UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
- - ---------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NUMBER 33-67738
SAM HOUSTON RACE PARK, LTD.
(Exact name of Registrant as Specified in its Charter)
TEXAS Offices)
(State or other jurisdiction
of incorporation or organization) 76-0313877
(I.R.S. Employer
ONE SAM HOUSTON PLACE Identification Number)
7575 NORTH SAM HOUSTON PARKWAY
WEST 77064
HOUSTON, TEXAS (Zip Code)
(Address of Principal Executive
Registrant s telephone number, including area code: (281) 807-8700
- - ---------------
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
None.
- - ---------------
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 / /
- - ---------------
TABLE OF CONTENTS
PART I
Item 1. Business
General3
Industry Overview3
Racing Schedules4
Sources of Revenue 4
Purses and Horsemen s Agreements6
Marketing and Business Development7
Competition8
Seasonality of Racing 10
Employees10
Regulation and Taxation10
Item 2. Properties12
Item 3. Legal Proceedings14
Item 4. Submission of Matter to a Vote of Security Holders14
PART II
Item 5. Stockholder Matters15
Item 6. Selected Financial Data16
Item 7. Management s Discussion and Analysis of Financial Condition and
Results of Operations17
Item 7a. Quantitative and Qualitative Disclosures About Market Risk20
Item 8. Financial Statements and Supplementary Data
Report of Independent Public Accountants21
Consolidated Balance Sheets22
Consolidated Statements of Operations23
Consolidated Statements of Partners Capital (Deficit)24
Consolidated Statements of Cash Flows25
Notes to Consolidated Financial Statements26
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure35
PART III
Item 10. Directors and Executive Officers36
Item 11. Executive Compensation39
Item 12. Security Ownership of Certain Beneficial Owners and
Management41
Item 13. Certain Relationships and Related Transactions41
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form
8-K42
PART I
ITEM 1. BUSINESS
GENERAL Sam Houston Race Park, Ltd., a Texas limited
partnership (the"PARTNERSHIP"), owns and operates Sam Houston Race Park,
a Class 1 horse
racing facility located within the greater Houston metropolitan area (the
"RACE PARK"). The Race Park offers pari-mutuel wagering on live
thoroughbred and quarter horse racing and on horse and greyhound races
simulcast from other racetracks. 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 1, 1999, various wholly owned subsidiaries of
MAXXAM held, directly or indirectly, an aggregate of 98.3% of the equity
in the Partnership and 97.5% of the Partnership s 11% Senior Secured
Extendible Notes (the "EXTENDIBLE NOTES").
This Annual Report on Form 10-K contains statements which
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in the
sections to this Item entitled "Sources of Revenue-Simulcasting,"
"-Marketing and Business Development," "-Competition" and "-Regulation
and Taxation-Regulations on Simulcasting" and "-Taxation." These
statements also appear in a number of other places (see Item 3. "Legal
Proceedings," Item 5. "Stockholder Matters" and Item 7. "Management s
Discussion and Analysis of Financial Condition and Results of
Operations-Results of Operations," "-Liquidity and Capital Resources" and
"-Year 2000"). 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 thereon 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 report identifies 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.
INDUSTRY OVERVIEW
Pari-mutuel wagering is pooled wagering, under which bettors
wager against each other, not the racetrack. Wagering pools are regular
wagering pools, multiple two wagering pools and multiple three or more
wagering pools. Examples of regular wagers include win (a wager on a
specific horse to finish first), place (a wager on a specific horse to
finish first or second) and show (a wager on a specific horse to finish
first, second or third). Examples of multiple two wagers include daily
double (a wager in which the bettor selects the horses that will win two
separate races), quinella (a wager in which the bettor selects the horses
that will finish first and second, in any order) and exacta (a wager in
which the bettor selects the horses that will finish first and second, in
the correct order). Examples of multiple three or more wagers include
trifecta (a wager in which the bettor selects the horses that will finish
first, second and third, in order), superfecta (a wager in which the
bettor selects the horses that will finish first, second, third and
fourth, in order), and the pick three (a wager in which the bettor
selects the winner of three consecutive races). A computerized
totalisator system is used to total the amounts wagered and calculate the
payouts for each pool based on the amounts wagered on various horses and
on the possible outcomes.
Pari-mutuel wagering is conducted in a majority of states in
the United States and all provinces in Canada. The industry includes
racetracks which conduct thoroughbred, quarter horse, harness and
greyhound racing and off-track wagering facilities which receive
simulcast broadcasts from various racetracks but do not conduct live
racing. Off-track wagering is regulated by the individual states in the
United States and is not legal in Texas and certain other states.
Simulcasting is the process by which live races held at one racing
facility are broadcast simultaneously to other locations at which
additional wagers may be placed on the race being broadcast. Guest
simulcasting is the process whereby the Race Park receives broadcasts
from other racetracks. Host simulcasting is the process whereby other
racetracks receive broadcasts from the Race Park. Simulcasting is
regulated by individual states in the United States and is authorized in
Texas but is not currently authorized in all states.
For every dollar wagered at the Race Park, a percentage, as
defined by state law, is returned to the winning bettors, and the
remaining percentage, referred to as the "takeout," is collected by the
racetrack. As discussed in more detail below, a percentage of the
takeout is reserved for purses to be paid to the owners of future winning
horses, as fees and taxes to the state of Texas and as contributions to
organizations whose purpose is the furtherance of horse breeding in
Texas. The takeout remaining after these deductions is retained by the
racetrack and constitutes the racetrack s primary source of revenue. The
Partnership s Consolidated Financial Statements and Notes thereto
appearing in Item 8 contain additional information regarding the
Partnership s revenues and costs of pari-mutuel operations.
RACING SCHEDULES
The Race Park currently conducts live thoroughbred or quarter
horse racing four days a week during meets while simulcasting seven days
a week. The Texas Racing Commission (the "RACING COMMISSION") must
approve the number of live race days that may be offered at the Race Park
each year. The number and scheduling of race days at the Race Park will
depend upon a number of factors, including scheduling of live race days
at other Texas Class 1 horse racing facilities. Under the Rules of
Racing for the state of Texas (the "RULES OF RACING"), Class 1 racetracks
may not have overlapping live race schedules for the same breed of horse
with other Class 1 racetracks unless each track with overlapping
schedules consents. The Racing Commission has licensed two other Class 1
horse racetracks: Retama Park near San Antonio and Lone Star Park at
Grand Prairie near Dallas.
The Race Park conducted 129 days of live racing during 1998,
consisting of 86 days of thoroughbred racing and 43 days of quarter horse
racing. For the 1999 calendar year, the Race Park has obtained approval
to conduct live racing on 134 days consisting of (i) 57 days of
thoroughbred racing beginning on January 1, 1999 and concluding on April
11, 1999, (ii) 44 days of quarter horse racing beginning on July 2, 1999
and concluding on September 12, 1999 and (iii) 33 days of thoroughbred
racing beginning on October 28, 1999 and concluding on December 30, 1999.
The Race Park has not yet determined what race dates it will request in
2000 and years thereafter. The Race Park also expects to continue
offering simulcast wagering 364 days a year.
SOURCES OF REVENUE
Wagering on Live Races
The Texas Racing Act (the "RACING ACT") provides for the
takeout percentage on live races depending on the type of wager. The
total takeouts are approximately 18%, 21% and 25% from regular wagering
pools, multiple two wagering pools and multiple three or more wagering
pools, respectively. The Racing Act also provides that a minimum of 7%
of all live regular wagering pools and live multiple two wagering pools
and a minimum of 8.5% of all live multiple three wagering pools be
reserved for purses to be paid to the owners of future winning horses.
Furthermore, through December 31, 1998, the state of Texas received 1% of
the first $100 million wagered on live racing at each racetrack each year
(plus higher percentages for wagering over $100 million). Subsequent to
December 31, 1998, this tax was eliminated on the first $100 million
wagered. Finally, 1% of live multiple wagering pools is required to be
set aside for Texas horse breeding programs. Through December 31, 1998,
the Race Park retained, on the first $100 million wagered on live horse
racing, 10% of regular wagers, 12% of wagers involving two horses and
14.5% of wagers involving three or more horses after giving effect to the
foregoing payments. The betting patterns experienced by the Race Park
during its operating history have averaged approximately 41%, 33% and 26%
of dollars wagered in the regular, multiple two and multiple three or
more wagering pools, respectively.
Simulcasting
The Race Park currently offers guest simulcast wagering on
horse races seven days a week throughout the year and intends to continue
doing so. As of March 1, 1999, the Race Park had agreements with
approximately 50 racetracks pursuant to which it, at various times,
receives simulcast signals. The maximum takeout percentages on guest
simulcast racing broadcasts from Texas racetracks are the same as those
for live racing. The takeout percentages on guest simulcast racing
broadcasts from out-of-state tracks are established by each state but are
generally within a few percentage points of the takeout percentages in
Texas. The Race Park sets aside amounts from each wagering pool for
purses to be paid to the owners of future winning horses in varying
amounts. See "Purses and Horsemen s Agreements" below. Furthermore, as
of September 1, 1997, the Racing Act required the allocation of 1.25% of
all simulcast wagering pools for the state of Texas, 0.25% for the state
of Texas for funds previously appropriated to administer and enforce the
Racing Act, and 1% of all simulcast multiple wagering pools for Texas
horse breeding programs. As of January 1, 1999, the allocation to the
state of Texas was reduced by .25% to 1.0%. The Race Park also pays
broadcasting racetracks a fee which averages approximately 3% of the
amount wagered by its patrons on the broadcast races. After giving
effect to the foregoing, the Race Park receives net commissions normally
ranging from 6% to 10% on guest simulcast betting at the Race Park.
The Race Park also began offering guest simulcast wagering on
greyhound races broadcast from a greyhound track in Corpus Christi during
March 1998 under cross-breed simulcasting provisions contained in the
amendments to the Racing Act enacted during the 1997 legislative session
(the "1997 AMENDMENTS"). In June, 1998, the Race Park began offering
wagering on races broadcast from certain out-of-state greyhound tracks
and in July, 1998, the Race Park began offering wagering on races
broadcast from the greyhound track located in the greater Houston
metropolitan area ("GULF GREYHOUND"), which generated the highest
wagering handle among the greyhound tracks being offered. During
December 1998, Gulf Greyhound notified the Race Park that it would no
longer send its simulcast signal to the Race Park. Accordingly, the Race
Park no longer offers wagering on races broadcast from Gulf Greyhound,
but intends to continue to offer wagering on broadcasts from Corpus
Christi and certain out-of-state greyhound tracks. Wagering on greyhound
signals accounted for 14.5% of the guest handle and 12.3% of total net-
pari mutuel commissions for 1998.
The maximum takeout percentages on cross-breed simulcast racing
broadcast from Texas racetracks and out-of-state racetracks are
approximately equal to those percentages used for horse racing described
above. In accordance with the 1997 Amendments, 5.5% of each wagering
pool is set aside for greyhound purses. In addition, the 1997 Amendments
require the allocation of 1.5% of all simulcast wagering pools for the
state of Texas, 0.25% for the state of Texas for funds previously
appropriated to administer and enforce the Racing Act and 1% of all
simulcast multiple wagering pools for Texas greyhound breeding programs.
As of January 1, 1999, the 1.5% allocation for the state of Texas was
reduced to 1.25%. Also, the Race Park receives 1.5% of wagering on
out-of-state horse racing placed at Gulf Greyhound. The Race Park is
required to pay 1.5% of amounts wagered on out-of-state greyhound tracks
to Gulf Greyhound. Broadcasting race tracks are paid a fee by the Race
Park that normally ranges from 2.5% to 3.0% of amounts wagered. After
giving effect to the foregoing, the Race Park expects to receive net
commissions normally ranging from 10% to 13% on cross-breed simulcast
wagering at the Race Park.
The Race Park receives commissions from host simulcasting
averaging approximately 3% of the amount wagered at the receiving track
on the Race Park s races. A portion of this fee is reserved for purses
to be paid to the owners of future winning horses, as described in
"Purses and Horsemen s Agreements" below. The Race Park also receives
4.5% of the amount wagered at greyhound tracks located in Texas on races
conducted at the Race Park which is to be reserved for purses. Through
October 1, 1999, the Race Park also receives 80% of the purse funds
generated from interstate wagering on horse racing at greyhound tracks
located in Texas under a ruling by the Texas Racing Commission. As of
March 1, 1999, the Race Park had agreements with approximately 230
racetracks and off-track wagering outlets pursuant to which the Race
Park, at various times, broadcasts its races.
Simulcasting is an important component of the Race Park s
revenues. Guest simulcasting and host simulcasting accounted for
approximately 64% and 20%, 63% and 20%, and 63% and 13%, respectively, of
the Race Park s net commission revenues during the years ended December
31, 1998, 1997 and 1996, respectively.
Food and Beverage Sales
Food and beverage sales are another major source of revenue and
include catering, restaurant and concession sales. A broad selection of
food is available to the patrons of the Race Park, from table dining at
the clubhouse level to food court fare at various concession stands
throughout the Race Park.
