CANTERBURY
PARK HOLDING CORPORATION
(Exact Name
of Registrant as Specified in its Charter)
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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
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(Address of principal executive offices
and zip code)
Registrant’s telephone number, including
area code:
(952) 445-7223
Securities registered pursuant to Section
12(b) of the Act:
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Common Stock, $.01 par value
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The NASDAQ Stock Market LLC
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Title of Each Class
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Name of Exchange on which Registered
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Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO ☒
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 ☒ NO ☐
Indicate by check mark whether the Registrant has submitted
electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit
and post such files). YES ☒ NO ☐
Indicate by check mark if disclosure of delinquent filers pursuant
to Rule 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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☐
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Non-accelerated filer
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☐
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Accelerated filer
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☐
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Smaller reporting company
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☒
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Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). YES ☐ NO ☒
The aggregate market value of the shares of voting and non-voting
common equity held by non-affiliates based on the price at which the Company’s common stock was last sold on the NASDAQ Global
Market, on June 30, 2015, the end of the registrant’s most recently completed second fiscal quarter was $25,179,536.
On March 15, 2016, the Company had 4,258,347 shares of common
stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s definitive Proxy Statement for
its 2015 Annual Meeting of Shareholders, to be held on June 9, 2016 and which will be filed on or before April 28, 2016, are incorporated
by reference into Part III of this Form 10-K.
CANTERBURY PARK HOLDING CORPORATION
FORM 10-K ANNUAL REPORT
FOR THE YEAR
ENDED
December 31, 2015
TABLE OF CONTENTS
Table of Contents
(a) General Development of the Business
Canterbury Park Holding Corporation (the
“Company,” “we,” “our,” or “us”) hosts pari-mutuel wagering on horse races and
“unbanked” card games at its Canterbury Park Racetrack and Card Casino facility (the “Racetrack”) in Shakopee,
Minnesota. The Company’s pari-mutuel wagering operations include both wagering on thoroughbred and quarter horse races during
live meets at the Racetrack and year-round wagering on races held at out-of-state racetracks that are televised simultaneously
at the Racetrack (“simulcasting”). Unbanked card games, in which patrons compete against each other, are hosted in
the Card Casino at the Racetrack. The Company also derives revenues from related services and activities, such as food and beverage,
parking, advertising signage, publication sales, and catering and events held at the Racetrack. The ownership and operation of
the Racetrack and the Card Casino are significantly regulated by the Minnesota Racing Commission (“MRC”).
The Company was incorporated under the laws
of Minnesota on March 24, 1994, acquired the Racetrack on March 29, 1994, commenced seven day a week simulcast operations on May
6, 1994, and, beginning in May 1995, launched live horse racing and related pari-mutuel wagering on a seasonal basis, generally
from early May to early September. The Card Casino opened on April 19, 2000 and, with authority to host card games at up to 80
tables, the Company currently hosts live play on approximately 65 tables on a daily basis.
In June 2012, the Company entered into a
Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community (“SMSC”) pursuant
to which SMSC has agreed, through 2022, to supplement purses for live races at the Racetrack, as well as provide funds to the Company
for joint marketing efforts with SMSC. See “Cooperative Marketing Agreement” at (c)(viii) below for additional information.
The Company’s website is www.canterburypark.com.
Our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our periodic reports on Form 8-K (and any amendments to
these reports) are available free of charge on our website.
(b) Financial Information About Segments
The Company divides its business into three
segments: horse racing, Card Casino, and food and beverage. The horse racing segment represents our pari-mutuel wagering operations
on simulcast and live horse races; the Card Casino segment represents our unbanked card operations; and the food and beverage segment
includes both concessions and catering and events services provided at the Racetrack.
(c) Narrative Description of Business
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(i)
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Horse Racing Operations
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The Company’s horse racing operations
consist of year-round simulcasting of horse races from around the U.S. and wagering on live thoroughbred and quarter horse races
(“live meets”) held on a seasonal basis beginning in May and generally concluding in September each year.
Live Racing
For the years ended December 31, 2015 and
2014 the Racetrack hosted 70 days and 68 days, respectively, of live racing beginning in mid-May and concluding in September. Currently,
Minnesota law requires the Company to schedule a minimum of 125 days of live racing annually, unless the Minnesota Horsemen’s
Benevolent and Protective Association (the “MHBPA”) agrees to a lesser number of live racing days. Since 1995, the
MHBPA has agreed to waive the 125-day requirement and has allowed the Company to run a live meet of at least 50 days each year.
Pursuant to the CMA, the MHBPA entered into a Horse Association Agreement in which it agreed to waive the 125-day requirement provided
that at least 65 days of live racing are scheduled during the term of the agreement. If, for any reason, the MHBPA ceases to be
bound by its obligations under the Horse Association Agreement, and the Company and the MHBPA are unable to agree on a live meet
shorter than 125 days, the Company’s operations could be adversely impacted by a decrease in the daily purses, potential
reduction in the quality of horses, lower attendance, lower overall total amount wagered (“handle”), and substantially
greater operating expenses.
Table of Contents
Simulcasting
Simulcasting is the process by which live
horse races held at one facility (the “host track”) are transmitted simultaneously to other locations to allow patrons
at each receiving location (the “guest track”) to place wagers on races transmitted from the host track. Monies are
collected at the guest track and the information with respect to the total amount wagered is electronically transmitted to the
host track. All of the amounts wagered at guest tracks are combined into the appropriate pools at the host track with the final
odds and payouts based upon all the monies in the respective pools.
The Company offers simulcast racing from
up to 20 racetracks per day, seven days a week, 363 days per year, including Churchill Downs, Santa Anita, Gulfstream Park, Belmont
Park, and Saratoga Racecourse. In addition, races of national interest, such as the Kentucky Derby, the Preakness Stakes,
the Belmont Stakes, and the Breeders’ Cup supplement the regular simulcast program. The Company regularly evaluates
its agreements with other racetracks in order to offer the most popular simulcast signals of live horse racing that are reasonably
available.
Under applicable provisions of federal and
state law, in order to conduct simulcast operations either as a host or guest track, the Company must obtain the consent of the
state’s regulatory authority and the organization which represents a majority of the owners and trainers of the horses who
race at the Racetrack. In Minnesota, such consent must be obtained, respectively, from the MRC and the MHBPA. As these
consents are obtained annually, no assurance can be given that the MRC and the MHBPA will allow the Company to conduct simulcast
operations either as a host or guest track after 2016. If the MRC or the MHBPA do not consent, the Company’s operations
could be adversely impacted by a decrease in pari-mutuel revenue, potential reduction in the quality of horses, lower attendance,
lower overall handle, and substantially greater operating expenses.
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(ii)
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Card Casino Operations
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The Card Casino is open 24 hours per day,
seven days per week, and offers two forms of unbanked card games: poker and table games.
Poker games, including Texas Hold ‘Em,
Stud, and Omaha, with betting limits per hand ranging between $2 and $100, are currently offered in the poker room. A dealer, employed
by the Company, regulates the play of the game at each table and deals the cards but does not participate in play. In poker games,
the Company is allowed to deduct a percentage from the accumulated wagers and impose other charges for hosting the activity but
does not have an interest in the outcome of a game. The Company may add additional prizes, awards or money to any game for promotional
purposes.
The Card Casino currently offers the following
table games: Blackjack, Mississippi Stud, Fortune Pai Gow, Three Card Poker, Crazy 4 Poker, Ultimate Texas Hold ‘Em, EZ Baccarat,
and Free Bet Blackjack. The Company has the option to offer banked games under laws governing Card Casino operations but currently
only offers “unbanked” games. “Unbanked” refers to a wagering system or game where wagers lost in card
games are accumulated into a player pool liability for purposes of enhancing the total amount paid back to winning players. The
Company can only serve as custodian of the player pool, may not have an active interest in any card game and does not recognize
amounts that dealers “win” or “lose” during the course of play as revenue.
Under Minnesota law, the Company is required
to pay 10% of the first $6 million of gross Card Casino revenues towards purses for live horse racing at the Racetrack. After meeting
the $6 million threshold, the Company must pay 14% of gross Card Casino revenues as purse monies. Of funds allocated for purses,
the Company pays 10% of the purse monies to the Minnesota Breeders’ Fund (the “MBF”), which is a fund apportioned
by the MRC among various purposes related to Minnesota’s horse breeding and horse racing industries. The remaining 90% of
purse monies are divided between thoroughbred (90%) and quarter horse (10%) purse funds.
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(iii)
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Food and Beverage Operations
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The Company’s food and beverage operations
consist of concession stands, restaurant and buffet, bars and other food venues. The Company offers two year-around café
style restaurants and full service bars within the Card Casino and Simulcast area. The Card Casino offers tableside menu service
24 hours a day. Our newly remodeled Triple Crown Club offers lounge services along with a buffet restaurant. During live racing
a wide variety of concession style food and beverage options are available to our guests
The
food and beverage operations also include our catering and events services. The Company is the fourth largest event space in the
Twin Cities with more than 100,000 square feet of available space. The Company’s facilities provide a variety of purposes
for year-round events and other activities. The Company’s event space has been used for craft shows, trade shows, pool and
poker tournaments, automobile and other utility vehicle shows, major art shows, and fundraisers. The Company’s outdoor spaces
have been used for concerts, snowmobile races and other competitions. In addition to event space the Company rents space in its
horse stable area for boat storage during the winter months.
Table of Contents
General
The Company’s revenues are principally
derived from three activities: Card Casino operations, wagering on live and simulcast horse races, and food and beverage sales.
For the year ended December 31, 2015, revenues from Card Casino operations represented 55.4% of total revenues, wagering on horse
races generated 19.2% of total revenues, and food and beverage revenue represented 15.2% of total revenues.
Card Casino Operations
The Company currently receives revenue from
poker and table games wagering in its Card Casino, which operates 24 hours per day, seven days per week. The Company currently
receives collection revenue from poker and table games tables. The primary source of Card Casino revenue is a percentage of the
wagers received from the players, aggregated up to 18% per day as defined by MRC regulations, as compensation for providing the
Card Casino facility and services, referred to as “collection revenue.” In addition, several table games offer a progressive
jackpot. The player has the option of playing the jackpot and has the opportunity to win some or the entire jackpot amount, depending
upon their hand. The Company collects a “rake” of 5%-10%, depending on the limit of the game, of each addition to the
“pot” up to a maximum of $5 per hand as its collection revenue. In addition, poker games offer progressive jackpots
for most games. In order to fund the jackpot pool, the dealer withholds $1 from each final pot in excess of the $15 minimum.
Pari-Mutuel Wagering – General
In pari-mutuel wagering, bettors wager against
each other in a pool, rather than against the operator of the facility or with preset odds. From the total handle wagered, the
Minnesota Pari-Mutuel Horse Racing Act (the “Racing Act”) specifies the maximum percentage, referred to as the “takeout,”
which may be withheld by the Racetrack, with the balance returned to the winning bettors. The takeout constitutes one of the Racetrack’s
primary sources of operating revenue. From the takeout, funds are set aside for purses and paid to the State of Minnesota for pari-mutuel
taxes and to the MBF. The balance of the takeout remaining after these deductions is commonly referred to as the “retainage.”
The various forms of pari-mutuel wagering
can be divided into two categories: straight wagering pools and multiple wagering pools, which are also referred to as “exotic”
wagering pools. Examples of straight wagers include: “win,” “place,” and “show.” Examples of
exotic wagers include: “daily double,” “exacta,” “trifecta,” and “pick four.”
The amount of takeout earned by the Company
depends on where the race is run and the form of wager (straight or exotic). Net revenues from pari-mutuel wagering on live races
run at the Racetrack consist of the total amount wagered, less the amounts paid (i) to winning patrons, (ii) for purses, (iii)
to the MBF and (iv) for pari-mutuel taxes to the State of Minnesota. Net revenues from pari-mutuel wagering on races being run
at out-of-state racetracks and simulcast to the Racetrack have similar expenses but also include a host fee payment to the host
track. The host fee, which is calculated as a percentage of monies wagered (generally 3.0% to 4.5%), is negotiated with the host
track and must comply with state laws governing the host track. Pari-mutuel revenues also include commission and breakage revenues
on live on-track and simulcast racing, fees received from out-of-state racetracks for wagering on our live races and proceeds from
unredeemed pari-mutuel tickets.
Table of Contents
Wagering on Live Races
The Racing Act establishes the maximum takeout that
may be deducted from the handle. The takeout percentage on live races depends on the type of wager. The total maximum takeouts
are 17% from straight wagering pools and 23% from exotic wagering pools. From this takeout, Minnesota law requires deductions for
purses, pari-mutuel taxes, and payments to the MBF.
While the Racing Act provides that a minimum of
8.4% of the live racing handle is to be paid as purses to the owners of the horses, the size of the purse is subject to further
agreement with the MHBPA and the Minnesota Quarter Horse Association (the “horsepersons’ associations”). In addition,
the MBF receives 1% of the handle. The pari-mutuel tax applicable to wagering on all simulcast and live races is 6% of takeout
in excess of $12 million during the twelve-month period beginning July 1 and ending the following June 30.
The following table indicates the percentage distribution
of each dollar wagered on live races at the Racetrack, as established by the Racing Act, and the Racetrack’s retainage for
the years ended December 31, 2015 and 2014:
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Live
Racing
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Straight
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Exotic
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Returned to Winning Patrons
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83.00
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%
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77.00
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%
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Purse (1)
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8.40
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8.40
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Minnesota Breeders’ Fund
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1.00
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1.00
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Minnesota Pari-Mutuel Taxes (2)
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—
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—
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Racetrack Retainage (1)
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7.60
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13.60
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Total Takeout
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17.00
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23.00
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Total Handle
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100.00
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100.00
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(1)
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Minnesota law provides that the 8.40% purse payment is a minimum. The actual percentage, if any, above the minimum is determined
by agreement between the Racetrack and the MHBPA. Any additional amounts paid for purses decrease the Racetrack’s retainage.
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(2)
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The current pari-mutuel tax structure exempts the first $12 million of takeout during a statutorily mandated twelve-month period.
The total pari-mutuel tax liability for a twelve-month period will depend upon the total takeout during that period. There was
no pari-mutuel tax liability in 2015 or 2014 and therefore, it is not factored into the above table.
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Wagering on Simulcast Races
The amount of takeout from simulcast wagering is
determined by the laws of the state in which the host track is located. In addition, the Racing Act establishes a minimum that
must be set aside from simulcasting for purse payments on racing within Minnesota. Different amounts are deducted for purses from
the takeout depending on whether simulcasting occurs during the “Racing Season,” a statutorily defined 25-week period
beginning in early May each year, or outside of the Racing Season. If simulcasting occurs during the Racing Season, the amount
set aside for purses further depends on whether the simulcasting is part of a full racing card that occurs during the part of the
day that live races are conducted at the Racetrack. For races that are part of a full simulcast racing card that takes place within
the time of live races at the Racetrack, the amount reserved for purse payout is 8.4%. For simulcasting conducted during the Racing
Season that does not occur within the time period of live races, the purse is equal to 50% of the takeout remaining after deductions
for pari-mutuel taxes, payments to the MBF, and payments to the host racetrack for host track fees. For simulcasting conducted
outside of the Racing Season, the amount that must be contributed to the purses is 25% of the takeout after deducting pari-mutuel
taxes, payments to the MBF, and host fee payments to the host racetrack.
Table of Contents
The following table sets forth the approximate
percentage distribution of each dollar wagered on races simulcast at the Racetrack and the Racetrack’s retainage for the
years ended December 31, 2015 and 2014:
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During
Racing Season
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Concurrent
with
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Not Concurrent
with
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Outside of
Racing
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Live
Card
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Live
Card
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Season
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Returned to Winning Patrons (1)
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80.50
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%
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80.50
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%
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80.50
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%
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Minnesota Breeders’ Fund
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1.00
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1.00
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1.10
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Minnesota Pari-Mutuel Taxes (2)
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—
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—
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—
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Purse (3)
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8.40
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7.35
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4.15
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Host Track Fees (4)
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3.80
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3.80
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3.80
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Racetrack Retainage (3)
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6.30
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7.35
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10.45
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Total Takeout
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19.50
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19.50
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19.50
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Total Handle
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100.00
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%
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100.00
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%
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100.00
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%
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(1)
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This amount will depend upon the takeout at the host racetrack. This percentage is determined by local and state law applicable
to the host track and ranges from 75.0% to 85.0%.
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(2)
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The current pari-mutuel tax structure exempts the first $12 million of takeout during a statutorily mandated twelve-month period.
The total pari-mutuel tax liability for a twelve-month period will depend upon the total takeout during that period. There was
no pari-mutuel tax liability in 2015 and 2014 and therefore, it is not factored into the above table.
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(3)
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Although Minnesota law specifies purse percentages, the actual percentage is determined by an agreement between the Racetrack
and the MHBPA.
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(4)
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Payments to the host track generally range from 3.0% to 7.25% of total handle, subject to negotiation with each host track.
For purposes of this table, the host track fee is assumed to be 3.8%.
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Minnesota law was amended in 2015 to establish a
single blended rate for “Purse” and “Racetrack Retainage” for both during and outside of the racing season;
this amendment is effective January 1, 2016. The Company believes this change will not have an adverse impact on our business.
However, for comparison purposes, in future periods the rate change could have an effect on our quarter-to-quarter results of operations.
Food and Beverage Revenue
The Company earns revenue from sales in its restaurant,
catering areas and numerous concession stands located throughout the facility. Food and beverage sales are also offered in the
card room, during live and simulcast racing, and during events.
Other Revenue
The Company generates cash revenues from the receipt
of reserved seating charges, preferred and valet parking and the sales of various daily pari-mutuel publications. Additional revenues
are derived from special events and other space rentals. The Company also generates revenue from providing advertising signage
space.
The Company faces direct competition from North
Metro Harness Initiative, LLC (“NMHI”) that operates Running Aces Harness Park in Columbus Township, Anoka County,
Minnesota, a racetrack and card room that is located approximately 50 miles from Canterbury Park. NHMI offers pari-mutuel wagering
on live races of standardbred (“harness”) horses on a seasonal basis and year around wagering on simulcasting of all
breeds of horse races. In addition to pari-mutuel wagering, NHMI operates a card room which directly competes with the Company’s
Card Casino. Due to its proximity and similar wagering and gaming offerings, NHMI’s direct and substantial competition could
adversely impact the Company’s business, financial condition and results of operations.
Table of Contents
The Company operates in a highly competitive wagering
and gaming industry with a large number of participants. The Company competes with competitive wagering operations and activities
that include tribal casinos, state-sponsored lotteries and other forms of legalized gaming in the U.S. and other jurisdictions.
The Company competes with a number of tribal casinos in the State of Minnesota that offer video slot machines, table games and
unbanked card games, including Minnesota’s largest casino, Mystic Lake, which is located approximately four miles from the
Racetrack.
Additionally, Internet-based interactive gaming
and wagering is growing rapidly and adversely affects all forms of wagering offered by the Company. The Company anticipates competition
from existing and new Internet-based gaming ventures will become more intense and as State and federal regulation of Internet-based
activities is clarified.
The Company faces indirect competition from a variety
of sources for discretionary consumer spending including spectator sports and other entertainment and gaming options. In the Minneapolis-Saint
Paul metropolitan area, competition includes a wide range of live and televised professional and collegiate sporting events. In
addition, live horse racing competes with a wide variety of summer attractions, including amusement parks, sporting events, and
other local activities.
Finally, the Company competes with racetracks located
throughout the United States in securing horses to run at the Racetrack. Attracting owners and trainers that can bring high quality
horses to our Racetrack is largely dependent on the ability to offer competitive purses. The Company experiences significant competition
for horses from racetracks located near Des Moines, Iowa and Chicago, Illinois. This competition is expected to continue for the
foreseeable future.
