---------------
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 JUNE 30, 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.
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SAM HOUSTON RACE PARK, LTD.
INDEX
PAGE
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1996 and
December 31, 1995 3
Consolidated Statements of Operations for the three
and six months ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 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
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,956 $ 4,434
Restricted cash 1,761 3,004
Accounts receivable, net of allowance
for doubtful accounts of $320 and $388
at June 30, 1996 and December 31, 1995,
respectively 759 675
Prepaid expenses and other current assets 441 271
----------- ------------
Total current assets 6,917 8,384
----------- ------------
Property and equipment, net 26,382 26,572
----------- ------------
$ 33,299 $ 34,956
=========== ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable $ 1,682 $ 1,219
Due to affiliates 56 89
Property taxes payable 641 1,185
Accrued reorganization costs - 526
Other liabilities 1,304 707
Amounts due to horsemen for purses, 892 1,828
stakes and awards
Current portion of notes payable 94 91
----------- ------------
Total current liabilities 4,669 5,645
----------- ------------
Long term liabilities:
Notes payable 24,524 22,171
Deferred management fees 567 177
----------- ------------
Total liabilities 29,760 27,993
----------- ------------
Commitments and contingencies (Notes 1 and 7)
Partners' capital 3,539 6,963
----------- ------------
$ 33,299 $ 34,956
=========== ============
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
Three Months Six Months
Ended Ended
June 30, June 30,
1996 1995 1996 1995
------- ------- ------- -------
Revenues:
Pari-mutuel commissions, net $3,595 $1,761 $6,570 $4,785
Food and beverage sales 996 303 1,632 1,438
Non-statutory purse recoveries - 669 - 1,042
Admissions, parking and other 1,079 909 2,066 2,043
------- ------- ------- -------
5,670 3,642 10,268 9,308
------- ------- ------- -------
Costs and expenses:
Cost of pari-mutuel operations 475 271 840 724
Cost of food and beverage operations 410 138 696 561
Other operating 661 455 1,243 1,154
Salaries and wages 2,200 1,259 4,139 3,577
Management and other professional 523 385 1,056 980
fees
Marketing and advertising 602 322 1,138 604
Utilities 327 253 651 563
Property taxes 316 299 633 603
Depreciation and amortization 217 715 431 1,442
General and administrative 252 421 487 785
------- ------- ------- -------
5,983 4,518 11,314 10,993
------- ------- ------- -------
Loss before reorganization items and
other income (expense) (313) (876) (1,046) (1,685)
Reorganization expenses (15) (875) (44) (1,374)
------- ------- ------- -------
Loss from operations (328) (1,751) (1,090) (3,059)
Other income (expense):
Interest income 52 57 103 97
Interest expense (1,283) (612) (2,437) (3.403)
------- ------- ------- -------
(1,231) (555) (2,334) (3,306)
------- ------- ------- -------
Net loss $(1,559) $(2,306)$(3,424) $(6,365)
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
Six Months Ended
June 30,
--------------------
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,424) $ (6,365)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 431 1,442
Amortization of deferred financing costs
and discounts on long-term debt 269 293
Decrease in restricted cash 1,243 271
Increase (decrease) in accounts receivable (84) 334
Increase in prepaid expenses and other (170) (193)
Increase in accounts payable 463 452
Increase in due to affiliates and deferred 357 251
management fees
Increase in accrued interest 2,128 -
Increase (decrease) in amounts due to (936) 974
horsemen
Increase in other liabilities 53 697
Decrease in prepetition liabilities - (12,949)
Increase in liabilities subject to - 11,990
compromise
Reorganization items:
Increase (decrease) in accrued (526) 200
reorganization costs --------- ---------
Net cash used for operating activities (196) (2,603)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to buildings and equipment (241) (79)
--------- ---------
Net cash used for investing activities (241) (79)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable, net (41) (9)
--------- ---------
Net cash used for financing activities (41) (9)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (478) (2,691)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,434 4,421
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,956 $ 1,730
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Reorganization items paid:
Professional fees 570 477
The accompanying notes are an integral part of these financial statements.