Other Revenues
Other major sources of revenue include admission, program and
parking fees as well as sponsorship agreements and sales of finish line
boxes, tables and luxury suites. An admission fee is charged for entry
to the Race Park. Preferred and valet parking are available for a fee
during live racing. The Race Park also sells programs for live and
simulcast racing, various editions of The Daily Racing Form and "tip"
sheets. The clubhouse level contains finish line boxes, finish line
reserved tables and reserved seating available for sale on a daily or
seasonal basis. Luxury suites are also available for rental on a
long-term or daily basis. The clubhouse level also contains the Jockey
Club which has a capacity of approximately 300 people. Individual and
corporate memberships to the Jockey Club are available for sale.
PURSES AND HORSEMEN S AGREEMENTS
Under the Rules of Racing, the Racing Commission has recognized
the Texas Horsemen s Partnership, L.L.P. (the "THP") as the official
horsemen s organization for the state of Texas. The recognized
horsemen s organization is responsible for negotiating with the
Partnership on behalf of all horsemen at the Race Park regarding, among
other things, the distribution of purses and guest and host simulcasting
agreements. The THP is comprised of two partners, the Texas Thoroughbred
HBPA, Inc. and the Texas Horsemen s Benevolent and Protective Association
which represents owners of quarter horses. The Partnership has entered
into agreements with each partner (the "THP AGREEMENTS"), which expire on
December 31, 1999. Under the terms of the contracts, during 1997, the
Race Park reserved 30% of the takeout from guest simulcasting and 30% of
the commissions received from host simulcasting for purses to be paid to
the owners of future winning horses. The percentage reserved for purses
increased to 31% during 1998. In accordance with the 1997 Amendments,
the amount reserved for purses was mandated by law as of January 1, 1999.
The amounts specified in the amended Racing Act approximate 7% of all
regular and multiple two horse wagering pools and 8.5% of all multiple
three horse wagering pools. The Partnership estimates that net
pari-mutuel commissions will decrease by approximately $1.0 million as a
result of this provision of the 1997 Amendments. The percentage reserved
for purses from host simulcasting increased to 32.5% of commissions
received in 1999 and will increase to 34.5% in 2000 and 37.0% thereafter,
in accordance with the THP Agreements and Texas Racing Commission rules.
Both contracts specify that all guest and host simulcasting agreements
are approved by the horsemen. The horsemen have the right to withdraw
this approval only for matters involving the integrity or best interests
of racing.
In accordance with industry practice, the Race Park establishes
purses nearly one month in advance of a race, based on the expected
wagering pool. These established purses are published in a condition
book which generally covers fifteen days of racing. Horsemen then enter
their horses in the proposed races based on the conditions of the race,
including the purse offered. At any given time, purses generated from
wagering may be higher or lower than the amounts included in the
projections used to complete the condition book. Therefore, during a
live race meet, purses may be over or under paid. Under the terms of the
THP Agreements, the Partnership has the ability to manage the level of
purses paid so that purses paid are approximately equal to purses
generated from wagering within a certain period of time; however, there
can be no assurance that any adjustments necessary will be sufficient.
When purses paid exceed purses generated within a certain period of
time, the excess payments become an additional expense to be paid by the
Partnership. During 1994, the Partnership paid purses in excess of
purses generated aggregating approximately $4.0 million. Under various
amendments to the agreement in effect during 1994, the Partnership has
recovered $1.0 million of these purse overpayments. The agreement
between the Partnership and the Texas Thoroughbred HBPA, Inc. provides
for the recovery of purse overpayments of $0.7 million and $0.6 million
during the years ended December 31, 1999 and 2000, respectively. The
Partnership will record any future recoveries only as they are earned.
During the years ended December 31, 1998, 1997 and 1996, the
Race Park has paid purses of approximately $11.1 million, $9.4 million
and $9.1 million, respectively. The average daily thoroughbred purse
paid increased from $65,000 to $92,000 during the three-year period. The
average daily quarter horse purse paid increased from $37,000 to $40,000
during the three-year period.
MARKETING AND BUSINESS DEVELOPMENT
Management of the Race Park believes that the majority of the
patrons for the Race Park reside within a 20 mile radius of the Race
Park, which includes the greater Houston metropolitan area, and that a
secondary market of occasional patrons can be developed outside the 20
mile radius but within a 50 mile radius of the Race Park. Management
recognizes the challenge of introducing pari-mutuel wagering to customers
in the greater Houston metropolitan area and has established the
following marketing goals to increase attendance and the wagering handle:
(i) promote the excitement of horse racing and wagering, (ii) support and
expand the existing group of core bettors, (iii) attract new fans
currently unfamiliar with horse racing, and (iv) pursue a program of fan
education to teach these new fans how to wager. Management uses a number
of marketing strategies to have potential customers consider the Race
Park as an entertainment alternative. These strategies are designed to
bring people to the Race Park for specific promotional events with a view
of turning infrequent visitors into occasional visitors and more frequent
visitors into regular visitors. Other marketing programs have been
developed to appeal to simulcasting customers and the more serious
horseplayers.
Management utilizes a variety of marketing techniques in
support of these objectives including: (i) maintaining a public relations
program to distribute news, information, features, handicapping tips and
results in local and national broadcast and print media, (ii) maintaining
an advertising presence in the market, primarily through newspaper,
television and radio campaigns, (iii) coordinating promotional efforts in
cooperation with sponsors, suppliers and vendors, (iv) developing a
strong group sales program, to appeal to large corporate, civic and
affinity groups, (v) holding specialized promotions and on-going programs
that are designed to attract unique demographic and/or cultural groups,
(vi) providing support for Houston area community events, (vii) focusing
attention to customer service and refinements to the Race Park s
facilities, (viii) holding handicapping seminars and tournaments both to
educate fans and promote the excitement of wagering, and (ix) producing
direct mail both to introduce the track to new groups and communicate
with existing customers.
Racetracks in certain states have begun offering alternative
forms of gaming, such as slot machines and video lottery machines, in
order to increase both revenues and purses, thereby strengthening both
the operations and the racing programs. In 1997, the Race Park invested
significant effort and monies lobbying the Texas legislature to authorize
additional forms of gaming at racetracks in Texas; however these efforts
were not successful. Management intends to continue to invest in efforts
to change existing legislation for the benefit of pari-mutuel license
holders in the current legislative session, which began in early 1999.
There can be no assurance that these efforts will result in legislative
changes.
Approximately 90 of the Race Park s 300 acres of land remain
undeveloped. Management continues to research and study the economic
viability of proposals for the commercial development of this property.
Future development plans could include the construction and operation of
businesses such as restaurants, night clubs, retail shops, hotels or
other types of entertainment facilities.
During March 1999, the Race Park formed SHRP Valley LLC, a
wholly-owned limited liability company, which then entered into a six
year agreement with a company to lease a greyhound track located in
Harlingen, Texas. A management agreement was also entered into between
the parties in connection with the management of the associated pari-
mutuel wagering license. The Race Park also has an option to purchase
100% of the equity interest in the company that owns the greyhound track
and the wagering license for the term of the lease , subject to certain
conditions. The agreements are contingent upon the satisfactory
completion of a 90 day due diligence and feasibility study currently
being conducted by the Race Park. If the due diligence study is
satisfactory, Race Park management plans to re-open the facility and
conduct year around horse and dog simulcasting and a season of live
greyhound racing at the track. The transaction is also subject to the
approval of the Texas Racing Commission.
COMPETITION
The Partnership faces competition from a variety of wagering
and gaming sources, including Gulf Greyhound, the Texas State Lottery,
numerous charity operated bingo facilities located in the Houston area
and Louisiana casinos located approximately 125 to 150 miles from
Houston.
Although the Race Park competes with Gulf Greyhound for pari-
mutuel wagering dollars, prior to September 1, 1997, the Race Park had
the exclusive right to simulcast horse racing in the greater Houston
metropolitan area. During 1997, the Texas Legislature authorized cross-
breed simulcasting between horse tracks and greyhound tracks at Texas
pari-mutuel facilities. This now allows greyhound tracks to display and
accept wagers on races broadcast from horse tracks and horse tracks to
display and accept wagers on races broadcast from greyhound tracks. Gulf
Greyhound began simulcasting horse races as of September 1, 1997 when the
legislation became effective. Therefore, the Race Park now competes with
Gulf Greyhound for horse racing customers in the Houston market.
Management believes that although the competition from Gulf Greyhound has
negatively impacted and will continue to negatively impact commissions
generated from wagering on horse racing, these negative impacts have been
and will continue to be more than offset by the additional commissions
generated from wagering on simulcast greyhound racing.
The Race Park also competes for wagering dollars with the Texas
State Lottery and charity operated bingo facilities. Both the lottery
and bingo are relatively easy games to learn versus the more complex
nature of handicapping and wagering on horse racing, which places the
Race Park at a competitive disadvantage to these forms of wagering. The
Race Park attempts to mitigate these factors by providing various fan
education programs for customers.
The Race Park also competes for wagering dollars with casinos
located in the state of Louisiana. Publicly available information
indicates that the majority of the customers at riverboat casinos located
in Lake Charles, Louisiana come from Houston. Management believes that
the location of the Race Park, within a one hour drive of the majority of
the population of Houston, is a competitive advantage for the Race Park
over the casinos, which are located two hours away for most Houston
residents. However, as with the Lottery and bingo, many casino gaming
opportunities are easier to learn than horse racing.
The Race Park also competes for customers with other forms of
entertainment, including the Houston Livestock Show and Rodeo, held
annually in February and March, and a wide range of live and televised
professional, collegiate and high school sporting events that are
available in the Houston area. The Race Park could, in the future, also
compete with other forms of gambling in Texas, including casino gambling
or other forms of gaming on Indian reservations.
Races broadcast from the Race Park compete for wagering dollars
and commissions with races simulcast from other racetracks throughout the
United States and around the world. The ability of the Race Park to
compete with other racetracks for these wagering dollars is dependent on
several factors, including the quality and quantity of horses and the
timing of live meets. The quality and quantity of the Race Park s horses
is dependent on the Race Park s ability to pay purses at a high enough
level to attract the highest quality of horses in a sufficient quantity
to fill the races conducted by the Race Park. Races broadcast from the
Race Park compete with races broadcast from other racetracks where the
quality of horses is often higher than the quality of horses racing at
the Race Park. However, management believes that the increase in
simulcasting activity, which has resulted in increased purses paid, has
been improving the quality of the racing program conducted at the Race
Park over the past three years. The mild winter conditions in the
Houston area also assists the Race Park in attracting horses as it
ensures uninterrupted training and racing for horsemen compared to
racetracks in the Midwest and East Coast regions, which may be closed
temporarily due to inclement weather. By conducting thoroughbred racing
during the winter season, the Race Park also faces less competition for
simulcast wagering dollars at locations across the country as fewer
racetracks conduct live racing during this time of year. Thus, during
the winter season, the Race Park has a competitive advantage in
attracting higher quality horses which increases the ability of the Race
Park to expand the simulcast handle wagered on its thoroughbred races.
The Race Park has annually conducted a summer quarter horse
meet. Although quarter horse racing does not command the same level of
wagering across the United States as thoroughbred racing, the Race Park
has been able to export its quarter horse racing signal to approximately
90 racetracks and off-track facilities around the country. This is
primarily due to the fact that the level of quarter horse purses paid
puts the Race Park among the top quarter horse race tracks in the United
States. This level of purse payments enables the Race Park to attract
high quality quarter horses.
The Race Park conducts its live racing for all thoroughbred and
quarter horse races in the evenings. As the majority of racetracks in
the United States conduct racing during the day, management believes that
night racing significantly increases the ability of the Race Park to
export its racing signal to simulcasting facilities at racetracks and
off-track locations. Also, the nighttime performances have historically
drawn higher attendance than daytime performances.
Another competitive factor faced by the Race Park includes the
allocation of a sufficient number of live race days by the Racing
Commission. While the Class 1 racetracks in Texas are each entitled to
approximately 17 weeks of live racing per breed (thoroughbred and quarter
horse), many factors are considered in the actual granting of race days.
Input is solicited by the Racing Commission from the racetracks,
racehorse owners and trainers, and horse breeding organizations.
Management works closely with all of the individuals and groups involved
in order to try to obtain a schedule that contains an optimal number of
live race days and that is in the best economic interest of the Race
Park.
SEASONALITY OF RACING
Handle and commissions from live racing and host simulcasting
are affected by the breed of horse running at the Race Park. Generally,
revenues generated from thoroughbred racing are higher than revenues
generated from quarter horse racing. More than 80% of the Race Park s
net pari-mutuel commissions from live racing and host simulcasting are
derived from thoroughbred racing. Increased revenues from thoroughbred
racing are primarily due to two factors, the overall popularity of
thoroughbred races and the timing of the Race Park s thoroughbred meets.
Also, as discussed above, the Race Park conducts a winter thoroughbred
meet during which the Race Park is able to broadcast its racing signal to
a large number of facilities. Races broadcast during the summer quarter
horse meet must compete with much stronger thoroughbred signals from
around the country.
Guest simulcast wagering at the Race Park is also affected by
the seasonality of racing throughout the United States. The Triple Crown
races in May and June and the Breeders Cup program in the fall, in
addition to the high quality racing programs held at United States
racetracks throughout the spring, summer and early fall, help to increase
guest wagering and attendance during those time periods. As a result,
the Partnership s net pari-mutuel commissions from guest simulcast
wagering on horse racing have been highest in the second quarter of the
year.