General
The ownership and operation of the Racetrack in
Minnesota is subject to significant regulation by the MRC under the Racing Act and the rules adopted by the MRC. The Racing Act
governs the allocation of each wagering pool to winning bettors, the Racetrack, purses, pari-mutuel taxes, and the MBF, and empowers
the MRC to license and regulate substantially all aspects of horse racing in the State. The MRC, among other things, grants operating
licenses to racetracks after an application process and public hearings, licenses all racetrack employees, jockeys, trainers, veterinarians,
and other participants, regulates the transfer of ownership interests in licenses, allocates live race days and simulcast-only
race days, approves race programs, regulates the conduct of races, sets specifications for the racing ovals, animal facilities,
employee quarters and public areas of racetracks, regulates the types of wagers on horse races, and approves significant contractual
arrangements with racetracks, including management agreements, simulcast arrangements, and totalizator contracts.
A federal statute, the Interstate Horse Racing Act
of 1978, also requires that a racetrack must obtain the consent of the group representing the horsepersons (owners and trainers)
racing the breed of horses that race a majority of the time at the racetrack (the MHBPA), and the consent of the state agency regulating
the racetrack (MRC), in order to transmit simulcast signals of its live races or to receive and use simulcast signals from other
racetracks.
Issuance of Class A and Class B Licenses to the
Company
The Company holds a Class A License, issued by the
MRC, which allows the Company to own and operate the Racetrack. The Class A License is effective until revoked, suspended by the
MRC or relinquished by the licensee. Currently, the fee for a Class A License is $253,000 per fiscal year.
The Company also holds a Class B License, issued
by the MRC, that allows the Company to sponsor and manage horse racing on which pari-mutuel wagering is conducted at its Class
A licensed racetrack and on other horse races run at out-of-state locations as authorized by the MRC. The Class B License is renewable
each year by the MRC after a public hearing (if required by the MRC). Currently, the fee for the Class B License is $500 for each
assigned race day on which live racing is actually conducted and $100 for each day on which simulcasting is authorized and actually
takes place.
Limitation on the Number of Class A and Class
B Licenses
Pursuant to the Racing Act, so long as the Racetrack
maintains its Class A License, no other Class A License may be issued to operate a racetrack in the seven-county metropolitan area
(the counties of Hennepin, Ramsey, Washington, Scott, Dakota, Anoka, and Carver), except that the Racing Act provides that the
MRC may issue an additional Class A License within the seven-county metropolitan area, if the additional license is issued for
a facility which, among other conditions, is located more than 20 miles from the Racetrack, contains a track no larger than five-eighths
of a mile in circumference, and is used exclusively for standardbred (harness) racing. In January 2005 this additional Class A
license was issued to NMHI (see “Competition” above). Nevertheless, as long as the Company holds its Class A License,
only the Company may own and operate a racetrack in the seven county metropolitan area where thoroughbred and quarter horses are
raced.
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Limitation on Ownership and Management of an Entity which holds a Class A and/or Class B License
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The Racing Act requires prior MRC approval of all
officers, directors, 5% shareholders or other persons having a present or future direct or indirect financial or management interest
in any person applying for a Class A or Class B license, and if a change of ownership of more than 5% of the licensee’s shares
is made after an application is filed or the license issued, the applicant or licensee must notify the MRC of the changes within
five days of this occurrence and provide the information required by the Racing Act.
Card Casino Regulation
The MRC is also authorized by the Racing Act to
regulate Card Casino operations, and the law requires that the Company reimburse the MRC for its actual costs, including personnel
costs, of regulating the Card Casino. For fiscal years ended December 31, 2015 and 2014, the Company paid $157,000 and $168,000,
respectively, to the MRC as reimbursement for costs of regulating Card Casino operations.
The MRC issued an additional Class B License to
the Company on January 19, 2000 that authorizes the Company to host unbanked card games. The Class B License is renewable each
year by the MRC after a public hearing (if required by the MRC). Currently, the Class B License fee of $10,000 per calendar year
is included in the Class A License fee of $253,000 per calendar year.
Local Regulation
The Company’s operations are subject to state
and local laws, regulations, ordinances, and other provisions affecting zoning, public health, and other matters which may have
the effect of restricting the uses to which the Company’s land and other assets may be used. Also, any development of the
Racetrack site is, among other things, subject to applicable zoning ordinances and requires approval by the City of Shakopee and
other authorities, and there can be no assurance such approvals would be obtained if any development was undertaken.
Minimum Wage Legislation
Legislation that became effective in Minnesota on
April 15, 2014 increased the minimum wage that must be paid to most company employees from $7.25 to $8.00 on August 1, 2014, and
from $8.00 to $9.00 per hour on August 1, 2015. A further increase to $9.50 per hour is scheduled for August 1, 2016. In addition,
starting January 1, 2018, the minimum wage will increase at the beginning of each year by the rate of inflation with a maximum
increase of up to 2.5% per year. Prior to August 1, 2014, the Company employed a large number of individuals who received an hourly
wage equal to or slightly above $7.25 per hour. As a result, this legislation had an adverse effect in 2014 and 2015 and will continue
to have an adverse effect in 2016 and beyond. We have implemented measures and will continue to implement measures to mitigate
the impact of this increase by raising our prices or reducing our employee count. However, these measures could themselves have
an adverse effect because higher prices and diminished service levels may discourage customers from visiting the Racetrack. To
the extent we are not able to implement such price increases and other cost cutting measures, the increase in the minimum wage
will adversely affect our net income.
Potential Horseracing Legislation
In July 2015, the Thoroughbred
Horseracing Integrity Act of 2015 was introduced in Congress. Under the terms of this proposed legislation, the United States Anti-Doping
Agency (“USADA”) is designated as the organization responsible for regulating drugs, medications and treatments used
in racing and would prohibit interstate wagering without consent from USADA. If enacted into law, the legislation could have an
adverse impact on our business.
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(viii)
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Cooperative Marketing Agreement
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On June 4, 2012, the Company entered into the CMA
with the SMSC. The primary purpose of the CMA is to increase purses paid during live horse racing at Canterbury Park’s Racetrack
in order to strengthen Minnesota’s thoroughbred and quarter horse through horse industry. Under the CMA, as amended, this
is achieved through “Purse Enhancement Payments to Horsemen” paid directly to the MHBPA. Such payments have no direct
impact on the Company’s consolidated financial statements or operations.
Table of Contents
Under the terms of the CMA, as amended, the SMSC
paid the horsemen $6.2 million and $5.8 million for purse enhancements for the years ended December 31, 2015 and 2014, respectively.
Under the CMA, as amended, SMSC also agreed to make
“Marketing Payments” to the Company relating to joint marketing efforts for the mutual benefit of the Company and SMSC,
including signage, joint promotions, player benefits and events. Under the CMA, the SMSC paid the Company $944,000 and $660,000
for marketing purposes for the years ended December 31, 2015 and 2014, respectively.
Effective January 2015, the CMA was amended to adjust
the payment amounts between the “Purse Enhancement Payments to Horsemen” and “Marketing Payments to Canterbury
Park.” Effective January 2016, the CMA was amended under the “Second Amendment” agreement to adjust the payment
amounts between the “Purse Enhancement Payments to Horsemen” and “Marketing Payments to Canterbury Park.”
SMSC has currently agreed to make the following purse enhancement and marketing payments for 2016 through 2022:
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Year
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Purse Enhancement Payments to
1
Horsemen
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Marketing Payments to Canterbury
Park
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2016
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$
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6,788,100
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$
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1,197,900
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2017
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7,466,910
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1,317,690
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2018
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|
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7,650,000
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|
|
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1,350,000
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2019
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|
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7,650,000
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|
|
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1,350,000
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2020
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|
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7,650,000
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|
|
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1,350,000
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2021
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|
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7,650,000
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|
|
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1,350,000
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2022
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|
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7,650,000
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1,350,000
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|
1
- Includes $100,000 each year payable to various horsemen associations
The amounts earned from
the marketing payments are recorded as a component of other revenue and the related expenses are recorded as a component of advertising
and marketing expense and depreciation in the Company’s consolidated statements of operations. For the year ended December
31, 2015, the Company recorded $926,000 in other revenue and incurred $700,000 in advertising and marketing expense and $226,000
in depreciation related to the SMSC marketing payment. For the year ended December 31, 2014, the Company recorded $825,000 in other
revenue and incurred $608,000 in advertising and marketing expense and $217,000 in depreciation related to the SMSC marketing payment.
The excess of amounts received over revenue is reflected as deferred revenue which is included in accounts payable on the consolidated
balance sheets.
Under the CMA, the Company agreed
for the term of the CMA that it would not promote or lobby the Minnesota legislature for expanded gambling authority and will support
the SMSC’s lobbying efforts against expanding gambling authority.
As part of the CMA, and pursuant to a related SAR
Agreement dated June 14, 2012, the Company issued stock appreciation rights to the SMSC. For the year ended December 31, 2015,
the Company recognized $142,000 of expense related to these stock appreciation rights, of which $142,000 was recorded as an offset
to other revenue. For the year ended December 31, 2014, the Company recognized $32,000 of expense related to these stock appreciation
rights, of which $32,000 was recorded as an offset to other revenue.
On July 30, 2015, the Company sold the land and
buildings related to the Shakopee Valley RV Park located in Shakopee, Minnesota to SMSC for $100,000 plus the cancellation of the
vested and unvested SARs. The sale resulted in a $347,000 gain on the
Consolidated Statements of Operations –Gain on disposal
of assets
.
The Company’s primary market is the seven-county
Minneapolis-Saint Paul metropolitan area plus the two counties to the south of the Racetrack and Card Casino. The City of Shakopee,
located in the southwestern portion of the metropolitan area, is one of the fastest growing communities in the region, and Scott
County is one of the fastest growing counties in the country.
Table of Contents
To support its pari-mutuel horse racing, Card Casino,
and catering and events businesses, the Company conducts year-round marketing efforts to maintain the loyalty of existing customers
and attract new players to the property. The Company utilizes radio, television, digital advertising, social media, print advertising
and direct marketing to communicate to its audiences. In addition to its regular advertising and communication program, the Company
conducts numerous special promotions, handicapping contests and poker tournaments to attract incremental visits. The Company also
utilizes a robust player rewards and database marketing program to enhance the loyalty of its guests.
The Company continues to focus on creating a premier
guest experience as the core element of its marketing efforts. This includes on delivering great customer service, developing new
food and beverage offerings, creating fan education programs, and providing entertainment opportunities that go beyond the traditional
pari-mutuel wagering and card playing activities.
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(x)
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Real Estate Activities
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The Company owns approximately 400 acres
of land in Shakopee, Minnesota where the Racetrack is located, and approximately 300 acres of this land is specifically
designated as being subject to MRC regulation as part of the Company’s Class A license. The amount of land currently
used to conduct Racetrack operations (public areas, stable area for boarding horses, parking areas, and land for other
facilities and amenities) is approximately 230 acres. As a result, approximately 170 acres are considered underutilized
(the “Underutilized Land”), and this land is available for real estate development compatible with the
Company’s Racetrack Operations.
For the past several years, the Company has explored
various ways in which to develop the Underutilized Land. The status of the Company’s investigation of alternative ways to
develop the Underutilized Land has been reported from time to time in reports to Securities and Exchange Commission and in press
releases. On October 5, 2015 the Company announced that it was discontinuing efforts to develop a destination lifestyle retail
complex immediately east of the Racetrack, that would have required moving the horse stable area at considerable cost, in order
to pursue several opportunities, including a multi-family residential community with a variety of apartment types and attractive
amenities, restaurants, a hotel, a grocery anchor and other retail stores.
Consistent with pursuing its current development
plan, the Company has recently engaged in the following real estate transactions. On October 6, 2015 the Company completed the
sale of an approximately six-acre parcel located at Vierling Drive East and Eagle Creek Blvd for $1,459,000 to Minnesota Municipal
Power Agency (MMPA). MMPA is in the process of seeking the necessary state and local approvals to develop a natural gas fired electric
power generation and production facility. On December 14, 2015, the Company entered into a lease agreement to acquire approximately
32 acres of land adjacent to the Racetrack with a total purchase price of $4,881,000. This land is part of the Company’s
goal to develop the Underutilized Land.
To facilitate
its real estate development efforts, the Company’s Board of Directors has approved a Plan of Reorganization to reorganize
and reincorporate the Company into a holding company structure (the “Reorganization”). The Reorganization is intended
to create a legal framework that will enable the Company to separate its regulated pari-mutuel wagering, card casino, concessions
and other related businesses (“Racetrack Operations”) from the Underutilized Land. If approved by the shareholders,
upon consummation of the transactions contemplated by the Reorganization, the Company’s business will be restructured as
follows:
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·
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A recently formed corporation, “New Canterbury” will be the public company owned by the Company’s shareholders,
and without the need to take any action, each shareholder will have the same percentage ownership in New Canterbury (and, indirectly,
in all property and other assets currently owned by the Company) immediately after the Reorganization as that shareholder had immediately
before the Reorganization.
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·
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New Canterbury will be a holding company for, and parent company of, two recently formed subsidiaries, Canterbury Park Entertainment
LLC and Canterbury Development LLC.
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·
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Canterbury Park Entertainment LLC will be the surviving business entity in a merger with the Company and will directly own
all land, facilities, and substantially all other assets related to the Company’s Racetrack Operations, will conduct these
businesses consistent with current practices, and will be subject to direct regulation by the MRC.
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·
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Canterbury Development LLC will not be subject to direct regulation by the MRC and it will be the legal entity through which
the Company will commercially develop its Underutilized Land.
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Table of Contents
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·
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Upon effectiveness of the Reorganization, New Canterbury’s name will be changed to Canterbury Park Holding Corporation.
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The Company
initially intended to submit the proposed Reorganization to its shareholders at a Special Meeting in late 2015, but for various
business reasons decided to postpone shareholder consideration of the Reorganization. The Company now intends to seek shareholder
approval for the Reorganization at its Annual Meeting of Shareholders which is expected to be held on June 9, 2016.
At March 15, 2016, the Company had 273 full-time
employees and 540 part-time employees. On a seasonal basis, the Company adds approximately 400 employees for live racing operations
from early May until early September. The Company’s management believes its employee relations are good.
The executive officers of the Company, their ages
and their positions with the Company are as follows:
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Name
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Age
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Position
with Company
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|
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|
|
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Randall D. Sampson
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57
|
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President, CEO and General Manager
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|
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David C. Hansen
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59
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Vice President of Finance, CFO and Secretary
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Eric A. Halstrom
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47
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Vice President of Racing Operations
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Michael J. Garin
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60
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Vice President of Non-Gaming Operations and Asst. Secretary
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Michael Hochman
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50
|
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Vice President of Card Casino Operations
|
Randall D. Sampson has been President and Chief
Executive Officer since the formation of the Company in March 1994 and General Manager since September 1995. He has been active
in horse industry associations, currently serving as Vice President and Director of the Thoroughbred Racetracks of America and
is a past President of the Minnesota Thoroughbred Association. Mr. Sampson also currently serves as a director of Communications
Systems, Inc. (NASDAQ:JCS), a manufacturer of telecommunications and data communications products based in Minnetonka, Minnesota.
Mr. Sampson is the son of Curtis A. Sampson, who is the Company’s non-executive Chairman of the Board and the beneficial
owner of approximately 21% of the Company’s common stock.
David C. Hansen joined the Company in July 2001
as Vice President of Finance and Chief Financial Officer. From 2000 to 2001, Mr. Hansen served as Director of Accounting for Prairie
Meadows Racetrack and Casino in Altoona, IA, one of the nation’s first Racino operations. He served as Controller and later
Director of Finance at Treasure Island Resort & Casino, in Red Wing, MN, from 1993 until 2000. Mr. Hansen is a member of the
Minnesota Society of Certified Public Accountants, the Hospitality Financial and Technology Professionals Association, and Financial
Executives International.
Eric A. Halstrom joined the Company in October 2013
as Vice President of Racing Operations. From 2008 to 2013 Mr. Halstrom served as Vice President and General Manager of Racing for
Fair Grounds Race Course and Slots, owned by Churchill Downs Incorporated. Prior to his employment with Fair Grounds, Mr. Halstrom
served in various capacities at Canterbury Park, including Vice President of Racing from 2005 to 2008. He is a graduate of the
University of Arizona’s racetrack industry program.
Michael J. Garin was named Vice President of Non-Gaming
Operations in October 2009. Prior thereto, Mr. Garin served as the Vice President of Hospitality since May 1997. He also previously
served as President of Canterbury Park Food and beverage, Inc. from September 1995 to May 1997. From 1993 to 1994, Mr. Garin served
as Food & Beverage Supervisor for Little Six, Inc., one of the largest tribal casino operations in the country. Mr. Garin was
President of MMR Vending, Inc., a regional vending company, from 1988 to 1992. Prior to 1988, he was a Regional Director at General
Mills Restaurant Group overseeing seven restaurants in three states. Since 2007, Mr. Garin has served on the Board of Directors
for the Minnesota Restaurant Association.
Table of Contents
Michael Hochman joined the Company in March 2000
as a Pit Manager. Later he was promoted to Director of Table Games, Senior Director of Card Casino and in 2014 he was promoted
to Vice President of Card Casino operations. From 1996-2000 Mr. Hochman was the poker room manager at the Clearwater Casino in
Suquamish Washington. Prior to 1996 he worked in Las Vegas as a dealer and floor person for the Sahara and Luxor properties. Currently,
he serves on the Board of Directors for the Northstar Problem Gambling Alliance.
In addition to risks and uncertainties in the ordinary
course of business that are common to all businesses, important factors that are specific to our industry and to the Company could
materially impact our future performance and results. Such risk factors include, but are not limited to, the matters discussed
below as well as the additional risks discussed under “Forward-Looking Statements” on page 30 of this Form 10-K.
We face significant competition, both directly from other gaming
operations and indirectly from other forms of entertainment and leisure time activities, which could have a material adverse effect
on our operations.
We face intense competition in our market, particularly
competition from NMHI which offers unbanked card games similar to those offered by the Company. We also compete with Native American
owned casinos. Such facilities have the advantage of being exempt from certain state and federal taxes and state regulation of
indoor smoking, as well as the ability to offer a wider variety of gaming products. Internet-based interactive gaming and wagering,
both legal and illegal, is growing rapidly and we anticipate competition in this area will become more intense as new Internet-based
ventures enter our industry and as state and federal regulations on Internet-based activities are clarified. Additionally, we compete
with other forms of gambling, spectator sports, other forms of entertainment, and other racetracks throughout the country as previously
discussed under “
Competition”
above.
We expect competition for our existing and future
operations to increase from NMHI, existing tribal casinos, and racetracks that are able to subsidize their purses with alternative
gaming revenues. In addition, several of our tribal gaming competitors have substantially larger marketing and financial resources
than we do. We are unable to predict with any certainty the effects of existing and future competition on our operating results.
Our business is highly sensitive to general economic trends.
The Company’s business was adversely affected
by the severe economic downturn beginning in 2008. While economic conditions improved in 2014 and 2015 in local, regional, national
and global markets, the risk of a future downturn exists. Our ability to respond to periods of economic contraction may be limited,
as certain of our costs remain fixed or even increase, when revenue declines. Our real estate activity is affected by local real
estate and land values. Our access to and/or cost of credit may be impacted to the extent global and U.S. credit markets are affected
by downward trends. Any persistence of poor economic conditions, or deterioration in economic conditions, could have a material
adverse impact on our business.
Our business is highly sensitive to consumer confidence and reductions
in consumers’ discretionary spending, which may result from economic conditions, unemployment levels and other changes we
cannot accurately predict.