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 subsidiary, 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 11% Senior
Secured Extendible Notes (the "Extendible Notes") together with accrued
interest thereon and the corresponding shares of common stock of SHRP
Equity, Inc. to which one noteholder was entitled. 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 and six months
ended June 30, 1996 are not comparable to the three and six months ended
June 30, 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
June 30, 1996, the consolidated results of its operations for the three and
six months ended June 30, 1996 and 1995, and its consolidated cash flows
for the six months ended June 30, 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 principal indebtedness resulting in the issuance of the
Extendible Notes in exchange for the 11-3/4% Senior Secured Notes (the
"Original Notes") significantly improved 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 during 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 June 30, 1996, the Partnership had cash and cash equivalents of
$3,956 and a $1,700 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 during
the next two to three years, 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 June 30, 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 Partnership offers pari-mutuel wagering on live thoroughbred
or quarter horse racing during meets and simulcast racing throughout the
year. The Partnership 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 Partnership 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 Partnership's various guest
simulcasting agreements to be paid from the funds held by the Partnership
for the benefit of future winning horsemen and one-half of the fee to be
paid by the Partnership. Under the previous arrangement, the Partnership
paid the entire fee. The new arrangement is effective as of January 1,
1996 and resulted in an increase of $372 and $712 in guest simulcasting
commissions for the Partnership during the three and six months ended June
30, 1996.
3. PARI-MUTUEL OPERATIONS (CONTINUED)
A summary of the pari-mutuel operations for the three and six
months ended June 30, 1996 and 1995 is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
1996 1995 1996 1995
Number of live race days 38 2 64 54
Live handle $ 7,968 $ 523 $ 13,327 $ 10,867
Guest simulcasting handle 22,816 22,312 44,418 40,823
Host simulcasting handle 38,381 281 59,528 15,573
---------- --------- --------- ---------
$ 69,165 $ 23,116 $117,273 $ 67,263
========= ======== ======== ========
Net commissions from live racing $ 945 $ 63 $ 1,581 $ 1,285
Net commissions from guest
simulcasting 2,045 1,690 4,054 3,197
Net commissions from host
simulcasting 605 8 935 303
--------- --------- -------- --------
$ 3,595 $1,761 $ 6,570 $ 4,785
========= ======== ======== ========
4. NON-STATUTORY PURSE FUNDING/RECOVERIES
Pursuant to the Partnership'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. The Partnership recovered purses previously paid in excess of
statutory amounts of $0 and $669 during the three months ended June 30,
1996 and 1995, respectively, and $0 and $1,042 during the six months ended
June 30, 1996 and 1995, respectively
5. NOTES PAYABLE
Notes payable consist of the following:
June 30, December 31,
1996 1995
------------ ------------
(Unaudited)
11% Senior Secured Extendible Notes due
September 1, 2001 (net of unamortized
discount of $16,716 in 1996 and $16,985
in 1995) $ 23,163 $ 20,870
Accrued interest to be paid in-kind 1,097 983
------------ ------------
24,260 21,853
Unsecured promissory notes 255 279
Equipment leases 80 107
Payable to limited partners 23 23
------------ ------------
Total 24,618 22,262
Less current portion (94) (91)
------------ ------------
$ 24,524 $ 22,171
============ ============
5. NOTES PAYABLE (CONTINUED)
On April 1, 1996, the Partnership issued $2,024 of Extendible
Notes as payment in-kind of accrued interest due April 1, 1996. 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 $58 for the three months ended
June 30, 1996 and 1995, respectively, and $375 and $364 for the six months
ended June 30, 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 under long-term liabilities.
