Filed On 2/16/96 ˇ SEC File 0-07607 ˇ Accession Number 950144-96-576
As Of Filer Filing On/For/As Docs:Pgs Issuer Agent
2/16/96 Fair Grounds Corp 10-K 10/31/95 5:167 950144
Document/Exhibit Description Pages Size
1: 10-K Fair Grounds Corporation 10-K 92 379K
2: EX-10.U Loan Agreement 32 109K
3: EX-10.V Disbursement Agreement 11 33K
4: EX-10.W Commercial Security Agreement 31 115K
5: EX-27 Financial Data Schedule 1 6K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1995 Commission file number 0-7607
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FAIR GROUNDS CORPORATION
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(Exact name of registrant as specified in its charter)
Louisiana 72-0361770
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1751 Gentilly Blvd., New Orleans LA 70119
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code 504/944-5515
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Not applicable NONE
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Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, No Par Value
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(Title of Class)
Indicate by a check mark whether the registrant (1) has filed all
reports 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 report(s), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was $2,432,860 computed by reference to the average bid and
asked prices of such stock on February 10, 1996.
The number of shares outstanding of the issuer's single class of
common stock was 468,180 as of January 31, 1996.
PAGE 1 OF 166 PAGES
EXHIBIT INDEX ON PAGE 92
PART I
ITEM 1. BUSINESS
GENERAL OVERVIEW OF BUSINESS
Fair Grounds Corporation (the "Company"), which was incorporated in 1941, is
the owner of the Fair Grounds Race Course in New Orleans, Louisiana, at which
thoroughbred horse racing, off-track betting and video poker gaming are
conducted. The Fair Grounds Race Course currently is in its 124th racing
season, making it the third oldest thoroughbred racing track in the United
States. In addition to its live racing operations, the Company currently
operates five off-track betting facilities, referred to herein as tele-tracks,
at locations in St. Bernard, Orleans, Jefferson, St. John and LaFourche
Parishes, Louisiana, as well as a tele-track facility located at the Fair
Grounds Race Course. Through Finish Line Management Corporation ("Finish
Line"), an affiliate, the Company operates tele-track facilities in Terrebone,
St. Tammany and Jefferson Parishes, Louisiana. At each location, the Company
makes available pari-mutuel and video poker wagering and food and beverage
services to the public and receives revenues from such services. The Company
conducts its annual live racing meet and operates its tele-tracks for off-track
betting pursuant to the rules and under the authority of the Louisiana State
Racing Commission (the "Racing Commission"), a statutory body, the members of
which are appointed by the Governor of Louisiana. The Company's live races are
simulcasted to its tele-tracks and to other facilities located both inside and
outside Louisiana. Since 1992 the Company also has operated video poker gaming
devices at the Fair Grounds Race Course and each of the Company's tele-track
facilities.
DEVELOPMENTS DURING FISCAL 1995
New Tele-Track Facility
In October 1995, the Company opened a tele-track facility in Jefferson Parish,
approximately 10 miles from the Fair Grounds Race Course.
Progress of Construction
As previously reported, on December 17, 1993, a fire destroyed the main
clubhouse and grandstand building and all of its contents at the Fair Grounds
Race Course. During the remainder of December 1993, the Company made
arrangements for the installation of temporary racing and patron facilities and
contracted with equipment vendors, suppliers and contractors for the
installation of totalisator, television, lighting and other equipment necessary
to continue the live racing meet. During the two and one-half week period from
the date of the fire to January 5, 1994, the temporary facilities were
installed and the property was readied for the
reopening of racing. The Company spent in the aggregate $2.68 million in
preparing the temporary facilities for the reopening of live racing at the Fair
Grounds.
The temporary facilities were utilized throughout the balance of the 1993-94
racing season and for the entire 1994-95 racing season and continue to be used
at the present time. In addition, the Company's new tele-track facility at the
Fair Grounds Race Course, which also serves as a temporary clubhouse area, was
opened on December 22, 1994. It is a two-story building of concrete and steel
construction, aggregating approximately 20,000 square feet. The lower level
contains tables and chairs, a concessions area, mutuel machines and an area set
aside for video poker machines. The second floor contains an area of tables
and chairs which is currently being used as the clubhouse area. The new
facility was constructed on part of the area previously occupied by the old
main grandstand and clubhouse, and the glass-enclosed front of the building
overlooks the track. Those parts of the main grandstand and clubhouse which
were not totally destroyed by the fire have been torn down and all of the
debris has been removed. The total cost for debris removal and the
construction of the tele-track facility was approximately $3.2 million.
During the Summer of 1994, the Company approved the plans for a new main racing
facility and commenced construction of the foundation thereof in August 1994.
The plans call for the facility to be principally a multi-tiered concrete and
steel structure, with a total capacity of approximately 10,000 people. It is
anticipated that the size of the new facility, together with the new tele-track
building just completed, to which the new grandstand will be connected, will be
220,000 square feet in the aggregate. The old facility contained over 300,000
square feet. It is anticipated that there will be general seating in a
bleacher area in the front of the grandstand, with reserved seating, including
the new clubhouse area, to be located in tiered areas above the grandstand. In
a significant change from the design of the old building, it is anticipated
that the paddock will be located in the middle of the grandstand and may be
viewed through a glass area from all levels of the grandstand. The total cost
of the facility, together with furniture, fixtures, equipment and certain fees
and permit costs, was anticipated to be approximately $24.3 million at the time
construction commenced, which is in addition to the $3.2 million relating to
debris removal and construction of the tele-track facility, as described above.
As of January 31, 1996, construction of the facility was approximately 60%
completed, and the Company had incurred construction costs of approximately
$15.2 million. Insurance proceeds recovered to date and interim financing
provided by First National Bank of Commerce of New Orleans ("FNBC"), as
described below, provided the source of funds used in such construction.
However, for the reasons described below, further construction work
3
on the project has been halted. As a result (i) the cost to complete the
project cannot now be determined with any certainty and (ii) the Company
currently anticipates that it will continue to utilize the temporary tent
facilities and the tele-track facility at least during the remainder of the
current racing season and possibly for the next racing season.
Financing
As previously reported, the Company received and accepted a commitment letter
dated February 6, 1995 from FNBC for a non-revolving line of credit to be used
as an interim construction loan, convertible to a term loan. The aggregate
principal amount of such loan under the terms of such commitment was to have
been $17.5 million. The commitment from FNBC provided that the interim
construction loan was to have closed on or before March 31, 1995. However, the
parties agreed to various extensions of such closing date. FNBC indicated that
the principal reason for the delay was FNBC's concern with restrictions on and
the possible elimination of video poker gaming in Louisiana. See "Legislative
Action," below. Inasmuch as video poker franchise tax monies generated by the
Company and its tele-tracks were to be used for the repayment of the FNBC loan,
in accordance with the tax relief legislation described herein, any change in
the video poker gaming laws which restricts or limits video poker as a source
of revenue may have an adverse impact on such source of repayment.
