10-Q
CANTERBURY PARK HOLDING CORP filed this Form 10-Q on 11/13/2015
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2015.

 

OR

   
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____.

 

Commission File Number:  001-31569

 

(CANTERBURY PARK LOGO)

 

CANTERBURY PARK HOLDING CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

         
  Minnesota   41-1775532  
 

(State or Other Jurisdiction 

of Incorporation or
Organization)

 

(I.R.S. Employer

Identification No.)

 

 

  1100 Canterbury Road
Shakopee, MN  55379
 

(Address of principal executive offices and zip code)

 

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Exchange Act Rule 12b-2). 

  Large accelerated filer                        Accelerated filer                       
  Non-accelerated filer                        Smaller reporting company                     

 

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).  

  YES   NO  

 

The Company had 4,245,769 shares of common stock, $.01 par value, outstanding as of November 1, 2015.

 

 

1
 

 

Canterbury Park Holding Corporation

 

INDEX 

 

      Page
     
PART I. FINANCIAL INFORMATION  
       
  Item 1. Financial Statements (unaudited)  
       
    Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014 3
       
    Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2015 and 2014 4
       
    Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2015 and 2014 5
       
    Notes to Condensed Consolidated Financial Statements 6
       
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
       
  Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
       
  Item 4. Controls and Procedures 20
       
PART II. OTHER INFORMATION  
       
  Item 1. Legal Proceedings 20
       
  Item 1A. Risk Factors 20
       
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
       
  Item 3. Defaults Upon Senior Securities 20
       
  Item 4. Mine Safety Disclosures 20
       
  Item 5. Other Information 20
       
  Item 6. Exhibits 21
       
  Signatures   22
       
  Certifications 23

 

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PART 1 – FINANCIAL INFORMATION  

 

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES 

CONDENSED CONSOLIDATED BALANCE SHEETS  

         
   (Unaudited)     
   September 30,   December 31, 
   2015   2014 
ASSETS          
CURRENT ASSETS          
Cash and cash equivalents  $8,339,727   $8,761,925 
Restricted cash   1,184,637    1,069,181 
Short-term investments   204,990    204,525 
Accounts receivable, net of allowance of $22,294 for both periods   392,053    192,674 
Inventory   262,670    231,545 
Prepaid expenses   453,535    541,822 
Deferred income taxes   251,900    265,900 
Income taxes receivable   66,028     
Due from Minnesota horsemen associations   602,352    125,828 
Total current assets   11,757,892    11,393,400 
           
LONG-TERM ASSETS          
Deposits   20,000    26,400 
Land, buildings and equipment, net of accumulated depreciation of $25,056,821 and $24,010,738, respectively   29,812,056    28,075,879 
   $41,589,948   $39,495,679 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
CURRENT LIABILITIES          
Accounts payable  $3,320,037   $2,174,466 
Card Casino accruals   1,941,433    1,401,336 
Accrued wages and payroll taxes   1,495,123    1,198,705 
Accrued property taxes   814,280    653,385 
Income taxes payable   17,626    388,910 
Payable to horsepersons   102,048    211,571 
Total current liabilities   7,690,547    6,028,373 
           
LONG-TERM LIABILITIES          
Deferred income taxes   1,861,700    1,972,400 
Stock appreciation rights       499,734 
Total long-term liabilities   1,861,700    2,472,134 
TOTAL LIABILITIES   9,552,247    8,500,507 
           
STOCKHOLDERS’ EQUITY          
Common stock, $.01 par value, 10,000,000 shares authorized, 4,227,948 and 4,201,371, respectively, shares issued and outstanding   42,154    42,013 
Additional paid-in capital   17,913,798    17,589,349 
Retained earnings   14,081,749    13,363,810 
Total stockholders’ equity   32,037,701    30,995,172 
   $41,589,948   $39,495,679 

 

 See notes to condensed consolidated financial statements

 

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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES  

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  

(Unaudited)  

                 
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2015   2014   2015   2014 
OPERATING REVENUES:                    
Pari-mutuel  $3,887,494   $3,844,749   $8,583,730   $8,650,597 
Card Casino   7,404,926    6,645,197    21,627,459    19,997,434 
Food and beverage   3,299,659    2,954,609    6,822,197    6,022,989 
Other   2,310,150    1,707,660    4,666,042    3,726,150 
Total Revenues   16,902,229    15,152,215    41,699,428    38,397,170 
Less: Promotional allowances   (50,571)   (105,257)   (118,655)   (191,044)
Net Revenues   16,851,658    15,046,958    41,580,773    38,206,126 
                     
