As part of the CMA and pursuant to a related Stock Appreciation Rights Agreement (the “SAR Agreement”) dated June 14, 2012, the Company issued stock appreciation rights to the SMSC. The SAR Agreement granted rights to the SMSC to benefit from the appreciation in the value of 165,000 shares of Company common stock above $14.30 per share, a price agreed upon by the two parties. Each right represents the right to be paid the appreciation in the value of one share of stock above $14.30. Ten percent of the rights (16,500 rights) vested immediately and the remaining rights vest at the rate of 16,500 per year beginning in January 2013. As of December 31, 2013, 33,000 rights had vested. The SAR Agreement provides for the cash payment of the excess of the fair market value of Canterbury Park Holding Corporation’s common stock price on the date of exercise over the grant price. The SAR Agreement and all rights granted expire on December 31, 2022. The liability related to these stock appreciation rights is recorded as a long-term liability and the Company recognizes the income or expense related to the fluctuation in the value of the stock appreciation rights against the revenues recorded relating to the marketing payment due to the nature of the CMA. Any excess expenses will be recognized as a component of other operating expenses. For the year ended December 31, 2013, the Company recognized $227,592 of expense related to these stock appreciation rights, of which $227,592 was recorded as an offset to other revenue. For the year ended December 31, 2012, the Company recognized $239,788 of expense related to these stock appreciation rights, of which $112,857 was recorded as an offset to other revenue and $126,931 was recorded as other operating expenses. In the future, changes in the fair value of these stock appreciation rights will increase or decrease the stock appreciation rights liability, and the Company will recognize an additional offset to other revenue and/or other operating expenses related to these changes.
In connection with the purchase of the Racetrack (see Note 9 under Item 8 herein), the Company entered into an Earn Out Promissory Note dated March 29, 1994. In accordance with the Earn Out Note, 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 $700,000 per operating year, as defined, or 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 will be required to pay these amounts is remote. At the date (if any) that these two conditions are met, the five minimum payments will be discounted back to their present value and the sum of those discounted payments will be capitalized as part of the purchase price in accordance with generally accepted accounting principles. The purchase price will be further increased if payments become due under the “20% of Net Pretax Profit” calculation. The first payment is to be made 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.
Additionally, the Company entered into the CMA with the Shakopee Mdewakanton Sioux Community which became effective on June 15, 2012. 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 that the likelihood that the breach of a covenant will occur and that the Company will be required to pay the specified amount related to such covenant is remote.
In August 2012, North Metro Harness Initiative, LLC (“NMHI”) initiated litigation against the Minnesota Horsemen’s Benevolent and Protective Association (the “MHBPA”) and the Company seeking to be relieved of its obligations to supplement purses at Canterbury Park under its Purse Supplement Agreement with the MHBPA. The Company believed the theories asserted by NMHI in its complaint against them were without merit, and the Company and the MHBPA brought motions to dismiss NMHI’s lawsuit. In addition, both the Company and the MHBPA moved for an order compelling arbitration of the claims in NMHI’s lawsuit, which is the only remedy permitted by the terms of the Purse Supplement Agreement. On May 2, 2013, the Fourth Judicial District Court ordered that NMHI’s claims against the Company be dismissed with prejudice.
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 December 31, 2013 and as of the date of this report will not have a material impact on our consolidated financial results of operations.
The Company has committed to payment of statutory distributions under a $500,000 bond issued to the Minnesota Racing Commission as required by Minnesota statute. The Company was not required to make any payments related to this bond in 2013 or 2012, and there is no liability related to this bond on the balance sheet as of December 31, 2013.
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LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operations during the year ended December 31, 2013 was $3,543,919 primarily as a result of the following: The Company reported net income of $1,016,712 and depreciation of $1,861,702. In addition, deferred income taxes increased by $563,601 in 2013 when compared to 2012 and restricted cash decreased by $466,786. These amounts were partially offset by an increase in income taxes receivable of $328,819 and a decrease in due to MHBPA of $533,826 compared to 2012.
Net cash provided by operations during the year ended December 31, 2012 was $4,057,473 primarily as a result of the following: The Company reported net income of $1,016,364 and depreciation of $1,772,760. Also, accounts payable and accrued wages and payroll taxes increased $617,605 in 2012 when compared to 2011, primarily as a result of an increase in payroll accruals resulting from an increase in the number of days payable when compared to 2011.
CASH FLOWS FROM INVESTING ACTIVITIES
Cash used in investing activities for the year ended December 31, 2013 of $4,283,018 primarily represented the purchase of a new state-of-the-art digital tote board, new technology, including digital signage and customer relationship management software, and building improvements.
Cash used in investing activities for the year ended December 31, 2012 of $1,123,854 resulted primarily from purchasing a variety of fixtures and equipment for operational purposes.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided by financing activities was $93,325 for the year ended December 31, 2013 and consisted primarily of $102,727 of proceeds received upon the exercise of stock-based awards and from the exercise of shares of common stock purchased by employees pursuant to our Employee Stock Purchase Plan, partially offset by $7,509 of common stock repurchases.
Cash used in financing activities was $1,817,415 for the year ended December 31, 2012 and consisted of two cash dividends totaling $2,072,227 and $38,435 in common stock repurchases. These amounts were somewhat offset by proceeds and excess tax benefits received upon the exercise of stock-based awards and proceeds received upon the exercise of shares of common stock purchased by employees pursuant to our Employee Stock Purchase Plan of $293,247.
CASH AND CAPITAL RESOURCES
At December 31, 2013, we had cash and cash equivalents of $8,739,209 compared to $9,384,983 at December 31, 2012. This $645,774 decrease consisted of $4,283,018 of net cash used in investing activities (compared to $1,123,854 in 2012) partially offset by $3,543,919 of net cash provided by operating activities and $93,325 of net cash provided by financing activities.
As of December 31, 2013, we had $3,000,000 of capacity under a commercial revolving credit line as part of a general credit and security agreement with Bremer Bank that will expire on May 5, 2014. The Company plans to renew this credit line before it expires. We had no borrowings under the credit line during the years ended December 31, 2013 or 2012.
Our three largest sources of revenue: pari-mutuel wagering, Card Casino operations and concessions, are all based on cash transactions. Consequently, we have significant inflows of cash on a daily basis. We designate cash balances which will be required to satisfy certain short-term liabilities such as progressive jackpots, the player pool and amounts due horsemen for purses and awards as “restricted” as a separate balance sheet item.
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As discussed above in “Legislation,” until May 4, 2012, the Company’s table games were required by law to be “unbanked.” “Unbanked” refers to a wagering system or game where wagers “lost” or “won” by the host are accumulated into a player pool liability for purposes of enhancing the total amount paid back to players in any other card game. The Company could only serve as custodian of the player pool. It could not have an active interest in any card game and would not recognize net “wins” or “losses” as revenue. The Company was required to return accumulated player pool funds to the players through giveaways, promotional items, prizes or by other means. The player pool liability was $575,394 at December 31, 2013 compared to $348,419 at December 31, 2012. Although the change in law on May 4, 2012 allows the Company to conduct “banked” card games, in which customers play against the house, the Company currently only operates unbanked games and has no plans to offer banked games in the near future.
The Card Casino offers progressive jackpots for poker games. Amounts collected for these jackpot funds are accrued as liabilities until paid to winners. At December 31, 2013, accrued jackpot funds totaled $204,919 compared to $468,195 at December 31, 2012. The Minnesota Racing Commission (“MRC”) regulates the operation of the player pool and progressive jackpot pools. These liabilities have the potential for significant fluctuation on a daily basis.
All games in the Card Casino are played using chips. The value of chips issued and outstanding, referred to as the “outstanding chip liability,” was $243,357 at December 31, 2013, compared to $220,022 at December 31, 2012. This liability has the potential for significant fluctuation on a daily basis depending upon the demand for chip redemptions and sales.
Our second largest individual operating expense item is purse expense. Pursuant to an agreement with the MHBPA, we transferred into a trust account or paid directly to the MHBPA, approximately $6,325,000 and $5,175,000 in purse funds related to thoroughbred races for the years ended December 31, 2013 and 2012, respectively. Minnesota Statutes specify that amounts transferred into trust are the property of the trust and not the Company. Unpaid purse fund obligations due to the MHBPA were $548,300 at December 31, 2012. There were no unpaid purse fund obligations due to the MHBPA at December 31, 2013.
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 for the foreseeable future.
OFF-BALANCE SHEET ARRANGEMENTS
The Company currently has no off-balance sheet arrangements and has no intent to enter into any such agreements in the near future.
COMMITMENTS AND CONTRACTUAL OBLIGATIONS
In March 2008, the Company entered into a six-year service agreement with its totalizator provider. Pursuant to the agreement, the vendor provides totalizator equipment and computer programs which record and process all wagers and calculate odds and payoffs. Amounts charged to operations under this agreement for the years ended December 31, 2013 and 2012 were $225,000 and $225,418, respectively. In March 2014, the Company entered into a seven-year agreement with a new totalizator provider. Under the new agreement, $221,345 will be charged to operations in year one.
