UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
Commission File Number 33-67738
SAM HOUSTON RACE PARK, LTD.
(Exact name of Registrant as Specified in its Charter)
TEXAS 76-0313877
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
ONE SAM HOUSTON PLACE
7575 NORTH SAM HOUSTON PARKWAY
WEST 77064
HOUSTON, TEXAS (Zip Code)
(Address of Principal
Executive Offices)
Registrant s telephone number, including area code: (713) 807-8700
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
DOCUMENTS INCORPORATED BY REFERENCE:
None.
SAM HOUSTON RACE PARK, LTD.
INDEX
PAGE
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at March 31, 1996 and
December 31, 1995 3
Consolidated Statement of Operations for the three months
ended March 31, 1996 and 1995 4
Consolidated Statement of Cash Flows for the three months
ended March 31, 1996 and 1995 5
Condensed Notes to Consolidated Financial Statements 6
Item 2. Management s Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures S-1
2
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
March 31, December
1996 31,
1995
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,281 $ 4,434
Restricted cash 2,669 3,004
Accounts receivable, net of allowance for
doubtful accounts of $377 and $388 at
March 31, 1996 and December 31, 1995,
respectively 1,009 675
Prepaid expenses and other current assets 595 250
----------- ----------
Total current assets 7,554 8,363
----------- ----------
Property and equipment, net 26,502 26,572
Other assets 19 21
----------- ----------
$ 34,075 $ 34,956
=========== ==========
LIABILITIES AND PARTNERS CAPITAL
Current liabilities:
Accounts payable $ 1,405 $ 1,219
Due to affiliates 77 89
Property taxes payable 324 1,185
Accrued reorganization costs 29 526
Other liabilities 1,522 707
Amounts due to horsemen for purses, stakes 1,872 1,828
and awards
Current portion of notes payable 93 91
----------- ----------
Total current liabilities 5,322 5,645
----------- ----------
Long term liabilities:
Notes payable 23,290 22,171
Deferred management fees 365 177
----------- ----------
Total liabilities 28,977 27,993
----------- ----------
Commitments and contingencies (Note 7)
Partners capital 5,098 6,963
----------- ----------
$ 34,075 $ 34,956
=========== ==========
3
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS
ENDED
MARCH 31,
1996 1995
Revenues:
Pari-mutuel commissions, net $ 2,975 $ 3,024
Food and beverage sales 636 1,135
Non-statutory purse recoveries - 373
Admissions, parking and other 987 1,134
------- -------
4,598 5,666
------- -------
Costs and expenses:
Cost of pari-mutuel operations 365 453
Cost of food and beverage operations 286 423
Other operating 582 699
Salaries and wages 1,939 2,319
Management and other professional fees 533 595
Marketing and advertising 536 282
Utilities 324 310
Property taxes 317 304
Depreciation and amortization 214 727
General and administrative 235 364
------- -------
5,331 6,476
------- -------
Loss before reorganization items and other (733) (810)
income (expense)
Reorganization items:
Reorganization expenses (29) (499)
------- -------
Loss from operations (762) (1,309)
Other income (expense):
Interest income 51 41
Interest expense (1,154) (2,791)
------- -------
(1,103) (2,750)
------- -------
Net loss $(1,865) $(4,059)
======= =======
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
Three Months
Ended
March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,865) $ (4,059)
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization 214 727
Amortization of deferred financing costs and
discounts on long-term debt 99 317
Decrease in restricted cash 335 698
(Increase) decrease in accounts receivable (334) 109
(Increase) decrease in prepaid expenses (343) 284
and other
Increase (decrease) in accounts payable 186 (1,340)
Increase (decrease) in due to affiliates and 176 (3,884)
deferred management fees
Increase (decrease) in accrued interest 1,041 (4,195)
Increase (decrease) in amounts due to 44 (54)
horsemen
Decrease in other liabilities (46) (2,128)
Increase in liabilities subject to compromise - 10,999
Reorganization items:
Increase (decrease) in accrued (497) 499
reorganization costs -------- --------
Net cash used for operating activities (990) (2,027)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to buildings and equipment (144) (60)
-------- --------
Net cash used for investing activities (144) (60)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable, net (19) (5)
-------- --------
Net cash used for financing activities (19) (5)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,153) (2,092)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,434 4,421
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,281 $ 2,329
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Reorganization items paid:
Professional fees 526 273
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1. BASIS OF PRESENTATION AND FUTURE CASH REQUIREMENTS
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of Sam Houston Race Park, Ltd. (the Partnership ), a Texas
limited partnership, and its wholly owned subsidiaries, SHRP Capital Corp.