OPERATING EXPENSES:                    
Purse expense   2,363,961    2,238,549    5,296,326    5,124,414 
Minnesota Breeders’ Fund   259,933    253,485    658,515    654,225 
Other pari-mutuel expenses   320,927    328,224    1,266,797    1,223,832 
Salaries and benefits   6,129,355    5,598,259    16,409,714    15,073,566 
Cost of food and beverage and other sales   1,534,696    1,393,160    3,193,221    2,954,875 
Depreciation   567,190    537,405    1,738,900    1,572,660 
Utilities   495,849    417,680    1,074,966    1,091,425 
Advertising and marketing   774,296    709,767    1,683,603    1,529,839 
Gain on disposal of assets   (347,348)       (347,348)    
Other operating expenses   3,365,288    2,505,576    7,587,370    6,471,724 
Total Operating Expenses   15,464,147    13,982,105    38,562,064    35,696,560 
INCOME FROM OPERATIONS   1,387,511    1,064,853    3,018,709    2,509,566 
OTHER INCOME:                    
Interest income   348    644    1,653    1,993 
INCOME BEFORE INCOME TAXES   1,387,859    1,065,497    3,020,362    2,511,559 
INCOME TAX EXPENSE   (574,800)   (442,191)   (1,247,049)   (1,039,312)
NET INCOME  $813,059   $623,306   $1,773,313   $1,472,247 
                     
Basic earnings per share  $.19   $.15   $.42   $.35 
Diluted earnings per share  $.19   $.15   $.42   $.35 
Weighted Average Basic Shares Outstanding   4,233,315    4,188,120    4,221,164    4,188,669 
Weighted Average Diluted Shares Outstanding   4,229,438    4,188,122    4,221,939    4,205,706 
Cash dividends declared per share  $.00   $.00   $.25   $.00 

  

See notes to condensed consolidated financial statements.

 

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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES  

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  

(Unaudited)  

         
   Nine Months Ended September 30, 
   2015   2014 
Operating Activities:          
Net income  $1,773,313   $1,472,247 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation   1,738,900    1,572,660 
Stock-based compensation expense   224,921    189,602 
Deferred income taxes   (96,700)   (183,700)
Stock appreciation rights   141,686    79,907 
Gain on disposal of assets   (347,348)    
Gain on insurance proceeds   (120,091)    
Tax benefit from exercise of stock-based awards   (4,060)   (7,895)
Changes in operating assets and liabilities:          
Increase in restricted cash   (115,456)   (429,775)
Increase in accounts receivable   (199,379)   (794,432)
(Increase) decrease in other current assets   (412,962)   241,162 
Decrease (increase) in income taxes (payable) receivable   (433,252)   573,012 
Increase in accounts payable   1,104,482    792,068 
Increase in Card Casino accruals   540,097    366,179 
Increase in accrued wages and payroll taxes   296,418    334,086 
Increase in accrued property taxes   160,895    162,311 
Increase in payable to horsepersons   (109,523)   134,581 
Net cash provided by operating activities   4,141,941    4,502,013 
           
Investing Activities:          
Additions to buildings and equipment   (3,841,086)   (3,662,523)
Proceeds from sale of RV Park   99,441     
Proceeds from insurance claims   120,091     
Purchase of investments   (465)   (623)
Net cash used in investing activities   (3,622,019)   (3,663,146)
           
Financing Activities          
Proceeds from issuance of common stock   109,540    68,112 
Cash dividends to shareholders   (1,055,720)    
Tax benefit from exercise of stock-based awards   4,060    7,895 
Net cash provided by (used in) financing activities   (942,120)   76,007 
           
Net increase (decrease) in cash and cash equivalents   (422,198)   914,874 
           
Cash and cash equivalents at beginning of period   8,761,925    8,739,209 
           
Cash and cash equivalents at end of period  $8,339,727   $9,654,083 
           
Supplemental disclosure of non-cash investing and financing activities:          
Additions to buildings and equipment funded through accounts payable  $87,000   $361,000 
           
Supplemental disclosure of cash flow information:          
Income taxes paid, net of refunds  $1,852,000   $650,000 

 

See notes to condensed consolidated financial statements.

 

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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

 

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Business – Canterbury Park Holding Corporation (the “Company”) was incorporated under the laws of Minnesota and acquired land and buildings to conduct pari-mutuel horse racing operations (the “Racetrack”) in March 1994. The Racetrack is located in Shakopee, Minnesota, approximately 25 miles southwest of downtown Minneapolis. In May 1994, the Company commenced year-round horse racing simulcast operations and hosted the first annual live race meet during the summer of 1995. The Company’s live racing operations are a seasonal business as it hosts live race meets each year from May until September. The Company earns additional pari-mutuel revenue by televising its live racing to out-of-state racetracks around the country. Canterbury Park’s Card Casino operates 24 hours a day, seven days a week and is limited by Minnesota State law to conducting card play on a maximum of 80 tables. The Card Casino currently offers a variety of poker and table games. The Company’s three largest sources of revenues include: Card Casino operations, pari-mutuel operations and food and beverage sales. The Company also derives revenues from related services and activities, such as admissions, advertising signage, publication sales, and from other entertainment events and activities held at the Racetrack.

