,072

 

 

4,583,591

 

 

4,467,897

Weighted Average Diluted Shares

 

 

4,608,987

 

 

4,533,514

 

 

4,596,314

 

 

4,514,015

Cash dividends declared per share

 

$

0.07

 

$

0.07

 

$

0.21

 

$

0.21

 

See notes to condensed consolidated financial statements.

 

 

 

3

Table of Contents

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

    

Common

    

Additional

    

Retained

    

 

 

 

 

Shares

 

Stock

 

Paid-in Capital

 

Earnings

 

Total

Balance at December 31, 2018

 

4,527,685

 

$

45,277

 

$

21,420,886

 

$

25,268,187

 

$

46,734,350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

32,810

 

 

328

 

 

206,264

 

 

 —

 

 

206,592

Other share retirements

 

(5,863)

 

 

(59)

 

 

(27,915)

 

 

(62,023)

 

 

(89,997)

Stock-based compensation

 

 —

 

 

 —

 

 

203,333

 

 

 —

 

 

203,333

Dividend distribution

 

 —

 

 

 —

 

 

 —

 

 

(964,242)

 

 

(964,242)

401(K) stock match

 

42,405

 

 

424

 

 

567,994

 

 

 —

 

 

568,418

Issuance of deferred stock awards

 

10,968

 

 

110

 

 

(55,044)

 

 

 —

 

 

(54,934)

Shares issued under Employee Stock Purchase Plan

 

11,416

 

 

114

 

 

127,217

 

 

 —

 

 

127,331

Net Income

 

 —

 

 

 —

 

 

 —

 

 

2,164,832

 

 

2,164,832

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2019

 

4,619,421

 

$

46,194

 

$

22,442,735

 

$

26,406,754

 

$

48,895,683

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

    

Common

    

Additional

    

Retained

    

 

 

 

 

Shares

 

Stock

 

Paid-in Capital

 

Earnings

 

Total

Balance at June 30, 2019

 

4,604,107

 

$

46,041

 

$

22,223,470

 

$

25,579,114

 

$

47,848,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

2,500

 

 

25

 

 

20,675

 

 

 —

 

 

20,700

Stock-based compensation

 

 —

 

 

 —

 

 

39,825

 

 

 —

 

 

39,825

Dividend distribution

 

 —

 

 

 —

 

 

 —

 

 

(322,845)

 

 

(322,845)

401(K) stock match

 

12,814

 

 

128

 

 

158,765

 

 

 —

 

 

158,893

Net Income

 

 —

 

 

 —

 

 

 —

 

 

1,150,485

 

 

1,150,485

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2019

 

4,619,421

 

$

46,194

 

$

22,442,735

 

$

26,406,754

 

$

48,895,683

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

    

Common

    

Additional

    

Retained

    

 

 

 

 

Shares

 

Stock

 

Paid-in Capital

 

Earnings

 

Total

Balance at December 31, 2017

 

4,414,492

 

$

44,145

 

$

19,865,273

 

$

20,807,679

 

$

40,717,097

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

55,500

 

 

555

 

 

485,989

 

 

 —

 

 

486,544

Stock-based compensation

 

 —

 

 

 —

 

 

268,816

 

 

 —

 

 

268,816

Dividend distribution

 

 —

 

 

 —

 

 

 —

 

 

(941,006)

 

 

(941,006)

401(K) stock match

 

24,992

 

 

250

 

 

404,075

 

 

 —

 

 

404,325

Issuance of deferred stock awards

 

2,788

 

 

28

 

 

28

 

 

 —

 

 

56

Shares issued under Employee Stock Purchase Plan

 

8,582

 

 

86

 

 

113,496

 

 

 —

 

 

113,582

Net income

 

 —

 

 

 —

 

 

 —

 

 

3,347,890

 

 

3,347,890

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2018

 

4,506,354

 

$

45,064

 

$

21,137,677

 

$

23,214,563

 

$

44,397,304

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

    

Common

    

Additional

    

Retained

    

 

 

 

 

Shares

 

Stock

 

Paid-in Capital

 

Earnings

 

Total

Balance at June 30, 2018

 

4,482,567

 

$

44,826

 

$

20,816,671

 

$

21,897,162

 

$

42,758,659

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

10,975

 

 

110

 

 

71,383

 

 

 —

 

 

71,493

Stock-based compensation

 

 —

 

 

 —

 

 

64,950

 

 

 —

 

 

64,950

Dividend distribution

 

 —

 

 

 —

 

 

 —

 

 

(315,444)

 

 

(315,444)

401(K) stock match

 

8,284

 

 

83

 

 

127,122

 

 

 —

 

 

127,205

Shares issued under Employee Stock Purchase Plan

 

4,528

 

 

45

 

 

57,551

 

 

 

 

 

57,596

Net income

 

 —

 

 

 —

 

 

 —

 

 

1,632,845

 

 

1,632,845

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2018

 

4,506,354

 

$

45,064

 

$

21,137,677

 

$

23,214,563

 

$

44,397,304

 

See notes to condensed consolidated financial statements.

4

Table of Contents

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

 

 

 

 

    

Nine Months Ended September 30, 

 

 

2019

    

2018

Operating Activities:

 

 

 

  

 

  

Net income

 

$

2,164,832

 

$

3,347,890

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

  

 

 

Depreciation

 

 

1,987,067

  

 

1,895,723

Stock-based compensation expense

 

 

203,333

  

 

268,816

Stock-based employee match contribution

 

 

567,994

  

 

401,850

Deferred income taxes

 

 

486,200

  

 

518,170

Loss from equity investment

 

 

2,377

 

 

 —

Loss on disposal of assets

 

 

114,413

  

 

99,934

Gain on insurance recoveries

 

 

(198,874)

  

 

(21,064)

Changes in operating assets and liabilities:

 

 

 

 

 

 

(Increase) decrease in accounts receivable

 

 

(166,082)

 

 

326,970

Decrease in other current assets

 

 

54,370

 

 

44,969

Increase (decrease) in income taxes receivable/payable

 

 

136,965

 

 

(242,196)

Increase in due from Minnesota horsemen associations

 

 

(1,093,742)

 

 

(387,964)

Decrease in operating lease right-of-use assets

 

 

26,296

 

 

 —

Decrease in operating lease liabilities

 

 

(26,296)

 

 

 —

(Decrease) increase in accounts payable

 

 

(189,665)

 

 

233,265

Increase in deferred revenue

 

 

652,960

 

 

379,938

Increase (decrease) in Card Casino accruals

 

 

448,842

 

 

(1,101,194)

Decrease in accrued wages and payroll taxes

 

 

(753,114)

 

 

(943,580)

Increase (decrease) in accrued property taxes

 

 

235,706

 

 

(23,604)

Decrease in payable to horsepersons

 

 

(706,122)

 

 

(521,613)

Net cash provided by operating activities

 

 

3,947,460

  

 

4,276,310

 

 

 

 

 

 

 

Investing Activities:

 

 

 

  

 

  

Additions to land, buildings, and equipment

 

 

(12,699,908)

  

 

(3,548,124)

Issuance of related party receivable

 

 

(178,100)

 

 

 —

Decrease in notes receivable

 

 

1,058,508

 

 

1,038,443

Proceeds from sale of investments

 

 

102,659

  

 

61

Net cash used in investing activities

 

 

(11,716,841)

  

 

(2,509,620)

 

 

 

 

 

 

 

Financing Activities:

 

 

 

  

 

  

Proceeds from issuance of common stock

 

 

244,350

  

 

602,649

Borrowings on line of credit

 

 

5,592,246

 

 

 —

Payments against line of credit

 

 

(3,920,256)

 

 

 —

Cash dividend paid to shareholders

 

 

(958,317)

  

 

(890,666)

Payments for taxes related to net share settlement of equity awards

 

 

(54,934)

 

 

 —

Principal payments on finance lease

 

 

(17,304)

  

 

 —

Net cash provided by (used in) financing activities

 

 

885,785

  

 

(288,017)

 

 

 

 

 

 

 

Net (decrease) increase in cash, cash equivalents, and restricted cash

 

 

(6,883,596)

  

 

1,478,672

 

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash at beginning of period

 

 

11,203,998

  

 

12,025,553

 

 

 

 

 

 

 

Cash, cash equivalents, and restricted cash at end of period

 

$

4,320,402

 

$

13,504,225

 

 

 

 

 

 

 

Schedule of non-cash investing and financing activities

 

 

 

 

 

 

Additions to buildings and equipment funded through accounts payable

 

$

339,000

 

$

178,000

Transfer of future TIF reimbursed costs from PP&E

 

 

6,014,000

 

 

 —

ROU assets obtained in exchange for operating lease obligations

 

 

103,000

 

 

 —

Dividend declared

 

 

323,000

 

 

315,000

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Income taxes paid

 

$

640,000

 

$

575,000

Interest paid

 

 

30,000

 

 

 —

See notes to condensed consolidated financial statements.

