Table of Contents
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
(Mark One)
x
|
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE
QUARTERLY PERIOD ENDED JUNE 30, 2008.
OR
o
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM TO .
Commission File Number: 001-31569
CANTERBURY PARK HOLDING CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Minnesota
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41-1775532
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(State or Other
Jurisdiction
of Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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1100
Canterbury Road
Shakopee, MN 55379
(Address of
principal executive offices and zip code)
Indicate by check mark if
the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Act.
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.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company (as
defined in Exchange Act Rule 12b-2).
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Large
accelerated filer
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o
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Accelerated
filer
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o
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Non-accelerated
filer
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o
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Smaller
reporting company
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x
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Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2).
The
Company had 3,979,025 shares of common stock, $.01 par value, outstanding as of
August 14, 2008.
Table
of Contents
PART 1
- FINANCIAL INFORMATION
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE
30, 2008 AND DECEMBER 31, 2007 (Unaudited)
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|
June 30,
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December 31,
|
|
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2008
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|
2007
|
|
ASSETS
|
|
|
|
|
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CURRENT ASSETS
|
|
|
|
|
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Cash
|
|
$
|
6,941,873
|
|
$
|
7,050,389
|
|
Restricted cash
|
|
4,540,559
|
|
2,032,632
|
|
Short-term
investments
|
|
56,107
|
|
80,688
|
|
Accounts
receivable, net of allowance of $3,325 and $46,400
|
|
1,021,058
|
|
749,782
|
|
Inventory
|
|
286,196
|
|
169,801
|
|
Prepaid expenses
|
|
593,823
|
|
453,350
|
|
Income taxes
receivable
|
|
501,020
|
|
215,594
|
|
Deferred income
taxes
|
|
398,500
|
|
295,900
|
|
Total current
assets
|
|
14,339,136
|
|
11,048,136
|
|
|
|
|
|
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LONG-TERM ASSETS
|
|
|
|
|
|
Deposits
|
|
20,000
|
|
20,000
|
|
Land, buildings
and equipment, net of accumulated
depreciation of $15,531,102 and $14,593,197, respectively
|
|
25,456,136
|
|
25,037,636
|
|
|
|
$
|
39,815,272
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|
$
|
36,105,772
|
|
|
|
|
|
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LIABILITIES
AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
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CURRENT
LIABILITIES
|
|
|
|
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Accounts payable
|
|
$
|
6,196,204
|
|
$
|
2,209,639
|
|
Card club
accruals
|
|
2,409,231
|
|
2,413,796
|
|
Accrued wages
and payroll taxes
|
|
1,807,535
|
|
1,851,140
|
|
Cash dividend
payable
|
|
1,007,173
|
|
|
|
Accrued interest
payable
|
|
9,429
|
|
5,196
|
|
Due to MHBPA
|
|
95,678
|
|
56,951
|
|
Accrued property
taxes
|
|
494,364
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|
491,630
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|
Payable to
horsepersons
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|
237,282
|
|
162,931
|
|
Total current
liabilities
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|
12,256,896
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|
7,191,283
|
|
|
|
|
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DEFERRED INCOME
TAXES
|
|
265,300
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336,400
|
|
|
|
|
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COMMITMENTS AND
CONTINGENCIES (Note 6)
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STOCKHOLDERS
EQUITY
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Common stock,
$.01 par value, 10,000,000 shares authorized,
4,016,746 and 4,084,087, respectively, shares issued and outstanding
|
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40,167
|
|
40,841
|
|
Additional paid-in
capital
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15,262,843
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15,395,778
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Accumulated
earnings
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|
11,990,066
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13,141,470
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Total
stockholders equity
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|
27,293,076
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|
28,578,089
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|
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$
|
39,815,272
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|
$
|
36,105,772
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|
See notes to consolidated financial statements.
3
Table
of Contents
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
PERIODS
ENDED JUNE 30, 2008 AND 2007 (Unaudited)
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Three Months Ended June 30,
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Six Months Ended June 30,
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2008
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2007
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2008
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2007
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OPERATING
REVENUES:
|
|
|
|
|
|
|
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Pari-mutuel
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$
|
4,291,946
|
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$
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4,723,673
|
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$
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6,769,868
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|
$
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7,437,553
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|
Card Club
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|
6,647,122
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7,077,195
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13,170,178
|
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14,572,191
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|
Concessions
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2,059,254
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1,942,296
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2,935,057
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2,827,065
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|
Admissions and
parking
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281,387
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324,635
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|
304,109
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|
354,331
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|
Publications
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|
128,810
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|
141,840
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|
213,868
|
|
238,669
|
|
Other
|
|
469,052
|
|
499,009
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|
723,457
|
|
798,108
|
|
Total Revenues
|
|
13,877,571
|
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14,708,648
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24,116,537
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26,227,917
|
|
Less:
Promotional Allowances
|
|
(72,678
|
)
|
(82,625
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)
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(111,581
|
)
|
(133,305
|
)
|
Net Revenues
|
|
13,804,893
|
|
14,626,023
|
|
24,004,956
|
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26,094,612
|
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|
|
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|
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|
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OPERATING
EXPENSES:
|
|
|
|
|
|
|
|
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Purse expense
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|
2,370,658
|
|
2,546,900
|
|
3,644,708
|
|
3,912,190
|
|
Minnesota
Breeders Fund
|
|
310,744
|
|
339,202
|
|
542,595
|
|
596,600
|
|
Host track fees
|
|
568,815
|
|
608,099
|
|
1,000,352
|
|
1,066,501
|
|
Pari-mutuel
taxes
|
|
7,364
|
|
35,347
|
|
14,235
|
|
61,908
|
|
Salaries and
benefits
|
|
5,809,601
|
|
5,844,205
|
|
10,381,624
|
|
10,864,914
|
|
Cost of
concessions and publication sales
|
|
1,089,176
|
|
1,008,898
|
|
1,677,119
|
|
1,602,323
|
|
Depreciation
|
|
507,663
|
|
454,600
|
|
1,012,713
|
|
962,290
|
|
Utilities
|
|
389,186
|
|
371,027
|
|
696,253
|
|
702,473
|
|
Repairs, maintenance
and supplies
|
|
422,838
|
|
348,476
|
|
636,703
|
|
550,462
|
|
License fees and
property taxes
|
|
210,558
|
|
213,558
|
|
405,921
|
|
411,821
|
|
Advertising and
marketing
|
|
631,109
|
|
556,105
|
|
812,814
|
|
661,769
|
|
Insurance
|
|
214,276
|
|
314,321
|
|
367,617
|
|
549,903
|
|
Other
|
|
1,348,346
|
|
1,182,868
|
|
2,077,550
|
|
1,898,040
|
|
|
|
13,880,334
|
|
13,823,606
|
|
23,270,204
|
|
23,841,194
|
|
NONOPERATING
(EXPENSES) REVENUES:
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
(3,331
|
)
|
(4,745
|
)
|
(2,364
|
)
|
(9,913
|
)
|
Other, net
|
|
38,855
|
|
86,037
|
|
84,675
|
|
163,665
|
|
|
|
35,524
|
|
81,292
|
|
82,311
|
|
153,752
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) INCOME
BEFORE INCOME TAX EXPENSE
|
|
(39,917
|
)
|
883,709
|
|
817,063
|
|
2,407,170
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX
BENEFIT (EXPENSE) (Note 1)
|
|
4,498
|
|
(380,716
|
)
|
(353,602
|
)
|
(1,011,800
|
)
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS)
INCOME
|
|
$
|
(35,419
|
)
|
$
|
502,993
|
|
$
|
463,461
|
|
$
|
1,395,370
|
|
|
|
|
|
|
|
|
|
|
|
BASIC NET (LOSS)
INCOME PER COMMON SHARE (Note 1)
|
|
$
|
(.01
|
)
|
$
|
.12
|
|
$
|
.11
|
|
$
|
.34
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED NET
(LOSS) INCOME PER COMMON SHARE (Note 1)
|
|
$
|
(.01
|
)
|
$
|
.12
|
|
$
|
.11
|
|
$
|
.33
|
|
See notes to consolidated financial statements.