 

Basis of Presentation and Preparation – The accompanying condensed consolidated financial statements include the accounts of the Company (Canterbury Park Holding Corporation, Canterbury Park Concession, Inc. and Shakopee Valley RV Park Acquisition Company, LLC). Intercompany accounts and transactions have been eliminated. The preparation of these condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

 

Certain prior period amounts in the notes to the condensed consolidated financial statements have been reclassified to conform to the current period’s presentation. In the first quarter of 2015, the Company changed its reportable operating segment allocation and began allocating “Special Events” that were previously included in the Horse Racing segment to the Food and Beverage segment. The Company has reclassified the corresponding prior period amounts to conform to the current period’s presentation as further described in Note 5, “Operating Segments.”

 

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2014, included in its Annual Report on Form 10-K (the “2014 Form 10-K”).

 

Summary of Significant Accounting Policies – A detailed description of our significant accounting policies can be found in our most recent Annual Report filed on Form 10-K for the fiscal year ended December 31, 2014. There were no material changes in significant accounting policies during the quarter ended September 30, 2015.

 

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 $3,285,000 and $5,233,000 for the three and nine months ended September 30, 2015, respectively, compared to $2,300,000 and $4,375,000 for the comparable periods in 2014 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, and therefore are not recorded on the Company’s Consolidated Balance Sheet.

 

Recent Accounting Pronouncement – In May 2014, the Financial Accounting Standards Board issued amended revenue recognition guidance to clarify the principles for recognizing revenue from contracts with customers. The guidance requires an entity to recognize revenue to depict 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, 2017, 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.

 

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2.STOCK-BASED COMPENSATION

 

Stock-based compensation is recorded at fair value as of the date of grant and included in the salaries and benefits expense line item on the Condensed Consolidated Statements of Operations and amounted to $64,000 and $62,000 for the three months ended September 30, 2015 and 2014, respectively. For the nine months ended September 30, 2015 and 2014, stock-based compensation totaled $225,000 and $190,000, respectively.

 

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 10 years after the grant date and generally become exercisable over a four year period. The restricted stock generally 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. As of September 30, 2015, 13,940 shares were not vested with a weighted average fair value of $10.76 per share.

  

Employee Stock Option Grants

 

The Company has granted incentive stock options to employees pursuant to the Company’s Stock Plan with an exercise price equal to the market price on the date of grant. The options vest over a 42-month period and expire in 10 years.

  

A summary of stock option activity as of September 30, 2015 and changes during the nine months ended is presented below:   

                 
           Weighted     
       Weighted   Average     
       Average   Remaining   Aggregate 
   Number of   Exercise   Contractual   Grant Date 
Stock Options  Options   Price   Term   Fair Value 
                     
Outstanding at January 1, 2015   255,252   $9.63           
Granted                  
Exercised   (4,250)   6.27           
Expired/Forfeited   (15,000)   17.10           
Outstanding at September 30, 2015   236,002   $9.22    3.4 Years   $2,174,772 
                     
Exercisable at September 30, 2015   236,002   $9.22    3.4 Years   $2,174,772 

 

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 Condensed Consolidated Statements of Operations.

 

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A summary of the changes in employee deferred stock award grants as of September 30, 2015, is as follows: 

         
       Weighted 
       Average 
   Deferred   Fair Value 
   Stock   Per Share 
Non-Vested Balance, January 1, 2015   34,750   $10.27 
   Granted   1,000    10.01 
   Vested   (250)   10.01 
   Forfeited        
Non-Vested Balance, September 30, 2015   35,500   $10.26 

 

Stock Appreciation Rights (“SARs”)  

 

As part of the Cooperative Marketing Agreement discussed in Note 7, 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 the 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 represented 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 vested at the rate of 16,500 per year beginning in January 2013. The SAR Agreement provided 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 $14.30. SARs had no effect on dilutive shares or shares outstanding as any appreciation of the Company’s common stock value over $14.30 was to be paid in cash and not in common stock.

  

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.

