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(Mark One)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10‑K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ______ to ______
Commission File Number: 001‑37858
CANTERBURY PARK HOLDING CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Minnesota
(State or Other Jurisdiction
of Incorporation or Organization)
47‑5349765
(I.R.S. Employer
Identification No.)
1100 Canterbury Road
Shakopee, MN 55379
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (952) 445‑7223
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value
Title of Each Class
NASDAQ
Name of Exchange on which Registered
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES
☐
NO
☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES
☐
NO
☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES
☒
NO
☐
Indicate by check mark whether the Registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
YES
☒
NO
☐
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this
Form 10‑K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in
Rule 12b‑2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Emerging growth company ☐
Non-accelerated filer ☐
Smaller reporting company ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act).
YES
☐
NO
☒
The aggregate market value of the shares of voting and non-voting common equity held by non-affiliates based on the price at which the Company’s common
stock was last sold on the NASDAQ Global Market, on June 30, 2018, the end of the registrant’s most recently completed second fiscal quarter, was
$35,100,683.
On March 29, 2019, the Company had 4,573,658 shares of common stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s definitive Proxy Statement for its Annual Meeting of Shareholders, to be held on June 5, 2019 and which will be filed on or before
April 26, 2019, are incorporated by reference into Part III of this Form 10‑K.
Table of Contents
CANTERBURY PARK HOLDING CORPORATION
FORM 10‑K ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 2018
TABLE OF CONTENTS
PART I
Business
ITEM 1.
ITEM 1A. Risk Factors
ITEM 1B. Unresolved Staff Comments
ITEM 2.
ITEM 3.
ITEM 4.
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operation
ITEM 6.
ITEM 7.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
ITEM 8.
ITEM 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
ITEM 9A. Controls and Procedures
ITEM 9B. Other Information
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships, Related Transactions and Director Independence
Principal Accounting Fees and Services
PART IV
ITEM 15.
ITEM 16.
Exhibits and Financial Statement Schedules
Form 10‑K Summary
SIGNATURES
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Item 1. BUSINESS
(a) General Development of the Business
Recent Reorganization - Canterbury Park Holding Corporation (the “Company”) was incorporated as a Minnesota
corporation in October 2015. The Company is a successor corporation to another corporation, also named Canterbury Park
Holding Corporation, that was incorporated in 1994 (“CPHC”). Effective as of the close of business on June 30, 2016
CPHC’s business and operations were reorganized into a holding company structure (the “Reorganization”) pursuant to an
Agreement and Plan of Merger dated as of March 1, 2016 that was approved by CPHC’s shareholders on June 28, 2016.
Pursuant to the Reorganization:
·
·
·
·
·
The Company replaced CPHC as the public company owned by CPHC’s shareholders, with each shareholder at June
30, 2016 owning the same number of shares and having the same percentage ownership in the Company (and,
indirectly, in all property and other assets then owned by CPHC) immediately after the Reorganization as that
shareholder had in CPHC immediately before the Reorganization.
The Company became the holding company for and parent company of two subsidiaries, Canterbury Park
Entertainment LLC (“EntertainmentCo”) and Canterbury Development LLC (“DevelopmentCo”).
EntertainmentCo was the surviving business entity in a merger with CPHC pursuant to the Reorganization and it
became the direct owner of all land, facilities, and substantially all other assets related to the CPHC’s pari-mutuel
wagering, Card Casino, concessions and other related businesses (“Racetrack Operations”), and EntertainmentCo
continues to conduct these businesses consistent with CPHC’s past practices and the Racetrack operations continue
to be subject to direct regulation by the Minnesota Racing Commission (“MRC”).
DevelopmentCo continues CPHC’s efforts prior to June 30, 2016 to commercially develop approximately 140 acres
of Company land that is not needed for Racetrack Operations. DevelopmentCo is not subject to direct regulation by
the MRC.
On July 1, 2016, the shares of the Company’s common stock began trading on the NASDAQ Global Market under
the symbol “CPHC.”
For purposes of this Report on Form 10-K, when the term “Company” is used with reference to information
covering or related to periods up to and including June 30, 2016, the term refers to the operations of CPHC prior to the
Reorganization.
Business Overview - Canterbury Park Holding Corporation (the “Company,” “we,” “our,” or “us”) hosts pari-mutuel
wagering on horse races and “unbanked” card games at its Canterbury Park Racetrack and Card Casino facility (the
“Racetrack”) in Shakopee, Minnesota. The Company’s pari-mutuel wagering operations include both wagering on
thoroughbred and quarter horse races during live meets at the Racetrack and year-round wagering on races held at out-of-
state racetracks that are televised simultaneously at the Racetrack (“simulcasting”). Unbanked card games, in which patrons
compete against each other, are hosted in the Card Casino at the Racetrack. The Company also derives revenues from related
services and activities, such as food and beverage, parking, advertising signage, publication sales, and catering and events
held at the Racetrack. The ownership and operation of the Racetrack and the Card Casino are significantly regulated by the
Minnesota Racing Commission (“MRC”), a state regulatory commission whose board members are appointed by the
Minnesota Governor and confirmed by the Minnesota State Senate.
The Company acquired the Racetrack on March 29, 1994, commenced seven day a week simulcast operations on
May 6, 1994, and, beginning in May 1995, launched live horse racing and related pari-mutuel wagering on a seasonal basis,
generally from early May to early September. The Card Casino opened on April 19, 2000 and, with authority to host card
games at up to 80 tables, the Company currently hosts live play on approximately 65 tables on a daily basis.
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In June 2012, the Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee
Mdewakanton Sioux Community (“SMSC”) pursuant to which SMSC agreed, through 2022, to supplement purses for live
races at the Racetrack, as well as provide funds to the Company for joint marketing efforts with SMSC. See “Cooperative
Marketing Agreement” at (c)(ix) below for additional information.
The Company’s website is www.canterburypark.com. Our Annual Reports on Form 10‑K, our Quarterly Reports on
Form 10‑Q and our periodic reports on Form 8‑K (and any amendments to these reports) are available free of charge on our
website.
(b) Financial Information About Segments
The Company divides its business into four segments: horse racing, Card Casino, food and beverage, and
development. The horse racing segment represents our pari-mutuel wagering operations on simulcast and live horse races;
the Card Casino segment represents our unbanked card operations; the food and beverage segment includes concessions,
catering and events services provided at the Racetrack; and the development segment represents our real estate development
operations.
(c) Narrative Description of Business
(i) Horse Racing Operations
The Company’s horse racing operations consist of year-round simulcasting of horse races from around the U.S. and
internationally, and wagering on live thoroughbred and quarter horse races (“live meets”) held on a seasonal basis beginning
in May and generally concluding in September each year.
Live Racing
For the years ended December 31, 2018 and 2017, the Racetrack hosted 69 days and 67 days, respectively, of live
racing beginning in early May and concluding in September. Currently, Minnesota law requires the Company to schedule a
minimum of 125 days of live racing annually, unless the Minnesota Horsemen’s Benevolent and Protective Association (the
“MHBPA”) agrees to a fewer number of live racing days. Since 1995, the MHBPA has agreed to waive the 125‑day
requirement and has allowed the Company to run a live meet of at least 50 days each year. Pursuant to the CMA, the MHBPA
entered into a Horse Association Agreement with the Company in which the MHBPA agreed to waive the 125‑day
requirement if at least 65 days of live racing are scheduled each year during the term of the agreement. If, for any reason, the
MHBPA ceases to be bound by its obligations under the Horse Association Agreement, and the Company and the MHBPA
are unable to agree on a live meet shorter than 125 days, the Company’s operations could be adversely affected by a decrease
in the daily purses, potential reduction in the quality of horses, lower attendance, lower overall average amount wagered
(“handle”), and substantially greater operating expenses.
Simulcasting
Simulcasting is the process by which live horse races held at one facility (the “host track”) are transmitted
simultaneously to other locations to allow patrons at each receiving location (the “guest track”) to place wagers on races
transmitted from the host track. Monies are collected at the guest track and the information with respect to the total amount
wagered is electronically transmitted to the host track. All of the amounts wagered at guest tracks are combined into the
appropriate pools at the host track with the final odds and payouts based upon all the monies in the respective pools.
The Company offers simulcast racing from up to 20 racetracks per day, seven days a week, 364 days per year,
including Churchill Downs, Santa Anita, Gulfstream Park, Belmont Park, and Saratoga Racecourse. In addition, races of
national interest, such as the Kentucky Derby, the Preakness Stakes, the Belmont Stakes, and the Breeders’ Cup supplement
the regular simulcast program. The Company regularly evaluates its agreements with other racetracks to offer the most
popular simulcast signals of live horse racing that are reasonably available.
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Under federal and state law, in order to conduct simulcast operations either as a host or guest track, the Company
must obtain the consent of the state’s regulatory authority and the organization that represents a majority of the owners and
trainers of the horses who race at the Racetrack. In Minnesota, these consents must be obtained from the MRC and the
MHBPA, respectively. As these consents are obtained annually, no assurance can be given that the MRC and the MHBPA
will allow the Company to conduct simulcast operations either as a host or guest track after 2018. If either the MRC or the
MHBPA does not consent, the Company’s operations could be adversely affected by a decrease in pari-mutuel revenue,
potential reduction in the quality of horses, lower attendance, and lower overall handle.
(ii) Card Casino Operations
The Card Casino is open 24 hours per day, seven days per week, and offers two forms of unbanked card games:
poker and table games.
Poker games, including Texas Hold ‘Em, Stud, and Omaha, with betting limits per hand ranging between $2 and
$100, are currently offered in the poker room. A dealer employed by the Company regulates the play of the game at each
table and deals the cards but does not participate in play. In poker games, the Company is allowed to deduct a percentage
from the accumulated wagers and impose other charges for hosting the activity but does not have an interest in the outcome
of a game. The Company may add additional prizes, awards or money to any game for promotional purposes.
The Card Casino currently offers the following table games: Blackjack, Mississippi Stud, Fortune Pai Gow, Three
Card Poker, Ultimate Texas Hold ‘Em, EZ Baccarat, Criss Cross Poker, and Free Bet Blackjack. The Company has the
option to offer banked games under laws governing Card Casino operations but currently only offers “unbanked” games.
“Unbanked” refers to a wagering system or game where wagers lost in card games are accumulated into a player pool
liability for purposes of enhancing the total amount paid back to winning players. The Company can only serve as custodian
of the player pool, may not have an active interest in any card game and does not recognize amounts that dealers “win” or
“lose” during the course of play as revenue.
Under Minnesota law, the Company is required to pay 10% of the first $6 million of gross Card Casino revenues
towards purses for live horse racing at the Racetrack. After meeting the $6 million threshold, the Company must pay 14% of
gross Card Casino revenues as purse monies. Effective January 1 2019, the $6 million threshold was eliminated and the
Company is required to pay 14% of gross Card Casino revenue as purse monies. Of funds allocated for purses, the Company
pays 10% of the purse monies to the Minnesota Breeders’ Fund (the “MBF”), which is a fund apportioned by the MRC
among various purposes related to Minnesota’s horse breeding and horse racing industries. The remaining 90% of purse
monies are divided between thoroughbred (90%) and quarter horse (10%) purse funds. Starting January 1 2019, thoroughbred
will receive 91% and quarter horse will receive 9% of the purse funds.
(iii) Food and Beverage Operations
The Company’s food and beverage operations consist of concession stands, restaurant and buffet, bars and other
food venues. The Company currently offers two year-round café style restaurants and full service bars within the Card
Casino and simulcast area. The Card Casino offers tableside menu service 24 hours a day. Our Triple Crown Club
lounge services along with a buffet restaurant. During live racing, a wide variety of concession style food and beverage
options are available to our guests.
TM
offers
The food and beverage operations also include our catering and events services. The Company is the fourth largest
event space in the Twin Cities with more than 100,000 square feet of available space. The Company’s facilities provide a
variety of purposes for year-round events and other activities. The Company’s event space has been used for craft shows,
trade shows, pool and poker tournaments, automobile and other utility vehicle shows, major art shows, and fundraisers. The
Company’s outdoor spaces have been used for concerts, snowmobile races and other competitions. In 2016, the Company
completed construction of a redesign of the infield of the Racetrack to use the space as a concert and event area. In addition
to event space, the Company rents space in its horse stable area for boat storage during the winter months.
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(iv) Development Operations
The Company owns approximately 370 acres of land in Shakopee, Minnesota where the Racetrack is located.
Approximately 273 acres of this land is specifically designated as being subject to MRC regulation as part of the Company’s
Class A license. The amount of land currently needed to conduct Racetrack operations (grandstand, racetrack, stable area,
parking areas, and land for other facilities including the expo center) is approximately 243 acres. As a result,
approximately 127 acres are considered underutilized (the “Underutilized Land”). This land is available for real estate
development compatible with the Company’s Racetrack Operations.
For the past several years, the Company has explored various ways to develop the Underutilized Land. The
Company has reported on is plans to develop the Underutilized Land from time to time in reports to Securities and Exchange
Commission and in press releases. The Company continues to pursue various mixed use development opportunities, such as
residential development, office, restaurants, hotel, entertainment and retail operations. See footnote 14 of the consolidated
financial statements for more detailed information on recent transactions.
(v) Sources of Revenue
General
The Company’s revenues are principally derived from three activities: Card Casino operations, wagering on live and
simulcast horse races, and food and beverage sales. For the year ended December 31, 2018, revenues from Card Casino
operations represented 57.4% of total revenues, wagering on horse races generated 28.3% of total revenues, and food and
beverage revenue represented 14.3% of total revenues.
Card Casino Operations
The Company currently receives collection revenue from poker and table games wagering in its Card Casino, which
operates 24 hours per day, seven days per week. The primary source of Card Casino revenue is a percentage of the wagers
received from the players, aggregated up to 20% per day, as defined by the MRC regulations, as compensation for providing
the Card Casino facility and services, referred to as “collection revenue.” In addition, several table games offer a progressive
jackpot. The player has the option of playing the jackpot with the opportunity to win some or the entire jackpot amount,
depending upon the player’s hand. The Company collects a “rake” of 5%‑10%, depending on the limit of the game, of each
addition to the “pot” up to a maximum of $5 per hand as its collection revenue. In addition, poker games offer progressive
jackpots for most games. In order to fund the jackpot pools, the dealer withholds $1 from each final pot in excess of the $15
minimum.
Pari-Mutuel Wagering – General
In pari-mutuel wagering, bettors wager against each other in a pool, rather than against the operator of the facility or
with preset odds. From the total handle wagered, the Minnesota Pari-Mutuel Horse Racing Act (the “Minnesota Racing
Act”) specifies the maximum percentage, referred to as the “takeout,” that may be withheld by the Racetrack, with the
balance returned to the winning bettors. From the takeout, funds are set aside for purses and paid to the State of Minnesota
for pari-mutuel taxes and to the MBF. The balance of the takeout remaining after these deductions is commonly referred to
as the “retainage.”
Pari-mutuel wagering can be divided into two categories: straight wagering pools and multiple wagering pools,
which are also referred to as “exotic” wagering pools. Examples of straight wagers include: “win,” “place,” and
“show.” Examples of exotic wagers include: “daily double,” “exacta,” ”trifecta,” and “pick four.”
The amount of takeout earned by the Company depends on where the race is run and the form of wager (straight or
exotic). Net revenues from pari-mutuel wagering on live races run at the Racetrack consist of the total amount wagered, less
the amounts paid (i) to winning patrons, (ii) for purses, (iii) to the MBF and (iv) for pari-mutuel taxes to the State of
Minnesota. Net revenues from pari-mutuel wagering on races being run at out-of-state racetracks and simulcast to the
Racetrack have similar expenses but also include a host fee payment to the host track. The host fee,
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which is calculated as a percentage of monies wagered (generally 3.0% to 10.0%), is negotiated with the host track and must
comply with state laws governing the host track. Pari-mutuel revenues also include commission and breakage revenues on
live on-track and simulcast racing, fees received from out-of-state racetracks for wagering on our live races and proceeds
from unredeemed pari-mutuel tickets.