Thoroughbred and quarter horse racing are conducted in all
types of weather; however, racing may be canceled due to extreme local
weather conditions. Although the Race Park has rarely been forced to
cancel live racing, inclement weather does negatively effect the level of
attendance at the Race Park.
EMPLOYEES
As of March 1, 1999, the Race Park had approximately 115
year-round full-time employees, approximately 75 year-round part-time
employees and, due to the seasonal nature of the business, up to
approximately 450 seasonal employees. The number of seasonal employees
utilized depends principally on whether or not the Race Park is
conducting live racing and varies based upon attendance levels.
Certain individuals employed by MAXXAM and its wholly owned
subsidiaries provide management, legal, financial, corporate development
and other services to the Partnership from time to time. These
affiliates are reimbursed for their estimated actual costs incurred in
providing these services to the Partnership. The Race Park continuously
monitors its staffing levels and its use of services provided by MAXXAM
employees.
REGULATION AND TAXATION
Texas Racing Act
Under the Racing Act, horse racetracks are classified as Class
1, Class 2, Class 3 or Class 4 racetracks. A Class 1 racetrack must
operate in a county with a population of at least 750,000. Only three
Class 1 racetracks may be licensed in the state of Texas. The Racing
Commission does not limit the number of Class 2 racetracks that may be
licensed and operated in Texas or where those racetracks may be located.
A Class 2 racetrack is entitled to conduct 60 days of live racing in a
calendar year. Class 3 and Class 4 racetracks are generally operated by
county fairs for short periods of time.
Ownership and operation of horse racetracks in Texas are
subject to significant regulation as set forth in the Racing Act and
administered by the Racing Commission. The Racing Act provides, among
other things, for the allocation of each wagering pool among betting
participants, the state of Texas, purses, special equine programs and
racetracks. The Racing Act also empowers the Racing Commission to
license and regulate substantially all aspects of horse racing in the
state. The Racing Commission, among other things, licenses all employees
and workers at a racetrack (including jockeys, trainers and
veterinarians); regulates the transfer of ownership interests; allocates
live race days; approves race programs; regulates the conduct of races;
oversees the administration of drugs to horses; sets specifications for
the racing surfaces, animal facilities, employee quarters and public
areas of racetracks; regulates the types of wagers on horse races and
approves all material contracts with racetracks, including management
agreements, simulcast agreements, totalisator contracts and
concessionaire agreements. The ability of the Race Park to conduct live
racing and pari-mutuel wagering is dependent on continued governmental
approval of these activities as legalized forms of gaming.
Restrictions on Ownership
The Racing Act requires that a majority of the ownership
interests of a license holder be held at all times by persons who are
United States citizens and who have been continuous residents of the
state of Texas for the preceding ten years. Additionally, it is illegal
under the Racing Act for any person to own a 5% or greater interest in
more than two racetrack licenses in the state of Texas (both horse tracks
and greyhound tracks are grouped together for this purpose). The Race
Park s license (the "LICENSE") is not transferable but is subject to a
negative pledge (as security for the Partnership s Extendible Notes). In
the event of a foreclosure by the Trustee for the Extendible Notes (the
"TRUSTEE") or the holders of Extendible Notes (the "NOTEHOLDERS")
following an event of default, a number of restrictions and procedural
requirements apply to any proposed or subsequent transfer or use of the
License. The Racing Act generally requires pre-approval by the Racing
Commission of all transfers or issuances of "pecuniary interests" in the
holder of a racetrack license. Interests in the Partnership constitute
"pecuniary interests" and generally any transfer of an interest in the
Partnership would require the prior approval of the Racing Commission.
Regulations on Simulcasting
The Race Park is authorized to conduct guest and host
simulcasting under the Racing Act and the Federal Interstate Horseracing
Act of 1978. In Texas, simulcast broadcasts may only be sent to licensed
racetracks, as the Racing Act does not provide for off-track wagering.
All simulcast contracts must be approved by the Racing Commission. In
accordance with the Rules of Racing, all guest and host simulcasting
contracts must also be approved by the horsemen. Since the Race Park is
unable to conduct simulcast wagering without the approval of the Racing
Commission and the horsemen, the revocation or non-renewal of the
approval of either the Racing Commission or the horsemen could have a
material adverse effect on the Race Park s consolidated financial
position, results of operations or liquidity.
Class 1 and Class 2 horse tracks must take signals from Texas
Class 1 horse tracks when such signals are made available to them, in
preference to signals from other tracks. Class 1 racetracks are not
required to take simulcast signals from Class 2 racetracks. Under the
Racing Act, a Texas horse track that offers wagering on greyhounds, must
take all signals available from Texas greyhound tracks in preference to
out-of-state greyhound signals. Likewise, a Texas greyhound track that
offers wagering on horses, must take all signals made available from
Texas horse tracks in preference to out-of-state horse signals.
Taxation
The Partnership is subject to significant taxes and fees from
state and local agencies. These taxes and fees may be increased at any
time as the prospect of significant additional revenue is one of the
primary reasons that taxing jurisdictions allow legalized gaming. From
time to time, various taxing jurisdictions, including the Texas
Legislature, have proposed and enacted changes in the laws and the
administration of such laws affecting the taxes and fees paid by the Race
Park. Prior to September 1, 1997, the Partnership was required to set
aside 0.25% of each simulcast wagering pool for the Texas Commission on
Alcohol and Drug Abuse. Under amendments to the Racing Act enacted
during 1997, this 0.25% was designated to repay the state of Texas for
funds previously appropriated to administer and enforce the Racing Act.
This tax will be eliminated during 1999 when all amounts due to the State
of Texas, including interest, have been repaid. Also, in accordance with
amendments to the Racing Act, the pari-mutuel wagering tax on guest
simulcast wagering on horse racing was increased from 1% to 1.25% and the
tax on guest wagering on greyhound racing was reduced from 1.5% to 1.25%.
Also, as of January 1, 1999, the 1% pari-mutuel wagering tax due to the
state of Texas from live racing was eliminated on the first $100 million
wagered. The Partnership estimates that the elimination of this tax will
increase net pari-mutuel commissions for 1999 and future years by
approximately $224,000 per year based on 1998 levels of wagering. There
can be no assurance that further changes to the taxes and fees assessed
on the Race Park will not be made or that such charges will not have a
material adverse effect on the Race Park s consolidated financial
position, results of operations or liquidity.
Other Regulations
The Race Park is required to file certain reports with the
Internal Revenue Service regarding certain cash transactions and certain
wagering winnings by patrons. The Race Park is also subject to a variety
of environmental and other laws and regulations, including laws and
regulations dealing with animal waste management and wetlands. The Race
Park is subject to other federal, state and local regulations and, on a
periodic basis, must obtain various licenses and permits. The Race Park
also has an agreement with a company related to the sale of alcoholic
beverages. The Race Park derives significant revenues from the sale of
alcoholic beverages. The interruption or failure of this company to
maintain valid permits and licenses to sell alcoholic beverages could
have a material adverse effect on the Race Park s consolidated financial
position, results of operations or liquidity.
ITEM 2. PROPERTIES
The Race Park is located on approximately 300 acres of land
(the "SITE") owned by the Partnership. The Site is located in Harris
County approximately 18 miles from downtown Houston and approximately 15
miles from Bush Intercontinental Airport. The Site currently includes
approximately 90 acres of undeveloped land. The Race Park fronts Sam
Houston Parkway, a major tollway, providing ready access to residents of
the greater Houston metropolitan area. In 1998, the Race Park added an
80 foot tall electronic message center.
The Race Park s buildings and grounds have an aggregate
capacity of approximately 18,000 patrons and 10,000 cars. The Grandstand
building at the Race Park is an air-conditioned, fully-enclosed structure
of approximately 196,700 square-feet with a variety of viewing and
simulcasting facilities on three levels. The Grandstand has seating for
6,000 patrons and is designed to accommodate approximately 10,000 total
patrons. There are numerous television monitors, an electronic message
board, video walls, video replay libraries and odds information boards
throughout the Grandstand to increase the flow of information to bettors.
Simulcast races are shown on designated television monitors. Each
Grandstand level has numerous pari-mutuel betting windows, automated
betting machines and concession areas.
In addition to the Grandstand, there are three additional areas
from which patrons can watch the races: the standee ramp or apron between
the Grandstand and the racing ovals; the 30,000 square foot enclosed,
air-conditioned simulcast pavilion which is located immediately north of
the Grandstand; and the infield area of the racetrack. The simulcast
pavilion is typically the only portion of the Race Park that is open to
the public on days that only simulcasting is being conducted. The
simulcast pavilion was renovated during 1998. These other areas have
concession stands and pari-mutuel facilities nearby. A tunnel provides
access to the infield.
The Race Park has two racing ovals - a one and one-quarter mile
dirt track and a one and one-eighth mile turf course. Each racing oval
features straightaways or "chutes" to accommodate varying race lengths.
The surface of the tracks and the rails have been designed to lessen the
risk of injuries to horses and jockeys and are generally considered to be
of high quality. The backside contains 16 barns capable of housing a
total of approximately 1,200 horses. Each barn contains stalls for
onsite stabling, tack rooms, hay and feed storage areas, grooms
quarters, wash racks and four outdoor walkers. The Race Park also has a
stakes barn for visiting horses, a receiving barn, a holding barn and an
isolation facility. An equine veterinary facility is also located at the
Race Park.
Under the indenture governing the Partnership s Extendible
Notes (the "INDENTURE"), substantially all of the Partnership s assets,
including the Partnership s properties, are pledged as collateral on the
Extendible Notes. The racing license held by the Partnership is also
subject to a negative pledge for the benefit of the holders of the
Extendible Notes.
ITEM 3. LEGAL PROCEEDINGS
This section contains statements which constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. See Item 1. "Business-General" for
cautionary information with respect to such forward-looking statements.
1995 Plan of Reorganization
On April 17, 1995, SHRP, Ltd. and two affiliates (the
"DEBTORS") filed voluntary petitions to reorganize under the provisions
of Chapter 11 of the United States Bankruptcy Code. On September 22,
1995, the Bankruptcy Court entered an order confirming the Debtors plan
of reorganization (the "PLAN"). All transactions called for by the Plan
were completed on October 6, 1995 (the "EFFECTIVE DATE") and the case was
closed on December 19, 1996. The Plan called for, among other things, a
reduction in the Partnership s long-term debt, a significant cash
infusion, contribution of additional property and a reorganization of the
Partnership.
Under the terms of the Plan, the Extendible Notes were issued
in exchange for the Partnership s 11-3/4% Senior Secured Notes. The
Extendible Notes had an initial aggregate principal amount of $37.5
million, mature on September 1, 2001 and bear interest at the rate of 11%
per annum. The maturity date of the Extendible Notes may be extended to
September 1, 2003 (with an increase in the rate of interest to 13% per
annum) if the Texas legislature passes significant gaming legislation (as
defined) between January 1, 2001 and August 15, 2001. Interest on the
Extendible Notes accrues in-kind and is not payable in cash until a
certain level of cash flow from operations has been achieved. Once cash
interest payments commence, interest payments may not thereafter be paid
in-kind. The Indenture limits the Partnership s ability to incur
additional indebtedness and liens, to engage in transactions with
affiliates, to make investments and to make distributions, although the
Indenture does allow the Partnership to become involved in certain
gaming, entertainment and other ventures.
On the Effective Date, a new investor group (the "NEW INVESTOR
GROUP") made a capital contribution of cash in the aggregate amount of
$5.9 million. Additionally, a wholly owned subsidiary of MAXXAM
contributed an approximately 87 acre tract of adjoining land having a
fair market value of $2.3 million. Each member of the New Investor Group
also provided its pro rata share of a $1.7 million line of credit. This
line of credit would be used to fund future cash flow requirements should
the cash infusion be insufficient.
The Plan provided for the elimination of all existing
partnership interests. The Partnership has issued 33.3% of the equity in
the Partnership to certain holders of allowed unsecured bankruptcy claims
(the "CREDITOR EQUITY"), a majority of which relates to the unsecured
deficiency claims attributable to the Original Notes. The Creditor
Equity is held in the form of common stock in the Additional General
Partner. On the Effective Date, the New Investor Group received 66.7% of
the equity in the Partnership. The Managing General Partner was issued a
1% interest in the Partnership in exchange for contributing its pro rata
share of the investment made by the New Investor Group. See Note 3 to
the Partnership s Consolidated Financial Statements appearing in Item 8
for further information concerning the bankruptcy proceedings.
From time to time, the Partnership is involved in various other
claims, lawsuits and other proceedings relating to a variety of matters.
While uncertainties are inherent in the final outcome of such matters and
while 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. STOCKHOLDER MATTERS
This section contains statements which constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. See Item 1. "Business-General" for
cautionary information with respect to such forward-looking statements.
There is no established public trading market for the
Partnership s ownership interests. The Partnership has eight limited
partners in addition to the two general partners. The Partnership
interests are not transferable without the consent of the Managing
General Partner. Under the Indenture, distributions are restricted
except for amounts necessary to pay taxes on income of the Partnership
allocated to a partner. The Partnership has not made distributions to
its partners since the commencement of operations and it is doubtful that
the Partnership will be able to make any distributions to its partners
for at least the foreseeable future. See "Item 7. Management s
Discussion and Analysis of Financial Condition and Results of Operations"
and "Item 8. Financial Statements and Supplementary Data."