 

Changes to the Company’s non-vested SARs during the nine months ended September 30, 2015 were as follows:    

         
   SARs   Weighted Average Fair Value  
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 September 30, 2015      $ 

 

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3.NET INCOME PER SHARE COMPUTATIONS

 

The following is a reconciliation of the numerator and denominator of the earnings per common share computations for the nine months ended September 30, 2015 and 2014 

                 
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2015   2014   2015   2014 
Net income (numerator) amounts used for basic and diluted per share computations:  $813,059   $623,306   $1,773,313   $1,472,247 
                     
Weighted average shares (denominator) of common stock outstanding:                    
Basic   4,233,315    4,188,120    4,221,164    4,188,669 
Plus dilutive effect of stock options   (3,877)   2    775    17,037 
Diluted   4,229,438    4,188,122    4,221,939    4,205,706 
                     
Net income per common share:                    
Basic  $.19   $.15   $.42   $.35 
Diluted   .19    .15    .42    .35 

  

Options to purchase 75,000 shares of common stock at an average price of $13.45 per share were outstanding but not included in the computation of diluted net income per share for the three and nine months ended September 30, 2015 because the options were out of the money at September 30, 2015.

 

Options to purchase 90,000 shares of common stock at an average price of $14.06 per share were outstanding but not included in the computation of diluted net income per share for the three and nine months ended September 30, 2014 because the options were out of the money at September 30, 2014.

 

4.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 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 nine months ended September 30, 2015 or the year ended December 31, 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 nine months ended September 30, 2015.

 

5.OPERATING SEGMENTS

 

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, as well as the catering and events operations. 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 processes to produce those products and services. The Minnesota Racing Commission regulates the horse racing and Card Casino segments. 

 

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in the 2014 Annual Report on Form 10-K. In the first quarter of 2015, the Company changed its reportable operating segment allocation and began allocating “Special Events” to the Food and Beverage segment that were previously included in the Horse Racing segment. The Company has reclassified the corresponding prior period amounts to conform to the current period’s presentation.

 

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Depreciation, interest 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): 

 

                     
   Nine Months Ended September 30, 2015
             Food and       
   Horse Racing    Card Casino    Beverage    Total  
                     
Net revenues from external customers  $12,876   $21,628   $7,077   $41,581 
                     
Intersegment revenues   674        1,029    1,703 
                     
Net interest income   2            2 
                     
Depreciation   1,324    317    98    1,739 
                     
Segment (loss) income before income taxes   (2,260)   5,302    1,272    4,314 

                     
   At September 30, 2015
Segment Assets  $39,911   $900   $17,450   $58,261 

                     
                     
   Nine Months Ended September 30, 2014
             Food and       
   Horse Racing    Card Casino    Beverage    Total  
                     
Net revenues from external customers  $12,178   $19,997   $6,031   $38,206 
                     
Intersegment revenues   562        992    1,554 
                     
Net interest income   2            2 
                     
Depreciation   1,179    317    77    1,573 
                     
Segment (loss) income before income taxes   (2,219)   4,956    1,342    4,079 

                     
   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 (in 000’s): 

         
   Nine Months Ended September 30, 
   2015   2014 
Revenues          
Total net revenues for reportable segments  $43,284   $39,760 
Elimination of intersegment revenues   (1,703)   (1,554)
Total consolidated net revenues  $41,581   $38,206 

           
Income before income taxes          
Total segment income before income taxes  $4,314   $4,079 
Elimination of intersegment income before income taxes   (1,294)   (1,567)
Total consolidated income before income taxes  $3,020   $2,512 

 

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   September 30,   December 31, 
   2015   2014 
Assets          
Total assets for reportable segments  $58,261   $54,418 
Elimination of intercompany receivables   (16,671)   (14,922)
Total consolidated assets  $41,590   $39,496 

  

6.COMMITMENTS AND 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 GAAP. 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. 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.

 

On April 15, 2015, the Company entered into a purchase agreement, and amended the agreement in June 2015, to acquire approximately 32 acres of land adjacent to the Racetrack. Under the amended agreement, the Company will purchase the land for $4.9 million with a closing date of December 15, 2015.

 

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 September 30, 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.

 

7.COOPERATIVE MARKETING AGREEMENT

 

As discussed in Note 6, 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 horse industry. Under the CMA, this is achieved through “Purse Enhancement Payments to Horsemen” paid directly to the MHBPA. Such payments have no direct impact on the Company’s condensed consolidated financial statements.

 

Under the terms of the CMA, the SMSC paid the horsemen $6.2 million and $5.3 million in the first quarter of 2015 and 2014, respectively, primarily for purse enhancements.

 

Under the CMA, 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 Company received marketing payments of $944,000 and $660,000 in the first quarter of 2015 and 2014, respectively.