4
Table
of Contents
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIODS
ENDED JUNE 30, 2008 AND 2007 (Unaudited)
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
Operating
Activities:
|
|
|
|
|
|
Net Income
|
|
$
|
463,461
|
|
$
|
1,395,370
|
|
Adjustments to
reconcile net income to net cash provided by operations:
|
|
|
|
|
|
Depreciation
|
|
1,012,713
|
|
962,290
|
|
Stock-based
compensation expense
|
|
74,696
|
|
133,863
|
|
Excess tax
benefit from exercise of stock options
|
|
(17,530
|
)
|
(44,794
|
)
|
Loss on sale of
property and equipment
|
|
1,968
|
|
5,949
|
|
Decrease in
deferred income taxes
|
|
(135,974
|
)
|
(136,556
|
)
|
Increase in
restricted cash
|
|
(2,507,927
|
)
|
(2,499,116
|
)
|
Increase in
accounts receivable
|
|
(271,276
|
)
|
(12,355
|
)
|
Increase in
other current assets
|
|
(256,868
|
)
|
(56,067
|
)
|
(Increase)
decrease in income taxes receivable
|
|
(285,426
|
)
|
113,356
|
|
Increase in
accounts payable and accrued wages and payroll taxes
|
|
3,819,295
|
|
3,650,849
|
|
Decrease in card
club accruals
|
|
(4,565
|
)
|
(36,183
|
)
|
Increase in
accrued interest
|
|
4,233
|
|
7,834
|
|
Increase in
accrued property taxes
|
|
2,734
|
|
27,242
|
|
Increase
(decrease) in payable to horsepersons
|
|
74,351
|
|
(95,738
|
)
|
Increase
(decrease) in due to MHBPA
|
|
38,727
|
|
(50,460
|
)
|
Net cash
provided by operations
|
|
2,012,612
|
|
3,365,484
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
Additions to
buildings and equipment
|
|
(1,307,296
|
)
|
(1,184,310
|
)
|
Proceeds from
sale of equipment
|
|
3,540
|
|
3,472
|
|
Decrease in
short-term investments
|
|
24,581
|
|
25,248
|
|
Net cash used in
investing activities
|
|
(1,279,175
|
)
|
(1,155,590
|
)
|
|
|
|
|
|
|
Financing
Activities
|
|
|
|
|
|
Proceeds from
issuance of common stock
|
|
120,125
|
|
208,305
|
|
Common stock
repurchases
|
|
(979,608
|
)
|
|
|
Excess tax
benefit from exercise of stock options
|
|
17,530
|
|
44,794
|
|
Net cash (used)
provided by financing activities
|
|
(841,953
|
)
|
253,099
|
|
|
|
|
|
|
|
Net (decrease)
increase in cash
|
|
(108,516
|
)
|
2,462,993
|
|
|
|
|
|
|
|
Cash at
beginning of period
|
|
7,050,389
|
|
5,745,556
|
|
|
|
|
|
|
|
Cash at end of
period
|
|
$
|
6,941,873
|
|
$
|
8,208,549
|
|
|
|
|
|
|
|
Supplemental
disclosure of noncash investing activities:
|
|
|
|
|
|
Additions to
buildings and equipment funded through accounts payable
|
|
$
|
223,622
|
|
$
|
47,328
|
|
|
|
|
|
|
|
Supplemental
disclosure of noncash financing activities:
|
|
|
|
|
|
Common stock
repurchases funded through accounts payable
|
|
$
|
104,240
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
Income taxes
paid, net of refunds
|
|
$
|
775,000
|
|
$
|
1,035,000
|
|
Dividend
declared
|
|
$
|
1,007,173
|
|
$
|
1,027,695
|
|
See notes to consolidated
financial statements.
5
CANTERBURY
PARK HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS
ENDED JUNE 30, 2008 AND 2007
1.
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Business
Canterbury Park Holding Corporation (the Company) was incorporated under
the laws of Minnesota and acquired land and buildings to conduct pari-mutuel
horse racing operations (the Racetrack) in March 1994. The Racetrack is located in Shakopee,
Minnesota, approximately 25 miles southwest of downtown Minneapolis. In May 1994, we commenced year-round
horse racing simulcast operations and hosted the first annual live race meet
during the summer of 1995. Our live racing
operations are a seasonal business as we host live race meets each year from
early May until Labor Day. We earn
additional pari-mutuel revenue by televising our live racing to out-of-state
Racetracks around the country. We also
derive revenues from related services and activities, such as advertising,
admissions, parking and publication sales and from other entertainment events
and activities held at the Racetrack. In
April 2000, we opened Canterbury Parks Card Club (the Card Club). The Card Club operates 24 hours a day, seven
days a week and is limited by Minnesota State law to a maximum of 50
tables. The Card Club currently offers
34 tables of Poker Games and 16 tables of Casino Games. Our three largest sources of revenues, Card
Club operations, pari-mutuel operations and concessions sales, generate cash
revenues.
Unaudited
Financial Statements
- The consolidated balance sheet as of June 30,
2008, the consolidated statements of operations for the three and six months
ended June 30, 2008 and 2007, the consolidated statements of cash flows
for the six months ended June 30, 2008 and 2007, and the related
information contained in these notes have been prepared by management without
audit. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) which are
necessary for a fair presentation of financial position and results of
operations for such periods have been made.
Results for an interim period should not be considered as indicative of
results for a full year.