 

5

Table of Contents

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.    OVERVIEW AND BASIS OF PRESENTATION

Business – The Company’s Racetrack operations are conducted at facilities located in Shakopee, Minnesota, approximately 25 miles southwest of downtown Minneapolis. In May 1994, the Company commenced year-round horse racing simulcast operations and hosted the first annual live race meet during the summer of 1995. The Company’s live racing operations are a seasonal business as it hosts live race meets each year from May until September. The Company earns additional pari-mutuel revenue by televising its live racing to out-of-state racetracks around the country. Canterbury Park’s Card Casino operates 24 hours a day, seven days a week and is limited by Minnesota State law to conducting card play on a maximum of 80 tables. The Card Casino currently offers a variety of poker and table games. The Company’s three largest sources of revenues include: Card Casino operations, pari-mutuel operations and food and beverage sales. The Company also derives revenues from related services and activities, such as admissions, advertising signage, publication sales, and from other entertainment events and activities held at the Racetrack. Additionally, the Company is developing approximately 140 acres of underutilized land surrounding the Racetrack in a project known as Canterbury Commons. The Company is pursuing several mixed-use development opportunities for this land, directly and through joint ventures.

Basis of Presentation and Preparation – The accompanying condensed consolidated financial statements include the accounts of the Company (Canterbury Park Holding Corporation and its subsidiaries Canterbury Park Entertainment, LLC; Canterbury Park Concession, Inc.; and Canterbury Development, LLC). Intercompany accounts and transactions have been eliminated. The preparation of these condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2018, included in its Annual Report on Form 10‑K (the “2018 Form 10‑K”).

The condensed consolidated balance sheets and the related condensed consolidated statements of operations, stockholders’ equity, and the cash flows for the periods ended September  30, 2019 and 2018 have been prepared by Company management. In the opinion of management, all adjustments (which include only normal recurring adjustments, except where noted) necessary to present fairly the financial position, results of operations, statement of stockholders’ equity, and cash flows at September 30, 2019 and 2018 and for the periods then ended have been made.

Effective January 1, 2019, we adopted the requirements of Accounting Standards Update (“ASU”) No 2016‑02, Leases as discussed in Note 2. All amounts and disclosures set forth in this Form 10‑Q have been updated to comply with the new standards.

Restricted Cash – Restricted cash represents refundable deposits and amounts due to horsemen for purses, stakes and awards, and amounts accumulated in card game progressive jackpot pools, the player pool and poker promotional fund to be used to repay card players in the form of promotions, giveaways, prizes, or by other means. Restricted cash also includes a deposit related to its development operations. The Company deposited $1.2 million with a bank in December 2018 to assist Doran Canterbury I  to complete financing for a construction loan. The bank will release the deposit back to the Company when the construction loan is repaid by Doran Canterbury I and converted into a term loan. Because the Company expects this to occur in 2021 or 2022, the Company classified this as long term restricted cash on its consolidated balance sheet.

Deferred Revenue – Deferred revenue includes advance sales related to racing, events and corporate partnerships. Revenue from these advance billings is recognized when the related event occurs or services have been performed.

6

Table of Contents

Deferred revenue also includes advanced Cooperative Marketing Agreement (“CMA”) promotional funds, for which revenue is recognized when expenses are incurred.  

Payable to Horsepersons - The Minnesota Pari-mutuel Horse Racing Act requires the Company to segregate a portion of funds (recorded as purse expense in the statements of operations) received from Card Casino operations and wagering on simulcast and live horse races, for future payment as purses for live horse races or other uses of the horsepersons’ association. Pursuant to an agreement with the Minnesota Horsemen’s Benevolent and Protective Association (“MHBPA”), the Company transferred into a trust account or paid directly to the MHBPA, $6,299,000 and $5,861,000 for the nine months ended September 30, 2019 and 2018, respectively, related to thoroughbred races. Minnesota Statutes provide that amounts transferred into the trust account are the property of the trust and not of the Company, and therefore these amounts are not recorded on the Company’s Consolidated Balance Sheet.

Revenue Recognition – The Company’s primary revenues with customers consist of Card Casino operations, pari-mutuel wagering on simulcast and live horse races, and food and beverage transactions. We determine revenue recognition through the following steps:

·      Identification of the contract, or contracts, with a customer

·      Identification of the performance obligations in the contract

·      Determination of the transaction price

·      Allocation of the transaction price to the performance obligation in the contract

·      Recognition of revenue when, or as, we satisfy a performance obligation

The transaction price for a Card Casino contract is a set percentage of wagers and is recognized at the time that the wagering process is complete. The transaction price for pari-mutuel wagering is the commission received on a wager, exclusive of any track fees and is recognized upon occurrence of the live race that is presented for wagering and after that live race is made official by the respective state’s racing regulatory body. The transaction price for food and beverage contracts is the net amount collected from the customer for these goods. Food and beverage services have been determined to be separate, stand-alone performance obligations and the transaction price is recorded as revenue as the good is transferred to the customer when delivery is made.

Contracts for Card Casino operations and pari-mutuel wagering involve two performance obligations for those customers earning points under the Company’s loyalty program and a single performance obligation for customers who do not participate in the program. The Company applies a practical expedient by accounting for its gaming contracts on a portfolio basis as these wagers have similar characteristics and the Company reasonably expects the effects on the financial statements of applying the revenue recognition guidance to the portfolio would not differ materially from what would result if the guidance were applied on an individual wagering contract. For purposes of allocating the transaction price in a wagering contract between the wagering performance obligation and the obligation associated with the loyalty points earned, the Company allocates an amount to the loyalty point contract liability based on the stand-alone redemption value of the points earned, which is determined by the value of a point that can be redeemed for a cash voucher, food and beverage voucher, racing admission, valet parking, or racing forms. Based on past experience, the majority of customers redeem their points for cash vouchers. Therefore, there are no further performance obligations by the Company.

We have two general types of liabilities related to contracts with customers: (1) our MVP Loyalty Program and (2) outstanding chip liability. These are included in the line item Card Casino accruals on the consolidated balance sheet. We defer the full retail value of these complimentary reward items until the future revenue transaction occurs.

The Company offers certain promotional allowances at no charge to patrons who participate in its player rewards program.

7

Table of Contents

We evaluate our on-track revenue, export revenue, and import revenue contracts to determine whether we are acting as the principal or as the agent when providing services, which we consider in determining if revenue should be reported gross or net. An entity is a principal if it controls the specified service before that service is transferred to a customer.

The revenue we recognize for on-track revenue and import revenue is the commission we are entitled to retain for providing a wagering service to our customers. For these arrangements, we are the principal as we control the wagering service; therefore, any charges, including simulcast fees, we incur for delivering the wagering service are presented as operating expenses.

For export revenue, our customer is the third party wagering site such as a racetrack, OTB, or advance deposit wagering provider. Therefore, the revenue we recognize for export revenue is the simulcast host fee we earn for exporting our racing signal to the third party wagering site. 

2.    ACCOUNTING STANDARDS AND SIGNIFICANT ACCOUNTING POLICIES

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02 codified as Accounting Standards Codification (“ASC”) 842, Leases, (“ASC 842”) which addresses the recognition and measurement of leases. Under the new guidance, for all leases (with the exception of short-term leases), at the commencement date, lessees will be required to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to control the use of a specified asset for the lease term. The effective date for this update is for the annual and interim periods beginning after December 15, 2018 with early adoption permitted. ASC 842 requires a transition adoption election using either (1) a modified retrospective approach with periods prior to the adoption date being recast or (2) a prospective adoption approach with a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption date with prior periods continuing to be reported under previous lease accounting guidance.