Demand for entertainment and leisure activities
is sensitive to consumers’ disposable incomes, which have been adversely affected by recent economic conditions. Declines
in the residential real estate market, changes in consumer confidence, increases in individual tax rates, and other factors that
we cannot accurately predict may reduce the disposable income of our customers. This could result in fewer patrons visiting our
racetrack and wagering facilities, and may impact our customers’ ability to wager with the same frequency and maintain their
wagering level profiles. Any significant loss of customers or decline in wagering could have a material adverse impact on our business,
financial condition and results of operations.
We are subject to extensive regulation from gaming authorities that
could adversely affect us.
We are subject to significant regulation by the
MRC under the Racing Act and the rules adopted by the MRC. The MRC has the authority to impose increases in the Class A and Class
B license fees. In addition, the Racing Act requires that we reimburse the MRC for its actual costs of regulating the Card Casino,
including personnel costs. Increases in these licensing and regulatory costs could adversely affect our results of operations.
Table of Contents
Amendments to the Racing Act or decisions by the
MRC in regard to any one or more of the following matters could also adversely affect the Company’s operations: the granting
of operating licenses to Canterbury Park and other racetracks after an application process and public hearings; the licensing of
all track employees, jockeys, trainers, veterinarians, and other participants; regulating the transfer of ownership interests in
licenses; allocating live race days and simulcast-only race days; approving race programs; regulating the conduct of races; setting
specifications for the racing ovals, animal facilities, employee quarters, and public areas of racetracks; changes to the types
of wagers on horse races; and approval of significant contractual agreements.
We are subject to changes in the laws that govern our business, including
the possibility of an increase in gaming taxes, which would increase our costs, and changes in other laws may adversely affect
our ability to compete.
Our operations and oversight by the MRC are ultimately
subject to the laws of Minnesota including, but not limited to, the Racing Act, and there exists the risk that these laws may be
amended in ways adverse to our operations. In particular, we are required to pay taxes and fees in addition to normal federal,
state, and local income taxes, and such taxes and fees are subject to increase at any time. From time to time, state and local
legislators and officials have proposed changes in tax laws, or in the administration of laws affecting our industry, such as the
allocation of each wagering pool to winning bettors, the Racetrack, purses, and the MBF. In addition, poor economic conditions
could intensify the efforts of state and local governments to raise revenues through increases in gaming taxes. It is not possible
to predict with certainty the likelihood of changes in tax laws or in the administration of such laws. Such changes, if adopted,
could have a material adverse effect on our operations.
We are also subject to federal and Minnesota laws
that affect businesses generally. Some of these laws, such as laws pertaining to immigration, have severe penalties for law violations.
In addition, it is possible, as a result of the legislative process, that legislation directly or indirectly adverse to the Company
may be enacted into law.
We depend on key personnel.
Our continued success and our ability to maintain
our competitive position is largely dependent upon, among other things, the skills and efforts of our senior executives and management
team including Randall D. Sampson, our Chief Executive Officer. We have no employment agreements with our senior executives and
key personnel, and we cannot guarantee that these individuals will remain with us, and their retention is affected by the competitiveness
of our terms of employment and our ability to compete effectively against other gaming companies. Our inability to retain key personnel
could have a material adverse impact on our business, financial condition, and results of operations.
We process, store and use personal information and other data, which
subjects us to governmental regulation and other legal obligations related to privacy, and our actual or perceived failure to comply
with such obligations could harm our business.
We receive, store and process personal information
and other customer data. There are numerous federal, state and local laws regarding privacy and the storing, sharing, use, processing,
disclosure and protection of personal information and other data. Any failure or perceived failure by us to comply with our privacy
policies, our privacy-related obligations to customers or other third parties, or our privacy-related legal obligations, or any
compromise of security that results in the unauthorized release or transfer of personally identifiable information or other player
data, may result in governmental enforcement actions, litigation or public statements against us by consumer advocacy groups or
others and could cause our customers to lose trust in us, which could have an adverse effect on our business.
While we maintain insurance coverage specific to
cyber-insurance matters, any failure on our part to maintain adequate safeguards may subject us to significant liabilities.
Additionally, if third parties we work with, such
as vendors, violate applicable laws or our policies, such violations may also put our customers’ information at risk and
could in turn have an adverse effect on our business. The Company is also subject to payment card association rules and obligations
under its contracts with payment card processors. Under these rules and obligations, if information is compromised, the Company
could be liable to payment card issuers for the associated expense and penalties. In addition, if the Company fails to follow payment
card industry security standards, even if no customer information is compromised, the Company could incur significant fines or
experience a significant increase in payment card transaction costs.
Table of Contents
Energy and fuel price increases may adversely affect our costs of
operations and our revenues.
Our facility uses significant amounts of electricity,
natural gas, and other forms of energy. Increases in the cost of electricity or natural gas negatively affect our results of operations.
In addition, energy and fuel price increases could negatively impact our operations by reducing disposable income of potential
customers and decreasing visitation to our facility.
Our CMA with the SMSC may be terminated by the SMSC prior to December
31, 2022 under certain circumstances.
The CMA grants to the SMSC the right to terminate
the CMA without cause if the SMSC determines, in its sole discretion that a change of circumstance adverse to its interests with
respect to gaming in the State of Minnesota has occurred. If the SMSC exercises this right, the Company would be entitled to substantial
wind down payments approximately equal to 2.5 times the average payment due under the CMA in the three years following the year
it gives such notice of termination. While such wind down payments would cushion the impact of the SMSC’s exercise of this
right to terminate the CMA, a termination of the CMA prior to the expiration of its term in 2022 could have a material adverse
effect on the Company.
Nationally the popularity of horse racing has declined.
There has been a general decline in the number of
people attending and wagering on live horse races at North American racetracks due to a number of factors, including increased
competition from other wagering and entertainment alternatives as discussed above. According to industry sources, pari-mutuel handle
declined 27% from 2007 to 2011 and has been relatively stable since 2011, experiencing less than a 1% decline in growth between
2011 and 2015. Declining interest in horse racing has had a negative impact on revenues and profitability in our racing business.
Our business plan anticipates increased attendance and pari-mutuel wagering during our 2016 live meet and in future live meets
because of purse enhancement payments and marketing payments we receive under the CMA. However, we recognize that a general decline
in interest in horse racing and pari-mutuel wagering could have a material adverse impact on our business, financial condition
and results of operations in future years.
We may not be able to attract a sufficient number of horses and trainers
to achieve full field horse races.
We believe that patrons prefer to wager on races
with a large number of horses, commonly referred to as full fields. A failure to offer races with full fields results in less wagering
on our horse races. Our ability to attract full fields depends on several factors. It depends on our ability to offer and fund
competitive purses and it also depends on the overall horse population available for racing. Various factors have led to declines
in the horse population in certain areas of the country, including competition from racetracks in other areas, increased costs
and changing economic returns for owners and breeders, and the spread of various debilitating and contagious equine diseases. If
our racetrack is faced with a sustained outbreak of a contagious equine disease, it could have a material impact on our profitability.
Finally, if we are unable to attract horse owners to stable and race their horses at our racetrack by offering a competitive environment,
including improved facilities, a well-maintained racetrack, better conditions for backstretch personnel involved in the care and
training of horses stabled at our racetrack and a competitive purse structure, our profitability could also decrease. We also face
increased competition for horses and trainers from racetracks that are licensed to operate slot machines and other electronic gaming
machines that provide these racetracks an advantage in generating new additional revenues for race purses and capital improvements.
While our ability to offer full fields to patrons during our live meets has been substantially strengthened by the purse enhancement
payments that will be made under the CMA through 2022, our inability to attract full fields, for whatever reason, could have a
material adverse impact on our business, financial condition and results of operations.
Inclement weather and other conditions may affect our ability to
conduct live racing.
Since horse racing is conducted outdoors, unfavorable
weather conditions, including extremely high and low temperatures, high winds, storms, tornadoes and hurricanes, could cause events
to be canceled and/or attendance to be lower, resulting in reduced wagering. Our operations, as well as the racetracks from which
we receive simulcast singals, are subject to reduced patronage, disruptions or complete cessation of operations due to weather
conditions, natural disasters and other casualties. If a business interruption were to occur due to inclement weather and continue
for a significant length of time at our racetrack, it could have a material adverse impact on our business, financial condition
and results of operations. The Company maintains insurance for incremental weather conditions that would help mitigate financial
impact on our business.
Table of Contents
Horse racing is an inherently dangerous sport and our racetrack is
subject to personal injury litigation.
Although we carry jockey accident insurance at our
racetrack to cover personal jockey injuries which may occur during races or daily workouts, there are certain exclusions to our
insurance coverage, and we are still subject to litigation from injured participants. We renew our insurance policies on an annual
basis. The cost of coverage may become so high that we may need to further reduce our policy limits or agree to certain exclusions
from our coverage. Our results may be affected by the outcome of litigation, as this litigation could be costly and time consuming
and could divert our management and key personnel from our business operations.
Our business depends on utilizing totalizator services.
Our customers utilize information provided by a
third party vendor that accumulates wagers, records sales, calculates payoffs and displays wagering data in a secure manner to
patrons who wager on our horse races. The failure to keep technology current could limit our ability to serve patrons effectively
or develop new forms of wagering and/or affect the security of the wagering process, thus affecting patron confidence in our product.
A perceived lack of integrity in the wagering systems could result in a decline in bettor confidence and could lead to a decline
in the amount wagered on horse racing. In addition, a totalizator system failure could cause a considerable loss of revenue if
betting machines are unavailable for a significant period of time or during an event with high betting volume.
An increase in the minimum wage mandated under Federal or Minnesota
law could have a material adverse effect on our operations and financial results.
The Company employs a large number of individuals
at an hourly wage equal to or slightly above the current state mandated wage of $9.00 per hour. See “Recent Legislation”
at (c)(vii) for additional information regarding recently enacted minimum wage legislation. Most of these employees are either
high school or college students employed on a seasonal basis or tipped employees, many of whom receive, on average, tip income
that is several times the current minimum wage. From time to time legislation is introduced in the U.S. Congress or the Minnesota
legislature that would substantially increase the minimum wage. An immediate and substantial increase in the current minimum wage
applicable to the Company would materially increase the Company’s operating expenses and could adversely affect the Company’s
operations and financial results. While we will continue our efforts to mitigate the impact of any substantial minimum wage increase
by raising our prices or reducing our employee count, these measures could themselves have an adverse effect because higher prices
and diminished service levels may discourage visits to the Racetrack. Furthermore, to the extent we are not able to implement such
cost cutting measures, the increase in the minimum wage could materially adversely affect our net income.
Uncertainty regarding the success of a possible real estate development
project
The Company is currently pursuing the commercial
development of its Underutilized Land. See discussion above under Item 1(c)(x) titled Real Estate Development and Proposed Reorganization.
The development of residential and commercial real estate involves many risks, including but not limited to the selection of development
partners, building design and construction, financing, securing and retaining tenants, and the volatility of real estate market
conditions. Accordingly, there can be no assurance that the Company’s real estate development activities will be successful.
|
Item
1B.
|
UNRESOLVED STAFF COMMENTS
|
Not Applicable.
General
The Company’s facilities, which are owned
and operated under the name “Canterbury Park,” are a modern complex of buildings and grounds which generally compare
favorably to other major racetracks located throughout the country. The Racetrack’s grandstand has a patron capacity of approximately
10,000 within enclosed areas and a maximum patron capacity of over 30,000 including outside areas around the grandstand. The grandstand
and most public outdoor areas contain numerous pari-mutuel windows, odds information boards, video monitors, food and beverage
stands and other amenities. The audio/visual system includes over 850 television monitors with most areas providing multi-screen
viewing of the races.
Table of Contents
The Racetrack is located approximately 25 miles
southwest of downtown Minneapolis. The area immediately surrounding the Racetrack consists of retail, commercial and industrial
buildings, farmland and residential areas. The Racetrack is in reasonable proximity to a number of major entertainment destinations
including: Valleyfair, an amusement park about two miles from the Racetrack which annually attracts visitors during the spring
and summer; the Renaissance Festival, a seven-weekend late summer annual event located about five miles from the Racetrack; and
Mystic Lake Casino, located about four miles from the Racetrack, which draws thousands of visitors daily. The Mall of America,
the largest enclosed shopping mall in the United States, which attracts more than 40 million visitors per year, is approximately
17 miles from the Racetrack.
Racing Surfaces
The racing surfaces consist of a one-mile oval dirt/limestone
track and a 7/8-mile oval turf course. The dirt track includes a one and one-quarter mile front stretch chute, a 6-1/2 furlong
backstretch chute, and a 3-1/2 furlong chute and is lighted for night racing.
Grandstand
The grandstand is a modern, air-conditioned enclosed
structure of approximately 275,000 square feet with a variety of facilities on six levels. The lower level contains space for support
functions such as jockey quarters, administrative offices, Racing Commission offices, first aid, mechanical rooms, and electrical
rooms. The track level includes pari-mutuel windows, restrooms, a variety of concession stands and other services as well as the
Card Casino, which occupies 22,000 square feet on the track level. The mezzanine level contains 1,320 fixed seats in a glass-enclosed,
air-conditioned area and an additional 3,000 seats located outside. In addition to the seats, the mezzanine level contains pari-mutuel
windows, restrooms, concession stands, and other guest facilities. A portion of the mezzanine level is currently being used as
a simulcast center during live racing, and for banquets and other events during the off-season. The kitchen level is an intermediate
level located between the mezzanine and clubhouse floors. It contains a full-service kitchen which supports a full dining menu
for the track-side dining terraces on the clubhouse level and food preparation for the other concession areas. The clubhouse level
is a multi-purpose area serving as a simulcast center during wagering sessions on televised races, as well as a full-service dining
area during the live racing season. The clubhouse level includes 325 trackside tables, each equipped with a television set, with
a total seating capacity of 1,200 patrons and an additional 1,000 seats are located in lounges located throughout the area. The
press box and officials’ level is located in the roof trusses over the clubhouse and contains work areas for the press, racing
officials, closed-circuit television, photo finish, and the track announcer. In addition, the grandstand was structurally built
to accommodate skyboxes under the press box/officials’ level, although none have yet been constructed. Escalators and elevators
are available to move patrons among the various levels within the grandstand.
Expo Center
On September 11, 2014 the Company opened its new
Expo Center, a 30,000 square foot structure designed for year-round special events, trade shows and exhibits. The facility features
24,000 square feet of open event space and another 6,000 square feet including an entry area, offices, restrooms and storage. Together
with other areas, Canterbury Park now offers the fourth largest event space in the Twin Cities with more than 100,000 total square
feet of available space.
Barn and Backside Facilities
The stable area consists of 33 barns with a total
of approximately 1,650 stalls. In the stable area, there are 240 dormitory rooms for the grooms and others working at the Racetrack.
The stable area also contains a combination racing office and cafeteria/recreation building for stable personnel, two blacksmith
buildings, and a one and 5/8 mile training track.
Parking
Approximately 7,500 paved parking spaces are available
for patron and employee vehicles at the Racetrack, including parking spaces that are reserved for handicapped patrons. The Racetrack
also has unpaved areas available for overflow parking for approximately 5,000 additional automobiles.
Table of Contents
Underutilized Land
Approximately 170 acres of the
approximately 400 acres of land owned or controlled by the Company are not currently used for its current business
operations and could be developed or sold, in whole or in part. See discussion above under Item 1(c)(x) titled Real Estate
Development and Proposed Reorganization.
|
Item
3.
|
LEGAL PROCEEDINGS
|
There are no material legal proceedings pending
against the Company. From time to time, the Company is party to ordinary and routine litigation incidental to our business. We
do not expect the outcome of any such litigation pending at this time to have a material adverse effect on our consolidated financial
position or results of operations.
|
Item
4.
|
MINE SAFETY DISCLOSURES
|
Not Applicable.
PART II
|
Item
5.
|
MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
The Company’s common stock trades on the NASDAQ
Global Market under the symbol CPHC. The table set forth below indicates the high and low sale prices for the Common Stock in the
quarterly periods ending December 31, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
|
Common Stock
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
11.00
|
|
$
|
9.07
|
|
$
|
11.92
|
|
$
|
9.65
|
|
Second Quarter
|
|
|
11.76
|
|
|
9.56
|
|
|
12.04
|
|
|
9.76
|
|
Third Quarter
|
|
|
10.94
|
|
|
9.30
|
|
|
11.90
|
|
|
9.01
|
|
Fourth Quarter
|
|
|
11.05
|
|
|
9.50
|
|
|
10.61
|
|
|
8.91
|
At March 15, 2016, the Company had 797
shareholders of record of its common stock. Since many holders’ shares are listed under their brokerage firms’
names, the actual number of shareholders is estimated by the Company to be over 2,000.
During its
two, most recently completed fiscal years, the Company paid one dividend, a special dividend of $0.25 per share paid to its shareholders
of record on July 10, 2015. The Company has not adopted any plan or policy with regard to paying dividends. Future dividend action
by its Board of Directors, if any, will be based on the Company’s earnings, projected future earnings, and cash requirements
when such dividend action is next considered.
Table of Contents
(d) SECURITIES AUTHORIZED FOR ISSUANCE UNDER
EQUITY COMPENSATION PLANS
The following
table sets forth information as of December 31, 2015 regarding our equity compensation plans:
Securities Authorized for Issuance Under Equity
Compensation Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
|
(c)
|
|
|
Plan Category (1)
|
|
Number
of shares
of common stock to
be issued upon
exercise of
outstanding
options, warrants
and rights
|
|
(b)
Weighted-average
exercise price of outstanding options, warrants and rights
|
|
Number
of shares of common stock remaining available for future issuance under equity compensation plans (excluding shares in column
(a))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by security holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1994 Stock Plan
|
|
|
223,002
|
|
|
$
|
9.30
|
|
|
|
180,100
|
|
|
1995 Employee Stock Purchase Plan
|
|
|
—
|
|
|
|
—
|
|
|
|
81,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Option Plan for Non-Employee Consultants and Advisors (2)
|
|
|
—
|
|
|
|
—
|
|
|
|
162,500
|
|
|
Total
|
|
|
223,002
|
|
|
|
|
|
|
|
424,269
|
|
(1) The Company does not have individual
compensation arrangements involving the granting of options, warrants, rights or restricted stock.
(2) Adopted by the Company’s Board of Directors in 1997,
the purpose of the Stock Option Plan for Non-Employee Consultants and Advisors is to attract and retain the services of experienced
and knowledgeable non-employee consultants and advisors to assist in projects having strategic significance for the Company, to
provide an alternative form of cash compensation to such persons and to provide such persons with the opportunity to participate
in the Company’s long term progress and success.
(e) REGULATION S-K, ITEM 201(e) INFORMATION
Not Applicable.
(f) RECENT SALE OF UNREGISTERED SECURITIES
Not Applicable.
(g) PURCHASES OF EQUITY SECURITIES BY THE ISSUER
On December 17, 2007, the Company’s Board
of Directors adopted a plan that authorized the repurchase of up to 250,000 shares of the Company’s common stock pursuant
to Exchange Act Rule 12b-18 in open market transactions or block purchases of privately negotiated transactions (the “Stock
Repurchase Plan”). From its adoption until August 13, 2012, the Company repurchased 216,543 shares under the 2008 Stock Repurchase
Plan and, on such date, authorized the repurchase of an additional 100,000 shares of the Company’s common stock. As of December
31, 2015 and 2014, no shares were repurchased for both years and currently the Company is authorized to repurchase up to 128,781
shares under the Stock Repurchase Plan.
