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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2002
SCIOTO DOWNS, INC.
COLUMBUS, OHIO
EMPLOYER I.D. NO. 31-4440550
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
MARK ONE
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended October 31, 2002
---------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the transition period to
from
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Commission file number 0-1365
--------------------------------------------
SCIOTO DOWNS, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Ohio 31-4440550
- ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
6000 South High Street, Columbus, Ohio 43207
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (614) 491-2515
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ---------------------------- ---------------------------------------------
- ---------------------------- ---------------------------------------------
FORM 10-K, CONTINUED
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT
Common Stock
(Title of Class)
Indicate by check mark whether the Company (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, and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES X NO
------ -----
The aggregate market value of the Company's voting stock held by nonaffiliated
stockholders as of January 3, 2003 was $18,468,777 or $31.00 per share.
The Company has only one class of shares outstanding, namely, common
shares. The number of common shares outstanding as of January 3, 2003 was
595,767.
The Exhibit index is on page 49.
PART I
ITEM 1. BUSINESS
GENERAL
Scioto Downs, Inc.'s (the Company) sole business is the ownership and
operation of a harness horseracing facility located at 6000 South High Street,
Columbus, Ohio. Racing operations at the South High Street facility started in
1959. Our primary operations include pari-mutuel wagering on live racing during
May to September and year-round simulcasting.
MARKET OVERVIEW AND INDUSTRY DEMANDS
The racing industry in general in Ohio is experiencing an overall
decline in business. Attendance is down, and the amount wagered on racing in
Ohio is down approximately 8% from the previous year. The pari-mutuel tax
abatement, which positively contributed to cash flows in prior years, was fully
utilized in 2001. Purses paid to winning horses are also down which further
contributes to a decline in the industry in Ohio, because the tracks are not
able to attract the more popular horses. Several developments in the racing
industry have contributed to this overall decline.
One factor is the rapid growth of what is known as account wagering.
This system allows an individual to place a wager on a horserace while at home
by telephone or over the Internet using an account established with the
telephone or Internet entity. Commissions received by the racetrack from account
wagering are significantly less than if the person places a wager at the
racetrack, thus, causing a decline in the racetrack's revenue.
Another factor adversely affecting horseracing in Ohio is increased
gambling competition from surrounding states. West Virginia, for example, has
authorized electronic gaming machines at its racetracks. Indiana has riverboat
gambling. Casino gambling is now in operation in Michigan. These out-of-state
gambling facilities patronized by Ohio residents take business away from the
Ohio racetracks and also provide the racetracks in those states which have these
other forms of gambling with additional funds to pay higher purses and, thus,
attract the more popular horses. Generally, the customers at Ohio tracks do not
wager as much on a less popular class of horses, so this situation also causes
the handle to decline. At the present time, it is extremely difficult for the
Ohio racetracks to compete with racetracks in other states that have alternate
forms of gambling. As a result, the racing industry in Ohio is in decline which
has adversely affected the Company's operations.
Beginning in fiscal 2001, management undertook a review of operating
costs and took steps to reduce expenses through cost containment, reductions in
expenditures and renegotiation of agreements with vendors. Management also
explored ways in which to utilize its facilities to earn additional revenue from
sources other than harness horseracing, (see the Operations Section of Item 1,
Business). Even after management's initiatives, business has continued to
decline, resulting in operating losses during the fiscal year 2002 live racing
season. As a result, management has been considering alternative options for
liquidity and is pursuing a potential disposition of the business.
On December 23, 2002, the Company entered into an agreement and plan of
merger (the Agreement) with MTR Gaming Group, Inc. (MTR), pursuant to which the
Company will become a wholly owned subsidiary of MTR. The Agreement provides
that each stockholder of the Company may elect to receive $32 in cash for each
share of the Company's common stock owned by the stockholder. Alternatively,
each stockholder may elect to receive an amount equal to $17 per share plus 10
annual earnout payments subject to the conditions set forth in the Agreement.
Consummation of the transaction
- 2 -
is subject to various conditions, including the successful completion of the due
diligence review by MTR, the approval by the stockholders of the Company and the
attainment of necessary regulatory approvals. On December 24, 2002, the Company
received a $1 million payment from MTR in accordance with the terms of the
Agreement. In the event the Agreement is terminated for cause as defined in the
Agreement, the $1 million will become a loan to be repaid by the Company to MTR
on December 23, 2005, and shall bear interest at a rate equal to MTR's cost of
borrowing. The loan will be collateralized by the Company's real and personal
property.
If the transaction takes place, this will provide liquidity to the
operation, subject to MTR's willingness and ability to continue to fund
operations. However, failure to consummate the transaction will make the ability
to repay the $1 million loan and continue future operations uncertain.
OPERATIONS
In addition to the racetrack itself, the grounds include parking,
grandstand, clubhouse and eating facilities for the Company's customers and barn
and stable facilities for the horses. Revenue is derived primarily from
commissions on pari-mutuel wagering (net of pari-mutuel taxes), admission fees
to enter the facilities and concessions, programs and parking. In 2002,
commissions on pari-mutuel wagering net of pari-mutuel taxes represented 69.7%
of revenues, in 2001 72%, and in 2000 65%. In 2002, admissions represented 0.8%
of revenues, in 2001 1%, and in 2000 1%. In 2002, revenues from concessions,
parking and programs amounted to 6.9% of revenues, in 2001 7%, and in 2000 10%.
During the last three years, average daily attendance has declined from 1,927 in
2000 to 1,900 in 2001 and in 2002. However, the Company did not track attendance
for people entering the facility before 6:00 p.m. prior to 2002.
The number of races conducted daily during a live racing program varies
from 9 races during the week to 11 or 12 races on weekends. The nearest
racetrack competition is Beulah Park, a thoroughbred horse racetrack
approximately six miles away. Beulah Park typically conducts live racing from
the middle of September until the first weekend of May, during which time the
Company is not open for live racing but continues to be open for simulcasting.
The Company conducts its business pursuant to a permit issued annually
by the Ohio Racing Commission. All of the racing conducted by the Company is
conducted in accordance with applicable Ohio statutes and the rules and
regulations of the Ohio Racing Commission. The Ohio Racing Commission regulates
and controls the forms of wagering that are permitted at the racetrack, the
procedures to be followed as to wagering, the wagering information to be
provided to the public, the number of races permitted during a racing program
and the days and time that live racing will be permitted. The Commission also
approves full-card simulcasting schedules. All persons who work at the racetrack
must be licensed by the Ohio Racing Commission. All owners, trainers, drivers
and other persons involved in the racing program must be licensed by the Ohio
Racing Commission. For the period covered by this report, the Company was issued
a permit by the Ohio Racing Commission to conduct live harness racing at its
facilities over a period of 148 days, together with full-card simulcasting on
those days.
Except on special occasions, such as Memorial Day, July 4 and Labor
Day, the Company conducts its racing at night with no racing on Sundays. The
racing period in 2002 commenced May 4, 2002 and continued through September 28,
2002.
On August 1, 2001, the Company purchased all of the outstanding shares
of Mid-America Racing Association, Inc. (Mid-America), which owned a racing
permit entitling it to conduct harness horseracing. The Company commenced
operations on August 1, 2001 under the Mid-America Racing Association, Inc.
permit and continued through September 30, 2001. The lease of racing facilities
between Mid-America Racing Association, Inc. and the Company was terminated as
of the acquisition date.
- 3 -
During 2002, major racing programs conducted at the Company's
facilities included the Super Night, the Little Brown Jug Preview, the Scarlet
O'Hara, the Pink Bonnet, the Ohio Sires Stakes, and Ohio Fair Stakes events.
Forms of competition faced by the Company during its summer racing schedule
include, in addition to the normal summer events, professional baseball (minor
league in Columbus and major league in Cincinnati and Cleveland), outdoor music
concerts and other similar entertainment events. Legalized gaming has been
approved at specific locations in Indiana, West Virginia, New York, and
Michigan. As discussed in the Market Overview and Industry Demands section of
Item 1, Business, pressure from other forms of gambling outside of Ohio has
negatively impacted the Company's operations.
In 1997, the Ohio legislature approved legislation, which permits
full-card simulcasting at racetracks in Ohio. This legislation enables Ohio
racetracks to bring into their facilities via television day and night full race
programs conducted at racetracks located inside and outside the state of Ohio.
Beginning January 1, 2001, the Company commenced year-round simulcasting with
the permission of the Ohio State Racing Commission. The Company now operates
full-card year-round simulcasting operations along with live racing.
As a result of this legislation, the Company and its nearest racetrack
competitor, Beulah Park, could be open year round conducting both live racing
and simulcast programs in competition with each other. As a result, the Company
and Beulah Park entered into an agreement not to be open at the same time.
Pursuant to this agreement, during fiscal year 2000 Beulah Park operated from
November to the first of May while the Company was closed. During this period of
time, simulcasting revenues derived from simulcasting at Beulah Park when it was
not conducting live racing was, after deducting certain expenses, shared with
the Company. The Company terminated its simulcasting agreement with Beulah Park
in September 2000. On January 1, 2002, an agreement with Beulah Park went into
effect that reduces the number of hours both tracks compete against each other
for simulcasting revenues. The desired result was a reduction in overhead and an
increase in revenue. Overall, during 2002 wagering on live racing continued to
decline, and the additional wagering on simulcast races partially offset the
decline in wagering on live racing. No live racing has been conducted at the
Company's facilities since September 28, 2002. On November 12, 2002, the Company
signed a new agreement with Beulah Park for the year 2003 that calls for the
same operating arrangement as the 2002 agreement.
As part of the Company's plan to expand the utilization of its
facilities to activities other than live harness horse racing, the Company rents
out the use of its facilities for events other than horse racing. Prior to 2001,
small trade shows and the Standard Bred Yearling sale were the only significant
sources of additional revenue from the horseracing operations. During 2002, a
flat-track motorcycle race was held at the Company's race track. As of October
1, 2002, the Company began to operate a winter training center at its facility
with approximately 100 to 150 horses on the premises. Other revenue sources
continue to be researched for the future.
Existing live racing, simulcasting, and pari-mutuel wagering are
contingent upon the continued governmental approval of these operations as forms
of legalized gaming. All current and proposed operations are subject to
extensive regulations and could be subjected at any time to additional or more
restrictive regulations, or banned entirely. Any significant increase in
governmental regulation could materially adversely affect the business,
financial condition, and results of operations. Future expansion of gaming
operations will likely require additional licenses, registrations, permits and
approvals. There is no assurance that the Company will meet the necessary
requirements for additional licenses or permits.
During 2002 the Ohio racetracks sought to have legislation authorizing
the installation of electronic gaming devices at the Ohio tracks enacted by the
General Assembly. These efforts were not successful, but the tracks intend to
pursue this legislation in 2003. However there is no assurance that such
legislation will be enacted.