The summary of
significant accounting policies is included in the notes to consolidated
financial statements in the 2007 Annual Report on Form 10-K.
Revenue
Recognition -
Our
revenues are derived primarily from the operations of a Card Club, pari-mutuel
wagering on simulcast and live horse races, concession sales, and related
activities. Collection revenue from Card
Club operations and pari-mutuel commission and fee revenues are recognized at
the time that the wagering process is complete.
Revenues related to concession and publication sales and parking and
admission fees are recognized as revenue when the service has been performed or
the product has been delivered.
Estimates
- The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from these
estimates.
Restricted
Cash
Restricted cash represents refundable deposits and
amounts due to horsemen for purses, stakes and awards, and amounts accumulated
in the Player Pool and jackpot pools to be used to repay card club players in
the form of promotions, giveaways, prizes, or by other means.
Income
Taxes
- Income tax expense is computed by applying the
estimated annual effective tax rate to the year-to-date income. Income taxes are accounted for under the
asset and liability method. Deferred tax
assets and liabilities are recognized for the estimated future tax consequences
attributed to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those
temporary differences are expected to reverse.
6
Table of
Contents
The Company
adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB No. 109,
(FIN 48), on January 1,
2007. FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in an enterprises financial
statements in accordance with FASB Statement 109,
Accounting for Income Taxes,
and prescribes a recognition
threshold and measurement process for financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax
return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition.
Interest and penalties associated with uncertain income tax positions
are presented in income tax expense. The Company has not recorded any
significant income tax related interest or penalties during any of the periods
presented. Upon implementation, we
determined all recorded benefits and income tax positions were
more-likely-than-not. Therefore, no
cumulative effect relating to the adoption of FIN 48 was recorded.
The Company and
its consolidated subsidiaries file income tax returns in the United States (U.S.)
federal jurisdiction. The Company is no
longer subject to U.S. federal examinations by tax authorities for years prior
to 2007 or by State of Minnesota tax authorities for years prior to 2003. We do not believe there will be any material
changes in our unrecognized tax positions over the next twelve months.
Net
(Loss) Income Per Share
- Basic net (loss) income per common share is based on the
weighted average number of common shares outstanding during each period. The weighted average number of common shares
outstanding for the three and six-month periods ended June 30, 2008 were
4,019,196 and 4,042,800, respectively.
The weighted average number of common shares outstanding for the three
and six-month periods ended June 30, 2007 were 4,069,104 and 4,060,809,
respectively. Diluted net income per
common share takes into effect the dilutive effect of potential common shares
outstanding. The Companys potential
common shares outstanding are stock options and shares of unvested (restricted)
stock. After considering the dilutive
effect of stock options outstanding, the weighted average shares used to
calculate diluted earnings per share for the three and six-month periods ended June 30,
2008 were 4,019,196 and 4,126,852, respectively. 66,689 weighted average shares were
considered anti-dilutive and excluded from the computation of common equivalent
shares for the three months ended June 30, 2008, as the Company reported a
net loss for that period. The weighted
average shares used to calculate diluted earnings per share for the three and
six-month periods ended June 30, 2007 were 4,215,833 and 4,228,088,
respectively.
Fair
Values of Financial Instruments
Due to the current classification of all financial instruments of the
Company, and given the short-term nature of the related account balances,
carrying amounts reported in the consolidated balance sheets approximate fair
value.
New
Accounting Pronouncements
In September 2006, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 157 (SFAS 157),
Fair
Value Measurements,
which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value
measurements. SFAS 157 for financial
assets and liabilities is effective for fiscal years beginning after November 15,
2007, and the Company has adopted the standard for those assets and liabilities
as of January 1, 2008 and the impact of adoption had no impact on our
financial position or results of operation.
See Note 3 for further discussion.
In February 2007,
the FASB issued SFAS No. 159 (SFAS 159),
The Fair Value Option for Financial Assets and Financial Liabilities
including
an amendment of FASB Statement No. 115
. SFAS 159 provides companies with an option to
report selected financial assets and financial liabilities at fair
value. Unrealized gains and losses on items for which the fair value
option has been elected are reported in earnings at each subsequent reporting
date.
S
FAS 159 became effective for fiscal years beginning
after November 15, 2007. We have elected not to implement the fair value
option with respect to any existing assets or liabilities; therefore, the
adoption of SFAS 159 had no impact on our financial position or results of
operations.
In December 2007, the FASB issued
SFAS No. 141(revised) (SFAS 141(R)),
Business
Combinations
. SFAS 141(R) applies
to all business combinations. Under SFAS 141(R), an entity is required to
recognize the assets acquired, liabilities assumed, contractual contingencies,
and contingent consideration at their
7
Table of
Contents
fair values on the acquisition date. We
are required to adopt this statement starting in 2009 and it is to be applied
to business combinations occurring in 2009 and after. Early adoption of this
statement is prohibited. The Company
will evaluate the impact the adoption of SFAS No. 141 (R) will have
on any future business combinations.
In December 2007,
the FASB issued SFAS No. 160 (SFAS 160),
Noncontrolling Interests in Consolidated Financial Statements
. SFAS 160 applies to the accounting for
noncontrolling interests and transactions with noncontrolling interest holders
in consolidated financial statements.
SFAS 160 changes the accounting and reporting for minority interests,
which will be recharacterized as noncontrolling interests and classified as a
component of equity. We are required to adopt this statement beginning in
2009. Early adoption of this statement
is prohibited and we are currently in the process of evaluating the effect that
this statement will have on our consolidated results of operations and
financial condition.
In March of
2008, the FASB issued SFAS No. 161 (SFAS 161),
Disclosures about Derivative Instruments and Hedging
Activities
, an amendment of SFAS 133. SFAS 161 requires
entities to provide greater transparency about how and why the entity uses
derivative instruments, how the instruments and related hedged items are
accounted for under SFAS 133, and how the instruments and related hedged items
affect the financial position, results of operations, and cash flows of the
entity. SFAS 161 is effective for fiscal years beginning after November 15,
2008. The Company is evaluating the impact the adoption of SFAS 161
will have on its consolidated results of operations and financial condition.
2.
STOCK BASED
COMPENSATION
Effective January 1,
2006, we adopted FASB Statement No.123(R),
Share
Based Payment
(SFAS 123R), applying the modified prospective
transition method. We recognized $74,696
and $133,863 in stock-based compensation expense in salaries and benefits
expense line item on the consolidated statements of operations during the
six-months ended June 30, 2008 and 2007, respectively.
Our annual grant
of stock-based compensation generally takes place during the first quarter of
each fiscal year. Each non-employee
member of the Board of Directors receives an annual recurring grant of 3,000
non-qualified stock options on the first business day in February. On February 1, 2008, 15,000 options were
granted to the five non-employee board members with an exercise price equal to
the market price on the date of grant of $11.35. The stock options vest over a six-month
period and expire in ten years.
