---------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
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 77064
7575 NORTH SAM HOUSTON PARKWAY (Zip Code)
WEST
HOUSTON, TEXAS
(Address of Principal
Executive Offices)
Registrant's telephone number, including area code: (281) 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 / /
---------------
INDEX
PAGE
PART I. - FINANCIAL INFORMATION Item 1. Financial
Statements:
Consolidated Balance Sheets at March 31,
1998 and December 31, 1997 3
Consolidated Statements of Operations
for the three months ended
March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows
for the three months ended
March 31, 1998 and 1997 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
Signature S-1
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
March 31, December 31,
1998 1997
------- -------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,997 $ 2,728
Restricted cash 3,597 4,841
Accounts receivable, net of
allowance for doubtful
accounts
of $119 and $163,
respectively 1,830 1,133
Prepaid expenses and other 490 328
current assets ------- -------
Total current assets 8,914 9,030
------- -------
Property and equipment, net 25,426 25,504
------- -------
$ 34,340 $ 34,534
======= =======
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Accounts payable $ 2,304 $ 2,104
Property taxes payable 287 1,118
Other liabilities 1,558 1,593
Amounts due to horsemen 3,134 3,530
------- -------
Total current liabilities 7,283 8,345
------- -------
Long term liabilities:
Notes payable 35,122 33,393
Deferred management fees 2,095 1,861
------- -------
Total liabilities 44,500 43,599
------- -------
Commitments and contingencies (Notes 1
and 6)
Partners' deficit (10,160) (9,065)
------ -------
$ 34,340 $ 34,534
======= =======
/TABLE
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of dollars)
(Unaudited)
Three Months Ended
March 31,
------------
1998 1997
Revenues:
Pari-mutuel commissions, net $ 4,620 $ 4,274
Food and beverage sales 1,019 891
Admissions, parking and other 922 820
------ ------
6,561 5,985
------ ------
Costs and expenses:
Cost of pari-mutuel operations 451 484
Cost of food and beverage 484 365
operations
Other operating 757 645
Salaries and wages 2,187 2,210
Management and other professional 422 618
fees
Marketing and advertising 489 439
Utilities 326 291
Property taxes 306 334
Depreciation and amortization 239 227
General and administrative 243 219
------ ------
5,904 5,832
------ ------
Income from operations 657 153
Other income (expense):
Interest income 26 30
Interest expense (1,778) (1,434)
----- -----
(1,752) (1,404)
----- -----
Net loss $ (1,095) $ (1,251)
===== =====
/TABLE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(Unaudited)
Three Months
Ended
March 31,
------------
1998 1997
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,095) $(1,251)
Adjustments to reconcile net loss to net
cash provided by (used for) operating
activities:
Depreciation and amortization 239 227
Amortization of discounts on long-term 441 246
debt
Decrease in restricted cash 1,244 584
Increase in accounts receivable (697) (697)
Increase in prepaid expenses and other (162) (84)
Increase in accounts payable 200 26
Increase in deferred management fees 234 213
Increase in accrued interest 1,288 1,154
Increase (decrease) in amounts due to
horsemen (396) 203
Decrease in property taxes payable and (862) (1,032)
other liabilities ------ -------
Net cash provided by (used for)
operating activities 434 (411)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to buildings and equipment (161) (45)
------- -------
Net cash used for investing
activities (161) (45)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable, net (4) (22)
------- -------
Net cash used for financing
activities (4) (22)
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 269 (478)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,728 2,634
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,997 $2,156
====== =======
/TABLE
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars)
1. Basis of Presentation and Future Cash RequirementsBasis
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"). The managing general partner of the Partnership is
SHRP General Partner, Inc. (the "Managing General Partner"), a
wholly owned subsidiary of MAXXAM Inc. ("MAXXAM"). The
Partnership is also comprised of an additional general partner,
SHRP Equity, Inc. (the "Additional General Partner") and limited
partner interests. As of March 31, 1998 wholly owned
subsidiaries of MAXXAM held, directly or indirectly, a 25.7%
general partner interest (including a 24.7% interest by virtue of
its ownership of 74.2% of the common stock of the Additional
General Partner) and a 64.8% limited partner interest 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, 1997 (the "Form 10-K"). Any capitalized terms used
but not defined herein have the same meaning given to them in 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. Certain reclassifications of prior period
information were made to conform to the current presentations.
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, 1998, the consolidated results of
its operations for the three months ended March 31, 1998 and
1997, and its consolidated cash flows for the three months ended
March 31, 1998 and 1997.