- 4 -
During the racing season, the Company employed approximately 350
people, most all of whom are pari-mutuel clerks employed during the hours the
track is open for simulcasting and live racing, which is approximately twelve
noon to midnight. As a part of the full-card simulcast racing program, the
Company sends its live races via television to all other tracks in Ohio and as
many facilities outside the state of Ohio that it can contract with to receive
the signal (export signal), which could be as many as 25 facilities. The Company
receives a percentage (in most instances 3%) of the amount wagered on its races
at these other facilities outside the state of Ohio. Total export signal revenue
was $567,638 in 2002, $511,857 in 2001, and $273,628 in 2000.
ITEM 2. PROPERTIES
The Company's place of business is located at 6000 South High Street,
Columbus, Ohio. The Company owns in fee approximately 173 acres of land at this
location. Situated thereon are the physical facilities necessary for the
operation of a harness horseracing business, including the race track,
grandstand with a capacity of 10,000, and enclosed clubhouse buildings with a
capacity for 1,500 customers, in which are located eating and pari-mutuel
wagering facilities (including simulcasting), barns, a paddock, and related
facilities for the horses, drivers, and trainers. In addition, a substantial
(approximately 6,000-space) parking area is provided for customers. These
facilities are used fully during the racing season, which covers 148 days
commencing in May and ending September 28.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings
other than routine litigation incidental to its business, most of which is
covered by insurance.
The Company has no knowledge of any material pending legal proceedings
to which any director, officer or affiliate of the Company, any owner of record
or beneficiary of more than five percent of the voting securities of the
Company, or any associate of any such director, officer or security holder is a
party adverse to the Company or has a material interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended October 31, 2002.
- 5 -
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The market for the Company's common stock is generally inactive. Set
forth below are the high and low closing bid prices of Scioto Downs, Inc. as
reported by Dow Jones and the cash dividends paid and declared on a fiscal
quarter basis for the two years ended October 31, 2002. These bid prices do not
include retail markups, markdowns or commissions. The number of common
stockholders of the Company as of October 31, 2002 totaled 1,393.
BID PRICE
---------------------
DIVIDENDS HIGH LOW
--------- ------- -------
2002
Fourth Quarter $ -- $ 12.80 $ 12.75
Third Quarter -- 14.00 12.80
Second Quarter -- 13.25 12.90
First Quarter -- 13.05 12.75
2001
Fourth Quarter $ .05 $ 13.00 $ 12.75
Third Quarter -- 15.00 12.01
Second Quarter -- 15.00 12.50
First Quarter -- 15.00 12.25
- 6 -
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY OF OPERATIONS
OCTOBER 31, 2002, 2001, 2000, 1999 AND 1998
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------
Operating revenues:
Pari-mutuel commissions and breakage $ 11,774,127 $ 10,919,167 $ 6,025,407 $ 6,219,168 $ 6,108,475
Less pari-mutuel taxes 1,777,874 1,582,590 925,064 967,702 930,613
------------ ------------ ------------ ------------ ------------
9,996,253 9,336,577 5,100,343 5,251,466 5,177,862
Export signal revenue 567,638 511,857 273,628 241,959 243,216
Admissions 118,695 115,170 109,742 119,428 132,172
Simulcasting shared revenue, net -- -- 68,892 70,180 70,915
Concessions, program, parking, and other 984,011 881,526 777,199 778,157 796,784
Entry fees and purse monies added by others 2,558,813 1,781,499 752,713 688,058 728,915
Rental income from leased facilities 121,031 121,693 409,045 508,705 551,582
Pari-mutuel tax abatement earned -- 224,676 369,225 412,330 394,062
------------ ------------ ------------ ------------ ------------
14,346,441 12,972,998 7,860,787 8,070,283 8,095,508
------------ ------------ ------------ ------------ ------------
Operating expense:
Purses 6,903,813 5,842,746 2,957,929 3,063,308 3,073,960
Salaries and wages 2,618,637 2,226,198 1,251,320 1,193,837 1,182,815
Simulcasting fees 1,572,364 1,391,186 681,138 700,561 673,151
Depreciation 570,113 579,269 553,810 562,549 695,437
Advertising 340,783 495,183 312,652 248,033 312,649
Real and personal property taxes 205,500 216,016 172,315 187,631 193,551
Insurance 539,574 359,202 200,876 207,902 209,943
Repairs and maintenance 394,902 494,206 272,992 209,421 199,948
Other operating and general 2,433,980 2,445,875 1,569,955 1,504,490 1,271,423
------------ ------------ ------------ ------------ ------------
15,579,666 14,049,881 7,972,987 7,877,732 7,812,877
------------ ------------ ------------ ------------ ------------
(Loss) income from racing operations (1,233,225) (1,076,883) (112,200) 192,551 282,631
Equity in (losses) earnings of joint ventures (25,382) (24,288) 17,712 3,686 2,036
(Loss) gain on settlement and disposal (691) 62,265 -- -- --
Interest expense, net (226,872) (193,195) (146,525) (215,910) (252,737)
------------ ------------ ------------ ------------ ------------
(Loss) income before income tax benefit
(expense) (1,486,170) (1,232,101) (241,013) (19,673) 31,930
Income tax benefit (expense) -- 79,790 11,000 (12,000) (19,000)
------------ ------------ ------------ ------------ ------------
Net (loss) income $ (1,486,170) $ (1,152,311) $ (230,013) $ (31,673) $ 12,930
============ ============ ============ ============ ============
- 7 -
FIVE-YEAR SUMMARY OF OPERATIONS
OCTOBER 31, 2002, 2001, 2000, 1999 AND 1998, CONTINUED
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------
Operating revenues $ 14,346,441 $ 12,972,998 $ 7,860,787 $ 8,070,283 $ 8,095,508
============ ============ ============ ============ ============
Net (loss) income $ (1,486,170) $ (1,152,311) $ (230,013) $ (31,673) $ 12,930
============ ============ ============ ============ ============
Net (loss) income per common share (a) $ (2.49) $ (1.93) $ (.39) $ (.05) $ .02
============ ============ ============ ============ ============
Cash dividends per common share $ -- $ .05 $ .10 $ .05 $ .10
============ ============ ============ ============ ============
Weighted average common shares
outstanding 595,767 595,767 595,767 595,767 595,767
============ ============ ============ ============ ============
Total assets $ 6,602,131 $ 7,542,126 $ 7,671,360 $ 8,368,235 $ 8,577,247
============ ============ ============ ============ ============
Term obligations $ 2,677,690 $ 2,867,454 $ 2,912,921 $ 3,035,213 $ 3,206,350
============ ============ ============ ============ ============
(a) Based upon weighted average shares outstanding, basic and diluted
TWENTY-YEAR PER SHARE SUMMARY OF EARNINGS (LOSS),
DIVIDENDS, AND BOOK VALUE
EARNINGS BOOK
YEAR (LOSS) DIVIDENDS VALUE
- ---- -------- --------- ---------
2002 $ (2.49) $ 0.00 $ 1.01
2001 (1.93) 0.05 4.41
2000 (0.39) 0.10 6.81
1999 (0.05) 0.05 7.25
1998 0.02 0.10 7.43
1997 0.14 0.10 7.53
1996 (0.56) 0.10 7.50
1995 (0.22) 0.10 8.18
1994 (0.33) 0.10 8.49
1993 (0.31) 0.10 8.99
1992 (0.20) 0.10 9.41
1991 0.00 0.44 9.71
1990 0.21 0.44 10.15
1989 0.71 0.44 10.38
1988 0.68 0.42 10.11
1987 0.44 0.40 9.85
1986 0.76 0.40 9.81
1985 0.51 0.40 9.45
1984 0.83 0.40 9.22
1983 0.62 0.40 8.79
- 8 -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Any forward-looking statements contained in the following discussion or
elsewhere in this document involve risks and uncertainties which may cause
actual results to differ materially from those discussed. A wide range of
factors could contribute to those differences, including those discussed in this
document. The following discussion should be read in conjunction with the
selected financial data and the consolidated financial statements of Scioto
Downs, Inc. (Scioto Downs or the Company), including the respective notes
thereto, all of which are included herein.
The racing industry in general in Ohio is experiencing an overall
decline in business. Attendance is down, and the amount wagered on racing in
Ohio is down approximately 8% from the previous year. Purses paid to winning
horses are also down. Several developments in the racing industry have
contributed to this result.
One factor is the rapid growth of what is known as account wagering.
This system allows an individual to place a wager on a horserace while at home
by telephone or over the Internet using an account established with the
telephone or Internet entity. Commissions received by the racetrack from account
wagering are significantly less than if the person places a wager at the
racetrack, thus, causing a decline in the racetrack's revenue.
Another factor adversely affecting horseracing in Ohio is increased
gambling competition from surrounding states. West Virginia, for example, has
authorized electronic gaming machines at its racetracks. Indiana has riverboat
gambling. Casino gambling is now in operation in Michigan. These out-of-state
gambling facilities patronized by Ohio residents take business away from the
Ohio racetracks and also provide the racetracks in those states which have these
other forms of gambling with additional funds to pay higher purses and, thus,
attract the more popular horses. Generally, the customers at Ohio tracks do not
wager as much on a less popular class of horses, so this situation also causes
the handle to decline. At the present time, it is extremely difficult for the
Ohio racetracks to compete with racetracks in other states that have alternate
forms of gambling. As a result, the racing industry in Ohio is in decline which
has adversely affected the Company's operations.
Management has reviewed all operating costs and has taken steps to
reduce expenses through cost containment, reductions in expenses and
renegotiation of agreements with vendors. Also, management has been looking into
ways to utilize its facilities to earn additional revenue from sources other
than racing. Several agreements have been reached regarding facility use fees
with participating customers.
On December 23, 2002, the Company entered into an agreement and plan of
merger (the Agreement) with MTR Gaming Group, Inc. (MTR), pursuant to which the
Company will become a wholly owned subsidiary of MTR. The Agreement provides
that each stockholder of the Company may elect to receive $32 in cash for each
share of the Company's common stock owned by the stockholder. Alternatively,
each stockholder may elect to receive an amount equal to $17 per share plus 10
annual earnout payments subject to the conditions set forth in the Agreement.
Consummation of the transaction is subject to various conditions, including the
successful completion of the due diligence review by MTR, the approval by the
stockholders of the Company and the attainment of necessary regulatory
approvals. On December 24, 2002, the Company received a $1 million payment from
MTR in accordance with the terms of the Agreement. In the event the Agreement is
terminated for cause as defined in the Agreement, the $1 million will become a
loan to be repaid by the Company to MTR on December 23, 2005, and shall bear
interest at a rate equal to MTR's cost of borrowing. The loan will be
collateralized by the Company's real and personal property.
- 9 -
If the transaction takes place this will provide liquidity to the
operation subject to MTR's willingness and ability to continue to fund
operations. However, failure to consummate the transaction will make the ability
to repay the $1 million loan and to continue future operations uncertain.
GENERAL
The results of operations of the Company are dependent upon the
operations of Scioto Downs as a live harness horse racing facility and as a
simulcast wagering facility. The Company's operations are limited by the race
dates assigned to it by the Ohio State Racing Commission. In Ohio, each permit
holder may be granted racing days within a specified time period. The live
racing season at Scioto Downs commencing in May and ending in September was 148
days in total (which included 33 simulcasting only days in which no live racing
occurred or, more commonly referred to as, "dark days," resulting in 115 live
race days).