The compensation
cost associated with this grant of Board of Director options is $29,700 to be
recognized as expense over the six-month vesting period. On February 1, 2007, 15,000
options were granted to the five non-employee board members with an exercise
price equal to the market price on the date of grant of $13.76.
The number of
shares granted and the weighted average fair value per share during the periods
presented were:
|
|
Six Months Ended
|
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Fair Value
|
|
|
|
Fair Value
|
|
|
|
Grant
|
|
Per Share
|
|
Grant
|
|
Per Share
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
15,000
|
|
$
|
1.98
|
|
15,000
|
|
$
|
3.89
|
|
|
|
|
|
|
|
|
|
|
|
Total shares
|
|
15,000
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
Table of
Contents
The fair value of
stock options granted under the Plan during first six months of 2008 were
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions and results:
|
|
2008
|
|
2007
|
|
Dividend yield
|
|
2.20
|
%
|
1.82
|
%
|
Weighted-average
volatility
|
|
15
|
%
|
22
|
%
|
Risk-free
interest rate
|
|
3.62
|
%
|
4.86
|
%
|
Expected term of
stock options in years
|
|
7.3
|
|
7.2
|
|
Fair value of
stock options on grant date
|
|
$
|
29,700
|
|
$
|
58,400
|
|
|
|
|
|
|
|
|
|
A summary of stock
option activity as of June 30, 2008 and changes during the six months then
ended is presented below:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
|
Number of
|
|
Exercise
|
|
Contractual
|
|
Grant Date
|
|
Stock Options
|
|
Shares
|
|
Price
|
|
Term
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
January 1, 2008
|
|
605,900
|
|
$
|
11.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
15,000
|
|
$
|
11.35
|
|
|
|
|
|
Exercised
|
|
(45,000
|
)
|
$
|
3.11
|
|
|
|
|
|
Expired
|
|
(77,000
|
)
|
$
|
15.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
June 30, 2008
|
|
498,900
|
|
$
|
11.03
|
|
2.7 Years
|
|
$
|
5,501,493
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at
June 30, 2008
|
|
476,400
|
|
$
|
10.96
|
|
2.4 Years
|
|
$
|
5,222,118
|
|
3.
FAIR
VALUE
SFAS 157 defines
fair value as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants on the measurement date.
SFAS 157 also establishes a fair value hierarchy which requires an
entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to
measure fair value:
Level
1
Quoted prices in active markets for identical assets or
liabilities.
Level
2
Observable inputs other than Level 1 prices such as
quoted prices for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or
liabilities.
Level
3
Unobservable inputs that are supported by little or no
market activity and that are significant to the fair value of the assets or
liabilities.
The Company utilizes the market approach to measure
fair value for its financial assets and liabilities. The market
approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities.
9
Table
of Contents
Assets and liabilities
measured at fair value on a recurring basis are summarized below:
|
|
Fair Value Measurements as of
June 30, 2008
|
|
Description
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
investments
|
|
$
|
56,107
|
|
$
|
56,107
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
56,107
|
|
$
|
56,107
|
|
$
|
|
|
$
|
|
|
4.
BORROWINGS
UNDER CREDIT AGREEMENT
Borrowings under
the Companys credit agreement with Bremer Bank include a commercial revolving
credit line, which provides for maximum advances of $2,250,000 with interest at
the prime rate until April 20, 2009.
The Company had no borrowings under this credit line at June 30,
2008 and December 31, 2008. The
credit agreement contains certain covenants requiring the Company to maintain
certain financial ratios. The Company
was in compliance with these requirements as of June 30, 2008. Management believes that funds available
under this line of credit, along with funds generated from card club and
simulcast operations, will be sufficient to satisfy its liquidity and capital
resource requirements during 2008.
5.
OPERATING
SEGMENTS
During the first
six months of 2008 and 2007, the Company had three reportable operating
segments: horse racing, card club, and
concessions. The horseracing segment
primarily represents simulcast and live horse racing operations. The card club segment primarily represents
operations of Canterbury Parks Card Club, and the concessions segment
primarily represents concessions provided during simulcast and live racing, in
the Card Club, and during special events.
The Companys reportable operating segments are strategic business units
that offer different products and services.
They are managed separately because the segments differ in the nature of
the products and services provided as well as processes to produce those
products and services. The Minnesota
Racing Commission regulates the horse racing and card club segments.
The accounting
policies of the operating segments are the same as those described in the
summary of significant accounting policies in the 2007 Annual Report on Form 10-K.
Depreciation,
interest expense and income taxes are allocated to the segments but no
allocation is made to concessions for shared facilities. However, the concessions segment pays
approximately 25% of gross revenues earned on live racing and special event days
to the horse racing segment for use of the facilities.
10
Table of
Contents
The following
tables provide information about the Companys operating segments (in 000s):
|
|
Six Months Ended June 30, 2008
|
|
|
|
Horse Racing
|
|
Card Club
|
|
Concessions
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
from external customers
|
|
$
|
7,887
|
|
$
|
13,170
|
|
$
|
2,948
|
|
$
|
24,005
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment
revenues
|
|
357
|
|
|
|
883
|
|
1,240
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
|
82
|
|
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
658
|
|
271
|
|
84
|
|
1,013
|
|
|
|
|
|
|
|
|
|
|
|
Segment income
before income taxes
|
|
(857
|
)
|
1,629
|
|
487
|
|
1,259
|
|
|
|
|
|
|
|
|
|
|
|
Segment Assets
|
|
$
|
35,204
|
|
$
|
3,638
|
|
$
|
8,368
|
|
$
|
47,210
|
|
|
|
Six Months Ended June 30, 2007
|
|
|
|
Horse Racing
|
|
Card Club
|
|
Concessions
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
from external customers
|
|
$
|
8,673
|
|
$
|
14,572
|
|
$
|
2,850
|
|
$
|
26,095
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment
revenues
|
|
355
|
|
|
|
973
|
|
1,328
|
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
|
154
|
|
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
593
|
|
308
|
|
61
|
|
962
|
|
|
|
|
|
|
|
|
|
|
|
Segment income
before income taxes
|
|
(69
|
)
|
2,437
|
|
626
|
|
2,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Segment Assets
|
|
$
|
31,431
|
|
$
|
3,857
|
|
$
|
7,723
|
|
$
|
43,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following are
reconciliations of reportable segment revenue, income before income taxes, and
assets, to the Companys consolidated totals (in 000s):
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
Revenues
|
|
|
|
|
|
Total net
revenue for reportable segments
|
|
$
|
25,245
|
|
$
|
27,423
|
|
Elimination of
intersegment revenues
|
|
(1,240
|
)
|
(1,328
|
)
|
Total
consolidated net revenues
|
|
$
|
24,005
|
|
$
|
26,095
|
|
|
|
|
|
|
|
Income before
income taxes
|
|
|
|
|
|
Total segment
income before income taxes
|
|
$
|
1,259
|
|
$
|
2,994
|
|
Elimination of
intersegment income before income taxes
|
|
(442
|
)
|
(587
|
)
|
Total
consolidated income before income taxes
|
|
$
|
817
|
|
$
|
2,407
|
|
|
|
June 30,
|
|
December 31,
|
|
|
|
2008
|
|
2007
|
|
Assets
|
|
|
|
|
|
Total assets for
reportable segments
|
|
$
|
47,210
|
|
$
|
43,011
|
|
Elimination of
intercompany receivables
|
|
(7,395
|
)
|
(6,905
|
)
|
Total
consolidated assets
|
|
$
|
39,815
|
|
$
|
36,106
|
|
11
Table
of Contents
6.