Future Cash Requirements Although the Partnership continues
to project a loss from operations on an annual basis for the
foreseeable future, the Partnership had cash and cash equivalents
of $3.0 million and a $1.7 million line of credit at March 31,
1998 available to fund the operating activities of the
Partnership. Also, the Partnership is able to defer cash
interest payments on the Extendible Notes until certain
conditions are met and to defer the payment of management fees
until two consecutive interest payments on the Extendible Notes
have been paid in cash. The deferral of these items has
significantly improved the liquidity of the Partnership.
The Partnership is continuing to undertake marketing
efforts to increase attendance and pari-mutuel handle at the Race
Park in order to generate operating income. Also, management
intends to undertake further efforts aimed toward the adoption of
legislation legalizing additional forms of gaming at the Race
Park in order to increase revenues. Further, management is
analyzing various proposals to develop new forms of businesses at
the Race Park in an effort to raise new sources of income and to
draw additional attendance to the Race Park. Nonetheless, there
can be no assurance that any of these efforts will be
successful.
The Extendible Notes, together with accrued interest,
must be retired in September 2001, unless the applicable
extension provisions apply. To the extent the Partnership is
unable to refinance the Extendible Notes, alternative sources of
funding will be necessary. Although 74.2% of the Extendible
Notes are owned by MAXXAM, there can be no assurance that the
Partnership will be able to refinance the Extendible Notes or
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, 1998 and December 31, 1997, includes deposits held for
the benefit of horsemen for purses, stakes and awards and amounts
reserved for the payment of property taxes.
3. Racing 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.
A summary of the pari-mutuel operations for the three
months ended March 31, 1998 and 1997 is as follows:
Three Months Ended
March 31,
------------
1998 1997
----- ------
Number of live race days 45 61
Live handle $ 8,549 $ 7,789
Guest simulcasting handle 23,358 21,747
Host simulcasting handle 77,537 69,075
------ -----
$ 109,444 $ 98,611
===== ======
Net commissions from live racing $ 1,024 $ 926
Net commissions from guest simulcasting 2,077 1,933
Net commissions from host simulcasting 1,519 1,415
------ -----
$ 4,620 $ 4,274
====== ======
/TABLE
4. Notes Payable Notes payable consist of the
following:
March December
31, 31,
1998 1997
------- -------
(Unaudit
ed)
11% Senior Secured Extendible Notes due
September 1, 2001 (net of unamortized
discount of $14,501 in 1998 and
$14,942 in 1997) $32,326 $31,886
Accrued interest to be paid in-kind 2,576 1,288
------- ------
34,902 33,174
Unsecured promissory notes 205 205
Equipment leases - 3
Payable to Limited Partners 23 23
------- -------
Total 35,130 33,405
Less current portion included in other
liabilities (8) (12)
------ -------
$35,122 $33,393
======= =======
The Partnership is amortizing the difference between
the aggregate principal amount of the Extendible Notes and their
estimated fair value as of the implementation of the
reorganization of the Partnership 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.
5. Related Party Transactions Management and other
professional fees include $188 for the three months ended March
31, 1998 and 1997, respectively, in management fees due to the
Managing General Partner. Payment of management fees 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 $133 and $131 for the three months ended March 31, 1998 and
1997, respectively, related to the costs incurred for services
provided by MAXXAM and certain of its subsidiaries. The
Partnership also incurred fees of $14 and $83 during the three
months ended March 31, 1998 and 1997, respectively, for legal and
other consulting services performed by other affiliates.
6. Contingencies The Partnership is involved in
claims and litigation arising in the ordinary course of business.
While uncertainties are inherent in the final outcome of such
matters and it is presently impossible to determine the actual
costs that ultimately may be incurred, management believes that
the resolution of such uncertainties and the incurrence of such
costs should not have a material adverse effect upon the
Partnership's consolidated 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 THE RESULTS OF OPERATIONS The
following should be read in conjunction with the
unaudited consolidated financial statements
contained elsewhere herein and in the Form 10-K.
Any capitalized terms used but not defined herein
have the same meaning given to them in the Form
10-K.
This section contains statements which constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements can be
identified by the use of forward-looking terminology such as
"believes," "expects," "may," "estimates," "will," "should,"
"plans" or "anticipates" or the negative thereof or other
variations thereof or comparable terminology, or by discussions
of strategy. Readers are cautioned that any such forward-looking
statements are not guarantees of future performance and involve
significant risks and uncertainties, and that actual results may
vary materially from those in the forward-looking statements as a
result of various factors. These factors include the
effectiveness of management's strategies and decisions, general
economic and business conditions, new or modified statutory or
regulatory requirements, and changing prices and market
conditions. This section and the Partnership's Form 10-K
identify other factors that could cause such differences. No
assurance can be given that these are all of the factors that
could cause actual results to vary materially from the forward-
looking statements.
Results of Operations 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.