 

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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.” Under the amended CMA, SMSC agreed to make the following purse enhancement and marketing payments for 2016 through 2022:

             
 Year    Purse Enhancement Payments to Horsemen1     Marketing Payments to Canterbury Park 
 2016   $6,947,820   $1,038,180 
 2017    7,642,602    1,141,998 
 2018    7,830,000    1,170,000 
 2019    7,830,000    1,170,000 
 2020    7,830,000    1,170,000 
 2021    7,830,000    1,170,000 
 2022    7,830,000    1,170,000 

 

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 condensed consolidated statements of operations. For the nine months ended September 30, 2015, the Company recorded $800,000 in other revenue and incurred $630,000 in advertising and marketing expense and $170,000 in depreciation related to the SMSC marketing payment. For the nine months ended September 30, 2014, the Company recorded $711,000 in other revenue and incurred $551,000 in advertising and marketing expense and $160,000 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 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. The SAR Agreement granted rights to the SMSC 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 represented 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 vested at the rate of 16,500 per year beginning in January 2013. For the nine months ended September 30, 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 nine months ended September 30, 2014, the Company recognized $80,000 of expense related to these stock appreciation rights, of which $80,000 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.

 

8.SUBSEQUENT EVENTS

 

On October 6, 2015, the Company sold 6 acres of land adjacent to the Racetrack for $1,459,000. Under the sale agreement, the Company has a 3 year repurchase right for up to one acre of the land at the sale purchase price of $240,000 per acre. The likelihood the Company would repurchase the land is reasonably possible.

 

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ITEM 2: 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 condensed consolidated financial statements and the accompanying notes to the financial statements (the “Notes”).  

 

Overview: 

 

Canterbury Park Holding Corporation (the “Company,” “we,” “our,” or “us”) conducts pari-mutuel wagering operations and hosts “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.

 

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 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 concessions, parking, advertising signage, publication sales, and from other entertainment events and activities held at the Racetrack.

 

Operations Review for the Three and nine Months Ended September 30, 2015 and September 30, 2014: 

 

EBITDA

 

EBITDA represents earnings before interest income, income tax expense, and depreciation and amortization. Adjusted EBITDA represents adjustments to EBITDA for one-time non-operational transactions that include gain on insurance recoveries and gain on disposal of assets.

 

EBITDA and adjusted EBITDA are not a measure of performance or liquidity calculated in accordance with accounting principles generally accepted 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 and adjusted EBITDA have been presented as a supplemental disclosure because they are widely used measures of performance and basis for valuation of companies in our industry. Moreover, other companies that provide EBITDA and adjusted EBITDA information may calculate EBITDA and adjusted EBITDA differently than we do.

 

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The following table sets forth a reconciliation of net income, a GAAP financial measure, to adjusted EBITDA (defined above), which is a non-GAAP measure, for the nine months ended September 30, 2015 and 2014:

         
Summary of EBITDA Data        
         
   Nine Months Ended September 30, 
   2015   2014 
NET INCOME  $1,773,313   $1,472,247 
  Interest income   (1,653)   (1,993)
  Income tax expense   1,247,049    1,039,312 
  Depreciation   1,738,900    1,572,660 
EBITDA   4,757,609    4,082,226 
  Gain on insurance recoveries   (120,090)    
  Gain on disposal of assets   (347,348)    
ADJUSTED EBITDA  $4,290,171   $4,082,226 

 

Adjusted EBITDA increased $208,000, or 5.1%, and increased as a percentage of net revenues to 10.3% from 10.7% for the nine months ended September 30, 2015 as compared to the same period in 2014. The increase is primarily due to increased net income, income tax expense and depreciation expense. Adjustment to EBITDA is the result of the disposal of assets related to Shakopee Valley RV Park and the gain on insurance recoveries received in the third quarter of 2015.

 

Revenues:

 

Total net revenues increased $3,375,000, or 8.8%, for the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014. This increase is primarily attributable to increases in Card Casino and food and beverage revenue of 8.2% and 13.3%. Total net revenues increased $1,805,000, or 12.0%, for the three months ended September 30, 2015 as compared to the three months ended September 30, 2014. This increase is primarily attributable to increases in our Card Casino and food and beverage revenues 11.4% and 11.7%, respectively. See below for a further discussion of our operating revenue.

 

Pari-mutuel Data and Simulcasting Revenues: 

         
   Nine Months Ended September 30, 
   2015   2014 
Racing Days        
     Simulcast only racing days   203    205 
     Live and simulcast racing days   70    68 
Total Number of Racing Days   273    273 
           
On-Track Handle          
     Simulcast handle on simulcast only racing days  $13,665,000   $15,369,000 
     Simulcast handle on live racing days   9,057,000    9,269,000 
       Total simulcast handle   22,722,000    24,638,000 
           
Live Racing Handle   12,509,000    12,299,000 
              Total On-Track Handle   35,231,000    36,937,000 
           
Out-of-state Live Handle   28,621,000    24,643,000 
     Total Handle  $63,852,000   $61,580,000 

 

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Pari-mutuel revenue increased $43,000, or 1.1%, in the three months ended September 30, 2015 compared to the same period in 2014. Pari-mutuel revenue decreased $67,000, or 0.8%, in the nine months ended September 30, 2015 compared to the same period in 2014. Total handle wagered increased $2,272,000, or 3.7%, in the nine months ended September 30, 2015 compared to the same period last year.