The Company has entered into operating leases for rental of office equipment and for track equipment to maintain the Racetrack. Amounts charged to operations under these agreements for the years ended December 31, 2013 and 2012 were $130,436 and $118,625, respectively. All such leases expire in or before February 2018.
Since December 31, 2013, there have been no material changes outside the ordinary course of business to our contractual obligations as set forth above. As of December 31, 2013, we had no borrowings pursuant to our line of credit and were not party to capital lease obligations, significant purchase obligations or other long-term obligations.
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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 which are typically preceded by words such as “believes,” “expects,” “anticipates,” “intends” or similar expressions. For such 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 such forward-looking statements are subject to risks and uncertainties which could affect our actual results and cause actual results to differ materially from those indicated in the forward-looking statements. Such risks and uncertainties include, but are not limited to: 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, 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 expense related to new marketing initiatives, the impact of wagering products and technologies introduced by competitors, legislative and regulatory decisions and changes, the general health of the gaming sector, and other factors that are beyond our ability to control or predict.
| |
Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Canterbury Park is not required to provide the information requested by this Item as it qualifies as a smaller reporting company.
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Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
(a) Financial Statements
The following financial statements of the Company are set forth on pages 33 through 52 of the Form 10-K:
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Canterbury Park Holding Corporation
We have audited the accompanying consolidated balance sheets of Canterbury Park Holding Corporation (a Minnesota corporation) and subsidiaries (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Canterbury Park Holding Corporation and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Grant Thornton LLP
Minneapolis, Minnesota
March 31, 2014
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|
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES |
|
CONSOLIDATED BALANCE SHEETS |
DECEMBER 31, 2013 AND 2012 |
| | | | | | | |
| | 2013 | | 2012 | |
|
ASSETS | | | | | | | |
| | | | | | | |
CURRENT ASSETS | | | | | | | |
Cash and cash equivalents | | $ | 8,739,209 | | $ | 9,384,983 | |
Restricted cash | | | 1,139,003 | | | 1,605,789 | |
Short-term investments | | | 203,902 | | | 203,195 | |
Accounts receivable, net of allowance of $40,268 and $27,773, respectively | | | 338,971 | | | 412,440 | |
Inventory | | | 244,281 | | | 212,072 | |
Prepaid expenses | | | 624,553 | | | 488,999 | |
Due from Minnesota horsemen associations | | | 2,355 | | | 16,829 | |
Deferred income taxes (Note 3) | | | 333,300 | | | 425,100 | |
Income taxes receivable | | | 330,672 | | | 3,746 | |
Total current assets | | | 11,956,246 | | | 12,753,153 | |
| | | | | | | |
LONG-TERM ASSETS | | | | | | | |
Deposits | | | 26,400 | | | 26,400 | |
Land, buildings and equipment, net (Note 2) | | | 25,129,986 | | | 22,119,959 | |
| | $ | 37,112,632 | | $ | 34,899,512 | |
| | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | |
| | | | | | | |
CURRENT LIABILITIES | | | | | | | |
Accounts payable | | $ | 3,502,871 | | $ | 2,785,534 | |
Card Casino accruals | | | 1,546,123 | | | 1,479,669 | |
Accrued wages and payroll taxes | | | 946,111 | | | 1,034,421 | |
Due to MHBPA (Note 1) | | | — | | | 548,300 | |
Accrued property taxes | | | 650,797 | | | 649,187 | |
Payable to horsepersons | | | 8,201 | | | 23,375 | |
Total current liabilities | | | 6,654,103 | | | 6,520,486 | |
| | | | | | | |
LONG-TERM LIABILITIES | | | | | | | |
Deferred income taxes (Note 3) | | | 1,726,100 | | | 1,254,300 | |
Stock appreciation rights (Note 5) | | | 467,380 | | | 239,788 | |
Total long-term liabilities | | | 2,193,480 | | | 1,494,088 | |
| | | | | | | |
COMMITMENTS AND CONTINGENCIES (Notes 8 and 9) | | | | | | | |
| | | | | | | |
STOCKHOLDERS’ EQUITY (Notes 4 and 5) | | | | | | | |
Common stock, $.01 par value, 10,000,000 shares authorized, 4,177,951 and 4,147,743, respectively, shares issued and outstanding | | | 41,779 | | | 41,477 | |
Additional paid-in capital | | | 17,270,615 | | | 16,903,245 | |
Retained earnings | | | 10,952,655 | | | 9,940,216 | |
Total stockholders’ equity | | | 28,265,049 | | | 26,884,938 | |
| | | | | | | |
| | $ | 37,112,632 | | $ | 34,899,512 | |
See notes to consolidated financial statements.
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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES |
|
CONSOLIDATED STATEMENTS OF OPERATIONS |
YEARS ENDED DECEMBER 31, 2013 AND 2012 |
| | | | | | | |
| | 2013 | | 2012 | |
| | | | | | | |
OPERATING REVENUES: | | | | | | | |
Pari-mutuel | | $ | 11,179,285 | | $ | 10,166,070 | |
Card Casino | | | 25,546,328 | | | 25,998,433 | |
Concessions | | | 6,470,088 | | | 6,002,202 | |
Other | | | 3,792,471 | | | 3,493,554 | |
Total Revenues | | | 46,988,172 | | | 45,660,259 | |
Less: Promotional allowances | | | (251,735 | ) | | (199,612 | ) |
Net Revenues | | | 46,736,437 | | | 45,460,647 | |
| | | | | | | |
OPERATING EXPENSES: | | | | | | | |
Purse expense | | | 6,314,867 | | | 6,147,149 | |
Minnesota Breeders’ Fund | | | 851,482 | | | 828,157 | |
Other pari-mutuel expenses | | | 1,635,663 | | | 1,519,996 | |
Salaries and benefits | | | 19,843,631 | | | 19,221,659 | |
Cost of concession and other sales | | | 3,499,312 | | | 3,355,493 | |
Depreciation | | | 1,861,702 | | | 1,772,760 | |
Utilities | | | 1,326,179 | | | 1,177,359 | |
Advertising and marketing | | | 1,728,192 | | | 1,495,186 | |
Gain on disposal of assets | | | (23,752 | ) | | — | |
Other operating expenses | | | 7,965,352 | | | 7,983,114 | |
Total Operating Expenses | | | 45,002,628 | | | 43,500,873 | |
| | | | | | | |
INCOME FROM OPERATIONS | | | 1,733,809 | | | 1,959,774 | |
| | | | | | | |
OTHER INCOME: | | | | | | | |
Interest income | | | 2,684 | | | 6,702 | |
Net Other Income | | | 2,684 | | | 6,702 | |
| | | | | | | |
INCOME BEFORE INCOME TAXES | | | 1,736,493 | | | 1,966,476 | |
| | | | | | | |
INCOME TAX EXPENSE (Note 3) | | | (719,781 | ) | | (950,112 | ) |
| | | | | | | |
NET INCOME | | $ | 1,016,712 | | $ | 1,016,364 | |
| | | | | | | |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | | | 4,164,437 | | | 4,130,738 | |
| | | | | | | |
WEIGHTED AVERAGE NUMBER OF DILUTIVE SHARES OUTSTANDING | | | 4,189,489 | | | 4,165,401 | |
| | | | | | | |
BASIC NET INCOME PER COMMON SHARE (Note 6) | | $ | .24 | | $ | .25 | |
| | | | | | | |
DILUTED NET INCOME PER COMMON SHARE (Note 6) | | $ | .24 | | $ | .24 | |
See notes to consolidated financial statements.
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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES |
|
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY |
YEARS ENDED DECEMBER 31, 2013 AND 2012 |
| | | | | | | | | | | | | | | | |
| | Number
of Shares | | Common
Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | Total | |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2011 | | | 4,101,701 | | $ | 41,017 | | $ | 16,413,468 | | $ | 11,019,046 | | $ | 27,473,531 | |
| | | | | | | | | | | | | | | | |
Cash dividend paid | | | — | | | — | | | — | | | (2,072,227 | ) | | (2,072,227 | ) |
Exercise of stock options | | | 24,985 | | | 250 | | | 176,813 | | | — | | | 177,063 | |
Stock-based compensation | | | — | | | — | | | 212,459 | | | — | | | 212,459 | |
Tax benefit from exercise of stock-based awards | | | — | | | — | | | 32,458 | | | — | | | 32,458 | |
Common stock repurchases | | | (3,867 | ) | | (39 | ) | | (15,429 | ) | | (22,967 | ) | | (38,435 | ) |
Issuance of restricted stock | | | 16,820 | | | 168 | | | (168 | ) | | — | | | — | |
Shares issued under Employee Stock Purchase Plan | | | 8,104 | | | 81 | | | 83,644 | | | — | | | 83,725 | |
Net income | | | — | | | — | | | — | | | 1,016,364 | | | 1,016,364 | |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2012 | | | 4,147,743 | | $ | 41,477 | | $ | 16,903,245 | | $ | 9,940,216 | | $ | 26,884,938 | |
| | | | | | | | | | | | | | | | |
Exercise of stock options | | | 5,515 | | | 55 | | | 39,300 | | | — | | | 39,355 | |
Stock-based compensation | | | — | | | — | | | 270,074 | | | — | | | 270,074 | |
Tax expense from exercise of stock-based awards | | | — | | | — | | | (1,893 | ) | | — | | | (1,893 | ) |
Common stock repurchases | | | (809 | ) | | (8 | ) | | (3,228 | ) | | (4,273 | ) | | (7,509 | ) |
Issuance of restricted stock | | | 18,290 | | | 183 | | | (183 | ) | | — | | | — | |
Shares issued under Employee Stock Purchase Plan | | | 7,212 | | | 72 | | | 63,300 | | | — | | | 63,372 | |
Net income | | | — | | | — | | | — | | | 1,016,712 | | | 1,016,712 | |
Balance at December 31, 2013 | | | 4,177,951 | | $ | 41,779 | | $ | 17,270,615 | | $ | 10,952,655 | | $ | 28,265,049 | |
See notes to consolidated financial statements.