Historically, the Race Park has derived a majority of its net
pari-mutuel commissions from live racing and host simulcasting on
thoroughbred racing. Therefore, net pari-mutuel commissions have
typically been highest during the first and fourth quarters of
the year.
The following table presents selected attendance and
wagering information for the three months ended March 31, 1998
and 1997:
Three Months
Ended
March 31,
1998 1997
S> <C
Number of live race days 45 61
Number of simulcast only days 45 29
Average daily attendance - live race days 3,137 2,372
Average daily attendance - simulcast days 489 511
Average live per capita wager $ 61 $ 54
Average combined live and guest per capita
gross wager - live race days 176 176
Average guest per capita gross wager -
simulcast days 336 272
(Amounts in thousands)
Live handle $ 8,549 $ 7,789
Guest simulcasting handle 23,358 21,747
Host simulcasting handle 77,537 69,075
-------- -------
$109,444 $98,611
=====
Net commissions from live racing $ 1,024 $ 926
Net commissions from guest simulcasting 2,077 1,933
Net commissions from host simulcasting 1,519 1,415
-------- -------
Total net pari-mutuel commissions $ 4,620 $ 4,274
======== =======
Revenues. The Partnership's principal source of revenue is from
pari-mutuel commissions generated from wagering on live races and
simulcast races as both a guest and host track. The Race Park
conducted sixteen fewer live racing performances during the three
months ended March 31, 1998 compared to the same period of 1997,
due to the elimination of live racing on Wednesdays and on
certain Thursdays. Wednesdays and Thursdays have historically
generated lower average daily live attendance and lower average
daily live handle. Average daily purses paid were approximately
$90,000 during the three months ended March 31, 1998 compared to
approximately $65,000 for the same time period of 1997.
Generally, a significant increase in purses paid will result in
improvements in the quality of a racetrack's racing program and
the marketability of its simulcast signal. Management believes
that the combination of the elimination of live racing
performances and the higher purses paid were the primary factors
which resulted in the 32% increase in the average daily
attendance and the 13% increase in the live per capita wager
during the three months ended March 31, 1998 compared to the same
period of 1997.
In addition, net pari-mutuel commissions from host
simulcasting increased during 1998 as compared to 1997 due to
increased wagering at the majority of the racetracks and off-
track wagering facilities receiving the Race Park's simulcast
signal. Management believes that the increase in the average
daily purse paid, as described above, was a significant factor in
the increased host simulcasting handle. Although average
attendance on simulcast only days decreased slightly during the
three months ended March 31, 1998 compared to the same period of
1997, an increase in the average guest per capita wager resulted
in an increase in handle and net pari-mutuel commissions from
guest simulcasting.
Food and beverage and other revenues increased during
the three months ended March 31, 1998 compared to the same period
of 1997 due to the overall increase in attendance during the
period. Other revenues also increased due to the sale of
additional corporate sponsorship and advertising packages during
the three months ended March 31, 1998.
Income from operations. Income from operations for the
three months ended March 31, 1998 improved from that of the
comparable period of 1997 due to the increase in revenues
discussed above. Costs and expenses increased slightly
corresponding to the increase in attendance and handle activity
during the period.
Net loss.Net loss reflects the income from operations as
described above, interest income and interest expense, including
amortization of the discount on the Extendible Notes. Interest
expense increased during the three month period ended March 31,
1998 as compared to the prior periods due to the continuing
increase in the balance of Extendible Notes as accrued interest
is paid in-kind with additional Extendible Notes.
Liquidity and Capital Resources At March 31, 1998, the
Partnership had cash and cash equivalents of $3.0 million
compared to $2.7 million at December 31, 1997. At March 31,
1998, the Partnership also had restricted cash of $3.6 million
compared to $4.8 million at December 31, 1997. The decline in
restricted cash is due to the annual payment of property taxes.
Accounts receivable increased during the three months ended March
31, 1998 primarily due to an increase in the level of receivables
generated from host simulcasting. The balance of Extendible
Notes has increased during the three months ended March 31, 1998
due to the accrual of interest and the amortization of the
discount on the Extendible Notes as described in Note 4 to the
Consolidated Financial Statements included in Item 1.
See Note 1 to the Consolidated Financial Statements for
a discussion of the future cash requirements of the Partnership.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS The Partnership is
involved in various claims, lawsuits and other proceedings.
While uncertainties are inherent in the final outcome of such
matters and it is presently impossible to determine the actual
costs that ultimately may be incurred, management believes that
the resolution of such uncertainties and the incurrence of such
costs should not have a material adverse effect on the
Partnership's consolidated financial position, results of
operations or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a.
Exhibits: 27 Financial Data Schedule
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: May 15, 1998 By: /S/ MICHAEL J. VITEK
------------
Michael J. Vitek
Vice President of Accounting