The Company adopted ASC 842 on January 1, 2019 using the prospective adoption approach, and therefore, comparative periods will continue to be reported under previous lease accounting guidance consistent with previously issued financial statements. The Company also elected to adopt the package of practical expedients permitted under the transition guidance within ASC 842, which among other things, allows us to carry forward the historical lease identification, lease classification and treatment of initial direct costs for leases entered into prior to January 1, 2019. We have also made an accounting policy election to not record short-term leases with an initial term of 12 months or less on the balance sheet for all classes of underlying assets. The adoption of ASC 842 did not have a material impact on our consolidated financial statements.  Refer to Note 11 for further detail.

Summary of Significant Accounting Policies

Except for the accounting policies for leases that were updated as a result of our recently adopted accounting pronouncements, there have been no changes to our significant accounting policies described in the Annual Report on Form 10‑K for the year ended December 31, 2018 filed with the SEC on March 29, 2019, that have had a material impact on our condensed consolidated financial statements and related notes.

 

8

Table of Contents

3.    STOCK-BASED COMPENSATION

Long Term Incentive Plan and Award of Deferred Stock

The Long Term Incentive Plan (the “LTI Plan”) authorizes the grant of Long Term Incentive Awards that provide an opportunity to Named Executive Officers (“NEOs”) and other Senior Executives to receive a payment in cash or shares of the Company’s common stock to the extent of achievement at the end of a period greater than one year (the “Performance Period”) as compared to Performance Goals established at the beginning of the Performance Period. Currently, there are three awards outstanding that are for three-year periods ending December 31, 2019, 2020, and 2021.

Board of Directors Stock Option, Deferred Stock Awards, and Restricted Stock Grants

The Company’s Stock Plan currently authorizes annual grants of restricted stock, deferred stock, stock options, or any combination of the three, to non-employee members of the Board of Directors at the time of the Company’s annual shareholders’ meeting as determined by the Board prior to each such meeting. Options granted under the Plan generally expire 10 years after the grant date. Restricted stock and deferred stock grants generally vest 100% one year after the date of the annual meeting at which they were granted, are subject to restrictions on resale for an additional year, and are subject to forfeiture if a board member terminates his or her board service prior to the shares vesting. The Board of Directors’ unvested deferred stock awards as of September 30, 2019 consisted of 9,416 shares with a weighted average fair value per share of $12.74. There were no unvested restricted stock or stock options outstanding at September 30, 2019.

Stock-based compensation expense related to the LTI Plan, deferred stock awards and restricted stock awards is included on the Condensed Consolidated Statements of Operations and totaled $203,000 and $269,000 for the nine months ended September 30, 2019 and 2018, respectively, and $40,000 and $65,000 for the three months ended September 30, 2019 and 2018, respectively.

Employee Stock Option Grants

The Company has granted incentive stock options to employees pursuant to the Company’s Stock Plan with an exercise price equal to the market price on the date of grant. The options vest over a 42‑month period and expire in 10 years.

A summary of stock option activity as of September 30, 2019 and changes during the nine months then ended is presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted

 

Average

 

 

 

 

 

 

 

Average

 

Remaining

 

Aggregate

 

 

 

 

Exercise

 

Contractual

 

Grant Date

Stock Options

 

 

 

Price

 

Term

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at January 1, 2019

 

75,062

 

$

7.95

 

 

 

 

 

 

Granted

 

 -

 

 

 -

 

 

 

 

 

 

Exercised

 

(32,810)

 

 

6.30

 

 

 

 

 

 

Expired/Forfeited

 

(502)

 

 

 6.00

 

 

 

 

 

 

Outstanding at September 30, 2019

 

41,750

 

$

9.27

 

 

0.6 Years

 

$

387,180

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at September 30, 2019

 

41,750

 

$

9.27

 

 

0.6 Years

 

$

387,180

 

 

9

Table of Contents

4.    NET INCOME PER SHARE COMPUTATIONS

The following is a reconciliation of the numerator and denominator of the earnings per common share computations for the three and nine months ended September  30, 2019 and 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

    

2019

    

2018

 

2019

    

2018

Net income (numerator) amounts used for basic and diluted per share computations:

 

$

1,150,485

 

$

1,632,845

 

$

2,164,832

 

$

3,347,890

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares (denominator) of common stock outstanding:

 

 

  

 

 

  

 

 

  

 

 

  

Basic

 

 

4,604,562

 

 

4,497,072

 

 

4,583,591

 

 

4,467,897

Plus dilutive effect of stock options

 

 

4,425

 

 

36,442

 

 

12,723

 

 

46,118

Diluted

 

 

4,608,987

 

 

4,533,514

 

 

4,596,314

 

 

4,514,015

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

  

 

 

  

 

 

  

 

 

  

Basic

 

$

0.25

 

$

0.36

 

$

0.47

 

$

0.75

Diluted

 

 

0.25

 

 

0.36

 

 

0.47

 

 

0.74

 

Options to purchase 9,000 shares of common stock at an average price of $13.30 per share were outstanding but not included in the computation of diluted net income per share for the nine months ended September 30, 2019 because the exercise price of the options exceeded the market price of the Company’s common stock at September 30, 2019.

There were no out-of-the money options at September 30, 2018; thus, all outstanding options to purchase shares of common stock were included in the computation of diluted net income per share.

5.    PROMISSORY NOTES RECEIVABLE

In May 2016, the Company sold approximately 24 acres of land adjacent to the Racetrack for a total consideration of approximately $4.3 million. Promissory notes receivable consists of two promissory notes totaling $1,080,000 bearing interest at 1.43%. On May 31, 2017, the Company signed an amendment extending the maturity date of the notes to May 2020. Payments totaling $1,094,000 are due annually on May 13 until the notes mature. The promissory notes are secured by the mortgage on approximately 24 acres of land and management believes no allowance for collectability is necessary. See Note 13 for further details.

 

 

6.    GENERAL CREDIT AGREEMENT

The Company has a general credit and security agreement with a financial institution, which provides a revolving credit line up to $8,000,000 and allows for letters of credit in the aggregate amount of up to $2,000,000 to be issued under the credit agreement. The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles of the Company. This agreement was amended as of September 30, 2019 to extend the maturity date to September 30, 2020. As of September 30, 2019, the outstanding balance on the line of credit was $1,671,990. The Company had no borrowings under the credit line as of December 31, 2018.

 

 

10

Table of Contents

7.    OPERATING SEGMENTS

The Company has four reportable operating segments: horse racing, Card Casino, food and beverage, and development. The horse racing segment primarily represents simulcast and live horse racing operations. The Card Casino segment represents operations of Canterbury Park’s Card Casino, the food and beverage segment represents food and beverage operations provided during simulcast and live racing, in the Card Casino, and during special events. The development segment represents our real estate development operations. The Company’s reportable operating segments are strategic business units that offer different products and services. They are managed separately because the segments differ in the nature of the products and services provided as well as process to produce those products and services. The Minnesota Racing Commission regulates the horse racing and Card Casino segments.

Depreciation, interest and income taxes are allocated to the segments, but no allocation is made to the food and beverage segment for shared facilities. However, the food and beverage segment pays approximately 25% of gross revenues earned on live racing and special event days to the horse racing segment for use of the facilities.