Table of Contents
|
Item 6.
|
SELECTED FINANCIAL DATA
|
The following table sets forth selected consolidated
financial data for each of the five fiscal years ended December 31, 2015. The operating and balance sheet data for the years ended
and as of December 31, 2015, 2014, 2013, 2012 and 2011 are derived from our audited consolidated financial statements. The following
information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and with our consolidated financial statements and the related notes thereto included elsewhere in this report.
(In thousands except for per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
OPERATING DATA
|
|
2015
2
|
|
|
2014
1
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
|
|
$
|
52,263
|
|
|
$
|
48,470
|
|
|
$
|
46,736
|
|
|
$
|
45,461
|
|
|
$
|
40,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
47,649
|
|
|
|
44,370
|
|
|
|
45,003
|
|
|
|
43,501
|
|
|
|
39,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
4,617
|
|
|
|
4,102
|
|
|
|
1,736
|
|
|
|
1,966
|
|
|
|
1,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax (Expense) Benefit
|
|
|
(1,890
|
)
|
|
|
(1,691
|
)
|
|
|
(720
|
)
|
|
|
(950
|
)
|
|
|
(655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
2,727
|
|
|
|
2,411
|
|
|
|
1,017
|
|
|
|
1,016
|
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Net Income per Share
|
|
$
|
0.65
|
|
|
$
|
0.58
|
|
|
$
|
0.24
|
|
|
$
|
0.25
|
|
|
$
|
0.10
|
|
|
Diluted Net Income per Share
|
|
|
0.64
|
|
|
|
0.57
|
|
|
|
0.24
|
|
|
|
0.24
|
|
|
|
0.10
|
|
|
Dividends per Share
|
|
|
0.25
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.50
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
$
|
4,429
|
|
|
$
|
4,590
|
|
|
$
|
3,544
|
|
|
$
|
4,057
|
|
|
$
|
3,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31,
|
|
BALANCE SHEET DATA
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land, Buildings and Equipment, Net
|
|
$
|
34,118
|
|
|
$
|
28,076
|
|
|
$
|
25,130
|
|
|
$
|
22,120
|
|
|
$
|
22,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
45,341
|
|
|
|
39,496
|
|
|
|
37,113
|
|
|
|
34,900
|
|
|
|
34,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity
|
|
$
|
33,097
|
|
|
$
|
30,995
|
|
|
$
|
28,265
|
|
|
$
|
26,885
|
|
|
$
|
27,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Common Shares Outstanding at Year End
|
|
|
4,238
|
|
|
|
4,201
|
|
|
|
4,178
|
|
|
|
4,148
|
|
|
|
4,102
|
|
1
During fiscal year 2014, the Company recorded a
$958,000 gain on insurance recoveries due to damage to our property resulting from multiple severe storms at the Racetrack.
2
During fiscal
year 2015, the Company recorded a $495,000 gain on insurance recoveries, $347,000 gain on sale of Shakopee Valley RV Park, and
$660,000 gain on sale of land.
|
Item 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following Management’s 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, our financial results and financial condition, 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 consolidated financial statements (the “Notes”). Our actual results could
differ materially from those anticipated in the forward-looking statements included in this discussion as a result of certain factors,
including, but not limited to, those discussed in “
Risk Factors
” and “
Forward-Looking Statements
”
included elsewhere in this Annual Report.
STRATEGIC OVERVIEW
Canterbury Park Holding Corporation (the “Company,”
“we,” “our,” or “us”) hosts pari-mutuel wagering on thoroughbred and quarter horse races and
“unbanked” card games at its Canterbury Park Racetrack and Card Casino facility (the “Racetrack”) in Shakopee,
Minnesota, which is approximately 25 miles southwest of downtown Minneapolis. The Racetrack is the only facility in the State of
Minnesota that offers live pari-mutuel thoroughbred and quarter horse racing.
Table of Contents
The Company’s pari-mutuel wagering operations
include both wagering on thoroughbred and quarter horse races during live meets at the Racetrack each year from May through September,
and year-round wagering on races primarily held at out-of-state racetracks that are televised simultaneously at the Racetrack (“simulcasting”).
Unbanked card games, in which patrons compete against each other, are hosted in the Card Casino at the Racetrack. The Card Casino
operates 24 hours a day, seven days a week. The Card Casino offers both poker and table games at up to 80 tables. The Company also
derives revenues from related services and activities, such as food and beverage, parking, advertising signage, publication sales,
and from other entertainment events and activities held at the Racetrack.
The following summarizes our financial performance
for the last five years (in 000’s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Performance Summary
|
|
2015
2
|
|
|
2014
1
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues
|
|
$
|
52,263
|
|
|
$
|
48,470
|
|
|
$
|
46,736
|
|
|
$
|
45,461
|
|
|
$
|
40,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
47,649
|
|
|
|
44,370
|
|
|
|
45,003
|
|
|
|
43,501
|
|
|
|
39,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
4,617
|
|
|
|
4,102
|
|
|
|
1,736
|
|
|
|
1,966
|
|
|
|
1,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax (Expense) Benefit
|
|
|
(1,890
|
)
|
|
|
(1,691
|
)
|
|
|
(720
|
)
|
|
|
(950
|
)
|
|
|
(655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
2,727
|
|
|
|
2,411
|
|
|
|
1,017
|
|
|
|
1,016
|
|
|
|
398
|
|
1
During fiscal
year 2014, the Company recorded a $958,000 gain on insurance recoveries due to damage to our property resulting from multiple
severe storms at the Racetrack.
2
During fiscal
year 2015, the Company recorded a $495,000 gain on insurance recoveries, $347,000 gain on sale of Shakopee Valley RV Park, and
$660,000 gain on sale of land.
Our management team has extensive knowledge of the
horse racing, Card Casino, and food and beverage operations, and our staff has demonstrated a commitment to enhancing the customer
experience. The Company believes that management has a good relationship with our workforce and is able to retain qualified personnel
as demonstrated by our low turnover rate.
Our facilities are modern by racetrack industry
standards, and we have invested heavily in the past few years to update and upgrade them to meet the needs of our customers and
horsemen. Our 386-acre site, in a prime location on the edge of the Minneapolis–St. Paul metropolitan area in one of the
fastest-growing counties in Minnesota, provides us with great long-term growth and development opportunities, and our Board of
Directors regularly considers additional uses for underutilized portions of our property. Our long-term strategic direction is
to continue to enhance our Racetrack as a unique gaming and entertainment destination and develop underutilized land not needed
for our current business uses.
We have a strong commitment to live racing and have
been particularly successful in attracting new customers and providing a quality live racing experience for our horse racing fans
as well as the horsemen who enter their horses in live races at Canterbury Park. However, we face a number of longer-term challenges
in improving our financial results, including challenges described under
“Risk Factors”
elsewhere in this report.
OPERATIONS REVIEW
YEAR
ENDED December 31, 2015 COMPARED TO YEAR ENDED December 31, 2014
EBITDA represents earnings before interest income,
income tax expense, and depreciation and amortization. EBITDA is not a measure of performance or liquidity calculated in accordance
with generally accepted accounting principles in the United States of America (“GAAP”), and should not be considered
an alternative to, or more meaningful than, net income as an indicator of our operating performance or cash flows from operating
activities as a measure of liquidity. EBITDA has been presented as a supplemental disclosure because it is a widely used measure
of performance and basis for valuation of companies in our industry. Moreover, other companies that provide EBITDA information
may calculate EBITDA differently than we do. During the year ended December 31, 2015, Adjusted EBITDA excluded the gain on disposal
of assets relating to the sale of Shakopee RV Park, gain on sale of land, and gain on insurance recovery. During the year ended
December 31, 2014, Adjusted EBITDA excluded the gain on insurance recovery from multiple severe storms at the Racetrack.
Table of Contents
The following table sets forth a reconciliation
of net income, a GAAP financial measure, to EBITDA and Adjusted EBITDA (defined above), which is a non-GAAP measure, for the years
ended:
|
|
|
|
|
|
|
SUMMARY OF EBITDA DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
NET INCOME
|
|
$
|
2,727,022
|
|
|
$
|
2,411,155
|
|
|
Interest income, net
|
|
|
(2,804
|
)
|
|
|
(2,407
|
)
|
|
Income tax expense
|
|
|
1,889,649
|
|
|
|
1,691,177
|
|
|
Depreciation
|
|
|
2,297,613
|
|
|
|
2,137,778
|
|
|
EBITDA
|
|
|
6,911,480
|
|
|
|
6,237,703
|
|
|
Gain on disposal of assets
|
|
|
(347,348
|
)
|
|
|
—
|
|
|
Gain on sale of land
|
|
|
(659,562
|
)
|
|
|
—
|
|
|
Gain on insurance recoveries
|
|
|
(495,465
|
)
|
|
|
(957,597
|
)
|
|
ADJUSTED EBITDA
|
|
$
|
5,409,105
|
|
|
$
|
5,280,106
|
|
Adjusted EBITDA increased $129,000, or 2.4%, but
decreased slightly as a percentage of net revenues to 10.3% from 10.9% for the year ended December 31, 2015 compared to the same
period in 2014.
REVENUES
Total net revenues for the year ended December 31,
2015 were $52,263,000, an increase of $3,793,000, or 7.8%, compared to total net revenues of $48,470,000 for the year ended December
31, 2014. Total Card Casino revenue increased 7.3%, food and beverage revenue increased 14.0% and total pari-mutuel revenue decreased
1.7% in 2015 compared to 2014. See below for a further discussion of our sources of revenues.
Table of Contents
|
|
|
|
|
|
|
|
|
|
SUMMARY OF PARI-MUTUEL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Racing Days
|
|
2015
|
|
|
2014
|
|
|
Simulcast only racing days
|
|
|
293
|
|
|
|
295
|
|
|
Live and simulcast racing days
|
|
|
70
|
|
|
|
68
|
|
|
Total Number of Racing Days
|
|
|
363
|
|
|
|
363
|
|
|
|
|
|
|
|
|
|
|
|
|
On-Track Handle
|
|
|
|
|
|
|
|
|
|
Simulcast handle on simulcast only racing days
|
|
$
|
20,108,000
|
|
|
$
|
22,322,000
|
|
|
Simulcast handle on live racing days
|
|
|
9,057,000
|
|
|
|
9,269,000
|
|
|
Total simulcast handle
|
|
|
29,165,000
|
|
|
|
31,591,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Live racing handle
|
|
|
12,509,000
|
|
|
|
12,299,000
|
|
|
Total On-Track Handle
|
|
|
41,674,000
|
|
|
|
43,890,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Out-of-state Live Handle
|
|
|
28,621,000
|
|
|
|
24,643,000
|
|
|
Total Handle
|
|
$
|
70,295,000
|
|
|
$
|
68,533,000
|
|
Total handle wagered in 2015 increased $1,762,000,
or 2.6%, compared to 2014. The increase is primarily attributable to an increase in out-of-state live handle partially offset by
a decrease in simulcast handle due to increased competition from NMHI which offered simulcasting thoroughbred and quarter horse
races throughout the year and increased internet wagering on horse racing.
Pari-mutuel revenues also include commission and
breakage revenues on live on-track and simulcast racing, fees received from out-of-state racetracks for wagering on our live races
and proceeds from unredeemed pari-mutuel tickets. Pari-mutuel revenues decreased $171,000, or 1.7%, to $10,022,000 in 2015 from
2014, primarily reflecting a decrease in simulcast revenues partly offset by an increase in out-of-state revenue.
|
|
|
|
|
|
|
CARD CASINO REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Poker Games
|
|
$
|
9,704,000
|
|
|
$
|
9,838,000
|
|
|
Table Games
|
|
|
16,635,000
|
|
|
|
14,592,000
|
|
|
Total Collection Revenue
|
|
|
26,339,000
|
|
|
|
24,430,000
|
|
|
Other Revenue
|
|
|
2,678,000
|
|
|
|
2,600,000
|
|
|
Total Card Casino Revenue
|
|
$
|
29,017,000
|
|
|
$
|
27,030,000
|
|
The primary source of Card Casino revenue is a percentage
of the wagers received from the players as compensation for providing the Card Casino facility and services, referred to as “collection
revenue”. Other Revenue presented above includes fees collected for the administration of tournaments and amounts earned
as reimbursement of the administrative costs of maintaining jackpot funds. Card Casino revenue represented 55.5% and 55.8% of the
Company’s net revenues for the years ended December 31, 2015 and 2014, respectively.
Total Card Casino revenue increased $1,987,000,
or 7.3%, in 2015 compared to 2014. Poker revenue had a slight decrease $134,000, or 1.4%, in 2015 over 2014. Table games collection
revenue increased $2,043,000, or 14.0%, in 2015 compared to 2014. The Company believes the increase in table games collection revenue
was due to the increased effectiveness of our new customer relationship management system, an increase in wagering directly related
to our increase in live racing and catering and event attendance, and an improving local economy.
FOOD AND BEVERAGE REVENUES
Food and beverage revenue increased $979,000, or
14.0% for the year ended December 31, 2015 compared to 2014. The changes are primarily a result of increased live racing attendance
and an increase in prices for catering and events.
Table of Contents
OTHER REVENUES
Other revenue increased $981,000, or 22.1%,
to $5,426,000 in fiscal year 2015 compared to 2014. This increase was primarily due to increased revenue from admissions and catering
and events, and an increase in CMA marketing payments.
OPERATING EXPENSES
Total operating expenses increased approximately
$3,279,000, or 7.4%, to $47,649,000 in 2015, from $44,370,000 in 2014. Total operating expenses as a percentage of net revenues
decreased to 91.2% in 2015 from 91.5% in 2014. The primary factors contributing to these increases are discussed in the following
paragraphs.
Total purse expense increased $211,000, or
3.4%, in 2015 compared to 2014 due to an increase in purse expenses derived from Card Casino revenue, partially offset by a decrease
in purse expense derived from simulcast revenue. These factors also caused a slight increase in MBF expense. As discussed in greater
detail in Item 1(c) (iv) above, Minnesota law requires us to allocate a portion of amounts received from betting in the Card Casino
and wagering on simulcast and live horse races for future payment as purses for live horse races and other authorized uses. While
most of these amounts were paid into the purse funds for thoroughbred and quarter horse races, Minnesota law requires that a portion
of such amounts allocated for purses be paid into the Minnesota Breeders’ Fund (the “MBF”). A description of
how the purse expense was derived from these three sources and allocated for purse funds and to the MBF is shown in the table
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minnesota Breeders’
|
|
|
|
|
Purse
Expense
|
|
|
Fund Expense
|
|
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card Casino
|
|
$
|
3,440,000
|
|
|
$
|
3,190,000
|
|
|
$
|
382,000
|
|
|
$
|
354,000
|
|
|
Simulcast Racing
|
|
|
1,660,000
|
|
|
|
1,789,000
|
|
|
|
326,000
|
|
|
|
354,000
|
|
|
Live Racing
|
|
|
1,395,000
|
|
|
|
1,305,000
|
|
|
|
125,000
|
|
|
|
123,000
|
|
|
Total
|
|
$
|
6,495,000
|
|
|
$
|
6,284,000
|
|
|
$
|
833,000
|
|
|
$
|
831,000
|
|
Under Minnesota law, the Company is required
to pay 10% of the first $6 million of gross Card Casino revenues towards purses for live horse racing at the Racetrack. After meeting
the $6 million threshold, the Company must pay 14% of gross Card Casino revenues as purse monies. Of funds allocated for purses,
the amounts paid are allocated 90% to the purse funds and 10% to the MBF.
The Company experienced a decrease in other
pari-mutuel expenses of $123,000, or 7.8%, in 2015 compared to 2014 primarily as a result of lower host fees paid to out-of-state
racetracks due to a decrease in handle.
Salaries and benefits expense increased $1,749,000,
or 8.9%, for the year ended December 31, 2015 compared to the year ended December 31, 2014. The change is primarily due to the
increase in the State of Minnesota mandated minimum wage that went into effect on August 1, 2014 and 2015, and adding personnel
related to catering and events initiatives.
Cost of food and beverage and other sales expense
increased $287,000, or 8.2%, for the year ended December 31, 2015 compared to the same period in 2014. The change is primarily
due to the increase of food and beverage sales volume,
Depreciation expense increased $160,000, or
7.5%, in 2015 compared to 2014. The increase is a result of depreciation charges related to the construction of the new Expo Center
in 2014 and remodeling on part of our third floor to create a new banquet area called the Triple Crown Club.
Advertising and marketing costs increased $76,000,
or 4.0%, in 2015 compared to 2014. The changes are primarily attributable to the increased expenditures funded by payments under
the CMA for joint marketing, including an area wide marketing initiative, called RiverSouth, which is designed to increase visitors
to Shakopee’s entertainment, hospitality and retail businesses.
Table of Contents
During 2014, the Company incurred damage to
buildings from multiple severe storms at the Racetrack for which it received $988,000 in total insurance proceeds. As of December
31, 2014, the Company recognized a $958,000 insurance recoveries gain in the Consolidated Statements of Operations as “Gain
on insurance recoveries”. During 2015, the Company received additional insurance proceeds of $495,000 and recognized a $495,000
insurance recoveries gain. The storms did not cause any material interruptions to the business or impact on the Company’s
consolidated financial results of operations. Based on future events, the Company may receive additional insurance proceeds. The
Company has concluded that these additional funds represent contingent gains and in accordance with U.S. GAAP, have not been accounted
for them in the Company’s 2015 consolidated financial statements.
Gain on disposal of assets recorded in 2015
is due to sale of the land and buildings related to the Shakopee Valley RV Park to SMSC. The purchase price paid by SMSC for these
assets was $100,000 plus the cancellation of the SAR that the Company issued to SMSC pursuant to the CMA, which had a carrying
value of $641,000. The Company recorded a gain of $347,000 on this transaction.
On October 6, 2015, the Company sold 6 acres
of land adjacent to the Racetrack for $1,459,000 and recorded a gain of $660,000 on the
Consolidated Statements of Operations
– Gain on sale of land
. This transaction was structured as a “deferred exchange using a qualified intermediary”
pursuant to Internal Revenue Code (IRC) Section 1031 exchange (“1031 Exchange”) for income tax purposes. As a result
of utilizing the 1031 Exchange, the gain on sale of land of $789,000 was deferred for income tax purposes. The proceeds of the
land sale were issued directly to the qualified intermediary and the Company recorded a receivable from the intermediary.
Under the purchase agreement, the Company has
the option to repurchase up to one acre within three years from closing date at the sale price of approximately $240,000 per acre.
According to
ASC 360-20-40-38 - Derecognition
, the Company recorded the repurchase option acre as a deferred gain liability
in the amount of $240,000 on the
Consolidated Balance Sheets
. Since the risks and rewards were not completely transferred
to the buyer based on the repurchase option the Company maintains the asset on our financials in the amount of $110,000. The Company
believes any additional expenses associated with the option under the profit-sharing method will be immaterial because land is
a non-depreciable asset.
On December 14, 2015, the Company entered into
a lease agreement to purchase approximately 32 acres of land adjacent to the Racetrack with a total purchase price of $4,881,000.
The Company paid $1,459,000 in cash that included land proceeds of $1,443,000 from the October 6, 2015 sale that was paid directly
from the qualified intermediary. As of December 31, 2015, the proceeds receivable balance due from the qualified intermediary totaled
$16,000. The lease obligation amount of $3,178,000 is payable monthly, beginning January 15, 2016, in the amount of $58,533 at
a 4% annual interest rate with a maturity date of December 15, 2020. This transaction was structured as a “deferred exchange
using a qualified intermediary” pursuant to IRC 1031 exchange for income tax purposes.