 

Total handle increase is primarily attributable to out-of-state live handle which increased $3,978,000, or 16.1%, in the nine months ended September 30, 2015 compared to the same period in 2014. The out-of-state handle increase is due to greater interest in our live racing product due to higher quality horses, fuller racing fields and the agreement with Churchill Downs, Inc. (CDI) to package and sell our racing signal to a broader distribution of wagering entities.

 

The decrease in on-track simulcast handle in the nine months ended September 30, 2015 compared to the same period in 2014 is primarily due to several factors: adverse winter weather in the northeast region of the United States which caused the cancellation of a significant number of races at racetracks simulcasting their signal to our Racetrack during the first quarter of 2015, North Metro Harness Initiative, LLC approval and, continued competition from Internet-based interactive gaming and wagering which adversely affects simulcast wagering offered by the Company.

 

Card Casino Revenue: 

                 
   Three Months Ended September 30,   Nine Months Ended September 30, 
   2015   2014   2015   2014 
Poker Games  $2,358,000   $2,363,000   $7,156,000   $7,262,000 
Table Games   4,433,000    3,737,000    12,639,000    10,913,000 
Total Collection Revenue   6,791,000    6,100,000    19,795,000    18,175,000 
Other Revenue   614,000    545,000    1,832,000    1,822,000 
Total Card Casino Revenue  $7,405,000   $6,645,000   $21,627,000   $19,997,000 

 

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, which is 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.

 

Total Card Casino revenue increased $760,000 or 11.4%, for the three months ended September 30, 2015 compared to the same period in 2014. Table games collection revenue increased $696,000, or 18.6% compared to the same period of 2014. Total Card Casino revenue increased $1,630,000 or 8.2%, for the nine months ended September 30, 2015 compared to the same period in 2014. Table games collection revenue increased $1,726,000, or 15.8% compared to the first nine months of 2014. Management believes the increases in table games collection revenue were due to the increased effectiveness of our new customer relationship management system through targeted direct marketing and player acquisition, an increase in wagering directly related to our increase in live racing and catering and event attendance, and a strengthening economy.

 

Food and Beverage Revenue:

 

Food and beverage revenue increased $345,000, or 11.7%, and $799,000, or 13.3%, for the three and nine month ended September 30, 2015 compared to the same periods in 2014, primarily due to increased live racing attendance and an increase in prices for catering and events.

 

Other Revenue:

 

Other revenue increased $602,000, or 35.2%, and $940,000, or 25.2%, for the three and nine month ended September 30, 2015 compared to the same periods in 2014. This increase is primarily due to increased revenue from catering and events and admissions, but also reflects gain of $120,100 from insurance recoveries received in the third quarter of 2015.

 

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Operating Expenses:

 

Total operating expenses increased $1,482,000, or 10.6%, and $2,865,000, or 8.0%, for the three and nine months ended September 30, 2015 compared to the same periods in the prior year. The following paragraphs provide further detail regarding operating expenses.

 

Salaries and benefits increased $531,000, or 9.5%, for the three months ended September 30, 2015 compared to the same period in 2014. For the nine months ended September 30, 2015, salaries and benefits increased $1,336,000, or 8.9%, compared to the same period in 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 adding personnel related to catering and events initiatives.

 

Cost of food and beverage and other sales expense increased $142,000, or 10.2%, and $238,000, or 8.1% for the three and nine months ended September 30, 2015, respectively, compared to the same periods in the prior year. The changes are a result of increased food and beverage sales.

 

Depreciation expense increased $30,000, or 5.6%, and $166,000, or 10.6% for the three and nine months ended September 30, 2015, respectively, compared to the same periods in the prior year. This increase is primarily the result of the construction of the new Expo Center and the Triple Crown Club remodel.

 

Utilities increased $78,000, or 18.7%, and decreased $16,000, or 1.5%, for the three and nine months ended September 30, 2015, respectively, compared to the same periods in the prior year. The increase for the three months ended September 30, 2015 is attributable to increased usage for the Expo Center. For the nine months ended September 30, 2015, the reduced expense is primarily attributable to 2014 being one of the coldest winters Minnesota has experienced in decades.

 

Advertising and marketing costs increased $64,000, or 9.0%, and $154,000, or 10.1%, for the three and nine months ended September 30, 2015, respectively, compared to the same periods in the prior year. 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.