( Capital ) and New SHRP Capital Corp. ( New Capital ). The Partnership
operates a pari-mutuel horse racing facility (the Race Park ). On April
17, 1995 (the Filing Date ), the Partnership, Capital and an affiliated
company filed voluntary petitions in the United States Bankruptcy Court,
each seeking to reorganize under the provisions of Chapter 11 of the United
States Bankruptcy Code (the Bankruptcy Code ). On September 22, 1995,
the Bankruptcy Court entered an order confirming the sixth amended
consolidated plan of reorganization (the Plan ). The transactions called
for by the Plan were completed on October 6, 1995 (the Effective Date ).
Immediately after the Effective Date, wholly owned subsidiaries of MAXXAM,
Inc. ( MAXXAM ) held approximately 65.8% of the equity in the Partnership.
Subsequent to the Effective Date, a wholly owned subsidiary of MAXXAM
purchased Extendible Notes together with accrued interest thereon and the
corresponding shares of common stock of SHRP Equity, Inc. to which one
noteholder was entitled. Such shares of common stock represent
approximately 39.0% of the shares of common stock of SHRP Equity, Inc.
After giving effect to this transaction, wholly owned subsidiaries of
MAXXAM hold directly and indirectly approximately 78.8% of the equity in
the Partnership.
The information contained herein is condensed from that which
would appear in the annual financial statements; accordingly, the
consolidated financial statements included herein should be reviewed in
conjunction with the consolidated financial statements and related notes
thereto contained in the Annual Report on Form 10-K filed by the
Partnership with the Securities and Exchange Commission for the fiscal year
ended December 31, 1995 (the Form 10-K ). Accounting measurements at
interim dates inherently involve greater reliance on estimates than at year
end. The results of operations for the interim periods presented are not
necessarily indicative of the results which can be expected for the entire
year. Further, the results of operations for the three months ended March
31, 1996 are not comparable to the three months ended March 31, 1995 due to
the effects of the bankruptcy filing. Certain reclassifications of prior
period information were made to conform to the current presentation. All
significant intercompany transactions have been eliminated in
consolidation. The accompanying financial information is unaudited;
however, the information includes all adjustments of a normal recurring
nature which are, in the opinion of management, necessary to present fairly
the consolidated financial position of the Partnership at March 31, 1996,
the consolidated results of its operations for the three months ended March
31, 1996 and 1995, and its consolidated cash flows for the three months
ended March 31, 1996 and 1995.
FUTURE CASH REQUIREMENTS
Although the Partnership has sustained substantial operating
losses since it began operations in April 1994, the reorganization of the
Partnership s indebtedness resulting in the issuance of the 11% Senior
Secured Extendible Notes (the Extendible Notes ) in exchange for the
11-3/4% Senior Secured Notes (the Original Notes ) significantly improved
6
1. BASIS OF PRESENTATION AND FUTURE CASH REQUIREMENTS (CONTINUED)
the Partnership s liquidity by providing for the deferral of cash interest
payments until certain conditions are met. Additionally, the Third Amended
and Restated Partnership Agreement (the Partnership Agreement ) defers the
payment of management fees until two consecutive interest payments have
been paid in cash. The Partnership continues to project operating losses
over the next two to three years, which are expected to be funded by the
proceeds contributed on the Effective Date, until such time as its customer
base grows and other changes are implemented such that it can support its
operations. At March 31, 1996, the Partnership had cash and cash
equivalents of $3.3 million and a $1.7 million line of credit available to
fund these projected operating losses. Management is continuing to
undertake aggressive marketing efforts to increase attendance and pari-
mutuel handle at the Race Park, as well as continuing to reduce operating
expenses, in order to generate operating income. To the extent the
remaining cash and line of credit are not sufficient to support the cash
flow requirements of the Partnership, alternative sources of funding will
be necessary. In addition, the Partnership is required to retire the
Extendible Notes and related accrued interest on September 1, 2001, unless
the applicable extension provisions apply. To the extent the Partnership
is unable to generate sufficient cash flows from operations to meet these
additional obligations, alternative sources of funding will be necessary.
There can be no assurance that alternative sources of funding will be
available to the Partnership, if needed.
2. RESTRICTED CASH
The Partnership s restricted cash, as shown on the accompanying
consolidated balance sheet at March 31, 1996 and December 31, 1995,
includes deposits held for the benefit of horsemen for purses, stakes and
awards and amounts reserved for the payment of property taxes.
3. PARI-MUTUEL OPERATIONS
The Race Park offers pari-mutuel wagering on live thoroughbred or
quarter horse racing during meets and simulcast racing throughout the year.