Beginning January 1, 2001, the Company commenced year-round
simulcasting with the permission of the Ohio State Racing Commission. The
Company operated full-card simulcasting operations through May 3, 2001, and
re-commenced on September 30, 2001, following the live racing season.
On August 1, 2001, the Company purchased all of the outstanding shares
of Mid-America. The Company commenced operations on August 1, 2001 under the
Mid-America racing permit and continued through September 30, 2001. The lease of
the racing facilities between Mid-America and the Company was terminated as of
the acquisition date. The results of operations of Mid-America from August 1,
2001 through October 31, 2001 are included in the results of operations
discussed below.
Due to the seasonal nature of the business, revenues and operating
results for any interim quarter are likely not indicative of the revenues and
results of operations for the year and, together with the effect of recent
acquisition activity, are not necessarily comparable with the results for the
corresponding period of the previous year.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Scioto Downs' discussion and analysis of its financial condition and
results of operations are based upon Scioto Downs' consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires Scioto Downs to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an ongoing basis,
Scioto Downs evaluates its estimates, including those related to unclaimed
purses, unclaimed winning tickets, bad debts, intangible assets, income taxes,
pensions and other postretirement benefits, and contingencies and litigation.
Scioto Downs bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
Scioto Downs believes the following critical accounting policies
affects its more significant judgments and estimates used in the preparation of
its consolidated financial statements. Scioto Downs will perform impairment
tests on the racing permit on an annual basis and between annual tests in
certain circumstances. Such circumstances may include changes in industry and
market conditions, including the potential for changes in Ohio gaming
regulations. Management's impairment tests may determine that the value of this
asset has been impaired and this would require a write-down of the recorded
asset value. Scioto Downs records a valuation allowance to reduce its deferred
tax assets to the amount that is more likely than not to be realized. Scioto
Downs has considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation allowance. In the
event that
- 10 -
the Company were to determine that it would be able to realize its deferred tax
assets in the future in excess of its net recorded amount, an adjustment to the
deferred tax asset would increase income in the period such determination was
made.
PARI-MUTUEL COMMISSIONS AND BREAKAGE REVENUES
The Company's annual revenue is mainly derived from the pari-mutuel
commissions and breakage revenue that it receives from wagers made by the public
during its racing meet. Wagers at Scioto Downs are placed under the pari-mutuel
wagering system whereby individual bettors wager against each other in a pool.
The Company merely acts as the stakeholder for the wagers made by the public and
deducts a commission which is fixed by Ohio law, and which is shared principally
by the State of Ohio, horsemen (in the form of purses to horse owners and in
various incentive awards) and the Company when conducting the race meet. The
Company, as the race track operator, has no interest in the order of finish in
any given race.
Pari-mutuel revenues are derived from three sources: commissions and
breakage (generally 20%) from wagers made at Scioto Downs on live racing;
commissions and breakage (generally 20%) from wagers made at Scioto Downs on the
audio-visual signal received of races conducted in Ohio and at out-of-state
locations (imported simulcast races); and commissions (generally 3%) of wagers
made at other track locations when Scioto Downs exports its live racing signal
to other track locations (commonly referred to as "export signal revenue").
RESULTS OF OPERATIONS
FISCAL YEAR 2002 COMPARED TO FISCAL YEAR 2001
Year-round simulcasting resulted in an increase in pari-mutuel
commissions and breakage, pari-mutuel taxes, purses and simulcasting fees. Purse
expense represents payments into the simulcast purse fund and purse payments. In
addition, increases in operating revenues resulted from the purchase of
Mid-America and inclusion of Mid-America operating revenues in the consolidated
financial statements of the Company from the acquisition date.
Revenue from pari-mutuel commissions and breakage increased by 7.8% or
$854,960 resulting from additional race days as a result the purchase of
Mid-America and from the addition of year-round simulcasting. Pari-mutuel taxes
increased 12.3% or $195,284 due to the increase in pari-mutuel commissions and
breakage and from the full utilization of the available tax abatement during
July 2001. Entry fees and purse monies added by others increased by 43.6% or
$777,314, due to an increase in contributions from sponsors and the holding of
the Super Night at the Company's facilities during 2002, for which purses of
approximately $1 million were paid. Revenue from export signal, which includes
in state and out-of-state, increased by 10.9%, or $55,781, due to an increase in
the number of months that tracks imported Scioto's signal due to year-round
simulcasting. Tax abatement earned decreased by $224,676 or 100.0% due to the
full utilization of the available tax abatement in July 2001.
Operating expenses such as salaries or wages increased by $392,439 or
17.6% in 2002 due to the Company being operational for 12 months versus 10
months in 2001, and certain shared expenses with Mid-America from the
acquisition date. Advertising expense decreased by $154,400 or 31.2% due to
better utilization of advertising dollars. Repairs and maintenance decreased by
$99,304 or 20.1% due to the previous year preventative maintenance program being
implemented. Other operating and general expenses decreased by $11,895 or 0.5%
due to the Company's cost containment program.
Net interest expense increased by $33,677, due primarily to a decrease
in interest income of $34,051. Interest decreased due to using operating cash
for financing the shortfall in the dark day purse funds resulting in lower
interest earning cash balances.
Loss from racing operations increased $156,342 due mainly to the
reasons listed above.
- 11 -
Net loss increased from $1,152,311, or ($1.93) per share in 2001 to
$1,486,170, or ($2.49) per share in 2002, due mainly to higher operating costs,
partially offset by higher revenue due to year-round simulcasting and the
acquisition of Mid-America.
FISCAL YEAR 2001 COMPARED TO FISCAL YEAR 2000
Year-round simulcasting resulted in an increase in pari-mutuel
commissions and breakage, pari-mutuel taxes, purses and simulcasting fees. Purse
expense represents payments into the simulcast purse fund and purse payments. In
addition, increases in operating revenues resulted from the purchase of
Mid-America and inclusion of Mid-America operating revenues in the consolidated
financial statements of the Company from the acquisition date. Revenue for the
fourth quarter of 2001 increased by $4,156,314 due to this acquisition and
year-round simulcasting. The 2001 numbers represent live racing from May through
September and ten months of simulcasting versus only five months of simulcasting
in 2000 and live racing May through mid-July 2000.
Revenue from pari-mutuel commissions and breakage increased by 81.2% or
$4,893,760 due to an increase in overall handle. Pari-mutuel taxes increased
71.1% or $657,526 due to the increase in the pari-mutuel handle. Entry fees and
purse monies added by others increased by 137% or $1,028,786, due to an increase
in contributions from sponsors. Revenue from export signal, which includes in
state and out-of-state, increased by 87.1%, or $238,229, due to an increase in
the number of months that tracks imported Scioto's signal due to year-round
simulcasting. Rental income decreased by $360,695 or 88.2% due to the
termination of the facilities lease agreement between the Company and
Mid-America as of the acquisition date. Tax abatement earned decreased by
$144,549 or 39.1% due to the full utilization of the available tax abatement in
July 2001.
As a result of enacted legislation, the Company and its nearest
racetrack competitor, Beulah Park, could be open year-round conducting both live
racing and importing in and out of state horse racing in competition with each
other. In previous years, the Company and Beulah Park entered into an agreement
not to be open at the same time. Pursuant to the agreement, during 2000, Beulah
Park operated from the middle of September to the first of May, while the
Company was closed. During this period of time, simulcasting revenues derived
from Beulah Park when it was not conducting live racing was, after deduction of
certain expenses, shared with the Company ($68,892 during 2000 and $70,180
during 1999).
The Company, as of September 2000, notified Beulah Park that it would
not renew the agreement. Therefore, no revenue was earned related to this
agreement during 2001. The reason for this is that the Company had applied and
received permission from the Ohio State Racing Commission to open January 1,
2001 and offer simulcasting at its facilities on a year-round basis.
Operating expenses, such as salaries and wages, advertising, repairs
and maintenance and other operating and general, increased in 2001. Salaries and
wages increased $974,878 or 77.9% due to the hiring of additional personnel and
year-round simulcasting. Advertising increased $182,531 or 58.4% due to efforts
to increase attendance and additional amounts spent on radio and television
advertisements and promotions for special events and year-round simulcasting.
Repairs and maintenance expense increased $221,214 or 81.0% due to an increase
in the general maintenance program and year-round simulcasting. Other operating
and general increased $875,920 or 55.8% due to an increase in utilities, tote
rental and bad debt expense, partially offset by a reduction in tax penalties.
Operating and general expenses for the year ended October 31, 2001 includes a
write-off of $292,169 for estimated uncollectible amounts due from Mid-America
pursuant to its lease with the Company.
Net interest expense increased by $46,670, the result of a decrease in
interest expense of $8,344 and a decrease in interest income of $55,044.
Interest decreased due to using operating cash for financing the shortfall in
the dark day purse funds resulting in lower interest earning cash balances.
Income from racing operations decreased $964,683 due mainly to the
reasons listed above.
- 12 -
Income tax expense increased from a benefit of $11,000 in 2000 to
$79,790 in 2001, due primarily to losses generated from operations. The tax
benefit represents the reversal of the prior year net deferred tax liability.
The Company has recorded the valuation allowance against net deferred tax assets
at October 31, 2001, as it deems it more likely than not that the deferred tax
assets will not be realized.
Net loss increased from $230,013, or ($.39) per share in 2000 to
$1,152,311, or ($1.93) per share in 2001, due mainly to higher operating costs,
partially offset by higher revenue.
LIQUIDITY AND CAPITAL RESOURCES
The Company has term debt outstanding of $2,677,690 at October 31,
2002, with monthly payments of principal and interest of $30,025 due through
September 2013. Interest is fixed at 7.79%. The original proceeds were used to
finance the clubhouse enclosure project in 1991 and to purchase simulcasting
equipment in 1997. The Company has an outstanding note payable of $50,000 at
October 31, 2002 that is due to the former shareholders of Mid-America, and is
payable on August 1, 2003. The note was discounted to approximately $48,400
assuming a discount rate of 6.75%, and is included in the current portion of
long-term debt at October 31, 2002.
During 2002, the Company was notified by its lender that availability
under the line of credit was terminated and the outstanding balance is due on
January 31, 2003. At October 31, 2002, the line had an outstanding balance of
$110,000.
Management reviewed all operating costs and took steps to reduce
expenses through cost containment, reductions in expenditures and renegotiation
of agreements with vendors. Management also explored ways in which to utilize
its facilities to earn additional revenue from sources other than harness
horseracing, (see the Operations Section of Item 1, Business). Even after
management's initiatives, business has continued to decline, resulting in
operating losses during the fiscal year 2002 live racing season. As a result,
management has been considering alternative options for liquidity and is
pursuing a potential disposition of the business.
Management's plan in 2003 is to continue with year-round simulcasting.
On January 1, 2002, an agreement with Beulah Park went into effect that reduces
the number of hours both tracks compete against each other for simulcasting
revenues. This agreement has been renewed for 2003. The desired result is a
reduction in overhead and an increase in revenue.