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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES |
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
YEARS ENDED DECEMBER 31, 2013 AND 2012 |
| | | | | | | |
| | 2013 | | 2012 | |
Operating Activities: | | | | | | | |
Net income | | $ | 1,016,712 | | $ | 1,016,364 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
Depreciation | | | 1,861,702 | | | 1,772,760 | |
Stock–based compensation expense | | | 270,074 | | | 212,459 | |
Increase (decrease) in deferred income taxes | | | 563,601 | | | (164,600 | ) |
Tax expense (benefit) from exercise of stock-based awards | | | 1,893 | | | (32,458 | ) |
Gain on disposal of assets | | | (23,752 | ) | | — | |
Changes in operating assets and liabilities: | | | | | | | |
Decrease (increase) in restricted cash | | | 466,786 | | | (459,626 | ) |
Decrease in accounts receivable | | | 73,469 | | | 127,727 | |
(Increase) decrease in other current assets | | | (167,763 | ) | | 164,454 | |
Increase in income taxes receivable | | | (328,819 | ) | | (68,288 | ) |
Increase in accounts payable and accrued wages and payroll taxes | | | 63,360 | | | 617,605 | |
Increase in Card Casino accruals | | | 66,454 | | | 165,496 | |
Increase in stock appreciation rights | | | 227,592 | | | 239,788 | |
Increase in accrued property taxes | | | 1,610 | | | 42,935 | |
(Decrease) increase in payable to horsepersons | | | (15,174 | ) | | 5,630 | |
(Decrease) increase in due to MHBPA | | | (533,826 | ) | | 417,227 | |
Net cash provided by operating activities | | | 3,543,919 | | | 4,057,473 | |
| | | | | | | |
Investing Activities: | | | | | | | |
Additions to buildings and equipment | | | (4,311,011 | ) | | (1,122,328 | ) |
Proceeds from sale of assets | | | 28,700 | | | — | |
Purchase of investments | | | (707 | ) | | (1,526 | ) |
Net cash used in investing activities | | | (4,283,018 | ) | | (1,123,854 | ) |
| | | | | | | |
Financing Activities: | | | | | | | |
Cash dividend paid to shareholders | | | — | | | (2,072,227 | ) |
Common stock repurchases | | | (7,509 | ) | | (38,435 | ) |
Proceeds from issuance of common stock | | | 102,727 | | | 260,789 | |
Tax (expense) benefit from exercise of stock-based awards | | | (1,893 | ) | | 32,458 | |
Net cash provided by (used in) financing activities | | | 93,325 | | | (1,817,415 | ) |
| | | | | | | |
Net (decrease) increase in cash and cash equivalents | | | (645,774 | ) | | 1,116,204 | |
| | | | | | | |
Cash and cash equivalents at beginning of year | | | 9,384,983 | | | 8,268,779 | |
| | | | | | | |
Cash and cash equivalents at end of year | | $ | 8,739,209 | | $ | 9,384,983 | |
| | | | | | | |
Supplemental disclosure of non-cash investing and financing activities: | | | | | | | |
Additions to buildings and equipment funded through accounts payable | | $ | 589,229 | | $ | 23,562 | |
Supplemental disclosure of cash flow information: | | | | | | | |
Income taxes paid, net of refunds | | $ | 485,000 | | $ | 1,183,000 | |
See notes to consolidated financial statements.
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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
YEARS ENDED DECEMBER 31, 2013 AND 2012 |
| |
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| |
| Business – Canterbury Park Holding Corporation (the “Company”) was incorporated on March 24, 1994 and conducts pari-mutuel wagering operations and hosts “unbanked” card games at its Canterbury Park Racetrack and Card Casino facility (the “Racetrack”) in Shakopee, Minnesota. |
| |
| 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 until 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, operation of an RV park, and from other entertainment events and activities held at the Racetrack. |
| |
| The consolidated financial statements include the accounts of the Company, Canterbury Park Concessions, Inc. (CPC), and Shakopee Valley RV Park Acquisition Company, LLC after elimination of intercompany accounts and transactions. |
| |
| Revenue Recognition –The Company’s revenues are derived primarily from the operations of a Card Casino, pari-mutuel wagering on simulcast and live horse races, concession sales, and related activities. Collection revenue from Card Casino operations, a set percentage of wagers, is recognized at the time that the wagering process is complete. Pari-mutuel revenues are 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. Revenues related to concession and publication sales and parking and admission fees are recognized as revenue when the service has been performed or the product has been delivered. All sales taxes are presented on a net basis and are excluded from revenue. |
| |
| Estimates – The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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. Actual results could differ from these estimates. |
| |
| Cash and Cash Equivalents – Cash and cash equivalents include all investments with original maturities of three months or less or which are readily convertible into known amounts of cash and are not legally restricted. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. |
| |
| 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. |
| |
| Short-term Investments – Securities are classified as held to maturity when the Company has the positive intent and ability to hold them to maturity, and are measured at amortized cost. At December 31, 2013 and 2012, all investments were classified as held to maturity. The Company continually reviews its investments to determine whether a decline in fair value below the cost basis is other than temporary. If the decline in fair value is judged to be other than temporary, the cost basis of the security is written down to fair value and the amount of the write-down is included in earnings. Short-term investments consist of certificates of deposit at December 31, 2013 and 2012. Amortized cost approximated fair value for both periods. |
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| |
| Accounts Receivable – Accounts receivable are initially recorded for amounts due from other tracks for simulcast revenue, net of amounts due to other tracks, and for amounts due from customers related to special events. Credit is granted in the normal course of business without collateral. Accounts receivable are stated net of allowances for doubtful accounts, which represent estimated losses resulting from the inability of customers to make the required payments. Accounts that are outstanding longer than the contractual terms are considered past due. When determining the allowances for doubtful accounts, the Company takes several factors into consideration including the overall composition of the accounts receivable aging, its prior history of accounts receivable write-offs, the type of customers and its day-to-day knowledge of specific customers. The Company writes off accounts receivable when they become uncollectible. Changes in the allowances for doubtful accounts are recorded as bad debt expense and are included in other operating expenses in the Company’s consolidated statements of operations. |
| |
| Inventory –Inventory consists primarily of food and beverages, small wares and supplies, and retail goods and is recorded at the lower of cost (first-in, first-out) or market. |
| |
| Unredeemed Pari-mutuel Tickets – The Company records a liability for winning tickets and vouchers upon the completion of a race and when a voucher is printed, respectively. As uncashed winning tickets and vouchers are redeemed, this liability is reduced for the respective cash payment. The Company recognizes revenue associated with the uncashed winning tickets and vouchers when the likelihood of redemption, based on historical experience, is remote. While the Company continues to honor all winning tickets and vouchers presented for payment, management may determine the likelihood of redemption to be remote due to the length of time that has elapsed since the ticket was issued. In these circumstances, if management also determines there is no requirement for remitting balances to government agencies under unclaimed property laws, uncashed winning tickets and vouchers may then be recognized as revenue in the Company’s consolidated statements of operations. |
| |
| During the quarter ended June 30, 2013, the Company reevaluated the likelihood of redemption relating to outstanding vouchers and through this assessment, the Company decreased the projected redemption rate. The Company has determined that this adjustment to the likelihood of redemption relating to vouchers is a change in accounting estimate and has accounted for the change prospectively; i.e. the accounting change impacts interim reporting periods within fiscal year 2013 and future periods. For the year ended December 31, 2013, the change in accounting estimate decreased the Company’s liability for outstanding pari-mutuel vouchers and increased pari-mutuel revenue in its consolidated statements of operations for the period by approximately $412,286 (pre-tax difference), increasing income from operations by this amount as well. Net income increased approximately $239,150 (after taking income taxes into account), or by approximately $0.06 net income per basic and diluted common share. |
| |
| Promotional Allowances –The Company offers certain promotional allowances at no charge to patrons who participate in its player rewards program. The retail value of these promotional items is shown as a deduction from total revenues on the Company’s consolidated statements of operations. |
| |
| Due to Minnesota Horsemen’s Benevolent and Protective Association, Inc. (“MHBPA”) – The Minnesota Pari-mutuel Horse Racing Act specifies that the Company is required 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’ associations. Pursuant to an agreement with the MHBPA, the Company transferred into a trust account or paid directly to the MHBPA, approximately $6,325,000 and $5,175,000 for the years ended December 31, 2013 and 2012, respectively, related to thoroughbred races. Minnesota Statutes specify that amounts transferred into the trust account are the property of the trust and not of the Company. |