Additionally, Minnesota Advanced Deposit Wagering (“ADW”) legislation allows Minnesota residents to engage in
pari-mutuel wagering on out-of-state horse races online with a prefunded account through an ADW provider. The Company
collects a percentage of monies wagered (generally 3.25% to 5.0%) by Minnesota residents through the ADW provider as a
source market fee. The Company pays 28% of the collected revenues to another Minnesota-based horse track, and records the
remaining 72% as revenues and records expenses of at least 50% for purses and breeders’ awards.
Wagering on Live Races
The Minnesota Racing Act establishes the maximum takeout that may be deducted from the handle. The
takeout percentage on live races depends on the type of wager. The total maximum takeouts are 17% from straight wagering
pools and 23% from exotic wagering pools. From this takeout, Minnesota law requires deductions for purses, pari-mutuel
taxes, and payments to the MBF.
While the Minnesota Racing Act regulates that a minimum of 8.4% of the live racing handle be paid as purses to the
owners of the horses, purse contributions from other sources are subject to an agreement with the MHBPA and the Minnesota
Quarter Horse Association (the “horsepersons’ associations”). In addition, the MBF receives 1% of the handle. The current
pari-mutuel tax applicable to wagering on all simulcast and live races is 6% of takeout in excess of $12 million during the
twelve-month period beginning July 1 and ending the following June 30.
Food and Beverage Revenue
The Company earns revenue from sales in its restaurant, catering areas and numerous concession stands located
throughout the facility. Food and beverage sales are also offered in the card room during live and simulcast racing and during
events.
Other Revenue
The Company generates cash revenues from the receipt of reserved seating charges, preferred and valet parking and
the sales of various daily pari-mutuel publications. Additional revenues are derived from special events and other space
rentals. The Company also generates revenue from providing advertising signage space.
(vi) Competition
The Company faces direct competition from North Metro Harness Initiative, LLC (“NMHI”), which operates the
Running Aces Harness Park in Columbus Township, Anoka County, Minnesota, a racetrack and card room that is located
approximately 50 miles from Canterbury Park. NHMI offers pari-mutuel wagering on live races of standardbred (“harness”)
horses on a seasonal basis and year round wagering on simulcasting of all breeds of horse races. In addition to pari-mutuel
wagering, NHMI operates a card room that directly competes with the Company’s Card Casino. Due to its proximity and
similar wagering and gaming offerings, NHMI’s direct and substantial competition could adversely affect the Company’s
business, financial condition and results of operations.
The Company operates in a highly competitive wagering and gaming environment with a large number of
participants. The Company competes with competitive wagering operations and activities that include tribal casinos, state-
sponsored lotteries and other forms of legalized gaming in the U.S. and other jurisdictions. The Company competes with a
number of tribal casinos in the State of Minnesota that offer video slot machines, table games and unbanked card games,
including Minnesota’s largest casino, Mystic Lake, which is located approximately four miles from the Racetrack and which
is owned by the SMSC.
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Additionally, Internet-based interactive gaming and wagering is growing rapidly and adversely affects all forms of
wagering offered by the Company. Legislation became effective November 1, 2016 in Minnesota that allowed the Company
to begin collecting source market fees from companies that offer ADW wagering. These companies provide legal simulcast
horse wagering over the internet. The legislation now allows the Company to recoup a percentage of all simulcast horse
racing wagers made by Minnesota residents over the internet on out-of-state races; however, the legal clarification of this
type of wagering will significantly intensify the competition in the marketplace. The Company anticipates competition from
other existing and new Internet-based gaming ventures, including Fantasy Sports, will become more intense as state and
federal regulation of Internet-based activities is clarified.
The Company also faces indirect competition from a variety of sources for discretionary consumer spending
including spectator sports and other entertainment and gaming options. In the Minneapolis-Saint Paul metropolitan area,
competition includes a wide range of live and televised professional and collegiate sporting events. In addition, live horse
racing competes with a wide variety of summer attractions, including amusement parks, sporting events, and other local
activities.
Finally, the Company competes with racetracks located throughout the United States in securing horses to run at the
Racetrack. Attracting owners and trainers that can bring high quality horses to our Racetrack is largely dependent on our
ability to offer competitive purses. The Company experiences significant competition for horses from racetracks located near
Des Moines, Iowa and Chicago, Illinois. We expect this competition to continue for the foreseeable future.
(vii) Regulation
General
The ownership and operation of the Racetrack in Minnesota is subject to significant regulation by the MRC under
the Minnesota Racing Act and the rules adopted by the MRC. The Minnesota Racing Act governs the allocation of each
wagering pool to winning bettors, the Racetrack, purses, pari-mutuel taxes, and the MBF, and empowers the MRC to license
and regulate substantially all aspects of horse racing in the State. The MRC, among other things, grants operating licenses to
racetracks after an application process and public hearings, licenses all racetrack employees, jockeys, trainers, veterinarians,
and other participants, regulates the transfer of ownership interests in licenses, allocates live race days and simulcast-only
race days, approves race programs, regulates the conduct of races, sets specifications for the racing ovals, animal facilities,
employee quarters and public areas of racetracks, regulates the types of wagers on horse races, and approves significant
contractual arrangements with racetracks, including management agreements, simulcast arrangements, and totalizator
contracts.
A federal statute, the Interstate Horse Racing Act of 1978, also requires that a racetrack must obtain the consent of
the group representing the horsepersons (owners and trainers) racing the breed of horses that race a majority of the time at the
racetrack (the MHBPA), and the consent of the state agency regulating the racetrack (in Minnesota, the MRC), in order to
transmit simulcast signals of its live races or to receive and use simulcast signals from other racetracks.
Issuance of Class A and Class B Licenses to the Company
The Company holds a Class A License, issued by the MRC, that allows the Company to own and operate the
Racetrack. The Class A License is effective until revoked, suspended by the MRC or relinquished by the licensee. Currently,
the fee for a Class A License is $253,000 per fiscal year.
The Company also holds a Class B License, issued by the MRC, that allows the Company to sponsor and manage
horse racing on which pari-mutuel wagering is conducted at its Class A licensed racetrack and on other horse races run at out-
of-state locations as authorized by the MRC. The Class B License is renewable each year by the MRC after a public hearing
(if required by the MRC). Currently, the fee for the Class B License is $500 for each assigned race day on which live racing
is actually conducted and $100 for each day on which simulcasting is authorized and actually takes place.
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In addition, the law requires that the Company reimburse the MRC for actual costs, including stewards, state
veterinarians and drug testing, related to the regulating of live racing. For fiscal years ended December 31, 2018 and 2017,
the Company paid $628,000 and $638,000 respectively, to the MRC as reimbursement for costs of regulating live racing
operations.
Limitation on the Number of Class A and Class B Licenses
Pursuant to the Racing Act, so long as the Racetrack maintains its Class A License, no other Class A License may be
issued to allow an entity to own and operate a racetrack in the seven county metropolitan area where thoroughbred and
quarter horses are raced. However, the Racing Act provides that the MRC may issue an additional Class A License within
the seven-county metropolitan area, if the additional license is issued for a facility that, among other conditions, is located
more than 20 miles from the Racetrack, contains a track no larger than five-eighths of a mile in circumference, and is used
exclusively for harness racing. In January 2005 this additional Class A license was issued to NMHI (see “Competition”
above).
Limitation on Ownership and Management of an Entity that holds a Class A or Class B License
The Racing Act requires prior MRC approval of all officers, directors, 5% shareholders or other persons having a
present or future direct or indirect financial or management interest in any person applying for a Class A or Class B license,
and if a change of ownership of more than 5% of the licensee’s shares is made after an application is filed or the license
issued, the applicant or licensee must notify the MRC of the changes within five days of this occurrence and provide the
information required by the Racing Act.
Card Casino Regulation
The MRC is also authorized by the Racing Act to regulate Card Casino operations. The law requires that the
Company reimburse the MRC for its actual costs, including personnel costs, of regulating the Card Casino. For fiscal years
ended December 31, 2018 and 2017, the Company paid $224,000 and $195,000, respectively, to the MRC as reimbursement
for costs of regulating Card Casino operations.
On January 19, 2000, the MRC issued an additional Class B License to the Company that authorized the Company
to host unbanked card games. The Class B License is renewable each year by the MRC after a public hearing (if required by
the MRC). Currently, the Class B License fee of $10,000 per calendar year is included in the Class A License fee of
$253,000 per calendar year.
Local Regulation
The Company’s operations are subject to state and local laws, regulations, ordinances, and other provisions affecting
zoning, public health, and other matters that may have the effect of restricting the uses to which the Company’s land and
other assets may be used. Also, any development of the Racetrack site is, among other things, subject to applicable zoning
ordinances and requires approval by the City of Shakopee and other authorities. There can be no assurance these approvals
will be obtained for any future development the Company proposes.
Federal Regulation
In December 2017, the Tax Cuts and Jobs Act (“TCJA”) went into effect. The TCJA contained substantial changes
to the Internal Revenue Code, effective January 1, 2018, some of which could have an adverse effect on our business.
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(viii) Recent Legislation
Minimum Wage Legislation
In 2014, Minnesota legislation enacted into law an increase in the minimum wage that must be paid to most
Company employees. On January 1, 2018, the minimum wage was set to increase at the beginning of each year by the rate of
inflation with a maximum increase of up to 2.5% per year. The minimum wage for 2019 will be $9.86 per hour. Prior to
August 1, 2014, the Company employed a large number of individuals who received an hourly wage equal to or slightly
above $7.25 per hour. As a result, this legislation had an adverse financial impact in 2014 through 2018, and will continue to
have an adverse impact. We have implemented measures to partially mitigate the impact of this increase by raising our prices
and reducing our employee count. These measures could themselves have an adverse effect because higher prices and
diminished service levels may discourage customers from visiting the Racetrack.
Advanced Deposit Wagering Legislation
Minnesota ADW legislation that became effective November 1, 2016, requires ADW providers to be licensed by the
MRC and established licensing criteria and regulatory oversight of ADW providers doing business in the State of Minnesota.
The law allows licensed racetracks to negotiate separate agreements with the ADW providers to remit source market fees to
those racetracks. The ADW source market revenue to the Company totaled approximately $878,000 and $881,000 for the
fiscal years ended December 31, 2018 and 2017, respectively. As part of the agreement, 50% of source market fees is
allocated to purse accounts and the MBF.
(ix) Cooperative Marketing Agreement
On June 4, 2012, the Company entered into the CMA with the SMSC. The primary purpose of the CMA is to
increase purses paid during live horse racing at Canterbury Park’s Racetrack in order to strengthen Minnesota’s thoroughbred
and quarter horse through horse industry. Under the CMA, as amended, this is achieved through “Purse Enhancement
Payments to Horsemen” paid directly to the MHBPA. These payments have no direct impact on the Company’s consolidated
financial statements or operations.
Under the CMA, as amended, the SMSC paid the horsemen $7.3 million and $7.2 million for purse enhancements
for the years ended December 31, 2018 and 2017, respectively.
Under the CMA, SMSC also agreed to make “Marketing Payments” to the Company relating to joint marketing
efforts for the mutual benefit of the Company and SMSC, including signage, joint promotions, player benefits and events.
Under the CMA, the SMSC paid the Company $1.6 million for marketing purposes for the years ended December 31,
2018 and 2017.
In January 2015, 2016, 2017, and 2018 the CMA was amended to adjust the payment amounts between the “Purse
Enhancement Payments to Horsemen” and “Marketing Payments to Canterbury Park.” As the CMA has most recently been
amended, SMSC has agreed to make the following purse enhancement and marketing payments in 2019 through 2022:
Year
2019
2020
2021
2022
$
Purse Enhancement Payments to
Horsemen
1
7,380,000
7,380,000
7,380,000
7,380,000
$
Marketing Payments to Canterbury
Park
1,620,000
1,620,000
1,620,000
1,620,000
1 - Includes $100,000 each year payable to various horsemen associations
The amounts received from the marketing payments are recorded as a component of other revenue and the related
expenses are recorded as a component of advertising and marketing expense and depreciation in the Company’s
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consolidated statements of operations. For the year ended December 31, 2018, the Company recorded $1,275,000 in other
revenue and incurred $1,049,000 in advertising and marketing expense and $226,000 in depreciation related to the SMSC
marketing payment. For the year ended December 31, 2017, the Company recorded $1,399,000 in other revenue and incurred
$1,173,000 in advertising and marketing expense and $226,000 in depreciation related to the SMSC marketing payment. The
excess of amounts received over revenue is reflected as deferred revenue on the company’s consolidated balance sheets.
Under the CMA, the Company agreed for the term of the CMA that it would not promote or lobby the Minnesota
legislature for expanded gambling authority and will support the SMSC’s lobbying efforts against expanding gambling
authority.
If the Company breaches its obligations under the terms of the agreement, the Company is obligated to repay (1) all
amounts paid by SMSC pursuant to the agreement; (2) pay to the SMSC an amount equal to all Horse Association Payments
paid by SMSC; and (3) pay to SMSC any additional amounts for any other damages SMSC incurs. The Company has not
violated and does not intend to violate its obligations with respect to the agreement. The Company believes the likelihood of
a breach of obligations is remote.
(x) Marketing
The Company’s primary market is the seven-county Minneapolis-Saint Paul metropolitan area (Hennepin, Ramsey,
Anoka, Washington, Dakota, Scott, and Carver) plus the two counties to the south of the Racetrack and Card Casino (Le
Sueur and Rice). The City of Shakopee, located in the southwestern portion of the metropolitan area, is one of the fastest
growing communities in the region, and Scott County is one of the fastest growing counties in the country.
To support its pari-mutuel horse racing, Card Casino, and catering and events businesses, the Company
conducts year-round marketing efforts to maintain the loyalty of existing customers and attract new players to the property.
The Company uses radio, television, digital advertising, social media, print advertising and direct marketing to communicate
to its audiences. In addition to its regular advertising and communication program, the Company conducts numerous special
promotions, handicapping contests and poker tournaments to attract incremental visits. The Company also uses a robust
player rewards and database marketing program to enhance the loyalty of its guests.
The Company continues to focus on creating a premier guest experience as the core element of its marketing efforts.
This includes delivering great customer service, developing new food and beverage offerings, creating fan education
programs, and providing entertainment opportunities that go beyond the traditional pari-mutuel wagering and card playing
activities.
(xi) Employees
At December 31, 2018, the Company had 257 full-time employees and 597 part-time employees. The Company
adds approximately 350 employees on a seasonal basis for live racing operations from early May until early September. The
Company’s management believes its employee relations are good.
(xii) Executive Officers
The executive officers of the Company, their ages and their positions with the Company at March 15, 2019 are as
follows:
Name
Randall D. Sampson
Robert M. Wolf
Position with Company
President and CEO
Senior Vice President of Finance and CFO
Age
60
50
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Randall D. Sampson has been President and Chief Executive Officer since the formation of the Company in
March 1994. He has been active in horse industry associations, currently serving as Director of the Thoroughbred Racetracks
of America and is a past Vice President of the Thoroughbred Racetracks of America and past President of the Minnesota
Thoroughbred Association. Mr. Sampson also currently serves as a director of Communications Systems, Inc.
(NASDAQ:JCS), a manufacturer of telecommunications and data communications products based in Minnetonka,
Minnesota. Mr. Sampson is the son of Curtis A. Sampson, who is the Company’s non-executive Chairman of the Board and
the beneficial owner of approximately 20% of the Company’s common stock.