Accordingly, final action on the full $17.5 million loan has been delayed until
after the 1996 Louisiana regular legislative session.
During 1995 FNBC provided the Company with short-term interim construction
loans of $2.15 million on July 17, 1995, $4 million on November 7, 1995, and $1
million on November 30, 1995. All of such financing was then consolidated
under a Loan Agreement dated as of December 18, 1995 between the Company and
FNBC (the "Loan Agreement"), pursuant to which the Company borrowed an
aggregate amount of $9,493,050 and utilized a portion of such funds to repay
the principal amount of the prior loans that was outstanding on December 18,
1995. The remaining amount borrowed was utilized to pay construction costs.
Pursuant to the Loan Agreement, FNBC agreed to extend credit to the Company up
to aggregate principal amount of $9,493,050 until October 31, 1996. The Loan
Agreement states that such commitment is not a revolving credit facility, and
the commitment is only to make loans up to such aggregate principal amount.
Accordingly, FNBC has no obligation under the Loan Agreement to lend additional
funds to the Company.
Payment of the principal and interest under the Loan Agreement is to be made on
demand, or if no demand is made, then in 10 monthly installments of $52,740
principal plus interest, beginning January 17, 1996, and one final payment of
all principal plus accrued
4
interest on October 31, 1996. The loan bears interest at 9% per annum. On
each monthly payment date, payment of principal and interest is to be made from
the proceeds of the funds received as a result of the video poker tax relief
legislation, which funds are to be on deposit in a separate lockbox, in
accordance with a Disbursement Agreement entered into among Company, FNBC and
Video Services, Inc. ("VSI") dated July 17, 1995. The Disbursement Agreement
provides that VSI acknowledges that the first $2.5 million in video poker
franchise fee payments otherwise due annually to the State of Louisiana are to
be remitted to the Company under the terms of the tax relief legislation. For
each annual period from July 1 through June 30, such funds are to be debited
from VSI's bank account and deposited into a lockbox at FNBC. Such proceeds
are to be used solely for the purpose of making payments of principal and
interest from time to time due under the terms of the Loan Agreement. Any
amount in excess of the amount of debt service, up to $2.5 million annually, is
to be applied as a prepayment of the principal amount of the loan, and any
excess is to be returned to the treasury of the State Louisiana. The Loan
Agreement also provides that any fire insurance proceeds (not including
proceeds payable to any third party) received by the Company are to be used to
prepay the loan.
The indebtedness under the Loan Agreement is secured by (i) a second mortgage
by the Company of all of its real property; (ii) a mortgage by Marie G. Krantz
of all the real property formerly constituting the Jefferson Downs Race Course;
(iii) a security interest in all the Company's accounts, inventory, equipment,
fire insurance proceeds, tax relief monies, construction property, material
contracts and all deposit accounts; (iv) a security interest in certain
investment securities owned by Marie G. Krantz; (v) a security interest in all
furniture, fixtures and equipment owned by the Company, Finish Line and
Jefferson Downs; (vi) a pledge by Richard Katcher, as Trustee u/t/a between
John G. Masoni and John G. Masoni, Trustee, pursuant to a restatement of his
Trust Agreement dated April 19, 1991 as modified on October 24, 1992 (the
"Trust"), Marie G. Krantz, individually and as Voting Trustee, Bryan G. Krantz,
Vickie Krantz and Jefferson Downs of an aggregate of 342,584 shares of common
stock of the Company, constituting all shares of common stock of the Company
beneficially owned by them (see Item 12, "Security Ownership of Certain
Beneficial Owners and Management" herein for a description of the amount of
such shares and the terms of such pledge agreements); (vii) a limited guaranty
of such indebtedness by Marie G. Krantz; and (viii) a guaranty of such
indebtedness by Finish Line.
The Loan Agreement provides that, commencing January 20, 1996, the Company will
deposit monthly into an account at FNBC all "Excess Cash Flow" generated during
the immediately preceding month. Excess Cash Flow is defined as all net income
for the month; plus or minus non-cash items such as depreciation and
amortization; plus or minus the changes in accounts receivable, inventory,
prepaid
5
expenses, accounts payable and accrued expenses, and any other operating
balance sheet related activity affecting the cash position; and plus or minus
capital expenditures. This obligation ceases if and when the 1996 Louisiana
regular legislative session adjourns without having theretofore passed any
statute that adversely affects the status of the video poker tax relief or the
existing video poker operations of the Company, Finish Line, or Jefferson
Downs, or that would allow for or require local elections as a condition to the
continuation of video poker operations; or if there is any such legislation
requiring local elections, the voters fail to approve any such adverse change.
Prior to the cessation of such obligation, the Company may not withdraw any
funds in such account, and FNBC has a security interest in such funds.
The Loan Agreement contains certain negative covenants pursuant to which the
Company has agreed that it will not (i) resume construction activities without
first providing FNBC with satisfactory evidence of the source of funding for
the balance of such construction; (ii) enter into any agreement with any
affiliate except to the extent that such agreements are commercially reasonable
and provide for terms which would normally be obtainable in arm's length
transaction with an unrelated third party; and (iii) incur capital
expenditures during any fiscal year in excess of $200,000 without the consent
of FNBC.
In connection with the Loan Agreement, the Company made a payment to Louie J.
Roussel, III of $1 million of the remaining $2 million principal balance owed
to him and agreed that the outstanding principal balance of $1 million will be
due and payable on October 31, 1996.
Insurance Recovery
As of January 31, 1996, the Company had received approximately $19.5 million in
insurance proceeds. Subsequent to the fire, the Company initiated several
legal actions to effect recoveries of certain insurance proceeds. The Company
filed an action against Allianz Underwriters Insurance Company and Royal
Indemnity Company, alleging that under Louisiana law such insurers were liable
to the Company in an amount equal to 10% of the amount of the unpaid insurance
proceeds, plus interest, attorney's fees and costs, for failure to pay the
Company's claims on a timely basis. During 1995, both Allianz and Royal,
without admitting liability, paid the Company certain amounts in settlement of
such actions. The Company also filed an action against Travelers Indemnity
Company of Illinois, in which the Company is seeking a judgment of
approximately $14.8 million, which is in addition to the insurance proceeds
received to date, on the grounds that the insurance policy issued to the
Company by Travelers was a "blanket" policy, thereby providing coverage for the
full insured value. Such actions are pending, and there can be no assurance
that the Company will be successful in any of its claims. See Item 3, "Legal
Proceedings."