At this time, it is uncertain that the Company will be able to continue
as a going concern. The financial statements, however, have not been adjusted to
account for the entity on other than a going concern basis. On December 23,
2002, the Company entered into an agreement and plan of merger (the Agreement)
with MTR Gaming Group, Inc. (MTR), pursuant to which the Company will become a
wholly owned subsidiary of MTR. The Agreement provides that each stockholder of
the Company may elect to receive $32 in cash for each share of the Company's
common stock owned by the stockholder. Alternatively, each stockholder may elect
to receive an amount equal to $17 per share plus 10 annual earnout payments
subject to the conditions set forth in the Agreement. Consummation of the
transaction is subject to various conditions, including the successful
completion of the due diligence review by MTR, the approval by the stockholders
of the Company and the attainment of necessary regulatory approvals. On December
24, 2002, the Company received a $1 million payment from MTR in accordance with
the terms of the Agreement. In the event the Agreement is terminated for cause
as defined in the Agreement, the $1 million will become a loan to be repaid by
the Company to MTR on December 23, 2005, and shall bear interest at a rate equal
to MTR's cost of borrowing. The loan will be collateralized by the Company's
real and personal property.
- 13 -
The Company generated a positive cash flow from operations during 2002
as a result of an increase in accounts payable and purses payable of $844,047
during 2002. The net cash provided by operating activities was $232,117 for 2002
compared to a use of ($1,162,940) in 2001. During 2001, a dividend of $29,788
was declared and not paid until December 18, 2001.
Net cash used in investing activities was ($21,769) for 2002 compared
to net cash provided by investing activities of $7,156 for 2001. Net cash from
investing activities in 2002 was comprised of a movement from restricted cash to
unrestricted cash of $10,829, a dividend from the joint venture with
Hollingsworth of $15,000, and an outflow of cash for property improvements of
($47,598).
Net cash used in financing activities was ($309,552) for 2002 compared
to net cash provided by financing activities of $63,818 for 2001. The Company
paid ($189,764) on term debt during the year, ($90,000) on the revolving line of
credit, and ($29,788) in dividends declared in 2001. In 2001, the Company had
cash inflows from the revolving line of credit of $200,000 offset by cash
outflows for payments on the term debt of ($136,182).
The Company and MARA Enterprises, Inc. (MARA) participate in a
multiple-employer pension plan. In the event that MARA is unable to fund their
portion of the benefit obligation, the Company would be liable for the amount.
At October 31, 2002, MARA's portion of the funded status deficit was $826,535.
The Company has off balance sheet financing in the form of lease
obligations expiring through December 2005, which are disclosed in the notes to
the consolidated financial statements included in Exhibit 13 herein.
The following represents the minimum future operating lease payments
for these commitments, as well as the aggregate maturities for all of the
Company's debt as of October 31, 2002.
LINES OF TERM OPERATING
CREDIT DEBT LEASES TOTAL
---------- ---------- ----------- ----------
2003 $110,000 $ 206,640 $40,336 $ 356,976
2004 -- 170,662 14,424 185,086
2005 -- 184,284 14,424 198,708
2006 -- 200,853 2,404 203,257
2007 -- 217,190 -- 217,190
Thereafter -- 1,698,061 -- 1,698,061
-------- ---------- ------- ----------
$110,000 $2,677,690 $71,588 $2,859,278
======== ========== ======= ==========
RECENT DEVELOPMENTS AND OUTLOOK
As discussed in the Overview Section of Management's Discussion and
Analysis, the Company entered into an agreement and plan of merger with MTR
Gaming Group, Inc.
During 2002 the Ohio racetracks sought to have legislation authorizing
the installation of electronic gaming devices at the Ohio tracks enacted by the
General Assembly. These efforts were not successful, but the tracks intend to
pursue this legislation in 2003. However there is no assurance that such
legislation will be enacted.
During 2003, the Company will continue to evaluate the development of
off-track betting parlors, as state law allows. This effort is being undertaken
with the other racetracks in Ohio. During 2000, the Company invested $30,000 in
the Mifflin Meadows off-track betting parlor, but due to the poor
- 14 -
performance of the investment, the Company relinquished its membership units
during 2002.
The Company made a decision to pursue year-round simulcasting, and was
given permission to do so by the Ohio State Racing Commission in November 2000.
This year-round simulcasting began January 1, 2001. With the commencement of
year-round simulcasting, Scioto Downs has invested in upgrading simulcast
facilities.
As of October 1, 2002, the Company began to operate a winter training
center at its facility with approximately 100 to 150 horses on premise.
During 2002, Scioto Downs increased its efforts to identify tracks to
receive export signal, and pursued additional tracks for signal import. The
Company plans to continue these efforts during 2003.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995
This report may contain various "forward-looking statements" within the
meaning of applicable securities law. The use of forward-looking words such as
"believe", "expect", "anticipate", "project", "estimate", "intend", "hope" and
similar words identify "forward-looking statements" which speak only as of the
date the statement was made. Such forward-looking statements are subject to
risk, uncertainties and other factors, which could cause actual results to
materially differ from those made projected or implied. Such risks and
uncertainties would include such matters as the national and local general
economic business and other conditions, the availability of financing, the
impact of federal and state legislation and of governmental regulation, the
impact of competition and other risks and uncertainties that are describe in our
Securities and Exchange Commission filings. The Company disclaims any
obligations to update any forward-looking statement.
INFLATION
Inflation is not expected to materially impact the Company.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Accounting Standard (SFAS) No. 142 (SFAS 142), Goodwill and Other
Intangible Assets. SFAS 142 provides that goodwill should not be amortized but
should be tested for impairment at least annually using a fair-value based
approach. SFAS 142 is effective for the Company beginning November 1, 2002. The
Company will be required to perform annual impairment tests of indefinite-lived
intangible assets.
On October 4, 2001, the FASB issued SFAS No. 144 (SFAS 144), Accounting
for the Impairment or Disposal of Long-Lived Assets. SFAS 144 supercedes SFAS
No. 121 and applies to all long-lived assets (including discontinued operations)
and amends Accounting Principles Board Opinion No. 30, Reporting Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business. SFAS
144 develops one accounting model for long-lived assets that are to be disposed
of by sale. This model requires that long-lived assets that are to be disposed
of by sale be measured at the lower of book value or fair value less cost to
sell. Additionally, SFAS 144 expands the scope of discontinued operations to
include all components of an entity with operations that (1) can be
distinguished from the rest of the entity and (2) will be eliminated from the
ongoing operations of the entity in a disposal transaction. SFAS 144 is
effective for the Company's first quarter in fiscal year 2003. The Company does
not anticipate that the adoption of SFAS 144 will have a material effect.
- 15 -
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB
Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34. FIN
45 clarifies the requirements of FASB Statement No. 5, Accounting for
Contingencies, relating to the guarantor's accounting for, and disclosure of,
the issuance of certain types of guarantees. This Interpretation clarifies that
a guarantor is required to recognize, at the inception of certain types of
guarantees, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial measurement
provisions of this Interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. The disclosure requirements in this Interpretation
are effective for financial statements of interim or annual periods ending after
December 15, 2002. The Company is currently evaluating the impact of adopting
FIN 45.
On January 15, 2003, the FASB completed its redeliberations of the
project related to the consolidation of variable interest entities which will
culminate with the issuance of FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities - an interpretation of ARB No. 51.
FIN 46 clarifies the application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to certain entities in which equity investors
do not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 will
require disclosures regarding ownership interests in variable interest entities.
This Interpretation applies immediately to variable interest entities created
after January 31, 2003, and to variable interest entities in which an enterprise
obtains an interest after that date. It applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. The Company does not anticipate having to make additional disclosures
as a result of FIN 46.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
- 16 -
ITEM 8. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
-------
(a.) 1. Consolidated Financial Statements
Report of Independent Accountants 18
Consolidated Balance Sheets at October 31, 2002 and 2001 19-20
Consolidated Statements of Operations for the years ended
October 31, 2002, 2001 and 2000 21
Consolidated Statements of Stockholders' Equity for the years
ended October 31, 2002, 2001 and 2000 22
Consolidated Statements of Cash Flows for the years ended
October 31, 2002, 2001 and 2000 23
Notes to Consolidated Financial Statements 24-36
2. Supplementary Financial Information (unaudited) 37
- 17 -
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Scioto Downs, Inc.
In our opinion, the consolidated balance sheets and the related consolidated
statements of operations, stockholders' equity and cash flows present fairly, in
all material respects, the financial position of Scioto Downs, Inc. and its
subsidiary (the Company) at October 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 2002, in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company's net losses, negative working capital, and negative
operating cash flows raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
Columbus, Ohio
December 23, 2002
- 18 -
SCIOTO DOWNS, INC.
CONSOLIDATED BALANCE SHEETS
AT OCTOBER 31, 2002 AND 2001
- --------------------------------------------------------------------------------
2002 2001
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 319,484 $ 418,688
Restricted cash 31,864 42,693
Accounts receivable 240,452 548,371
Prepaid expenses and other 37,423 19,878
----------- -----------
Total current assets 629,223 1,029,630
----------- -----------
Property and equipment, at cost
Buildings and improvements $14,797,814 $14,754,386
Land improvements 1,326,554 1,326,554
Furniture and fixtures 1,838,146 1,835,966
Machinery and equipment 2,469,408 2,471,265
----------- -----------
20,431,922 20,388,171
Less accumulated depreciation 15,575,042 15,008,085
----------- -----------
4,856,880 5,380,086
Land 299,847 299,847
----------- -----------
5,156,727 5,679,933
----------- -----------
Other noncurrent assets 60,421 76,803
Racing permit 755,760 755,760
----------- -----------
Total assets $ 6,602,131 $ 7,542,126
=========== ===========
CONTINUED
- 19 -
SCIOTO DOWNS, INC.