Robert M. Wolf was hired as Vice President of Finance in March 2017 and was named Senior Vice President of
Finance and Chief Financial Officer in September 2017. Prior to joining Canterbury, he served as CFO for two public
companies in the Twin Cities, Rimage Corporation and MGC Diagnostics Corporation.
Item 1A. RISK FACTORS
In addition to risks and uncertainties in the ordinary course of business that are common to all businesses, important
factors that are specific to our industry and us could materially affect our future performance and results. Management
believes the factors described below are the most significant risks that could have a material impact on our business.
Our business is sensitive to economic conditions that may affect consumer confidence, consumer discretionary spending, or
our access to credit in a manner that adversely affects our operations.
Economic trends can affect consumer confidence and consumers’ discretionary spending:
·
·
·
Negative economic conditions and the persistence of elevated levels of unemployment can affect consumers’
disposable incomes and, therefore, affect the demand for entertainment and leisure activities.
Declines in the residential real estate market, increases in individual tax rates and other factors that we cannot
accurately predict may reduce the disposable income of our customers.
Decreases in consumer discretionary spending could affect us even if these decreases occur in other markets. For
example, reduced wagering levels and profitability at racetracks to which we provide our live-racing signal or from
which we receive simulcast signals could adversely affect, respectively, simulcast revenues or the content we
provide to our customers.
Lower consumer confidence or reductions in consumer discretionary spending could result in fewer patrons spending money
at our racetrack. Our access to and cost of credit may be affected to the extent global and U.S. credit markets are affected by
downward economic trends. Our ability to respond to periods of economic contraction may be limited, as some of our costs
remain fixed or even increase when revenue declines.
A lack of confidence in the integrity of our core businesses could affect our ability to retain our customers and engage with
new customers.
The integrity of horseracing, casino gaming and pari-mutuel wagering industries must be perceived as fair to patrons
and the public at large. To prevent cheating or erroneous payouts, oversight processes must be in place to ensure that these
activities cannot be manipulated. A loss of confidence in the fairness of our industries could have a material adverse impact
on our business.
We face significant competition, both directly from other racing and gaming operations and indirectly from other forms of
entertainment and leisure time activities, which could have a material adverse effect on our operations.
We face intense competition in our market, particularly competition from NMHI, which offers unbanked card games
similar to those we offer. We also compete with Native American owned casinos. These facilities have the advantage of
being exempt from some state and federal taxes and state regulation of indoor smoking, and have the ability to offer a wider
variety of gaming products. Internet-based interactive gaming and wagering, both legal and illegal, is growing rapidly and
we anticipate competition in this area will become more intense as new Internet-based
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ventures enter our industry and as state and federal regulations on Internet-based activities are clarified. Additionally, we
compete with other forms of gambling, spectator sports, other forms of entertainment, and other racetracks throughout the
country as we discussed under “Competition” above.
We expect competition for our existing and future operations to increase from NMHI, existing tribal casinos, and
racetracks that are able to subsidize their purses with alternative gaming revenues. Competition for simulcasting customers
will be intense given the 2016 legalization of online internet wagering on horse racing in Minnesota, through ADW
providers. In addition, several of our tribal gaming competitors in Minnesota have substantially larger marketing and
financial resources than we do. We are unable to predict with any certainty the effects of existing and future competition on
our operating results.
We are subject to extensive regulation from gaming authorities that could adversely affect us.
We are subject to significant regulation by the MRC under the Racing Act and the rules adopted by the MRC. The
MRC has the authority to increase the Class A and Class B license fees. In addition, the Minnesota Racing Act requires that
we reimburse the MRC for its actual costs of regulating the Card Casino, including personnel costs. Increases in these
licensing and regulatory costs could adversely affect our results of operations.
Amendments to the Minnesota Racing Act or decisions by the MRC in regard to any one or more of the following
matters could also adversely affect the Company’s operations: the granting of operating licenses to Canterbury Park and other
racetracks after an application process and public hearings; the licensing of all track employees, jockeys, trainers,
veterinarians, and other participants; regulating the transfer of ownership interests in licenses; allocating live race days and
simulcast-only race days; approving race programs; regulating the conduct of races; setting specifications for the racing
ovals, animal facilities, employee quarters, and public areas of racetracks; changes to the types of wagers on horse races; and
approval of significant contractual agreements.
We are subject to changes in the laws that govern our business, including the possibility of an increase in gaming taxes,
which would increase our costs, and changes in other laws may adversely affect our ability to compete.
Our operations and oversight by the MRC are ultimately subject to the laws of Minnesota including, but not limited
to, the Minnesota Racing Act, and there exists the risk that these laws may be amended in ways adverse to our operations. In
particular, we are required to pay special racing-related and Card-Casino-related taxes and fees in addition to normal federal,
state, and local income taxes. These taxes and fees are subject to increase at any time. From time to time, state and local
legislators and officials have proposed changes in tax laws, or in the administration of laws affecting our industry, such as the
allocation of each wagering pool to winning bettors, the Racetrack, purses, and the MBF. In addition, poor economic
conditions could intensify the efforts of state and local governments to raise revenues through increases in gaming taxes. It is
not possible to predict with certainty the likelihood of changes in tax laws or in the administration of these laws. These
changes, if adopted, could have a material adverse effect on our operations.
We are also subject to federal and Minnesota laws that affect businesses generally. Some of these laws, such as laws
pertaining to immigration, have severe penalties for law violations. In addition, it is possible, as a result of the legislative
process, that legislation directly or indirectly adverse to the Company may be enacted into law.
We depend on key personnel.
Our continued success and our ability to maintain our competitive position is largely dependent upon, among other
things, the skills and efforts of our senior executives and management team including Randall D. Sampson, our Chief
Executive Officer. We have no employment agreements with our senior executives and key personnel, and we cannot
guarantee that these individuals will remain with us. Their retention is affected by the competitiveness of our terms of
employment and our ability to compete effectively against other gaming companies. Our inability to retain key personnel
could have a material adverse impact on our business, financial condition, and results of operations.
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We process, store and use personal information and other data, which subjects us to governmental regulation and other legal
obligations related to privacy, and our actual or perceived failure to comply with such obligations could harm our business.
We receive, store and process personal information and other customer data. There are numerous federal, state and
local laws regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal information and
other data. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to
customers or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the
unauthorized release or transfer of personally identifiable information or other player data, may result in governmental
enforcement actions, litigation or public statements against us by consumer advocacy groups or others and could cause our
customers to lose trust in us, which could have an adverse effect on our business.
While we maintain insurance coverage specific to cyber-insurance matters, any failure on our part to maintain
adequate safeguards may subject us to significant liabilities.
Additionally, if third parties we work with, such as vendors, violate applicable laws or our policies, these violations
may also put our customers’ information at risk and could in turn have an adverse effect on our business. The Company is
also subject to payment card association rules and obligations under its contracts with payment card processors. Under these
rules and obligations, if information is compromised, the Company could be liable to payment card issuers for the associated
expense and penalties. In addition, if the Company fails to follow payment card industry security standards, even if no
customer information is compromised, the Company could incur significant fines or experience a significant increase in
payment card transaction costs.
Energy and fuel price increases may adversely affect our costs of operations and our revenues.
Our facility uses significant amounts of electricity, natural gas, and other forms of energy. Increases in the cost of
electricity or natural gas negatively affect our results of operations. In addition, energy and fuel price increases could
negatively affect our operations by reducing disposable income of potential customers and decreasing visits to our facility.
Our CMA with the SMSC may be terminated by the SMSC prior to December 31, 2022 under certain circumstances.
The CMA grants to the SMSC the right to terminate the CMA without cause if the SMSC determines, in its sole
discretion that a change of circumstance adverse to its interests with respect to gaming in the State of Minnesota has
occurred. If the SMSC exercises this right, the Company would be entitled to substantial wind-down payments
approximately equal to 2.5 times the average annual payment due under the CMA in the three years following the year it
gives notice of termination. While any wind-down payments would cushion the impact of the SMSC’s exercise of this right
to terminate the CMA, a termination of the CMA prior to the expiration of its term in 2022 could have a material adverse
effect on the Company.
If the Company breaches its obligations under the terms of the agreement, the Company is obligated to repay (1) all
amounts paid by SMSC pursuant to the agreement; (2) pay to the SMSC an amount equal to all Horse Association Payments
paid by SMSC; and (3) pay to SMSC any additional amounts for any other damages SMSC incurs. The Company has not
violated and does not intend to violate its obligations with respect to the agreement. The Company believes the likelihood of
a breach of obligations is remote.
Purse Enhancement Payments and Marketing Payments under our CMA with SMSC may not continue after 2022.
The term of the CMA with SMSC ends December 31, 2022, and there is no certainty the CMA can be extended or
renegotiated on terms that are mutually acceptable to SMSC, the horsepersons’ associations and the Company. In particular,
there can be no assurance that, after December 31, 2022, SMSC’s purse enhancement payments to the horsepersons’
associations and marketing payments to the Company will continue at the levels currently being paid, if at all. If, by
December 31, 2022, the CMA is not extended or renegotiated on economic terms substantially similar to those
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currently in effect or due to the parties being unable to mutually agree on other terms, the Company’s future revenue from
live racing and its profitability could be materially adversely affected.
Nationally the popularity of horse racing has declined.
There has been a general decline in the number of people wagering on live horse races at North American
racetracks, either in person or via simulcasting, due to a number of factors, including increased competition from other
wagering and entertainment alternatives as discussed above. According to industry sources, pari-mutuel handle declined 27%
from 2007 to 2011 and has been relatively stable since 2011, experiencing less than a 1% decline between 2011 and 2018.
Declining interest in horse racing has had a negative impact on revenues and profitability in our racing business. Our
business plan anticipates a slight reduction in attendance and pari-mutuel wagering during our 2019 live meet due to a
reduction in the number of racing days. However, as a result of the purse enhancement payments and marketing payments we
receive under the CMA, we still expect to outperform the industry as it relates to field size, live handle, and simulcast handle
in 2019 and beyond. Regardless, we recognize that a general decline in interest in horse racing and pari-mutuel wagering
could have a material adverse impact on our business, financial condition and results of operations in future years
We may not be able to attract a sufficient number of horses and trainers to achieve above average field sizes.
We believe that patrons prefer to wager on races with a number of horses in the race (the “field”) at or above the
national average. A failure to offer races with adequate fields results in less wagering on our horse races. Our ability to
attract adequate fields depends on several factors. First, it depends on our ability to offer and fund competitive purses.
Second, it depends on the overall horse population available for racing. Various factors have led to declines in the horse
population in some areas of the country, including competition from racetracks in other areas, increased costs and changing
economic returns for owners and breeders, and the spread of various debilitating and contagious equine diseases. If our
racetrack is faced with a sustained outbreak of a contagious equine disease, it could have a material impact on our
profitability. Finally, if we are unable to attract horse owners to stable and race their horses at our racetrack by offering a
competitive environment, including high-quality facilities, a well-maintained racetrack, comfortable conditions for
backstretch personnel involved in the care and training of horses stabled at our racetrack and a competitive purse structure,
our profitability could also decrease. We also face increased competition for horses and trainers from racetracks that are
licensed to operate slot machines and other electronic gaming machines that provide these racetracks an advantage in
generating new additional revenues for race purses and capital improvements. While our ability to offer adequate fields to
patrons during our live meets has been substantially strengthened by the purse enhancement payments that are scheduled to
be made under the CMA through 2022, our inability to attract adequate fields, for whatever reason, could have a material
adverse impact on our business, financial condition and results of operations.
Inclement weather and other conditions may affect our ability to conduct live racing.
Since horse racing is conducted outdoors, unfavorable weather conditions, including extremely high and low
temperatures, high winds, storms, tornadoes and hurricanes, could cause events to be postponed or canceled or attendance to
be lower, resulting in reduced wagering. Our operations, as well as the racetracks from which we receive simulcast signals,
are subject to reduced patronage, disruptions or complete cessation of operations due to weather conditions, natural disasters
and other casualties. If a business interruption were to occur due to inclement weather and continue for a significant length
of time at our racetrack, it could have a material adverse impact on our business, financial condition and results of operations.
The Company maintains insurance for incremental weather conditions that would help mitigate the financial impact on our
business.
Horse racing is an inherently dangerous sport and our racetrack is subject to personal injury litigation.
Although we carry jockey accident insurance at our racetrack to cover personal jockey injuries that may occur
during races or daily workouts, there are certain exclusions to our insurance coverage, and we are still subject to litigation
from injured participants. We renew our insurance policies on an annual basis. The cost of coverage may become so high
that we may need to further reduce our policy limits or agree to certain exclusions from our coverage.
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Our results may be affected by the outcome of litigation, as this litigation could be costly and time consuming and could
divert our management and key personnel from our business operations.
Our business depends on using totalizator services.
Our customers use information provided by a third party vendor that accumulates wagers, records sales, calculates
payoffs and displays wagering data in a secure manner to patrons who wager on our horse races. Any failure to keep this
technology current could limit our ability to serve patrons effectively or develop new forms of wagering or affect the security
of the wagering process, thus affecting patron confidence in our product. A perceived lack of integrity in the wagering
systems could result in a decline in bettor confidence and could lead to a decline in the amount wagered on horse racing. In
addition, a totalizator system failure could cause a considerable loss of revenue if betting machines are unavailable for a
significant period of time or during an event with high betting volume.
An increase in the minimum wage mandated under Federal or Minnesota law could have a material adverse effect on our
operations and financial results.
The Company employs a large number of individuals at an hourly wage equal to or slightly above the current state
mandated wage of $9.65 per hour. See “Recent Legislation” above for additional information regarding recently enacted
minimum wage legislation. Most of these employees are either high school or college students employed on a seasonal basis
or tipped employees, many of whom receive, on average, tip income that is significantly higher than the current minimum
wage. From time to time legislation is introduced in the U.S. Congress or the Minnesota legislature that would substantially
increase the minimum wage. Passage of legislation that would substantially increase the minimum wage could have a
material adverse impact on the Company.
Uncertainty regarding the success of a possible real estate development project.
The Company is currently pursuing the commercial development of its Underutilized Land. See discussion above
titled “Development Operations.” The development of residential and commercial real estate involves many risks, including
but not limited to the selection of development partners; building design and construction; obtaining government permits;
financing; securing and retaining tenants; and the volatility of real estate market conditions. Accordingly, there can be no
assurance that the Company’s real estate development activities will be successful.
Uncertainty regarding Tax Increment Financing
Under the Redevelopment Agreement with the City of Shakopee, the Company has agreed to undertake a number of
specific infrastructure improvements within the TIF District. The funding that the Company will be paid as reimbursement
under the TIF program for these improvements is not guaranteed, but will depend on future tax revenues generated from the
developed property
The payment and amount of future dividends is subject to Board of Director discretion and to various risks and uncertainties.
The payment and amount of future quarterly dividends is within the discretion of the Board of Directors and will
depend on factors the Board deems relevant at each time it considers declaring a dividend. These factors include, but are not
limited to: available cash; management’s expectations regarding future performance and free cash flow; alternative uses of
cash to fund capital expenditures and real estate development; and the effect of various risks and uncertainties described in
this “Risk Factors” section.
Our information technology and other systems are subject to cyber security risk including misappropriation of customer
information or other breaches of information security.
We rely on information technology and other systems to maintain and transmit customers’ personal and financial
information, credit card information, mailing lists and other information. We have taken steps designed to safeguard our
customers’ personal and financial information and have implemented systems designed to meet all
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requirements of the Payment Card Industry standards for data protection. However, our information and processes are subject
to the ever-changing threat of compromised security, in the form of a risk of potential breach, system failure, computer virus
or unauthorized or fraudulent access or use by unauthorized individuals. The steps we take to deter and mitigate these risks
may not be successful, and any resulting compromise or loss of data or systems could adversely impact operations or
regulatory compliance and could result in remedial expenses, fines, litigation and loss of reputation, potentially impacting our
financial results. Although we have invested in and deployed security systems and developed processes that are designed to
protect all sensitive data, prevent data loss and reduce the impact of any security breach, such measures cannot provide
absolute security.