The following tables represent a disaggregation of revenues from contracts with customers along with the Company’s operating segments (in 000’s):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

    

Horse Racing

    

Card Casino

    

Food and Beverage

    

Development

    

Total

Net revenues from external customers

 

$

13,018

 

$

25,351

 

$

8,244

 

$

12

 

$

46,625

Intersegment revenues

 

 

909

 

 

 —

 

 

1,088

 

 

 —

 

 

1,997

Net interest (expense) income

 

 

(20)

 

 

 —

 

 

 —

 

 

225

 

 

205

Depreciation

 

 

1,702

 

 

111

 

 

174

 

 

 —

 

 

1,987

Segment (loss) income before income taxes

 

 

(1,863)

 

 

4,765

 

 

855

 

 

80

 

 

3,837

Segment tax expense (benefit)

 

 

(736)

 

 

1,280

 

 

230

 

 

21

 

 

795

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

Segment Assets

 

$

33,223

 

$

3,425

 

$

25,486

 

$

28,097

 

$

90,231

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

    

Horse Racing

    

Card Casino

    

Food and Beverage

    

Development

    

Total

Net revenues from external customers

 

$

14,333

 

$

25,397

 

$

7,373

 

$

 -

 

$

47,103

Intersegment revenues

 

 

746

 

 

 -

 

 

1,054

 

 

 -

 

 

1,800

Net interest income

 

 

(3)

 

 

 -

 

 

 -

 

 

29

 

 

26

Depreciation

 

 

1,758

 

 

 5

 

 

133

 

 

 -

 

 

1,896

Segment (loss) income before income taxes

 

 

(766)

 

 

5,772

 

 

739

 

 

(8)

 

 

5,737

Segment tax expense (benefit)

 

 

(504)

 

 

1,394

 

 

178

 

 

(2)

 

 

1,066

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

Segment Assets

 

$

35,992

 

$

623

 

$

23,680

 

$

24,647

 

$

84,942

 

 

11

Table of Contents

The following are reconciliations of reportable segment revenues, income before income taxes, and assets, to the Company’s consolidated totals (in 000’s):

 

 

 

 

 

 

 

 

 

    

Nine Months Ended September 30, 2019

 

    

2019

    

2018

Revenues

 

 

 

 

 

 

Total net revenue for reportable segments

 

$

48,622

 

$

48,903

Elimination of intersegment revenues

 

 

(1,997)

 

 

(1,800)

Total consolidated net revenues

 

$

46,625

 

$

47,103

 

 

 

 

 

 

 

 

Income before income taxes

    

 

 

    

 

 

Total segment income before income taxes

 

$

3,837

 

$

5,737

Elimination of intersegment income before income taxes

 

 

(877)

 

 

(1,323)

Total consolidated income before income taxes

 

$

2,960

 

$

4,414

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

    

2019

    

2018

Assets

 

 

  

 

 

  

Total assets for reportable segments

 

$

90,231

 

$

84,942

Elimination of intercompany balances

 

 

(24,392)

 

 

(23,516)

Total consolidated assets

 

$

65,839

 

$

61,426

 

 

8.    COMMITMENTS AND CONTINGENCIES

In accordance with an Earn Out Promissory Note given to the prior owner of the Racetrack as part of the consideration paid by the Company to acquire the Racetrack in 1994, if (i) off-track betting becomes legally permissible in the State of Minnesota and (ii) the Company begins to conduct off-track betting with respect to or in connection with its operations, the Company will be required to pay to the IMR Fund, L.P. the greater of (a) $700,000 per Operating Year, as defined, or (b) 20% of the Net Pretax Profit, as defined for each of five operating years. At this time, management believes that the likelihood that these two conditions will be met and that the Company would be required to pay these amounts is remote. At the date (if any) that these two conditions are met, the five minimum payments would be discounted back to their present value and the sum of those discounted payments would be capitalized as part of the purchase price in accordance with GAAP. The purchase price will be further increased if payments become due under the “20% of Net Pretax Profit” calculation. The first payment would be due 90 days after the end of the third Operating Year in which off-track betting is conducted by the Company. Remaining payments would be made within 90 days of the end of each of the next four Operating Years.

The Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community (“SMSC”), which became effective September 4, 2012, was amended in the first quarter of each of 2015, 2016, 2017, and 2018, and will expire on December 31, 2022. The CMA contains certain covenants which, if breached, would trigger an obligation to repay a specified amount related to such covenant. At this time, management believes it unlikely that any breach of a covenant will occur, and that therefore the possibility that the Company will be required to pay the specified amount related to any covenant breach is remote.

The Company is periodically involved in various claims and legal actions arising in the normal course of business. Management believes that the resolution of any pending claims and legal actions at September 30, 2019 and as of the date of this report, will not have a material impact on the Company’s consolidated financial positions or results of operations.

 

12

Table of Contents

In August 2018, the Company entered into a Contract for Private Redevelopment with the City of Shakopee in connection with a Tax Increment Financing District (“TIF District”). The Company is obligated to construct certain infrastructure improvements within the TIF District, and will be reimbursed by the City of Shakopee by future tax increment revenue generated from the developed property. The total amount of funding that Canterbury will be paid as reimbursement under the TIF program for these improvements is not guaranteed and will depend on future tax revenues generated from the developed property. 

 

9.    COOPERATIVE MARKETING AGREEMENT

As discussed above in Note 8, on September 4, 2012, the Company entered into the CMA with the SMSC. The primary purpose of the CMA is to increase purses paid during live horse racing at Canterbury Park’s Racetrack in order to strengthen Minnesota’s thoroughbred and quarter horse industry. Under the CMA, as amended, this is achieved through “Purse Enhancement Payments to Horsemen” paid directly to the MHBPA. These payments have no direct impact on the Company’s consolidated financial statements or operations.

Under the terms of the CMA, as amended, the SMSC made payments of $7.4 million during the first nine months of 2019 and 2018, primarily for purse enhancements for the live race meets in the respective years.

Under the CMA, as amended, SMSC also agreed to make “Marketing Payments” to the Company relating to joint marketing efforts for the mutual benefit of the Company and SMSC, including signage, joint promotions, player benefits, and events. The SMSC paid the Company $1,620,000 for marketing purposes during each of the nine month periods ended September 30, 2019 and 2018.

In the respective first quarters of 2015, 2016, 2017, and 2018, the CMA was amended to adjust the payment amounts between the “Purse Enhancement Payments to Horsemen” and “Marketing Payments to Canterbury Park.” SMSC is currently obligated to make the following purse enhancement and marketing payments for 2020 through 2022:

 

 

 

 

 

 

 

 

 

 

Purse Enhancement Payments to

 

Marketing Payments to

Year

    

Horsemen (1)

 

Canterbury Park

2020

 

 

7,380,000

 

 

1,620,000

2021

 

 

7,380,000

 

 

1,620,000

2022

 

 

7,380,000

 

 

1,620,000

 

 

 

 

 

 

 


1  Includes $100,000 each year payable to various horsemen associations

The amounts earned from the marketing payments are recorded as a component of other revenue and the related expenses are recorded as a component of advertising and marketing expense and depreciation in the Company’s condensed consolidated statements of operations. For the three and nine months ended September 30, 2019, the Company recorded $569,000 and $1,031,000 in other revenue, respectively, incurred $512,000 and $861,000 in advertising and marketing expense, respectively, and incurred $57,000 and $170,000 in depreciation, respectively, related to the SMSC marketing funds. For the three and nine months ended September 30, 2018, the Company recorded $491,000 and $1,169,000 in other revenue and incurred $434,000 and $999,000 in advertising and marketing expense and $57,000 and $170,000 in depreciation related to the SMSC marketing funds.

Under the CMA, the Company agreed for the term of the CMA, which is currently scheduled to terminate on December 31, 2022, that it would not promote or lobby the Minnesota legislature for expanded gambling authority and will support the SMSC’s lobbying efforts against expanding gambling authority.

 

13

Table of Contents

10.  REAL ESTATE DEVELOPMENT

Equity Investment

On April 2, 2018, the Company’s subsidiary Canterbury Development LLC, entered into an Operating Agreement (“Operating Agreement”) with an affiliate of Doran Companies (“Doran”), a national commercial and residential real estate developer, as the two members of a Minnesota limited liability company named Doran Canterbury I, LLC (Doran Canterbury I). Doran Canterbury I was formed as part of a joint venture between Doran and Canterbury Development LLC to construct an upscale apartment complex on land adjacent to the Company’s Racetrack (the “Project”). Doran Canterbury I is developing Phase I of the Project, which will include approximately 300 units, a heated parking ramp, and a clubhouse.

On September 27, 2018, Canterbury Development LLC contributed approximately 13 acres of land as its equity contribution in the Doran Canterbury I joint venture and became a 27.4% equity member. On December 20, 2018, financing for Doran Canterbury I was secured. As the Company is able to assert significant influence, but not control, over Doran Canterbury I’s operational and financial policies, the Company accounts for the joint venture as an equity method investment.