The Partnership incurred service fees and related costs of $167
and $159 for the three months ended June 30, 1996 and 1995, respectively,
and $345 and $283 for the six months ended June 30, 1996 and 1995,
respectively, related to the costs incurred for services provided by
employees of MAXXAM and certain of its subsidiaries. In addition,
reorganization costs for the three and six months ended June 30, 1995,
includes $127 and $290, respectively of such costs incurred in connection
with the reorganization of the Partnership.
The Partnership incurred fees of $30 and $27 during the three
months ended June 30, 1996 and 1995, respectively, and $68 and $83 for the
six months ended June 30, 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.
Also see Note 1 for a discussion of the future cash requirements
of the Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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 and six months ended June 30,
1996 are not comparable to the three and six months ended June 30, 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 and six months ended June 30, 1996 and 1995:
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------- -------------
1996 1995 1996 1995
------ ------ ------ ------
Number of live race days 38 2 64 54
Number of simulcast only days 53 89 117 127
Average daily attendance - live race days 3,829 4,058 3,653 3,165
Average daily attendance - simulcast days 720 1,010 753 845
Average live and guest per capita gross
wager-live race days $ 143 $ 134 $ 146 $ 146
Average guest per capita gross wager -
simulcast days 260 242 257 249
(AMOUNTS IN MILLIONS)
Live handle $ 7.9 $ .5 $13.3 $10.9
Guest simulcasting handle 22.8 22.3 44.4 40.8
Host simulcasting handle 38.4 .3 59.5 15.6
Net commissions from live racing .9 .1 1.6 1.3
Net commissions from guest simulcasting 2.1 1.7 4.1 3.2
Net commissions from host simulcasting .6 - .9 .3
------ ------ ------ ------
Total net pari-mutuel commissions $ 3.6 $ 1.8 $ 6.6 $ 4.8
====== ====== ====== ======
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 live racing
increased significantly during the three months ended June 30, 1996
compared to the three months ended June 30, 1995 due to the increased
number of race days. Net pari-mutuel commissions from guest simulcasting
increased by 21% and 27%, respectively, for the three and six months ended
June 30, 1996 compared to the three and six months ended June 30, 1995.
This increase is primarily due to the effects of the new guest simulcasting
fee arrangement which became effective January 1, 1996. Host simulcasting
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
handle continued to increase during the three and six months ended June 30,
1996 compared to the previous quarter and the comparable periods of 1995
due to an increase in the number of live race days and a significant
increase in the number of host simulcasting outlets. Overall, net pari-
mutuel commissions for the three and six months ended June 30, 1996
increased by 100% and 38%, respectively, reflecting the continued growth of
guest and host simulcasting handle.
Other revenues for the three and six months ended June 30, 1996
were above those of the comparable period of 1995 primarily due to the
increase in the number of live race days. In addition, $0.7 million and
$1.0 million of purse overpayments incurred by the Partnership during 1994
were recovered during the three and six months ended June 30, 1995.
Loss from Operations. Although most operating expense items
increased primarily due to the increase in live race days, the loss from
operations for the three and six months ended June 30, 1996 decreased from
1995 levels due to the increase in operating revenues discussed above and a
decrease in reorganization items. Also, depreciation and amortization
declined by $0.5 million and $1.0 million for the three and six months
ended June 30, 1996, respectively, due to the effects of the adjustment of
long-term assets to fair value recorded when the Plan was implemented.
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 and six months ended June 30, 1996 is not comparable to the
net loss for the three and six months ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Partnership had cash and cash equivalents
of $4.0 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 fund the operating loss incurred during the six month period. At June
30, 1996, the Partnership also had restricted cash of $1.8 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 to the annual payment of property taxes during the first
quarter of 1996.
See Note 1 to the Consolidated Financial Statements for a
discussion of the future cash requirements of the Partnership.
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:
10.32 Agreement between Texas Horsemen's
Partnership, L.L.P. and the Partnership
B. REPORTS ON FORM 8-K:
None
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: August 12, 1996 By: /S/ MICHAEL J. VITEK
Michael J. Vitek
Vice President of Accounting