Table of Contents
Total
operating expenses decreased $2,147,995, or 6.6%, and $942,130, or 7.7%, for
the nine-month and three-month periods ended September 30, 2011, respectively,
compared to the same period in the prior year. See below for a further
discussion of operating expenses.
Summary of Purse and Breeders Fund Expense:
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Purse Expense
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Minnesota
Breeders Fund Expense
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Nine Months Ended Sept. 30,
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Nine Months Ended Sept. 30,
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2011
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2010
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2011
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2010
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Card Casino
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$
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1,903,000
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$
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1,854,000
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$
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211,000
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$
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206,000
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Simulcast Horse Racing
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1,473,000
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1,650,000
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272,000
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299,000
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Live Horse Racing
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976,000
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1,191,000
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96,000
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106,000
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$
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4,352,000
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$
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4,695,000
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$
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579,000
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$
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611,000
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Total
expense for statutory purses and the Minnesota Breeders Fund decreased 7.1% to
$4,931,022 for the nine months ended September 30, 2011 compared to the nine
months ended September 30, 2010. The decrease was due primarily to the
government imposed shutdown of operations, discussed above, that occurred from
July 1 to July 20, 2011. Both purse and Breeders Fund expenses are determined
by wagering levels on our Card Casino and live and simulcast racing. The
government imposed shutdown resulted in a decrease in both purse and Breeders
Fund expenses for the three and nine-month periods ended September 30, 2011.
Salaries
and benefits decreased $672,002, or 4.8%, in the 2011 nine-month period ended
September 30 and $280,618, or 5.7%, in the three-month period ended September
30, 2011 compared to the same periods last year. The decrease is primarily attributable
to the government imposed shutdown that occurred from July 1 to July 20, 2011.
During the shutdown, the Company was forced to furlough substantially all of
its approximately 1,100 full time and part time employees.
A
loss on disposal of assets in the amount of $909,540 was recorded during the
first nine months of 2010 and related primarily to the remodeling of our
existing card room. There was no loss on disposal of assets during the three or
nine-month periods ended September 30, 2011.
Other
operating expenses increased $369,297, or 6.9%, in the 2011 nine-month period
ended September 30, 2011 and $84,916, or 4.2%, in the three-month period ended
September 30, 2011 compared to the same periods last year. The increase is
primarily due to increased expenditures in support of legislation that would
authorize slot machines at the Racetrack.
Income
before income taxes was $315,142 for the nine months ended September 30, 2011
compared to a loss before income taxes of $1,460,385 for the nine months ended
September 30, 2010. After income tax expense of $222,511 for the nine months
ended September 30, 2011, the Company reported net income of $92,631 in 2011
compared to a net loss of $1,153,485 in 2010. For the quarter ended September
30, 2011, the Company recorded a net loss of $298,357 before income tax expense
compared to a loss before income tax benefit of $139,575 for the quarter ended
September 30, 2010. After an income tax benefit of $528,489, net income in the
third quarter of 2011 was $230,132 compared to a net loss of $132,875 for the
third quarter of 2010. The significant level of income tax benefit estimated
for the third quarter ending September 30, 2011 is due to a revision to our
expected income for 2011. Also, our tax rate is generally greater than the
statutory tax rate because the significant lobbying expenses incurred by the
Company in its effort to gain approval for legislation that would authorize
slot machines to be operated at the Racetrack are not deductible for tax
purposes.
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Table of Contents
Contingencies:
There
have been no material changes in the contingencies reported under Item 7 in our
Annual Report on Form 10-K for our year ended December 31, 2010 and such
information is incorporated herein by reference.
Liquidity and Capital Resources:
Cash
provided by operating activities for the nine months ended September 30, 2011
was $922,000 and was the result of several factors. Depreciation during the
first nine months of 2011 was $1,412,130, and the Company experienced an increase
in accounts payable and accrued wages and payroll taxes of $535,981, caused
primarily by a seasonal increase in payables due to the live racing season
extending into mid-September. These items were somewhat offset by an increase
in restricted cash of $590,734 and a decrease in due to MHBPA of $916,496,
resulting primarily from the payment of purses during the third quarter. Cash
provided by operating activities during the period January 1, 2010 through
September 30, 2010 was $104,251 and was the result of several factors. During
the first quarter of 2010, the Company incurred a one-time loss on disposal of
assets in the amount of $909,540 relating to the remodel of our card room. In
addition, depreciation during the first nine months of 2010 was $1,473,616, and
the Company experienced an increase in accounts payable and accrued wages and
payroll taxes of $815,149, caused primarily by a timing issue related to
payroll payments. Finally, during the third quarter of 2010, the Company had a
cost segregation study performed on our assets in use. As a result of the
study, our deferred tax liability increased $884,210. These items were nearly
completely offset by a net loss of $1,153,485, an increase in due from
Minnesota horsemen associations of $1,169,066, resulting primarily from purse
overpayments, and an increase in income taxes receivable of $1,154,455 as a
result of the aforementioned cost segregation study.