6
It should also be noted that the insurer for AutoTote Limited ("AutoTote"), the
lessor of the Company's totalisator equipment, filed a subrogation action,
which is pending, against the Company and its general liability insurance
carrier, United National Insurance Company, for the loss of totalisator
equipment destroyed in the fire. The amount sought is approximately $1.2
million. Motions by the parties to determine coverage under the Company's
general liability policy are pending.
Legislative Action
In 1994 legislation was adopted which provides that owners of video poker
devices that are located in licensed establishments owned or operated by
licensed racing associations eligible for emergency relief under the statute
are exempt from the franchise payment otherwise due under the Video Draw Poker
Devices Control Law for a period not to exceed 15 years. The amount of the
franchise payment which otherwise would have been paid to the State of
Louisiana during the exemption period is to be remitted directly to the
licensed racing association, in an amount up to $2.5 million annually, and such
funds are to be used solely for providing emergency relief to the licensed
racing association. The use of funds by the licensed racing association is
subject to review and oversight by a legislative committee which may reduce the
amount of the authorized exemption if the racing association cannot satisfy the
committee that the exemption is necessary for its ongoing economic viability.
The legislation also provides that at such time as the emergency relief granted
under the act exceeds the required annual debt service on any indebtedness
incurred to address the emergency situation, such indebtedness not to exceed
$25 million, the excess of such funds is to be remitted to the state treasury.
During 1995, the Joint Legislative Committee on the Budget approved the
dedication of funds received from the franchise tax relief described above
toward the exclusive use by the Company for making payments of principal and
interest to FNBC.
There is considerable uncertainty in Louisiana at the present time regarding
the future of the gaming industry. The cessation of construction and
subsequent bankruptcy filing by the land-based casino in New Orleans in
November 1995 has adversely affected tax revenues for both the State of
Louisiana and the City of New Orleans. Notwithstanding that loss of revenue,
consideration is being given by the Governor of Louisiana, who was elected in
November 1995, and other state officials to legislation which could curtail
gaming or the use of video poker gaming devices. In particular, the Governor
has indicated that he will call a special session of the legislature for the
purpose of considering legislation which would mandate local elections to
approve or disapprove gaming in a particular parish or locality.
7
Possible Future Financing
The Company believes that it was unable during 1995 to obtain the full amount
of financing originally committed by FNBC due to the uncertainty regarding the
future of video poker as a continuing source of revenue. The Company is
hopeful that the 1996 Louisiana regular legislative session will adjourn
without having passed any statute that would adversely affect the status of the
video poker tax relief previously granted to the Company or the existing video
poker operations of the Company or Finish Line, or that would allow for or
require local elections as a condition to the continuation of video poker
operations. No assurance can be given, however, that such legislation will not
be adopted. If adopted, such legislation will adversely affect the ability of
the Company to obtain long-term financing from FNBC in accordance with the
terms of the original commitment.
The Company has received a commitment from VSI to provide a non-interest
bearing loan in the principal amount of $1.5 million, in consideration for
which the Company is to agree to extend both the term of its agreement with VSI
and the term of the option period thereunder by two years. See "Video Poker
Operations" below. VSI's agreement to make such loan is conditioned upon the
closing of the anticipated long-term bank financing. The Company also has
recently received an advance of $1 million from VSI.
In addition to the foregoing, Marie G. Krantz has committed to make a $1
million loan to the Company, which would be conditioned upon the closing of,
and subordinate in right to payment to, the long-term FNBC financing. Although
specific terms of such loan have not been discussed, it is likely that the loan
would be interest-bearing, and that payments would be made after the repayment
of the FNBC financing. The Company is also engaged in discussions with
AutoTote concerning a possible commitment by AutoTote to lend or advance $2.5
million to the Company, such amount to be repaid through a subordinated loan
arrangement or through an extension of the lease terms relating to the
totalisator equipment.
In view of the cessation of construction and the additional expense which is
likely to be incurred as a result of construction delays, it is not certain
that, even if all of such financing is consummated, including the long-term
financing by FNBC in accordance with the terms of the original commitment, the
Company will be able to complete the construction of its new facility as
presently planned. It may be necessary to (i) obtain funds from other sources,
(ii) attempt to increase the amount of long-term financing from FNBC or (iii)
seek to effect savings in the construction costs related to the completion of
the facility. The Company has had no discussions with any other possible
source of such financing, nor has it reached any understanding with FNBC
regarding any increase in the financing which the Company hopes to obtain from
FNBC as originally committed by FNBC. It should also
8
be noted that FNBC and the Company are not currently engaged in any discussions
concerning the terms and conditions of the definitive agreements relating to
such long-term financing, given the uncertain legislative climate.
Accordingly, there can be no assurance that definitive agreements will be
reached, or, if reached, that they will be in accordance with the terms of the
original commitment. The foregoing uncertainties raise substantial doubt about
the Company's ability to continue as a going concern. In the event that such
long-term financing is not completed by October 31, 1996, or that the funds
provided through all sources of such financing are insufficient to meet the
Company's needs, the Company may consider a number of alternatives, including
seeking protection from creditors under the United States Bankruptcy Code. See
Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operation."
DESCRIPTION OF BUSINESS
Live Racing Meet
Live Racing at the Fair Grounds Race Course. Annually, upon application and
after hearing, the Racing Commission grants to each of the horse racing tracks
operating in Louisiana certain dates during which live racing meets may be
conducted. Currently four licensees, including the Company, operate live
racing meets in Louisiana at various times during the year.
The Company's live racing meet generally is conducted annually from
Thanksgiving Day to late March. One other track in Louisiana, Delta Downs,
conducts its live racing meet during the same time period as the Company
conducts its live meet. Such track is smaller and conducts its live racing
meet approximately two hundred miles from New Orleans. Delta Downs also
simulcasts to and allows wagering to be accepted on its live races at the
tele-tracks to which the Company simulcasts its live races and at which
wagering on the Company's live races is accepted.
The Company's live racing meet for the fiscal year ended October 31, 1995 was
conducted over 88 racing days. In the prior fiscal year, the Company's live
meet was conducted over 77 racing days, excluding 10 racing days that were lost
as a result of the fire. The total on-track handle, which is the amount of
money handled during the live racing meet through the Company's mutuel machines
at the Fair Grounds Race Course, was $25,134,326 in fiscal 1995, $26,110,964 in
fiscal 1994 and $38,565,606 in fiscal 1993. See "Sources of Revenue."