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| |
| Impairment of Long-Lived Assets –Management of the Company 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. Should the sum of the related expected future net cash flows be less than the carrying value, management will determine whether an impairment loss should be recognized. An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. Management has determined that no impairment of these assets exists at December 31, 2013. |
| |
| Advertising and Marketing – Advertising and marketing costs are charged to expense as incurred. The related amounts are presented separately in the Company’s consolidated statements of operations. |
| |
| Land, Buildings, and Equipment – Land, buildings, equipment, and building improvements are capitalized at a level of $1,000 or greater and are recorded at cost. Repair and maintenance costs are charged to operations when incurred. Furniture, fixtures, and equipment are depreciated using the straight-line method over estimated useful lives ranging from 5 – 7 years, while buildings are depreciated over 15 – 39 years. Building improvements are amortized using the straight-line method over the useful life of the assets. |
| |
| Card Casino Accruals – Minnesota law allows the Company to collect amounts from patrons to fund progressive jackpot pools in the Card Casino. These amounts, along with amounts earned by the player pool, promotional pools, and the outstanding chip liability, are accrued as short-term liabilities at each balance sheet date. |
| |
| Income Taxes– Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to reverse. |
| |
| The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. |
| |
| Interest and penalties associated with uncertain income tax positions are presented in income tax expense. For the years ended December 31, 2013 and 2012, the Company did not recognize any expense related to interest and penalties. |
| |
| Net Income Per Share – Basic net income per common share is based on the weighted average number of common shares outstanding during each year. Diluted net income per common share takes into effect the dilutive effect of potential common shares outstanding. The Company’s only potential common shares outstanding are stock options. |
| |
| FairValues of Financial Instruments– Due to the current classification of all financial instruments of the Company and given the short-term nature of the related account balances, carrying amounts reported in the consolidated balance sheets approximate fair value. |
| |
| Stock-Based Employee Compensation – The Company accounts for share-based compensation awards on a fair value basis. The estimated grant date fair value of each stock-based award is recognized as expense over the requisite service period (generally the vesting period). The estimated fair value of each option is calculated using the Black-Scholes option-pricing model. |
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| |
| For more information on the Company’s stock-based compensation plans, see Note 5. |
| |
2. | LAND, BUILDINGS AND EQUIPMENT |
| |
| Land, buildings and equipment, at cost, consist of the following at December 31, 2013 and 2012: |
| | | | | | | |
| | 2013 | | 2012 | |
| | �� | | | | | |
Land | | $ | 6,673,076 | | $ | 6,673,076 | |
Buildings and building improvements | | | 22,107,644 | | | 20,559,125 | |
Furniture and equipment | | | 18,663,552 | | | 16,909,702 | |
| | | 47,444,272 | | | 44,141,903 | |
Accumulated depreciation | | | (22,314,286 | ) | | (22,021,944 | ) |
| | $ | 25,129,986 | | $ | 22,119,959 | |
| |
3. | INCOME TAXES |
| |
| A reconciliation between income taxes computed at the statutory federal income tax rate and the effective tax rate for the years ended December 31, 2013 and 2012 is as follows: |
| | | | | | | |
| | 2013 | | 2012 | |
| | | | | | | |
Federal tax expense at statutory rates | | $ | 587,367 | | $ | 668,602 | |
Nondeductible lobbying expense | | | 29,115 | | | 102,332 | |
State expense, net of federal impact | | | 128,146 | | | 155,738 | |
Stock option expense | | | 12,465 | | | 22,862 | |
Other | | | (37,312 | ) | | 578 | |
| | $ | 719,781 | | $ | 950,112 | |
| |
| Income tax expense for the years ended December 31, 2013 and 2012 consists of the following: |
| | | | | | | |
| | 2013 | | 2012 | |
Current | | | | | | | |
Federal | | $ | 179 | | $ | 864,576 | |
State | | | 156,002 | | | 250,136 | |
| | | 156,181 | | | 1,114,712 | |
Deferred, primarily Federal | | | 563,600 | | | (164,600 | ) |
| | $ | 719,781 | | $ | 950,112 | |
| |
| Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. |
| |
| Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2013 and 2012 are as follows: |
| | | | | | | |
| | 2013 | | 2012 | |
Deferred tax assets | | | | | | | |
Vacation accrual | | $ | 68,400 | | $ | 68,800 | |
Player rewards program accrual | | | 269,600 | | | 252,700 | |
Stock options and stock appreciation rights | | | 339,300 | | | 259,700 | |
Other | | | — | | | 103,600 | |
Total deferred tax assets | | $ | 677,300 | | $ | 684,800 | |
| | | | | | | |
Deferred tax liabilities | | | | | | | |
Tax depreciation greater than book depreciation | | $ | (1,961,400 | ) | $ | (1,410,000 | ) |
Deferred gain on sale of land | | | (104,000 | ) | | (104,000 | ) |
Other | | | (4,700 | ) | | — | |
Total deferred tax liabilities | | $ | (2,070,100 | ) | $ | (1,514,000 | ) |
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| |
| The Company is subject to U.S. and Minnesota taxation. The Company is no longer subject to U.S. federal, state, or local examinations by tax authorities for years before 2009. |
| |
4. | STOCKHOLDERS’ EQUITY |
| |
| Employee Stock Purchase Plan: |
| |
| On April 3, 1995, the Board of Directors adopted an Employee Stock Purchase Plan (the “ESPP”). The ESPP is open to all employees of the Company working more than 15 hours per week. Pursuant to Board action taken in September 2011, the ESPP was amended to consist of three-month phases. From the ESPP inception date until September 30, 2011, the ESPP consisted of one-year phases. The first phase using the amended ESPP commenced on October 1, 2011 and under the terms of the ESPP, employees are allowed to set aside a portion of their payroll earnings to purchase shares of the Company’s common stock. Pursuant to Board action taken on June 2, 2012, and effective during the third quarter of 2012, the discount offered to employees as part of the ESPP was raised from 5% to 10%. Employees purchased 7,212 and 8,153 shares in 2013 and 2012, respectively. As of December 31, 2013, a total of 259,951 shares have been issued since inception out of the 350,000 shares authorized. |
| |
| 401(k) Plan: |
| |
| On June 1, 1998, the Company established a defined contribution savings plan for employees who had completed one year of service, as defined in the Plan document. The defined contribution savings plan allows for employee compensation deferral contributions under Section 401(k) of the Internal Revenue Code and discretionary contributions by the Company. Employer contributions charged to operations for the years ended December 31, 2013 and 2012 were $134,319 and $120,345, respectively. |
| |
| Employee Stock Ownership Plan: |
| |
| In December 2004, the Company’s Board of Directors approved an Employee Stock Ownership Plan (the “ESOP”) effective for calendar years beginning January 1, 2004. All eligible employees of the Company participate in the ESOP after completing one full calendar year of service. Contributions to the ESOP are determined by the Board of Directors and can be made in cash or shares of the Company’s common stock. Annual contributions are allocated to each participant based on compensation and vest in accordance with a six-year graded vesting schedule. Compensation expense for the ESOP is determined based on the average fair value of shares on the date the Company commits to the contribution to the ESOP. For the purposes of earnings per share, ESOP shares are included in weighted-average common shares outstanding at year-end as the shares are committed to be contributed on that date. On October 24, 2008, the Company suspended its ESOP contribution for fiscal 2008 and no contributions have been made from January 1, 2008 to date. During the first quarter of 2013, the Company’s Board of Directors approved an action to combine the ESOP with the 401(k) Plan to create a KSOP Plan. This KSOP Plan allows the Company to use Company stock to match contributions from its employees should it so choose. This combination became effective on July 15, 2013. There was no match of Company stock to the KSOP in 2013. |
| |
| Stock Repurchase Plan: |
| |
| On August 24, 2012, the Company announced that its Board of Directors had authorized the repurchase of up to 100,000 shares of the Company’s common stock pursuant to Exchange Act Rule 12b-18. During 2013, the Company repurchased 809 shares of common stock at an average price of $9.28 for an aggregate purchase price of $7,509. During 2012, the Company repurchased 3,867 shares of common stock at an average price of $9.94 for an aggregate purchase price of $38,435. |
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| |
5. | STOCK-BASED COMPENSATION |
| |
| Stock-based compensation is recorded at fair value as of the date of grant and included in the salaries and benefits expense line item on the consolidated statements of operations and amounted to $270,074 and $212,459 for the years ended December 31, 2013 and 2012, respectively. |
| |
| Stock Options: |
| |
| The Company’s 1994 Stock Plan (the “Plan”) provides for the granting of awards in the form of stock options, restricted stock, stock appreciation rights, and deferred stock to key employees and non-employees, including directors of and consultants to the Company and any subsidiary, to purchase up to a maximum of 1,450,000 shares of common stock. The Company currently has 181,140 shares available for grant under the Plan. Options that are granted under the Plan may be either options that qualify as “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (Incentive Stock Options), or those that do not qualify as Incentive Stock Options (Non-Qualified Stock Options). The Plan is administered by the Board of Directors which determines the persons who are to receive awards under the Plan, the type of award to be granted, the number of shares subject to each award and, if an option, the exercise price of each option. The Plan also provides for formula grants of Non-Qualified Stock Options to non-employee directors and consultants of the Company. |