On December 23, 2015, the Company entered into
a purchase agreement to sell approximately 24 acres of land adjacent to the Racetrack. Under this agreement the buyer agreed to
purchase the land for $4,330,000. This agreement is structured to utilize the IRC 1031 Exchange and the Company intends to utilize
the proceeds to pay the remaining balance of the lease obligation.
Other operating expenses increased $1,488,000,
or 18.3%, in 2015 compared to 2014. The changes are primarily attributable to professional fees related to an announced corporate
restructuring and efforts to develop unused or underutilized land. During 2015, the Company expensed approximately $350,000 previously
capitalized predevelopment costs related to real estate.
Income tax expense for the years ended December
31, 2015 and 2014 were $1,890,000 and $1,691,000, respectively. The effective rate was comparable year-over-year, but the increase
in deferred tax expense is attributable to recording a deferred tax liability on the sale of the land.
Net Income for the years ended December 31,
2015 and 2014 were $2,727,000 and $2,411,000, respectively.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of 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.
We base our assumptions, estimates, and judgments on historical experience, current trends, and other factors that management believes
to be relevant at the time the consolidated financial statements are prepared. On a regular basis, management reviews the accounting
policies, assumptions, estimates, and judgments to ensure that our financial statements are presented fairly and in accordance
with generally accepted accounting principles. However, because future events and their effects cannot be determined with certainty,
actual results could differ from our assumptions and estimates, and such differences could be material.
Table of Contents
Our significant accounting policies are included
in Note 1 to our consolidated financial statements. We believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our consolidated financial statements:
Property and Equipment -
We have significant
capital invested in our property and equipment, which represents approximately 75.2% of our total assets at December 31, 2015.
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 or has been
disposed. Management periodically reviews the carrying value of property and equipment for potential impairment by comparing the
carrying value of these assets with their related expected undiscounted future net cash flows. If the sum of the related expected
future net cash flows is less than the carrying value, we will determine whether an impairment loss should be recognized. An impairment
loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. To date, we
have determined that no impairment of these assets exists.
Stock-Based Compensation
– Accounting
guidance requires recognition of expense for services provided in exchange for a share-based payment based on the grant date fair
market value. We utilize our judgment in determining the assumptions used to determine the fair value of equity instruments granted
using a Black-Scholes model.
MINIMUM WAGE LEGISLATION
Legislation that became effective
in Minnesota on April 15, 2014 increased the minimum wage that must be paid to most company employees from $7.25 to $8.00 on August
1, 2014, and from $8.00 to $9.00 per hour on August 1, 2015. A further increase to $9.50 per hour is scheduled for August 1, 2016.
In addition, starting January 1, 2018, the minimum wage will increase at the beginning of each year by the rate of inflation with
a maximum increase of up to 2.5% per year. Prior to August 1, 2014, the Company employed a large number of individuals who received
an hourly wage equal to or slightly above $7.25 per hour. As a result, this legislation had an adverse effect in 2014 and 2015
and will continue to have an adverse effect in 2016 and beyond. We have implemented measures and will continue to implement measures
to mitigate the impact of this increase by raising our prices or reducing our employee count. However, these measures could themselves
have an adverse effect because higher prices and diminished service levels may discourage customers from visiting the Racetrack.
To the extent we are not able to implement such price increases and other cost cutting measures, the increase in the minimum wage
will adversely affect our net income.
POTENTIAL HORSERACING LEGISLATION
In July 2015, the Thoroughbred
Horseracing Integrity Act of 2015 was introduced in Congress. Under the terms of this proposed legislation, the United States Anti-Doping
Agency (“USADA”) is designated as the organization responsible for regulating drugs, medications and treatments used
in racing and would prohibit interstate wagering without consent from USADA. If enacted into law, the legislation could have an
adverse impact on our business.
COOPERATIVE MARKETING AGREEMENT
On June 4, 2012, the Company entered into the
CMA with the SMSC. The primary purpose of the CMA is to increase purses paid during live horse racing at Canterbury Park’s
Racetrack in order to strengthen Minnesota’s thoroughbred and quarter horse through horse industry. Under the CMA, as amended,
this is achieved through “Purse Enhancement Payments to Horsemen” paid directly to the MHBPA. Such payments have no
direct impact on the Company’s consolidated financial statements or operations.
Under the terms of the CMA, as amended, the
SMSC paid the horsemen $6.2 million and $5.8 million for purse enhancements for the years ended December 31, 2015 and 2014, respectively.
Table of Contents
Under the CMA, as amended, SMSC also agreed
to make “Marketing Payments” to the Company relating to joint marketing efforts for the mutual benefit of the Company
and SMSC, including signage, joint promotions, player benefits and events. Under the CMA, the SMSC paid the Company $944,000 and
$660,000 for marketing purposes for the years ended December 31, 2015 and 2014, respectively.
Effective January 2015, the CMA was amended
to adjust the payment amounts between the “Purse Enhancement Payments to Horsemen” and “Marketing Payments to
Canterbury Park.” Effective January 2016, the CMA was amended under the “Second Amendment” agreement to adjust
the payment amounts between the “Purse Enhancement Payments to Horsemen” and “Marketing Payments to Canterbury
Park.” SMSC has currently agreed to make the following purse enhancement and marketing payments for 2016 through 2022:
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Purse Enhancement
Payments to
1
Horsemen
|
|
Marketing
Payments to Canterbury
Park
|
|
2016
|
|
|
$6,788,100
|
|
|
|
$1,197,900
|
|
|
2017
|
|
|
7,466,910
|
|
|
|
1,317,690
|
|
|
2018
|
|
|
7,650,000
|
|
|
|
1,350,000
|
|
|
2019
|
|
|
7,650,000
|
|
|
|
1,350,000
|
|
|
2020
|
|
|
7,650,000
|
|
|
|
1,350,000
|
|
|
2021
|
|
|
7,650,000
|
|
|
|
1,350,000
|
|
|
2022
|
|
|
7,650,000
|
|
|
|
1,350,000
|
|
1
- Includes $100,000 each year payable to various horsemen associations
The amounts earned from
the marketing payments are recorded as a component of other revenue and the related expenses are recorded as a component of advertising
and marketing expense and depreciation in the Company’s consolidated statements of operations. For the year ended December
31, 2015, the Company recorded $926,000 in other revenue and incurred $700,000 in advertising and marketing expense and $226,000
in depreciation related to the SMSC marketing payment. For the year ended December 31, 2014, the Company recorded $825,000 in other
revenue and incurred $608,000 in advertising and marketing expense and $217,000 in depreciation related to the SMSC marketing payment.
The excess of amounts received over revenue is reflected as deferred revenue which is included in accounts payable on the consolidated
balance sheets. The excess of amounts received over revenue is reflected as deferred revenue which is included in accounts payable
on the consolidated balance sheets.
Under the CMA, the Company
agreed for the term of the CMA that it would not promote or lobby the Minnesota legislature for expanded gambling authority and
will support the SMSC’s lobbying efforts against expanding gambling authority.
As part of the CMA, and pursuant to a related
SAR Agreement dated June 14, 2012, the Company issued stock appreciation rights to the SMSC. For the year ended December 31, 2015,
the Company recognized $142,000 of expense related to these stock appreciation rights, of which $142,000 was recorded as an offset
to other revenue. For the year ended December 31, 2014, the Company recognized $32,000 of expense related to these stock appreciation
rights, of which $32,000 was recorded as an offset to other revenue.
On July 30, 2015, the Company
sold the land and buildings related to the Shakopee Valley RV Park located in Shakopee, Minnesota to SMSC for $100,000 plus the
cancellation of the vested and unvested SARs. The sale resulted in a $347,000 gain on the
Consolidated Statements of Operations
–Gain on disposal of assets
.
CONTINGENCIES
In accordance with an Earn Out Promissory 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.
Table of Contents
Additionally, the Company entered into a Cooperative
Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community which became effective on June 4, 2012,
and was amended in January 2015. The CMA contains certain covenants which, if breached, would trigger an obligation to repay a
specified amount related to such covenant. At this time, management believes that the likelihood that the breach of a covenant
will occur and that the Company will be required to pay the specified amount related to such covenant is remote.
The Company is periodically involved in various
claims and legal actions arising in the normal course of business. Management believes that the resolution of any pending claims
and legal actions at December 31, 2015 and as of the date of this report will not have a material impact on the Company’s
consolidated financial position or results of operations.
The Company has committed to payment of statutory
distributions under a $500,000 bond issued to the Minnesota Racing Commission as required by Minnesota statute. The Company was
not required to make any payments related to this bond in 2015 or 2014, and there is no liability related to this bond on the balance
sheet as of December 31, 2015.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES
Cash provided by operating activities for the
year ended December 31, 2015 was $4,429,000 primarily as a result of the following: The Company reported net income of $2,727,000,
which included a gain from insurance recoveries of $495,000 and gain on disposal of assets of $1,007,000. Cash from operating activities
was increased by noncash charges from depreciation of $2,298,000, deferred income taxes of $384,000, and stock-based compensation
expense of $285,000. The Company also experienced an increase in accounts payable and accrued wages and payroll taxes of $667,000
and card casino accrual of $358,000.
Cash provided by operating activities for the
year ended December 31, 2014 was $4,590,000 primarily as a result of the following: The Company reported net income of $2,411,000,
which included a gain from insurance recoveries of $958,000. Cash from operating activities was increased by noncash charges from
depreciation of $2,138,000, deferred income taxes of $314,000, and stock-based compensation expense of $217,000. The Company also
experienced a decrease in accounts payable and accrued wages and payroll taxes of $533,000.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used in investing activities for the
year ended December 31, 2015 of $4,008,000 was used primarily for the remodel of the Triple Crown Club, roof replacement, building
improvements and a variety of equipment purchases. The capital purchases were partially offset by the proceeds received from insurance
claims in the amount of $495,000.
Net cash used in investing activities for the
year ended December 31, 2014 of $4,669,000 was used primarily for the construction of a new expo and event center and a variety
of equipment purchases. The capital purchases were partially offset by the proceeds received from insurance claims in the amount
of $989,000.
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash used by financing activities for the
year ended December 31, 2015 was $910,000 and primarily consisted of $1,056,000 cash dividend paid to shareholders.
Net cash provided by financing activities for
the year ended December 31, 2014 was $102,000 and primarily consisted of $94,000 of proceeds received upon the issuance of common
stock through the Employee Stock Purchase Plan.
Table of Contents
CASH AND CAPITAL RESOURCES
At December 31, 2015, we had cash and cash equivalents
of $8,274,000 compared to $8,762,000 at December 31, 2014. This $488,000 decrease consisted of $4,008,000 of net cash used in investing
activities partially offset by $4,429,000 of net cash provided by operating activities and $910,000 of net cash used in financing
activities.
The Company has a general credit and security
agreement with Bremer Bank, which provides a revolving credit line of up to $3,000,000 and expires on May 5, 2016. The line of
credit is collateralized by all receivables, inventory, equipment, and general intangibles of the Company. The Company had no borrowings
under the credit line during the years ended December 31, 2015 or 2014. The credit agreement contains covenants requiring the Company
to maintain certain financial ratios. The Company was in compliance with these requirements at all times throughout the year ended
December 31, 2015.
Our three largest sources of revenue: pari-mutuel
wagering, Card Casino operations and food and beverage, are all based on cash transactions. Consequently, we have significant inflows
of cash on a daily basis. We designate cash balances which will be required to satisfy certain short-term liabilities such as progressive
jackpots, the player pool and amounts due horsemen for purses and awards as “restricted” as a separate balance sheet
item.
The Company offers unbanked table games that
refer to a wagering system or game where wagers “lost” or “won” by the host are accumulated into a player
pool liability for purposes of enhancing the total amount paid back to players in any other card game. The Company is required
to return accumulated player pool funds to the players through giveaways, promotional items, prizes or by other means. The player
pool liability was $523,000 and $556,000 at December 31, 2015 and 2014, respectively.
The Card Casino offers progressive jackpots
for poker games. Amounts collected for these jackpot funds are accrued as liabilities until paid to winners. At December 31, 2015
and 2014, accrued jackpot funds totaled $93,000 and $134,000, respectively. The Minnesota Racing Commission (“MRC”)
regulates the operation of the player pool and progressive jackpot pools. These liabilities have the potential for significant
fluctuation on a daily basis.
All games in the Card Casino are played using
chips. The value of chips issued and outstanding, referred to as the “outstanding chip liability,” was $326,000 and
$260,000 at December 31, 2015 and 2014, respectively. This liability has the potential for significant fluctuation on a daily basis
depending upon the demand for chip redemptions and sales.
Our second largest individual operating expense
item is purse expense. Pursuant to an agreement with the MHBPA, we transferred into a trust account or paid directly to the MHBPA,
approximately $5,429,000 and $5,850,000 in purse funds related to thoroughbred races for the years ended December 31, 2015 and
2014, respectively. Minnesota Statutes specify that amounts transferred into trust are the property of the trust and not the Company.
There were no unpaid purse fund obligations due to the MHBPA at December 31, 2015 or 2014.
The Company believes that unrestricted funds
available in its cash accounts, amounts available under its revolving line of credit, along with funds generated from operations,
will be sufficient to satisfy its liquidity and capital resource requirements for regular operations for the foreseeable future.
OFF-BALANCE SHEET ARRANGEMENTS
The Company currently has no off-balance sheet
arrangements and has no intent to enter into any such agreements in the near future.
COMMITMENTS AND CONTRACTUAL OBLIGATIONS
In March 2014, the Company entered into a seven-year
agreement with a new totalizator provider. Pursuant to the agreement, the vendor provides totalizator equipment and related software
which records and processes all wagers and calculates odds and payoffs. The amounts charged to operations for totalizator expenses
for the years ended December 31, 2015 and 2014 were $224,000 and $226,000, respectively.
The Company has entered into operating leases
for rental of office equipment and for track equipment to maintain the Racetrack. Amounts charged to operations under these agreements
for the years ended December 31, 2015 and 2014 were $145,000 and $140,000, respectively. All such leases expire in or before February
2018.
Table of Contents
December 14, 2015, the Company entered into
a five-year capital lease agreement for approximately 32 acres of land adjacent to the Racetrack with a maturity date of December
15, 2020. The lease calls for monthly payments of $58,333, through December 15, 2020. The Company may prepay the lease based on
certain events.
Subsequent to December 31, 2015, there have
been no material changes outside the ordinary course of business to our contractual obligations as set forth above. As of December
31, 2015, we had no borrowings pursuant to our line of credit and were not party to capital lease obligations, significant purchase
obligations or other long-term obligations, other than described above.
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, we may make forward-looking statements concerning possible or anticipated future financial
performance, prospective business activities or plans which are typically preceded by words such as “believes,” “expects,”
“anticipates,” “intends” or similar expressions. For such forward-looking statements, we claim 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 affect our actual results
and cause actual results to differ materially from those indicated in the forward-looking statements. Such risks and uncertainties
include, but are not limited to: material fluctuations in attendance at the Racetrack, decline in interest in wagering on horse
races at the Racetrack, at other tracks, or on unbanked card games offered at the Card Casino, competition from other venues offering
unbanked card games or other forms of wagering, competition from other sports and entertainment options, increases in compensation
and employee benefit costs, increases in the percentage of revenues allocated for purse fund payments, higher than expected expense
related to new marketing initiatives, the impact of wagering products and technologies introduced by competitors, legislative
and regulatory decisions and changes, the general health of the gaming sector, and other factors that are beyond our ability to
control or predict.
|
|
Item 7A.
|
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.
Table of Contents
|
|
Item 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
(a) Financial Statements
The following financial statements of the Company are set forth
on pages 32 through 52 of the Form 10-K:
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Canterbury Park Holding Corporation
We have audited the accompanying consolidated balance
sheets of Canterbury Park Holding Corporation and Subsidiaries (the Company) as of December 31, 2015 and 2014 and the related consolidated
statements of operations, changes in stockholders’ equity and cash flows for the years then ended. The Company’s management
is responsible for these financial statements. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Company as of December 31, 2015 and 2014,
and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Wipfli LLP
Minneapolis, Minnesota
March 29, 2016
Table of Contents
CANTERBURY
PARK HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
December
31, 2015 AND 2014
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,274,112
|
|
|
$
|
8,761,925
|
|
|
Restricted cash
|
|
|
1,563,058
|
|
|
|
1,069,181
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|
|
Short-term investments
|
|
|
205,192
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|
|
|
204,525
|
|
|
Accounts receivable, net of allowance of $28,000 and $22,294, respectively
|
|
|
155,861
|
|
|
|
192,674
|
|
|
Inventory
|
|
|
253,334
|
|
|
|
231,545
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|
|
Prepaid expenses
|
|
|
396,705
|
|
|
|
541,822
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|
|
Due from Minnesota horsemen associations
|
|
|
—
|
|
|
|
125,828
|
|
|
Deferred income taxes (Note 3)
|
|
|
—
|
|
|
|
265,900
|
|
|
Income taxes receivable
|
|
|
355,060
|
|
|
|
—
|
|
|
Total current assets
|
|
|
11,203,322
|
|
|
|
11,393,400
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM ASSETS
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
20,000
|
|
|
|
26,400
|
|
|
Land, buildings and equipment, net (Note 2)
|
|
|
34,117,760
|
|
|
|
28,075,879
|
|
|
TOTAL ASSETS
|
|
$
|
45,341,082
|
|
|
$
|
39,495,679
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
Current maturities of capital lease obligations (Note 8)
|
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$
|
585,563
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|
|
$
|
—
|
|
|
Accounts payable
|
|
|
2,710,661
|
|
|
|
2,174,466
|
|
|
Card Casino accruals
|
|
|
1,759,314
|
|
|
|
1,401,336
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|
|
Accrued wages and payroll taxes
|
|
|
1,370,577
|
|
|
|
1,198,705
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|
|
Accrued property taxes
|
|
|
711,482
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|
|
|
653,385
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|
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Payable to horsepersons
|
|
|
171,355
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|
|
|
211,571
|
|
|
Income taxes payable
|
|
|
—
|
|
|
|
388,910
|
|
|
Total current liabilities
|
|
|
7,308,952
|
|
|
|
6,028,373
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|
|
|
|
|
|
|
|
|
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|
|
LONG-TERM LIABILITIES
|
|
|
|
|
|
|
|
|
|
Capital lease obligations - long term portion (Note 8)
|
|
|
2,592,731
|
|
|
|
—
|
|
|
Deferred income taxes (Note 3)
|
|
|
2,341,900
|
|
|
|
1,972,400
|
|
|
Stock appreciation rights (Note 5)
|
|
|
—
|
|
|
|
499,734
|
|
|
Total long-term liabilities
|
|
|
4,934,631
|
|
|
|
2,472,134
|
|
|
TOTAL LIABILITIES
|
|
|
12,243,583
|
|
|
|
8,500,507
|
|
|
|
|
|
|
|
|
|
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|
|
STOCKHOLDERS’ EQUITY (Notes 4 and 5)
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 10,000,000 shares authorized, 4,238,430 and 4,201,371, respectively, shares issued and outstanding
|
|
|
42,383
|
|
|
|
42,013
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|
|
Additional paid-in capital
|
|
|
18,019,658
|
|
|
|
17,589,349
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|
|
Retained earnings
|
|
|
15,035,458
|
|
|
|
13,363,810
|
|
|
Total stockholders’ equity
|
|
|
33,097,499
|
|
|
|
30,995,172
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
45,341,082
|
|
|
$
|
39,495,679
|
|
See notes to consolidated financial statements.