During its annual live racing meet, the Company attracts thoroughbred horses
from racing stables located in Louisiana and from nationally known racing
stables in Kentucky and elsewhere. Of the 8,311 thoroughbred starters at the
Fair Grounds Race Course
9
during the fiscal 1995 racing meet, approximately 41% were Louisiana-bred. The
live racing meet for the fiscal year ended October 31, 1995 featured races with
guaranteed purses as high as $350,000, although the average purse was
approximately $16,000 per race and $159,400 per day. Total purse money
distributed during the 1995 fiscal year was in excess of $14 million.
For the fiscal year ending October 31, 1996, the Racing Commission has granted
the Company a license to conduct its live racing meet during the period from
November 23, 1995 through March 25, 1996, a total of 88 racing days, with live
racing being conducted generally five days a week (Wednesday through Sunday)
and with ten to eleven races during each racing day.
Simulcasting of Live Races. In addition to conducting live horse racing during
the live racing meet, the Company simulcasts its live races to, and allows
wagering to be accepted at, the tele-tracks which it operates in Orleans, St.
Bernard, St. John and LaFourche Parishes, Louisiana, the tele-tracks which are
licensed to the Company and operated by Finish Line, and tele-tracks operated
by the other horse racing tracks in Louisiana. The Company also simulcasts
live races to certain other wagering facilities located outside of Louisiana.
The Company has continued to experience significant increases in the demand for
the Company's races from out-of-state markets. Total handle from such out-of-
state markets during the fiscal 1995 racing season was approximately $92
million, a 119% increase over the previous racing season. The Company earns a
net commission (after payment of purses) of approximately 1.5% of out-of-state
handle.
Off-Track Betting
Ownership and Operation of Tele-Track Facilities. Legislation which was
adopted in 1987 in Louisiana authorizes off-track wagering, and such
legislation regulates the licensure by the Racing Commission of tele-tracks,
the ownership of such facilities, the commissions which can be earned on wagers
and other related matters. Pursuant to such legislation, in 1988 each of the
horse racing tracks then operating in Louisiana was granted a license to
operate tele-tracks at its racetrack and also within a 55-mile radius of its
racetrack, provided that the voters of the parish where the tele-track was to
be located approved the establishment of such a facility. The legislation also
provides that when two pari-mutuel racetracks are located within the same
55-mile radius, any tele-tracks opened in such areas are to be jointly owned
unless one of the eligible racetracks does not wish to participate. In 1987,
the Company and Jefferson Downs, which is now an affiliate of the Company and
which through 1992 conducted live racing at a facility located approximately 12
miles west of the Fair Grounds Race Course, reached an understanding with
respect to the operation of tele-tracks in the parishes located within the
55-mile radius of their respective horse racing tracks. When Jefferson Downs
ceased
10
its live racing in 1992, the Company and Jefferson Downs reached an agreement
whereby the Company, through Finish Line, operates the tele-tracks formerly
operated by Jefferson Downs. Total paid attendance at the Company's
tele-tracks (excluding the former Jefferson Downs tele-tracks) during the
fiscal year ended October 31, 1995 was 314,426, compared to 345,905 during
fiscal 1994 and 471,394 during fiscal 1993, and the total off-track handle at
such facilities during the 1995 fiscal year was $53,664,907, compared to
$55,713,253 during fiscal 1994 and $69,922,452 during fiscal 1993. See
"Sources of Revenue" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
During 1992 Jefferson Downs did not renew its license application with the
Racing Commission and, accordingly, did not conduct live racing in 1993. In
August 1992, Jefferson Downs assigned to the Company all of its right, title
and interest in and to the leases on its tele-track facilities in Terrebone,
St. Tammany and Jefferson Parishes, Louisiana, such assignment to be effective
as of the date the Racing Commission approved the transfer to the Company of
all licenses necessary for the operation of such tele-tracks. Such approval
was granted by the Racing Commission in May 1993.
On October 9, 1992, the Company entered into a Management Agreement (the
"Management Agreement") for Finish Line to operate the tele-track facilities
owned by Jefferson Downs and transferred to the Company, as described above.
The Management Agreement is for a term of ten years, commencing November 1,
1992, with the option granted to Finish Line to extend the term for two
additional five-year periods. The Management Agreement provides that Finish
Line is to have the exclusive responsibility for the direction, supervision,
management and operation of such facilities, is to collect all monies from such
operation and is to pay all expenses in connection therewith. The Company is
to receive 0.1% of the gross pari-mutuel handle at such facilities, and Finish
Line is to receive monthly compensation equal to the difference between the
gross receipts collected at such facilities less all expenses (including the
guaranteed payment to the Company) paid by Finish Line. In addition, Finish
Line is to indemnify the Company for, among other things, all obligations under
the leases assigned by Jefferson Downs to the Company. The Company believes
that this arrangement benefits the Company by, among other things, providing
additional funds to be set aside to supplement purses for live racing at the
Fair Grounds Race Course. See "Purse Supplements," below.
Simulcasting to Tele-Track Facilities. When a live racing meet is not in
progress at the Fair Grounds Race Course, horse races are simulcasted from
other tracks then conducting live racing in Louisiana as well as from various
race tracks throughout the United States hosting races of national prominence
to the Company's tele-tracks, to the tele-track facility located at the Fair
Grounds Race
11
Course and to other off-track tele-tracks. The Company generally is required
to make payments in the form of host track fees and purse supplements to those
tracks conducting live races which are simulcasted to the Company's
tele-tracks. The Company's tele-tracks generally are open daily, depending on
patron demands and race offerings, for afternoon and evening racing programs
which are simulcasted to the tele-tracks.
Purse Supplements. A portion of the handle generated at tele-track facilities
is required by Louisiana law to be set aside and used to supplement purses at
live racing facilities. Purse supplements are computed on a sliding scale of
5.5%, 6% and 6.5% on the tele-tracks' daily handle. Additionally, purse
supplements of 6.5% of handle are required on all wagers when off-track betting
is conducted at the racing facility of the primary licensee and an additional
1.5% of all "exotic" wagers at tele-track facilities is to be paid as purse
supplements. Race tracks are also allowed to retain the proceeds from uncashed
winning pari-mutuel tickets, up to $250,000 for each licensee's meet. Uncashed
pari-mutuel tickets exceeding $250,000 per race meet are to be remitted to the
State of Louisiana. During the year ended October 31, 1995, the Company
retained approximately $229,000 in such uncashed mutuel tickets as compared to
approximately $300,000 in fiscal 1994 and $369,000 in fiscal 1993.