COMMITMENTS
AND CONTINGENCIES
In accordance with
an Earn Out Note, given to the prior owner of the Racetrack as part of the
consideration paid by the Company to acquire the Racetrack in 1994, if (i) off-track
betting becomes legally permissible in the State of Minnesota and (ii) the
Company begins to conduct off-track betting with respect to or in connection
with its operations, the Company will be required to pay to the IMR Fund, L.P.
the greater of $700,000 per operating year, as defined, or 20% of the net
pretax profit, as defined for each of five operating years. At this time, management believes that the
likelihood that these two conditions will be met, and that the Company will be
required to pay these amounts is remote.
At the date (if any) that these two conditions are met, the five minimum
payments will be discounted back to their present value and the sum of those
discounted payments will be capitalized as part of the purchase price in
accordance with generally accepted accounting principles. The purchase price will be further increased
if payments become due under the 20% of Net Pretax Profit calculation. The first payment is to be made 90 days after
the end of the third operating year in which off-track betting is conducted by
the Company. Remaining payments would be
made within 90 days of the end of each of the next four operating years.
The Company is
periodically involved in various legal actions arising in the normal course of
business. At June 30, 2008,
management believes that the resolution of any legal actions outstanding will
not have a material impact on the consolidated financial statements.
On June 5,
2008, the Companys Board of Directors declared a special cash dividend of $.25
per share of common stock payable on July 11, 2008 to shareholders of
record on June 20, 2008. The
aggregate amount paid to shareholders on July 11, 2008 pursuant to this
dividend declaration was $1,007,173.
12
Table of Contents
ITEM
2:
|
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|
The following Managements
Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
is intended to help the reader understand Canterbury Park Holding Corporation,
our operations and our present business environment. This MD&A is provided as a supplement to
and should be read in conjunction with our consolidated financial statements
and the accompanying notes to the financial statements (the Notes).
Overview:
Canterbury Park Holding
Corporation (the Company) owns and operates the Canterbury Park Racetrack and
Card Club in Shakopee, Minnesota (the Racetrack). The primary businesses of the Company are
simulcast and live pari-mutuel horse racing, hosting unbanked card games, and
food and beverage operations.
The Racetrack is the only
pari-mutuel thoroughbred and quarter horse racing facility in the State of
Minnesota. The Racetrack earns revenues
from pari-mutuel take-out on races simulcast year-round to Canterbury Park from
racetracks throughout the country and from live race meets featuring thoroughbred
and quarter horse racing. In 2008, the
live race meet began in May and will conclude in September. During the live meet, the Company televises
its races to out-of-state racetracks around the country and earns additional
pari-mutuel revenue on wagers placed on our races at the out-of-state
racetracks.
Canterbury Parks Card
Club (the Card Club) hosts unbanked card games in which players compete
against each other and not against the house.
The Card Club is open twenty-four hours a day, seven days a week. Under Minnesota law, the Company is required
to pay up to 14% of the gross Card Club revenues to the Racetracks purse fund
and the State of Minnesota Breeders Fund.
However, the Company has agreed with the Minnesota Horsemens Benevolent
and Protective Association (MHBPA) to pay 15% of Card Club revenues into the
purse fund for the first half of 2008 and all of 2007.
The Company also
generates revenues from other activities such as admission and parking fees and
from the sale of food and beverage, programs and other racing publications, and
corporate sponsorships. Additional
revenues are derived from an RV park and the use of the Racetrack facilities
for special events such as concerts, craft shows and snowmobile racing.
Operations Review for the
Three and
Six Months
Ended June 30, 2008 and June 30, 2007:
Total net revenues
decreased $2,089,656, or 8.0%, during the six months ended June 30, 2008
compared to the six months ended June 30, 2007, and decreased $821,130, or
5.6%, for the three months ended June 30, 2008 compared to the three
months ended June 30, 2007. The decrease was due primarily to reductions
of 9.0% and 9.6% in pari-mutuel and Card Club revenues for the six months ended
June 30, 2008. These decreases were
partially offset by an increase of 3.8% in concession revenue for the six
months ended June 30, 2008.
Pari-mutuel revenues
decreased $667,685, or 9.0%, in the six-month period ended June 30, 2008
compared to the same period in 2007, and decreased $431,727, or 9.1%, for the
three-month period ended June 30, 2008 compared to the same period in
2007. Total handle wagered on simulcast
races for the first half of 2008 was down $2.3 million, or 5.5%, compared to
the same period last year. The decrease
in pari-mutuel revenues is partially due to a smoking ban that became effective
October 1, 2007. The Company
believes that those simulcast customers who smoke and no longer visit our
facilities are unlawfully wagering on the Internet. The smoking ban is discussed later in this
filing under the
Legislation
heading. In addition, economic downturn
and higher fuel costs have adversely impacted discretionary spending on
entertainment throughout the first half of 2008. Inclement weather during the first quarter of
2008 at racetracks that simulcast their signal to our racetrack also resulted
in decreased pari-mutuel revenues.
Finally, on April 11, 2008, Running Aces Harness Park, located in
Columbus Township, Anoka County, Minnesota, began their race meet. The Company
13
Table
of Contents
believes that this added
an alternative simulcast betting location for our simulcast customers,
resulting in decreased simulcast wagering at the Racetrack.