Table of Contents
CANTERBURY
PARK HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
YEARS
ENDED
December 31, 2015 AND 2014
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|
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|
|
|
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2015
|
|
|
2014
|
|
|
OPERATING REVENUES:
|
|
|
|
|
|
|
|
|
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Pari-mutuel
|
|
$
|
10,022,276
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$
|
10,193,239
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Card Casino
|
|
|
29,016,365
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|
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27,029,750
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Food and beverage
|
|
|
7,949,857
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|
|
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6,971,222
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|
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Other
|
|
|
5,425,754
|
|
|
|
4,445,210
|
|
|
Total Revenues
|
|
|
52,414,252
|
|
|
|
48,639,421
|
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Less: Promotional allowances
|
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|
(151,199
|
)
|
|
|
(169,584
|
)
|
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Net Revenues
|
|
|
52,263,053
|
|
|
|
48,469,837
|
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|
|
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|
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OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
Purse expense
|
|
|
6,494,743
|
|
|
|
6,283,788
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|
|
Minnesota Breeders’ Fund
|
|
|
833,646
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|
|
|
831,063
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|
|
Other pari-mutuel expenses
|
|
|
1,451,730
|
|
|
|
1,575,154
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|
|
Salaries and benefits
|
|
|
21,397,718
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|
|
|
19,648,677
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|
|
Cost of food and beverage and other sales
|
|
|
3,784,772
|
|
|
|
3,497,938
|
|
|
Depreciation
|
|
|
2,297,613
|
|
|
|
2,137,778
|
|
|
Utilities
|
|
|
1,305,903
|
|
|
|
1,333,141
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|
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Advertising and marketing
|
|
|
1,978,290
|
|
|
|
1,901,646
|
|
|
Gain on disposal of assets
|
|
|
(347,348
|
)
|
|
|
(500
|
)
|
|
Gain on sale of land
|
|
|
(659,562
|
)
|
|
|
—
|
|
|
Gain on insurance recoveries (Note 14)
|
|
|
(495,465
|
)
|
|
|
(957,597
|
)
|
|
Other operating expenses
|
|
|
9,607,146
|
|
|
|
8,118,824
|
|
|
Total Operating Expenses
|
|
|
47,649,186
|
|
|
|
44,369,912
|
|
|
INCOME FROM OPERATIONS
|
|
|
4,613,867
|
|
|
|
4,099,925
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSE (INCOME)
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(201
|
)
|
|
|
—
|
|
|
Interest income
|
|
|
3,005
|
|
|
|
2,407
|
|
|
Net Other Income
|
|
|
2,804
|
|
|
|
2,407
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
4,616,671
|
|
|
|
4,102,332
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE (Note 3)
|
|
|
(1,889,649
|
)
|
|
|
(1,691,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
2,727,022
|
|
|
$
|
2,411,155
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.65
|
|
|
$
|
0.58
|
|
|
Diluted earnings per share
|
|
$
|
0.64
|
|
|
$
|
0.57
|
|
See notes to consolidated financial statements.
Table of Contents
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
YEARS ENDED
December
31, 2015 AND 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Shares
|
|
|
Common
Stock
|
|
|
Additional
Paid-in Capital
|
|
|
Retained
Earnings
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
|
|
4,177,951
|
|
|
$
|
41,779
|
|
|
$
|
17,270,615
|
|
|
$
|
10,952,655
|
|
|
$
|
28,265,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
2,000
|
|
|
|
20
|
|
|
|
13,120
|
|
|
|
—
|
|
|
|
13,140
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
217,094
|
|
|
|
—
|
|
|
|
217,094
|
|
|
Tax expense from exercise of stock-based awards
|
|
|
—
|
|
|
|
—
|
|
|
|
7,895
|
|
|
|
—
|
|
|
|
7,895
|
|
|
Issuance of restricted stock
|
|
|
13,040
|
|
|
|
130
|
|
|
|
(130
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Shares issued under Employee Stock Purchase Plan
|
|
|
8,380
|
|
|
|
84
|
|
|
|
80,755
|
|
|
|
—
|
|
|
|
80,839
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,411,155
|
|
|
|
2,411,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
4,201,371
|
|
|
$
|
42,013
|
|
|
$
|
17,589,349
|
|
|
$
|
13,363,810
|
|
|
$
|
30,995,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
12,250
|
|
|
|
123
|
|
|
|
42,530
|
|
|
|
—
|
|
|
|
42,653
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
284,628
|
|
|
|
—
|
|
|
|
284,628
|
|
|
Tax benefit from exercise of stock-based awards
|
|
|
—
|
|
|
|
—
|
|
|
|
4,060
|
|
|
|
—
|
|
|
|
4,060
|
|
|
Dividend distribution
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,055,374
|
)
|
|
|
(1,055,374
|
)
|
|
Issuance of restricted stock
|
|
|
13,940
|
|
|
|
139
|
|
|
|
2,365
|
|
|
|
—
|
|
|
|
2,504
|
|
|
Shares issued under Employee Stock Purchase Plan
|
|
|
10,869
|
|
|
|
109
|
|
|
|
96,726
|
|
|
|
—
|
|
|
|
96,835
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,727,022
|
|
|
|
2,727,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
4,238,430
|
|
|
$
|
42,383
|
|
|
$
|
18,019,658
|
|
|
$
|
15,035,458
|
|
|
$
|
33,097,499
|
|
See notes to consolidated financial statements.
Table of Contents
CANTERBURY
PARK HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
YEARS
ENDED
December 31, 2015 AND 2014
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,727,022
|
|
|
$
|
2,411,155
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,297,613
|
|
|
|
2,137,778
|
|
|
Stock-based compensation expense
|
|
|
284,628
|
|
|
|
217,094
|
|
|
Stock appreciation rights
|
|
|
141,686
|
|
|
|
32,354
|
|
|
Deferred income taxes
|
|
|
383,500
|
|
|
|
313,700
|
|
|
Tax expense (benefit) from exercise of stock-based awards
|
|
|
(4,060
|
)
|
|
|
(7,895
|
)
|
|
Gain on disposal of assets
|
|
|
(1,006,910
|
)
|
|
|
(500
|
)
|
|
Gain on insurance proceeds
|
|
|
(495,465
|
)
|
|
|
(957,597
|
)
|
|
(Increase) decrease in cash resulting from changes in operating assets:
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
(493,877
|
)
|
|
|
69,822
|
|
|
Accounts receivable
|
|
|
36,813
|
|
|
|
146,297
|
|
|
Other current assets
|
|
|
255,555
|
|
|
|
95,467
|
|
|
Income taxes receivable/payable
|
|
|
(739,910
|
)
|
|
|
727,477
|
|
|
Increase (decrease) in cash resulting from changes in operating liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued wages and payroll taxes
|
|
|
666,978
|
|
|
|
(532,739
|
)
|
|
Card Casino accruals
|
|
|
357,978
|
|
|
|
(144,787
|
)
|
|
Accrued property taxes
|
|
|
58,097
|
|
|
|
2,588
|
|
|
Payable to horsepersons
|
|
|
(40,216
|
)
|
|
|
203,370
|
|
|
Due from MHBPA
|
|
|
—
|
|
|
|
(123,473
|
)
|
|
Net cash provided by operating activities
|
|
|
4,429,432
|
|
|
|
4,590,111
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
Additions to buildings and equipment
|
|
|
(4,341,792
|
)
|
|
|
(5,657,743
|
)
|
|
Deposit for land purchase funded by capital lease
|
|
|
(260,000
|
)
|
|
|
—
|
|
|
Proceeds from sale of assets
|
|
|
99,441
|
|
|
|
500
|
|
|
Proceeds from insurance claims
|
|
|
495,466
|
|
|
|
988,597
|
|
|
Purchase of investments
|
|
|
(667
|
)
|
|
|
(623
|
)
|
|
Net cash used in investing activities
|
|
|
(4,007,552
|
)
|
|
|
(4,669,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
Cash dividend paid to shareholders
|
|
|
(1,055,374
|
)
|
|
|
—
|
|
|
Proceeds from issuance of common stock
|
|
|
141,621
|
|
|
|
93,979
|
|
|
Tax benefit (expense) from exercise of stock-based awards
|
|
|
4,060
|
|
|
|
7,895
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(909,693
|
)
|
|
|
101,874
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(487,813
|
)
|
|
|
22,716
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
|
|
8,761,925
|
|
|
|
8,739,209
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
8,274,112
|
|
|
$
|
8,761,925
|
|
Table of Contents
CANTERBURY
PARK HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS (
continued
)
YEARS
ENDED
December 31, 2015 AND 2014
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Schedule of non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
|
Additions to buildings and equipment funded through accounts payable
|
|
$
|
130,934
|
|
|
$
|
46,157
|
|
|
Additions to land funded by capital lease borrowings
|
|
|
3,178,294
|
|
|
|
—
|
|
|
Purchase of land through qualified intermediary
|
|
|
4,881,000
|
|
|
|
—
|
|
|
Cancellation of stock appreciation rights
|
|
|
641,420
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from land sale remitted to qualified intermediary
|
|
$
|
1,459,042
|
|
|
$
|
—
|
|
|
Payment for purchase of land remitted from qualified intermediary
|
|
|
1,442,706
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable from qualified intermediary
|
|
$
|
16,336
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Income taxes paid, net of refunds
|
|
$
|
1,930,000
|
|
|
$
|
650,000
|
|
See notes to consolidated financial statements.
Table of Contents
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED December 31, 2015
AND 2014
|
|
1.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Business
– Canterbury Park Holding Corporation
(the “Company”) was incorporated on March 24, 1994 and conducts pari-mutuel wagering operations and hosts “unbanked”
card games at its Canterbury Park Racetrack and Card Casino facility (the “Racetrack”) in Shakopee, Minnesota.
The Company’s pari-mutuel wagering operations include
both wagering on thoroughbred and quarter horse races during live meets at the Racetrack each year from May until September and
year-round wagering on races held at out-of-state racetracks that are televised simultaneously at the Racetrack (“simulcasting”).
Unbanked card games, in which patrons compete against each other, are hosted in the Card Casino at the Racetrack. The Card Casino
operates 24 hours a day, seven days a week. The Card Casino offers both poker and table games at up to 80 tables. The Company also
derives revenues from related services and activities, such as food and beverage, parking, advertising signage, publication sales
and from other entertainment events and activities held at the Racetrack.
The consolidated financial statements include the accounts
of the Company, Canterbury Park Concessions, Inc. (CPC), and Shakopee Valley RV Park Acquisition Company, LLC after elimination
of intercompany accounts and transactions.
Revenue Recognition –
The Company’s
revenues are derived primarily from the operations of a Card Casino, pari-mutuel wagering on simulcast and live horse races, food
and beverage sales, and related activities. Collection revenue from Card Casino operations, a set percentage of wagers, is recognized
at the time that the wagering process is complete. Pari-mutuel revenues are recognized upon occurrence of the live race that is
presented for wagering and after that live race is made official by the respective state’s racing regulatory body. Revenues
related to food and beverage and publication sales and parking and admission fees are recognized as revenue when the service has
been performed or the product has been delivered. All sales taxes are presented on a net basis and are excluded from revenue.
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.
Cash and Cash Equivalents
– Cash and cash
equivalents include all investments with original maturities of three months or less or which are readily convertible into known
amounts of cash and are not legally restricted. The Company has not experienced any losses in such accounts and believes it is
not exposed to any significant credit risk on cash and cash equivalents.
Restricted Cash
– Restricted cash represents
refundable deposits and amounts due to horsemen for purses, stakes and awards, and amounts accumulated in card game progressive
jackpot pools, the player pool and poker promotional fund to be used to repay card players in the form of promotions, giveaways,
prizes, or by other means.
Short-term Investments
– Securities
are classified as held to maturity when the Company has the positive intent and ability to hold them to maturity, and are measured
at amortized cost. At December 31, 2015 and 2014, all investments were classified as held-to-maturity. The Company continually
reviews its investments to determine whether a decline in fair value below the cost basis is other than temporary. If the
decline in fair value is judged to be other than temporary, the cost basis of the security is written down to fair value and the
amount of the write-down is included in earnings. Short-term investments consist of certificates of deposit at December 31,
2015 and 2014. Amortized cost approximated fair value for both periods.
Table of Contents
Accounts Receivable
– Accounts receivable
are initially recorded for amounts due from other tracks for simulcast revenue, net of amounts due to other tracks, and for amounts
due from customers related to catering and events. Credit is granted in the normal course of business without collateral. Accounts
receivable are stated net of allowances for doubtful accounts, which represent estimated losses resulting from the inability of
customers to make the required payments. Accounts that are outstanding longer than the contractual terms are considered past due.
When determining the allowances for doubtful accounts, the Company takes several factors into consideration including the overall
composition of the accounts receivable aging, its prior history of accounts receivable write-offs, the type of customers and its
day-to-day knowledge of specific customers. The Company writes off accounts receivable when they become uncollectible. Changes
in the allowances for doubtful accounts are recorded as bad debt expense and are included in other operating expenses in the Company’s
consolidated statements of operations.
Inventory –
Inventory consists primarily
of food and beverages, small wares and supplies and retail goods and is recorded at the lower of cost (first-in, first-out) or
market.
Unredeemed Pari-mutuel Tickets
– The Company
records a liability for winning tickets and vouchers upon the completion of a race and when a voucher is printed, respectively.
As uncashed winning tickets and vouchers are redeemed, this liability is reduced for the respective cash payment. The Company recognizes
revenue associated with the uncashed winning tickets and vouchers when the likelihood of redemption, based on historical experience,
is remote. While the Company continues to honor all winning tickets and vouchers presented for payment, management may determine
the likelihood of redemption to be remote due to the length of time that has elapsed since the ticket was issued. In these circumstances,
if management also determines there is no requirement for remitting balances to government agencies under unclaimed property laws,
uncashed winning tickets and vouchers may then be recognized as revenue in the Company’s consolidated statements of operations.
Promotional Allowances –
The Company offers
certain promotional allowances at no charge to patrons who participate in its player rewards program. The retail value of these
promotional items is shown as a deduction from total revenues on the Company’s consolidated statements of operations.
Due to Minnesota Horsemen’s Benevolent and Protective
Association, Inc. (“MHBPA”)
– The Minnesota Pari-mutuel Horse Racing Act specifies that the Company is required
to segregate a portion of funds (recorded as purse expense in the statements of operations), received from Card Casino operations
and wagering on simulcast and live horse races, for future payment as purses for live horse races or other uses of the horsepersons’
associations. Pursuant to an agreement with the MHBPA, the Company transferred into a trust account or paid directly to the MHBPA,
approximately $5,429,000 and $5,850,000 for the years ended December 31, 2015 and 2014, respectively, related to thoroughbred races.
Minnesota Statutes specify that amounts transferred into the trust account are the property of the trust and not of the Company.
Impairment of Long-Lived Assets
– The Company reviews its
long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In the
event that facts and circumstances indicate that the carrying value of any long-lived assets may be impaired, an evaluation of
recoverability would be performed. If the sum of the expected undiscounted cash flows is less than the carrying value of
the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the
asset or group of assets. During 2015 and 2014, the Company determined that no evaluations of recoverability were necessary.
Advertising and Marketing
– Advertising
and marketing costs are charged to expense as incurred. The related amounts are presented separately in the Company’s consolidated
statements of operations.
Land, Buildings, and Equipment
– Land, buildings,
equipment, and building improvements are capitalized at a level of $1,000 or greater and are recorded at cost. Repair and maintenance
costs are charged to operations when incurred. Furniture, fixtures, and equipment are depreciated using the straight-line method
over estimated useful lives ranging from 5 – 7 years, while buildings are depreciated over 15 – 39 years. Building
improvements are amortized using the straight-line method over the useful life of the assets.
Table of Contents
Card Casino Accruals
– Minnesota law allows
the Company to collect amounts from patrons to fund progressive jackpot pools in the Card Casino. These amounts, along with amounts
earned by the player pool, promotional pools, and the outstanding chip liability, are accrued as short-term liabilities at each
balance sheet date.
Income Taxes
– Income taxes are accounted
for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences
attributable 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.
The Company recognizes the financial statement benefit
of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following
an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the
largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.
Interest and penalties associated with uncertain income
tax positions are presented in income tax expense. For the years ended December 31, 2015 and 2014, the Company did not recognize
any expense related to interest and penalties.
Net Income Per Share
– Basic net income
per common share is based on the weighted average number of common shares outstanding during each year. Diluted net income per
common share takes into effect the dilutive effect of potential common shares outstanding. The Company’s only potential common
shares outstanding are stock options.
Fair
Values of Financial Instruments
–
Due to the current classification of all financial instruments, expect for the capital lease obligation, and given the short-term
nature of the related account balances, carrying amounts reported in the consolidated balance sheets approximate fair value. The
capital lease obligation interest rate is consistent with market rates of similar debt obligations.
Stock-Based Employee Compensation
– The
Company accounts for share-based compensation awards on a fair value basis. The estimated grant date fair value of each stock-based
award is recognized as expense over the requisite service period (generally the vesting period). The estimated fair value of each
option is calculated using the Black-Scholes option-pricing model. For more information on the Company’s stock-based compensation
plans, see Note 5.
Reclassifications
– Prior period financial
statement amounts have been reclassified to conform to current period presentations. Insurance recovery gains received in the third
quarter of 2015 have been reclassified on the
Consolidated Statement of Operations
to
Gain on insurance recoveries
from
Other Revenue
in the amount of $120,100.
Recent Accounting Pronouncement –
In November
2015, the FASB issued Accounting Standards Update (“ASU”) 2015-17,
Balance Sheet Classification of Deferred Taxes
,
which simplifies the presentation of deferred tax assets and liabilities by requiring the deferred tax assets and liabilities be
presented as non-current on the balance sheet. We early adopted this guidance, prospectively, for the year ended December 31, 2015.
In August 2014, the FASB issued ASU No. 2014-15,
Disclosure
of Uncertainties about an Entity’s Ability to Continue as a Going Concern
, which explicitly requires management to assess
an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances.
Management will be required to assess, in each interim and annual period, if there is substantial doubt of an entity’s ability
to continue as a going concern as evidenced by relevant known or knowable conditions including an entity’s ability to meet
its future obligations. Management will be required to provide disclosures regardless of whether substantial doubt is alleviated
by management’s plans. The guidance will become effective for annual fiscal periods ending after December 15, 2016.
Table of Contents
In May, 2014, the FASB issued ASU No. 2014-09,
Revenue
from Contracts with Customers
(“ASU 2014-09”). ASU 2014-09 is a new comprehensive standard for revenue recognition
that is based on the core principle that revenue be recognized in a manner that depicts the transfer of goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The new guidance implements a five-step process for customer contract revenue recognition. The guidance also requires enhanced
disclosures relating to the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers.
This new guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within
that reporting period, and early adoption is prohibited. Entities can transition to the new guidance either retrospectively or
as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the impact of the amended revenue recognition
guidance on the Company’s consolidated financial statements but does not believe it will have a significant impact.
|
|
2.
|
LAND, BUILDINGS AND EQUIPMENT
|
Land, buildings and equipment, at cost, consist
of the following at December 31, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Land
|
|
$
|
10,897,378
|
|
|
$
|
6,673,076
|
|
|
Buildings and building improvements
|
|
|
28,521,564
|
|
|
|
26,522,813
|
|
|
Furniture and equipment
|
|
|
20,236,965
|
|
|
|
18,890,728
|
|
|
|
|
|
59,655,907
|
|
|
|
52,086,617
|
|
|
Accumulated depreciation
|
|
|
(25,538,147
|
)
|
|
|
(24,010,738
|
)
|
|
|
|
$
|
34,117,760
|
|
|
$
|
28,075,879
|
|
A reconciliation between income taxes computed at
the statutory federal income tax rate and the effective tax rate for the years ended December 31, 2015 and 2014 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Federal tax expense at statutory rates
|
|
$
|
1,569,667
|
|
|
$
|
1,394,793
|
|
|
Nondeductible lobbying expense
|
|
|
25,536
|
|
|
|
29,518
|
|
|
State expense, net of federal impact
|
|
|
312,950
|
|
|
|
280,263
|
|
|
Stock option expense
|
|
|
(910
|
)
|
|
|
(364
|
)
|
|
Other
|
|
|
(17,594
|
)
|
|
|
(13,033
|
)
|
|
|
|
$
|
1,889,649
|
|
|
$
|
1,691,177
|
|
On December 31, 2015, the Company adopted
ASU
2015-17 - Balance Sheet Classification of Deferred Taxes
and all deferred taxes were prospectively recorded as non-current
liabilities.