Net
cash used in investing activities for the first nine months of 2011 was
$525,439 due to purchasing a variety of fixtures and equipment for operational
purposes. Net cash used in investing activities for the first nine months of
2010 was $2,302,492 due primarily to costs to remodel our card room totaling
approximately $2,296,000.
During
the period January 1, 2011 through September 30, 2011, cash provided by
financing activities consisted of proceeds and excess tax benefits received
upon the exercise of stock options of $274,965. During the period January 1,
2010 through September 30, 2010, cash provided by financing activities
consisted of proceeds and excess tax benefits received upon the exercise of
stock options of $35,365.
The
Company has a general credit agreement with Bremer Bank, which provides a
revolving credit line of up to $3,000,000 until May 6, 2012 with interest at
the prime rate but not less than 4.5% per annum. The Company had no borrowings
under the line of credit at September 30, 2011 or December 31, 2010. This
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 quarter ended September 30, 2011.
Unrestricted
cash balances at September 30, 2011 were $6,122,988 compared to $5,451,462 at
December 31, 2010. The Company believes that funds available in its cash
accounts, amounts available under the general credit and security agreement,
along with funds generated from operations, will be sufficient to satisfy its
liquidity and capital resource requirements during 2011 for regular operations.
Critical Accounting Policies and Estimates:
The
preparation of consolidated financial statements in conformity with generally
accepted accounting principles 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 20 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.
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Table of Contents
Our
significant accounting policies are included in Note 1 to our consolidated
financial statements in our 2010 Annual Report on Form 10-K. We believe the
following critical accounting policies affect our more significant judgments
and estimates used in the preparation of our consolidated financial statements.
Property
and Equipment -
We
have significant capital invested in our property and equipment, which
represents approximately 66.8% of our total assets at September 30, 2011. 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 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 Employee Compensation
ASC 718, Compensation Stock Compensation (ASC 718), requires
recognition of employee 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 options granted
using a Black-Scholes model.
Commitments and Contractual Obligations:
There
have been no material changes in our outstanding commitments and contractual
obligations since those reported at December 31, 2010.
Suspension of All Operations From July 1 to
July 20, 2011:
Effective
at midnight on June 30, 2011, the Company suspended all of its gaming
operations. This action stemmed from the inability of Minnesotas Governor and Legislature
to reach agreement on the States budget for the biennium beginning July 1,
2011. The inability to reach an agreement forced many state agencies to
immediately shut down because no monies had been appropriated for their
operations. The Minnesota Racing Commission (MRC), the agency which regulates
Canterbury Parks pari-mutuel and Card Casino gaming operations, was one of the
many state agencies ordered to close, and, without this regulatory oversight,
the Company was directed to cease gaming operations pending the appropriation
of funds for the MRC. A budget agreement was approved on July 20, 2011 which
included an appropriation for the MRC, and Canterbury Park resumed all
operations on July 21, 2011. The suspension of operations for the first 20 days
of July had a material, adverse effect on the Companys results of operations
for the quarter ending September 30, 2011, as well as on its fiscal year
results as compared to the same periods in 2010.
Legislation:
The Company supported
legislation introduced in the 2011 session of the Minnesota Legislature that
would authorize slot machines to be operated at the Racetrack (a business model
that is generally called a Racino). Based on the success of Racinos in
several other states, we continue to believe that if a Racino was authorized at
the Racetrack on similar terms to legislation approved in other states, it
would stimulate economic growth in the horse racing and related agriculture
businesses in Minnesota, provide growth and development opportunities that
would add jobs at the Racetrack and surrounding community, and provide new
revenues for state and local governments facing significant budgetary
challenges. No action was taken in either the regular session of the Minnesota
Legislature ending in May 2011, or the special session that was held in July
2011, regarding the Racino proposal.