Item 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.
Item 2. PROPERTIES
General
The Company’s facilities, which are owned and operated under the name “Canterbury Park,” are a modern complex
of buildings and grounds that generally compare favorably to other major racetracks located throughout the country. The
Racetrack’s grandstand has a patron capacity of approximately 10,000 within enclosed areas and a maximum patron capacity
of over 30,000 including outside areas around the grandstand. The grandstand and most public outdoor areas contain
numerous pari-mutuel windows, odds information boards, video monitors, food and beverage stands and other amenities.
The Racetrack is located approximately 25 miles southwest of downtown Minneapolis. The area immediately
surrounding the Racetrack consists of retail, commercial and industrial buildings, farmland and residential areas. The
Racetrack is in reasonable proximity to a number of major entertainment destinations including: Valleyfair, an amusement
park about two miles from the Racetrack that annually attracts visitors during the spring and summer; the Renaissance
Festival, a seven-weekend late summer annual event located about five miles from the Racetrack; and Mystic Lake Casino,
located about four miles from the Racetrack, which draws thousands of visitors daily. The Mall of America, the largest
enclosed shopping mall in the United States, which attracts more than 40 million visitors per year, is approximately 17 miles
from the Racetrack.
Racing Surfaces
The racing surfaces consist of a one-mile oval dirt/limestone track and a 7/8‑mile oval turf course. The dirt track
includes a one and one-quarter mile front stretch chute, a 6‑1/2 furlong backstretch chute, and a 3‑1/2 furlong chute and is
lighted for night racing.
Grandstand
The grandstand is a modern, air-conditioned enclosed structure of approximately 275,000 square feet with a variety
of facilities on six levels. The lower level contains space for support functions such as jockey quarters, administrative
offices, Racing Commission offices, first aid, mechanical rooms, and electrical rooms. The track level includes pari-mutuel
windows, restrooms, a variety of concession stands and other services as well as the Card Casino, which occupies 22,000
square feet. The mezzanine level contains 1,320 fixed seats in a glass-enclosed, air-conditioned area and an additional 3,000
seats located outside. The mezzanine level also contains pari-mutuel windows, restrooms, concession stands, and other guest
facilities. A portion of the mezzanine level is currently being used as a simulcast center during live racing, and for banquets
and other events during the off-season. The kitchen level is an intermediate level located between the mezzanine and
clubhouse floors. It contains a full-service kitchen that supports a full dining menu for the track-side dining terraces on the
clubhouse level and food preparation for the other concession areas. The clubhouse level is a multi-purpose area that
includes a simulcast center for wagering on televised races, a full-service dining area during the live racing season, and
a year-round banquet facility. The clubhouse level includes 325 trackside tables, each equipped with a television set, with a
total seating capacity of 1,200 patrons and an additional 1,000 seats
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are located in lounges located throughout the area. The press box and officials’ level is located in the roof trusses over the
clubhouse and contains work areas for the press, racing officials, closed-circuit television, photo finish, and the track
announcer. In addition, the grandstand was structurally built to accommodate skyboxes under the press box/officials’ level,
although none have yet been constructed. Escalators and elevators are available to move patrons among the various levels
within the grandstand.
Expo Center
In 2014, the Company added an Expo Center, which is a 30,000 square foot structure designed for year-round
special events, trade shows and exhibits. The facility features 24,000 square feet of open event space and another 6,000
square feet containing an entry area, offices, restrooms and storage. Canterbury Park now offers the fourth largest event
space in the Twin Cities with more than 100,000 total square feet of available space.
Barn and Backside Facilities
The stable area consists of 33 barns with a total of approximately 1,650 stalls. In the stable area, there are 240
dormitory rooms for the grooms and others working at the Racetrack. The stable area also contains a combination racing
office and cafeteria/recreation building for stable personnel, two blacksmith buildings, and a one and 5/8 mile training track.
Parking
Approximately 7,500 paved parking spaces are available for patron and employee vehicles at the Racetrack,
including parking spaces that are reserved for handicapped patrons. The Racetrack also has unpaved areas available for
overflow parking for approximately 5,000 additional automobiles.
Underutilized Land
In 2018, the Company transferred approximately 13 acres of land to the Doran Canterbury I joint venture as part of
its equity contribution in the first phase of the apartment complex. The Company has approximately 127 acres of land
remaining that are owned or controlled by the Company that are not currently used for its business operations, and could be
developed or sold, in whole or in part. See discussion above titled “Development Operations” and footnote 14 to the
consolidated financial statements for more information.
Item 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company. From time to time, the Company is party to
ordinary and routine litigation or claims incidental to our business. We do not expect the outcome of any such litigation or
claims pending at this time to have a material adverse effect on our consolidated financial position or results of operations.
Item 4. MINE SAFETY DISCLOSURES
Not Applicable.
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PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
(a) MARKET INFORMATION
The Company’s common stock trades on the NASDAQ Global Market under the symbol CPHC. The table set forth
below indicates the high and low sale prices and cash dividends declared for the Common Stock in the quarterly periods
ending December 31, 2018 and 2017:
Common Stock
2018
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
(b) HOLDERS
Price Range
High
Low
Cash Dividends
Declared
$ 16.50 $ 13.55 $
17.72
15.90
17.00
10.75
11.38
12.80
17.55
14.20
14.56
12.20
9.80
9.99
10.98
11.75
0.07
0.07
0.07
0.07
0.05
0.06
0.06
0.06
At March 15, 2019, the Company had 740 shareholders of record of its common stock. Since many holders’ shares
are listed under their brokerage firms’ names, the actual number of shareholders is estimated by the Company to be over
2,000.
(c) DIVIDENDS
The Company has a dividend policy to pay regular quarterly cash dividends to its shareholders based on the
Company’s earnings, projected future earnings and cash requirements. In 2017 under this policy, the Company paid a $.05
per share dividend to its shareholders in January and April and $.06 per share dividend in July and October. In 2018, the
Company paid a $.06 per share dividend in January and $.07 per share dividend in April, July, and October.
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(d) SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth information as of December 31, 2018 regarding our equity compensation plans:
Securities Authorized for Issuance Under Equity Compensation Plans
(a)
Number of shares
of common stock to
be issued upon
exercise of
outstanding
(b)
Number of shares of
common stock
(c)
Weighted-average remaining available for
future issuance under
equity compensation
exercise price of
outstanding
Plan Category
Equity compensation plans approved by security holders:
1994 Stock Plan
1995 Employee Stock Purchase Plan
Equity compensation plans not approved by security holders:
Stock Option Plan for Non-Employee Consultants and Advisors
(1)
Total
options, warrants
options, warrants plans (excluding shares
and rights
and rights
in column (a))
75,062 $
—
—
75,062
7.95
—
—
377,030
43,829
162,500
583,359
(1) Adopted by the Company’s Board of Directors in 1997, the purpose of the Stock Option Plan for Non-Employee
Consultants and Advisors is to attract and retain the services of experienced and knowledgeable non-employee
consultants and advisors to assist in projects having strategic significance for the Company, to provide an alternative
form of cash compensation to such persons and to provide such persons with the opportunity to participate in the
Company’s long term progress and success.
(e) REGULATION S-K, ITEM 201(e) INFORMATION
Not Applicable for Smaller Reporting Companies.
(f) RECENT SALE OF UNREGISTERED SECURITIES
Not Applicable.
(g) PURCHASES OF EQUITY SECURITIES BY THE ISSUER
In 2007, the Company’s Board of Directors adopted a plan that authorized the repurchase of up to 250,000 shares of
the Company’s common stock pursuant to Exchange Act Rule 10b‑18 in open market transactions or block purchases of
privately negotiated transactions (the “Stock Repurchase Plan”). The Company repurchased 216,543 shares under the 2008
Stock Repurchase Plan and in 2012, authorized the repurchase of an additional 100,000 shares of the Company’s common
stock. No shares were repurchased in 2018 or 2017, and currently the Company is authorized to repurchase up to 128,781
shares under the Stock Repurchase Plan.
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for each of the five fiscal years ended December
31, 2018. The operating and balance sheet data for the years ended and as of December 31, 2018, 2017, 2016, 2015 and 2014
are derived from our audited consolidated financial statements. The following information should be read
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in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with our
consolidated financial statements and the related notes thereto included elsewhere in this report.
(In thousands except for per share amounts)
OPERATING DATA
Net Revenues
Operating Expenses
Income Before Income Taxes
Income Tax Expense
Net Income
Basic Net Income per Share
Diluted Net Income per Share
Dividends Declared per Share
Cash Flows from Operating Activities
2018
$ 59,142
2017
$ 56,953
Year Ended December 31,
2016
$ 52,460
2015
$ 52,263
2014
$ 48,470
51,495 (5) 52,432 (4) 45,319 (3) 47,649 (2) 44,370 (1)
7,120
(2,924)
4,196
0.98
0.97
0.35
4,941
4,617
(1,890)
2,727
0.65
0.64
0.25
4,429
7,708
(1,990)
5,718
1.28
1.26
0.28
6,333
4,102
(1,691)
2,411
0.58
0.57
—
4,590
4,571
(480)
4,091
0.93
0.93
0.23
7,086
$
$
$
$
$
$
$
$
$
$
BALANCE SHEET DATA
Land, Buildings and Equipment, Net
Total Assets
Total Stockholders’ Equity
Number of Common Shares Outstanding at Year End
2018
2017
At December 31,
2016
2015
2014
61,426
$ 38,131 $ 36,962 $ 35,379 $ 34,118 $ 28,076
39,496
$ 46,734 $ 40,717 $ 36,551 $ 33,097 $ 30,995
4,201
49,625
54,537
45,341
4,528
4,414
4,325
4,238
1 During fiscal year 2014, the Company reduced operating expenses $958,000 by recording a gain on insurance recoveries
due to damage to our property resulting from multiple severe storms at the Racetrack.
2 During fiscal year 2015, the Company reduced operating expenses $1,502,000 by recording a $495,000 gain on
insurance recoveries, $347,000 gain on sale of its Shakopee Valley RV Park, and $660,000 gain on sale of land
3 During fiscal year 2016, the Company reduced operating expenses $5,311,000 by recording a $1,465,000 gain on
insurance recoveries and $3,846,000 gain on sale of land.
4 During fiscal year 2017, the Company reduced operating expenses $141,000 by recording a gain on insurance
recoveries.
5 During fiscal year 2018, the Company reduced operating expenses $2,392,000 by recording a $21,000 gain on insurance
recoveries, $129,580 gain on sale of land, and $2,241,000 gain on transfer of land.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
is intended to help the reader understand Canterbury Park Holding Corporation, our operations, our financial results and
financial condition, and our present business environment. This MD&A is provided as a supplement to and should be read in
conjunction with our consolidated financial statements and the accompanying notes to the consolidated financial statements
(the “Notes”). Our actual results could differ materially from those anticipated in the forward-looking statements included in
this discussion as a result of certain factors, including, but not limited to, those discussed in “Risk Factors” and “Forward-
Looking Statements” included elsewhere in this Annual Report on Form 10‑K.
STRATEGIC OVERVIEW
Canterbury Park Holding Corporation (the “Company,” “we,” “our,” or “us”) hosts pari-mutuel wagering on
thoroughbred and quarter horse races and “unbanked” card games at its Canterbury Park Racetrack and Card Casino facility
(the “Racetrack”) in Shakopee, Minnesota, which is approximately 25 miles southwest of downtown Minneapolis. The
Racetrack is the only facility in the State of Minnesota that offers live pari-mutuel thoroughbred and quarter horse racing.
The Company’s pari-mutuel wagering operations include both wagering on thoroughbred and quarter horse races
during live meets at the Racetrack each year from May through September, and year-round wagering on races primarily held
at out-of-state racetracks that are televised simultaneously at the Racetrack (“simulcasting”). Unbanked card games, in
which patrons compete against each other, are hosted in the Card Casino at the Racetrack. The Card Casino operates 24
hours a day, seven days a week. The Card Casino offers both poker and table games at up to 80 tables. The Company also
derives revenues from related services and activities, such as food and beverage, parking, advertising signage, publication
sales, and from other entertainment events and activities held at the Racetrack.
The following summarizes our financial performance for the last five years (in 000’s):
Financial Performance Summary
Net Revenues
Operating Expenses
Income Before Income Taxes
Income Tax Expense
Net Income
$
$
(5)
2018
59,142
51,495
7,708
(1,990)
5,718
$
(4)
2017
56,953
52,432
4,571
(480)
4,091
$
(3)
2016
52,460
45,319
7,120
(2,924)
4,196
$
(2)
2015
52,263
47,649
4,617
(1,890)
2,727
(1)
2014
48,470
44,370
4,102
(1,691)
2,411
1 During fiscal year 2014, the Company reduced operating expenses $958,000 by recording a gain on insurance recoveries
due to damage to our property resulting from multiple severe storms at the Racetrack.
2 During fiscal year 2015, the Company reduced operating expenses $1,502,000 by recording a $495,000 gain on
insurance recoveries, a $347,000 gain on sale of its Shakopee Valley RV Park, and a $660,000 gain on sale of land.
3 During fiscal year 2016, the Company reduced operating expenses $5,311,000 by recording a $1,465,000 gain on
insurance recoveries and $3,846,000 gain on sale of land.
4 During fiscal year 2017, the Company reduced operating expenses by $141,000 by recording a gain on insurance
recoveries.
5 During fiscal year 2018, Company reduced operating expenses $2,392,000 by recording a $21,000 gain on insurance
recoveries, $129,580 gain on sale of land, and $2,241,000 gain on transfer of land.
Our management team has extensive knowledge of the horse racing, Card Casino, and food and beverage
operations, and our staff has demonstrated a commitment to enhancing the customer experience. The Company believes that
management has a good relationship with our workforce and is able to retain qualified personnel as demonstrated by our low
turnover rate.
Our facilities are modern by racetrack industry standards, and we have invested heavily in the past few years to
update and upgrade them to meet the needs of our customers and horsemen. Our site, in a prime location on the edge of
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the Minneapolis–St. Paul metropolitan area in one of the fastest-growing counties in Minnesota, provides us with great long-
term growth and development opportunities; our Board of Directors regularly considers additional uses for underutilized
portions of our property. Our long-term strategic direction is to continue to enhance our Racetrack as a unique gaming and
entertainment destination and develop approximately 127 acres of underutilized land not needed for our current business
uses.
We have a strong commitment to live racing and have been particularly successful in attracting new customers and
providing a quality live racing experience for our horse racing fans as well as the horsemen who enter their horses in live
races at Canterbury Park. However, we face a number of longer-term challenges in improving our financial results, including
challenges described under “Risk Factors” elsewhere in this report.
OPERATIONS REVIEW
YEAR ENDED DECEMBER 31, 2018 COMPARED TO YEAR ENDED DECEMBER 31, 2017
EBITDA represents earnings before interest income, income tax expense, and depreciation and amortization.
EBITDA is not a measure of performance or liquidity calculated in accordance with generally accepted accounting
principles in the United States of America ("GAAP"), and should not be considered an alternative to, or more meaningful
than, net income as an indicator of our operating performance or cash flows from operating activities as a measure of
liquidity. We present EBITDA as a supplemental disclosure because it is a widely used measure of performance and basis for
valuation of companies in our industry. Other companies that provide EBITDA information may calculate EBITDA
differently than we do. We also compute Adjusted EBITDA, which reflects additional adjustments to Net Income to
eliminate unusual or non-recurring items. For the year ended December 31, 2018, Adjusted EBITDA excluded the loss on
disposal of assets, gain on insurance recoveries, gain on sale of land, and gain on transfer of land. For the year ended
December 31, 2017, Adjusted EBITDA excluded the gain on insurance recoveries and loss on disposal of assets.