| |
| The Plan provides that payment of the exercise price may be made in the form of unrestricted shares of common stock already owned by the optionee. The Company calculates the fair market value of unrestricted shares as the average of the high and low sales prices on the date of exercise. The Company’s common stock is purchased upon the exercise of stock options, and restricted stock awards are settled in shares of the Company’s common stock. |
| |
| Stock option activity related to the Plan during the years ended December 31, 2013 and 2012 is summarized below: |
| | | | | | | | | | | | | |
| | 2013 | | 2012 | |
| | Number of
Shares | | Weighted
Average
Exercise
Price | | Number of
Shares | | Weighted
Average
Exercise
Price | |
Outstanding at beginning of year | | | 292,267 | | $ | 10.13 | | | 318,002 | | $ | 9.89 | |
| | | | | | | | | | | | | |
Granted | | | — | | | — | | | — | | | — | |
Exercised | | | (5,515 | ) | | 7.14 | | | (24,985 | ) | | 7.09 | |
Expired/Forfeited | | | (15,000 | ) | | 13.86 | | | (750 | ) | | 6.76 | |
| | | | | | | | | | | | | |
Outstanding at end of year | | | 271,752 | | $ | 9.99 | | | 292,267 | | $ | 10.13 | |
| | | | | | | | | | | | | |
Options exercisable at end of year | | | 271,752 | | $ | 9.99 | | | 272,142 | | $ | 10.27 | |
| |
| The grant-date fair value of options outstanding and exercisable at December 31, 2013 and 2012 was $1,063,000 and $1,115,000, respectively. The weighted average remaining contractual term of these options is 4.9 and 5.2 years, respectively. |
| |
| There were no options granted in 2013 or 2012. The total fair value of options exercised during the years ended December 31, 2013 and 2012 was $13,000 and $74,000, respectively. The total income tax expense (benefit) recognized in the consolidated statements of operations for stock-based compensation arrangements was $1,893 and $(32,458) for 2013 and 2012, respectively. |
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| |
| The following table summarizes information concerning all options outstanding and options exercisable as of December 31, 2013: |
| | | | | | | | | | | | | | | | |
Range of Exercise Price | | Options
Outstanding | | Weighted
Average
Remaining
Contractual
Life in Years | | Weighted
Average
Exercise
Price | | Options
Exercisable | | Weighted
Average
Exercise Price | |
$5.00 – 7.50 | | | 89,502 | | | 5.6 | | $ | 6.23 | | | 89,502 | | $ | 6.23 | |
$7.51 – 11.25 | | | 77,750 | | | 6.3 | | $ | 8.34 | | | 77,750 | | $ | 8.33 | |
$11.26 – 16.50 | | | 75,000 | | | 4.0 | | $ | 13.45 | | | 75,000 | | $ | 13.45 | |
$16.51 – 17.25 | | | 29,500 | | | 0.9 | | $ | 16.94 | | | 29,500 | | $ | 16.94 | |
Total | | | 271,752 | | | 4.9 | | $ | 9.99 | | | 271,752 | | $ | 9.99 | |
| |
| Board of Directors Stock Option and Restricted Stock Grants |
| |
| Pursuant to Board action taken on April 15, 2011 and shareholder approval on June 2, 2011, the Company’s Stock Plan was amended to authorize annual grants of restricted stock or stock options, or both, as determined by the Board. Pursuant to the amended Stock Plan, on June 2, 2011, 1,000 shares of restricted stock were granted to each of the five non-employee members of the Board of Directors with a price per share equal to the market price on the date of grant of $14.66. The restricted stock vested after one year and was subject to restrictions on resale for an additional year. The compensation cost associated with the total grant of 5,000 shares was $73,300 that was recognized as expense over the one-year vesting period. Also pursuant to the amended Stock Plan, on June 7, 2012, 2,364 shares of restricted stock were granted to each of the five non-employee members of the Board of Directors with a price per share equal to the market price on the date of grant of $12.69. The restricted stock vested after one year and is subject to restrictions on resale for an additional year. The compensation cost associated with the total grant of 11,820 shares was $149,996 and was recognized as expense over the one-year vesting period. As of December 31, 2013, there was no unrecognized compensation cost related to this restricted stock grant. |
| |
| Additionally, on January 4, 2013, 1,250 shares of restricted stock were granted to a newly named non-employee member of the Board of Directors with a price per share equal to the market price on the date of grant of $10.00. The restricted stock vested after one year and is subject to restrictions on resale for an additional year. The compensation cost associated with this restricted stock grant of 1,250 shares for the year ended December 31, 2013 was $12,500. As of December 31, 2013, there was no unrecognized compensation cost related to this restricted stock grant. |
| |
| Finally, on May 30, 2013, 2,840 shares of restricted stock were granted to each of the six non-employee members of the Board of Directors with a price per share equal to the market price on the date of grant of $10.56. The restricted stock will vest 100% after one year and will be subject to restrictions on resale for an additional year. The compensation cost associated with the total grant of 17,040 shares for the year ended December 31, 2013 was $104,966. As of December 31, 2013, there was $74,976 of total unrecognized compensation cost related to this restricted stock grant which is expected to be recognized over 0.4 years. |
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| |
| The number of shares that may be issued pursuant to restricted stock granted and the weighted average fair value during the years ended December 31, 2013 and 2012 is summarized below: |
| | | | | | | | | | | | | |
| | 2013 | | 2012 | |
| | Grant | | Weighted
Average
Fair Value
Per Share | | Grant | | Weighted
Average
Fair Value
Per Share | |
| | | | | | | | | | | | | |
Board restricted stock | | | 18,290 | | $ | 10.52 | | | 11,820 | | $ | 12.69 | |
| | | | | | | | | | | | | |
Total shares | | | 18,290 | | | | | | 11,820 | | | | |
| |
| Employee Stock Option and Deferred Stock Award Grants |
| |
| On April 23, 2009, 100,000 incentive stock options were granted to employees with an exercise price equal to the market price on the date of grant of $6.00. The stock options vested over a 42-month period and expire in ten years. The compensation cost associated with this grant of employee options was $92,555 and was recognized as expense over the 42-month vesting period. The compensation cost associated with these options included in salaries and benefits expense was $22,037 for the year ended December 31, 2012. As of December 31, 2012, there was no unrecognized compensation cost related to these stock options. |
| |
| Additionally, on February 25, 2010, 86,500 incentive stock options were granted to employees with an exercise price equal to the market price on the date of grant of $8.28. The options vested over a 42-month period and expire in ten years. The compensation cost associated with this grant of employee options was $282,355 and was recognized as expense over the 42-month vesting period. The compensation cost associated with these options included in salaries and benefits expense for the years ended December 31, 2013 and 2012 was $47,059 and $70,589, respectively. As of December 31, 2013, there was no unrecognized compensation cost related to these stock options. |
| |
| Finally, on December 13, 2012, 20,500 shares of deferred stock awards were granted to employees with a price per share equal to the market price on the date of grant of $9.84. The awards vest ratably over a four-year period. The compensation cost associated with this grant of employee awards is $172,200 to be recognized as expense over the four-year vesting period. The compensation cost related to these awards included in salaries and benefits expense for the years ended December 31, 2013 and 2012 was $43,050 and $1,794, respectively. As of December 31, 2013, there was $127,356 of total unrecognized compensation cost related to these deferred stock awards which is expected to be recognized over 3.0 years. |
| |
| Stock Appreciation Rights (“SARs”) |
| |
| As part of the Cooperative Marketing Agreement discussed in Note 13, on June 14, 2012, the Company signed a Stock Appreciation Rights Agreement (the “SAR Agreement”) and issued SARs to non-employees. The SAR Agreement granted rights to non-employees to benefit from the appreciation in the value of 165,000 shares of Company common stock above $14.30 per share, a price agreed upon by the two parties. Each right represents the right to be paid the appreciation in the value of one share of stock above $14.30. Ten percent of the rights (16,500 rights) vested immediately and the remaining rights vest at the rate of 16,500 per year beginning in January 2013. As of December 31, 2013, 33,000 rights had vested. The SAR Agreement provides for the cash payment of the excess of the fair market value of Canterbury Park Holding Corporation’s common stock price on the date of exercise over the grant price. SARs have no effect on dilutive shares or shares outstanding as any appreciation of the Company’s common stock value over the grant price is paid in cash and not in common stock. The SAR Agreement and all rights granted expire on December 31, 2022. |
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| |
| The fair value of SARs is revalued (mark-to-market) each reporting period using the Black-Scholes valuation model based on the Company’s period-end stock price. The expected term of the SARs granted is based on the contractual term. Expected volatility is based on the historical volatility of the Company’s stock for the length of time corresponding to the expected term of the SARs. The expected dividend yield is based on the Company’s anticipated dividend payments. The risk-free interest rate is based on the U.S. treasury yield curve in effect as of the reporting date for the length of time corresponding to the expected term of the SARs. |