The Race Park earns revenues on live racing and on simulcasting racing as
both a guest and host track. Under the Racing Act, the Partnership s net
commission revenue on live racing is a designated portion of the pari-
mutuel handle. The Race Park receives broadcasts of live racing from other
racetracks under various guest simulcasting agreements and provides
broadcasts of live racing conducted at the Race Park to other wagering
outlets under various host simulcasting agreements. Under these
agreements, the Partnership receives pari-mutuel commissions of varying
percentages of simulcast pari-mutuel handle.
On April 1, 1996, the Racing Commission allowed for one-half of
the fee paid to the sending track under the Race Park s various guest
simulcasting agreements to be paid from the funds held by the Race Park for
the benefit of future winning horsemen and one-half of the fee to be paid
by the Race Park. Under the previous arrangement, the Race Park paid the
entire fee. The new arrangement is effective as of January 1, 1996 and
resulted in an increase of $340 in guest simulcasting commissions for the
Race Park during the three months ended March 31, 1996.
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3. PARI-MUTUEL OPERATIONS (CONTINUED)
A summary of the pari-mutuel operations for the three months
ended March 31, 1996 and 1995 is as follows:
Three Months Ended
March 31,
1996 1995
Number of live race days 26 52
Live handle $ 5,359 $ 10,344
Guest simulcasting handle 21,602 18,511
Host simulcasting handle 21,147 15,292
-------- --------
$ 48,108 $ 44,147
======== ========
Net commissions from live racing $ 636 1,222
Net commissions from guest simulcasting 2,009 1,507
Net commissions from host simulcasting 330 295
-------- --------
$ 2,975 $ 3,024
======== ========
4. NON-STATUTORY PURSE FUNDING/RECOVERIES
Pursuant to the Race Park s agreement with the Texas Horsemen s
Benevolent and Protective Association, as amended, recovery of a portion of
the purses paid in excess of statutory amounts is allowed. The Partnership
records recoveries as they are earned and expenses overpayments as they are
incurred. During the three months ended March 31, 1996 and 1995, the
Partnership recovered $0 and $373, respectively, of purses previously paid
in excess of statutory amounts.
5. NOTES PAYABLE
Notes payable consist of the following:
March 31, December 31,
1996 1995
(Unaudited)
11% Senior Secured Extendible Notes due
September 1, 2001 (net of unamortized
discount of $16,884 in 1996 and $16,985
in 1995) $ 20,971 $ 20,870
Accrued interest to be paid in-kind 2,024 983
----------- --------------
22,995 21,853
Unsecured promissory notes 272 279
Equipment leases 93 107
Payable to limited partners 23 23
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Total 23,383 22,262
Less current portion (93) (91)
---------- -------------
$ 23,290 $ 22,171
========== =============
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5. NOTES PAYABLE (CONTINUED)
The Partnership is amortizing the difference between the
aggregate principal amount of the Extendible Notes and their estimated fair
value as of the Effective Date as additional interest expense using the
effective interest method.
The Extendible Notes are non-recourse to the partners; however,
they are secured by virtually all of the Partnership s property, including
rents, revenues, profits and income from the operation of the Race Park.
In addition, the Class 1 racing license for the Race Park is subject to a
negative pledge in favor of the trustee for the Extendible Notes.
6. RELATED PARTY TRANSACTIONS
Management fees include both management fees incurred pursuant to
the Partnership Agreement, with respect to periods after October 6, 1995,
or the prior management agreement with Race Track Management Enterprises,
for periods prior to April 17, 1995. The Partnership incurred management
fees pursuant to such agreements of $188 and $306 for the three months
ended March 31, 1996 and 1995, respectively. Payment of management fees,
subsequent to October 6, 1995, is deferred until two consecutive interest
payments on the Extendible Notes have been paid in cash; accordingly, these
fees have been shown on the accompanying consolidated balance sheet as
deferred management fees.
The Partnership incurred service fees and related costs of $178
and $123 for the three months ended March 31, 1996 and 1995, respectively,
related to the costs incurred for services provided by MAXXAM and certain
of its subsidiaries. In addition, reorganization costs for the three
months ended March 31, 1995, includes $127 of such costs incurred in
connection with the reorganization of the Partnership.
The Partnership incurred fees of $38 and $56 during the three
months ended March 31, 1996 and 1995, respectively, for legal and other
consulting services performed by other affiliates in the normal course of
business.
7. CONTINGENCIES
The Partnership is involved in claims and litigation arising in
the ordinary course of business. Management believes that the outcome of
such matters will not have a material adverse effect upon the Partnership s
financial position, results of operations or liquidity.