The following table sets forth a reconciliation of net income, a GAAP financial measure, to EBITDA and Adjusted
EBITDA (defined above), which is also a non-GAAP measure, for the years ended:
SUMMARY OF EBITDA DATA
NET INCOME
Interest income, net
Income tax expense
Depreciation
EBITDA
Gain on insurance recoveries
Loss on disposal of assets
Gain on sale of land
Gain on transfer of land
ADJUSTED EBITDA
Year Ended December 31,
2018
2017
$
$
5,718,444
(61,515)
1,990,000
2,563,579
10,210,509
(21,064)
120,940
(129,580)
(2,241,206)
7,939,599
$
$
4,090,781
(49,624)
480,000
2,529,437
7,050,594
(140,552)
2,198
—
—
6,912,240
Adjusted EBITDA increased $1,027,000, or 14.9%, and increased as a percentage of net revenues to 13.4% from
12.1% for 2018 compared to 2017.
REVENUES
Total net revenues for 2018 were $59,142,000, an increase of $2,189,000, or 3.8%, compared to total net revenues
of $56,953,000 for 2017. Total pari-mutuel revenue increased 2.5%, Card Casino revenue increased 6.1%, and
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food and beverage revenue increased 1.0% in 2018 compared to 2017. See below for a further discussion of our sources of
revenues.
PARI-MUTUEL REVENUES
Simulcast
Live racing
Guest fees
Other revenue
Total Pari-Mutuel Revenue
Racing Days
Simulcast only racing days
Live and simulcast racing days
Total Number of Racing Days
Year Ended December 31,
2018
2017
5,821,000
2,295,000
1,483,000
1,040,000
10,639,000
$
$
5,648,000
2,335,000
1,279,000
1,116,000
10,378,000
$
$
295
69
364
297
67
364
Simulcast and Live Racing pari-mutuel revenues include commission and breakage revenues from on-track live and
simulcast wagering. We receive guest fees from out-of-state racetracks and ADW companies for out-of-state wagering on our
live races. Other revenues include source market fees paid by ADW companies for wagers made by Minnesota residents on
out-of-state races and proceeds from unredeemed pari-mutuel tickets.
Total 2018 pari-mutuel revenue increased $261,000, or 2.5%, compared to 2017. Simulcast revenue increased
$173,000, or 3.1%, in 2018 compared to 2017. This is primarily due to the possibility of a Triple Crown winner in 2018 as
well as a stronger Breeders Cup in 2018. Guest Fees also increased $204,000, or 15.9%, primarily due to increased out of
state handle as a result of racing Wednesdays in August 2018 compared to Sundays in August 2017. This is partially offset by
a decrease in Live Racing revenue of $40,000, or 1.7%, primarily due to the impact of inclement weather in 2018 on a
number of our premium days as well as racing Wednesdays in 2018 compared to Sundays in 2017.
CARD CASINO REVENUES
Poker Games
Table Games
Total Collection Revenue
Other Revenue
Total Card Casino Revenue
Year Ended December 31,
2018
8,290,000
22,486,000
30,776,000
3,144,000
33,920,000
$
$
2017
8,917,000
20,215,000
29,132,000
2,848,000
31,980,000
$
$
The primary source of Card Casino revenue is a percentage of the wagers received from the players as compensation
for providing the Card Casino facility and services, referred to as “collection revenue.” Other Revenue presented above
includes fees collected for the administration of tournaments and amounts earned as reimbursement of the administrative
costs of maintaining jackpot funds. Card Casino revenue represented 56.6% and 56.2% of the Company’s net revenues for
the years ended December 31, 2018 and 2017, respectively.
Total Card Casino revenue increased $1,940,000, or 6.1%, in 2018 compared to 2017. Poker revenue decreased
$627,000, or 7.0%, in 2018 compared to 2017. The decrease in poker revenue reflects a continuing industry decline in the
popularity of poker. Table games collection revenue increased $2,271,000, or 11.2%, in 2018 compared to 2017. Effective
March 2018, the Minnesota Racing Commission approved an amendment to the Canterbury Park Operating Plan that allowed
the Company to increase the maximum percentage of table games buy-in that it can record as revenue from 18% to 20%.
This amendment, combined with a higher than normal table games hold percentage during 2018, resulted in revenue
percentages of 18.5% for March and April, 20% for May-August, and 18.5% in September-December. The comparable rate
for 2017 was 18%. The impact of this increase in revenue percentage was
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approximately $1,100,000. The remainder of the increase was due to increased table games play that the Company attributes
to players wagering more due to a strong economy and change in game mix. Also, higher jackpots on specific games in early
2018 contributed to increased play.
FOOD AND BEVERAGE REVENUES
Food and beverage revenue increased $79,000, or 1.0%, to $8,018,000 for the year ended December 31, 2018
compared to 2017. This increase is primarily due to price increases on select menu items and two additional live racing days
compared to 2017.
OTHER REVENUES
Other revenue decreased $92,000, or 1.4%, to $6,565,000 in 2018 compared to 2017. This decrease is primarily due
to lower admission and publications revenue resulting from a decline in paid attendance on live racing days compared to the
same period in 2017.
OPERATING EXPENSES
Total operating expenses decreased approximately $937,000, or 1.8%, to $51,495,000 in 2018, from $52,432,000 in
2017. Total operating expenses as a percentage of net revenues decreased to 87.1% in 2018 from 92.1% in 2017. Excluding
the reduction in operating expenses from all gains and losses from both years, total operating expenses increased $1,196,000,
or 2.3% in 2018 compared to 2017.
Total purse expense increased $325,000, or 4.7%, in 2018 compared to 2017 due to an increase in Card Casino and
pari-mutuel revenue. These factors also resulted in an increase in MBF expense (shown below). As discussed in greater
detail in Item 1 above, Minnesota law requires us to allocate a portion of Card Casino revenues, wagering handle on
simulcast and live horse races, and ADW source market fees for future payment as purses for live horse races and other
authorized uses. While most of these amounts were paid into the purse funds for thoroughbred and quarter horse races,
Minnesota law requires that a portion of the amounts allocated for purses be paid into the Minnesota Breeders’ Fund (the
“MBF”).
Card Casino
Simulcast Racing
Live Racing
Total
Purse Expense
Minnesota Breeders’
Fund Expense
2018
2017
2018
2017
$ 4,058,000
$ 3,765,000
$
451,000
$
424,000
1,793,000
1,731,000
472,000
492,000
1,330,000
1,361,000
116,000
114,000
$ 7,181,000
$ 6,857,000
$ 1,039,000
$ 1,030,000
Salaries and benefits expense increased $1,256,000, or 5.4%, in 2018 compared to 2017. The increase is due to the
State of Minnesota mandated increase of $0.15 in the minimum wage effective January 1, 2018, as well as additional non-
exempt labor needed resulting from the increase in operating revenues. Furthermore, the Company added several new exempt
level positions in 2018 due to its continued growth.
Utilities expense increased $107,000, or 7.6%, in 2018 compared to 2017. This is due to an increase in electricity,
gas, and water and sewer rates.
Advertising and marketing costs decreased $216,000, or 8.0%, in 2018 compared to 2017. The changes are
primarily attributable to the decreased expenditures related to RiverSouth, an area wide marketing initiative that is designed
to increase visitors to Shakopee’s entertainment, hospitality and retail businesses.
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During 2014, the Company incurred damage to buildings from multiple severe storms at the Racetrack. During
the year ended December 31, 2015, the Company recognized as a reduction in operating expenses a $495,000 insurance
recoveries gain in the Consolidated Statements of Operations as “Gain on insurance recoveries.” For the year ended
December 31, 2016, the Company received additional insurance proceeds of $592,000 and recognized as a reduction in
operating expenses as insurance recoveries gain in the Consolidated Statements of Operations as “Gain on insurance
recoveries.” The Company had also concluded an additional $873,000 of insurance reimbursement would be received in
2017 when roof repair work was completed. However, the Company was notified in 2017 that the costs of the repairs have
exceeded the original contract price. Therefore, the Company recognized an additional $141,000 “Gain on insurance
recoveries” as a reduction in operating expenses in the Consolidated Statements of Operations for the year ended December
31, 2017. Additionally, the Company recorded an additional gain of $21,000 in 2018. Because the claim has been settled and
confirmed by the insurance company, that amount has been recognized as a gain on insurance recovery receivable in
accordance with U.S. GAAP. The storms did not cause any interruptions to the business or otherwise affect the Company’s
consolidated financial results of operations.
On October 6, 2015, the Company sold six acres of land adjacent to the Racetrack for $1,459,000 and recorded a
gain of $660,000, reported on the Consolidated Statements of Operations – Gain on sale of land. This transaction was
structured as a “deferred exchange using a qualified intermediary” pursuant to Internal Revenue Code (IRC) Section 1031
exchange (“1031 Exchange”) for income tax purposes. Under the agreement, the Company had the option to repurchase up
to one acre within three years from closing date at the sale price of approximately $240,000 per acre. According to ASC
360‑20‑40‑38 - Derecognition, the Company recorded the repurchase option acre as a deferred gain liability in the amount of
$240,000 on the Consolidated Balance Sheets. Since the risks and rewards were not completely transferred to the buyer based
on the repurchase option the Company maintained the asset on our financials in the amount of $110,000. In October 2018,
the repurchase option expired and the Company did not repurchase the land. Therefore, the Company recognized the gain of
$130,000 on the Consolidated Statement of Operations for the year ended December 31, 2018.
In 2018, the Company recorded a $2,241,000 gain on transfer of land as a result of transferring approximately 13
acres of land to the Doran Canterbury I joint venture.
Other operating expenses decreased $392,000, or 7.1%, in 2018 compared to 2017. The decrease is primarily due to
a decrease in real estate tax expense as the Company is capitalizing all real estate taxes payable in Canterbury Development
LLC, a subsidiary of the Company, while Canterbury Development LLC completes activities necessary to prepare the
property for its intended us.
Income tax expense for 2018 and 2017 was $1,990,000 and $480,000, respectively. As a result of the U.S Tax Cuts
and Jobs Act (“TCJA”) signed on December 22, 2017, we recorded a tax benefit of $1,345,000 in the fourth quarter of 2017
as a result of a revaluation of the net deferred tax liabilities due to the corporate tax rate change from 34% to 21% starting in
2018.
Net Income for the years 2018 and 2017 was $5,718,000 and $4,091,000, respectively.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our financial statements have been prepared in conformity with U.S. GAAP and are based upon certain critical
accounting policies. These policies may require management to make estimates, judgments and assumptions that we believe
are reasonable based on our historical experience, contract terms, observance of known trends in our Company and the
industry as a whole and information available from other outside sources. Our estimates affect the reported amounts of assets
and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expense during the reporting period. Actual results may differ from those initial estimates.
Our critical accounting policies are:
·
revenue recognition;
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·
·
property and equipment; and
income tax expense.
Our significant accounting policies and recently adopted accounting policies are more fully described in Note 2 to the
Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data of this Annual
Report on Form 10‑K.
Revenue recognition - Racing revenue is generated by pari-mutuel wagering on live and simulcast racing content.
Additionally, we also generate revenue through sponsorships, admissions, concessions, and publications. Our racing revenue
and income are influenced by our racing calendar. Therefore, revenue and operating results for any interim quarter are not
generally indicative of the revenue and operating results for the year and may not be comparable with results for the
corresponding period of the previous year. We recognize pari-mutuel revenue upon occurrence of the live race that is
presented for wagering after that live race is made official by the respective state’s racing regulatory body. We recognize
other operating revenue such as sponsorships, admissions, concessions, and publication revenue once delivery of the product
or service has occurred. Card Casino revenue is a percentage of the wagers received from the players as compensation for
providing the Card Casino facility and services, referred to as “collection revenue.”
Property and Equipment - We have significant capital invested in our property and equipment, which represents
approximately 62% of our total assets at December 31, 2018. We use our judgment in various ways including: determining
whether an expenditure is considered a maintenance expense or a capital asset; determining the estimated useful lives of
assets; and determining if or when an asset has been impaired or has been disposed. Management periodically reviews the
carrying value of property and equipment for potential impairment by comparing the carrying value of these assets with their
related expected undiscounted future net cash flows. If the sum of the related expected future net cash flows is less than the
carrying value, we will determine whether an impairment loss should be recognized. An impairment loss would be measured
by the amount by which the carrying value of the asset exceeds the fair value of the asset. As of December 31, 2018, we
have determined that no impairment of these assets exists.
Income taxes - We use estimates and judgments for financial reporting to determine our current tax liability and
deferred taxes. In accordance with the liability method of accounting for income taxes, we recognize the amount of taxes
payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that
have been recognized in our consolidated financial statements or tax returns. Adjustments to deferred taxes are determined
based upon changes in differences between the book basis and tax basis of our assets and liabilities and measured by enacted
tax rates we estimate will be applicable when these differences are expected to reverse. Changes in current tax laws, enacted
tax rates or the estimated level of taxable income or non-deductible expense could change the valuation of deferred tax assets
and liabilities and affect the overall effective tax rate and tax provision. See footnote 4 of the consolidated financial
statements for more information on the U.S Tax Cuts and Jobs Act (“TCJA”) signed on December 22, 2017.
MINIMUM WAGE LEGISLATION
In 2014, Minnesota legislation enacted into law an increase in the minimum wage that must be paid to most
Company employees. Beginning January 1, 2018, the minimum wage was set to increase at the beginning of each year by
the rate of inflation with a maximum increase of up to 2.5% per year. The minimum wage for 2019 is $9.86 per hour. Prior to
August 1, 2014, the Company employed a large number of individuals who received an hourly wage equal to or slightly
above $7.25 per hour. As a result, this legislation had an adverse financial impact on the Company in 2014 through 2018, and
will continue to have an adverse impact on the Company. We have implemented measures to partially mitigate the impact of
this increase by raising our prices and reducing our employee count. These measures could themselves have an adverse effect
because higher prices and diminished service levels may discourage customers from visiting the Racetrack.
COOPERATIVE MARKETING AGREEMENT
On June 4, 2012, the Company entered into the CMA with the SMSC. The primary purpose of the CMA is to
increase purses paid during live horse racing at Canterbury Park’s Racetrack in order to strengthen Minnesota’s
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thoroughbred and quarter horse industry. Under the CMA, this is achieved through “Purse Enhancement Payments to
Horsemen” paid directly to the MHBPA. These payments have no direct impact on the Company’s consolidated financial
statements or operations.
Under the terms of the CMA, the SMSC paid the horsemen $7.3 million and $7.2 million for purse enhancements
for the years ended December 31, 2018 and 2017, respectively.
Under the CMA, SMSC also agreed to make “Marketing Payments” to the Company relating to joint marketing
efforts for the mutual benefit of the Company and SMSC, including signage, joint promotions, player benefits and events.
Under the CMA, the SMSC paid the Company $1,620,000 and $1,581,000 for marketing purposes for 2018 and 2017,
respectively.