In connection with the execution of the Amended Doran Canterbury I Agreement, on August 18, 2018, Canterbury Development LLC entered into an Operating Agreement with Doran Shakopee, LLC as the two members of a Minnesota limited liability company entitled Doran Canterbury II, LLC (“Doran Canterbury II”). Under the Doran Canterbury II Operating Agreement, Doran Canterbury II will pursue development of Phase II of the Project, which is expected to begin upon rental stabilization of Phase I. Phase II will include an additional 300 apartment units. Canterbury Development’s equity contribution to Doran Canterbury II for Phase II will be approximately 10 acres of land. In connection with its contribution, Canterbury Development became a 27.4% equity member in Doran Canterbury II with Doran owning the remaining 72.6%. 

Tax Increment Financing

On August 8, 2018, the City Council of the City of Shakopee, Minnesota approved a Contract for Private Redevelopment (“Redevelopment Agreement”) between the City of Shakopee Economic Development Authority (“Shakopee EDA”) and Canterbury Park Holding Corporation and its subsidiary Canterbury Development LLC in connection with a Tax Increment Financing District (“TIF District”) that the City had approved in April 2018. The City of Shakopee, the Shakopee EDA and the Company entered into the Redevelopment Agreement on August 10, 2018.

 

Under the Redevelopment Agreement, the Company has agreed to undertake a number of specific infrastructure improvements within the TIF District, including the development of public streets, utilities, sidewalks, and other public infrastructure. More specifically, the Company is obligated to construct improvements on Shenandoah Drive and Barenscheer Boulevard with these improvements required to be substantially complete on or before December 31, 2019 and December 31, 2020, respectively.

 

The Redevelopment Agreement provides that if the Company does not proceed with the improvements to Shenandoah Drive on or before December 15, 2018 or the improvements to Barenscheer Boulevard on or before December 15, 2019, the City of Shakopee has the right to construct the improvements itself and assess the Company for the costs of these improvements. As of December 2018, the Company was proceeding with the improvements to Shenandoah Drive. 

 

14

Table of Contents

Under the Redevelopment Agreement, the City of Shakopee has agreed that a portion of the tax increment revenue generated from the developed property will be paid to the Company to reimburse it for its expense in constructing infrastructure improvements. The total estimated cost of TIF eligible improvements to be borne by the Company is $23,336,500. A detailed Schedule of the Public Improvements under the Redevelopment Agreement, the timeline for their construction and the source and amount of funding is set forth on Exhibit C of the Redevelopment Agreement, which was filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended September 30, 2018. The total amount of funding that Canterbury will be paid as reimbursement under the TIF program for these improvements is not guaranteed, however, and will depend on future tax revenues generated from the developed property. As of September 30, 2019, the Company recorded a TIF receivable of $7,922,000, which represents $7,861,000 of principal and $61,000 of interest.

 

The Company expects to finance its improvements under the Redevelopment Agreement with funds from its current operating resources and existing credit facility and, potentially, third-party financing sources. 

 

11.  LEASES

The Company determines if an arrangement is a lease or contains a lease at inception. The Company leases certain office equipment under finance leases. We also lease equipment related to our horse racing operations under operating leases. For lease accounting purposes, we do not separate lease and nonlease components, nor do we record operating or finance lease assets and liabilities for short term leases.

As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date to determine the present value of lease payments. We recognize expense for operating leases on a straight-line basis over the lease term. The Company’s lease agreements do not contain any variable lease payments, material residual value guarantees or any restrictive covenants.

Lease costs related to operating leases were $31,463 for the nine months ended September 30, 2019. The total lease expenses for leases with a term of twelve months or less for which the Company elected not to recognize a lease asset or liability was $434,332 for the nine months ended September 30, 2019.

Lease costs included in depreciation and amortization related to our finance leases were $18,701 for the nine months ended September 30, 2019. Interest expense related to our finance leases was immaterial.

The following table shows the classification of the right of use assets on our consolidated balance sheets:

 

 

 

 

 

 

 

Balance Sheet Location

 

September 30, 2019

Assets

 

 

 

 

Finance

 

Land, buildings and equipment, net (1)

 

104,184

Operating

 

Operating lease right-of-use assets

 

76,816

Total Leased Assets

 

 

 

$ 181,000


1  – Finance lease assets are net of accumulated amortization of $18,701 as of September 30, 2019

The following table shows the lease terms and discount rates related to our leases:

 

 

 

September 30, 2019

Weighted average remaining lease term (in years):

 

Finance

4.0

Operating

1.3

Weighted average discount rate (%):

 

Finance

5.0%

Operating

5.4%

15

Table of Contents

 

The maturity of operating leases and finance leases as of September 30, 2019 are as follows:

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

    

Operating leases

 

Finance leases

2019 remaining

 

$

2,079

 

$

7,185

2020

 

 

31,349

 

 

28,743

2021

 

 

23,100

 

 

28,743

2022

 

 

23,100

 

 

28,743

2023

 

 

 —

 

 

21,685

Total minimum lease obligations

 

 

79,628

 

 

115,099

Less: amounts representing interest

 

 

(2,812)

 

 

(10,915)

Present value of minimum lease payments

 

 

76,816

 

 

104,184

Less: current portion

 

 

(29,697)

 

 

(24,097)

Lease obligations, net of current portion

 

$

47,119

 

$

80,087

 

 

12.  RELATED PARTY RECEIVABLES

On December 20, 2018, the Company entered into a loan agreement with Doran Family Holdings, which is the controlling partner in the Doran Canterbury I joint venture. The Company loaned Doran Family Holdings $2,910,000 net of loan origination fees, and received a promissory note totaling $2,940,000 bearing interest at 5%. The note will mature at the earliest of (i) the date of closing by Doran Canterbury II, LLC on Phase II Project Financing; (ii) the closing on any purchase of the Phase II Land by Doran Shakopee, LLC pursuant to its option under Section 3.9(a) of the Doran Canterbury II Operating Agreement; (iii) the date of final determination that the Phase II Project will not be developed by Doran Canterbury II, LLC; or (iv) three (3) years following the date of the note. Management believes no allowance for doubtful accounts is necessary.

 

In 2018, the Company incurred $268,000 of costs for preliminary grading work on parcels of land the Company has designated for Doran Canterbury II. The Company will be fully reimbursed for these costs upon the commencement of the Doran Canterbury II project and thus, recorded the amount as a receivable. Although there is a possibility Doran Canterbury II will not materialize, the Company currently believes this likelihood is remote.

 

In July 2019, the Company contributed a member loan of $178,100 to the Doran Canterbury I joint venture.  The member loan bears interest at the rate equal to the Prime Rate plus two percent annum. The Company expects to be fully reimbursed for the member loan upon positive cash flow from the joint venture.

 

13.  SUBSEQUENT EVENTS

 

As described in Note 5, the Company has a promissory note receivable related to a 2016 land sale with a maturity date of May 2020. On November 1, 2019, the Company received a payment of $982,639, which represented $975,363 of principal and $7,276 in interest related to the note receivable. This resulted in an increase to Cash and cash equivalents of $982,639 and a decrease to our Current portion of notes receivable for the same amount. The remaining difference between the Current portion of notes receivable balance and payment received will be recorded as a loss on sale of asset in the 2019 fourth quarter.

 

 

 

 

 

16

Table of Contents

ITEM 2:    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Canterbury Park Holding Corporation, our operations, our financial results and financial condition and our present business environment.  This MD&A is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and the accompanying notes to the financial statements (the “Notes”).

Overview:

Canterbury Park Holding Corporation (the “Company,” “we,” “our,” or “us”) conducts pari-mutuel wagering operations and hosts “unbanked” card games at its Canterbury Park Racetrack and Card Casino facility (the “Racetrack”) in Shakopee, Minnesota, which is approximately 25 miles southwest of downtown Minneapolis. The Racetrack is the only facility in the State of Minnesota that offers live pari-mutuel thoroughbred and quarter horse racing.

The Company’s pari-mutuel wagering operations include both wagering on thoroughbred and quarter horse races during live meets at the Racetrack each year from May through September, and year-round wagering on races held at out-of-state racetracks that are televised simultaneously at the Racetrack (“simulcasting”).  Unbanked card games, in which patrons compete against each other, are hosted in the Card Casino at the Racetrack.  The Card Casino operates 24 hours a day, seven days a week.  The Card Casino offers both poker and table games at up to 80 tables.   The Company also derives revenues from related services and activities, such as concessions, parking, advertising signage, publication sales, and from other entertainment events and activities held at the Racetrack.