Income tax expense for the years ended December
31, 2015 and 2014 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
932,257
|
|
|
$
|
1,070,360
|
|
|
State
|
|
|
321,992
|
|
|
|
307,117
|
|
|
|
|
|
1,254,249
|
|
|
|
1,377,477
|
|
|
Deferred, primarily Federal
|
|
|
635,400
|
|
|
|
313,700
|
|
|
|
|
$
|
1,889,649
|
|
|
$
|
1,691,177
|
|
Table of Contents
Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes.
Significant components of the Company’s deferred
tax assets and liabilities as of December 31, 2015 and 2014 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
Vacation accrual
|
|
$
|
79,600
|
|
|
$
|
73,300
|
|
|
Player rewards program accrual
|
|
|
191,600
|
|
|
|
202,100
|
|
|
Stock options and stock appreciation rights
|
|
|
256,300
|
|
|
|
404,300
|
|
|
Tax depreciation greater than book depreciation
|
|
|
(2,408,400
|
)
|
|
|
(2,254,200
|
)
|
|
Deferred gain on sale of land
|
|
|
(453,800
|
)
|
|
|
(104,000
|
)
|
|
Other
|
|
|
(7,200
|
)
|
|
|
(28,000
|
)
|
|
Net long-term deferred tax (liabilities) assets
|
|
$
|
(2,341,900
|
)
|
|
$
|
(1,706,500
|
)
|
The Company is subject to U.S. and Minnesota taxation.
The Company is no longer subject to U.S. federal, state, or local examinations by tax authorities for years before 2012.
Employee Stock Purchase Plan:
The Company offers an Employee Stock Purchase Plan
(the “ESPP”) that is open to all employees working more than 15 hours per week. Shares of the Company’s common
stock may be purchased by employees at three-month intervals at 90% of the fair market value on the last trading day of each three-month
period. Employees purchased 10,869 and 8,380 shares in 2015 and 2014, respectively. As of December 31, 2015, a total of 279,200
shares have been issued since inception out of the 350,000 shares authorized.
KSOP:
The Company offers a KSOP Plan (the “KSOP”)
that includes the Employee Stock Ownership Plan (the “ESOP”) and the 401(k) Plan. The KSOP allows the Company to use
Company stock to match contributions from its employees should it so choose. The KSOP is available to eligible employees who had
completed six months of service. There was no match of Company stock to the KSOP in 2015 or 2014. Employer contributions charged
to operations for the years ended December 31, 2015 and 2014 were $195,000 and $154,000, respectively, for cash matching of employee
contributions.
Stock Repurchase Plan:
On August 24, 2012, the Company announced that its
Board of Directors had authorized the repurchase of up to 100,000 shares of the Company’s common stock. No shares were repurchased
in 2015 or 2014.
|
|
5.
|
STOCK-BASED COMPENSATION
|
Stock-based compensation is recorded at fair value
as of the date of grant, is included in the salaries and benefits expense line item on the consolidated statements of operations
and amounted to approximately $285,000 and $217,000 for the years ended December 31, 2015 and 2014, respectively.
Stock Options:
The Company’s 1994 Stock Plan (the “Plan”)
provides for the granting of awards in the form of stock options, restricted stock, stock appreciation rights, and deferred stock
to key employees and non-employees, including directors of and consultants to the Company and any subsidiary, to purchase up to
a maximum of 1,450,000 shares of common stock. The Company currently has 159,100 shares available for grant under the Plan. The
Plan is administered by the Board of Directors which determines the persons who are to receive awards under the Plan, the type
of award to be granted, the number of shares subject to each award and, if an option, the exercise price of each option.
Table of Contents
The Plan provides that payment of the exercise price
may be made in the form of unrestricted shares of common stock already owned by the optionee. The Company calculates the fair market
value of unrestricted shares as the average of the high and low sales prices on the date of the option exercise. The Company’s
common stock is purchased upon the exercise of stock options, and restricted stock awards are settled in shares of the Company’s
common stock.
Stock option activity related to the Plan during
the years ended December 31, 2015 and 2014 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Number of
|
|
|
Exercise
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
255,252
|
|
|
$
|
9.63
|
|
|
|
271,752
|
|
|
$
|
9.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
(12,250
|
)
|
|
|
6.70
|
|
|
|
(2,000
|
)
|
|
|
6.57
|
|
|
Expired/Forfeited
|
|
|
(20,000
|
)
|
|
|
15.11
|
|
|
|
(14,500
|
)
|
|
|
16.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
223,002
|
|
|
$
|
9.30
|
|
|
|
255,252
|
|
|
$
|
9.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of year
|
|
|
223,002
|
|
|
$
|
9.30
|
|
|
|
255,252
|
|
|
$
|
9.63
|
|
The grant-date fair value of options outstanding
and exercisable at December 31, 2015 and 2014 was $687,000 and $908,000, respectively. The weighted average remaining contractual
term of these options is 3.1 years.
There were no options granted in 2015 or 2014. The
total fair value of options exercised during the years ended December 31, 2015 and 2014 was $24,000 and $3,500, respectively. The
total income tax benefit recognized in the consolidated statements of operations for stock-based compensation arrangements was
$4,000 and $8,000 for 2015 and 2014, respectively.
The following table summarizes information concerning
all options outstanding and options exercisable as of December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
Average
|
|
Aggregate
|
|
|
|
Average
|
|
Aggregate
|
|
|
Range of
|
|
Number
|
|
Life
|
|
Exercise
|
|
Intrinsic
|
|
Number
|
|
Exercise
|
|
Intrinsic
|
|
|
Exercise Price
|
|
Outstanding
|
|
Remaining
|
|
Price
|
|
Value
|
|
Exercisable
|
|
Price
|
|
Value
|
|
|
$
|
6.00 - 7.05
|
|
77,252
|
|
3.4
|
|
$
|
6.20
|
|
$
|
102,010
|
|
77,252
|
|
$
|
6.20
|
|
$
|
102,010
|
|
|
$
|
8.28 - 9.15
|
|
70,750
|
|
4.2
|
|
$
|
8.28
|
|
|
268,143
|
|
70,750
|
|
$
|
8.28
|
|
|
268,143
|
|
|
$
|
11.35 - 14.55
|
|
75,000
|
|
1.7
|
|
$
|
13.45
|
|
|
—
|
|
75,000
|
|
$
|
13.45
|
|
|
—
|
|
|
|
Total
|
|
223,002
|
|
3.1
|
|
$
|
9.30
|
|
$
|
370,153
|
|
223,002
|
|
$
|
9.30
|
|
$
|
370,153
|
|
Table of Contents
Board of Directors Stock Option and
Restricted Stock Grants
The Company’s
Stock Plan was amended to authorize annual grants
to non-employee members of the Board of
Directors of restricted stock or stock options, or both, as determined by the Board. Options granted under the Plan generally expire
ten years after the grant date and generally become exercisable over a four year period. Generally the restricted stock vests 100%
after one year and is subject to restrictions on resale for an additional year.
Restricted stock awards
are subject to forfeiture if a board member terminates prior to the shares vesting. A summary of changes in Board of Directors
unvested restricted stock as December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Restricted
|
|
|
Fair Value
|
|
|
|
|
|
Stock
|
|
|
Per
Share
|
|
|
Non-Vested Balance, December 31, 2013
|
|
|
|
18,290
|
|
|
$
|
10.52
|
|
|
Granted
|
|
|
|
13,040
|
|
|
|
10.61
|
|
|
Vested
|
|
|
|
(18,290
|
)
|
|
|
10.52
|
|
|
Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
Non-Vested Balance, December 31, 2014
|
|
|
|
13,040
|
|
|
$
|
10.61
|
|
|
Granted
|
|
|
|
13,940
|
|
|
|
10.76
|
|
|
Vested
|
|
|
|
(13,040
|
)
|
|
|
10.61
|
|
|
Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
Non-Vested Balance, December 31, 2015
|
|
|
|
13,940
|
|
|
$
|
10.76
|
|
Employee Deferred Stock Award Grants
Employee deferred stock awards
are subject to forfeiture if an employee terminates prior to the vesting. Generally, the awards vest ratably over a four-year period
and compensation costs are recognized over the vesting period. Compensation costs are recorded in “Salaries and benefits”
on the Consolidated Statements of Operations.
Table of Contents
A summary of the changes in employee unvested deferred
stock award grants as of December 31, 2015, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Deferred
|
|
|
Fair Value
|
|
|
|
|
|
Stock
|
|
|
Per
Share
|
|
|
Non-Vested Balance, December 31, 2013
|
|
|
|
16,125
|
|
|
$
|
9.87
|
|
|
Granted
|
|
|
|
23,000
|
|
|
|
10.46
|
|
|
Vested
|
|
|
|
(4,375
|
)
|
|
|
9.84
|
|
|
Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
Non-Vested Balance, December 31, 2014
|
|
|
|
34,750
|
|
|
$
|
10.27
|
|
|
Granted
|
|
|
|
1,000
|
|
|
|
10.01
|
|
|
Vested
|
|
|
|
(11,125
|
)
|
|
|
10.17
|
|
|
Forfeited
|
|
|
|
(750
|
)
|
|
|
—
|
|
|
Non-Vested Balance, December 31, 2015
|
|
|
|
23,875
|
|
|
$
|
10.31
|
|
At December 31, 2015, there was approximately $230,000
of total unrecognized stock-based compensation expense related to unvested restricted stock and deferred stock awards the Company
expects to recognize over a weighted-average period of 1.5 years.
Stock Appreciation
Rights (“SARs”)
As part of the Cooperative Marketing Agreement discussed
in Note 12, on June 14, 2012, the Company signed a Stock Appreciation Rights Agreement (the “SAR Agreement”) and issued
SARs to non-employees. The SAR Agreement granted rights to non-employees to benefit from the appreciation in the value of 165,000
shares of Company common stock above $14.30 per share, a price agreed upon by the two parties. Each right represents the right
to be paid the appreciation in the value of one share of stock above $14.30. Ten percent of the rights (16,500 rights) vested immediately
and the remaining rights vest at the rate of 16,500 per year beginning in January 2013. As of December 31, 2015, 0 rights had vested.
The SAR Agreement provides for the cash payment of the excess of the fair market value of Canterbury Park Holding Corporation’s
common stock price on the date of exercise over the grant price. SARs have no effect on dilutive shares or shares outstanding as
any appreciation of the Company’s common stock value over the grant price is paid in cash and not in common stock.
The fair value of SARs is revalued (mark-to-market)
each reporting period using the Black-Scholes valuation model based on the Company’s period-end stock price. The expected
term of the SARs granted is based on the contractual term. Expected volatility is based on the historical volatility of the Company’s
stock for the length of time corresponding to the expected term of the SARs. The expected dividend yield is based on the Company’s
anticipated dividend payments. The risk-free interest rate is based on the U.S. treasury yield curve in effect as of the reporting
date for the length of time corresponding to the expected term of the SARs.
On July 30, 2015, the Company sold the land and buildings
related to the Shakopee Valley RV Park located in Shakopee, Minnesota to SMSC (“Shakopee Mdewakanton Sioux Community”)
for $100,000 plus the cancellation of the vested and unvested SARs. The sale resulted in a $347,000 gain on the
Consolidated
Statements of Operations - Gain on disposal of assets.
Table of Contents
Changes to the Company’s non-vested SARs during
the years ended December 31, 2015 and 2014, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
SARs
|
|
|
Weighted
Average Fair Value
|
|
|
Non-vested SARs at December 31, 2013
|
|
|
|
132,000
|
|
|
$
|
5.41
|
|
|
Granted
|
|
|
|
—
|
|
|
|
—
|
|
|
Vested
|
|
|
|
(16,500
|
)
|
|
|
4.50
|
|
|
Cancellations
|
|
|
|
—
|
|
|
|
—
|
|
|
Non-vested SARs at December 31, 2014
|
|
|
|
115,500
|
|
|
$
|
4.50
|
|
|
Granted
|
|
|
|
—
|
|
|
|
—
|
|
|
Vested
|
|
|
|
(16,500
|
)
|
|
|
5.04
|
|
|
Cancellations
|
|
|
|
(99,000
|
)
|
|
|
5.39
|
|
|
Non-vested SARs at December 31, 2015
|
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
6.
|
NET INCOME PER SHARE COMPUTATIONS
|
The following is a reconciliation of the numerator
and denominator of the net income per common share computations for the years ended December 31, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
Net income (numerator) amounts used for basic and diluted per share computations:
|
|
$
|
2,727,022
|
|
|
$
|
2,411,155
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares (denominator) of common stock outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,227,862
|
|
|
|
4,180,547
|
|
|
Plus dilutive effect of stock options
|
|
|
12,718
|
|
|
|
14,406
|
|
|
Diluted
|
|
|
4,240,580
|
|
|
|
4,194,953
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.65
|
|
|
$
|
0.58
|
|
|
Diluted
|
|
|
0.64
|
|
|
|
0.57
|
|
Options to purchase 75,000 shares of common stock
at an average of $13.45 per share were outstanding but not included in the computation of diluted net income per share at December
31, 2015 because the options were out of the money at December 31, 2015.
Options to purchase 90,000 shares of common stock
at an average of $14.06 per share were outstanding but not included in the computation of diluted net income per share at December
31, 2014 because the options were out of the money at December 31, 2014.
|
|
7.
|
GENERAL CREDIT AGREEMENT
|
The Company has a general credit and security agreement
with Bremer Bank, which provides a revolving credit line of up to $3,000,000 and expires May 4, 2016. The Company had no borrowings
under the credit line during the years ended December 31, 2015 or 2014. The credit agreement contains certain covenants requiring
the Company to maintain certain financial ratios. The Company was in compliance with these requirements as of December 31, 2015.
Table of Contents
|
|
8.
|
LEASES AND COMMITMENTS
|
Capital Lease Obligations
On December 14, 2015, the Company entered into a
five-year lease agreement (the “Agreement”) for approximately 32 acres of land adjacent to the Racetrack for a total
purchase price (net present value of minimum lease payments) of $4.9 million. See
Note 14. Land Sales and Purchase
, for
additional information on the land purchase. Title to the land will transfer to the Company at the end of the lease or when all
payments have been made, if earlier. As part of the agreement, the Company paid the seller $1.7 million upon execution of the Agreement,
including $1.4 million of proceeds from a prior land sale which was being held by an unrelated third party. The lease payments
are payable monthly at $58,533, with an interest rate of 4.0% and a maturity date of December 15, 2020.
The
following table shows the future minimum lease payments under the capital lease by years and the present value of the minimum
lease payments as of December 31, 2015:
|
|
|
|
|
|
|
Year
ending December 31,
|
|
|
Amount
|
|
|
|
|
|
|
|
|
2016
|
|
|
$
|
702,397
|
|
|
2017
|
|
|
|
702,397
|
|
|
2018
|
|
|
|
702,397
|
|
|
2019
|
|
|
|
702,397
|
|
|
2020
|
|
|
|
702,768
|
|
|
Total minimum lease payments
|
|
|
|
3,512,358
|
|
|
Less: Amount representing interest
|
|
|
|
(334,064
|
)
|
|
Present value of minimum lease payments
|
|
|
|
3,178,294
|
|
|
Less: Current portion
|
|
|
|
(585,563
|
)
|
|
Long-term portion
|
|
|
$
|
2,592,731
|
|
As
of December 31, 2015, the present value of minimum lease payments due within one year is $586,000.
Purchase Obligations
In March 2014, the Company entered into a seven-year
agreement with a new totalizator provider. Pursuant to the agreement, the vendor provides totalizator equipment and related software
which records and processes all wagers and calculates odds and payoffs. The amounts charged to operations for totalizator expenses
for the years ended December 31, 2015 and 2014 were $224,000 and $226,000, respectively.
Operating Lease Obligations
The Company has entered into operating leases for
rental of office equipment and for track equipment to maintain the Racetrack. Amounts charged to operations under these agreements
for the years ended December 31, 2015 and 2014 were $145,000 and $140,000, respectively. All such leases expire in or before February
2018.
Future minimum operating lease payments and purchase
obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment due by
period
|
|
|
Obligations
|
|
Total Amount
Committed
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
58,900
|
|
|
$
|
29,200
|
|
|
$
|
27,300
|
|
|
$
|
2,400
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Purchases
|
|
$
|
1,152,000
|
|
|
$
|
226,000
|
|
|
$
|
228,000
|
|
|
$
|
230,000
|
|
|
$
|
233,000
|
|
|
$
|
235,000
|
|
|
$
|
—
|
|
Table of Contents
Canterbury Park Holding Corporation was incorporated
on March 24, 1994. On March 29, 1994, the Company acquired all the outstanding securities of Jacobs Realty, Inc. (“JRI”)
from Irwin Jacobs and IMR Fund, L.P. (an investment fund for various pension plans and trusts). JRI was merged into the Company,
and the acquisition was accounted for under the purchase method of accounting whereby the acquired assets and liabilities have
been recorded at the Company’s cost. The primary asset of JRI was Canterbury Downs Racetrack and the 325 acres of surrounding
land.
On May 20, 1994, the Company adopted a plan of Reorganization
pursuant to which the sole shareholder of Canterbury Park Concessions, Inc. (“CPC”), and majority shareholder of the
Company, agreed to exchange his shares of CPC stock for 198,888 shares of the Company’s common stock concurrent with the
closing of a public offering. Pursuant to the Plan of Reorganization, CPC became a wholly-owned subsidiary of the Company in August
1994 when the Company completed the initial public offering of its common stock. This reorganization was treated in a manner similar
to a pooling of interests. Net proceeds received by the Company from the public offering were approximately $4,847,000, which along
with additional borrowings under the Company’s line of credit with the majority shareholder, were used to pay off the remaining
notes payable from the acquisition of JRI.
In connection with the purchase of the Racetrack,
the Company entered into an Earn Out Promissory Note dated March 29, 1994. In accordance with the Earn Out Note, 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.
Additionally, the Company entered into a Cooperative
Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community (“SMSC”) which became effective
on June 15, 2012 and was amended in January 2015 and 2016. The CMA contains certain covenants which, if breached, would trigger
an obligation to repay a specified amount related to such covenant. At this time, management believes that the likelihood that
the breach of a covenant will occur and that the Company will be required to pay the specified amount related to such covenant
is remote.
The Company is periodically involved
in various claims and legal actions arising in the normal course of business. Management believes that the resolution of any pending
claims and legal actions at December 31, 2015 and as of the date of this report will not have a material impact on the Company’s
consolidated financial positions or results of operations.
The Company has committed to payment of statutory
distributions under a $500,000 bond issued to the Minnesota Racing Commission as required by Minnesota statute. The Company was
not required to make any payments related to this bond in 2015 or 2014, and there is no liability related to this bond on the balance
sheet as of December 31, 2015.
Table of Contents
The Company has three reportable operating segments:
horse racing, Card Casino, and food and beverage. The horse racing segment primarily represents simulcast and live horse racing
operations. The Card Casino segment represents operations of Canterbury Park’s Card Casino, and the food and beverage segment
represents food and beverage operations provided during simulcast and live racing, in the Card Casino, and during special events.