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data of the Partnership for each of the
years in the five-year period ended December 31, 1998 presented below,
should be read in conjunction with "Item 7. Management s Discussion and
Analysis of Financial Condition and Results of Operations" and with the
Partnership s Consolidated Financial Statements and Notes thereto
appearing in Item 8.
Years Ended December 31,
------------
1998 1997 1996 1995 1994)
------- -------- -------- -------- --------
(In thousands of dollars, except for
attendance)
Summary of Operations:
Revenues $ 24,195 $ 20,027 $ 20,752 $ 19,679 $ 20,565
Cost and expenses
(b) (c) (23,345) (22,250) (23,342) (24,144) (32,463)
Income (loss)
before depreciation
(c) 1,826 (1,295) (1,704) (2,193) (9,875)
Income (loss)
before reorganization
items and
other income
(expense) 850 (2,223) (2,590) (4,465) (11,898)
Reorganization
items (d) - - (83) (48,915) -
Income (loss) from
operations (d) 850 (2,223) (2,673) (53,380) (11,898)
Extraordinary item
(e) - - - 63,780 -
Net income (loss) (6,858) (8,406) (7,622) 5,608 (20,154)
Balance Sheet Data (at
end of period):
Current assets $ 9,990 $ 9,030 $ 7,797 $ 8,384 $ 7,257
Total assets (d) 35,489 34,534 33,937 34,956 77,640
Current liabilities 7,505 8,345 6,456 5,645 16,297
Notes payable
(including
notes to
affiliates),
less current
portion (e) 41,081 33,393 27,162 22,171 73,244
Partner s equity
(deficit) (15,923) (9,065) (659) 6,963 (11,901)
Distributions paid to
partners $ - $ - $ - $ - $ -
Other Data:
Total attendance 665,576 608,120 684,122 665,981 805,648
Live handle $ 22,352 $ 20,175 $ 25,620 $ 27,983 $ 49,961
Guest handle 112,139 93,543 88,579 82,381 30,455
Host handle 162,965 128,252 109,648 51,451 35,945
Net pari-mutuel
commissions 16,180 13,276 12,917 10,566 8,910
<FN>
(a) The Race Park began operations on April 29, 1994, therefore amounts
for 1994 represent eight months of operations.
(b) Includes depreciation expense of $976, $928, $886, $2,272 and $2,023
for 1998, 1997, 1996, 1995 and 1994, respectively.
(c) Includes accrued management fees of $750, $750, $750 and $183 for
1998, 1997, 1996 and 1995, respectively, which cannot be paid until
two consecutive interest payments on the Extendible Notes have been
paid in cash.
(d) Reorganization items recorded to implement the Plan. Adjustment of
assets to fair value represents the reduction of property and
equipment and other assets to their estimated recoverable amounts
and reorganization expenses represent the professional fees and
expenses necessary to implement the Plan.
(e) Extraordinary gain on discharge of liabilities recorded in
connection with the Plan represents the gain recognized due to the
discharge of current liabilities and long-term debt.
ITEM 7. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the
Partnership s Consolidated Financial Statements and Notes thereto
appearing in Item 8.
This section contains statements which constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. See Item 1. "Business General" for
cautionary information with respect to such forward-looking statements.
INCOME (LOSS) FROM OPERATIONS
The following table presents selected operational
information for the years ended December 31, 1998, 1997 and 1996:
December 31,
------------
1998 1997 1996
---- ----- ----
Number of live race days 129 143 146
Simulcast only days 235 221 218
Average daily attendance - live race days 3,610 3,176 3,624
Average daily attendance - simulcast only days 849 694 708
Average live per capita wager $ 48 $ 44 $ 48
Average combined live and guest per capita 161 145 139
wager - live race days
Average guest per capita wager - simulcast 298 310 263
only days
(Amounts in millions)
Live handle $ 22.4 $ 20.2 $ 25.6
Guest simulcasting handle - horses 95.9 93.5 88.6
Guest simulcasting handle - greyhounds 16.2 - -
Host simulcasting handle 163.0 128.3 109.6
Net pari-mutuel commissions:
Live $ 2.7 $2.4 $ 3.0
Guest - horses 8.3 8.3 8.2
Guest - greyhounds 2.0 - -
Host 3.2 2.6 1.7
---- ----- ----
Total net pari-mutuel commissions $ 16.2 $ 13.3 $ 12.9
==== ==== ====
/TABLE
Revenues. The Partnership s principal source of revenues is
net pari-mutuel commissions earned on live thoroughbred and quarter horse
racing and on simulcast racing as both a guest and host track. During
periods between the live racing dates, the Partnership s principal source
of revenues is from wagering by Race Park patrons on simulcasts of horse
and greyhound racing being conducted at other tracks. Other sources of
revenue are food and beverage sales, admission and parking fees,
corporate sponsorships and advertising, club memberships, suite rentals
and other miscellaneous items.
Total revenues for the years ended December 31, 1998, 1997, and
1996 were $24.2, $20.0 and $20.8 million, respectively. Handle and
commissions generated from both guest and host simulcasting have
continued to increase over the three year period. The increase in handle
and commissions from live racing during 1998 as compared to 1997 levels
was primarily due to higher average daily attendance and an increase in
the live per capita wager. The increase in average daily attendance was
partially due to the deletion of Wednesday racing during the spring
thoroughbred meet, which generates lower average daily attendance than
weekend race days. Management expects handle and commissions from live
racing to increase further during 1999 as compared to 1998 due to the
allocation by the Racing Commission of five more race days during 1999.
Also, in 1999, the Partnership s share of net pari-mutuel commissions
from live racing will increase by 1% due to the elimination of the
wagering tax on the first $100 million wagered on live racing. Although
wagering on live racing decreased during 1997, the combined average live
and guest per capita wager has continued to increase over the three year
period. Per capita wagering on guest simulcasting is typically higher
than per capita wagering on live racing due to increased wagering
opportunities from guest simulcasting as compared to live racing. The
average combined live and guest per capita wager increased 11% from 1997
to 1998 and 4% from 1996 to 1997.
Guest simulcasting handle increased by 20% during 1998 as
compared to 1997 due primarily to the introduction of greyhound
simulcasting discussed in Item 1, above. Guest simulcasting horse handle
increased by 2.5% during 1998 as compared to 1997; however, net
pari-mutuel commissions from guest horse simulcasting decreased by .2%
for the same time period. This decrease in the ratio of net pari-mutuel
commissions to handle is primarily due to incremental, annual increases
in the allocation to purses in accordance with the THP Agreement which
became effective on January 1, 1997 and extends through 1999, and to a
temporary .25% increase in the pari-mutuel wagering tax, which became
effective on September 1, 1997 and extended through December 31, 1998.
From 1996 to 1997, net pari-mutuel commissions from guest simulcasting
increased by 2% due to a 6% increase in guest handle which was
substantially offset by the increased pari-mutuel wagering tax and by
increases in the allocation of takeout to purses. In 1999 and 2000, net
pari-mutuel commissions from guest simulcasting are expected to increase
as a result of having a full year of greyhound simulcasting, reductions
in the pari-mutuel wagering taxes and a recovery of previously overpaid
purses as allowed under the THP Agreement. However, commissions from
guest simulcast wagering on horse racing as a percentage of handle will
decrease significantly during 1999 and 2000 due to increases in the
allocations of takeout to purses of approximately 1% of handle mandated
by amendments to the Racing Act as discussed in Item 1, "Purses and
Horsemen s Agreements."
Net pari-mutuel commissions from host simulcasting increased by
23% from 1997 to 1998 due to increased wagering at the majority of the
racetracks and off-track wagering facilities receiving the Race Park's
simulcast signal. Net pari-mutuel commissions from host simulcasting
increased by 50% from 1996 to 1997 primarily due to an increase in the
number of racetracks and off-track facilities receiving the Partnership s
simulcast signal and a beneficial change in the commission allocation to
purses from host wagering. Management expects average daily host handle
to continue to increase during 1999; however, commissions from host
simulcasting as a percentage of handle will decrease due to increases in
the purse allocations discussed in Item 1, "Purses and Horsemen s
Agreements."
Revenues generated from food and beverage sales during the year
ended December 31, 1998 increased from 1997 levels by 22% primarily due
to the increase in average daily attendance on live and simulcast only
race days. Revenues generated from admission and parking fees, program
sales and other miscellaneous sources have also increased during 1998
compared to 1997 primarily due to the increased average daily attendance
and due to increases in group sales and sponsorship revenue. During 1997
these revenues declined compared to 1996 primarily due to a decrease in
sponsorship revenue and to a decrease in the number of and prices of
sales of luxury suites and seasonal boxes and seat packages. Many of the
agreements signed prior to or during the initial thoroughbred meeting in
1994 have expired or have been renewed at lower prices.
Income (Loss) From Operations. For the year ended December 31,
1998, the Partnership reported income from operations of $850,000 which
is $3.1 million higher than the $2.2 million operating loss for the same
period in 1997, despite conducting 14 fewer days of live racing. This
improvement is the result of the substantial increase in revenues
discussed above as well as the Partnership s continued efforts to reduce
and control operating costs and expenses. In particular, salaries and
wages and marketing and advertising costs remained virtually unchanged
for the year ended December 31, 1998 versus 1997. Overall, revenues
increased approximately 21% during 1998 compared to 1997 while costs and
expenses increased by 5%.
The improvement in 1997 operating losses from 1996 levels is
due to the continued decrease in operating costs and expenses, especially
salaries and wages and marketing and advertising. Salaries and wages
decreased in 1997 over 1996 primarily due to the reduction in staffing in
several operating departments and positions that went unfilled during the
year. Marketing and advertising decreased in 1997 over 1996 as the
advertising program curtailed spending on or eliminated several high cost
promotions. These decreases were offset by an increase in management and
other professional fees. Management and other professional fees
increased primarily due to the cost of lobbying efforts undertaken in
1997 in connection with the 1997 session of the Texas state legislature.
Other Income (Expense). Other income (expense) reflects
interest earned net of interest expense, including amortization of the
original issue and the re-issue discounts on the Original Notes and the
Extendible Notes. Interest expense has continued to increase over the
three year period due to the increasing balance of the Extendible Notes
related to the payment in-kind of accrued interest and the amortization
of the discount on the Extendible Notes.
Net Loss. Net loss from operations reflects the loss before
other income (expense). Other income (expense) is described above.
LIQUIDITY AND CAPITAL RESOURCES
The net cash provided by operating activities during 1998 of $2
million was $1.5 million more than in 1997 and $3.3 million more than the
$1.3 million used in operating activities in 1996. Cash provided by
operating activities improved during 1998 compared to 1997 and 1996
primarily due to the increase in income from operations discussed above.
Restricted cash consists of deposits held for the benefit of
horsemen and funds held for the payment of property taxes. The decrease
in restricted cash from December 31, 1997 to December 31, 1998 is due to
a decrease in the deposits held for the benefit of horsemen related to
the difference in timing of the thoroughbred meets from 1997 to 1998.
The Partnership had cash and cash equivalents of $3.8 million
and a $1.7 million line of credit at December 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 put forth marketing efforts to
increase attendance and pari-mutuel handle at the Race Park in order to
generate operating income. Also, management intends to continue to
initiate legislative efforts to legalize 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 repay or refinance the
Extendible Notes, alternative sources of funding will be necessary.
Although 97.5% of the Extendible Notes are owned by MAXXAM, there can be
no assurance that the Partnership will be able to repay or refinance the
Extendible Notes or that alternative sources of funding will be available
to the Partnership, if needed.
YEAR 2000
The Partnership is currently in the process of assessing both
its information technology systems and its embedded technology in order
to determine that they are, or will be, Year 2000 compliant. Management
has already determined that its financial data processing hardware and
software are compliant and is presently working with certain key third
parties and support groups of its embedded technology to ensure that they
are taking appropriate measures to assure compliance. Management
believes that the total cost of remediation to the Partnership will not
exceed $100,000. The most significant area still being evaluated
pertains to certain key third parties, in particular, the firm that
provides computerized totalisator services to it and others in the horse
racing industry. These totalisator services are required by the Texas
Racing Commission in order for the Race Park to conduct pari-mutuel
wagering. Management, as well as the national thoroughbred racing
industry s association, has received assurances that such systems will be
compliant by the second quarter of 1999. However, management is
evaluating other third party providers of these and other services and
equipment in the event that any such vendors cannot provide evidence of
Year 2000 compatibility.
While the Partnership believes that its program is sufficient
to identify the critical issues and associated costs necessary to address
possible year 2000 problems in a timely manner, there can be no assurance
that the program, or underlying steps implemented, will be successful in
resolving all such issues prior to the year 2000. If the steps taken by
the Partnership (or critical third parties) are not made in a timely
manner, or are not successful in identifying and remedying all
significant year 2000 issues, business interruptions or delays could
occur and could have a material adverse impact of the Partnership s
results of operations and financial condition. However, based on the
information available, the Partnership believes that it will not
experience significant business interruptions that would have a material
adverse impact on its results of operations or financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Partners of Sam Houston
Race Park, Ltd.