Operations Review for the Three and Nine Months Ended September 30, 2019:

EBITDA

EBITDA represents earnings before interest, income tax expense, and depreciation and amortization. EBITDA is not a measure of performance or liquidity calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”), and should not be considered an alternative to, or more meaningful than, net income as an indicator of our operating performance or cash flows from operating activities as a measure of liquidity.  EBITDA is presented as a supplemental disclosure because it is a widely used measure of performance and a basis for valuation of companies in our industry.  Moreover, other companies that provide EBITDA information may calculate EBITDA differently than we do.  Adjusted EBITDA reflects additional adjustments to net income to eliminate unusual items. For the three and nine months ended September 30, 2019, adjusted EBITDA excluded the loss on disposal of assets and gain on insurance recoveries.

17

Table of Contents

The following table sets forth a reconciliation of net income, a GAAP financial measure, to EBITDA and to adjusted EBITDA (defined above) which are non-GAAP financial measures, for the three and nine months ended September 30, 2019 and 2018:

 

Summary of EBITDA Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

    

2019

    

2018

    

2019

    

2018

NET INCOME

 

$

1,150,485

 

$

1,632,845

 

$

2,164,832

 

$

3,347,890

Interest income, net

 

 

(96,065)

 

 

(8,567)

 

 

(204,623)

 

 

(26,023)

Income tax (benefit) expense

 

 

418,942

 

 

407,367

 

 

795,164

 

 

1,066,000

Depreciation

 

 

785,327

 

 

659,498

 

 

1,987,067

 

 

1,895,723

EBITDA

 

 

2,258,689

 

 

2,691,143

 

 

4,742,440

 

 

6,283,590

Gain on insurance recoveries

 

 

 —

 

 

 —

 

 

(198,874)

 

 

(21,064)

Loss on disposal of assets

 

 

6,376

 

 

 —

 

 

114,413

 

 

99,934

ADJUSTED EBITDA

 

$

2,265,065

 

$

2,691,143

 

$

4,657,979

 

$

6,362,460

 

Adjusted EBITDA decreased $426,000 or 15.8% and decreased as a percentage of net revenues to 12.2% from 14.6% for the three months ended September 30, 2019 as compared to the same period in 2018. Adjusted EBITDA decreased $1,704,000 or 26.8% and decreased as a percentage of net revenues to 10.0% from 13.5% for the nine months ended September 30, 2019 as compared to the same period in 2018. The decreases are primarily due to increased operating expenses compared to the same periods in 2018.

Revenues:

Total net revenues for the three months ended September 30, 2019 were $18,601,000, an increase of $230,000, or 1.3%, compared to total net revenues of $18,371,000 for the three months ended September 30, 2018. This increase primarily consists of increases in food and beverage and other revenue of 17.9% and 4.1%, respectively, slightly offset by a decrease in pari-mutuel revenue of 9.5%.  Total net revenues for the nine months ended September 30, 2019 were $46,625,000, a decrease of $479,000, or 1.0%, compared to net revenues of $47,103,000 for the nine months ended September 30, 2018. This decrease primarily consists of decreases in pari-mutuel and other revenue of 8.0% and 8.4%, respectively, partially offset by an increase in food and beverage revenues of 11.1%. See below for a further discussion of our sources of revenues.

Pari-Mutuel Data Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

    

2019

    

2018

 

2019

    

2018

Simulcast

 

$

1,257,000

 

$

1,420,000

 

$

4,108,000

 

$

4,473,000

Live racing

 

 

1,239,000

 

 

1,353,000

 

 

2,151,000

 

 

2,295,000

Guest fees

 

 

785,000

 

 

926,000

 

 

1,203,000

 

 

1,483,000

Other revenue

 

 

298,000

 

 

257,000

 

 

816,000

 

 

750,000

Total Pari-Mutuel Revenue

 

$

3,579,000

 

 

3,956,000

 

$

8,278,000

 

$

9,001,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Racing Days

 

 

 

 

 

 

 

 

  

 

 

 

Simulcast only racing days

 

 

55

 

 

51

 

 

207

 

 

204

Live and simulcast racing days

 

 

37

 

 

41

 

 

66

 

 

69

Total Number of Racing Days

 

 

92

 

 

92

 

 

273

 

 

273

 

18

Table of Contents

Total pari-mutuel revenue decreased $377,000, or 9.5%,  for the three months ended September 30, 2019  compared to the same period in 2018. The decrease is partially due to a reduction in the volume of simulcast wagering. Additionally, guest fees and live racing revenue also decreased as a result of four fewer live racing days compared to the 2018 third quarter. Pari-mutuel revenue decreased $724,000, or 8.0%, for the nine months ended September 30, 2019 compared to the same period in 2018. The decrease is partially due to decreased simulcast wagering as a result of the temporary shutdown during the 2019 second quarter of Santa Anita, one of the most popular horse tracks in the country in terms of simulcast wagering. Guest fees also decreased primarily due to the temporary loss of a high-volume wagering company due to a contractual dispute between Churchill Downs, the Company’s content provider, and Monarch Content Management. However, this dispute was substantially resolved during the 2019 third quarter. Live racing revenue also decreased due to three less live racing days in 2019 compared to 2018.

Card Casino Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

2019

 

2018

 

2019

 

2018

Poker Games

$

1,789,000

 

$

1,955,000

 

$

5,542,000

 

$

6,187,000

Table Games

 

5,821,000

 

 

5,990,000

 

 

17,212,000

 

 

16,996,000

    Total Collection Revenue

 

7,610,000

 

 

7,945,000

 

 

22,754,000

 

 

23,183,000

Other Revenue

 

950,000

 

 

694,000

 

 

2,597,000

 

 

2,214,000

   Total Card Casino Revenue

$

8,560,000

 

$

8,639,000

 

$

25,351,000

 

$

25,397,000

 

The primary source of Card Casino revenue is a percentage of the wagers received from players as compensation for providing the Card Casino facility and services, which is referred to as “collection revenue.” Other Revenue presented above includes fees collected for the administration of tournaments, amounts earned as reimbursement of the administrative costs of maintaining jackpot funds, and amounts related to the outstanding chip liability that we expect will not be redeemed in the future.

As indicated by the table above, total Card Casino revenue decreased $79,000, or 0.9%, and $46,000, or 0.2%, for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. 

Food and Beverage Revenue:

Food and beverage revenue increased $582,000, or 17.9%, and $775,000, or 11.1%, for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. The increases are primarily attributable to hosting a three-day music festival in the 2019 third quarter, as well as the opening of the Trifecta Café and remodeled Card Casino in March 2019. This was slightly offset by a reduction in live racing days in 2019 compared to 2018.

Other Revenue:

Other revenue increased $104,000, or 4.1%, for the three months ended September 30, 2019 compared to the same period in 2018. The increase is primarily due to hosting a three-day music festival in the 2019 third quarter. Other revenue decreased $484,000, or 8.4%, for the nine months ended September 30, 2019 compared to the same period in 2018. The decrease is primarily due to a short-term customer rental agreement in the first quarter of 2018, related to the Super Bowl held in Minneapolis, as well as decreased advertising revenue payments for RiverSouth, an area wide marketing initiative. A portion of these advertising revenue payments were reimbursed costs based on the terms of the CMA agreement and are included as an expense in our Consolidated Statement of Operations.

Operating Expenses:

Total operating expenses increased $788,000, or 4.8%, and $1,154,000, or 2.7%, for the three and nine months ended September 30, 2019 compared to the same periods in 2018. The following paragraphs provide further detail regarding certain operating expenses.

19

Table of Contents

 

Purse expense decreased $254,000, or 10.9%, and $246,000, or 4.3% for the three and nine months ended September 30, 2019 compared to the same periods in 2018.  The decreases are due to lower pari-mutuel revenues, as well as a change in the purse payment structure related to changes in our horsemen contract effective January 1, 2019. This purse expense decrease was primarily a timing difference that resulted in higher purse expense in the 2019 first quarter. 

Salaries and benefits increased $542,000, or 8.2%, and $1,028,000, or 5.5%, for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. The increases are primarily due to labor costs associated with the State of Minnesota’s mandated increase of $0.21 in the minimum wage effective January 1, 2019 and increases relating to the Card Casino construction in January and February and re-opening in March 2019. Furthermore, the Company added several new exempt level positions to support its growth initiatives, primarily in food and beverage.