CONSOLIDATED BALANCE SHEETS
AT OCTOBER 31, 2002 AND 2001
- --------------------------------------------------------------------------------
2002 2001
----------- ----------
LIABILITIES
Current liabilities
Accounts payable, trade $ 1,160,086 $ 465,579
Purses payable and simulcast purse fund 512,895 363,355
Dividends payable -- 29,788
Current maturities, term debt 206,640 193,083
Line of credit 110,000 200,000
Accrued expenses
Property taxes 160,789 163,506
Other 228,901 214,504
--------- ----------
Total current liabilities 2,379,311 1,629,815
--------- ----------
Minimum pension liability 878,620 335,458
Accrued pension 274,374 274,374
Term debt, net of current maturities 2,471,050 2,674,371
--------- ----------
Total liabilities 6,003,355 4,914,018
--------- ----------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $1.05 par value per share
Authorized: 3,600,000 shares
Issued and outstanding: 595,767 shares 625,555 625,555
Capital in excess of par value of stock 2,037,300 2,037,300
Accumulated (deficit) earnings (1,185,459) 300,711
Accumulated other comprehensive loss (878,620) (335,458)
----------- ----------
Total stockholders' equity 598,776 2,628,108
----------- ----------
Total liabilities and stockholders' equity $ 6,602,131 $7,542,126
=========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
- 20 -
SCIOTO DOWNS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 2002, 2001 AND 2000
- -------------------------------------------------------------------------------
2002 2001 2000
----------- ----------- ----------
Nights of live racing and simulcasting 148 135 71
----------- ----------- ----------
Dark days of simulcasting--off season 214 155 --
----------- ----------- ----------
Operating revenues:
Pari-mutuel commissions and breakage $11,774,127 $10,919,167 $6,025,407
Less pari-mutuel taxes 1,777,874 1,582,590 925,064
----------- ----------- ----------
9,996,253 9,336,577 5,100,343
----------- ----------- ----------
Export signal revenue 567,638 511,857 273,628
Admissions 118,695 115,170 109,742
Simulcasting shared revenue, net -- -- 68,892
Concessions, program, parking, and other 984,011 881,526 777,199
Entry fees and purse monies added by others 2,558,813 1,781,499 752,713
Rental income from leased facilities 121,031 121,693 409,045
Pari-mutuel tax abatement earned -- 224,676 369,225
----------- ----------- ----------
14,346,441 12,972,998 7,860,787
----------- ----------- ----------
Operating expenses:
Purses 6,903,813 5,842,746 2,957,929
Salaries and wages 2,618,637 2,226,198 1,251,320
Simulcasting fees 1,572,364 1,391,186 681,138
Depreciation and amortization 570,113 579,269 553,810
Advertising 340,783 495,183 312,652
Real and personal property taxes 205,500 216,016 172,315
Insurance 539,574 359,202 200,876
Repairs and maintenance 394,902 494,206 272,992
Other operating and general 2,433,980 2,445,875 1,569,955
----------- ----------- ----------
15,579,666 14,049,881 7,972,987
----------- ----------- ----------
Loss from racing operations (1,233,225) (1,076,883) (112,200)
Equity in (losses) earnings of joint ventures (25,382) (24,288) 17,712
(Loss) gain on settlement and disposal of assets (691) 62,265 --
Interest expense, net (226,872) (193,195) (146,525)
----------- ----------- ----------
Loss before income tax benefit (1,486,170) (1,232,101) (241,013)
Income tax benefit -- 79,790 11,000
----------- ----------- ----------
Net loss $(1,486,170) $(1,152,311) $ (230,013)
=========== =========== ==========
Basic and diluted loss per common share $ (2.49) $ (1.93) $ (.39)
=========== =========== ==========
Dividends per common share $ -- $ .05 $ .10
=========== =========== ==========
Weighted average shares outstanding, basic and diluted 595,767 595,767 595,767
=========== =========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
- 21 -
SCIOTO DOWNS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 2002, 2001 AND 2000
- -------------------------------------------------------------------------------
CAPITAL IN ACCUMULATED
COMMON STOCK EXCESS OF ACCUMULATED OTHER TOTAL
----------------------- PAR VALUE (DEFICIT) COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT OF STOCK EARNINGS LOSS EQUITY
-------- -------- ---------- ------------ ------------- -------------
Balances, October 31, 1999 595,767 $625,555 $2,037,300 $ 1,772,400 $ (116,768) $ 4,318,487
Net loss -- -- -- (230,013) -- (230,013)
Minimum pension liability adjustment,
net of taxes -- -- -- -- 26,992 26,992
-----------
Comprehensive loss (203,021)
-----------
Cash dividends--$.10 per share -- -- -- (59,577) -- (59,577)
-------- -------- ---------- ----------- ---------- -----------
Balances, October 31, 2000 595,767 625,555 2,037,300 1,482,810 (89,776) 4,055,889
Net loss -- -- -- (1,152,311) -- (1,152,311)
Minimum pension liability adjustment,
net of taxes -- -- -- -- (245,682) (245,682)
-----------
Comprehensive loss (1,397,993)
-----------
Cash dividends -- $.05 per share -- -- -- (29,788) -- (29,788)
-------- -------- ---------- ----------- ---------- -----------
Balances, October 31, 2001 595,767 625,555 2,037,300 300,711 (335,458) 2,628,108
Net loss -- -- -- (1,486,170) -- (1,486,170)
Minimum pension liability adjustment,
net of taxes -- -- -- -- (543,162) (543,162)
-----------
Comprehensive loss (2,029,332)
-------- -------- ---------- ----------- ---------- -----------
Balances, October 31, 2002 595,767 $625,555 $2,037,300 $(1,185,459) $ (878,620) $ 598,776
======== ======== ========== =========== ========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
- 22 -
SCIOTO DOWNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 2002, 2001 AND 2000
- ----------------------------------------------------------------------------
2002 2001 2000
----------- ----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,486,170) $(1,152,311) $ (230,013)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Equity in losses (earnings) of joint ventures 25,382 24,288 (17,712)
Gain on settlement -- (58,670) --
(Loss) gain on disposal of assets 691 (3,595) --
Depreciation and amortization 570,113 579,269 553,810
Provision for losses on accounts receivable -- 292,169 1,234
Deferred income taxes -- (79,790) (11,000)
Change in current assets and liabilities, net
of the effect of acquisition:
Accounts receivable 307,919 (225,131) (124,063)
Accounts receivable--related party -- -- 483,654
Prepaid expenses and other (17,545) (11,686) 5,734
Accounts payable, trade and purses
payable and simulcast purse fund 844,047 227,760 (417,054)
Accounts payable--related party -- (370,217) 78,078
Accrued expenses (12,320) (385,026) 74,832
----------- ----------- ----------
Net cash provided (used in) by operating activities 232,117 (1,162,940) 397,500
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in restricted cash 10,829 3,061 272,787
Purchase of property and equipment (47,598) (330,884) (213,225)
Contribution to joint venture -- -- (30,000)
Cash received in purchase of business,
net of cash paid -- 300,953 --
Proceeds from sale of property and equipment -- 4,026 --
Dividend from joint venture 15,000 30,000 30,000
----------- ----------- ----------
Net cash (used in) provided by investing activities (21,769) 7,156 59,562
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on term debt (189,764) (136,182) (122,292)
Proceeds from revolving line of credit -- 200,000 300,000
Payments on revolving line of credit (90,000) -- (300,000)
Dividends paid (29,788) -- (59,577)
----------- ----------- ----------
Net cash (used in) provided by financing activities (309,552) 63,818 (181,869)
----------- ----------- ----------
Net (decrease) increase in cash and cash equivalents (99,204) (1,091,966) 275,193
Cash and cash equivalents, beginning of year 418,688 1,510,654 1,235,461
----------- ----------- ----------
Cash and cash equivalents, end of year $ 319,484 $ 418,688 $1,510,654
=========== =========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest paid $ 227,505 $ 237,419 $ 256,597
=========== =========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITY
Dividends declared, not paid $ -- $ 29,788 $ --
=========== =========== ==========
Business acquired by seller financing $ -- $ 91,876 $ --
=========== =========== ==========
Liability accrued for contribution to joint venture $ 24,000 $ -- $ --
=========== =========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
- 23 -
SCIOTO DOWNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE BUSINESS
Scioto Downs, Inc.'s (Scioto Downs) business is the ownership and operation
of a harness horseracing facility located in central Ohio. Revenues are
earned from commissions on pari-mutuel wagering on live races and
simulcasting and various related revenues including simulcasting export
signal revenue, rental income, admissions, concessions and parking.
On August 1, 2001, Scioto Downs acquired all of the outstanding common
shares of Mid-America Racing Association, Inc. (Mid-America). The
acquisition has been accounted for under the purchase method. Accordingly,
the assets, liabilities, and the results of operations are reflected in the
consolidated financial statements of Scioto Downs from the acquisition
date. Scioto Downs and Mid-America are collectively referred to as the
Company. See Note 12.
During fiscal 2001, the Company incurred operating losses and negative cash
flows from operations and had a working capital deficit of $600,185 at
October 31, 2001. The Company continued to have losses from operations in
fiscal 2002 and had a working capital deficit of $1,750,088 at October 31,
2002.
Management reviewed all operating costs and took steps to reduce expenses
through cost containment, reductions in expenditures and renegotiation of
agreements with vendors. Management developed ways to utilize its
facilities to earn additional revenue from sources other than racing and
this resulted in several agreements involving facility use fees with
participating customers.
Management's plan in 2003 is to continue with year-round simulcasting. On
January 1, 2002, an agreement with Beulah Park went into effect that
reduces the number of hours both tracks compete against each other for
simulcasting revenues. This agreement has been renewed for 2003. The
desired result is a reduction in overhead and an increase in revenue.
Management's plans to reduce expenses and improve operating results also
depended on a successful 2002 live racing season, which did not occur due
primarily to a decline in pari-mutuel wagering in the racing industry in
Ohio. As a result, management's plans have not produced the desired
results, and the Company's consolidated financial position has not
improved.
On December 23, 2002, the Company entered into an agreement and plan of
merger with MTR Gaming Group, Inc. (MTR) (See Note 13). If the transaction
takes place this will provide liquidity to the operation subject to MTR's
willingness and ability to fund operations. However, failure to consummate
the transaction will make the ability to continue future operations
uncertain.
At this time, it is uncertain that the Company will be able to continue as
a going concern. The financial statements, however, have not been adjusted
to account for the entity on other than a going concern basis.
- 24 -
SCIOTO DOWNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
2. ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in
the preparation of the financial statements.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Scioto Downs and its wholly owned subsidiary, Mid-America. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent amounts on deposit with financial
institutions, including money market investments with original maturities
of three months or less. At October 31, 2002 and 2001, cash and cash
equivalents and restricted cash included deposits of approximately $224,000
and $376,000, respectively, which are held at one financial institution.
RESTRICTED CASH
The Company is required to hold funds related to horsemen's fines and
certain simulcasting funds in separate accounts. Their use is restricted to
payments for improving horsemen's facilities and increasing racing purses.
PROPERTY AND EQUIPMENT
The Company records asset acquisitions at cost. Depreciation is recognized
on the straight-line method over the estimated useful lives of the
applicable assets as follows:
ESTIMATED
USEFUL LIVES
CLASS OF ASSETS (YEARS)
--------------- ------------
Buildings and improvements 10 to 40
Land improvements 6 to 20
Furniture and fixtures 4 to 20
Machinery and equipment 5 to 15
Maintenance, repairs and minor renewals are charged to expense as incurred,
while major renewals and betterments are capitalized. The cost and related
accumulated depreciation of assets sold or otherwise disposed of are
removed from the related accounts, and resulting gains or losses are
reflected in the statement of operations.
RACING PERMIT
The Company recorded a racing permit, an intangible asset, at fair value as
a result of the purchase of Mid-America during 2001 (see Note 12). The
racing permit is not amortized as it is considered to be an indefinite
lived intangible. It will be tested for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable.
- 25 -
SCIOTO DOWNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair
value of assets. To date, no such impairment has been recognized.
INCOME TAXES
The Company accounts for income taxes on the liability method. Under this
method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to "temporary differences" between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
NET LOSS PER COMMON SHARE
Net loss per share of common stock is based on the weighted average number
of shares outstanding. The Company has no common stock equivalents.