The Company’s 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 process to produce
those products and services. The Minnesota Racing Commission regulates the horse racing and Card Casino segments.
Depreciation, interest expense and income taxes are
allocated to the segments but no allocation is made to food and beverage for shared facilities. However, the food and beverage
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.
The following tables provide information about the
Company’s operating segments (in 000’s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December
31, 2015
|
|
|
|
|
Horse
Racing
|
|
|
Card
Casino
|
|
|
Concessions
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues from external customers
|
|
$
|
14,979
|
|
|
$
|
29,016
|
|
|
$
|
8,268
|
|
|
$
|
52,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
|
750
|
|
|
|
—
|
|
|
|
1,397
|
|
|
2,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,737
|
|
|
|
423
|
|
|
|
138
|
|
|
2,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment (loss) income before income taxes
|
|
|
(1,209
|
)
|
|
|
5,806
|
|
|
|
1,363
|
|
|
5,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
2015
|
|
|
Segment Assets
|
|
$
|
44,283
|
|
|
$
|
795
|
|
|
$
|
17,303
|
|
|
$
|
62,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2014
|
|
|
|
|
Horse
Racing
|
|
|
Card
Casino
|
|
|
Concessions
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues from external customers
|
|
$
|
14,460
|
|
|
$
|
27,030
|
|
|
$
|
6,980
|
|
|
$
|
48,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
|
620
|
|
|
|
—
|
|
|
|
1,381
|
|
|
|
2,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,601
|
|
|
|
422
|
|
|
|
115
|
|
|
|
2,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment (loss) income before income taxes
|
|
|
(882
|
)
|
|
|
5,238
|
|
|
|
1,467
|
|
|
|
5,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
2014
|
|
|
Segment Assets
|
|
$
|
37,606
|
|
|
$
|
1,217
|
|
|
$
|
15,595
|
|
|
$
|
54,418
|
|
The
following are reconciliations of reportable segment revenues, income before income taxes, and assets, to the Company’s consolidated
totals for the years ended December 31, 2015 and 2014 (in 000’s):
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Total net revenue for reportable segments
|
|
$
|
54,410
|
|
|
$
|
50,471
|
|
|
Elimination of intersegment revenues
|
|
|
(2,147
|
)
|
|
|
(2,001
|
)
|
|
Total consolidated net revenues
|
|
$
|
52,263
|
|
|
$
|
48,470
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
Total segment income before income taxes
|
|
$
|
5,960
|
|
|
$
|
5,823
|
|
|
Elimination of intersegment income before income taxes
|
|
|
(1,343
|
)
|
|
|
(1,721
|
)
|
|
Total consolidated income before income taxes
|
|
$
|
4,617
|
|
|
$
|
4,102
|
|
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
December
31,
2015
|
|
|
December
31,
2014
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Total assets for reportable segments
|
|
$
|
62,381
|
|
|
$
|
54,418
|
|
|
Elimination of intercompany receivables
|
|
|
(17,040
|
)
|
|
|
(14,922
|
)
|
|
Total consolidated assets
|
|
$
|
45,341
|
|
|
$
|
39,496
|
|
|
|
11.
|
SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 Quarter Ended
|
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
9,881,038
|
|
|
$
|
14,848,077
|
|
|
$
|
16,731,568
|
|
|
$
|
10,802,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
9,218,732
|
|
|
|
13,879,109
|
|
|
|
15,344,057
|
|
|
|
9,207,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
388,680
|
|
|
|
571,650
|
|
|
|
813,059
|
|
|
|
953,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
|
0.09
|
|
|
|
0.14
|
|
|
|
0.19
|
|
|
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
|
0.09
|
|
|
|
0.14
|
|
|
|
0.19
|
|
|
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 Quarter Ended
|
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
9,374,454
|
|
|
$
|
13,784,714
|
|
|
$
|
15,046,958
|
|
|
$
|
10,263,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
8,681,623
|
|
|
|
13,032,832
|
|
|
|
13,982,105
|
|
|
|
8,673,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
406,007
|
|
|
|
442,934
|
|
|
|
623,306
|
|
|
|
938,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
|
0.10
|
|
|
|
0.11
|
|
|
|
0.15
|
|
|
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
|
0.10
|
|
|
|
0.11
|
|
|
|
0.15
|
|
|
|
0.22
|
|
Table of Contents
|
|
12.
|
COOPERATIVE MARKETING AGREEMENT
|
On June 4, 2012, the Company entered into the CMA
with the SMSC. The primary purpose of the CMA is to increase purses paid during live horse racing at Canterbury Park’s Racetrack
in order to strengthen Minnesota’s thoroughbred and quarter horse through horse industry. Under the CMA, as amended, this
is achieved through “Purse Enhancement Payments to Horsemen” paid directly to the MHBPA. Such payments have no direct
impact on the Company’s consolidated financial statements or operations.
Under the terms of the CMA, as amended, the SMSC
paid the horsemen $6.2 million and $5.8 million for purse enhancements for the years ended December 31, 2015 and 2014, respectively.
Under the CMA, as amended, SMSC also agreed to make
“Marketing Payments” to the Company relating to joint marketing efforts for the mutual benefit of the Company and SMSC,
including signage, joint promotions, player benefits and events. Under the CMA, the SMSC paid the Company $944,000 and $660,000
for marketing purposes for the years ended December 31, 2015 and 2014, respectively.
Effective January 2015, the CMA
was amended to adjust the payment amounts between the “Purse Enhancement Payments to Horsemen” and “Marketing
Payments to Canterbury Park.” Effective January 2016, the CMA was amended under the “Second Amendment” agreement
to adjust the payment amounts between the “Purse Enhancement Payments to Horsemen” and “Marketing Payments to
Canterbury Park.” SMSC has currently agreed to make the following purse enhancement and marketing payments for 2016 through
2022:
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Purse Enhancement Payments to
1
Horsemen
|
|
Marketing Payments to Canterbury
Park
|
|
2016
|
|
$
|
6,788,100
|
|
|
$
|
1,197,900
|
|
|
|
2017
|
|
|
7,466,910
|
|
|
|
1,317,690
|
|
|
|
2018
|
|
|
7,650,000
|
|
|
|
1,350,000
|
|
|
|
2019
|
|
|
7,650,000
|
|
|
|
1,350,000
|
|
|
|
2020
|
|
|
7,650,000
|
|
|
|
1,350,000
|
|
|
|
2021
|
|
|
7,650,000
|
|
|
|
1,350,000
|
|
|
|
2022
|
|
|
7,650,000
|
|
|
|
1,350,000
|
|
|
1
- Includes $100,000 each year payable to various horsemen associations
The amounts earned from the marketing
payments are recorded as a component of other revenue and the related expenses are recorded as a component of advertising and marketing
expense and depreciation in the Company’s consolidated statements of operations. For the year ended December 31, 2015, the
Company recorded $926,000 in other revenue and incurred $700,000 in advertising and marketing expense and $226,000 in depreciation
related to the SMSC marketing payment. For the year ended December 31, 2014, the Company recorded $825,000 in other revenue and
incurred $608,000 in advertising and marketing expense and $217,000 in depreciation related to the SMSC marketing payment. The
excess of amounts received over revenue earned is reflected as deferred revenue which is included in accounts payable on the consolidated
balance sheets.
Under the CMA, the Company agreed
for the term of the CMA that it would not promote or lobby the Minnesota legislature for expanded gambling authority and will support
the SMSC’s lobbying efforts against expanding gambling authority.
As part of the CMA, and pursuant to a related SAR
Agreement dated June 14, 2012, the Company issued stock appreciation rights to the SMSC. For the year ended December 31, 2015,
the Company recognized $142,000 of expense related to these stock appreciation rights, of which $142,000 was recorded as an offset
to other revenue. For the year ended December 31, 2014, the Company recognized $32,000 of expense related to these stock appreciation
rights, of which $32,000 was recorded as an offset to other revenue.
Table of Contents
On July 30, 2015, the Company sold the land and buildings
related to the Shakopee Valley RV Park located in Shakopee, Minnesota to SMSC for $100,000 plus the cancellation of the vested
and unvested SARs. The sale resulted in a $347,000 gain on the
Consolidated Statements of Operations –Gain on disposal
of assets
.
During 2014, the Company incurred damage to buildings
from multiple severe storms at the Racetrack and received $988,000 in total insurance proceeds. As of December 31, 2014, the Company
recognized a $958,000 insurance recoveries gain in the Consolidated Statements of Operations as “Gain on insurance recoveries”.
During 2015, the Company received additional insurance proceeds of $495,000 and recognized a $495,000 insurance recoveries gain.
The storms did not cause any material interruptions to the business or impact on the Company’s consolidated financial results
of operations. Based on future events, the Company may receive additional insurance proceeds. The Company has concluded that these
additional funds represent contingent gains and in accordance with U.S. GAAP, have not been accounted for them in the Company’s
2015 consolidated financial statements.
|
|
14.
|
LAND SALES AND PURCHASE
|
On October 6, 2015, the Company sold 6 acres of land
adjacent to the Racetrack for $1,459,000 and recorded a gain of $660,000 on the
Consolidated Statements of Operations –
Gain on sale of land
. Under the purchase agreement, the Company has the option to repurchase up to one acre within 3 years
from closing date at the sale price of approximately $240,000 per acre. According to
ASC 360-20-40-38 - Derecognition
, the
Company recorded the repurchase option acre as a deferred gain liability in the amount of $240,000 on the
Consolidated Balance
Sheets
. Since the risks and rewards were not completely transferred to the buyer based on the repurchase option, the Company
maintains the asset on our financials in the amount of $110,000. The Company believes any additional expenses associated with the
option under the profit-sharing method will be immaterial because land is a non-depreciable asset.
This transaction was structured as a “deferred
exchange using a qualified intermediary” pursuant to Internal Revenue Code (IRC) Section 1031 exchange (“1031 Exchange”)
for income tax purposes. The proceeds of the land sale were issued directly to the qualified intermediary and the Company recorded
a receivable. As a result of utilizing the 1031 Exchange, the gain on sale of land of $789,000 was deferred for income tax purposes.
On December 14, 2015, the Company entered into a
lease agreement to purchase approximately 32 acres of land adjacent to the Racetrack with a total purchase price of $4,881,000.
The Company paid $1,459,000 in cash that included land proceeds of $1,443,000 that was paid directly from the qualified intermediary.
As of December 31, 2015, the proceeds receivable balance due from the qualified intermediary totaled $16,000. The lease obligation
of $3,178,000 is payable monthly, beginning January 15, 2016, in the amount of $58,533, including a 4% annual interest rate, through
December 15, 2020. This transaction was also structured as a “deferred exchange using a qualified intermediary” pursuant
to IRC 1031 exchange for income tax purposes.
On December 23, 2015, the Company entered into purchase
agreement to sell approximately 24 acres of land adjacent to the Racetrack property. Under this agreement the buyer agreed to purchase
the land for $4,300,000. This agreement is structured to utilize the IRC 1031 Exchange and the Company intends to utilize the proceeds
to pay the remaining balance of the lease agreement. The Company anticipates closing within the next six months
Table of Contents
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Item 9.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
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Item 9A.
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CONTROLS AND PROCEDURES
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(a)
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Evaluation of Disclosure Controls and Procedures:
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The Company’s Chief Executive Officer, Randall
D. Sampson, and Chief Financial Officer, David C. Hansen, have reviewed the Company’s 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 Company’s 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 Company’s 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.
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(b)
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Management’s annual report on internal control over financial reporting:
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Management is responsible for establishing and maintaining
an adequate system of internal control over financial reporting of the Company. This system is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of America.
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The Company’s internal control over financial reporting
(as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management and directors of the Company; (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets
that could have a material effect on the financial statements.
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Because of its inherent limitations, internal control
over financial reporting can only provide reasonable assurance and may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Management conducted an evaluation of the effectiveness
of the system of internal control over financial reporting as of December 31, 2015. In making this evaluation, management used
the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control —
Integrated Framework (2013).
Based on management’s evaluation and those criteria, management concluded that the Company’s
system of internal control over financial reporting was effective as of December 31, 2015.
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(c)
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Changes in Internal Control Over Financial Reporting:
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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 December 31, 2015, that have materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
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Item 9B.
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OTHER INFORMATION
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Table of Contents
PART
III
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Item 10.
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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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Information Incorporated by Reference
.
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Information required under Item 401 (except as noted below), 405, 406, and 407 (c) (3), (d) (4), and (d) (5) of Regulation
S-K to the extent applicable to the Company will be set forth in the Company’s Proxy Statement for the Annual Meeting of
Shareholders to be held on June 9, 2016 (the “2015 Proxy Statement”), a definitive copy of which will be filed with
the Commission within 120 days of the close of the 2015 fiscal year, which information is incorporated herein by reference. Information
required under Item 402 of Regulation S-K regarding executive officers is presented under Item 1(c)(x) herein.
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The Company has adopted a code of ethics applicable to
all employees of and consultants to the Company. A copy of the Code of Conduct can be obtained free of charge upon written request
directed to the Company’s Secretary at the executive offices of the Company.
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Item 11.
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EXECUTIVE COMPENSATION
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Information required under Item 402 of Regulation S-K
to the extent applicable to the Company will be set forth in the Company’s 2015 Proxy Statement which information is incorporated
herein by reference.
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Item 12.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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Information required under Item 201(d) and 403 of Regulation
S-K to the extent applicable to the Company will be set forth in the Company’s 2015 Proxy Statement which information is
incorporated herein by reference.
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Item 13.
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CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
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Information, if any, required by Item 404 of Regulation
S-K to the extent applicable to the Company will be set forth in the Company’s 2015 Proxy Statement which information is
incorporated herein by reference.
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Table of Contents
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Item 14.
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PRINCIPAL ACCOUNTING FEES AND SERVICES
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Information required by Item 14 of this Form 10-K and Item 9(e) of Schedule 14A will be set forth in a section entitled “The
Company’s Auditors” in the Company’s 2015 Proxy Statement which information is incorporated herein by reference.
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PART IV
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Item 15.
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EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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(a).
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The following Consolidated Financial Statements of Canterbury Park Holding Corporation and subsidiaries are included in Part
II, Item 8 pages 31-50:
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Reports of Independent Registered Public Accounting Firm
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Consolidated Balance Sheets as of December 31, 2015 and
2014
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Consolidated Statements of Operations for the years ended December 31, 2015 and 2014
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Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2015 and 2014
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Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014
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Notes to Consolidated Financial statements
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(b).
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The exhibits listed on the “Exhibits Index” on pages 56 & 57 are filed with this Form 10-K or incorporated
by reference in this report.
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(c).
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No financial statement schedules are required by Item 8 and Item 15(c) of Form 10-K.
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Table of Contents
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.
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Dated: March 30, 2016
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CANTERBURY PARK HOLDING CORPORATION
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By
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/s/ Randall D. Sampson
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Randall D. Sampson
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President and Chief Executive Officer
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Pursuant to the requirements of the Securities
Exchange Act of 1934, the following persons on behalf of the Registrant and in the capacities and the dates indicated have signed
this report below.
Power of Attorney
Each person whose signature appears below
constitutes and appoints CURTIS A. SAMPSON, DALE H. SCHENIAN and RANDALL D. SAMPSON as his true and lawful attorneys-in-fact and
agents, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign any of all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all said attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
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Signature
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Title
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Date
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/s/ Curtis A. Sampson
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Chairman of the Board
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March 30, 2016
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Curtis A. Sampson
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/s/ Dale H. Schenian
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Vice Chairman; Director
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March 30, 2016
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Dale H. Schenian
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/s/ Randall D. Sampson
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Chief Executive Officer, President,
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March 30, 2016
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Randall D. Sampson
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General Manager, Treasurer, and Director
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/s/ Patrick R. Cruzen
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Director
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March 30, 2016
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Patrick R. Cruzen
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/s/ Burton F. Dahlberg
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Director
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March 30, 2016
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Burton F. Dahlberg
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/s/ Carin J. Offerman
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Director
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March 30, 2016
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Carin J. Offerman
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/s/ David C. Hansen
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Chief Financial Officer* and Secretary
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March 30, 2016
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David C. Hansen
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* Principal Accounting Officer
Table of Contents
CANTERBURY
PARK HOLDING CORPORATION
Exhibit
Index To
Form 10-K for the Year Ended December 31, 2015
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Exhibit
Table
Reference
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Title
of Document
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Location in
Consecutive Numbering
System as Filed with the Securities and
Exchange Commission
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3.1
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Articles of Incorporation, as amended.
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Filed as Exhibit 3.1 to the Forms SB-2 Registration Statement of the Company, File No. 33-81262C, (the “SB-2 Registration Statement”) and incorporated herein by reference.
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3.2
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Bylaws, as amended
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Filed as Exhibit 3.2 to the SB-2 Registration Statement and incorporated herein by reference.
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10.1
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Plan of Reorganization dated as of May 20, 1994 between Canterbury Park Holding Corporation and Canterbury Park Concessions, Inc.
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Filed as Exhibit 10.1 to the SB-2 Registration Statement and incorporated herein by reference.
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10.2
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Restated Stock Purchase Agreement
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Filed as Exhibit 10.2 to the SB-2 Registration Statement and incorporated herein by reference.
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10.3
|
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Letter dated April 4, 1994 from the Minnesota Horsemen’s Benevolent and Protective Association, Inc. to Minnesota Racing Commission waiving 125 day racing minimum
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Filed as Exhibit 10.3 to the SB-2 Registration Statement and incorporated herein by reference.
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10.5
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Stock Option Plan, as amended*
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Filed as Exhibit 4.1 to the Registration Statement on Form S-8 of the Company filed on August 28, 1997 (File No. 333-34509) and incorporated herein by reference.
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10.6
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Form of Non-qualified Stock Option Agreement
|
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Filed as Exhibit 10.6 to the SB-2 Registration Statement and incorporated herein by reference.
|
*
Denotes an exhibit that covers management contracts or compensatory plans or arrangements.
Table of Contents
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Exhibit
Table
Reference
|
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Title
of Document
|
|
Location
in Consecutive Numbering
System as Filed with the Securities and
Exchange Commission
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10.7
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Curtis A. Sampson Guaranty to HRA
|
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Filed as Exhibit 10.7 to the SB-2 Registration Statement and incorporated herein by reference.
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10.10
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General Credit and Security Agreement dated as of June 3, 1998 between Canterbury Park Holding Corporation and Bremer Bank N.A. (previously First American Bank, N.A.) This exhibit 10.10 replaces exhibit 10.10 filed previously as an exhibit to the SB-2 Registration Statement.
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Filed as Exhibit 10.10 to the Form 10-KSB for the fiscal year ended December 31, 1998 and incorporated herein by reference.
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10.11
|
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Stock Purchase Savings Plan
|
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Filed as Exhibit 10.11 to Form 10-KSB for the fiscal year ended December 31, 1997 and incorporated herein by reference.
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10.13
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Stock Option Plan for Non-Employee Consultants and Advisors
|
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Filed as Exhibit 4.3 to the Registration Statement on Form
S-8 of the Company filed on August 28, 1997 (File No. 333-34509) and incorporated herein by reference.
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21
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Subsidiaries of the Registrant
|
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Filed herewith.
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23.1
|
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Consent of Independent Registered Public Accounting Firm
|
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Filed herewith.
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24
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Power of Attorney
|
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Included in signature page at page 56.
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31.1
|
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Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act 0f 2002
|
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Filed herewith.
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32
|
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Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
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Filed herewith.
|
The exhibits
referred to in this Exhibit will be supplied to a shareholder at a charge of $.25 per page upon written request directed to the
Company’s Secretary at the executive offices of the Company.
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