Cost of food and beverage sales increased $250,000, or 18.9%, and $388,000, or 12.9% for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. The increases are primarily due to higher food and beverage revenues.

Advertising and marketing decreased $87,000, or 8.4%, and $379,000, or 16.7%, for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. The decreases are primarily due to decreased expenditures related to RiverSouth.

Professional and contracted services increased $99,000, or 5.9%, and $383,000, or 10.4%, for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. The increases are due to professional fees for its development initiatives, legal and consulting costs, as well as increased contracted services for the three-day music festival held in July 2019.

During the nine months ended September 30, 2019, the Company recorded a loss on disposal of assets totaling $115,000. This primarily related to a write-off of assets disposed of in remodeling our Card Casino. Also, during the same period, the Company recorded a gain on insurance recoveries of $199,000 as a result of insurance proceeds related to flood damage incurred at the Racetrack.

Net income for the three months ended September 30, 2019 and 2018 was $1,150,000 and $1,633,000, respectively. Net income for the nine months ended September 30, 2019 and 2018 was $2,165,000 and $3,348,000, respectively.

Contingencies:

The Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community, which became effective on September 4, 2012, and was amended in January 2015, 2016, 2017, and 2018, and will expire December 31, 2022. The CMA contains specific covenants that, if breached, would trigger an obligation to repay a specified amount related to these covenants. At this time, management believes that the likelihood that the breach of a covenant would occur and that the Company would be required to pay the specified amount related to a covenant is remote.

The Company continues to analyze the feasibility of various options related to the development of our underutilized land. The Company may incur substantial costs during the feasibility and predevelopment process, but the Company believes available funds are sufficient to cover the near-term costs. See Liquidity and Capital Resources for more information on liquidity and capital resource requirements.

Liquidity and Capital Resources:

The Company has a general credit and security agreement with a financial institution, which provides a revolving credit line up to $8,000,000 and allows for letters of credit in the aggregate amount of up to $2,000,000 to be issued under the credit agreement. The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles of the Company. This agreement was amended as of September 30, 2019 to extend the maturity date to September 30, 2020. As of September 30, 2019, the outstanding balance on the line of credit was $1,671,990.

20

Table of Contents

The Company’s cash,  cash equivalents, and restricted cash balance at September 30, 2019 was $4,320,000 compared to $11,204,000 as of December 31, 2018. The Company believes that unrestricted funds available in its cash accounts, amounts available under its revolving line of credit, along with funds generated from operations, will be sufficient to satisfy its liquidity and capital resource requirements for regular operations, as well as its planned development expenses during 2019. However, if the Company engages in any additional significant real estate development, additional financing would more than likely be required.

Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2019 was $3,947,000 primarily as a result of the following: The Company reported net income of $2,165,000, which included a loss on disposal of assets of $114,000. Cash from operating activities was increased by noncash charges from depreciation of $1,987,000 and stock-based compensation and 401(k) match totaling $771,000. The Company also experienced an increase in deferred revenue of $653,000 and card casino accruals of $449,000, slightly offset by an increase in an amount due from Minnesota horsemen associations of $1,094,000 and accrued wages and payroll taxes of $753,000.

Net cash provided by operating activities for the nine months ended September 30, 2018 was $4,276,000, due in part to net income of $3,348,000, depreciation of $1,895,723, and stock-based compensation and 401(k) match totaling $671,000. The Company also experienced an increase in accounts payable of $233,000 and deferred revenue of $380,000. This was partially offset by a decrease in card casino accruals of $1,100,000 and accrued wages and payroll taxes of $944,000.

 

Investing Activities

 

Net cash used in investing activities for the first nine months of 2019 was $11,717,000,  primarily for additions to land, buildings, and equipment, including additions related to the Card Casino remodel and roadwork costs related to our development activities. This was partially offset by a decrease in notes receivable of $998,000.

Net cash used in investing activities for the first nine months of 2018 was $2,510,000, primarily for additions to land, buildings, and equipment. This was partially offset by a decrease in notes receivable of $1,038,000.  

Financing Activities

Net cash provided by financing activities during the first nine months of 2019 was $886,000, relating primarily to borrowings on the line of credit and proceeds from purchases of stock through the Employee Stock Purchase Plan and the exercise of stock options, partially offset by cash dividends paid to shareholders.

Net cash used in financing activities during the first nine months of 2018 was $288,000.

Critical Accounting Policies and Estimates:

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our assumptions, estimates, and judgments on historical experience, current trends, and other factors that management believes to be relevant at the time the consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates, and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are included in Note 2 to our consolidated financial statements in our 2018 Annual Report on Form 10‑K. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

21

Table of Contents

Property and Equipment - We have significant capital invested in our property and equipment, which represents 65.4% of our total assets at September 30, 2019. We use our judgment in various ways including: determining whether an expenditure is considered a maintenance expense or a capital asset; determining the estimated useful lives of assets; and determining if or when an asset has been impaired or has been disposed. Management periodically reviews the carrying value of property and equipment for potential impairment by comparing the carrying value of these assets with their related expected undiscounted future net cash flows. If the sum of the related expected future net cash flows is less than the carrying value, management would determine how much of an impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. We have determined that no impairment of these assets exists at September 30, 2019.

Stock-Based Compensation – Accounting guidance requires measurement of services provided in exchange for a share-based payment based on the grant date fair market value. We use our judgment in determining the assumptions used to determine the fair value of equity instruments granted using a Black-Scholes model. The Company also grants Long Term Incentive Awards under the Long Term Incentive Plan (the “LTI Plan”) under which Company executive officers and other senior executives have the opportunity to receive a payout of shares of the Company’s common stock at the end of a three-year period. Management must make a number of assumptions to estimate future results to determine the compensation expense of the LTI Plan.

Commitments and Contractual Obligations:

The Company entered into the CMA with the SMSC on September 4, 2012, that was amended in January 2015, 2016, 2017, and 2018 and expires December 31, 2022.  See “Cooperative Marketing Agreement” below.

Legislation:

Minimum Wage Legislation

In 2014, Minnesota legislation enacted into law an increase in the minimum wage that must be paid to most Company employees.  Beginning January 1, 2018, the minimum wage was set to increase at the beginning of each year by the rate of inflation with a maximum increase of up to 2.5% per year. The minimum wage for 2019 is $9.86 per hour. Prior to August 1, 2014, the Company employed a large number of individuals who received an hourly wage equal to or slightly above $7.25 per hour. As a result, this legislation had an adverse financial impact on the Company in 2014 through 2018, and will continue to have an adverse impact on the Company. We have implemented measures to partially mitigate the impact of this increase by raising our prices and reducing our employee count. These measures could themselves have an adverse effect because higher prices and diminished service levels may discourage customers from visiting the Racetrack.

Cooperative Marketing Agreement:

On September 4, 2012, the Company entered into the CMA with the SMSC. The primary purpose of the CMA is to increase purses paid during live horse racing at Canterbury Park’s Racetrack in order to strengthen Minnesota’s thoroughbred and quarter horse industry. Under the CMA, as amended, this is achieved through “Purse Enhancement Payments to Horsemen” paid directly to the MHBPA. These payments have no direct impact on the Company’s consolidated financial statements or operations.

Under the terms of the CMA, as amended, the SMSC paid the horsemen $7.4 million during the first nine months of 2019 and 2018, primarily for purse enhancements for the live race meets in the respective years.

Under the CMA, as amended, SMSC also agreed to make “Marketing Payments” to the Company relating to joint marketing efforts for the mutual benefit of the Company and SMSC, including signage, joint promotions, player benefits and events. The SMSC paid the Company $1,620,000 for marketing purposes during each of the nine month periods ended September 30, 2019 and 2018.