Accordingly, the weighted average shares outstanding are the same for
calculation of basic and diluted per share computations.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes commission revenue based upon various percentages of
pari-mutuel wagering when earned. Other revenues are recognized when
services are performed.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 2002
presentation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Accounting Standard (SFAS) No. 142 (SFAS 142), Goodwill and
Other Intangible Assets. SFAS 142 provides that goodwill should not be
amortized but should be tested for impairment at least annually using a
fair-value based approach. SFAS 142 is effective for the Company beginning
November 1, 2002. The Company will be required to perform annual impairment
tests of indefinite-lived intangible assets.
- 26 -
SCIOTO DOWNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
On October 4, 2001, the FASB issued SFAS No. 144 (SFAS 144), Accounting for
the Impairment or Disposal of Long-Lived Assets. SFAS 144 supercedes SFAS
No. 121 and applies to all long-lived assets (including discontinued
operations) and amends Accounting Principles Board Opinion No. 30,
Reporting Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business. SFAS 144 develops one accounting model for
long-lived assets that are to be disposed of by sale. This model requires
that long-lived assets that are to be disposed of by sale be measured at
the lower of book value or fair value less cost to sell. Additionally, SFAS
144 expands the scope of discontinued operations to include all components
of an entity with operations that (1) can be distinguished from the rest of
the entity and (2) will be eliminated from the ongoing operations of the
entity in a disposal transaction. SFAS 144 is effective for the Company's
first quarter in fiscal year 2003. The Company does not anticipate that the
adoption of SFAS 144 will have a material effect.
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, an interpretation
of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation
No. 34. FIN 45 clarifies the requirements of FASB Statement No. 5,
Accounting for Contingencies, relating to the guarantor's accounting for,
and disclosure of, the issuance of certain types of guarantees. This
Interpretation clarifies that a guarantor is required to recognize, at the
inception of certain types of guarantees, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The initial recognition
and initial measurement provisions of this Interpretation are applicable on
a prospective basis to guarantees issued or modified after December 31,
2002, irrespective of the guarantor's fiscal year-end. The disclosure
requirements in this Interpretation are effective for financial statements
of interim or annual periods ending after December 15, 2002. The Company is
currently evaluating the impact of adopting FIN 45.
On January 15, 2003, the FASB completed its redeliberations of the project
related to the consolidation of variable interest entities which will
culminate with the issuance of FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities - an interpretation of ARB No.
51. FIN 46 clarifies the application of Accounting Research Bulletin No.
51, Consolidated Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance
its activities without additional subordinated financial support from other
parties. FIN 46 will require disclosures regarding ownership interests in
variable interest entities. This Interpretation applies immediately to
variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning after
June 15, 2003, to variable interest entities in which an enterprise holds a
variable interest that it acquired before February 1, 2003. The Company
does not anticipate having to make additional disclosures as a result of
FIN 46.
3. AFFILIATED ENTITIES
Scioto Downs leased its racing facilities to Mid-America, which had common
management and certain common stockholders with Scioto Downs. The
facilities were leased for the period of time necessary to conduct an
annual racing meet under the terms of a 25-year lease agreement, which was
terminated on August 1, 2001. The lease agreement provided for rental
payments to
- 27 -
SCIOTO DOWNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
Scioto Downs based on percentages of daily pari-mutuel wagering during the
meet with a minimum annual rental payment of $7,200. During 2000,
Mid-America paid to Scioto Downs additional rents of $60,051. Additional
payments were based on two months of Scioto Downs' required debt service
during the period in which Mid-America rented Scioto Downs' facilities.
These additional payments were subject to annual approval by Mid-America.
As discussed in Note 8, the lessee remitted its portion of the pari-mutuel
tax abatement to Scioto Downs. In addition, the lessee was required to pay
certain operating expenses. Revenues from this lease were accounted for on
the operating method.
Scioto Downs collected simulcasting purse pool funding and other monies on
behalf of Mid-America and remitted such funding to Mid-America on a
periodic basis. In addition, amounts were due from Mid-America for the
portion of certain shared corporate overhead expenses paid by Scioto Downs
and subsequently reimbursed by Mid-America. Interest on the outstanding
balance was charged at the prime-lending rate.
The following is a summary of transactions with Mid-America for the years
ended October 31, 2001 and 2000 and amounts due to (from) Mid-America as of
October 31, 2001 and 2000.
INCOME (EXPENSE)
-------------------------
2001 2000
-------- ---------
Facility rents $ 48,350 $ 409,045
Reimbursement of overhead expenses 406,289 336,920
Pari-mutuel tax abatement -- (168,115)
Concessionaire sublease 21,089 (113,762)
Interest on outstanding balances -- 30,101
-------- ---------
Net expenses $475,728 $ 494,189
======== =========
Amounts due to (from) at October 31 $ -- $ 78,078
======== =========
Scioto Downs had an outstanding receivable due from Mid-America of $517,169
at the date of acquisition. Scioto Downs had recorded a valuation allowance
of $292,169 against the total receivable during 2001.
Effective July 1, 1999, Mid-America spun off MARA Enterprises, Inc. (MARA)
to its stockholders. Scioto Downs had accounts receivable of $4,485 and
$27,247 at October 31, 2002 and 2001, respectively, due from MARA, which
has certain common stockholders with the Company. Such amounts arose from
the reimbursement of certain shared corporate overhead expenses paid by
Scioto Downs. Reimbursed expenses from MARA were $62,504 and $99,154 for
the years ended October 31, 2002 and 2001, respectively.
- 28 -
SCIOTO DOWNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
4. INCOME TAXES
Income tax (benefit) expense includes the following components:
2002 2001 2000
-------- -------- --------
Federal income tax (benefit) expense:
Deferred ....................... $ -- $(79,790) $(11,000)
-------- -------- --------
Total ....................... $ -- $(79,790) $(11,000)
======== ======== ========
A summary of the effective income tax rate is as follows:
PERCENTAGE OF PRETAX INCOME (LOSS)
-----------------------------------------
2002 2001 2000
------- ------- -------
Statutory federal rate (34)% (34)% (34)%
Surtax exemption 7 7 2
Permanent differences 2 5 32
Deferred tax rate and other adjustments (2) (11) (5)
Valuation allowance 27 27 --
--- --- ---
Effective tax rate -- % (6)% (5)%
=== === ===
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at October
31 are as follows:
2002 2001
----------- -----------
Deferred tax assets arising from:
Alternative minimum tax credit carryforwards $ 59,000 $ 59,000
Net operating loss carryforwards 1,138,343 734,907
Accrued liabilities 9,936 9,145
Pension liability adjustment 298,731 114,056
----------- -----------
Total deferred tax assets $ 1,506,010 $ 917,108
=========== ===========
Deferred tax liabilities arising from:
Depreciation $ 240,875 $ 303,979
----------- -----------
Total deferred tax liabilities $ 240,875 $ 303,979
=========== ===========
Net noncurrent deferred tax asset $ 1,265,135 $ 613,129
Valuation allowance $(1,265,135) $ (613,129)
=========== ===========
Net deferred tax asset (liability) -- --
=========== ===========
- 29 -
SCIOTO DOWNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
The Company has determined at October 31, 2002 and 2001, that it is
more likely than not that the deferred tax assets will not be realized
and, therefore, has recorded a full valuation allowance. The valuation
allowance related to the minimum pension liability has been recorded
through other comprehensive income. Deferred tax assets, liabilities,
and federal income tax expense in future years can be significantly
affected by changes in enacted tax rates and the rates at which net
operating loss carryforwards are utilized.
At October 31, 2002, the Company has, for federal income tax purposes,
approximately $59,000 in alternative minimum tax credit carryforwards
and approximately $3,586,000 in net operating loss carryforwards. The
net operating loss carryforwards expire over the years 2010 through
2022. Approximately $150,000 of the net operating loss carryforwards
are related to Mid-America and their use will be limited by Section 382
of the Internal Revenue Code. The alternative minimum tax credit can be
carried forward indefinitely.
5. COMMITMENTS
The Company leases pari-mutuel equipment under a five-year
noncancelable-operating lease with an automatic extension as long as
the Company conducts pari-mutuel wagering. Rental expense was
approximately $283,000 in 2002, $280,000 in 2001, and $125,000 in 2000.
Under the agreement, the Company is obligated to pay the third-party
processor a minimum charge per program of $1,600 (approximately $97,600
annually).
6. OPERATING LEASES
The Company leases equipment under various operating lease agreements
that expire in March 2003 and December 2005. Rent expense under these
leases was $76,612 in 2002, $74,208 in 2001 and $62,188 in 2000.
The future annual minimum rental payments on these leases are as
follows for the years ending October 31:
2003 $40,336
2004 14,424
2005 14,424
2006 2,404
-------
Total minimum payments required $71,588
=======
7. RETIREMENT PLANS
Scioto Downs, Mid-America and MARA sponsor a noncontributory
defined-benefit pension plan covering all full-time employees meeting
certain age and service requirements. Scioto Downs, Mid-America and
MARA share proportionately the costs and related assets of the plan. In
connection with the acquisition of Mid-America, Scioto Downs assumed
Mid-America's portion of the unfunded benefit obligation of $332,780.
On May 31, 2001, the plan was amended to freeze eligibility, the
accrual of years of service and benefits. The Company's total pension
expense, which includes both current service costs and amortization of
prior years' service costs, amounted to $126,692 in 2002, $28,101 in
2001, and $40,791 in 2000.
- 30 -
SCIOTO DOWNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
The Company's funding policy is to contribute annually an amount
sufficient to fund the plan's estimated past service costs over a
30-year period using a different actuarial cost method and different
assumptions from those used for financial reporting.
The Company's portion of the funded status of the plan at October 31 is
as follows:
2002 2001
----------- -----------
Change in projected benefit obligation:
Benefit obligation as of the beginning of the year $ 1,310,220 $ 521,902
Benefit obligation acquired in business combination -- 655,110
Interest cost 122,670 45,726
Actuarial loss (gain) 520,588 140,407
Benefits paid (102,870) (52,925)
----------- -----------
Benefit obligation as of the end of the year $ 1,850,608 $ 1,310,220
=========== ===========
Change in plan assets:
Fair value of assets at the beginning of the year $ 644,660 $ 366,629
Fair value of assets acquired in business combination -- 322,330
Actual loss on plan assets (26,596) (19,171)
Other allocation adjustments -- 8,312
Employer contributions 99,506 19,485
Benefits paid (102,870) (52,925)
----------- -----------
Fair value of assets at the end of the year 614,700 $ 644,660
=========== ===========
Funded status deficit $(1,235,908) $ (665,560)
Unrecognized net actuarial loss 878,620 335,458
----------- -----------
Net amount of deficit recognized $ (357,288) $ (330,102)
=========== ===========
Amounts recognized in the Company's balance sheets consist of:
Accrued pension cost, current portion $ (82,914) $ (55,728)
Accrued pension (274,374) (274,374)
Additional minimum liability (878,620) (335,458)
Accumulated other comprehensive loss 878,620 335,458
----------- -----------
Net amount recognized $ (357,288) $ (330,102)
=========== ===========
- 31 -
SCIOTO DOWNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
Assumptions used for the plan are as follows:
2002 2001 2000
---- ---- ----
Discount rate 7.00% 7.00% 7.75%
Rate of increase in compensation levels 0.00% 0.00% 5.50%
Long-term rate of return on assets 8.00% 8.00% 8.00%
Net pension expense includes the following components:
2002 2001 2000
--------- --------- ---------
Service cost -- components of net periodic benefit cost $ -- $ -- $ 12,027
Interest cost 122,670 45,726 39,788
Expected return on plan assets (70,274) (28,744) (26,830)
Net amortization relating to the deferral of initial
transitional obligation and subsequent gains and losses 74,296 11,119 7,010
Amendments -- -- 8,796
--------- --------- ---------
Net pension expense $ 126,692 $ 28,101 $ 40,791
========= ========= =========
In the event that MARA is unable to fund their portion of the benefit
obligation, the Company would be liable for the amount. At October 31,
2002 MARA's portion of the funded status deficit was $826,535.
The Company and MARA have a 401(k) savings plan covering substantially
all full-time employees. The Company expensed matching contributions of
$68,550 in 2002, $40,911 in 2001, and $18,911 in 2000. In 2002, the
Company and MARA separated the 401(k) savings plan, each assuming their
respective liabilities.