For further information,
see the Summary of Pari-mutuel Data below:
|
|
Six Months Ended June 30,
|
|
Summary of Pari-mutuel Data:
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Racing Days
|
|
|
|
|
|
Simulcast only
|
|
153
|
|
152
|
|
Live and
Simulcast
|
|
29
|
|
29
|
|
Total
Number of Racing Days
|
|
182
|
|
181
|
|
|
|
|
|
|
|
On-Track Handle
|
|
|
|
|
|
Simulcast racing
handle on simulcast only days
|
|
$
|
18,356,000
|
|
$
|
20,444,000
|
|
Live and
Simulcast days:
|
|
|
|
|
|
Live racing
handle
|
|
5,863,000
|
|
6,490,000
|
|
Simulcast racing
handle
|
|
7,230,000
|
|
7,597,000
|
|
Total On-Track
Handle
|
|
31,449,000
|
|
34,531,000
|
|
|
|
|
|
|
|
Out-of-State
Live Handle
|
|
7,883,000
|
|
7,134,000
|
|
|
|
|
|
|
|
Total
Handle
|
|
$
|
39,332,000
|
|
$
|
41,665,000
|
|
|
|
|
|
|
|
On-Track Average
Daily Handle
|
|
|
|
|
|
Simulcast only
racing days
|
|
$
|
119,974
|
|
$
|
134,500
|
|
Live and
simulcast racing days
|
|
$
|
451,483
|
|
$
|
485,759
|
|
Total Card Club revenue
decreased $1,402,013, or 9.6%, for the first six months of 2008 and $430,073,
or 6.1%, for the second quarter of 2008 compared to the same periods in 2007.
The primary source of Card Club revenue, referred to as collection revenue,
is a percentage of the wagers received from the players as compensation for
providing the Card Club facility and services.
Other revenue includes fees collected for the administration of
tournaments and amounts earned as reimbursement of the administrative costs of
maintaining jackpot funds. Poker
collection revenue fell $188,169 or 2.1% compared to the first six months of
2007. In addition, Casino Games
collection revenue dropped $1,087,700 or 20.9% compared to the first half of
2007. The decrease in revenue is
primarily due to the smoking ban that became effective on October 1,
2007. The Company believes that those
Card Club customers who smoke and no longer visit the Card Club are now
patronizing tribal casinos where smoking is permitted. The smoking ban is discussed later in this
filing under the
Legislation
heading. Additionally, economic downturn
has adversely impacted discretionary spending on entertainment throughout the
first half of 2008. Total Card Club
revenues represented 54.8% and 48.1% of net revenues for the six-month and
three-month periods ended June 30, 2008, respectively. The three-month percentage is usually lower
in the second quarter of any calendar year due to increased revenue from live
racing.
14
Table
of Contents
For further information,
see the Summary of Card Club Data below:
|
|
Six Months Ended June 30,
|
|
Summary of Card Club Data:
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
Poker Games
|
|
$
|
8,652,000
|
|
$
|
8,840,000
|
|
Casino Games
|
|
4,125,000
|
|
5,213,000
|
|
Total Collection
Revenue
|
|
12,777,000
|
|
14,053,000
|
|
|
|
|
|
|
|
Other Revenue
|
|
393,000
|
|
519,000
|
|
Total Card Club
Revenue
|
|
$
|
13,170,000
|
|
$
|
14,572,000
|
|
|
|
|
|
|
|
Number of Days
Offered
|
|
182
|
|
181
|
|
Average Revenue
per Day
|
|
$
|
72,363
|
|
$
|
80,508
|
|
Concessions revenues
increased $107,992, or 3.8%, and $116,958, or 6.0%, for the six-month and
three-month periods ended June 30, 2008, respectively, compared to the
prior year. The increase was primarily
attributed to additional concession sales as a result of special events in the
first half of 2008 that did not occur in 2007.
The increase can also be attributed to price increases in concession
products to offset the rising price of food commodities.
Total operating expenses
decreased $570,990, or 2.4%, during the six-month period ended June 30,
2008 compared to the six-month period ended June 30, 2007, but increased
$56,728, or .4%, during the three months ended June 30, 2008 compared to
the three-month period ended June 30, 2007.
Total expense for
statutory purses and the Minnesota Breeders Fund decreased 7.1% to $4,187,303
for the first six months ended June 30, 2008 compared to the first six
months ended June 30, 2007. The
decrease was due primarily to a reduction in Card Club purse and breeders fund
expenses due to lower Card Club collection revenues in the first half of 2008
compared to the first half of 2007.
The following table
provides additional information regarding purse and Breeders Fund Expense:
|
|
|
|
|
|
Minnesota
|
|
|
|
Purse Expense
|
|
Breeders Fund Expense
|
|
|
|
Six Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Card Club
|
|
$
|
1,778,000
|
|
$
|
1,967,000
|
|
$
|
198,000
|
|
$
|
219,000
|
|
|
|
|
|
|
|
|
|
|
|
Simulcast Horse
Racing
|
|
1,271,000
|
|
1,322,000
|
|
284,000
|
|
313,000
|
|
|
|
|
|
|
|
|
|
|
|
Live Horse
Racing
|
|
596,000
|
|
623,000
|
|
61,000
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,645,000
|
|
$
|
3,912,000
|
|
$
|
543,000
|
|
$
|
597,000
|
|
Salaries and benefits
decreased $483,290, or 4.4%, in the 2008 six-month period ended June 30
and $34,604, or .6%, in the three-month period ended June 30, 2008
compared to the same periods last year.
Salaries and benefits expense decreased in the first half of 2008
primarily as a result of the expense related to the voluntary retirement
incentive program that occurred in the first quarter of 2007. Advertising and marketing costs increased
$151,045, or 22.8%, in the 2008 six-month period ended June 30 and
$75,004, or 13.5%, in the three-month period ended June 30, 2008 compared
to the same periods last year primarily as a result of the use of an
advertising agency and related fees in the current year. Insurance expense decreased $182,286, or
33.1%, in the 2008 six-month period ended June 30 and $100,045, or 31.8%,
in the three-month period
15
Table
of Contents
ended June 30, 2008
compared to the same periods last year.
The decrease was due to a change in insurance provider that has allowed
for significant decreases in premiums paid.
Repairs, maintenance and supplies expense increased $86,241, or 15.7%,
in the 2008 six-month period ended June 30 and $74,362, or 21.3%, in the
three-month period ended June 30, 2008 compared to same periods last
year. The increase was primarily due to
necessary upgrades to the Companys escalator system in order to be in
compliance with new Minnesota statutes.
Income before income
taxes was $817,063 for the six months ended June 30, 2008 compared to
$2,407,170 for the six months ended June 30, 2007. After income tax expense of $353,602 for the
six months ended June 30, 2008, net income was $463,461 in 2008 compared
to $1,395,370 in 2007, a decrease of $931,909 or 66.8%. For the quarter ended June 30, 2008, the
Company recorded a $39,917 loss before income tax benefit compared to income
before income tax expense of $883,709 for the quarter ended June 30, 2007,
a decrease of $923,626 or 104.5%. After
an income tax benefit of $4,498 in the second quarter of 2008, net loss was
$35,419 compared to net income of $502,993 for the second quarter of 2007, a decrease
of $538,412 or 107.0%.