We have audited the accompanying consolidated balance sheets of
Sam Houston Race Park, Ltd. (a Texas limited partnership referred to
herein as the "PARTNERSHIP") as of December 31, 1998 and 1997 and the
related consolidated statements of operations, partners capital
(deficit) and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of
the Partnership s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
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 the Partnership as of December 31, 1998 and 1997, and the results of
its operations and cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
BDO SEIDMAN, LLP
March 8, 1999
Houston, Texas
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
December 31,
------------
1998 1997
------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 3,764 $ 2,728
Restricted cash 3,608 4,841
Accounts receivable, net of allowance for
doubtful accounts of $51 and $163,
respectively 2,126 1,133
Prepaid expenses and other current assets 492 328
------ -------
Total current assets 9,990 9,030
------- -------
Property and equipment, net of accumulated ------- -------
depreciation of $2,996 and $2,020, respectively 25,499 25,504
$35,489 $34,534
======= =======
LIABILITIES AND PARTNERS DEFICIT
Current liabilities:
Accounts payable $ 2,232 $ 2,104
Property taxes payable 1,040 1,118
Other liabilities 1,938 1,593
Amounts due to horsemen 2,295 3,530
------- -------
Total current liabilities 7,505 8,345
------- -------
Long term liabilities:
Notes payable 41,081 33,393
Deferred management fees 2,826 1,861
------- -------
Total liabilities 51,412 43,599
------- -------
Commitments and contingencies (Notes 1 and 10)
Partners deficit (15,923 (9,065)
------) -------
$35,489 $34,534
====== ======
/TABLE
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
Years Ended December
------------ 31,
1998 1997 1996
------ ------ -------
Revenues:
Pari-mutuel commissions, net $16,180 $13,276 $12,917
Food and beverage sales 4,110 3,366 3,577
Admissions, parking and other 3,905 3,385 4,258
------- ------- -------
24,195 20,027 20,752
------- ------- -------
Costs and expenses:
Cost of pari-mutuel operations 1,846 1,756 1,811
Cost of food and beverage 1,971 1,531 1,544
operations
Other operating 3,029 2,433 2,565
Salaries and wages 8,349 8,314 8,624
Management and other professional 1,660 2,266 2,019
fees
Marketing and advertising 1,968 1,946 2,457
Utilities 1,261 1,143 1,307
State and local taxes 1,293 1,113 1,185
Depreciation and amortization 976 928 886
General and administrative 992 820 944
------- ------- -------
23,345 22,250 23,342
------ ------- -------
Income (loss) before reorganization 850 (2,223) (2,590)
expenses and other income (expense)
Reorganization expenses - - (83)
------ ------- -------
Income (loss) from operations 850 (2,223) (2,673)
Other income (expense):
Interest income 207 214 203
Interest expense (7,915) (6,397) (5,152)
------ ------- -------
(7,708) (6,183) (4,949)
------ ------- -------
Net loss $(6,858) $(8,406) $(7,622)
======= ======= =======
CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL (DEFICIT)
(IN THOUSANDS OF DOLLARS)
TABLE
Managing Addition Limited Total
General al Partners ------
Partner General -----
---- Partner
-----
Balance at January 1, 1996 $ 70 $ 2,318 $ 4,575 $ 6,963
Net loss (729) (2,318 (4,575 (7,622
----- -----) -----) -----)
Balance at December 31, 1996 (659) - - (659)
Net loss (8,406 - - (8,406
-----) ------ ----- -----)
Balance at December 31, 1997 (9,065) - - (9,065)
Net loss (6,858 - - (6,858
-----) ------ ------ ----)
Balance at December 31, 1998 $(15,923 $ - $ - $(15,923=
====) ====== ====== ===)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
Years Ended December
------------ 31,
1998 1997 1996
------ ------ -------
Cash flows from operating activities:
Net loss $(6,858) $(8,406) $(7,622)
Adjustments to reconcile net loss
to net cash providedby (used
in)operating activities:
Depreciation and amortization 976 928 886
Amortization of deferred
financing costs and discounts
on long-term debt 2,258 1,360 682
(Increase) decrease in
restricted cash 1,233 (1,282) (555)
Increase in accounts
receivable (993) (102) (356)
(Increase) decrease in prepaid
expenses and other (164) 249 (302)
Increase in accounts payable 128 559 309
Increase in due to affiliates 965 883 729
Increase in accrued interest 5,442 4,886 4,391
Increase in other liabilities 267 142 665
Increase (decrease) in amounts
due to horsemen (1,235) 1,257 445
Decrease in accrued
reorganization costs - - (526)
------- ------- ------
Net cash provided by
(used in) operating
activities 2,019 474 (1,254)
------- ------- -------
Cash flows from investing activities:
Additions to property and equipment (971) (296) (455)
------- ------- -------
Net cash used in
investing activities (971) (296) (455)
------ ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (12) (84) (91)
------- ------- ------
Net cash used in
financing activities (12) (84) (91)
------ ------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,036 94 (1,800)
Cash and cash equivalents at beginning
of year 2,728 2,634 4,434
------- ------- -------
Cash and cash equivalents at end of year $ 3,764 $ 2,728 $ 2,634
======= ======= =======
Supplemental disclosure of cash flow
information:
Interest paid, net of amounts
capitalized $ 13 $ 8 $ 19
SUPPLEMENTAL DISCLOSURE OF NON-CASH
ACTIVITIES
See Notes 3, 6 and 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
1. BASIS OF PRESENTATION AND ORGANIZATION, USE OF ESTIMATES AND
FUTURE CASH REQUIREMENTS
BASIS OF PRESENTATION AND ORGANIZATION
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 was formed on June 17, 1990 to
apply to the Texas Racing Commission (the "RACING COMMISSION") for a
license to acquire, construct and operate a pari-mutuel horse racing
facility in Harris County, Texas (the "RACE PARK"), in accordance with
the Texas Racing Act (the "RACING ACT").
The Partnership was organized under the laws of the state of
Texas and will terminate on December 31, 2090 unless it is earlier
dissolved pursuant to the Texas Revised Limited Partnership Act or any
provision of its Third Amended and Restated Limited Partnership Agreement
(the "AMENDED PARTNERSHIP AGREEMENT"). 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 December 31, 1998, wholly owned subsidiaries of MAXXAM
held, directly or indirectly, an aggregate 98.3% interest in the
Partnership consisting of a 33.5% general partner interest (including a
32.5% interest by virtue of its ownership of 97.5% of the common stock of
the Additional General Partner) and a 64.8% limited partner interest.
Certain reclassifications of prior period information were made
in order to conform with the current presentations. All significant
intercompany transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in accordance with
generally accepted accounting principles requires the use of estimates
and assumptions that affect (i) the reported amounts of assets and
liabilities, (ii) disclosure of contingent assets and liabilities known
to exist as of the date the financial statements are published, and (iii)
the reported amount of revenues and expenses recognized during each
period presented. The Partnership reviews all significant estimates
affecting its consolidated financial statements on a recurring basis and
records the effect of any necessary adjustments prior to their
publication. Adjustments made with respect to the use of estimates often
relate to improved information that was not previously available.
Uncertainties with respect to such estimates and assumptions are inherent
in the preparation of the Partnership s consolidated financial
statements; accordingly, it is possible that the subsequent resolution of
the liquidity issues, described in "Future Cash Requirements" below,
could differ in material respects from current estimates. The results of
an adverse resolution of such uncertainty could have a material effect on
the reported amounts of the Partnership s consolidated assets and
liabilities.
FUTURE CASH REQUIREMENTS
The Partnership generated income from operations of $850 in
1998. In addition, the Partnership had cash and cash equivalents of $3.8
million and a $1.7 million line of credit at December 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 September 1, 2001 or 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 put forth marketing efforts to
increase attendance and pari-mutuel handle at the Race Park in order to
generate operating income. Also, management intends to continue to
initiate legislative efforts to legalize 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 repay or refinance the
Extendible Notes, alternative sources of funding will be necessary.
Although 97.5% of the Extendible Notes are owned by MAXXAM, there can be
no assurance that the Partnership will be able to repay or refinance the
Extendible Notes or that alternative sources of funding will be available
to the Partnership, if needed.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Restricted Cash
The Partnership s restricted cash, as shown on the accompanying
consolidated balance sheets at December 31, 1998 and 1997, includes
amounts designated for the payment of the items listed in the following
table:
December 31,
------------
1998 1997
------- -------
Deposits held for the benefit of horsemen $ 2,320 $ 3,510
Property taxes and other 1,288 1,331
------- -------
$ 3,608 $ 4,841
======= =======
Cash Equivalents and Concentration of Credit Risk
Cash equivalents consist of highly liquid money market
instruments with original maturities of three months or less. A
substantial portion of the Partnership s cash equivalents ($3,707) at
December 31, 1998 was invested in various short-term investment grade
marketable securities. The Partnership also holds other amounts in banks
and other financial institutions wherein some of the balances exceed
federally insured deposit levels. In the event of nonperformance by such
financial institutions, the Partnership s exposure to credit loss is
represented by the amounts deposited plus any unpaid accrued interest
thereon minus the federally insured deposit limitation. The Partnership
mitigates its concentration of credit risk with respect to the funds in
such accounts by maintaining them at high credit quality financial
institutions and monitoring the credit ratings of such institutions.
Property and Equipment
Property and equipment were written down to estimated fair
value as reflected in the sixth amended consolidated plan of
reorganization ("the PLAN") as of October 6, 1995 ("the EFFECTIVE DATE").
Additions to property and equipment subsequent to the Effective Date are
stated at cost. Prior to the Effective Date, property and equipment were
stated at cost. Depreciation is computed principally utilizing the
straight-line method at rates based upon the estimated useful lives of
the various classes of assets. In accordance with the Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," the
Partnership reviews long-lived assets, which include property and
equipment, for impairment whenever events or changes in circumstances
indicate the carrying amounts of the Partnership s assets may not be
fully recoverable. No adjustments for impairment were recorded in 1998
or 1997.
Notes Payable
Notes payable includes accrued interest on the Extendible Notes
which is allowed to be paid in-kind until a certain level of cash flow
from operations has been achieved.
Other Liabilities
Other liabilities include net liabilities for unclaimed winning
pari-mutuel tickets. Unclaimed winning tickets are valid for ninety days
after the end of the year in which they are generated. Once the tickets
are no longer valid, the remaining amounts held to pay unclaimed winning
tickets, net of allowable reimbursements, are transferred to the Texas
Racing Commission.
The Partnership receives advance payments with respect to
private suite and box rentals, Jockey Club memberships and corporate
sponsorship agreements. The payments are recorded as deferred revenue
and are recognized as income over the term of the respective agreements.
Purses and Awards
The Racing Act, certain other agreements, and the rules
promulgated by the Racing Commission stipulate percentages of the
pari-mutuel handle which must be used for the payment of purses and
awards depending upon the type of wagers placed. The term "pari-mutuel
handle" means the aggregate amounts wagered. Purses are established
nearly one month in advance, based on expected pari-mutuel handle and
published in a condition book which generally covers fifteen days of live
racing. Horsemen then enter their horses in proposed races based upon
the conditions of the race being entered, including the purses being
offered. In certain circumstances, the Partnership may pay purses and
awards in excess of the amounts provided by the pari-mutuel handle. The
Partnership may adjust the amounts to be paid for future races during the
course of a given meet in order to minimize or eliminate any differences
between the amounts provided by the pari-mutuel handle and the actual
amounts of purses and awards paid. The agreement between the Partnership
and the Texas Thoroughbred HBPA, Inc. also allows the Partnership to
recoup various amounts of the previous purse overpayments from certain
future meets. The Partnership expenses all purse overpayments when they
occur. Recoveries of these amounts are recorded as revenue as they are
earned.
Income Taxes
The Partnership has not made any provisions for income taxes in
its Consolidated Statement of Operations as they are the responsibility
of its partners. The carrying value of the Partnership s net assets for
financial statement purposes was less than the carrying value for income
tax reporting purposes by approximately $18,690 at December 31, 1998.
The difference primarily results from (i) the adjustment of long-term
assets to estimated fair value for financial statement purposes but not
for income tax purposes and (ii) the capitalization of costs for income
tax purposes that were expensed for financial reporting purposes, a
substantial portion of which relates to costs incurred during the
start-up period and the reorganization pursuant to the Plan described in
Note 3.
Fair Value of Financial Instruments
The carrying amounts of the Partnership s cash and cash
equivalents (including restricted and designated cash) and other notes
payable approximate their fair value. The Extendible Notes had a face
value of $52,120 and $46,828, a carrying amount of $39,436 and $31,886
and an estimated fair value of $39,116 and $27,160 as of December 31,
1998 and 1997, respectively. Market prices for the Extendible Notes at
December 31, 1998 were estimated based on trades that occurred during
September 1998. Market prices for the Extendible Notes at December 31,
1997 were estimated based on a trade which occurred during February 1998.
3. 1995 PLAN OF REORGANIZATION
Plan of Reorganization
On April 17, 1995, the Partnership, SHRP Capital Corp. and SHRP
Acquisition, Inc., the Partnership s largest limited partner, filed for
reorganization under Chapter 11 of the United States Bankruptcy Code. On
September 22, 1995, the United States Bankruptcy Court for the Southern
District of Texas, Houston Division entered an order confirming the Plan.