The CMA was amended three times effective January 2016, 2017 and 2018 to adjust the payment amounts between
the “Purse Enhancement Payments to Horsemen” and “Marketing Payments to Canterbury Park.” Under the CMA as most
recently amended, SMSC has agreed to make the following purse enhancement and marketing payments for 2018 through
2022:
Year
2019
2020
2021
2022
$
Purse Enhancement Payments to
Horsemen
1
7,380,000
7,380,000
7,380,000
7,380,000
$
Marketing Payments to Canterbury
Park
1,620,000
1,620,000
1,620,000
1,620,000
1 - Includes $100,000 each year payable to various horsemen associations
The amounts received from the marketing payments are recorded as a component of other revenue and the related
expenses are recorded as a component of advertising and marketing expense and depreciation in the Company’s consolidated
statements of operations. For the year ended December 31, 2018, the Company recorded $1,275,000 in other revenue and
incurred $1,049,000 in advertising and marketing expense and $226,000 in depreciation related to the SMSC marketing
payment. For the year ended December 31, 2017, the Company recorded $1,399,000 in other revenue and incurred
$1,173,000 in advertising and marketing expense and $226,000 in depreciation related to the SMSC marketing payment. The
excess of amounts received over revenue is reflected as deferred revenue on the company’s consolidated balance sheets.
The Company has agreed for the term of the CMA that it would not promote or lobby the Minnesota legislature for
expanded gambling authority and would support the SMSC’s lobbying efforts against expanding gambling authority.
CONTINGENCIES
In accordance with an Earn Out Promissory Note given to the prior owner of the Racetrack as part of the
consideration paid by the Company to acquire the Racetrack in 1994, if (i) off-track betting becomes legally permissible in
the State of Minnesota and (ii) the Company begins to conduct off-track betting with respect to or in connection with its
operations, the Company would be required to pay to the IMR Fund, L.P. the greater of (a) $700,000 per operating year, as
defined, or (b) 20% of the net pretax profit, as defined for each of five operating years. At this time, management believes
that the likelihood that these two conditions will be met and that the Company would be required to pay these amounts is
remote. If these two conditions are met, the five minimum payments would be discounted back to their present value and the
sum of those discounted payments would be capitalized as part of the purchase price in accordance with generally accepted
accounting principles. The purchase price would be further increased if payments become due under the “20% of Net Pretax
Profit” calculation. The first payment is to be made 90 days after the end of the third operating year in which off-track betting
is conducted by the Company. Remaining payments would be made within 90 days of the end of each of the next four
operating years.
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The Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton
Sioux Community that became effective on June 4, 2012 and has been amended. The CMA contains certain covenants that, if
breached, would trigger an obligation to repay a specified amount related to such covenant. At this time, management
believes that the likelihood that the breach of a covenant will occur and that the Company will be required to pay the
specified amount related to such covenant is remote.
The Company is periodically involved in various claims and legal actions arising in the normal course of business.
Management believes that the resolution of any pending claims and legal actions at December 31, 2018 and as of the date of
this report will not have a material impact on the Company’s consolidated financial position or results of operations.
The Company has committed to payment of statutory distributions under a $500,000 bond issued to the MRC as
required under Minnesota law. The Company was not required to make any payments related to this bond in 2018 or 2017,
and there is no liability related to this bond on the balance sheet as of December 31, 2018.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES
Cash provided by operating activities for 2018 was $6,333,000 primarily as a result of net income of $5,718,000.
Cash from operating activities was increased by noncash charges from depreciation of $2,564,000, stock-based
compensation expense of $346,000, and a stock-based employee match contribution of $525,000. Cash from operating
activities was reduced by a gain on transfer of land of $2,241,000 and gain on sale of land of $130,000. This was partially
offset by a decline in Card Casino accruals of $1,190,000.
Cash provided by operating activities for 2017 was $8,233,000 primarily as a result of the following: The Company
reported net income of $4,091,000, which included a gain from insurance recoveries of $141,000. Cash from operating
activities was increased by noncash charges from depreciation of $2,529,000, stock-based compensation expense of
$352,000, and a stock-based employee match contribution of $487,000. This was partially offset by a decline in deferred
income taxes of $1,355,000.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used in investing activities for 2018 of $6,628,000 was used primarily for additions to land, buildings, and
equipment, and the issuance of a note receivable to a related party. This was partially offset by a decrease in notes receivable
and proceeds received from insurance recoveries.
Net cash used in investing activities for 2017 of $3,782,000 was used primarily for building remodel projects.
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash used by financing activities for 2018 was $526,000 and primarily consisted of $1,206,000 cash dividend
paid to shareholders, partially offset by proceeds from issuance of common stock of $686,000.
Net cash used by financing activities for 2017 was $715,000 and primarily consisted of $962,000 cash dividend paid
to shareholders, partially offset by proceeds from issuance of common stock of $246,000.
CASH AND CAPITAL RESOURCES
At December 31, 2018, we had cash, cash equivalents, and restricted cash of $11,204,000 compared to $12,026,000
at December 31, 2017. This $822,000 decrease consisted of $6,333,000 of net cash provided by operating activities, offset by
$6,628,000 of net cash used in investing activities and $526,000 of net cash used in financing activities.
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The Company has a general credit and security agreement with a financial institution. This agreement was amended
and restated effective as of September 30, 2018 to extend the maturity date to September 30, 2019, increase the revolving
credit line to $8,000,000, and allow for letters of credit in the aggregate amount of up to $2,000,000 to be issued under the
credit agreement. The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles of the
Company. The Company had no borrowings under the credit line during the year ended December 31, 2018. The credit
agreement contains covenants requiring the Company to maintain certain financial ratios. The Company was in compliance
with these requirements at all times throughout 2018.
Our three largest sources of revenue: pari-mutuel wagering, Card Casino operations and food and beverage, are all
based on cash transactions. Consequently, we have significant inflows of cash on a daily basis. We designate cash balances
that will be required to satisfy certain short-term liabilities such as progressive jackpots, the player pool and amounts due
horsemen for purses and awards as “restricted” as a separate balance sheet item.
The Company offers unbanked table games that refer to a wagering system or game where wagers “lost” or “won”
by the host are accumulated into a “player pool” to enhance the total amount paid back to players in any other card game.
The Company is required to return accumulated player pool funds to the players through giveaways, promotional items,
prizes or by other means. The player pool liability was $983,000 and $1,711,000 at December 31, 2018 and 2017,
respectively. Additionally, the table games jackpot pool was $385,000 and $663,000 at December 31, 2018 and 2017,
respectively.
The Card Casino offers progressive jackpots for poker games. Amounts collected for these jackpot funds are
accrued as liabilities until paid to winners. At December 31, 2018 and 2017, accrued jackpot funds totaled $24,000 and
$58,000, respectively. The MRC regulates the operation of the player pool and progressive jackpot pools. These liabilities
have the potential for significant fluctuation on a daily basis.
All games in the Card Casino are played using chips. The value of chips issued and outstanding, referred to as the
“outstanding chip liability,” was $398,000 and $425,000 at December 31, 2018 and 2017, respectively. This liability has the
potential for significant fluctuation on a daily basis depending upon the demand for chip redemptions and sales.
Our second largest individual operating expense item is purse expense. Pursuant to an agreement with the MHBPA,
we transferred into a trust account or paid directly to the MHBPA, approximately $6,442,000 and $5,716,000 in purse funds
related to thoroughbred races for 2018 and 2017, respectively. Minnesota law provides that amounts transferred into this trust
account are the property of the trust and not the Company. There were no unpaid purse fund obligations due to the MHBPA
at December 31, 2018 or 2017.
The Company believes that unrestricted funds available in its cash accounts, amounts available under its revolving
line of credit, along with funds generated from operations, will be sufficient to satisfy its liquidity and capital resource
requirements for regular operations for the foreseeable future. However, if the Company engages in any additional significant
real estate development, additional financing would more than likely be required.
OFF-BALANCE SHEET ARRANGEMENTS
The Company currently has no off-balance sheet arrangements and has no intent to enter into any such agreements
in the near future.
RELATED PARTY TRANSACTIONS
For a description of the nature and extent of related party transactions, see Note 16.
COMMITMENTS AND CONTRACTUAL OBLIGATIONS
In March 2014, the Company entered into a seven-year agreement with a new totalizator provider. Pursuant to the
agreement, the vendor provides totalizator equipment and related software that records and processes all wagers and
30
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calculates odds and payoffs. The amounts charged to operations for totalizator expenses for the years ended December 31,
2018 and 2017 were $230,000 and $228,000, respectively.
The Company has entered into operating leases for rental of office equipment and for track equipment to maintain
the Racetrack. Amounts charged to operations under these agreements for 2018 and 2017 were $60,000 and $85,000,
respectively. All these leases expire on or before December 2020.
In August 2018, the Company entered into a Contract for Private Redevelopment with the City of Shakopee in
connection with a Tax Increment Financing District (“TIF District”). The Company is obligated to construct certain
infrastructure improvements within the TIF District, and will be reimbursed by the City of Shakopee by future tax increment
revenue generated from the developed property. See Note 14 for a more detailed description of the agreement.
Subsequent to December 31, 2018, there have been no material changes outside the ordinary course of business to
our contractual obligations as set forth above. As of December 31, 2018, we had no borrowings pursuant to our line of credit
and were not party to capital lease obligations, significant purchase obligations or other long-term obligations, other than
described above.
FORWARD-LOOKING STATEMENTS
From time-to-time, in reports filed with the Securities and Exchange Commission, in press releases, and in other
communications to shareholders or the investing public, we may make forward-looking statements concerning possible or
anticipated future financial performance, prospective business activities or plans that are typically preceded by words such as
“believes,” “expects,” “anticipates,” “intends” or similar expressions. For these forward-looking statements, we claim the
protection of the safe harbor for forward-looking statements contained in federal securities laws. Shareholders and the
investing public should understand that these forward-looking statements are subject to risks and uncertainties that could
affect our actual results and cause actual results to differ materially from those indicated in the forward-looking statements.
These risks and uncertainties include, but are not limited to:
· material fluctuations in attendance at the Racetrack;
·
decline in interest in wagering on horse races at the Racetrack, at other tracks, or on unbanked card games offered at
the Card Casino;
competition from other venues offering unbanked card games or other forms of wagering;
greater-than-anticipated expenses or a lower-than-anticipated return on the development of our underutilized land,
including our joint venture to develop a luxury apartment complex;
competition from other sports and entertainment options;
increases in compensation and employee benefit costs;
increases in the percentage of revenues allocated for purse fund payments;
higher-than-expected expenses related to new marketing initiatives;
the impact of wagering products and technologies introduced by competitors;
legislative and regulatory decisions and changes, including decision or actions related to sports betting that would
adversely affect our betting environment;
any legal, judicial, legislative or regulatory action or event that would adversely affect our ten-year Cooperative
Marketing Agreement with the Shakopee Mdewakanton Sioux Community, which enhances the purses for daily
racing at Canterbury Park and supports cooperative marketing programs for the two organizations, benefiting the
stability and quality of live horse racing;
the fact that under the Redevelopment Agreement with the City of Shakopee, the Company has agreed to undertake
a number of specific infrastructure improvements within the TIF District, and the funding that
·
·
·
·
·
·
·
·
·
·
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Canterbury Park will be paid as reimbursement under the TIF program for these improvements is not guaranteed,
but will depend in part on future tax revenues generated from the developed property;
the general health of the gaming sector;
the success of the Company’s Canterbury Commons real estate development, including our reliance upon our joint
venture partner Doran Companies to construct, and profitably operate the upscale apartment complex; and
other factors that are beyond our ability to control or predict.
·
·
·
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to Item 3.05(e) of Regulation S-K, Canterbury Park Holding Company is not required to provide the
information requested by this Item as it qualifies as a smaller reporting company.
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) Financial Statements
The following financial statements of the Company are set forth on pages 33 through 56 of the Form 10‑K:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Operations for the years ended December 31, 2018 and 2017
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2017
Notes to Consolidated Financial Statements for the years ended December 31, 2018 and 2017
Page
34
35
36
37
38
39
33
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Canterbury Park Holding Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Canterbury Park Holding Corporation and Subsidiaries
(the Company) as of December 31, 2018 and 2017, and the related consolidated statements of operations, changes in
stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2018, and the related
notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations
and its cash flows for each of the years in the two-year period ended December 31, 2018, in conformity with accounting
principles generally accepted in the United States of America.
Basis for Opinion
These financials are the responsibility of Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial
reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Wipfli LLP
We have served as the Company’s auditor since 2014.
Minneapolis, Minnesota
March 29, 2019
34
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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2018 AND 2017
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable, net of allowance of $19,250 for both periods
Current portion of notes receivable
Inventory
Prepaid expenses
Income taxes receivable
Total current assets
LONG-TERM ASSETS
Deposits
Restricted cash - long-term portion
TIF receivable
Notes receivable - long-term portion
Related party receivable (Note 16)
Equity investment (Note 14)
Land, buildings and equipment, net (Note 3)
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable
Card Casino accruals
Accrued wages and payroll taxes
Cash dividend payable
Accrued property taxes
Deferred revenue
Payable to horsepersons
Current portion of capital lease obligations
Income taxes payable
Total current liabilities
LONG-TERM LIABILITIES
Deferred income taxes (Note 4)
Capital lease obligations, net of current portion
Total long-term liabilities
TOTAL LIABILITIES
STOCKHOLDERS’ EQUITY (Note 5)
Common stock, $.01 par value, 10,000,000 shares authorized, 4,527,685 and 4,414,492,
respectively, shares issued and outstanding
Additional paid-in capital
Retained earnings
Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
See notes to consolidated financial statements.
35
$
$
2018
2017
4,895,359
5,058,639
206,545
241,743
1,063,650
297,209
625,025
417,003
12,805,173
49,500
1,250,000
1,908,065
1,078,861
3,208,400
2,995,010
38,131,052
61,426,061
3,587,328
1,740,926
2,268,351
316,938
1,001,200
979,358
706,122
23,216
—
10,623,439
3,970,000
98,272
4,068,272
14,691,711
$
$
8,888,162
3,137,391
206,005
1,278,289
1,048,654
262,989
588,634
—
15,410,124
22,500
—
—
2,142,512
—
—
36,962,188
54,537,324
2,854,305
2,931,205
2,291,261
265,113
936,562
905,030
630,921
—
3,830
10,818,227
3,002,000
—
3,002,000
13,820,227
45,277
21,420,886
25,268,187
46,734,350
61,426,061
44,145
19,865,273
20,807,679
40,717,097
54,537,324
$
$
Table of Contents
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2018 AND 2017
2018
2017
OPERATING REVENUES:
Pari-mutuel
Card Casino
Food and beverage
Other
Total Net Revenues
OPERATING EXPENSES:
Purse expense
Minnesota Breeders’ Fund
Other pari-mutuel expenses
Salaries and benefits
Cost of food and beverage and other sales
Depreciation
Utilities
Advertising and marketing
Professional and Contracted Services
Loss on disposal of assets
Gain on insurance recoveries (Note 13)
Gain on Sale of Land
Gain on Transfer of Land (Note 14)
Other operating expenses
Total Operating Expenses
INCOME FROM OPERATIONS
OTHER INCOME
Interest income, net
Net Other Income
INCOME BEFORE INCOME TAXES
INCOME TAX EXPENSE (Note 4)
NET INCOME
Basic earnings per share
Diluted earnings per share
See notes to consolidated financial statements.