 

Gain on disposal of assets 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 and the cancellation of the SAR with a liability carrying value of $641,000 that the Company issued to SMSC pursuant to the CMA. The Company recorded a gain of $347,000.

 

Other operating expenses increased $859,000, or 34.3%, and $1,115,000, or 17.2%, for the three and nine months ended September 30, 2015, respectively, compared to the same periods in the prior year. The changes are primarily attributable to professional fees related to an announced corporate restructuring and efforts to develop unused or underutilized land.

 

Contingencies:

 

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 would occur and that the Company would be required to pay the specified amount related to such covenant is remote.

 

On April 15, 2015, the Company entered into a purchase agreement and amended the agreement in June 2015 to acquire approximately 32 acres of land adjacent to the Racetrack. Under the amended agreement, the Company will purchase the land for $4.9 million with a closing date of December 15, 2015.

 

The Company continues to analyze the feasibility of various options related to the development of our underutilized land. Subject to shareholder approval, as well as approval of the Minnesota Racing Commission, the Company is in the process of reorganizing the corporate structure into a new holding company with two subsidiaries, one that will continue to operate the current racing and gaming business, and a real estate subsidiary to hold the excess land for development. The Company may incur substantial costs during the feasibility and predevelopment process, but the Company believes available funds are sufficient to cover the costs. See Liquidity and Capital Resources for more information on liquidity and capital resource requirements.

 

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Liquidity and Capital Resources:

 

Net cash provided by operating activities for the nine months ended September 30, 2015 was $4,142,000 primarily as a result of the following: The Company reported net income of $1,773,000 and depreciation of $1,739,000. The Company also experienced an increase in accounts payable of $1,104,000 and Card Casino accruals of $540,000. This was partially offset by an increase in net income taxes paid of approximately $433,000 and other current assets of $413,000.

 

Cash provided by operating activities for the nine months ended September 30, 2014 was $4,502,000 primarily as a result of the following: The Company reported net income of $1,472,000 and depreciation of $1,573,000. The Company also experienced an increase in accounts payable of $792,000 and a decrease in income taxes receivable of $573,000. These items were somewhat offset by a seasonal increase in accounts receivable of $794,000 and an increase in restricted cash of $430,000.

 

Net cash used in investing activities for the first nine months of 2015 was $3,622,000, primarily for a variety of equipment purchases and building remodel projects. Net cash used in investing activities for the first nine months of 2014 was $3,663,000, primarily for the construction of the Expo Center.

 

Net cash used in financing activities during the first nine months of 2015 was $942,000 primarily for the payment of cash dividends. Net cash provided by financing activities during the first nine months of 2014 primarily resulted from the purchases of stock through the Employee Stock Purchase Plan and proceeds received upon the exercise of stock options totaling approximately $76,000.

 

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 4, 2016. The line of credit is collateralized by all receivables, inventory, equipment, general intangibles, products and proceeds, together with all other assets and properties of the Company. The Company had no borrowings under the credit line during the six months ended September 30, 2015 or the year ended December 31, 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 nine months ended September 30, 2015.

 

The Company’s cash and cash equivalent balance at September 30, 2015 was $8.3 million compared to $8.8 million at December 31, 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, as well as predevelopment expenses during 2015. However, if the Company engages in real estate development additional financing maybe required.

 

Critical Accounting Policies and Estimates:

 

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) 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 GAAP. 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.

 

Our significant accounting policies are included in Note 1 to our consolidated financial statements in our 2014 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 71.7% of our total assets at September 30, 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, management would determine how much of 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.

 

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Stock-Based Compensation – Accounting guidance requires recognition of 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.

 

Commitments and Contractual Obligations:

 

On June 4, 2012, and amended January 2015, the Company entered into the CMA with the SMSC that expires December 31, 2022. See “Cooperative Marketing Agreement” below. 

 

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. The legislation includes a 90-day training wage of $7.75 for 18 and 19-year-olds and, under certain conditions, for 16 and 17- year olds. 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 will continue to have an adverse effect in 2015 and beyond. While we may be able to mitigate the impact of this 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 customers from visiting the Racetrack. To the extent we are not able to implement such price increases and cost cutting measures, the increase in the minimum wage will adversely affect our net income.

 

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 horse industry. Under the CMA, 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, the SMSC paid the horsemen $6.2 million and $5.3 million in the first nine months of 2015 and 2014, respectively, primarily for purse enhancements.