The transactions called for by the Plan were completed on the Effective
Date and the case was closed on December 19, 1996.
Under the terms of the Plan, the Extendible Notes were issued
in exchange for the Partnership s 11-3/4% Senior Secured Notes (the
"ORIGINAL NOTES"). The Original Notes had an aggregate principal amount
of $75,000, would have matured on July 15, 1999 and bore interest at the
rate of 11-3/4% per annum. The Extendible Notes had an initial aggregate
principal amount of $37,500, mature on September 1, 2001 and bear
interest at the rate of 11% per annum. Interest on the Extendible Notes
accrues in-kind and is not payable in cash until a certain level of cash
flow from operations has been achieved. See Note 6 for further
information concerning the terms of the Extendible Notes.
On the Effective Date, a new investor group (the "NEW INVESTOR
GROUP") made a capital contribution of cash and other consideration
described below. Each member of the New Investor Group also provided its
pro rata share of the $1,700 line of credit. This line of credit would
be used to fund future cash flow requirements should the cash infusion
prove to be insufficient. Each member of the New Investor Group has
secured such investor s portion of the line of credit with cash held in
an escrow account (other than MAXXAM s wholly owned subsidiaries, whose
portion of the line of credit is secured by the guaranty of MAXXAM).
Borrowings on the line of credit would bear interest at 11% per annum and
would be subordinate to the Extendible Notes. Also, a wholly owned
subsidiary of MAXXAM provided the holders of the Extendible Notes with
Instruments of Adherence ("INSTRUMENTS OF ADHERENCE") having an agreed
value of $500. The Instruments of Adherence were executed by MAXXAM and
Mr. Charles Hurwitz, Chairman of the Board and Chief Executive Officer of
MAXXAM and provide that MAXXAM and Mr. Hurwitz will not, in certain
circumstances, make certain investments in specified gaming ventures in
the Houston area unless certain holders of the Extendible Notes are
afforded a specified opportunity to make an investment in such ventures
in an amount at least equal to 19.9% of the aggregate investment made in
such ventures by MAXXAM, Mr. Hurwitz and such holders.
The Plan provided for the elimination of all existing
partnership interests. The Partnership has issued 33.3% of the equity in
the Partnership to certain holders of allowed unsecured bankruptcy claims
(the "CREDITOR EQUITY"), a majority of which relates to the unsecured
deficiency claims attributable to the Original Notes. The
Creditor Equity is held in the form of common stock in the Additional
General Partner. On the Effective Date, the New Investor Group received
66.7% of the equity in the Partnership. The Managing General Partner was
issued a 1% interest in the Partnership in exchange for contributing its
pro rata share of the investment made by the New Investor Group.
4. PROPERTY AND EQUIPMENT
The major classes of property and equipment are as follows:
Estimated December 31,
Useful ------------
Lives 1998 1997
------- -------
Buildings 5 - 30
years $15,075 $14,390
Equipment, furniture and fixtures 3 - 15
years 2,428 2,127
Race track and other land improvements 5 - 30
years 3,049 3,049
Land 7,943 7,958
------- -------
28,495 27,524
Less accumulated depreciation (2,996) (2,020)
------- -------
$25,499 $25,504
======= =======
Depreciation expense for the years ended December 31, 1998,
1997 and 1996 was $976, $928 and $886, respectively. The Partnership
reduced the net carrying value of property and equipment by $40,390 as of
the Effective Date, in accordance with the estimated fair asset values
described in the Plan. Additionally, the Partnership received an
approximately 87 acre tract of land valued at $2,300 as part of the
contribution of the New Investor Group.
5. RACING OPERATIONS
The Partnership conducted 129, 143 and 146 days of live racing
during 1998, 1997 and 1996, respectively. Under the Racing Act, the
Partnership s commission revenue 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. The
Race Park also provides broadcasts of live racing conducted at the Race
Park to other racetracks under various host simulcasting agreements.
Under these contracts, the Partnership receives pari-mutuel commissions
of varying percentages of simulcast pari-mutuel handles.
A summary of the pari-mutuel handle, commissions and deductions
for the years ended December 31, 1998, 1997 and 1996 is as follows:
1998 1997 1996
------- ------- ------
Live handle $ 22,352 $ 20,175 $ 25,620
Return to public (17,506) (15,830) (20,113)
Purses and breeders awards (1,801) (1,608) (2,043)
State taxes and fees (224) (202) (256)
Breakage (148) (150) (181)
------- ------- ------
Net commissions from live racing 2,673 2,385 3,027
------- ------- -------
Guest handle 112,139 93,543 88,579
Return to public (88,471) (74,252) (70,650)
Purses and breeders awards (7,765) (6,237) (5,282)
Host fee (3,537) (2,982) (2,836)
State taxes and fees (1,545) (1,246) (1,107)
Breakage (509) (526) (539)
------ ------- -------
Net commissions from guest 10,312 8,300 8,165
simulcasting ------- ------- -------
Host handle 162,965 128,252 109,648
Receiving track expenses (158,308) (124,096) (105,887)
Purses and breeders awards (1,462) (1,565) (2,036)
------- ------- -------
Net commission from host simulcasting 3,195 2,591 1,725
------- ------- -------
Total pari-mutuel commissions, net $ 16,180 $ 13,276 $ 12,917
======= ======= =======
Non-statutory Purse Funding
On November 26, 1996, the Race Park entered into a new
agreement with the Texas Thoroughbred HBPA, Inc. (the "TTHBPA"). The
TTHBPA is a partner of the Texas Horsemen s Partnership, L.L.P. (the
"THP"), the official horsemen s organization currently recognized by the
Racing Commission. This new agreement provides for the recovery of purse
overpayments of $660 and $631 during the years ended December 31, 1999
and 2000, respectively. The Partnership will record any future
recoveries only as they are earned.
6. NOTES PAYABLE
Notes payable consist of the following:
December, 31
------------
1998 1997
-------- --------
11% Senior Secured Extendible Notes due
September 1, 2001 (net of unamortized
discount of $12,684 and $14,942 as of
December 31, 1998 and 1997, respectively) $ 39,436 $ 31,886
Accrued interest to be paid in-kind 1,433 1,288
-------- ---------
40,869 33,174
Unsecured promissory notes 197 205
Equipment leases - 3
Payable to Limited Partners 23 23
-------- ---------
Total 41,089 33,405
Less current portion, included in Other
Liabilities (8) (12)
-------- ---------
$ 41,081 $ 33,393
========= ========
The Extendible Notes had an initial aggregate principal amount
of $37,500, mature on September 1, 2001, bear interest at the rate of
11% per annum and are secured by substantially all the assets of the
Partnership. The maturity date of the Extendible Notes may be extended
to September 1, 2003 (with an increase in the rate of interest to 13% per
annum) if the Texas legislature passes significant gaming legislation (as
defined) between January 1, 2001 and August 15, 2001. The indenture
governing the Extendible Notes (the "INDENTURE") limits the Partnership s
ability to incur indebtedness and liens, to engage in transactions with
affiliates, to make investments and to make distributions, although the
Indenture does allow the Partnership to become involved in certain
gaming, entertainment and other ventures.
The Partnership is amortizing the difference between the
aggregate principal amount of the Extendible Notes and their estimated
fair value as additional interest expense using the effective interest
method.
Interest on the Extendible Notes accrues in-kind and is not
payable in cash until a certain level of cash flow from operations has
been achieved. Once cash interest payments commence, interest payments
may not thereafter be paid in-kind. The Partnership issued $5,292 and
$4,755 of Extendible Notes during the years ended December 31, 1998 and
1997, respectively, as payment in-kind for accrued interest. Interest
payments are due on the Extendible Notes on April 1 and October 1 of each
year until the Extendible Notes mature.
The Partnership has entered into an unsecured promissory note.
The note earns interest at 6-1/2% per annum and is due and payable in
thirty equal annual installments to the Harris County Toll Road
Authority, operator of the Sam Houston Parkway. This note represents
one-half of the costs incurred to construct the entrance and
exit ramps adjacent to the Race Park. Payments of approximately $8 plus
accrued interest are due annually on April 30 through the year 2024.
THE NEW INVESTOR GROUP HAS PROVIDED THE PARTNERSHIP WITH A
$1,700 LINE OF CREDIT. THIS LINE OF CREDIT WOULD BE USED TO FUND FUTURE
CASH FLOW REQUIREMENTS SHOULD THE PARTNERSHIP REQUIRE IT. EACH MEMBER OF
THE NEW INVESTOR GROUP, OTHER THAN MAXXAM WHOLLY OWNED SUBSIDIARIES, HAS
SECURED THEIR PORTION OF THE LINE OF CREDIT WITH CASH IN THE AMOUNT OF
$23, WHICH IS HELD IN AN ESCROW ACCOUNT. THE PORTION OF THE LINE OF
CREDIT PROVIDED BY WHOLLY OWNED SUBSIDIARIES OF MAXXAM IS SECURED BY THE
GUARANTEE OF MAXXAM. BORROWINGS ON THE LINE OF CREDIT WOULD BEAR
INTEREST AT 11% PER ANNUM AND WOULD BE SUBORDINATE TO THE EXTENDIBLE
NOTES. THE CASH COLLATERAL FOR THE LINE OF CREDIT IS REFLECTED AS
RESTRICTED CASH IN THE BALANCE SHEET.
THE SCHEDULED MATURITIES FOR THE PARTNERSHIP S NOTES PAYABLE
OUTSTANDING AT DECEMBER 31, 1998 ARE AS FOLLOWS: DECEMBER 31, 1999 - $8;
2000 - $8; 2001 - $53,584; 2002 - $8; 2003 - $8; THEREAFTER $157. IN THE
EVENT THE PARTNERSHIP CONTINUES TO ISSUE ADDITIONAL EXTENDIBLE NOTES AS
PAYMENT IN-KIND FOR ACCRUED INTEREST, THE TOTAL AMOUNT DUE ON THE
EXTENDIBLE NOTES AT MATURITY IN SEPTEMBER 2001 WILL BE $71,242.
7. PARTNERS DEFICIT
The Partnership is currently comprised of the Managing General
Partner, the Additional General Partner and eight limited partners.
The profits and losses of the Partnership are allocated to the
partners in accordance with their percentage interests, after giving
effect to certain special allocations. However, all net losses (other
than nonrecourse deductions) in excess of the positive capital account
balance of any limited partner or the Additional General Partner are to
be allocated to the Managing General Partner. Income is to be specially
allocated to restore a partner s deficit capital account prior to
allocating net profits based on the partner s percentage interest.
In the event of a capital call by the Partnership to fund
operating losses, holders of the Extendible Notes may contribute
Extendible Notes in lieu of cash in order to maintain their equity
position in the Partnership. So long as the Extendible Notes are
outstanding, the Board of Directors of the Additional General Partner are
entitled to designate at least one-third of the directors of the Managing
General Partner (the "CREDITOR DIRECTORS"), subject to the reasonable
approval of the owner of the Managing General Partner. Certain
significant events (e.g. mergers, consolidations, the sale of all or the
substantial portion of the Partnership s assets, reorganizations,
incurrence of debt in excess of $5,000 and voluntary acts of insolvency)
require the approval of a majority of all of the directors, including a
majority of the Creditor Directors voting as a separate class.
8. MANAGEMENT AGREEMENTS
As of the Effective Date, the Managing General Partner began
managing the Partnership and the Race Park in accordance with the Amended
Partnership Agreement. Annual management fees will be the greater of (a)
$750 or (b) an incentive fee equal to .65% of all gross revenues (as
defined). Management fees are deferred until two consecutive semi-annual
cash interest payments have been made to the holders of the Extendible
Notes. Unpaid management fees accrue interest at the rate of 11% per
annum. All such management fees are subordinated to the Extendible
Notes. As of December 31, 1998 and 1997, the Partnership has accrued
$2,826 and $1,861 of management fees, including interest of $399 and
$184, respectively, due to the Managing General Partner.
9. RELATED PARTY TRANSACTIONS
Management and other professional fees for the years ended
December 31, 1998, 1997 and 1996 include $425, $488 and $511 related to
costs incurred for services provided by MAXXAM and certain of its
subsidiaries. Included in accounts payable at December 31, 1998 and
1997, were obligations to MAXXAM for such costs of $45 and $34,
respectively.
Management and other professional fees for the years ended
December 31, 1998, 1997 and 1996 include $32, $147 and $120 of costs
incurred by an affiliate for legal services and to coordinate legislative
efforts of the Partnership. Additionally, the Partnership engages
affiliates for legal and other consulting services in the normal course
of business. During the years ended December 31, 1998, 1997 and 1996,
the Partnership incurred fees of $54, $70 and $41, respectively, with
respect to these services.
10. COMMITMENTS AND CONTINGENCIES
During the 1997 session of the Texas Legislature, the Racing
Act was amended to, among other things, implement various tax changes.