Contingencies:
There have been no
material changes in our contingencies from the information provided in our
Report on Form 10-K for our year ended December 31, 2007.
Liquidity and Capital Resources:
Cash provided by operating
activities during the period January 1, 2008 through June 30, 2008
was $2,012,612, resulting primarily from net income of $463,461, non-cash
depreciation expense of $1,012,713, and an increase in accounts payable and
accrued wages and payroll taxes of $3,819,295, caused primarily by a seasonal
increase of $2.5 million in horsemen payables, a $418,000 increase in trade
accounts payable, a $232,000 increase in host fees payable, and a $238,000
increase in deferred revenues for corporate sponsorships. These items are partially offset by an
increase in restricted cash of $2,507,927, resulting primarily from the
increase in horsemen payables of $2.5 million.
Cash provided by operating activities during the period January 1,
2007 through June 30, 2007 was $3,365,484, resulting primarily from net
income of $1,395,370, non-cash depreciation expense of $962,290, and an
increase in accounts payable and accrued wages and payroll taxes of $3,650,849,
caused by a seasonal increase of $2.7 million in horsemen payables, a $630,000
increase in trade accounts payable and a $231,000 increase in deferred revenues
for corporate sponsorships. These items
are partially offset by an increase in restricted cash of $2,499,116 resulting primarily
from the increase in horsemen payables of $2.7 million. Pursuant to an agreement with the MHBPA,
during the six months ended June 30, 2008 and 2007, the Company
transferred into a trust account or paid directly to the MHBPA approximately
$3,175,000 and $3,575,000, respectively.
Net cash used in
investing activities for the first six months of 2008 of $1,279,175 resulted
primarily from the purchase of a building management system for approximately
$378,000, upgrades to the grandstand building of approximately $306,000, and
upgrades to the Card Club of approximately $109,000. During the six-month period ended June 30,
2007, net cash used in investing activities for the first six months of 2007 of
$1,155,590 resulted primarily from the acquisition of equipment for food and
beverage operations of $221,000, a poker room management system of $295,000,
upgrades to the grandstand building of $402,000, and improvements to backside
barns of $149,000.
During the period January 1,
2008 through June 30, 2008, cash used in financing activities was $841,953,
resulting from repurchases of company stock of $979,608 offset by proceeds and
tax benefits regarding the exercise of stock options of $137,655. For additional information on the stock
repurchase plan, see Part II, Item 2 (c) on page 20. During the period January 1, 2007
through June 30, 2007, cash provided by financing activities was $253,099
representing the exercise of stock options.
The Company has a general
credit agreement with Bremer Bank, which provides a revolving credit line of up
to $2,250,000 with interest at the prime rate until April 20, 2009. The Company had no borrowings under the line
of credit at June 30, 2008 or December 31, 2007. The credit agreement contains certain
covenants
16
Table
of Contents
requiring the Company to maintain certain financial ratios. The Company was in compliance with these
requirements at all times throughout the quarter ended June 30, 2008.
Unrestricted cash
balances at June 30, 2008 were $6,941,873 compared to $7,050,389 at December 31,
2007. The Company believes that the funds available in its cash accounts,
amounts available under the general credit and security agreement, along with
funds generated from operations, will be sufficient to satisfy its liquidity
and capital resource requirements for the balance of 2008 for regular
operations including the special cash dividend paid in July 2008.
Critical Accounting
Policies and Estimates:
The
preparation of consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates that
effect the amounts reported and disclosed in the consolidated financial
statements. By their nature, these estimates are subject to an inherent degree
of uncertainty. These estimates are based on our experience and various other
assumptions that are believed to be reasonable in the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities. On an ongoing basis, we evaluate our estimates.
However, actual results could differ from those estimates.
Our significant
accounting policies are included in Note 1 to our consolidated financial
statements in our 2007 Annual Report on Form 10-K. We believe the
following critical accounting policies affect our more significant judgments
and estimates used in the preparation of our consolidated financial statements.
Land,
Buildings and Equipment
- We have significant capital
invested in our property and equipment, which represents approximately 63.9% of
our total assets. We utilize our judgment in various ways including:
determining whether an expenditure is considered a maintenance expense or a
capital asset; determining the estimated useful lives of assets; and
determining if or when an asset has been impaired. Our property and equipment
is evaluated for impairment whenever circumstances indicate that the carrying
value of an asset may not be recoverable from the estimated future cash flows
expected to result from its use. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount,
we recognize an impairment loss. The impairment loss recognized is the amount
by which the carrying amount exceeds the fair value and is charged to
operations in the period in which such impairment is determined by management.
We do not believe that any impairment has occurred or is likely to occur in the
near future.
Regulation
-
Our business can be materially impacted both positively and
negatively by legislative and regulatory changes, such as those described
below. Significant negative changes
resulting from these activities could result in an impairment of our property
and equipment in accordance with generally accepted accounting standards.
Additional information regarding how our business can be impacted by
legislative and regulatory changes are included in Item 1 (vi), and Item 1
(vii), respectively, in our 2007 Annual Report on Form 10-K.
Commitments and
Contractual Obligations:
On
June 5, 2008, the Companys Board of Directors declared a special cash
dividend of $.25 per share of common stock payable on July 11, 2008 to
shareholders of record on June 20, 2008.
The aggregate amount paid to shareholders on July 11, 2008 pursuant
to this dividend declaration was $1,007,173.
The Company has not adopted any policies regarding dividend payments and
there can be no assurance that any dividend will be paid in the future.
There
have been no additional material changes in our outstanding commitments and
contractual obligations since those reported at December 31, 2007.
17
Table
of Contents
Legislation:
The Company did not
propose or support any legislation during the 2008 biannual session of the
Minnesota Legislature to obtain authorization for our Racino proposal that has
been discussed in our previous flings with the SEC, mainly because a majority
of those serving in the Minnesota Legislature following the November 2006
elections are considered unlikely to favorably entertain our Racino
proposal. Based on the success of several
Racinos in other states, we continue to believe that if a Racino was authorized
at the Racetrack, it would enhance horseracing with increased purses, provide
growth and development opportunities for the Company, and provide significant
new tax revenues for state and local governments.
On October 1, 2007,
legislation became effective that severely restricted smoking in all public
places in Minnesota, including at the Racetrack. Tribal casinos located in Minnesota are not
covered by this legislation and will continue to offer various gaming
alternatives, including card games, in an environment that allows smoking. Since October 1, 2007, this legislation
has had, and will likely continue to have, a significant adverse effect on the
Companys revenues and profits. The
Company believes that those simulcast customers who smoke and no longer visit
our facilities are now wagering on the Internet. The Company also believes those Card Club
customers who smoke and no longer visit the Card Club are now patronizing
tribal casinos where smoking is permitted.