Video Poker Operations
In June 1991, the Louisiana legislature enacted the Video Draw Poker Devices
Control Law, which grants pari-mutuel facilities the right to install and
operate an unlimited number of video poker machines. Such legislation also
allows other types of businesses, such as bars, truck stops and restaurants, to
operate video poker machines, but restricts the number of machines at those
establishments. See "Regulation." The law requires owners of pari-mutuel
wagering facilities such as the Company to set aside one-half of the net
revenues from such devices in excess of certain amounts and to use such amounts
which are set aside to supplement purses for live racing or, if live racing is
not then being conducted, to place such amounts in an interest-bearing account
and utilize them to supplement purses during the next live racing meet. Any
such funds which are earned from devices located at a tele-track are to be used
for purse supplements by the owner of the tele-track or, if it is jointly
owned, to be divided among the owners in proportion to their ownership
interests.
In February 1992, the Company, Jefferson Downs and Finish Line entered into an
agreement with VSI, whereby VSI was granted the exclusive right and license by
the Company to install, maintain and operate video draw poker devices at the
Fair Grounds Race Course and Jefferson Downs Race Course and at the tele-tracks
operated by the Company, Jefferson Downs and Finish Line. Such agreement is
for an initial term of five years, with an option by VSI to extend
12
the term for an additional five years. See "Possible Future Financing" above
for a description of the proposed commitment to extend such term. The
agreement provides that the Company is to receive a percentage of the revenues
from the operation of the devices installed at the Company's facilities. Such
percentage is to be calculated on the basis of the average amount collected
daily from each device during each month, after the payment of prizes, taxes
and fees. See "Sources of Revenue." The devices installed by VSI pursuant to
such agreement remain the property of VSI. As of October 31, 1995, there were
a total of 250 devices in operation at all of the Company's facilities. In
addition, there were a total of 449 devices at the tele-tracks operated by
Finish Line as of October 31, 1995.
The agreement also provides for the Company and Finish Line to share in an
annual promotional fee of $270,000 paid by VSI. During fiscal 1995, by
agreement between the Company and Finish Line, the total amount of such
promotional fee was retained by the Company. Of such amount, $135,000 was set
aside for purse supplements to be paid during the Company's 1995-96 racing
meet.
SOURCES OF REVENUE
General
During the last several fiscal years and in the current and future fiscal
years, off-track betting in connection with live racing meets has had and is
expected to continue to have a substantial impact on horse racing and
pari-mutuel wagering in Louisiana. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Through the development and
operation of the tele-tracks described herein, the Company has endeavored to
create additional revenue producing sites, the revenues from which have
partially offset declines in on-track attendance and handle and related
revenues since those off-track facilities began operation.
The Company's business continues to be seasonal as a result of the Company's
live racing season. The Company has received and should continue to receive a
majority of its revenues during the first and second quarters of its fiscal
year when its live racing meet is held. Prior to the commencement of off-track
wagering, the Company did not earn significant revenues in the third and fourth
quarters of its fiscal year. Because the Company's tele-tracks are now
operated year-round, the Company earns revenues throughout the fiscal year, but
on a smaller scale in the third and fourth quarters than in the first and
second quarters of its fiscal year. In addition, video poker operations are
conducted year-round; however, revenue from video poker operations generally is
higher during the months when live racing is conducted at the Company's race
track, since attendance there is higher during such period.
13
For information regarding the Company's operating revenues, income or loss from
operations, other income, net income or loss and total assets, see "Selected
Financial Data."
Income from Wagering
The principal component of the Company's revenue is generated from pari-mutuel
wagering, both on-track and off-track. In pari-mutuel wagering on horses,
those who wager on the first, second and third place horses share the total
stakes, or pool, less a percentage retained by the Company. The term "pool"
means the total amount wagered to win (first place), to place (second place),
or to show (third place) on every horse in a given race, or exacta and trifecta
wagers on certain combinations of horses. Under the pari-mutuel system,
bettors wager against each other and not against the racing facility, which has
no interest in which horse wins or loses. Racing facilities are authorized
under Louisiana law to retain a stated percentage of the total money handled
through the mutuel machines located at such racing facilities and their
tele-tracks on each racing day. Mutuel commissions range from 17% to 25% of
money handled depending upon the type of wager. For the fiscal year ended
October 31, 1995, the Company received pari-mutuel commissions and related
income of $15.8 million, compared to $16.2 million for fiscal 1994 and $24.2
million for fiscal 1993. Total commission income less pari-mutuel taxes was
$14.1 million for fiscal 1995, $14.5 million for fiscal 1994 and $21.1 million
for fiscal 1993.
The Company also receives, during its live racing meet, a percentage of the
handle from all tele-tracks to which its races are simulcasted, except its own,
in the form of host track fees as compensation for the simulcasting of its
races to such facilities. The Company also pays host track fees to other
racing facilities for the simulcasting of races to the Company's tele-tracks.
For the fiscal year ended October 31, 1995, the Company received host track
fees of $3.9 million and paid host track fees of $1.5 million. During fiscal
1994 the Company received host track fees of $2.5 million and paid host track
fees of $1.5 million and during 1993 the Company received host track fees of
$2.2 million and paid host track fees of $2.0 million.
Breakage, which is the residual amounts remaining in the betting pool after
winnings are paid out to the nearest dime, is retained by the racing facility
and tele-tracks as revenue.
Income from Video Poker Operations
For the fiscal year ended October 31, 1995, revenue from video poker operations
was $1.1 million. In addition, the Company received $703,488 in video poker
tax relief revenues. As previously described, there were a total of 250
devices in
14
operation at the Company's facilities (not including the tele-tracks operated
by Finish Line) as of October 31, 1995.
Other Sources of Revenue
Additional revenue to the Company is generated from program sales, admission
charges collected by the racing facility and tele-tracks, parking, and food and
beverage services, all of which are operated directly by the Company. Pursuant
to its agreement with the publisher of the Daily Racing Form, the Company is
the wholesaler for sales of the Daily Racing Form in the greater New Orleans
area. For two weekends each year, after the live racing meet has concluded,
the infield of the Fair Grounds Race Course is used by a non-profit
organization in New Orleans to host a Jazz and Heritage Festival. As
compensation for the use of its facilities, the Company receives all revenues
from beverage concessions during the Jazz and Heritage Festival. The Company
and the sponsor of the Jazz and Heritage Festival have entered into an
agreement for the use of the Company's facilities through the 1997 Festival.
Revenues from the 1995 Festival were $1.2 million, compared to $1.1 million for
1994 and $0.7 million for 1993.