8. PARI-MUTUEL TAX ABATEMENT
To encourage the improvement of racing facilities in Ohio, permit
holders are allowed to recover 70% of the cost of qualified
improvements as determined by the Ohio State Racing Commission. Such
recovery is accomplished by reducing each day's pari-mutuel tax paid to
the state by a fraction of 1% of pari-mutuel wagering and continues for
15 years (10 years if construction of the improvements commenced after
March 29, 1988), or until the total tax reduction reaches 70% of the
cost of the improvement, whichever occurs first. Such abatement is
available to all permit holders who race at the improved facility. By
agreement, Mid-America, through the date of acquisition, remitted its
portion of the abatement to the Company (see Note 3). The abatement was
fully utilized during 2001. The Company earned pari-mutuel tax
abatement (including amounts from Mid-America through the date of
acquisition) of $224,676 in 2001 and $369,225 in 2000.
- 32 -
SCIOTO DOWNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
9. DEBT FINANCING ARRANGEMENTS
During 2002, the Company was notified by its lender that availability
under the line of credit was terminated and the outstanding balance is
due on January 31, 2003.
The line calls for interest at the prime rate (4.75% at October 31,
2002). At October 31, 2002, the line had an outstanding balance of
$110,000.
In April 1999, the Company entered into a term loan agreement that
provides for monthly payments of principal and interest of $30,025
through September 2013. Interest is fixed at 7.79% per annum. The line
of credit and the term loan are collateralized by a first mortgage on
the Company's real property facilities, as well as other personal
property, and an assignment of the rents from the Company's lease
arrangements.
The Company's term loan agreement contains an acceleration clause
whereby the lender has the right to declare the loan immediately due
and payable if, in the lender's judgment, an event has occurred which
is likely to have a material adverse effect on the Company.
During 2001, the Company issued non-interest-bearing promissory notes
to the previous stockholders of Mid-America for consideration of the
purchase price (see Note 12). The remaining unpaid principal balance of
$50,000 under the notes is due in August 2003 and is included in the
current portion of term obligations at October 31, 2002. The note was
discounted to approximately $48,400, assuming a discount rate of 6.75%.
The promissory notes are related-party transactions as certain previous
Mid-America stockholders are board members and significant stockholders
of the Company.
Maturities of term obligations at October 31, 2002 are as follows:
2003 $ 206,640
2004 170,662
2005 184,284
2006 200,853
2007 217,190
Thereafter 1,698,061
---------
Total $ 2,677,690
=========
Interest expense was $228,026, $228,406, and $236,780 for the years
ended October 31, 2002, 2001, and 2000, respectively.
10. JOINT VENTURES
The Company is a member of a joint venture established for the purpose
of installing and operating outdoor advertising at the Company's
facilities. Revenues and expenses, as well as cash shortfalls, are
shared equally by both participants in the joint venture. The Company
accounts for its 50% investment under the equity method of accounting.
The Company recorded $4,250 in 2002, $13,896 in 2001, and $17,712 in
2000, as its proportionate share of the joint venture's earnings in its
consolidated statements of operations.
- 33 -
SCIOTO DOWNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
The Company has a 20% equity interest in an off-track betting parlor
and accounts for the investment under the equity method of accounting.
The Company recorded $38,184 as its proportionate share of the joint
venture's losses in its consolidated statement of operations for the
year ended October 31, 2001. During 2002, the Company recognized a loss
of $5,632 in order to write-off the remaining balance of the
investment. Subsequent to October 31, 2002, the Company amended the
operating agreement with the off-track betting parlor, under which the
Company agreed to contribute $24,000 in exchange for which the Company
relinquished its membership units and is released from all obligations
pursuant to the terms of the agreement.
11. COMMITMENTS AND CONTINGENCIES
At October 31, 2000, the Company had an outstanding receivable from its
former concessionaire of $127,864. The Company was in dispute with the
former concessionaire and had fully reserved the receivable at October
31, 2000. In April 2001, the Company reached a settlement agreement
with the concessionaire. The settlement resulted in the receipt of
equipment from the concessionaire and forgiveness by the Company of the
outstanding receivable. The Company recognized a gain on the settlement
of $58,670 at October 31, 2001.
12. ACQUISITION
On August 1, 2001, Scioto Downs acquired all of the outstanding common
shares of Mid-America. The assets, liabilities, and results of
Mid-America's operations have been reflected in the consolidated
financial statements of Scioto Downs from the acquisition date. The
consideration was $150,000, for which the Company issued
non-interest-bearing promissory notes, which were due $50,000 at
closing and $50,000 each in August 2002 and 2003. Mid-America owns a
racing permit entitling it to conduct harness horseracing, typically
immediately following the live racing season of Scioto Downs. The lease
of racing facilities between Mid-America and Scioto Downs was
terminated as of the acquisition date.
- 34 -
SCIOTO DOWNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
The acquisition was accounted for under the purchase method as required
by SFAS 141. The total purchase price has been allocated to the
tangible and intangible assets and liabilities of Mid-America based
upon their estimated fair values. The amounts and components of the
purchase price, along with the allocation of the purchase price, are
presented below.
AUGUST 1, 2001
--------------
Purchase Price:
Cash paid in closing $ 50,000
Present value of current portion of non-interest-
bearing promissory notes (a) 46,838
Present value of non-interest-bearing promissory
notes, less current maturities (a) 43,877
Other direct acquisition costs 40,000
Liabilities assumed, net of valuation allowance provided
for amounts due from Mid-America 1,183,649
Cash acquired (390,953)
-----------
Total $ 973,411
===========
Purchase Price Allocation:
Accounts receivable, net $ 132,361
Other assets 85,290
Racing permit 755,760
-----------
Total $ 973,411
===========
(a) These promissory notes have been discounted at an interest rate of
6.75%.
- 35 -
SCIOTO DOWNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 2002, 2001 AND 2000
- --------------------------------------------------------------------------------
The following unaudited pro forma information is presented as if the
August 1, 2001 acquisition of Mid-America had occurred on November 1,
2000 and 1999:
OCTOBER 31,
-------------------------------
2001 2000
------------ ------------
Net revenues $ 13,818,248 $ 14,652,955
Net loss (1,860,240) (576,228)
Loss per common share:
Basic and diluted (3.12) (.97)
This unaudited proforma financial information is not necessarily
indicative of the operating results that would have occurred had the
transaction been consummated as of November 1, 2000 and 1999, nor is it
necessarily indicative of future operating results.
13. SUBSEQUENT EVENT
On December 23, 2002, the Company entered into an agreement and plan of
merger (the Agreement) with MTR Gaming Group, Inc. (MTR), pursuant to
which the Company will become a wholly owned subsidiary of MTR. The
Agreement provides that each stockholder of the Company may elect to
receive $32 in cash for each share of the Company's common stock owned
by the stockholder. Alternatively, each stockholder may elect to
receive an amount equal to $17 per share plus 10 annual earnout
payments per share subject to the conditions set forth in the
Agreement. Consummation of the transaction is subject to various
conditions, including the successful completion of the due diligence
review by MTR, the approval by the stockholders of the Company and the
attainment of necessary regulatory approvals. On December 24, 2002, the
Company received a $1 million payment from MTR in accordance with the
terms of the Agreement. In the event the Agreement is terminated for
cause as defined in the Agreement, the $1 million will become a loan to
be repaid by the Company to MTR on December 23, 2005, and shall bear
interest at a rate equal to MTR's cost of borrowing. The loan will be
collateralized by the Company's real and personal property.
- 36 -
SCIOTO DOWNS, INC.
- --------------------------------------------------------------------------------
SUPPLEMENTARY FINANCIAL INFORMATION
Quarterly per share and financial data:
BASIC AND
OPERATING NET DILUTED
NET INCOME EARNINGS EARNINGS
REVENUES (LOSS) (LOSS) (LOSS)
-------- ----------- ---------- ---------
2002
Fourth Quarter $4,728,074 $ (192,372) $ (266,433) $ (.44)
Third Quarter 5,519,431 (105,738) (170,455) (.29)
Second Quarter 2,228,077 (435,331) (490,391) (.82)
First Quarter 1,870,859 (499,784) (558,891) (.94)
2001
Fourth Quarter $4,874,010 $ (60,628) $ (76,170) $ (.13)
Third Quarter 5,423,031 106,881 (87,682) (.15)
Second Quarter 2,157,730 (562,747) (482,037) (.81)
First Quarter 518,227 (560,389) (506,422) (.85)
- 37 -
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
- 38 -
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
DIRECTOR POSITIONS WITH CORPORATION
CONTINUOUSLY AND BUSINESS EXPERIENCE
NAME AND AGE SINCE DURING PAST FIVE YEARS
- ------------ ------------ --------------------------
DIRECTORS WHOSE TERMS EXPIRE IN 2003
LaVerne A. Hill, 79 1985 Director and Vice-President,
Scioto Downs, Inc.; former Director
and President, Mid-America Racing
Association, Inc.
Robert S. Steele, 83 1974 Director, former President and
General Manager, Scioto Downs, Inc.;
former Director and Vice-President,
Mid-America Racing Association, Inc.
Robert R. Schwartz, 55 1997 Director, Scioto Downs, Inc.;
Doctor of Veterinary Medicine
DIRECTORS WHOSE TERMS EXPIRE IN 2004
John J. Chester, 82 1976 Director, Scioto Downs, Inc.;
Partner in law firm of Chester,
Willcox & Saxbe LLP
Delmer L. Bone, 72 1995 Director, Scioto Downs, Inc.;
Retired elected official; Retired
business executive
Edward T. Ryan, 61 2000 President and General Manager,
Scioto Downs, Inc.; former Vice-
President and General Manager,
Freehold Raceway
- 39 -
DIRECTOR POSITIONS WITH CORPORATION
CONTINUOUSLY AND BUSINESS EXPERIENCE
NAME AND AGE SINCE DURING PAST FIVE YEARS
- ------------ ------------ --------------------------
DIRECTORS WHOSE TERMS EXPIRE IN 2005
John F. Fissell, 73 1986 Director, Scioto Downs, Inc.;
Consultant, S & D Properties
William C. Heer, 81 1952 Director and Treasurer, Scioto
Downs, Inc.; former Vice President,
National Graphics; former Director
and Treasurer, Mid-America Racing
Association, Inc.