22

Table of Contents

In each of the respective first quarters of January 2015, 2016, 2017, and 2018, the CMA was amended to adjust the payment amounts between the “Purse Enhancement Payments to Horsemen” and “Marketing Payments to Canterbury Park.” SMSC is currently obligated to make the following purse enhancement and marketing payments for 2020 through 2022:

 

 

 

 

 

 

 

 

 

 

Purse Enhancement Payments to

 

Marketing Payments to

Year

    

Horsemen (1)

 

Canterbury Park

2020

 

 

7,380,000

 

 

1,620,000

2021

 

 

7,380,000

 

 

1,620,000

2022

 

 

7,380,000

 

 

1,620,000

 

 

 

 

 

 

 


Includes $100,000 each year payable to various horsemen associations

The amounts earned from the marketing payments are recorded as a component of other revenue and the related expenses are recorded as a component of advertising and marketing expense and depreciation in the Company’s condensed consolidated statements of operations. For the three and nine months ended September 30, 2019, the Company recorded $569,000 and $1,031,000 in other revenue, respectively, incurred $512,000 and $861,000 in advertising and marketing expense, respectively, and incurred $57,000 and $170,000 in depreciation, respectively, related to the SMSC marketing funds. For the three and nine months ended September 30, 2018, the Company recorded $491,000 and $1,169,000 in other revenue and incurred $434,000 and $999,000 in advertising and marketing expense and $57,000 and $170,000 in depreciation related to the SMSC marketing funds.

Under the CMA, the Company has agreed for the 10‑year term of the CMA expiring December 31, 2022 that it will not promote or lobby the Minnesota legislature for expanded gambling authority and will support the SMSC’s lobbying efforts against expanding gambling authority.

Redevelopment Agreement:

As mentioned above in note 10 of Notes to Financial Statements, on August 10, 2018, the City of Shakopee, the City of Shakopee Economic Development Authority, and the Company entered into a Redevelopment Agreement in connection with a Tax Increment Financing District (“TIF District”) that the City had approved in April 2018. Under the Redevelopment Agreement, the Company has agreed to undertake a number of specific infrastructure improvements within the TIF District, including the development of public streets, utilities, sidewalks, and other public infrastructure and the City of Shakopee agreed that a portion of the tax revenue generated from the developed property will be paid to the Company to reimburse it for its expense in constructing these improvements.  The Company expects to finance its improvements under the Redevelopment Agreement with funds from its current operating resources and existing credit facility and, potentially, third-party financing sources.

Forward-Looking Statements:

From time-to-time, in reports filed with the Securities and Exchange Commission, in press releases, and in other communications to shareholders or the investing public, we may make forward-looking statements concerning possible or anticipated future financial performance, prospective business activities or plans that are typically preceded by words such as “believes,” “expects,” “anticipates,” “intends” or similar expressions. For these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in federal securities laws. Shareholders and the investing public should understand that these forward-looking statements are subject to risks and uncertainties that could affect our actual results and cause actual results to differ materially from those indicated in the forward-looking statements. These risks and uncertainties include, but are not limited to:

23

Table of Contents

·material fluctuations in attendance at the Racetrack;

·decline in interest in wagering on horse races at the Racetrack, at other tracks, or on unbanked card games offered at the Card Casino;

·competition from other venues offering unbanked card games or other forms of wagering;

·greater-than-anticipated expenses or a lower-than-anticipated return on the development of our underutilized land, including our joint venture to develop a luxury apartment complex;

·competition from other sports and entertainment options;

·increases in compensation and employee benefit costs;

·increases in the percentage of revenues allocated for purse fund payments;

·higher-than-expected expenses related to new marketing initiatives;

·the impact of wagering products and technologies introduced by competitors;

·legislative and regulatory decisions and changes, including decision or actions related to sports betting that would adversely affect our betting environment;

·any legal, judicial, legislative or regulatory action or event that would adversely affect our ten-year Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community, which enhances the purses for daily racing at Canterbury Park and supports cooperative marketing programs for the two organizations, benefiting the stability and quality of live horse racing;

·the fact that under the Redevelopment Agreement with the City of Shakopee, the Company has agreed to undertake a number of specific infrastructure improvements within the TIF District, and the amounts that Canterbury Park will be paid as reimbursement under the TIF program for these improvements is not guaranteed, but will depend in part on future tax revenues generated from the developed property;

·

the success of the Company’s Canterbury Commons real estate development, including our reliance upon our joint venture partner Doran Companies to construct and profitably operate the upscale apartment complex;

·

the fact that 2019 first quarter construction activity in our Card Casino resulted in a decline in Card Casino revenues and any future construction activity may result in similar decline;

·

the fact the infrastructure improvements that we are making pursuant to the Redevelopment Agreement with the City of Shakopee together with improvements we are making to our parking facilities may disrupt traffic flow in a manner that discourages our customers from visiting our facilities, thereby affecting our revenue and profitability;

·

our ability to develop and maintain high-quality food and beverage offerings that we can market and sell to our Racetrack and Card Casino patrons, as well as future residents of the new Triple Crown Apartments at Canterbury that are being developed by the Doran–Canterbury joint ventures;    

·the general health of the gaming sector; and

·other factors that are beyond our ability to control or predict.

24

Table of Contents

ITEM 3:    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Note applicable.

 

ITEM 4:    CONTROLS AND PROCEDURES

(a)

Evaluation of Disclosure Controls and Procedures:

The Company’s President and Chief Executive Officer, Randall D. Sampson and Chief Financial Officer, Randy J. Dehmer, have reviewed the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based upon this review, these officers have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that the disclosure controls are also effective to ensure that information required to be disclosed in the Company’s Exchange Act reports is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

(b)      Changes in Internal Control over Financial Reporting:

There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) that occurred during our fiscal quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  

25

Table of Contents

PART II

OTHER INFORMATION

Item 1.      Legal Proceedings

Not Applicable.

 

Item 1A.   Risk Factors

 

              There have been no changes to the Risk Factors listed in the Form 10-K for the year ended December 31, 2018.

 

Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds

(a)Not Applicable.

(b)Not Applicable.

(c)On December 17, 2007, the Company’s Board of Directors adopted a plan that authorized the repurchase of up to 250,000 shares of the Company’s common stock pursuant to Exchange Act Rule 10b‑18 in open market transactions, block purchases of privately negotiated transactions (the “2008 Stock Repurchase Plan”). From its adoption until August 13, 2012, the Company repurchased 216,543 shares under the 2008 Stock Repurchase Plan and, on that date, authorized the repurchase of an additional 100,000 shares of the Company’s common stock. The Company did not repurchase any shares during the third quarter of 2019. The maximum number of shares that may yet be purchased under the above authorizations is 128,781 as of September  30, 2019.

 

Item 3.     Defaults upon Senior Securities

Not Applicable.

 

Item 4.     Mine Safety Disclosures

Not Applicable.

 

Item 5.     Other Information

 

  Not Applicable.

 

 

26

Table of Contents

Item 6.     Exhibits

 

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (rules 13a‑14 and 15d‑14 of the Exchange Act). 

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (rules 13a‑14 and 15d‑14 of the Exchange Act). 

 

 

 

32

 

Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

 

 

 

99.1

 

Press Release dated November 12, 2019 announcing 2019 Third Quarter Results.  

 

 

 

101

 

The following financial information from Canterbury Park Holding Corporation’s Quarterly Report on Form 10‑Q for the quarterly period ended September 30, 2019, formatted in eXtensible Business Reporting Language XBRL: (i) Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018,  (ii) Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2019 and September 30, 2018,  (iii) Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months ended September 30, 2019 and September 30, 2018, (iv) Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2019 and September 30, 2018, and (v) Notes to Financial Statements.

 

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

Canterbury Park Holding Corporation 

 

 

Dated:  November 13, 2019

  /s/ Randall D. Sampson

 

 

 

  Randall D. Sampson,  

 

  President and Chief Executive Officer

 

 

Dated:  November 13, 2019

  /s/ Randy J. Dehmer

 

 

Randy J. Dehmer,

Chief Financial Officer

 

 

 

27


Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
12/31/22
12/31/21
12/31/20
9/30/20
12/31/1910-K,  5
12/15/19
Filed on:11/13/19
11/1/19
For Period end:9/30/198-K
6/30/1910-Q
3/29/1910-K
1/1/19
12/31/1810-K,  5
12/20/18
12/15/18
9/30/1810-Q
9/27/18
8/18/18
8/10/18
8/8/18
6/30/1810-Q
4/2/188-K
1/1/18
12/31/1710-K,  5,  5/A
5/31/17
8/1/14
9/4/12
8/13/12
12/17/07
 List all Filings 
Top
Filing Submission 0001672909-19-000035   –   Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
AboutPrivacyRedactionsHelp — Thu., Mar. 28, 4:22:09.1am ET