COMPETITION
The Company continues to face intense competition from other companies in the
gaming industry, including those which offer pari-mutuel wagering. Activities
which compete or which have the potential for competing with the Company's
racing facility, tele-tracks and video poker operations include riverboat and
dockside gambling, state-sponsored lotteries and video poker in restaurants,
bars, hotels and truck stops. All such activities are present in the State of
Louisiana or the Mississippi Gulf Coast area.
Pari-mutuel wagering for live races has experienced declining revenues for the
last several years, not only at the Fair Grounds Race Course but also at other
facilities located in Louisiana. The growth of gaming in the United States in
recent years has been reflected in various forms, including riverboats,
dockside gaming facilities, Native American gaming ventures, land-based
casinos, state-sponsored lotteries, and expanded off-track wagering
opportunities. According to information published by the Research Institute of
the South, gross wagering on live races declined nearly 12% nationally from
1982 to 1994, with much greater decreases in states that have introduced such
other forms of gaming. The impact of the lottery, video poker, and casinos or
riverboats on live racing in Louisiana has been felt by all of the existing
tracks; from 1990 through 1994 the average daily handle, on a statewide basis,
decreased by approximately 44%. Additional forms of gaming which may be
introduced in the future, as well as future expansions, additions and
enhancements to existing facilities by the Company's competitors, could result
in funds
15
being directed away from the Company's on-track and off-track facilities.
Horse Racing
The Company's racing facility and tele-tracks compete for patrons with a number
of sporting events and leisure time and entertainment activities in the New
Orleans area and throughout Louisiana, including race tracks and tele-tracks
owned and operated by three other licensees.
The Company also competes with other racetracks in Louisiana and throughout the
United States in securing high caliber thoroughbred horses to run at the
Company's racetrack. As a result of increased purses which should continue to
be available because of increased purse supplements to the Company, the Company
believes that the quality of racing at the Fair Grounds Race Course has
improved and will continue to improve.
Other Forms of Legalized Gaming
Louisiana Lottery. A state-wide lottery began operations in Louisiana in
September 1991. The Company believes that at its inception the Louisiana
lottery contributed significantly to a decline in the Company's average daily
pari-mutuel handle (consisting of both on-track and off-track wagering) at its
inception; however, the lottery has had little impact during the last several
fiscal years.
Casino Gambling. A number of dockside casinos are currently operating in or
near Biloxi, Mississippi, located on the Mississippi Gulf Coast approximately
60 miles east of New Orleans. Several other such casinos have been proposed
for the same area, and a substantial number of dockside gaming facilities are
in operation in Vicksburg, Greenville, Natchez, Coahoma County and Tunica
County, Mississippi.
The Louisiana Riverboat Economic Development and Gaming Control Act, which
became effective in July 1991, approved the conduct of riverboat gaming
activities on 12 separate waterways in Louisiana. The legislation authorizes
the issuance of up to 15 licenses to operate riverboat casinos within the
State, with no more than six in any one Parish. As of January 1, 1996, 14
licenses had been granted and there were 12 licensed riverboats in operation in
Louisiana, four of which were operating in the New Orleans area.
In 1992, the Louisiana legislature approved a single land-based casino to be
developed in downtown New Orleans. Such legislation provided that the casino
is to be the only such authorized casino in the State of Louisiana. The City
of New Orleans awarded contracts for the development and operation of such
casino project, and in May 1995 temporary gambling operations commenced and
16
construction on the permanent casino facility was begun. Construction was
halted in the Fall of 1995 when the casino filed for bankruptcy and all
gambling and construction operations have ceased. The Company does not believe
that
Video Poker Operations. As described herein, the Video Draw Poker Devices
Control Law allows pari-mutuel facilities to have an unlimited number of video
poker devices at such facilities. Any person who has been granted a license to
sell alcoholic beverages for consumption on the premises may be granted a
license for the placement of devices on such premises; however, with the
exception of pari-mutuel facilities and truck stop facilities, a licensee may
not have more than three such devices. Truck stop facilities may have no more
than 50 devices. Devices which are placed in restaurants are to be operated
only in designated areas which are separate from the dining area of such
restaurants. The Company believes that there are numerous establishments
throughout the New Orleans area at which video poker devices are located;
however, the Company does not believe that the placement of such devices at
such other establishments has had a material adverse effect on the revenue
which has been generated from the operation of such devices at the Company's
racetrack and tele-tracks.
REGULATION
The Company's operation of pari-mutuel wagering at its racetrack and
tele-tracks is subject to extensive regulation pursuant to Louisiana law and
the rules and regulations of the Racing Commission, which govern, among other
things, (i) the awarding of licenses for the conduct of live racing meets; (ii)
the conduct of thoroughbred horse racing; (iii) the types of wagering which may
be offered by the Company and other pari-mutuel facilities; and (iv) the
disposition of revenue generated from wagering. Off-track wagering is also
regulated by the Racing Commission, pursuant to legislation enacted in
Louisiana in 1987 and described elsewhere herein. Such legislation, and
subsequent regulations adopted by the Racing Commission, govern the ownership
and operation of off-track wagering facilities, the commissions which
facilities may earn on wagers and the amounts which must be set aside as purse
supplements, as described elsewhere herein.
The Video Draw Poker Devices Control Law is subject to the regulation by the
gaming enforcement division of the Louisiana State Police. Such legislation
describes the specifications which must be met before devices can be utilized
in Louisiana, and also sets forth certain licensing, accounting and reporting
requirements. See "Legislative Action" above for a discussion of possible
changes to state law which may adversely affect video poker gaming.
17
EMPLOYEES
During its live racing season the Company employed on-track approximately 550
persons, including 170 in the mutuel department, 125 in the concessions
department, 65 in the security department and 190 in the administrative,
racing, parking, maintenance and publicity departments.
In connection with tele-track operations, the Company currently employs
approximately 320 persons including 100 in the mutuel department, 60 in the
catering department, 35 in the security department and 25 in the
administrative, admissions, maintenance and publicity departments, some of whom
are employed on-track during the live racing season and are included in the
total employees referred to above.
ITEM 2. PROPERTIES
The Company owns its racetrack site which consists of approximately 145 acres
of land held in fee ownership, situated within a fenced area adjacent to
Gentilly Boulevard in the New Orleans city limits, and within ten minutes drive
from downtown New Orleans. Located on such property is a one-mile oval, sandy
loam race track and a seven-furlong turf track inside the main track.
The Company currently leases its temporary facilities, consisting of the large
main tent previously described, as well as certain modular buildings containing
executive and administrative offices, and totalisator equipment.