In April 2008, the
Minnesota Legislature passed a bill allowing pari-mutuel simulcast wagering on
all breeds at Running Aces Harness Park (Running Aces), a harness track that
opened in Anoka County in April 2008.
In anticipation of the passing of this legislation, the Company entered
into a revenue sharing agreement with Running Aces. This agreement will benefit the respective
horsemens associations by requiring the Company and Running Aces to make purse
set aside contributions and Breeders Fund contributions as required by
law. Additionally, under the terms of
the agreement, the Company will pay Running Aces a portion of net revenues for
simulcast wagers taken on harness racing, and Running Aces will pay the Company
a portion of net revenues for simulcast wagers taken on thoroughbred
racing. The Company believes that this
agreement will help offset any revenue decreases that would have occurred as a
result of the passage of this bill.
Forward-Looking Statements:
From
time to time, in reports filed with the Securities and Exchange Commission, in
press releases, and in other communications to shareholders or the investing
public, the Company may make forward-looking statements concerning possible or
anticipated future financial performance, business activities or plans which
are typically preceded by the words believes, expects, anticipates, intends
or similar expressions. For such
forward-looking statements, the Company claims the protection of the safe
harbor for forward-looking statements contained in federal securities
laws. Shareholders and the investing
public should understand that such forward-looking statements are subject to
risks and uncertainties which could cause actual performance, activities or
plans to differ significantly from those indicated in the forward-looking
statements. Such risks and uncertainties
include, but are not limited to: fluctuations in attendance at the Racetrack,
material changes in the level of wagering by patrons, decline in interest in
the unbanked card games offered at the Card Club, legislative and regulatory
changes, the impact of wagering products and technologies introduced by
competitors; increases in the percentage of revenues allocated for purse fund
payments; increase in compensation and employee benefit costs; the general
health of the gaming sector; higher than expected expense related to new
marketing initiatives; and other factors discussed under Item 1A in our Report
on Form 10-K for the year ended December 31, 2007 and in the Companys
other filings with the Securities and Exchange Commission.
18
Table
of Contents
ITEM
3: QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Canterbury
Park is not required to provide the information requested by this Item as it
qualifies as a smaller reporting company.
ITEM
4: CONTROLS AND PROCEDURES
(a)
Evaluation of Disclosure Controls and Procedures:
The Companys Chief
Executive Officer, Randall D. Sampson, and Chief Financial Officer, David C.
Hansen, have reviewed the Companys disclosure controls and procedures pursuant
to Exchange Act Rule 13a-15(b) as of the end of the period covered by
this report. Based upon this review,
these officers have concluded that the Companys disclosure controls and
procedures are effective to ensure that information required to be disclosed in
the reports that the Company files under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the rules and
forms of the SEC and that the disclosure controls are also effective to ensure
that information required to be disclosed in the Companys Exchange Act reports
is accumulated and communicated to management, including the chief executive
officer and chief financial officer, to allow timely decisions regarding
required disclosure.
(b)
Changes in Internal Control Over Financial Reporting:
There
has been no change in our internal control over financial reporting (as defined
in Rules 13a-15(f) under the Securities Exchange Act of 1934) that
occurred during our fiscal quarter ended June 30, 2008 that have
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
19
Table
of Contents
PART II
OTHER INFORMATION
Item 1.
|
|
Legal Proceedings
|
|
|
|
|
|
Not Applicable
|
|
|
|
Item 1A.
|
|
Risk
Factors
|
|
|
|
|
|
There have been no
material changes to the Risk Factors since those reported in the Form 10-K
for the year ended December 31, 2007.
|
|
|
|
Item 2.
|
|
Unregistered
Sales of Equity
Securities and Use of
Proceeds
|
|
|
|
|
|
(a)
|
Not Applicable.
|
|
|
(b)
|
Not Applicable.
|
|
|
(c)
|
On January 16,
2008, the Company announced that its Board of Directors had authorized a
program to repurchase up to an additional 250,000 shares of the Companys
common stock. During the second quarter of 2008, the Company repurchased
112,057 shares of common stock at an average price of $9.06 for an aggregate
purchase price of $1,014,838. A month-by-month breakdown of purchases is
included in the following table:
|
Period
|
|
Total Number of
Shares
Purchased
|
|
Average Price
Paid per Share
|
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plan
|
|
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plan
|
|
April 1 to
April 30, 2008
|
|
25,453
|
|
$
|
9.40
|
|
25,453
|
|
217,565
|
|
May 1 to
May 31, 2008
|
|
66,026
|
|
8.68
|
|
66,026
|
|
151,539
|
|
June 1 to
June 30, 2008
|
|
20,578
|
|
9.84
|
|
20,578
|
|
130,961
|
|
Total
|
|
112,057
|
|
|
|
112,057
|
|
130,961
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 3.
|
|
Defaults Upon Senior Securities
|
|
|
|
|
|
Not Applicable
|
|
|
|
Item 4.
|
|
Submission of Matters to a Vote
of Security Holders
|
|
|
|
|
|
The Company held its
Annual Meeting of Shareholders on June 5, 2008. Shareholders reelected
the following directors for a one year term: Patrick R. Cruzen, Burton F.
Dahlberg, Carin J. Offerman, Curtis A. Sampson, Randall D. Sampson, and Dale
H. Schenian. Not less than 3,544,380 shares were voted in favor of each of
the reelected directors (approximately 92.6% of all shares present and
voting).
|
|
|
|
Item 5.
|
|
Other Information
|
|
|
|
|
|
Not Applicable
|
20
Table
of Contents
Item 6.
|
|
Exhibits
|
|
|
|
|
|
(a)
|
The following exhibits
are included herein:
|
|
|
|
|
|
|
|
11
|
Statement re
computation of per share earnings See Net Income Per Share under Note 1 of
Notes to Consolidated Financial Statements under Part 1, Item 1, which
is incorporated herein by reference.
|
|
|
|
|
|
|
|
|
31.1
|
Certification of Chief
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (rules 13a-14 and 15d-14 of the Exchange Act).
|
|
|
|
|
|
|
|
|
31.2
|
Certification of Chief
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (rules 13a-14 and 15d-14 of the Exchange Act).
|
|
|
|
|
|
|
|
|
32
|
Certfications pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
|
21
Table of Contents
SIGNATURES
Pursuant to the
requirements 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.
|
Canterbury
Park Holding Corporation
|
|
|
Dated: August 14,
2008
|
/s/ Randall
D. Sampson
|
|
Randall D. Sampson,
|
|
President, and Chief
Executive Officer
|
|
|
Dated: August 14,
2008
|
/s/ David
C. Hansen
|
|
David C. Hansen,
|
|
Vice President, and
Chief Financial Officer
|
22
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