| |
| The following weighted-average assumptions were used in calculating the fair value of SARs granted during the years ended December 31, 2013 and 2012, using the Black-Scholes valuation model: |
| | | | | | | |
| | 2013 | | 2012 | |
Expected dividend yield | | | 0.00 | % | | 0.00 | % |
Expected weighted-average volatility | | | 49.5 | % | | 47.8 | % |
Risk-free interest rate | | | 2.84 | % | | 1.65 | % |
Expected term of SARs (in years) | | | 9.00 | | | 10.25 | |
| |
| There were no exercises during the years ended December 31, 2013 or 2012. The total liability of the SARs at December 31, 2013 was $467,380. |
| |
| Changes to the Company’s non-vested SARs during the years ended December 31, 2013 and 2012, are as follows: |
| | | | | | | |
| | SARs | | Weighted Average
Fair Value | |
Non-vested SARs at December 31, 2011 | | | — | | $ | — | |
Granted | | | 165,000 | | | 4.72 | |
Vested | | | (16,500 | ) | | 4.72 | |
Cancellations | | | — | | | — | |
Non-vested SARs at December 31, 2012 | | | 148,500 | | $ | 5.24 | |
Granted | | | — | | | — | |
Vested | | | (16,500 | ) | | 5.03 | |
Cancellations | | | — | | | — | |
Non-vested SARs at December 31, 2013 | | | 132,000 | | $ | 5.41 | |
| |
6. | NET INCOME PER SHARE COMPUTATIONS |
| |
| The following is a reconciliation of the numerator and denominator of the net income per common share computations for the years ended December 31, 2013 and 2012: |
| | | | | | | |
| | 2013 | | 2012 | |
| | | | | | | |
Net income (numerator) amounts used for basic and diluted per share computations: | | $ | 1,016,712 | | $ | 1,016,364 | |
| | | | | | | |
Weighted average shares (denominator) of common stock outstanding: | | | | | | | |
Basic | | | 4,164,437 | | | 4,130,738 | |
Plus dilutive effect of stock options | | | 25,052 | | | 34,663 | |
Diluted | | | 4,189,489 | | | 4,165,401 | |
| | | | | | | |
Net income per common share: | | | | | | | |
Basic | | $ | .24 | | $ | .25 | |
Diluted | | | .24 | | | .24 | |
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| |
| Options to purchase 104,500 shares of common stock at an average of $14.44 per share were outstanding but not included in the computation of diluted net income per share at December 31, 2013 because the options were out of the money at December 31, 2013. |
| |
| Options to purchase 119,500 shares of common stock at an average of $14.36 per share were outstanding but not included in the computation of diluted net income per share at December 31, 2012 because the options were out of the money at December 31, 2012. |
| |
7. | GENERAL CREDIT AGREEMENT |
| |
| The Company has a general credit and security agreement with Bremer Bank, which provides a revolving credit line of up to $3,000,000. On May 6, 2013, the Company signed an amendment with Bremer Bank extending the expiration date from May 5, 2013 to May 5, 2014, while keeping previous provisions intact. The Company had no borrowings under the credit line during the years ended December 31, 2013 or 2012. The credit agreement contains certain covenants requiring the Company to maintain certain financial ratios. The Company was in compliance with these requirements as of December 31, 2013. |
| |
8. | OPERATING LEASES AND COMMITMENTS |
| |
| Purchase Obligations |
| |
| In March 2008, the Company entered into a six-year service agreement with its totalizator provider. Pursuant to the agreement, the vendor provides totalizator equipment and computer programs which record and process all wagers and calculate odds and payoffs. Amounts charged to operations under this agreement for the years ended December 31, 2013 and 2012 were $225,000 and $218,418, respectively. In March 2014, the Company entered into a seven-year agreement with a new totalizator provider. Under the new agreement, $221,345 will be charged to operations in year one. |
| |
| Operating Lease Obligations |
| |
| The Company has entered into operating leases for rental of office equipment and for track equipment to maintain the Racetrack. Amounts charged to operations under these agreements for the years ended December 31, 2013 and 2012 were $130,436 and $118,625, respectively. All such leases expire in or before February 2018. Future lease payment obligations under these leases are provided in the table below: |
| | | | | | | | | | | | | | | | | | | |
Lease Obligations | | TOTAL | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | |
|
Operating Leases | | $ | 234,200 | | $ | 125,900 | | $ | 49,400 | | $ | 29,200 | | $ | 27,300 | | $ | 2,400 | |
| |
9. | CONTINGENCIES |
| |
| Canterbury Park Holding Corporation was incorporated on March 24, 1994. On March 29, 1994, the Company acquired all the outstanding securities of Jacobs Realty, Inc. (“JRI”) from Irwin Jacobs and IMR Fund, L.P. (an investment fund for various pension plans and trusts). JRI was merged into the Company, and the acquisition was accounted for under the purchase method of accounting whereby the acquired assets and liabilities have been recorded at the Company’s cost. The primary asset of JRI was Canterbury Downs Racetrack and the 325 acres of surrounding land. |
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| |
| On May 20, 1994, the Company adopted a plan of Reorganization pursuant to which the sole shareholder of Canterbury Park Concessions, Inc. (“CPC”), and majority shareholder of the Company, agreed to exchange his shares of CPC stock for 198,888 shares of the Company’s common stock concurrent with the closing of a public offering. Pursuant to the Plan of Reorganization, CPC became a wholly-owned subsidiary of the Company in August 1994 when the Company completed the initial public offering of its common stock. This reorganization was treated in a manner similar to a pooling of interests. Net proceeds received by the Company from the public offering were approximately $4,847,000, which along with additional borrowings under the Company’s line of credit with the majority shareholder, were used to pay off the remaining notes payable from the acquisition of JRI. |
| |
| In connection with the purchase of the Racetrack, the Company entered into an Earn Out Promissory Note dated March 29, 1994. In accordance with the Earn Out Note, 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 $700,000 per operating year, as defined, or 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 will be required to pay these amounts is remote. At the date (if any) that these two conditions are met, the five minimum payments will be discounted back to their present value and the sum of those discounted payments will be capitalized as part of the purchase price in accordance with generally accepted accounting principles. The purchase price will be further increased if payments become due under the “20% of Net Pretax Profit” calculation. The first payment is to be made 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. |
| |
| Additionally, the Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community which became effective on June 15, 2012. 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 that the likelihood that the breach of a covenant will occur and that the Company will be required to pay the specified amount related to such covenant is remote. |
| |
| In August 2012, North Metro Harness Initiative, LLC (“NMHI”) initiated litigation against the MHBPA and the Company seeking to be relieved of its obligations to supplement purses at Canterbury Park under its Purse Supplement Agreement with the MHBPA. The Company believed the theories asserted by NMHI in its complaint against them were without merit, and the Company and the MHBPA brought motions to dismiss NMHI’s lawsuit. In addition, both the Company and the MHBPA moved for an order compelling arbitration of the claims in NMHI’s lawsuit, which is the only remedy permitted by the terms of the Purse Supplement Agreement. On May 2, 2013, the Fourth Judicial District Court ordered that NMHI’s claims against the Company be dismissed with prejudice. |
| |
| 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 December 31, 2013 and as of the date of this report will not have a material impact on the Company’s consolidated financial results of operations. |
| |
| The Company has committed to payment of statutory distributions under a $500,000 bond issued to the Minnesota Racing Commission as required by Minnesota statute. The Company was not required to make any payments related to this bond in 2013 or 2012, and there is no liability related to this bond on the balance sheet as of December 31, 2013. |
| |
10. | RELATED-PARTY TRANSACTIONS |
| |
| The Company paid a combined total of $40,000 in both 2013 and 2012 to the Chairman and Vice Chairman of the Company as further director compensation for their additional responsibilities as described in consulting agreements with each individual. |
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| |
11. | OPERATING SEGMENTS |
| |
| The Company has three reportable operating segments: horse racing, Card Casino, and concessions. The horse racing segment primarily represents simulcast and live horse racing operations and the operation of an RV park. The Card Casino segment represents operations of Canterbury Park’s Card Casino, and the concessions segment represents food and beverage operations provided during simulcast and live racing, in the Card Casino, and during special events. 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 processes to produce those products and services. The Minnesota Racing Commission regulates the horse racing and Card Casino segments. |
| |
| Depreciation, interest expense and income taxes are allocated to the segments but no allocation is made to concessions for shared facilities. However, the concessions 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 provide information about the Company’s operating segments (in 000’s): |
| | | | | | | | | | | | | |
| | Year Ended December 31, 2013 | |
| | Horse
Racing | | Card Casino | | Concessions | | Total | |
| | | | | | | | | | | | | |