The Company owns the newly completed tele-track facility described above, as
well as the new grandstand facility as to which construction commenced during
1995 but has been curtailed, as described above.
The Company also owns 50 modern concrete barns with supporting buildings and
facilities which are located on the property and are capable of quartering
approximately 2,000 horses. There is an all-concrete parking lot which can
accommodate approximately 4,000 vehicles within the fenced area.
Substantially all of the real property and equipment of the Company is subject
to a collateral mortgage in the amount of $10 million which secures the
Company's indebtedness to Louie J. Roussel, III, currently in the principal
amount of $1 million, as described in the Notes to the Company's Financial
Statements included herewith. In addition, all of the Company's real property
is subject to a second collateral mortgage in the aggregate amount of $17.5
million, and all of the Company's furniture, fixtures, equipment, and other
items of personal property are subject to a security
18
interest, which secure the Company's indebtedness to FNBC under the Loan
Agreement, as described above.
The Company leases the facilities for its tele-tracks under lease agreements
with various terms. The tele-tracks formerly licensed to Jefferson Downs and
now licensed to the Company are also leased; however, as described herein,
Finish Line has agreed to indemnify the Company for, among other things, all
obligations under the leases assigned by Jefferson Downs to the Company. See
Note 10 of Notes to the Financial Statements included elsewhere herein for a
description of the Company's lease obligations.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to a number of legal proceedings which have arisen as a
result of the December 1993 fire, or in connection with the Company's efforts
to collect insurance proceeds after the fire. The following is a brief
description of such fire-related proceedings:
1. On May 14, 1994 the Company filed an action in the 24th Judicial
District Court in the State of Louisiana against Travelers Indemnity
Company of Illinois ("Travelers") and others. The Company contends
that the insurance policy provided by Travelers provides the Company
with blanket coverage in the amount of $24.1 million in excess of the
$10 million of underlying coverage provided by Allianz Underwriters
Insurance Company ("Allianz") and Royal Indemnity Company ("Royal");
accordingly, the Company maintains that Travelers is liable for the
difference between $24.1 million and the amount already paid
(approximately $9.3 million), plus statutory penalties of 10% of the
amount not paid, interest, attorney's fees and costs. The Company
further contends that, in the event the court determines that the
amount of coverage is less than that claimed by the Company, then the
insurance agent and the insurance broker who arranged for the
insurance, are liable to the Company for any damages. Travelers'
position is that the excess policy did not provide blanket coverage,
and that its liability under such policy is limited to the amount
which it has already paid. Travelers filed a separate action in June
1994 in the U.S. District Court for the Eastern District of Louisiana,
asking for a declaratory judgment that the policy did not provide
blanket coverage. The federal court action was dismissed and the
state court action is proceeding.
2. The Company filed an action against Allianz in March 1994, in the
Civil District Court for Orleans Parish. Allianz subsequently removed
the action to the U. S. District Court for the Eastern District of
Louisiana. The Company contended that Allianz, which was the
Company's primary insurer, failed
19
to pay the policy benefits of $5 million on a timely basis, thereby
subjecting it to statutory penalties of 10% of the amount not paid,
plus interest, attorney's fees and costs. The Company also alleged
that Allianz acted in bad faith in its handling of the claim. In
March 1995, prior to the commencement of the trial, the action was
settled without any admission of liability.
3. The Company filed an action against Royal in December 1994, in the
Civil District Court for Orleans Parish, alleging that Royal also
failed to pay on a timely basis under its policy. The issues in this
proceeding were substantially similar to the issues in the litigation
against Allianz described above. In October 1995, prior to the
commencement of the trial, the action was settled.
4. The Company filed an action in December 1994, in the Civil District
Court for Orleans Parish, against ADT Security Systems, the company
which provided and maintained the fire alarm system at the Fair
Grounds Race Course, and other defendants. The complaint seeks
unspecified damages, not otherwise compensated for by insurance, that
were allegedly caused by the negligence of one or more of the
defendants.
5. The Company and its general liability insurance carrier, United
National Insurance Company are defendants in a civil action filed in
December 1994 in the United States District Court for the Eastern
District of Louisiana, by St. Paul Mercury Insurance Company, the
insurer for AutoTote. The complaint alleges that such insurance
company is subrogated to the rights of AutoTote to collect damages,
and that it has paid AutoTote in excess of $1 million for the loss of
totalisator equipment at the Fair Grounds Race Course which was
destroyed in the fire. Subsequently, United National Insurance
Company filed an action against the Company, denying coverage for the
subrogation claim.
As to the pending matters described above, there can be no assurance that the
Company will be successful in any of its claims or defenses. Accordingly, no
assurance can be given that additional recoveries of insurance proceeds, if
any, will reimburse the Company adequately for the loss or destruction of its
property in the fire.
Except as described above, there are no material pending legal proceedings,
other than ordinary routine litigation incidental to its business, to which the
Company is a party or of which any of its property is the subject.
20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Prior to March 1994, the Company's common shares were listed for trading on the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
System. Since that time, however, the common shares of the Company have not
been listed on NASDAQ or any other established trading market. Trading in the
common shares of the Company generally has been sporadic and trading volume
generally is very low. The range of high and low bid quotations for the two
most recent fiscal years by quarters as set forth below does not necessarily
reflect actual trades, but represents inter-dealer quotations without mark-up,
mark-down or commission, as reported by the National Association of Securities
Dealers, Inc. Quotations subsequent to March 1994 were obtained from Carr
Securities.
ˇ Download Table
Fiscal 1994 1994 1995 1995
Quarter Ended Low Bid High Bid Low Bid High Bid
------------- ------- -------- ------- --------
January 31 $ 9.00 $13.00 $ 16.00 $ 24.00
April 30 $ 9.00 $12.00 $ 16.00 $ 24.00
July 31 $ 9.00 $12.00 $ 20.00 $ 25.00
October 31 $10.00 $14.00 $ 20.00 $ 25.00
As of January 31, 1996, there were 457 shareholders of record of the 469,940
issued and outstanding common shares of the Company.
There were no cash dividends declared or paid during fiscal 1995 or fiscal 1994.
The Company paid cash dividends in the amount of $0.05 per share during each of
the four quarters of the fiscal year ended October 31, 1993 to the shareholders
of record on the dates the dividends were declared. Total dividends declared
and paid during fiscal 1993 were $93,652.
The Company is not subject to any restrictions (other than non-contractual
business considerations) affecting its present or
21
future ability to pay dividends with respect to its common shares, except that
the provisions of the Loan Agreement effectively preclude the Company from
declaring and paying dividends without the consent of FNBC.