9
ITEM 2. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
THE RESULTS OF OPERATIONS
The following should be read in conjunction with the unaudited
consolidated financial statements contained elsewhere herein and the Form
10-K. Any capitalized terms used but not defined herein have the same
meaning given to them in the Form 10-K.
RESULTS OF OPERATIONS
Results of operations for the three months ended March 31, 1996
are not comparable to the three months ended March 31, 1995 due to the
effects of the bankruptcy proceedings, including, the restructuring of
indebtedness and adjustments to reduce the carrying value of assets.
Results of operations between periods are generally not comparable due to
the timing, varying lengths and types of racing meets held; accordingly
results of operations for interim periods are not necessarily indicative of
the results which can be expected for the entire year.
The following table presents selected operational information for
the three months ended March 31, 1996 and 1995:
THREE MONTHS
ENDED
MARCH 31,
1996 1995
Number of live race days 26 52
Number of simulcast only days 65 38
Average daily attendance - live race days 3,395 3,130
Average daily attendance - simulcast days 769 457
Average live and guest per capita gross $ 153 $ 146
wager-live race days
Average guest per capita gross wager - 269 255
simulcast days
(AMOUNTS IN MILLIONS)
Live handle $ 5.4 $ 10.3
Guest simulcasting 21.6 18.5
Host simulcasting handle 21.1 15.3
Net pari-mutuel commissions 3.0 3.0
Revenues. The Partnership s principal source of revenue is from
pari-mutuel commissions generated on live races and simulcast races as both
a guest and host track. Net pari-mutuel commissions from guest
simulcasting increased by 33% during the three months ended March 31, 1996
compared to the three months ended March 31, 1995. This increase is
partially due to the effects of the new guest simulcasting fee arrangement
which became effective January 1, 1996 and partially due to a continued
increase in guest simulcasting handle. Total live handle for the three
months ended March 31, 1996 dropped by 48% due to the decrease in live race
days, however, host handle for the same three month period increased by 38%
reflecting a continued growth in host simulcasting. Overall, net pari-
mutuel commissions for the three months ended March 31, 1996 were only
slightly less than the net pari-mutuel commissions for the three months
ended March 31, 1995, even though live and host pari-mutuel commissions for
10
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE
RESULTS OF OPERATIONS (CONTINUED)
the three months ended March 31, 1996 were generated from one-half the
number of race days.
Other revenues for the three months ended March 31, 1996 were
below those of the comparable period of 1995 primarily due to the decrease
in the number of live race days. In addition, $0.4 million of purse
overpayments incurred by the Partnership during 1994 were recovered during
the three months ended March 31, 1995.
Loss from Operations. Operating losses for the three months
ended March 31, 1996 significantly decreased from 1995 levels due to a $1.2
million decrease in operating costs and expenses and a $0.5 million
decrease in reorganization items. Most operating expense items decreased
due to the decrease in the number of live race days. Also, depreciation
and amortization declined by $0.5 million due to the effects of the
adjustment of long-term assets to fair value recorded when the Plan was
implemented. Reorganization expenses represent the professional fees and
expenses related to the bankruptcy proceedings.
Net loss. Net loss reflects the loss from operations as
described above and interest expense, including amortization of deferred
financing costs and the original issue and re-issue discounts, less
interest earned on unexpended funds. Due to the restructuring of the
Partnership s debt and the resulting decrease in interest expense, net loss
for the three months ended March 31, 1996 is not comparable to the net loss
for the three months ended March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Partnership had cash and cash equivalents
of $3.3 million compared to $4.4 million at December 31, 1995. The decline
in cash and cash equivalents is primarily attributable to the use of cash
to pay bankruptcy related professional fees approved by the United States
Bankruptcy Court and to fund the operating loss incurred during the
quarter. At March 31, 1996, the Partnership also had restricted cash of
$2.7 million compared to $3.0 million at December 31, 1995. The decline in
restricted cash is due to the payments made to horsemen for purses, stakes
and awards during the live meets and the annual payment of property taxes.
See Note 1 to the Consolidated Financial Statements for a
discussion of the future cash requirements of the Partnership.
11
SAM HOUSTON RACE PARK, LTD.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership is involved in claims and litigation in the
ordinary course of business. Management believes that the outcome of such
litigation should not have a material adverse effect upon the Partnership s
financial position, results of operations or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
None
B. REPORTS ON FORM 8-K:
None
12
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,
who has signed this report on behalf of the Registrant and as the principal
financial and accounting officer of the Registrant.
SAM HOUSTON RACE PARK, LTD.
Date: May 10, 1996 By: /S/ MICHAEL J. VITEK
----------------------
Michael J. Vitek
Vice President of Accounting
13
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