$
$
10,639,029
33,919,928
8,017,747
6,564,866
59,141,570
7,181,683
1,039,452
1,423,980
24,322,840
3,586,617
2,563,579
1,527,942
2,499,345
4,491,719
120,940
(21,064)
(129,580)
(2,241,206)
5,128,394
51,494,641
7,646,929
61,515
61,515
7,708,444
(1,990,000)
5,718,444
1.28
1.26
$
$
$
$
$
$
36
10,377,317
31,979,818
7,938,975
6,656,666
56,952,776
6,856,708
1,029,510
1,350,411
23,376,186
3,704,576
2,529,437
1,420,666
2,715,245
4,376,420
2,198
(140,552)
—
—
5,210,814
52,431,619
4,521,157
49,624
49,624
4,570,781
(480,000)
4,090,781
0.93
0.93
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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2018 AND 2017
Balance at December 31, 2016
4,325,154 $ 43,252 $ 18,780,070 $ 17,727,225 $ 36,550,547
Number of Common Additional
Shares
Stock
Paid-in Capital
Retained
Earnings
Total
Exercise of stock options
Stock-based compensation
Dividend distribution
401(K) stock match
Issuance of restricted stock
Shares issued under Employee Stock Purchase
Plan
Net income
23,500
—
—
44,301
14,434
7,103
—
235
—
—
443
144
71
—
181,898
351,809
—
487,316
(144)
—
—
(1,010,327)
—
—
182,133
351,809
(1,010,327)
487,759
—
64,324
—
—
4,090,781
64,395
4,090,781
Balance at December 31, 2017
4,414,492 $ 44,145 $ 19,865,273 $ 20,807,679 $ 40,717,097
Exercise of stock options
Stock-based compensation
Dividend distribution
401(K) stock match
Issuance of restricted stock
Shares issued under Employee Stock Purchase
Plan
Net income
67,440
—
—
34,383
2,788
8,582
—
674
—
—
344
28
86
—
569,194
345,626
—
527,325
(28)
—
—
(1,257,936)
—
—
569,868
345,626
(1,257,936)
527,669
—
113,496
—
—
5,718,444
113,582
5,718,444
Balance at December 31, 2018
4,527,685 $ 45,277 $ 21,420,886 $ 25,268,187 $ 46,734,350
See notes to consolidated financial statements.
37
Table of Contents
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2018 AND 2017
Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
2018
2017
$
5,718,444
$
4,090,781
Depreciation
Stock-based compensation expense
Stock-based employee match contribution
Deferred income taxes
Loss on disposal of assets
Gain on insurance recoveries
Gain on sale of land
Gain on transfer of land
Changes in operating assets and liabilities:
Decrease in accounts receivable
Increase in other current assets
(Increase) decrease in income taxes receivable/payable
(Decrease) increase in accounts payable
Increase in deferred revenue
(Decrease) increase in Card Casino accruals
(Decrease) increase in accrued wages and payroll taxes
Increase in accrued property taxes
Increase in payable to horsepersons
Net cash provided by operating activities
Investing Activities:
Additions to land, buildings, and equipment
Issuance of related party note receivable
Proceeds from notes receivable
Proceeds from insurance recoveries
Purchase of investments
Net cash used in investing activities
Financing Activities
Proceeds from issuance of common stock
Cash dividend paid to shareholders
Principal payments on capital lease
Net cash used in financing activities
Net increase (decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of year
Cash, cash equivalents, and restricted cash at end of year
Schedule of non-cash investing and financing activities
Additions to buildings and equipment funded through accounts payable
Transfer of future TIF reimbursed costs from PP&E
Dividend declared
Expiration of buyback option on land
Equipment acquired through capital lease agreements
Transfer of assets to Doran Canterbury I
Supplemental disclosure of cash flow information:
Income taxes paid
Interest paid
See notes to consolidated financial statements.
38
2,563,579
345,626
525,100
968,000
120,940
(21,064)
(129,580)
(2,241,206)
24,346
(97,611)
(420,833)
(133,802)
184,328
(1,190,279)
(22,910)
64,638
75,201
6,332,917
(5,501,468)
(3,208,400)
1,048,655
1,033,264
(540)
(6,628,489)
686,019
(1,206,111)
(5,891)
(525,983)
2,529,437
351,810
487,316
(1,355,000)
2,198
(140,552)
—
—
171,716
(134,344)
515,000
2,363
336,109
699,298
256,711
4,532
416,124
8,233,499
(3,781,755)
—
—
—
(356)
(3,782,111)
246,971
(961,626)
—
(714,655)
(821,555)
3,736,733
12,025,553
8,288,820
$
$
11,203,998
867,000
1,908,000
317,000
110,000
127,000
754,000
12,025,553
333,000
—
265,000
—
—
—
1,356,000
12,000
$
1,141,000
—
$
$
$
Table of Contents
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED December 31, 2018 AND 2017
1. OVERVIEW AND BASIS OF PRESENTATION
Business – The Company’s Racetrack operations are conducted at facilities located in Shakopee, Minnesota,
approximately 25 miles southwest of downtown Minneapolis. In May 1994, the Company commenced year-round horse
racing simulcast operations and hosted the first annual live race meet during the summer of 1995. The Company’s live
racing operations are a seasonal business as it hosts live race meets each year from May until September. The Company
earns additional pari-mutuel revenue by televising its live racing to out-of-state racetracks around the country.
Canterbury Park’s Card Casino operates 24 hours a day, seven days a week and is limited by Minnesota State law to
conducting card play on a maximum of 80 tables. The Card Casino currently offers a variety of poker and table games.
The Company’s three largest sources of revenues include: Card Casino operations, pari-mutuel operations and food and
beverage sales. The Company also derives revenues from related services and activities, such as admissions, advertising
signage, publication sales, and from other entertainment events and activities held at the Racetrack. Additionally, the
Company is redeveloping approximately 140 acres of underutilized land surrounding the Racetrack in a project known as
Canterbury Commons. The Company is pursuing several mixed-use development opportunities for this land, directly and
through joint ventures.
Basis of Presentation - The consolidated financial statements include the accounts of the Company, Canterbury Park
Concessions, Inc. (CPC) and Canterbury Development LLC after elimination of intercompany accounts and transactions.
Effective January 1, 2018, we adopted the requirements of Accounting Standards Updated (“ASU”) No. 2014-09,
Revenue from Contracts with Customers and ASU No. 2016-18, Statement of Cash Flows, Restricted Cash as discussed
in Note 2. All amounts and disclosures set forth in this Form 10-K have been updated to comply with the new standards,
as indicated by the “as adjusted” footnote.
Estimates – The preparation of the consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from these estimates.
Reclassifications – Prior period financial statement amounts have been reclassified to conform to current period
presentations. Certain amounts due to horsepersons have been reclassified on the December 31, 2017 Consolidated
Balance Sheets to Payable to Horsepersons from Due to MHBPA. This reclassification has also been reflected on the
Consolidated Statement of Cash Flows for the year ended December 31, 2017. Workers compensation amounts have
been reclassified from other operating expenses to salaries and benefits on the Consolidated Statement of Operations for
the year ended December 31, 2017.
2. ACCOUNTING STANDARDS AND SIGNIFICANT ACCOUNTING POLICIES
Summary of Significant Accounting Policies
Revenue Recognition – The Company’s primary revenues with customers consist of Card Casino operations, pari-mutuel
wagering on simulcast and live horse races, and food and beverage transactions. We determine revenue recognition
through the following steps:
·
·
Identification of the contract, or contracts, with a customer
Identification of the performance obligations in the contract
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·
·
·
Determination of the transaction price
Allocation of the transaction price to the performance obligation in the contract
Recognition of revenue when, or as, we satisfy a performance obligation
The transaction price for a Card Casino contract is a set percentage of wagers and is recognized at the time that the
wagering process is complete. The transaction price for pari-mutuel wagering is the commission received on a wager,
exclusive of any track fees and is recognized upon occurrence of the live race that is presented for wagering and after
that live race is made official by the respective state’s racing regulatory body. The transaction price for food and
beverage contracts is the net amount collected from the customer for these goods. Food and beverage services have been
determined to be separate, stand-alone performance obligations and the transaction price is recorded as revenue as the
good is transferred to the customer when delivery is made.
Contracts for Card Casino operations and pari-mutuel wagering involve two performance obligations for those customers
earning points under the Company’s loyalty program and a single performance obligation for customers who do not
participate in the program. The Company applies a practical expedient by accounting for its gaming contracts on a
portfolio basis as these wagers have similar characteristics and the Company reasonably expects the effects on the
financial statements of applying the revenue recognition guidance to the portfolio will not differ materially from that
which would result if applying the guidance to an individual wagering contract. For purposes of allocating the
transaction price in a wagering contract between the wagering performance obligation and the obligation associated with
the loyalty points earned, the Company allocates an amount to the loyalty point contract liability based on the stand-
alone redemption value of the points earned, which is determined by the value of a point that can be redeemed for a cash
voucher, food and beverage voucher, racing admission, valet parking, or racing forms. Based on past experience, the
majority of customers redeem their points for cash vouchers.
We have two general types of liabilities related to Card Casino contracts with customers: (1) our MVP Loyalty Program
and (2) outstanding chip liability. These are included in the line item Card Casino accruals on the consolidated balance
sheet. We defer the full retail value of these complimentary reward items until the future revenue transaction occurs.
The Company offers certain promotional allowances at no charge to patrons who participate in its player rewards
program. The retail value of these promotional items is included as a deduction from pari-mutuel revenues and no longer
shown as a separate line item on the Company’s condensed consolidated statements of operations.
We evaluate our on-track revenue, export revenue, and import revenue contracts to determine whether we are acting as
the principal or as the agent when providing services, which we consider in determining if revenue should be reported
gross or net. An entity is a principal if it controls the specified service before that service is transferred to a customer.
The revenue we recognize for on-track revenue and import revenue is the commission we are entitled to retain for
providing a wagering service to our customers. For these arrangements, we are the principal as we control the wagering
service; therefore, any charges, including simulcast fees, we incur for delivering the wagering service are presented as
operating expenses.
For export revenue, our customer is the third party wagering site such as a race track, OTB, or advance deposit wagering
provider. Therefore, the revenue we recognize for export revenue is the simulcast host fee we earn for exporting our
racing signal to the third party wagering site.
Cash and Cash Equivalents – Cash and cash equivalents include all investments with original maturities of three months
or less or which are readily convertible into known amounts of cash and are not legally restricted. The Company has not
experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash
equivalents.
Restricted Cash – Restricted cash represents refundable deposits and amounts due to horsemen for purses, stakes and
awards, and amounts accumulated in card game progressive jackpot pools, the player pool and poker
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promotional fund to be used to repay card players in the form of promotions, giveaways, prizes, or by other means. The
Company also recorded two deposits related to its development operations as of December 31, 2018. One deposit is an
escrow account with a bank to fund the road construction on Shenandoah Drive. This account is to ensure the Company
completes the construction of the road that allows access to the first phase of the Doran Canterbury I apartment complex.
Funds from the escrow account will be released to the Company as progress billings from the contractor are received.
The Company also recorded a deposit with a bank with the purpose of assisting Doran Canterbury I in completing
financing for a construction loan. The bank will release the deposit back to the Company when the construction loan is
repaid by Doran Canterbury I and converted into a term loan. As this is expected to occur in 2021 or 2022, the Company
classified this as long term restricted cash on the consolidated balance sheet.
Short-term Investments – Securities are classified as held to maturity when the Company has the positive intent and
ability to hold them to maturity, and are measured at amortized cost. At December 31, 2018 and 2017, all investments
were classified as held-to-maturity. The Company continually reviews its investments to determine whether a decline in
fair value below the cost basis is other than temporary. If the decline in fair value is judged to be other than temporary,
the cost basis of the security is written down to fair value and the amount of the write-down is included in earnings.
Short-term investments consist of certificates of deposit at December 31, 2018 and 2017. Amortized cost approximated
fair value for both periods.
Accounts Receivable – Accounts receivable are initially recorded for amounts due from other tracks for simulcast
revenue, net of amounts due to other tracks, and for amounts due from customers related to catering and events. Credit is
granted in the normal course of business without collateral. Accounts receivable are stated net of allowances for doubtful
accounts, which represent estimated losses resulting from the inability of customers to make the required payments.
Accounts that are outstanding longer than the contractual terms are considered past due. When determining the
allowances for doubtful accounts, the Company takes several factors into consideration including the overall
composition of the accounts receivable aging, its prior history of accounts receivable write-offs, the type of customers
and its day-to-day knowledge of specific customers. The Company writes off accounts receivable when they become
uncollectible. Changes in the allowances for doubtful accounts are recorded as bad debt expense and are included in
other operating expenses in the Company’s consolidated statements of operations. Accounts receivable also includes
insurance recoveries proceeds receivable at December 31, 2017.
Notes Receivable – Notes receivable consists of two promissory notes on the sale of land to an unrelated party that bear
interest at 1.43% with principal and interest due annually. The notes receivable are secured by the mortgage of the land
and management believes no allowance for doubtful accounts is necessary.
Property Tax Increment Financing (TIF) Receivable – In connection with the Contract for Private Redevelopment
(“Redevelopment Agreement”) between the City of Shakopee Economic Development Authority and Canterbury
Development LLC signed in August 2018, the City of Shakopee has agreed that a portion of the tax increment revenue
generated from the developed property will be paid to the Company to reimburse it for expenses in constructing
infrastructure improvements. As of December 31, 2018, the Company has incurred $1,900,000 of expenses that are
Qualified Public Redevelopment costs that the Company expects will be reimbursed through TIF. As a result, the
Company recorded a TIF receivable of $1,900,000 at December 31, 2018. Management believes no allowance for
doubtful accounts is necessary
Inventory – Inventory consists primarily of food and beverages, small wares and supplies and retail goods and is
recorded at the lower of cost (first-in, first-out) or net realizable value.
Unredeemed Pari-mutuel Tickets – The Company records a liability for winning tickets and vouchers upon the
completion of a race and when a voucher is printed, respectively. As uncashed winning tickets and vouchers are
redeemed, this liability is reduced for the respective cash payment. The Company recognizes revenue associated with the
uncashed winning tickets and vouchers when the likelihood of redemption, based on historical experience, is remote.
While the Company continues to honor all winning tickets and vouchers presented for payment, management may
determine the likelihood of redemption to be remote due to the length of time that has elapsed since the ticket was
issued. In these circumstances, if management also determines there is no requirement for
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remitting balances to government agencies under unclaimed property laws, uncashed winning tickets and vouchers may
then be recognized as revenue in the Company’s Consolidated Statement of Operations.
Deferred Revenue – Deferred revenue includes advance sales related to racing, events and corporate
partnerships. Revenue from these advance billings are recognized when the related event occurs or services have been
performed. Deferred revenue also includes advanced Cooperative Marketing Agreement (“CMA”) promotional funds
and revenue is recognized when expenses are incurred.
Due to Minnesota Horsemen’s Benevolent and Protective Association, Inc. (“MHBPA”) – The Minnesota Pari-mutuel
Horse Racing Act specifies that the Company is required to segregate a portion of funds (recorded as purse expense in
the statements of operations), received from Card Casino operations and wagering on simulcast and live horse races, for
future payment as purses for live horse races or other uses of the horsepersons’ associations. Pursuant to an agreement
with the MHBPA, the Company transferred into a trust account or paid directly to the MHBPA, approximately
$6,442,000 and $5,716,000 for the years ended December 31, 2018 and 2017, respectively, related to thoroughbred
races. Minnesota Statutes specify that amounts transferred into the trust account are the property of the trust and not of
the Company.
Impairment of Long-Lived Assets – The Company reviews its long-lived assets whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. In the event that facts and circumstances
indicate that the carrying value of any long-lived assets may be impaired, an evaluation of recoverability would be
performed. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or
group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of
assets. During 2018 and 2017, the Company determined that no evaluations of recoverability were necessary.
Advertising and Marketing – Advertising and marketing costs are charged to expense as incurred. The related amounts
are presented separately in the Company’s consolidated statements of operations.
Land, Buildings, and Equipment – Land, buildings, equipment, and building improvements are capitalized at a level of
$2,000 or greater and are recorded at cost. Repair and maintenance costs are charged to operations when incurred.
Furniture, fixtures, and equipment are depreciated using the straight-line method over estimated useful lives ranging
from 5 – 7 years, while buildings are depreciated over 15 – 39 years. Building improvements are amortized using the
straight-line method over the useful life of the assets.
Pre-development costs are incurred prior to vertical construction and for certain land held for development during the
due diligence phase. This includes legal, engineering, architecture, and other professional fees incurred in pursuit of new
development opportunities for which we believe future development is probable. Future development is dependent upon
various factors, including zoning and regulatory approval, rental market conditions, construction costs and availability of
capital. Pre-development costs incurred for which future development is not yet considered probable are expensed as
incurred.