The pari-mutuel wagering tax on guest simulcasting was increased from 1%
to 1.25% through December 31, 1998. The increased wagering tax decreased
net pari-mutuel commissions by approximately $280 during 1998. The
legislation also eliminated the 1% pari-mutuel wagering tax on the first
$100,000 wagering on live racing subsequent to December 31, 1998. The
Partnership estimates that the elimination of this wagering tax on live
racing will increase net pari-mutuel commissions by $224 based on 1998
live handle. In addition, the 0.25% previously paid to the Texas
Commission on Alcohol and Drug Abuse was reallocated to the Racing
Commission to repay funds previously appropriated by the state of Texas
for the administration and enforcement of the Racing Act. This tax will
be eliminated during 1999 when all amounts due to the state of Texas,
including interest, have been repaid.
In addition, the legislation mandated an increase in the amount
of purses to be reserved for the owners of future winning horses from
guest simulcasting. This increase is effective as of January 1, 1999.
These amounts will no longer be determined under contract with the
recognized horsemen s organization and are to be set at an amount that
approximates the percentages used for live racing. The Partnership
estimates that net pari-mutuel commissions will decrease by approximately
$1 million based on 1998 pari-mutuel wagering handle when this provision
becomes effective. This loss of net pari-mutuel commissions is expected
to be partially offset by recoveries of previously overpaid purses
allowed under the Partnership s contract with the recognized horsemen s
organization in the amount of $660 and $631 during 1999 and 2000,
respectively.
The Partnership has entered into noncancellable service and
operating lease agreements with several vendors to provide services in
addition to agreements for the use of equipment. Certain of these
agreements call for contingent rentals based upon a variety of factors,
the most significant of which are the number of live racing days and
specified percentages of amounts wagered. Future minimum lease and
commitment payments under such noncancellable service and lease
agreements, having a remaining term in excess of one year at December 31,
1998, are as follows: years ending December 31, 1999 - $479; 2000 - $186;
2001 - $178; 2002 - $178; 2003 - $178; thereafter $78. The Partnership
incurred approximately $462, $1,384, and $1,409, including contingent
fees and rentals, for the years ended December 31, 1998, 1997 and 1996
for such services and operating lease obligations.
The Partnership is contingently liable for liquidating damages
to one vendor with respect to a lease for services for approximately $104
at December 31, 1998. The amount of the contingency decreases by
approximately $8 for each month the Partnership conducts live or
simulcast racing operations.
The Partnership is involved in claims and litigation arising in
the ordinary course of business. While there are uncertainties inherent
in the ultimate outcome of such matters and it is impossible to presently
determine the ultimate costs that may be incurred, management believes
that the outcome of such matters should not have a material adverse
effect upon the Partnership s consolidated financial position, results of
operation or liquidity.
11. SUBSEQUENT EVENT
During March 1999, the Race Park formed SHRP Valley LLP, a
wholly-owned limited liability company, which then entered into a six
year agreement with a company to lease a greyhound track located in
Harlingen, Texas. A management agreement was also entered into between
the parties in connection with the management of the associated pari-
mutuel wagering license. The Race Park also has an option to purchase
100% of the equity interest in the company that owns the greyhound track
and the wagering license for the term of the lease, subject to certain
conditions. Lease payments under the terms of the agreement total $300
annually. The agreements are contingent upon the satisfactory completion
of a 90 day due diligence and feasibility study currently being conducted
by the Race Park. If the due diligence study is satisfactory, Race Park
management plans to re-open the facility and conduct year around horse
and dog simulcasting and a season of live greyhound racing at the track.
The transaction is also subject to the approval of the Texas Racing
Commission.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
NONE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information, as of March
1, 1999, with respect to the executive officers of the Partnership and
the directors of the Managing General Partner.
Name Age Position
James D. Noteware 46 President (1)
Robert L. Bork 60 Senior Vice President and General
Manager (2)
Ann M. McGovern 38 Vice President of Operations
James H. Paulin, 55 Vice President
Jr.
Michael J. Vitek 36 Vice President of Accounting
THE MANAGING GENERAL PARTNER
Name Age Position
- - ------------ ------- ------------
Charles E. 58 Chairman of the Board
Hurwitz
D. Kent Anderson 57 Director (3)
J. Kent Friedman 55 Director (3)
James D. Noteware 46 Director
Paul N. Schwartz 52 Director
<FN>
(1) Mr. Noteware is not an employee of the Partnership, the Race Park or
the Managing General Partner.
(2) Principal Executive Officer of the Partnership
(3) Until such time as the Extendible Notes are repaid, the Additional
General Partner is entitled to designate at least one-third of the
directors of the Managing General Partner (the "AGP DIRECTORS"). D.
Kent Anderson and J. Kent Friedman currently serve as AGP Directors.
A majority vote of the AGP Directors is required with respect to
certain significant events (e.g. mergers, consolidations, the sale
of all or the substantial portion of the Partnership s assets,
reorganizations, incurrence of debt in excess of $5 million, and
voluntary acts of insolvency).
James D. Noteware has served as President of the Partnership
since August 1994. Mr. Noteware is also President and a Director of the
Managing General Partner. Mr. Noteware previously served as interim
General Manager of the Partnership from November 1994 through October
1995. Mr. Noteware has served as President and Chief Executive Officer
of MAXXAM Property Company ("MPC"), a wholly owned subsidiary of MAXXAM,
since January 1993. From November 1990 through December 1992, Mr.
Noteware was Chairman, President and Chief Executive Officer of Phoenix
Consulting, Inc., a real estate management and consulting company. Mr.
Noteware served as a national director in the Real Estate Advisory
Services Department of Price Waterhouse from April 1991 through January
1993. Prior to November 1990, Mr. Noteware served as National Director
in the Real Estate Advisory Services Department at Laventhol & Horwath.
Robert L. Bork has served as Senior Vice President and General
Manager of the Partnership since October 1995. Mr. Bork previously
served four years as Vice President-General Manager and Chief Operating
Officer of Arlington International Racecourse, Inc. in Arlington Heights,
Illinois. Prior to such time, Mr. Bork served as Vice President-General
Manager of Philadelphia Park in Benslem, Pennsylvania and Garden State
Park in Cherry Hill, New Jersey. Mr. Bork is a director and Secretary of
the Thoroughbred Racing Association of America, a director of the
Thoroughbred Racing Protective Bureau, Chairman of the Thoroughbred
Racing Association Technology Committee and a director of the Cy-Fair
Chamber of Commerce.
Ann M. McGovern has served as Vice President of Operations of
the Partnership since September 1994. Ms. McGovern previously served for
11 years with the Racing Division of the Edward J. De Bartolo
Corporation, most recently as Director of Operations at Remington Park in
Oklahoma City, Oklahoma from April 1991 to October 1994 and prior to that
as the Assistant Director of Operations since 1988.
James H. Paulin, Jr. has served as Vice President of the
Partnership since November 1993. Mr. Paulin has been the Secretary-
Treasurer of Federated Development Company ("FEDERATED") from May 1983 to
December 31, 1998, and Secretary of Federated from March 1977 to December
31, 1998. Federated is a New York business trust primarily engaged in
the management of real estate investments and, through its position as a
significant stockholder of MAXXAM, in the businesses conducted by MAXXAM.
Michael J. Vitek has served as Vice President of Accounting of
the Partnership since November 1994. Mr. Vitek previously served from
April 1994 to November 1994 as Vice President, Finance and Chief
Financial Officer of Hysan Corporation, a chemical manufacturing and
distribution company and a subsidiary of Wedge Group, Inc., a private
investment company. Mr. Vitek previously served as Corporate Controller
of Wedge Group, Inc. from October 1991 to March 1994. He previously
served for six years with the public accounting firm of KPMG Peat
Marwick, most recently as a Senior Manager.
Charles E. Hurwitz is a Director and the Chairman of the Board
and President of the Managing General Partner. Mr. Hurwitz has served as
a member of the Board of Directors and the Executive Committee of MAXXAM
since August 1978 and was elected as Chairman of the Board and Chief
Executive Officer of MAXXAM in March 1980. Mr. Hurwitz also served
MAXXAM as President from January 1993 to January 1998. Mr. Hurwitz has
served as a director of Kaiser Aluminum Corporation ("KAISER"), a
majority-owned subsidiary of MAXXAM, since October 1988, and as a
director of Kaiser Aluminum & Chemical Corporation ("KACC"), a fully
integrated aluminum producer that is a subsidiary of Kaiser, since
November 1988. Mr. Hurwitz is Chairman of the Board, Chief Executive
Officer and President of MAXXAM Group Inc. ("MGI"), a wholly owned
subsidiary of MAXXAM which is engaged in forest products operations, and
MGI s parent, MAXXAM Group Holdings Inc. ("MGHI"). Mr. Hurwitz has been,
since January 1974, Chairman of the Board and Chief Executive Officer of
Federated.
D. Kent Anderson is a Director of the Managing General Partner
per the designation of the Additional General Partner. Mr. Anderson has
been the Executive Banking Officer of Compass Bank since its April 1996
merger with Post Oak Bank. From 1991 until the merger, Mr. Anderson was
Chairman of the Board and Chief Executive Officer of Post Oak Bank. From
1988 through October 1991, Mr. Anderson held several executive positions,
including Chairman of the Board, with First Interstate Bank of Texas,
N.A. Mr. Anderson is currently a Trustee and member of the Board of
Governors of Rice University. He has served on several State of Texas
committees and on the Board of the Greater Houston Partnership, the Texas
Chamber of Commerce, and the Texas Research League.
J. Kent Friedman is a Director of the Managing General Partner
per the designation of the Additional General Partner. Mr. Friedman has
been a partner of Mayor, Day, Caldwell & Keeton, L.L.P., a Houston law
firm, since 1982. Prior to such time Mr. Friedman was a partner at
Butler & Binion, a Houston law firm. Mr. Friedman is a member of the
Executive Committee of the Board of Directors of the Houston Symphony,
President of the Friends of Hermann Park and Co-President of the
Foundation for Jones Hall.
Paul N. Schwartz is a Director and Vice President of the
Managing General Partner. Mr. Schwartz was named a director, President
and Chief Operating Officer of MAXXAM in January 1998. Mr. Schwartz has
served as Chief Financial Officer of MAXXAM since January 1995. From
January 1995 to January 1998 he also served as Executive Vice President
of MAXXAM. Prior to that he served as Senior Vice President-Corporate
Development of MAXXAM from June 1987 to January 1995, as Vice
President-Corporate Development from July 1985 to June 1987 and as Vice
President since 1982. Mr. Schwartz also serves as a director and a Vice
President and Chief Financial Officer of MGHI, MGI, and Scotia Pacific
Company LLC, a subsidiary of MGI engaged in forest products operations.
Directors of the Managing General Partner are elected annually
to serve for one year and until their successors are duly elected,
qualified, and approved by the Racing Commission. Each director of the
Managing General Partner is required to be approved by the Racing
Commission. The current directors of the Managing General Partner have
received the approval of the Racing Commission.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation information, cash
and non-cash, for each of the Partnership s last three completed fiscal
years with respect to (a) all individuals serving as the Partnership s
chief executive officer during the last fiscal year, and (b) the other
most highly compensated executive officers of the Partnership (other than
the current chief executive officer) who were serving as executive
officers of the Partnership at the end of 1998 and who received over
$100,000 in aggregate salary and bonus in respect of 1998.
Annual Compensation
(a) (b) (c) (d) (e) (f)
Name and Year Salary Bonus Other (1)
- - ------------ ----- ($) ($) Annual All
Principal ------- -------- Compensa Other
Position tion (1) Compensa
($) tion
------- ($)
-------
Robert L. Bork
(2) 1998 216,320 63,333 - -
Senior Vice
President and 1997 208,000 35,000 - -
General Manager 1996 200,000 41,250 - 4,806(3)
Ann McGovern 1998 119,000 28,333 - -
Vice President
of 1997 114,400 15,000 - -
Operations 1996 110,000 15,000 - -
Michael J. Vitek 1998 107,000 28,333 - -
Vice President
of 1997 93,600 15,000 - -
Accounting 1996 90,000 15,000 - -
<FN>
(1) Excludes perquisites and other personal benefits because the
aggregate amount of such compensation is the lesser of either
$50,000 or 10% of the total of annual salary and bonus reported
for the named executive officer.
(2) Mr. Bork served as chief executive officer of the Partnership
during 1996, 1997 and 1998. Mr. Bork commenced his employment
with the Partnership on October 25, 1995.
(3) Reflects reimbursement of moving related expenses.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
Agreements have been entered into with each of Messrs. Bork and
Vitek and Ms. McGovern regarding their employment. Mr. Bork s agreement
provides for a base annual salary of $200,000 and a bonus of $25,000 on
the first anniversary date of his employment. The agreement further
provides that commencing the second year of employment he will
participate in an executive compensation plan of the Partnership. Mr.
Bork s agreement also provided for payment of certain relocation
expenses. The incentive compensation plan referred to above was provided
for in general terms pursuant to the bankruptcy reorganization plan;
however, no specific details have been proposed or formulated to date
with respect to such an incentive plan. Ms. McGovern s agreement
provides for a base annual salary of $110,000 per year, a discretionary
bonus of $10,000 in the first year of employment and the payment of
certain relocation expenses. The agreement also indicated that Ms.
McGovern would be considered for inclusion in the prior employee
incentive program of the Partnership. Mr. Vitek s agreement provides for
a base annual salary of $90,000 and a discretionary bonus of $15,000
after the first year of employment.