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Table of Contents
The
Companys efforts to obtain legislative approval for a Racino have required,
and will continue to require, substantial expenditures. Due to the inherent
uncertainty of the outcome of legislative activities, there can be no assurance
that any bills favorable to the Companys interests will be enacted into law,
and it is possible bills adverse to the Company could be enacted.
Forward-Looking Statements:
From
time to time, in reports filed with the Securities and Exchange Commission, in
press releases, and in other communications to shareholders or the investing
public, the Company may make forward-looking statements concerning possible or
anticipated future financial performance, business activities or plans which
are typically preceded by the words believes, expects, anticipates,
intends or similar expressions. For such forward-looking statements, the
Company claims the protection of the safe harbor for forward-looking statements
contained in federal securities laws. Shareholders and the investing public
should understand that such forward-looking statements are subject to risks and
uncertainties which could cause actual performance, activities or plans to
differ significantly from those indicated in the forward-looking statements.
Such risks and uncertainties include, but are not limited to: legislative and
regulatory changes, fluctuations in attendance at the Racetrack, material changes
in the level of wagering by patrons, decline in interest in the unbanked card
games offered in the Card Casino, the impact of wagering products and
technologies introduced by competitors; increases in the percentage of revenues
allocated for purse fund payments; increase in compensation and employee
benefit costs; the economic health of the gaming sector; higher than expected
expense related to new marketing initiatives; and other factors discussed under
Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2010
and in the Companys other filings with the Securities and Exchange Commission.
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ITEM 3:
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Q
UANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
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Canterbury
Park is not required to provide the information requested by this Item as it
qualifies as a smaller reporting company.
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ITEM 4:
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C
ONTROLS AND PROCEDURES
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(a)
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Evaluation of Disclosure
Controls and Procedures:
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The Companys Chief
Executive Officer, Randall D. Sampson, and Chief Financial Officer, David C.
Hansen, have reviewed the Companys disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered
by this report. Based upon this review, these officers have concluded that
the Companys disclosure controls and procedures are effective to ensure that
information required to be disclosed in the reports that the Company files
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the SEC and that the
disclosure controls are also effective to ensure that information required to
be disclosed in the Companys Exchange Act reports is accumulated and
communicated to management, including the chief executive officer and chief
financial officer, to allow timely decisions regarding required disclosure.
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(b)
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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 September 30, 2011 that have materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
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Table of Contents
P
ART II
OTHER INFORMATION
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Item 1.
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L
egal Proceedings
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Not Applicable.
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Item 1A.
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R
isk Factors
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There have been no material
changes to the Risk Factors reported under Item 1A in the Form 10-K for the
year ended December 31, 2010, and the statement of risk factors presented
therein are incorporated by reference herein.
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Item 2.
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U
nregistered Sales of Equity Securities and Use of
Proceeds
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(a)
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Not Applicable.
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(b)
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Not Applicable.
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(c)
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On January 16, 2008, the
Company announced that its Board of Directors had authorized a program to
repurchase up to an additional 250,000 shares of the Companys common stock.
During the first nine months of 2011, the Company did not repurchase any
shares of common stock. As of September 30, 2011, there are 33,457 shares at maximum
that the Company may buy back as a result of this repurchase program.
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Item 3.
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D
efaults Upon Senior Securities
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Not Applicable.
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Item 4.
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R
emoved and Reserved
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Item 5.
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O
ther Information
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Not Applicable.
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Item 6.
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E
xhibits
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(a)
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The following exhibits are
included herein:
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10.11
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Canterbury Park Holding Corporation Employee Stock Purchase Plan, as amended September 8, 2011.
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11
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Statement re computation of
per share earnings See Net Income Per Share under Note 1 of Notes to
Consolidated Financial Statements under Part 1, Item 1, which is incorporated
herein by reference.
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31.1
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Certification of Chief
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(rules 13a-14 and 15d-14 of the Exchange Act).
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31.2
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Certification of Chief
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(rules 13a-14 and 15d-14 of the Exchange Act).
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32
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Certfications pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
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22
Table of Contents
S
IGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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Canterbury
Park Holding Corporation
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Dated: November 14, 2011
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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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Dated: November 14, 2011
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/s/ David C. Hansen
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David C. Hansen,
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Vice President, and Chief
Financial Officer
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