 

Under the CMA, 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 Company received marketing payments of $944,000 and $660,000 in the first quarter of 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.” Under the amended CMA, SMSC agreed to make the following purse enhancement and marketing payments for 2016 through 2022: 

             
Year   Purse Enhancement Payments to Horsemen  1 Marketing Payments to Canterbury Park
2016   $  6,947,820   $  1,038,180
2017      7,642,602      1,141,998
2018      7,830,000      1,170,000
2019      7,830,000      1,170,000
2020      7,830,000      1,170,000
2021      7,830,000      1,170,000
2022      7,830,000      1,170,000
             
1  Includes $100,000 each year payable to various horsemen associations

 

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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 condensed consolidated statements of operations. For the nine months ended September 30, 2015, the Company recorded $800,000 in other revenue and incurred $630,000 in advertising and marketing expense and $170,000 in depreciation related to the SMSC marketing payment. For the nine months ended September 30, 2014, the Company recorded $711,000 in other revenue and incurred $551,000 in advertising and marketing expense and $160,000 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 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. The SAR Agreement granted rights to the SMSC 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 represented 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 vested at the rate of 16,500 per year beginning in January 2013. For the nine months ended September 30, 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 nine months ended September 30, 2014, the Company recognized $80,000 of expense related to these stock appreciation rights, of which $80,000 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.

 

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, a greater than anticipated expenses or lower than anticipated return on our development of our underutilized land. 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 expenses 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 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Canterbury Park is not required to provide the information requested by this Item as it qualifies as a smaller reporting company. 

 

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ITEM 4: CONTROLS AND PROCEDURES

 

(a)Evaluation of Disclosure Controls and Procedures:

 

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. 

 

(b)Changes in Internal Control over Financial Reporting:

 

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) that occurred during our fiscal quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II

OTHER INFORMATION

 

Item 1.Legal Proceedings

 

 Not Applicable.

 

Item 1A.Risk Factors

 

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, 2014, and the risk factors presented therein are incorporated by reference herein.

 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

 

 (a)Not Applicable.

 (b)Not Applicable.

 (c)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, block purchases of privately negotiated transactions (the “2008 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. The Company did not repurchase any shares during the third quarter of 2015. The maximum number of shares that may yet be purchased under the above authorizations is 128,781 as of September 30, 2015.

 

Item 3.Defaults upon Senior Securities

 

 Not Applicable.

 

Item 4.Mine Safety Disclosures

 

 Not Applicable.

 

Item 5.Other Information

 

Not Applicable.

 

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Item 6.Exhibits

 

(a)The following exhibits are included herein: 

 

11Statement re computation of per share earnings – See Net Income Per Share under Note 1 of Notes to Consolidated Financial Statements under Part 1, Item 1, which is incorporated herein by reference. 

 

31.1Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (rules 13a-14 and 15d-14 of the Exchange Act). 

 

31.2Certification 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). 
   
 32Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
   
   

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 

 

  Canterbury Park Holding Corporation
   
Dated:  November 13, 2015 /s/ Randall D. Sampson
  Randall D. Sampson,
  President and Chief Executive Officer

 

   

Dated:  November 13, 2015

/s/ David C. Hansen

  David C. Hansen,
  Vice President and Chief Financial Officer

 

22

 

Exhibit 31.1

 

CERTIFICATION

 

I, Randall D. Sampson certify that: 

 

1.I have reviewed this quarterly report on Form 10-Q of Canterbury Park Holding Corporation; 

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 

 

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the registrant and have: 

 

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; 

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and  

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case on an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and; 

 

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): 

 

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and 

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. 

 

Dated: November 13, 2015 CANTERBURY PARK HOLDING CORPORATION
     
  /s/ Randall D. Sampson  
  Randall D. Sampson  
  President and Chief Executive Officer  

 

   

 

Exhibit 31.2

 

CERTIFICATION

 

I, David C. Hansen certify that: 

 

1.I have reviewed this quarterly report on Form 10-Q of Canterbury Park Holding Corporation; 

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 

 

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting ( as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 

 

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; 

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and  

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and; 

 

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and 

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. 

 

Dated: November 13, 2015 CANTERBURY PARK HOLDING CORPORATION
     
  /s/ David C. Hansen  
  David C. Hansen   
  Vice President and Chief Financial Officer  

 

   

 

Exhibit 32 

 

CERTIFICATION 

 

Pursuant to 18 U.S.C. 1350, the undersigned Chief Executive Officer and Chief Financial Officer, respectively, of Canterbury Park Holding Corporation (the “Company”) herby certify that: 

 

(1)The accompanying quarterly report on Form 10-Q for the period ended September 30, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 

 

(2)The information contained in the accompanying Report fairly presents, in all material respects, the financial condition and results of operations of the Company. 

 

  CANTERBURY PARK HOLDING CORPORATION
     
Dated: November 13, 2015 /s/ Randall D. Sampson  
  Randall D. Sampson,  
  President and Chief Executive Officer  
     
Dated: November 13, 2015 /s/ David C. Hansen  
  David C. Hansen,  
  Vice President and Chief Financial Officer  

 

   

 

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