On December 30, 1998, Messrs. Bork and Vitek, along with Ms.
McGovern, were each awarded a one-time bonus with respect to the
Partnership s 1998 operating results. Each of these bonuses is payable
in three equal annual installments, with the first of such installments
having been received by each of the executives on December 31, 1998, and
with the remaining two installments of like amount being due and payable
on December 31, 1999 and December 31, 2000 respectively. Each of the
executives will receive the remaining installments of the bonus so long
as he or she continues to be employed by the Partnership as of the
respective payment dates.
COMPENSATION OF DIRECTORS AND POLICY COMMITTEE MEMBERS
Messrs. Anderson and Friedman receive $25,000 per year, plus
reimbursement of expenses, as compensation for their services. The other
directors of the Managing General Partner are reimbursed for their
expenses but are not otherwise compensated by the Partnership for their
services as such.
COMPENSATION COMMITTEE REPORT
SHRP General Partner, Inc. is the managing general partner of
the Partnership, and the names appearing below are all of the directors
of SHRP General Partner, Inc. The Board of Directors of SHRP General
Partner, Inc. (the "BOARD") acts with respect to compensation matters, as
a compensation committee has not been appointed.
The executive officers named in the Summary Compensation Table
have been retained and are compensated in accordance with their
respective individual employment letter agreements. In reaching those
agreements, the customary levels and types of pay prevalent for such
positions in the horse racing industry were considered and served as
guidelines. The individual salary histories and previous experience of
the executives were also considered as was the timing within which the
Partnership needed to replace previously discharged executives. Other
than participation in a group health insurance program which is partially
employer-provided, the only non-salary direct compensation being provided
to such executives are incentive bonuses. Executives may be considered
for a discretionary bonus on an annual basis. The President of the
Partnership outlines functions and goals for each executive officer and
formulates bonus levels for executive officers (with the advice and
consent of the Board in certain instances).
D. Kent Anderson
J. Kent Friedman
Charles E. Hurwitz
James D. Noteware
Paul N. Schwartz
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
THE PARTNERSHIP
The following table sets forth the beneficial ownership of
partnership interests in the Partnership as of March 1, 1999 of (i) each
person known by the Partnership to beneficially own five percent or more
of the outstanding partnership interests, (ii) each director of the
Managing General Partner who owns a partnership interest, and (iii) all
directors and officers of the Managing General Partner and the
Partnership as a group. Except as otherwise indicated below, each of the
persons named in the table has sole voting and investment power with
respect to the partnership interest shown as beneficially owned by him.
Name and Address of Type of Interest Aggregate
Beneficial Owner ------------ Partnership
- - ------------ Interest
New SHRP Acquisition, Limited Partner 64.8%
Inc. (1)
SHRP Equity, Inc. (2) Additional General 33.3%
Partner
<FN>
(1) MAXXAM owns all of the issued and outstanding shares of common
stock of New SHRP Acquisition, Inc. Mr. Charles E. Hurwitz and
affiliates of Federated Development Company ("FEDERATED")
collectively own 99.2% and 37.7% of MAXXAM s Class A preferred
stock and common stock, respectively (resulting in a combined
voting control of approximately 68.9%). Mr. Hurwitz is the
Chairman of the Board and Chief Executive Officer of MAXXAM and
Chairman and Chief Executive Officer of Federated. Federated
is wholly owned by Mr. Hurwitz, members of his immediate family
and trusts for the benefit thereof.
(2) The outstanding shares of stock of SHRP Equity, Inc. were
issued to the holders of allowed unsecured claims in connection
with the bankruptcy proceedings of the Partnership. Wholly
owned subsidiaries of MAXXAM, beneficially own 97.5% of the issued and
outstanding stock of SHRP Equity, Inc. which equates
to a 32.5% interest in the Partnership.
THE MANAGING GENERAL PARTNER
Sam Houston Entertainment Corp., a wholly owned subsidiary of
MAXXAM, owns all of the Common Stock of the Managing General Partner of
which 3,000 shares are currently issued and outstanding.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain individuals employed by MAXXAM and its wholly owned
subsidiaries provide management, legal, financial, corporate development
and other services to the Partnership from time to time. These
affiliates are reimbursed for their estimated actual costs incurred in
providing services to the Partnership. As of March 1, 1999, MAXXAM and
its subsidiaries have received an aggregate of $424,590 in respect of
such services performed in 1998.
J. Kent Friedman, AGP Director, is a partner of a law firm that
has provided services to the Partnership. In addition, such law firm has
represented MAXXAM in various matters not related to the Partnership.
The Partnership had an agreement with Mr. Friedman s law firm to
coordinate legislative efforts. As of March 1, 1999, Mr. Friedman s law
firm has received an aggregate of $31,492 in respect of such services
performed in 1998.
See also Notes 8 and 9 to the Consolidated Financial Statements
appearing in Item 8.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(A) INDEX TO FINANCIAL STATEMENTS PAGE
1. FINANCIAL STATEMENTS (APPEARING IN ITEM 8):
Report of Independent Certified Public Accountants 21
Consolidated balance sheets at December 31, 1998 and
199722
Consolidated statements of operations for the three years
ended December 31, 199823
Consolidated statements of partners capital (deficit) for
the three years ended
December 31, 199824
Consolidated statements of cash flows for the three years
ended December 31, 199825
Notes to consolidated financial statements26
2. FINANCIAL STATEMENT SCHEDULES:
All schedules are inapplicable or the required information
is included in the financial statements or the notes
thereto.
(B) REPORTS ON FORM 8-K
None.
(C) EXHIBITS
Reference is made to the Index of Exhibits immediately
preceding the exhibits hereto (beginning on page 44) which
index is incorporated herein by reference.
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.
SAM HOUSTON RACE PARK, LTD.
Date: March 30, 1999 By: /S/ MICHAEL J. VITEK
Michael J. Vitek, Vice
President of Accounting
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Date: March 30, 1999 By: /S/ ROBERT L. BORK
Robert L. Bork, General Manager
(Principal Executive Officer)
Date: March 30, 1999 By: /S/ MICHAEL J. VITEK
Michael J. Vitek, Vice
President of Accounting
(Principal Financial and
Accounting Officer)
SAM HOUSTON RACE PARK, LTD.
By: SHRP General Partner, Inc.
its Managing General Partner
Date: March 30, 1999 By:/S/ CHARLES E. HURWITZ
Charles E. Hurwitz, Chairman of
the Board
Date: March 30, 1999 By:/S/ PAUL N. SCHWARTZ
Paul N. Schwartz, Director
Date: March 30, 1999 By:/S/ JAMES D. NOTEWARE
James D. Noteware, Director
Date: March 30, 1999 By:/S/ D. KENT ANDERSON
D. Kent Anderson, Director
Date: March 30, 1999 By:/S/ J. KENT FRIEDMAN
J. Kent Friedman, Director
Exhibit Description
Number
3.1 Third Amended and Restated Limited Partnership Agreement
of Sam Houston Race Park, Ltd. dated October 6, 1995
(incorporated herein by reference to Exhibit 3.1 to the
Partnership s Form 10-Q dated September 30, 1995)
4.1 Amended and Restated Indenture dated October 6, 1995 by
and among the Partnership, New SHRP Capital Corp., SHRP
General Partner, Inc. and First Bank National
Association, Trustee, including the related form of Note
(incorporated herein by reference to Exhibit 4.1 to the
Partnership s Form 10-Q dated September 30, 1995)
Amended and Restated Deed of Trust, Assignment, Security
Agreement and Financing Statement dated October 6, 1995
4.2 among the Partnership, Richard Prokosch, as Trustee, and
First Bank National Association, as Mortgagee
(incorporated herein by reference to Exhibit 4.2 to the
Partnership s Form 10-Q dated September 30, 1995)
Deed of Trust, Assignment, Security Agreement and
Financing Statement dated October 6, 1995 among the
4.3 Partnership, Richard Prokosch, as Trustee, and First Bank
National Association, as Mortgagee (incorporated herein
by reference to Exhibit 4.3 to the Partnership s Form
10-Q dated September 30, 1995)
Amended and Restated License Negative Pledge dated
October 6, 1995 executed by the Partnership in favor of
4.4 Trustee (incorporated herein by reference to Exhibit 4.4
to the Partnership s Form 10-Q dated September 30, 1995)
Amended and Restated Real Estate Tax Escrow and Security
Agreement dated July 1, 1997 among the Partnership,
4.5 Trustee and Southwest Bank of Texas
9 Voting Agreement dated October 6, 1995 among SHRP General
Partner, Inc., Sam Houston Entertainment Corp., SHRP
Equity, Inc. and MAXXAM Inc. (incorporated herein by
reference to Exhibit 9 to the Partnership s Form 10-Q
dated September 30, 1995)
10.1 Form of Line of Credit Agreement dated October 6, 1995
between the Partnership and certain lenders (the "LINE OF
CREDIT AGREEMENT") (incorporated herein by reference to
Exhibit 10.1 to the Partnership s Form 10-Q dated
September 30, 1995)
Form of Cash Escrow Agreement with respect to the Line of
Credit Agreement (incorporated herein by reference to
10.2 Exhibit 10.2 to the Partnership s Form 10-Q dated
September 30, 1995)
Guaranty of MAXXAM Inc. dated October 6, 1995 in favor of
the Partnership with respect to the obligations of SHRP
10.3 General Partner, Inc. under the Line of Credit Agreement
(incorporated herein by reference to Exhibit 10.3 to the
Partnership s Form 10-Q dated September 30, 1995)
Exhibit Description
Number
Registration Rights Agreement dated October 6, 1995 among
the Partnership, SHRP Equity, Inc. and First Bank
10.4 National Association (incorporated herein by reference to
Exhibit 10.5 to the Partnership s Form 10-Q dated
September 30, 1995)
10.5
Instrument Adherence of MAXXAM Inc. dated October 6,
of 1995 (incorporated herein by reference to Exhibit 10.7 to
the Partnership s Form 10-Q dated September 30, 1995)
10.6
Instrument dated
of October 6, 1995 (incorporated herein by reference to
Adherence Exhibit 10.8 to the Partnership s Form 10-Q dated
of Charles September 30, 1995)
E. Hurwitz
Horsemen s Agreement dated November 26, 1996 between
Texas Thoroughbred HBPA, Inc. and the Partnership
10.7 (incorporated herein by reference to Exhibit 10.13 to the
Partnership s Form 10-K dated December 31, 1996)
Addendum dated December 1, 1997 to Horsemen s Agreement
10.8 between the Texas Thoroughbred HBPA, Inc. and the
Partnership
Horsemen s Agreement dated March 6, 1997 between the
10.9 Texas Horsemen s Benevolent and Protective Association
and the Partnership
Addendum dated December 1, 1997 to Horsemen s Agreement
10.10 between the Texas Horsemen s Benevolent and Protective
Association and the Partnership
10.11
Totalisato r Services Agreement dated September 8, 1997
between 10.1 to the
Autotote Partnership Form 10-Q for the quarter ended September 30,
Systems, 1997)
Inc. and
the
Partnershi
p
(incorpora
ted herein
by
reference
to Exhibit
10.12 Promissory Note dated December 13, 1994 by the
Partnership in favor of Harris County, Texas
(incorporated herein by reference to Exhibit 10.41 to the
Partnership s Form 10-K for the year ended December 31,
1994)
10.13
Satellite on Agreement dated February 24, 1998
Transmissi between Autotote Communications Services, Inc. and the
Partnership
Agreement dated December 30, 1993 between the Partnership
and International Sound Corporation (incorporated herein
10.14 by reference to Exhibit 10.45 to the Partnership s Form
10-K for the year ended December 31, 1994)
Amendment to Agreement dated December 30, 1993 between
the Partnership and International Sound Corporation
10.15 (incorporated herein by reference to Exhibit 10.1 to the
Partnership s Form 10-Q dated June 30, 1997)
Exhibit Description
Number
10.16 Alcoholic Beverage Concession Agreement dated September
19, 1996 between 97, Inc. and the Partnership
(incorporated herein by reference to the Partnership s
Form 10-K dated December 31, 1996)
*10.17 Lease Agreement dated March 3, 1999 between Valley Racing
Association and SHRP Valley LLC.
*10.18 Management Agreement dated March 3, 1999 between Valley
Racing Association and SHRP Valley LLC.
Executive Compensation Plans and Arrangements
Employment Agreement, dated November 24, 1992 between
MAXXAM Property Company and James D. Noteware
10.19 (incorporated herein by reference to Exhibit 10.33 to the
Partnership s Form 10-K for the year ended December 31,
1994)
10.20
Letter 1994 between the
Agreement, Partnership and Ann M. McGovern (incorporated herein by
dated reference to Exhibit 10.34 to the Partnership s Form 10-K
August 19, for the year ended December 31, 1994)
10.21 Letter Agreement, dated November 11, 1994 between the
Partnership and Michael J. Vitek (incorporated herein by
reference to Exhibit 10.35 to the Partnership s Form 10-K
for the year ended December 31, 1994)
Agreement between the Partnership and Robert L. Bork
(incorporated herein by reference to Exhibit 10.10 to the
10.22 Partnership s Form 10-Q dated September 30, 1995)
* Included with this filing.