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
22
ITEM 6. SELECTED FINANCIAL DATA
FAIR GROUNDS CORPORATION
SELECTED FINANCIAL DATA
For the Five Years Ended October 31
ˇ Enlarge/Download Table
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
OPERATING REVENUES $23,031,031 $22,371,571 $30,718,482 $32,667,468 $31,913,874
OPERATING EXPENSES 26,394,452 26,094,568 34,308,263 32,192,537 30,505,367
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (3,363,421) (3,722,997) (3,589,781) 474,931 1,408,507
INTEREST EXPENSE 12,318 284,926 502,624 661,092 960,207
OTHER INCOME 2,459,163 605,553 651,950 1,068,874 773,717
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES, MINORITY
INTEREST, EXTRAORDINARY
ITEM, AND CUMULATIVE EFFECT
OF CHANGES IN ACCOUNTING
PRINCIPLES (916,576) (3,402,370) (3,440,455) 882,713 1,222,017
PROVISION (BENEFIT)
FOR INCOME TAXES (300,460) (1,878,635) (383,787) 123,509 244,316
MINORITY INTEREST - - 142,661 575,831 532,197
EXTRAORDINARY ITEM - GAIN
FROM FIRE (net of taxes) - 9,312,758 - - -
CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING
PRINCIPLES 104,000 (75,094) - - -
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (512,116) $ 7,713,929 $(3,199,329) $ 183,373 $ 445,504
=========== =========== =========== =========== ===========
COMMON SHARES OUTSTANDING 469,940 469,940 469,940 469,940 469,940
=========== =========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE $ (1.09) $ 16.48 $ (6.83) $ 0.39 $ 0.95
=========== =========== =========== =========== ===========
23
ˇ Enlarge/Download Table
CASH DIVIDENDS DECLARED PER SHARE $ None. $ None. $ 0.20 $ 0.15 NONE.
=========== ============ ============ ============ ============
TOTAL ASSETS $30,954,654 $ 26,470,322 $ 20,496,529 $ 20,919,257 $ 20,953,854
=========== ============ ============ ============ ============
NOTES PAYABLE (EXCLUDING
CURRENT PORTION) $ - $ 1,000,000 $ 6,000,000 $ 7,000,000 $ 8,359,721
=========== ============ ============ ============ ============
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Fire. As previously reported, on the night of Friday, December 17, 1993, the
17th racing day in the Company's 87 racing day schedule for 1993-94, after the
conclusion of live racing for the day at the Fair Grounds Race Course, a fire
swept through and destroyed the grandstand and clubhouse facilities and all
their contents. Included in that area was the grandstand with a seating
capacity of approximately 10,000, the clubhouse facilities, the racing paddock,
and substantially all of the administrative, racing operations, and other
offices of the Company. As a result of the fire, racing operations at the Fair
Grounds Race Course, and all operations at the Company's tele-track facilities,
were temporarily suspended.
Immediately after the fire, management determined that it would be in the
Company's best interest to reopen the Fair Grounds Race Course and continue the
live racing schedule as soon as possible. Accordingly, during the remainder of
December 1993, the Company made arrangements for the installation of temporary
racing and patron facilities. During the two and one-half week period from the
date of the fire to January 5, 1994, the temporary facilities were installed
and the property was readied for the reopening of racing. Tele-track
operations were reopened on December 29, 1993, and the Fair Grounds Race Course
was reopened for live racing on January 5, 1994. In total, the Company lost 10
days of its 87 racing day schedule for the year ended October 31, 1994 due to
the fire, resulting in a substantial loss of revenues to the Company.
The Company currently continues to use its temporary facilities, Attendance
and handles continue to be less than the pre-fire levels as a result of the
limited amenities afforded by the temporary facilities. In addition, the
Company continues to feel the effects of competition from other gaming venues
in the greater New Orleans and surrounding areas.
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO FISCAL 1994
Revenues. During the fiscal years ended October 31, 1995 and 1994, the Company
derived its pari-mutuel income by conducting live racing meets of 88 and 77
days, respectively, and in the operation of its tele-tracks for off-track
wagering. During each such fiscal year, the Company operated tele-tracks in
New Orleans at the Fair Grounds Race Course and on Bourbon Street, and at
locations in Lafourche, St. Bernard and St. John Parishes, Louisiana. On
October 26, 1995, the Company opened a new tele-track facility in Jefferson
Parish. Through Finish Line, the Company operated tele-
25
track facilities in Terrebonne, St. Tammany, and Jefferson Parishes, Louisiana,
that were formerly operated by Jefferson Downs Corporation.
For the fiscal year ended October 31, 1995, the Company reported a net loss of
$512,116, compared to net income of $7,713,929 for the fiscal year ended
October 31, 1994. The net income for the fiscal 1994 year was the direct
result of the Company's recognition of an extraordinary gain attributable to
the December 17, 1993 fire. As a result of the fire in fiscal 1994, the
Company recorded an extraordinary gain of $9.3 million, net of related income
taxes of $5.4 million. The extraordinary gain is equal to insurance proceeds
received in excess of the net book value of the destroyed property, plant and
equipment. The extraordinary gain is also net of approximately $145,000 paid
to third party vendors in fiscal 1994 for losses to their property caused by
the fire. The Company had no extraordinary gain during fiscal 1995.
The Company's losses before the extraordinary gain and charge for cumulative
effect of change in accounting for income taxes were $616,116 and $1,523,735
for fiscal years 1995 and 1994, respectively. The significant decrease in the
loss from 1994 to 1995 was primarily the result of an increase in other income
during fiscal 1995.
For the fiscal year ended October 31, 1995, the Company experienced an increase
in operating revenues of $659,460, or 3.0%, from the previous fiscal year. The
increase in operating revenues during fiscal 1995 is the result of a
significant increase in host track fee revenue partially offset by declines in
most other categories of operating revenue. Host track fees increased
$1,391,530, or 55.9%, from fiscal 1994 due to a significant increase in
out-of-state simulcasting of the Company's live races. For the 1995 fiscal
year racing meet, the Company reported $92 million in handle from out-of-state
simulcasting, compared to $42 million in handle for fiscal 1994.
While host track fees increased significantly, most other components of
operating revenue, including commissions, concessions, admissions, parking,
video poker and programs and forms, declined. Such declines are the direct
result of further decreases in attendance and pari-mutuel wagering from 1994.
Comparative in-state pari-mutuel wagering and attendance figures for the fiscal
years ended October 31, 1995 and 1994 are as follows:
26
ˇ Download Table
1995 1994
----------- -----------
Pari-mutuel wagering:
On-track handle $25,134,326 $26,110,964
Off-track handle 53,664,907 55,713,253