Net revenues from external customers | | $ | 14,704 | | $ | 25,545 | | $ | 6,487 | | $ | 46,736 | |
| | | | | | | | | | | | | |
Intersegment revenues | | | 635 | | | — | | | 1,499 | | | 2,134 | |
| | | | | | | | | | | | | |
Net interest income | | | 3 | | | — | | | — | | | 3 | |
| | | | | | | | | | | | | |
Depreciation | | | 1,198 | | | 540 | | | 124 | | | 1,862 | |
| | | | | | | | | | | | | |
Segment (loss) income before income taxes | | | (2,138 | ) | | 4,654 | | | 524 | | | 3,040 | |
| | | | | | | | | | | | | |
| | At December 31, 2013 | |
| | | |
Segment Assets | | $ | 34,870 | | $ | 1,640 | | $ | 13,845 | | $ | 50,355 | |
| | | | | | | | | | | | | |
| | Year Ended December 31, 2012 | |
| | Horse
Racing | | Card Casino | | Concessions | | Total | |
|
Net revenues from external customers | | $ | 13,451 | | $ | 25,999 | | $ | 6,011 | | $ | 45,461 | |
| | | | | | | | | | | | | |
Intersegment revenues | | | 498 | | | — | | | 1,548 | | | 2,046 | |
| | | | | | | | | | | | | |
Net interest income | | | 7 | | | — | | | — | | | 7 | |
| | | | | | | | | | | | | |
Depreciation | | | 1,076 | | | 561 | | | 136 | | | 1,773 | |
| | | | | | | | | | | | | |
Segment (loss) income before income taxes | | | (2,191 | ) | | 4,792 | | | 574 | | | 3,175 | |
| | | | | | | | | | | | | |
| | At December 31, 2012 | |
| | | | | | | | | | | | | |
Segment Assets | | $ | 31,950 | | $ | 2,337 | | $ | 12,538 | | $ | 46,825 | |
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The following are reconciliations of reportable segment revenues, income before income taxes, and assets, to the Company’s consolidated totals for the years ended December 31, 2013 and 2012 (in 000’s):
| | | | | | | |
| | 2013 | | 2012 | |
Revenues | | | | | | | |
Total net revenues for reportable segments | | $ | 48,870 | | $ | 47,507 | |
Elimination of intersegment revenues | | | (2,134 | ) | | (2,046 | ) |
Total consolidated net revenues | | $ | 46,736 | | $ | 45,461 | |
| | | | | | | |
Income before income taxes | | | | | | | |
Total segment income before income taxes | | $ | 3,040 | | $ | 3,175 | |
Elimination of intersegment income before income taxes | | | (1,304 | ) | | (1,209 | ) |
Total consolidated income before income taxes | | $ | 1,736 | | $ | 1,966 | |
| | | | | | | |
| | December 31,
2013 | | December 31,
2012 | |
Assets | | | | | | | |
Total assets for reportable segments | | $ | 50,355 | | $ | 46,825 | |
Elimination of intercompany receivables | | | (13,242 | ) | | (11,925 | ) |
Total consolidated assets | | $ | 37,113 | | $ | 34,900 | |
| |
12. | SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED) |
| | | | | | | | | | | | | |
| | 2013 Quarter Ended: | |
|
| | March 31 | | June 30 | | September 30 | | December 31 | |
|
Net revenues | | $ | 9,144,568 | | $ | 13,280,950 | | $ | 14,274,459 | | $ | 10,036,460 | |
| | | | | | | | | | | | | |
Operating expenses | | | 8,638,940 | | | 12,948,626 | | | 13,999,754 | | | 9,415,308 | |
| | | | | | | | | | | | | |
Net income | | | 291,081 | | | 193,248 | | | 170,503 | | | 361,880 | |
| | | | | | | | | | | | | |
Basic net income per share | | | .07 | | | .05 | | | .04 | | | .09 | |
| | | | | | | | | | | | | |
Diluted net income per share | | | .07 | | | .05 | | | .04 | | | .09 | |
| | | | | | | | | | | | | |
| | 2012 Quarter Ended: | |
|
| | March 31 | | June 30 | | September 30 | | December 31 | |
|
Net revenues | | $ | 9,608,710 | | $ | 11,964,084 | | $ | 13,787,685 | | $ | 10,100,168 | |
| | | | | | | | | | | | | |
Operating expenses | | | 8,603,751 | | | 12,257,434 | | | 13,401,106 | | | 9,238,582 | |
| | | | | | | | | | | | | |
Net income (loss) | | | 532,504 | | | (166,536 | ) | | 202,034 | | | 448,362 | |
| | | | | | | | | | | | | |
Basic net income (loss) per share | | | .13 | | | (.04 | ) | | .05 | | | .11 | |
| | | | | | | | | | | | | |
Diluted net income (loss) per share | | | .13 | | | (.04 | ) | | .05 | | | .11 | |
| |
| Certain amounts included for the quarter ended September 30, 2012 have been reclassified to conform to the 2012 year end presentation. |
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| |
| The sum of the quarterly net income (loss) per share amounts may not equal the annual net income (loss) per share total because of changes in the weighted average number of shares outstanding that occurred during the year. |
| |
13. | COOPERATIVE MARKETING AGREEMENT |
| |
| On June 4, 2012, the Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community (“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 horse industry. Under the terms of the CMA, the SMSC paid the horsemen $2.7 million in June 2012 and $5.3 million in February 2013 for purse enhancements. After 2013, the SMSC is obligated to contribute the additional amounts listed below for purse enhancements. |
| |
| The Company and the SMSC have also agreed in the CMA to partner in joint marketing efforts for their mutual benefit, including signage, joint promotions, player benefits and events. Under the CMA, the SMSC paid the Company $300,000 in June 2012 and $600,000 in February 2013 for marketing purposes. After 2013, the SMSC is obligated to pay the additional amounts listed below to be used for mutually agreeable marketing purposes. |
| |
| Under the CMA, the SMSC has agreed to make the following purse enhancement and marketing payments in 2014 through 2022: |
| | | | | | | | | | |
Year | | Purse Enhancement
Payments to Horsemen | | Marketing Payments to
Canterbury Park |
2014 | | | $ | 5,840,000 | | | | $ | 660,000 | |
2015 | | | | 6,434,000 | | | | | 726,000 | |
2016 | | | | 7,087,400 | | | | | 798,600 | |
2017 | | | | 7,806,140 | | | | | 878,460 | |
2018 | | | | 8,000,000 | | | | | 900,000 | |
2019 | | | | 8,000,000 | | | | | 900,000 | |
2020 | | | | 8,000,000 | | | | | 900,000 | |
2021 | | | | 8,000,000 | | | | | 900,000 | |
2022 | | | | 8,000,000 | | | | | 900,000 | |
| |
| The Company does not have a financial interest in any part of the purse enhancement payments. Therefore, purse enhancement payments have no impact on the Company’s financial statements. |
| |
| 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 consolidated statements of operations. For the year ended December 31, 2013, the Company recorded $595,628 in other revenue and incurred $490,072 in advertising and marketing expense and $105,556 in depreciation related to the SMSC marketing payment. For the year ended December 31, 2012, the Company recorded $112,857 in other revenue and incurred $112,857 in advertising and marketing expense related to the SMSC marketing payment. The excess of amounts received over revenues is reflected as deferred revenue which is included in accounts payable on the consolidated balance sheets. |
| |
| Under the CMA, the Company agreed 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. |
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| |
| As part of the CMA and pursuant to a related SAR Agreement dated June 14, 2012, the Company issued stock appreciation rights to the SMSC. The SAR Agreement granted rights to the SMSC to benefit from the appreciation in the value of 165,000 shares of Company common stock above $14.30 per share, a price agreed upon by the two parties. Each right represents the right to be paid the appreciation in the value of one share of stock above $14.30. Ten percent of the rights (16,500 rights) vested immediately and the remaining rights vest at the rate of 16,500 per year beginning in January 2013. As of December 31, 2013, 33,000 rights had vested. The SAR Agreement provides for the cash payment of the excess of the fair market value of Canterbury Park Holding Corporation’s common stock price on the date of exercise over the grant price. The SAR Agreement and all rights granted expire on December 31, 2022. The liability related to these stock appreciation rights is recorded as a long-term liability and the Company recognizes the income or expense related to the fluctuation in the value of the stock appreciation rights against the revenues recorded relating to the marketing payment due to the nature of the CMA. Any excess expenses will be recognized as a component of other operating expenses. For the year ended December 31, 2013, the Company recognized $227,592 of expense related to these stock appreciation rights, of which $227,592 was recorded as an offset to other revenue. For the year ended December 31, 2012, the Company recognized $239,788 of expense related to these stock appreciation rights, of which $112,857 was recorded as an offset to other revenue and $126,931 was recorded as other operating expenses. In the future, changes in the fair value of these stock appreciation rights will increase or decrease the stock appreciation rights liability, and the Company will recognize an additional offset to other revenue and/or other operating expenses related to these changes. |
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| |
Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
| |
| Not Applicable. |
| |
Item 9A. | CONTROLS AND PROCEDURES |
| |
(a) | Evaluation of Disclosure Controls and Procedures: |
| |
| The Company’s Chief Executive Officer, Randall D. Sampson, and Chief Financial Officer, David C. Hansen, have reviewed the Company’s disclosure controls and procedures pursuant to the Securities Exchange Act of 1934, as amended (“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 Securities and Exchange Commission 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) | Management’s annual report on internal control over financial reporting: |
| |
| Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting of the Company. This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. |
| |
| The Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. |
| |
| Because of its inherent limitations, internal control over financial reporting can only provide reasonable assurance and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. |
| |
| Management conducted an evaluation of the effectiveness of the system of internal control over financial reporting as of December 31, 2013. In making this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control —1992 Integrated Framework.Based on management’s evaluation and those criteria, management concluded that the Company’s system of internal control over financial reporting was effective as of December 31, 2013. |