Richard H. McClelland, 64 1998 Director, Scioto Downs, Inc.
President, Shelly & Sands Inc.;
Vice-President, O.K. Coal & Concrete
Company
EXECUTIVE OFFICERS
The following information relates to the present executive officers of the
corporation.
NAME AND AGE OFFICE BUSINESS EXPERIENCE - FIVE YEARS
- ------------ ------ --------------------------------
Edward T. Ryan, 61 President and President and General Manager,
General Manager Scioto Downs, Inc.; former
since April 2000 Vice-President and General
Manager, Freehold Raceway
LaVerne A. Hill, 79 Vice-President Vice-President, Scioto Downs,
since 1992 Inc.; former Director and
President, Mid-America Racing
Association, Inc.
William C. Heer, 81 Treasurer since Director and Treasurer, Scioto
1959 Downs, Inc.; former
Vice-President, National
Graphics; former Director and
Treasurer, Mid- America Racing
Association, Inc.
Roderick H. Willcox, 69 Secretary since Partner in law firm of Chester,
1974 Willcox & Saxbe, LLP, counsel
for Scioto Downs, Inc.
- 40 -
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information for the fiscal years ended
October 31, 2002, 2001 and 2000 as to cash compensation paid by the corporation,
as well as certain other compensation paid or accrued for those years, to the
corporation's chief executive officer or person serving in that capacity.
SUMMARY COMPENSATION TABLE
Long-Term Compensation All Other
------------------------------ Compensation
ANNUAL COMPENSATION AWARDS PAYOUTS ($)(2)
--------------------------------- -------------------- ------- ------------------
Other
Annual Restricted
Name and Compen- Stock Options LTIP Matching Total
Principal sation Awards SARs Payouts 401K Pension
Position Year Salary($) Bonus($) ($) ($) (#) ($) Received
- -------- -------- --------- -------- --------- ---------- ------- ------- -------- --------
Robert S. 6/15/00 33,562 -0- -0- -0- -0- -0- 827 24,872
Steele,
President and
General Manager(1)
Edward T. Ryan, 10/31/02 135,000 -0- 12,000(5) -0- -0- -0- 4,050 -0-
President and 4,050(4)
General 10/31/01 81,250 -0- 1,181(4) -0- -0- -0- 1,181 -0-
Manager(3) 10/31/00 29,792 -0- -0- -0- -0- -0- -0- -0-
(1) Robert S. Steele retired as President April 15, 2000, retirement effective
June 15, 2000.
(2) One-half of this pension distribution is attributable to Scioto Downs, Inc.
and one-half to Mid-America Racing Association, Inc.
(3) Edward T. Ryan assumed the position of President and General Manager April
15, 2000.
(4) Safe harbor pension payment.
(5) Executive allowance.
COMPENSATION OF DIRECTORS
Each director receives $300 for each board meeting attended as
compensation for their services as a director. In addition, a director is
compensated for travel expenses to a board meeting at the rate of 36.5 cents per
mile for all mileage traveled inside the State of Ohio, but outside of Franklin
County. Directors who are members of a committee receive $300 for each committee
meeting attended by that director.
During the last fiscal year ending October 31, 2002, there were ten
meetings of the board of directors. All directors attended at least 75% of the
aggregate of (1) the total number of meetings of the board held during the
period for which they were a director, and (2) the total number of meetings held
by all committees of the board on which he or she served.
- 41 -
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth those persons or entities known to the
corporation to be the beneficial owners of more than five percent (5%) of the
outstanding voting securities of the corporation on January 3, 2003.
AMOUNT AND
NATURE OF
TITLE OF NAME AND ADDRESS OF BENEFICIAL PERCENT
CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
- -------- ------------------- ---------- --------
Common MARA Enterprises, Inc. 63,420 10.64%
5525 Hoover Road
Grove City, Ohio 43123
Common LaVerne A. Hill (1) 208,341 34.97%
4814 Riverside Drive
Columbus, Ohio 43220
Common Bud C. Hatfield 154,219 25.88%
4000 West Broad Street
Columbus, Ohio 43228
- -------------
(1) LaVerne A. Hill owns 144,921 shares of the corporation directly,
constituting 24.32% of the outstanding voting securities. LaVerne A. Hill
is also a majority shareholder of MARA Enterprises, Inc., which owns 63,420
shares of the corporation, constituting 10.64% of the outstanding voting
securities. LaVerne A. Hill therefore beneficially owns 208,341 shares
which represents 34.97% of the outstanding voting securities. The shares
owned by MARA Enterprises, Inc. as shown above are also included in the
number of shares beneficially owned by LaVerne A. Hill.
SECURITY OWNERSHIP OF MANAGEMENT
AMOUNT AND
NATURE OF
TITLE OF NAME AND ADDRESS OF BENEFICIAL PERCENT
CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
- -------- ------------------- ---------- --------
Common LaVerne A. Hill 208,341 34.97
4814 Riverside Drive
Columbus OH 43220
Common Edward T. Ryan 0 0
3538 Gateway Lake Drive
Grove City, Ohio 43213
- 42 -
AMOUNT AND
NATURE OF
TITLE OF NAME AND ADDRESS OF BENEFICIAL PERCENT
CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
- -------- ------------------- ---------- --------
Common Robert S. Steele 6,230 1.04
2607 Geyerwood Court
Grove City OH 43123
Common John J. Chester 3,979 .66
4906 Riverside Drive
Columbus OH 43220
Common Delmer L. Bone 9,000 1.51
208 North King
Xenia OH 45385
Common John F. Fissell 3,686 .61
565 Lawnwood Court
Circleville OH 43113
Common William C. Heer 9,265 1.55
124 Ashbourne
Columbus OH 43209
Common Robert R. Schwartz 181 .03
9610 Wash. - Waterloo Rd. NE
Washington Court House OH 43160
Common Richard H. McClelland 0 0
5495 Marysville Pike
Zanesville, Ohio 43701
CHANGE IN CONTROL
Subsequent to October 31, 2002, the Company entered into an agreement and
plan of merger with MTR Gaming Group, Inc. See Item 1, Business-Market Overview
and Industry Demands.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the knowledge of the Company, all reports required to be filed pursuant
to Section 16(a) of the Securities and Exchange Act of 1934 have been filed.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
- 43 -
ITEM 14. DISCLOSURE CONTROLS AND PROCEDURES
In order to ensure that the information that must be disclosed in filings
with the Securities and Exchange Commission is recorded, processed, summarized
and reported in a timely manner, the Company does have disclosure controls and
procedures in place. The Chief Executive Officer and Chief Financial Officer
have reviewed and evaluated disclosure controls and procedures within 90 days of
the filing of this Form 10-K, and have concluded that such controls and
procedures are appropriate, and that no changes are needed. There have been no
significant changes in internal controls, the business, or other factors that
could adversely affect internal controls since the date of the evaluation.
- 44 -
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a.) The following documents are filed as part of this report
1. Financial Statements
Financial statements filed as part of this Form 10-K are
listed under Part II, Item 8.
(a.) 2. Financial Statement Schedules
Financial statement schedules are omitted because they are
not required or are not applicable.
(a.) 3. Exhibits
See Index to Exhibits at Page 49.
(b.) Reports on Form 8-K
We filed a Current Report on Form 8-K on December 27, 2002
to announce an Agreement and Plan of Merger with MTR
Gaming Group Inc.
(c.) See Index to Exhibits at Page 49.
(d.) Not applicable or not required.
(e.) Not applicable.
- 45 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SCIOTO DOWNS, INC. (Registrant)
By /s/ Edward T. Ryan
----------------------------------
President, Chief Operating Officer
Title
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company,
and in the capacities and on the dates indicated.
Date: 1-29-2003 By /s/ Edward T. Ryan
---------------------------- ----------------------------------
President, Chief Operating Officer
Title
Date: 1-29-2003 By /s/ LaVerne A. Hill
--------------------------- Vice President, Director
----------------------------------
Title
Date: 1-29-2003 By /s/ William C. Heer
--------------------------- ----------------------------------
Treasurer, Director
Title
Date: 1-29-2003 By /s/ Richard H. McClelland
--------------------------- ----------------------------------
Director
Title
Date: 1-29-2003 By /s/ John F. Fissell
--------------------------- ----------------------------------
Director
Title
Date: 1-29-2003 By /s/ Richard J. Fiore
--------------------------- ----------------------------------
Chief Financial Officer
Title
- 46 -
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Edward T. Ryan, President of Scioto Downs, Inc., certify that:
1. I have reviewed this report on Form 10-K of Scioto Downs, Inc.;
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 (as defined in Exchange Act
Rules 13a - 14 and 15d -14) and procedures for the issuer and have:
(i) Designed such disclosure controls and procedures to ensure that
material information relating to the issuer, including its
consolidated subsidiaries, is made known to them by others within
those entities, particularly during the period in which the periodic
reports are being prepared;
(ii) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of the report (the "Evaluation Date"); and
(iii) Presented in the report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of the registrant's board of directors (or persons fulfilling the equivalent
function):
(i) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(ii) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: January 29, 2003
/s/ Edward T. Ryan
---------------------
President
- 47 -
I, Richard J. Fiore, Chief Financial Officer of Scioto Downs, Inc., certify
that:
1. I have reviewed this report on Form 10-K of Scioto Downs, Inc.;
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 (as defined in Exchange Act
Rules 13a - 14 and 15d -14) and procedures for the issuer and have:
(i) Designed such disclosure controls and procedures to ensure that
material information relating to the issuer, including its
consolidated subsidiaries, is made known to them by others within
those entities, particularly during the period in which the periodic
reports are being prepared;
(ii) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of the report (the "Evaluation Date"); and
(iii) Presented in the report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of the registrant's board of directors (or persons fulfilling the equivalent
function):
(i) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(ii) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
(6) The registrant's other certifying officer and I have indicated in this
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: January 29, 2003
/s/ Richard J. Fiore
-----------------------
Chief Financial Officer
- 48 -
INDEX TO EXHIBITS ANNUAL REPORT ON FORM 10-K
for the year ended October 31, 2002
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Agreement and Plan of Merger *
3A Articles of Incorporation of the Registrant, as amended to date *
3B Code of Regulations of the Registrant, as amended to date *
10A Lease with Hilliard Raceway, Inc., now Mid-America Racing *
Association, Inc., and amendment thereto
10B Simulcasting agreement with Beulah Park filed herewith
99.1 Sarbanes-Oxley Certification of Chief Executive Officer
and Chief Financial Officer *
- ----------------
* Previously filed with Securities and Exchange Commission
- 49 -