| |
(c) | Changes in Internal Control Over Financial Reporting: |
| |
| There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our fiscal quarter ended December 31, 2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. |
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| |
Item 9B. | OTHER INFORMATION |
| |
| Director not standing for re-election to the Board |
| |
| Mr. John L. Morgan, a director of the Company, advised the Board on March 26, 2014 that he had determined to not stand for re-election at our 2014 Annual Meeting of Shareholders so that he could devote more time and attention to other business and personal interests. |
| |
PART III |
| |
Item 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
| |
| Information Incorporated by Reference. |
| |
| Information required under Item 401 (except as noted below), 405, 406, and 407 (c) (3), (d) (4), and (d) (5) of Regulation S-K to the extent applicable to the Company will be set forth in the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on June 5, 2014 (the “2014 Proxy Statement”), a definitive copy of which will be filed with the Commission within 120 days of the close of the 2013 fiscal year, which information is incorporated herein by reference. Information required under Item 402 of Regulation S-K regarding executive officers is presented under Item 1(c)(xi) herein. |
| |
| Code of Ethics |
| |
| The Company has adopted a code of ethics applicable to all employees of and consultants to the Company. A copy of the Code of Conduct can be obtained free of charge upon written request directed to the Company’s Secretary at the executive offices of the Company. |
| |
Item 11. | EXECUTIVE COMPENSATION |
| |
| Information required under Item 402 of Regulation S-K to the extent applicable to the Company will be set forth in the Company’s 2014 Proxy Statement which information is incorporated herein by reference. |
| |
Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
| |
| Information required under Item 201(d) and 403 of Regulation S-K to the extent applicable to the Company will be set forth in the Company’s 2014 Proxy Statement which information is incorporated herein by reference. |
| |
Item 13. | CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
| |
| Information, if any, required by Item 404 of Regulation S-K to the extent applicable to the Company will be set forth in the Company’s 2014 Proxy Statement which information is incorporated herein by reference. |
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| | |
Item 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
| | |
| Information required by Item 14 of this Form 10-K and Item 9(e) of Schedule 14A will be set forth in a section entitled “The Company’s Auditors” in the Company’s 2014 Proxy Statement which information is incorporated herein by reference. |
| | |
PART IV |
| |
Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
| |
| (a). | The following Consolidated Financial Statements of Canterbury Park Holding Corporation and subsidiaries are included in Part II, Item 8 pages 33-52: |
| | |
| | Report of Independent Registered Public Accounting Firm |
| | |
| | Consolidated Balance Sheets as of December 31, 2013 and 2012 |
| | |
| | Consolidated Statements of Operations for the years ended December 31, 2013 and 2012 |
| | |
| | Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2013 and 2012 |
| | |
| | Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012 |
| | |
| | Notes to Consolidated Financial statements |
| | |
| (b). | The exhibits listed on the “Exhibits Index” on pages 57 and 58 are filed with this Form 10-K or incorporated by reference in this report. |
| | |
| (c). | No financial statement schedules are required by Item 8 and Item 15(c) of Form 10-K. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | |
Dated: March 31, 2014 | CANTERBURY PARK HOLDING CORPORATION |
| | | |
| By | | /s/ Randall D. Sampson |
| | | Randall D. Sampson |
| | | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the Registrant and in the capacities and the dates indicated have signed this report below.
Power of Attorney
Each person whose signature appears below constitutes and appoints CURTIS A. SAMPSON, DALE H. SCHENIAN and RANDALL D. SAMPSON as his true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any of all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all said attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof.
| | | | |
Signature | | Title | | Date |
| | | | |
/s/ Curtis A. Sampson | | Chairman of the Board | | March 31, 2014 |
Curtis A. Sampson | | | | |
| | | | |
/s/ Dale H. Schenian | | Vice Chairman; Director | | March 31, 2014 |
Dale H. Schenian | | | | |
| | | | |
/s/ Randall D. Sampson | | Chief Executive Officer, President, | | March 31, 2014 |
Randall D. Sampson | | General Manager, Treasurer, and Director | | |
| | | | |
/s/ Patrick R. Cruzen | | Director | | March 31, 2014 |
Patrick R. Cruzen | | | | |
| | | | |
/s/ Burton F. Dahlberg | | Director | | March 31, 2014 |
Burton F. Dahlberg | | | | |
| | | | |
/s/ John L. Morgan | | Director | | March 31, 2014 |
John L. Morgan | | | | |
| | | | |
/s/ Carin J. Offerman | | Director | | March 31, 2014 |
Carin J. Offerman | | | | |
| | | | |
/s/ David C. Hansen | | Chief Financial Officer*, Vice President, and Secretary | | March 31, 2014 |
David C. Hansen | | | | |
* Principal Accounting Officer
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CANTERBURY PARK HOLDING CORPORATION
Exhibit Index To
Form 10-K for the Year Ended December 31, 2013
| | | | |
Exhibit Table
Reference | | Title of Document | | Location in Consecutive Numbering
System as Filed with the Securities
and Exchange Commission |
| | | | |
3.1 | | Articles of Incorporation, as amended | | Filed as Exhibit 3.1 to the Form SB-2 Registration Statement of the Company, File No. 33-81262C, (the “SB-2 Registration Statement”) and incorporated herein by reference. |
| | | | |
3.2 | | Bylaws, as amended | | Filed as Exhibit 3.2 to the SB-2 Registration Statement and incorporated herein by reference. |
| | | | |
10.1 | | Plan of Reorganization dated as of May 20, 1994 between Canterbury Park Holding Corporation and Canterbury Park Concessions, Inc. | | Filed as Exhibit 10.1 to the SB-2 Registration Statement and incorporated herein by reference. |
| | | | |
10.2 | | Restated Stock Purchase Agreement | | Filed as Exhibit 10.2 to the SB-2 Registration Statement and incorporated herein by reference. |
| | | | |
10.3 | | Letter dated April 4, 1994 from the Minnesota Horsemen’s Benevolent and Protective Association, Inc. to Minnesota Racing Commission waiving 125 day racing minimum | | Filed as Exhibit 10.3 to the SB-2 Registration Statement and incorporated herein by reference. |
| | | | |
10.5 | | Stock Option Plan, as amended* | | Filed as Exhibit 4.1 to the Registration Statement on Form S-8 of the Company filed on August 28, 1997 (File No. 333-34509) and incorporated herein by reference. |
| | | | |
10.6 | | Form of Non-qualified Stock Option Agreement* | | Filed as Exhibit 10.6 to the SB-2 Registration Statement and incorporated herein by reference. |
| | | | |
10.7 | | Curtis A. Sampson Guaranty to HRA | | Filed as Exhibit 10.7 to the SB-2 Registration Statement and incorporated herein by reference. |
| | | | |
10.10 | | General Credit and Security Agreement dated as of June 3, 1998 between Canterbury Park Holding Corporation and Bremer Bank N.A. (previously First American Bank, N.A.) This exhibit 10.10 replaces exhibit 10.10 filed previously as an exhibit to the SB-2 Registration Statement. | | Filed as Exhibit 10.10 to the Form 10-KSB for the fiscal year ended December 31, 1998 and incorporated herein by reference. |
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| | | | |
Exhibit Table
Reference | | Title of Document | | Location in Consecutive Numbering
System as Filed with the Securities
and Exchange Commission |
| | | | |
10.11 | | Stock Purchase Savings Plan* | | Filed as Exhibit 10.11 to Form 10-KSB for the fiscal year ended December 31, 1997 and incorporated herein by reference. |
| | | | |
10.13 | | Stock Option Plan for Non-Employee Consultants and Advisors* | | Filed as Exhibit 4.3 to the Registration Statement on Form S-8 of the Company filed on August 28, 1997 (File No. 333-34509) and incorporated herein by reference. |
| | | | |
10.14 | | Cooperative Marketing Agreement dated June 4, 2012 between the Company and the Shakopee Mdewakanton Sioux Community (the “SMSC”) | | Filed as Exhibit 99.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 and incorporated herein by reference. |
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10.15 | | Stock Appreciation Rights Agreement dated June 14, 2012 between the Company and the SMSC. | | Filed as Exhibit 99.2 to Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 and incorporated herein by reference. |
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21 | | Subsidiaries of the Registrant | | Filed herewith. |
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23.1 | | Consent of Independent Registered Public Accounting Firm | | Filed herewith. |
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24 | | Power of Attorney | | Included in signature page at page 56. |
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31.1 | | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act 0f 2002 | | Filed herewith. |
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31.2 | | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | Filed herewith. |
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32 | | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | Filed herewith. |
* Denotes an exhibit that covers management contracts or compensatory plans or arrangements.
The exhibits referred to in this Exhibit Index will be supplied to a shareholder at a charge of $.25 per page upon written request directed to the Company’s Secretary at the executive offices of the Company.
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