The Company capitalizes property taxes incurred on its land held for development during periods in which activities
necessary to get the property ready for its intended use are in progress. Costs incurred after the property is substantially
complete and ready for its intended use are charged to expense as incurred.
Card Casino Accruals – Minnesota law allows the Company to collect amounts from patrons to fund progressive jackpot
pools in the Card Casino. These amounts, along with amounts earned by the player pool, promotional pools, and the
outstanding chip liability, are accrued as short-term liabilities at each balance sheet date.
Income Taxes – Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those temporary differences are expected to reverse.
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The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax
authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely
than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement with the relevant tax authority.
Interest and penalties associated with uncertain income tax positions are presented in income tax expense. For the years
ended December 31, 2018 and 2017, the Company did not recognize any expense related to interest and penalties.
Net Income Per Share – Basic net income per common share is based on the weighted average number of common
shares outstanding during each year. Diluted net income per common share takes into effect the dilutive effect of
potential common shares outstanding. The Company’s only potential common shares outstanding are stock options.
Fair Values of Financial Instruments – Due to the current classification of all financial instruments and given the short-
term nature of the related account balances, carrying amounts reported in the consolidated balance sheets approximate
fair value.
Stock-Based Employee Compensation – The Company accounts for share-based compensation awards on a fair value
basis. The estimated grant date fair value of each stock-based award is recognized as expense over the requisite service
period (generally the vesting period). The estimated fair value of each option is calculated using the Black-Scholes
option-pricing model. For more information on the Company’s stock-based compensation plans, see Note 5.
Recently Adopted Accounting Standards
ASU No. 2014-09
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ("Topic 606"). Topic 606
supersedes the revenue recognition requirements in Accounting Standards Codification ("ASC") Topic 605, Revenue
Recognition ("Topic 605"), and requires the recognition of revenue when promised goods or services are transferred to
customers in an amount that reflects the considerations to which the entity expects to be entitled to in exchange for those
goods or services. Collectively, we refer to Topic 606 as the "new standard."
We adopted the requirements of the new standard as of January 1, 2018, using the full retrospective method. Adoption of
the new standard resulted in changes to our accounting policies for revenue recognition and promotional allowances as
detailed below. We applied the new standard using a practical expedient where the consideration allocated to the
remaining performance obligations or an explanation of when we expect to recognize that amount as revenue for all
reporting periods presented before the date of the initial application is not disclosed.
The impact of adopting the new standard on our fiscal 2018 and fiscal 2017 revenues is not material and resulted in no
cumulative effect adjustment on net income or cash flows. The primary impact of adopting the new standard is the
removal of the promotional allowance line item on the Consolidated Statement of Operations. The amounts previously
included as promotional allowance are now presented on a net basis within Pari-mutuel revenues.
Additionally, we adopted the clarified scope guidance of ASC 610-20, "Other Income - Gains and Losses from the
Derecognition of Nonfinancial Assets" in conjunction with ASU 2014-09, which applies to the sale, transfer and
derecognition of nonfinancial assets and in substance nonfinancial assets to noncustomers, including partial sales, and
eliminates the guidance specific to real estate in ASC 360-20. Generally, the Company’s sales of its land would be
considered a sale of a nonfinancial asset as defined by ASC 610-20. Under ASC 610-20, the Company will derecognize
the asset and recognize a gain or loss on the sale of the land when control of the underlying asset transfers to the buyer.
With respect to partial sales of real estate to joint ventures, the new guidance requires us to recognize a full gain where
an equity investment is retained when there is a change in control of the asset. These transactions could result in a basis
difference as we will be required to measure our retained equity interest at fair value, whereas the joint venture may
continue to measure the assets received at carryover basis.
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ASU No. 2016-18
In November 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-18, Statement of Cash Flows
(Topic 230) – Restricted Cash. ASU 2016-18 requires that the statement of cash flows explain the change during the
period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash
equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash
flows. As a result of the adoption of ASU 2016-18 on January 1, 2018, we began combining amounts generally
described as restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the Consolidated Statement of Cash Flows. See the table
at the end of this note for the effects of the adoption of ASU 2016-18 on our Consolidated Statement of Cash Flows for
the year ended December 31, 2017.
We adjusted our condensed consolidated financial statements from amounts previously reported due to the adoption of
ASU No. 2014-09 and ASU No. 2016-18. Select audited Consolidated Statement of Operations line items, which reflect
the adoption of ASU No. 2014-09 are as follows:
OPERATING REVENUES:
Pari-mutuel
Promotional allowances
As previously reported
Adjustments
As Adjusted
Year ended December 31, 2017
$
10,522,482
(145,165)
$
(145,165)
(145,165)
$
10,377,317
—
Select audited Consolidated Statement of Cash Flow line items, which reflects the adoption of ASU No. 2016-18 are as
follows:
Net cash provided by operating activities
Net increase in cash and cash equivalents
Cash, cash equivalents and restricted cash at beginning of
period
Cash, cash equivalents and restricted cash at end of period
$
$
7,086,121
2,589,355
6,298,807
8,888,162
$
$
1,147,378 $
1,147,378
8,233,499
3,736,733
1,990,013
8,288,820
3,137,391 $ 12,025,553
As previously reported
Adjustments
As Adjusted
Year ended December 31, 2017
Recent Accounting Pronouncement – In February 2016 (as amended through December 2018), the FASB issued ASU
No. 2016-02 codified as Accounting Standards Codification (“ASC”) 842, Leases, (“ASC 842”) which addresses the
recognition and measurement of leases. Under the new guidance, for all leases (with the exception of short-term leases),
at the commencement date, lessees will be required to recognize a lease liability, which is a lessee’s obligation to make
lease payments arising from a lease, measured on a discounted basis, and a right-of-use (“ROU”) asset, which is an asset
that represents the lessee’s right to control the use of a specified asset for the lease term. The effective date for this
update is for the annual and interim periods beginning after December 15, 2018 with early adoption permitted. ASC 842
requires a transition adoption election using either 1) a modified retrospective approach with periods prior to the
adoption date being recast or 2) a prospective adoption approach with a cumulative-effect adjustment recognized to the
opening balance of retained earnings on the adoption date with prior periods continuing to be reported under current
lease accounting guidance.
The Company will adopt ASC 842 on January 1, 2019 using the prospective adoption approach, and therefore,
comparative periods will continue to be reported under current lease accounting guidance consistent with previously
issued financial statements. We currently expect to elect the package of practical expedients permitted under the
transition guidance within ASC 842, which among other things, allows us to carry forward the historical lease
identification, lease classification and treatment of initial direct costs for leases entered into prior to January 1, 2019. We
will also make an accounting policy election to not record short-term leases with an initial term of 12 months or less on
the balance sheet for all classes of underlying assets. We have also elected to not adopt the hindsight practical expedient
for determining lease terms.
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Our operating leases will be recorded on the balance sheet as an ROU asset with a corresponding lease liability. The
lease liability will be remeasured each reporting period with a corresponding change to the ROU. The qualitative and
quantitative effects of adoption of ASC 842 are still being analyzed, and the Company is in the process of evaluating the
full effect, including the total amount of both financing and operating leases, the new guidance will have on our
Consolidated Financial Statements. While our assessment of the impacts on the standard remains open, we do not
believe the standard will significantly impact our Consolidated Financial Statements.
3. LAND, BUILDINGS AND EQUIPMENT
Land, buildings and equipment, at cost, consist of the following at December 31, 2018 and 2017:
Land
Land held for development
Buildings and building improvements
Furniture and equipment
Accumulated depreciation
$
2018
2,507,926
8,164,589
36,552,565
22,097,711
69,322,791
$
2017
2,526,605
8,853,903
33,756,895
21,495,701
66,633,104
(31,191,739)
$ 38,131,052
(29,670,916)
$ 36,962,188
Land held for development represents land owned for potential real estate development.
4. INCOME TAXES
A reconciliation between income taxes computed at the statutory federal income tax rate and the effective tax rate for
the years ended December 31, 2018 and 2017 is as follows:
2018
2017
Federal tax expense at statutory rates
Nondeductible lobbying expense
State expense, net of federal impact
Stock option expense
Federal deferred remeasurement
Other
$ 1,618,800 $ 1,554,100
24,500
312,900
(12,100)
(1,345,000)
(54,400)
480,000
15,100
615,300
(74,200)
(175,600)
(9,400)
$ 1,990,000 $
On December 22, 2017, the U.S. Tax Cuts and Jobs Act ("TCJA") was signed into law. U.S. GAAP requires that the
impact of tax legislation be recognized in the period in which the law was enacted. The Tax Act significantly revised the
U.S. corporate income tax regime by, among other things, lowering the highest U.S. corporate tax rate of 35% to a flat
21% effective for tax years starting after December 31, 2017. As a result, we recorded a tax benefit of $175,600
and $1,345,000 in the fourth quarter of 2018 and 2017, respectively, as a result of a revaluation of the net deferred tax
liabilities due to the corporate tax rate change from 34% to 21% starting in 2018.
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Income tax expense for the years ended December 31, 2018 and 2017 consists of the following:
2018
2017
Current
Federal
State
Deferred, Federal
Deferred, State
$
290,000 $ 1,359,000
476,000
732,000
1,835,000
1,022,000
(1,237,000)
1,164,000
(118,000)
(196,000)
480,000
$ 1,990,000 $
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2018 and 2017 are as
follows:
Deferred tax assets (liabilities)
Vacation accrual
Player rewards program accrual
Stock options
Long-Term Incentive Plan
Other
Land, building and equipment - cost and depreciation
Investment in JV
Prepaid Expenses
Net long-term deferred tax liabilities
2018
2017
62,500
136,200
37,400
126,800
5,600
(3,507,500)
(729,000)
(102,000)
(3,970,000)
$
$
61,100
137,800
126,200
64,600
5,500
(3,296,900)
—
(100,300)
(3,002,000)
$
$
The Company is subject to U.S. and Minnesota taxation. The Company is no longer subject to U.S. federal, state, or
local examinations by tax authorities for years before 2015.
5. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION
Stockholders’ Equity
Employee Stock Purchase Plan:
The Company offers an Employee Stock Purchase Plan (the “ESPP”) that is open to all employees working more than 15
hours per week. Effective January 1, 2017, shares of the Company’s common stock may be purchased by employees at
six-month intervals at 85% of the fair market value on the last trading day of each six-month period. Prior to this,
employees purchased stock at three-month intervals. Employees purchased 8,582 and 7,103 shares in 2018 and 2017,
respectively. As of December 31, 2018, a total of 306,171 shares have been issued from the 350,000 shares originally
authorized.
KSOP:
The Company offers a KSOP Plan (the “KSOP”) that includes the Employee Stock Ownership Plan (the “ESOP”) and
the 401(k) Plan. The KSOP allows the Company to use Company stock to match contributions from its employees
should it so choose. The KSOP is available to eligible employees who had completed six months of service. Beginning
January 1, 2016, the matching of employee contributions were issued in Company stock.
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Employer contributions charged to operations for stock matching of employee contributions for the year ended
December 31, 2018 and 2017 totaled $525,000 and $487,000, respectively.
Stock Repurchase Plan:
In 2007, the Company’s Board of Directors adopted a plan that authorized the repurchase of up to 250,000 shares of the
Company’s common stock in open market transactions or block purchases of privately negotiated transactions. The
Company repurchased 216,543 shares under the 2008 Stock Repurchase Plan and in 2012, authorized the repurchase of
an additional 100,000 shares of the Company’s common stock. No shares were repurchased in 2018 or 2017, and
currently the Company is authorized to repurchase up to 128,871 shares under the Stock Repurchase Plan
Stock-Based Compensation
Stock-based compensation is recorded at fair value as of the date of grant, is included in the salaries and benefits expense
line item on the consolidated statements of operations and amounted to $346,000 and $352,000 for the years ended
December 31, 2018 and 2017, respectively.
Stock Options:
The Company’s 1994 Stock Plan, as amended, (the “Plan”) provides for the granting of awards in the form of stock
options, restricted stock, stock appreciation rights, and deferred stock to key employees and non-employees, including
directors of and consultants to the Company and any subsidiary, to purchase up to a maximum of 1,650,000 shares of
common stock. The Company currently has 377,030 shares available for grant under the Plan. The Plan is administered
by the Board of Directors which determines the persons who are to receive awards under the Plan, the type of award to
be granted, the number of shares subject to each award and, if an option, the exercise price of each option.
The Plan provides that payment of the exercise price may be made in the form of unrestricted shares of common stock
already owned by the optionee. The Company calculates the fair market value of unrestricted shares as the average of the
high and low sales prices on the date of the option exercise. The Company’s common stock is purchased upon the
exercise of stock options, and restricted stock awards are settled in shares of the Company’s common stock.
Stock option activity related to the Plan during the years ended December 31, 2018 and 2017 is summarized below:
2018
2017
Outstanding at beginning of year
Granted
Exercised
Expired/Forfeited
Number of
Options
Weighted
Average
Exercise
Price
142,502 $
—
(67,440)
—
8.19
—
8.45
—
Number of
Shares
191,002 $
—
(23,500)
(25,000)
Weighted
Average
Exercise
Price
9.08
—
7.75
11.11
Outstanding at end of year
75,062 $
7.95
142,502 $
8.19
Options exercisable at end of year
75,062 $
7.95
142,502 $
8.19
The grant-date fair value of options outstanding and exercisable at December 31, 2018 and 2017 was $224,000 and
$407,000, respectively. The weighted average remaining contractual term of these options is 0.9 years.
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There were no options granted in 2018 or 2017. The total fair value of options exercised during the years ended
December 31, 2018 and 2017 was $183,000 and $58,000, respectively. The total intrinsic value of options exercised
during 2018 and 2017 was $494,000 and $90,000, respectively.
The following table summarizes information concerning all options outstanding and options exercisable as of
December 31, 2018:
Options Outstanding
Options Exercisable
Range of
Exercise Price
$ 6.00 - 8.00
$ 8.01 - 11.00
$ 11.01 - 14.00
Total
Number
Outstanding
32,912
33,150
9,000
75,062
Weighted Weighted
Average
Exercise
Price
Average
Life (Years)
Remaining
0.4 $
1.2 $
2.1 $
0.9 $
6.16 $
8.28
13.30
7.95 $
Aggregate
Intrinsic
Value
255,204
186,635
5,490
447,329
Weighted
Average
Exercise
Price
Number
Exercisable
32,912 $
33,150 $
9,000 $
75,062 $
6.16 $
8.28
13.30
7.95 $
Aggregate
Intrinsic
Value
255,204
186,635
5,490
447,329
Board of Directors Stock Option and Restricted Stock Grants
The Company’s Stock Plan was amended to authorize annual grants of restricted stock, deferred stock, stock options, or
any combination of the three, to non-employee members of the Board of Directors at the time of the Company’s annual
shareholders’ meeting as determined by the Board prior to each such meeting. Options granted under the Plan generally
expire 10 years after the grant date. Restricted stock and deferred stock grants generally vest 100% one year after the
date of the annual meeting at which they were granted, are subject to restrictions on resale for an additional year, and are
subject to forfeiture if a board member terminates his or her board service prior to the shares vesting.
A summary of changes in Board of Directors unvested restricted and deferred stock as December 31,
2018:
Non-Vested Balance, December 31, 2016
Granted
Vested
Forfeited
Non-Vested Balance, December 31, 2017
Granted
Vested
Forfeited
Non-Vested Balance, December 31, 2018
Restricted/
Deferred
Stock
14,410 $
11,264
(14,410)
—
11,264 $
7,456
(11,264)
—
7,456 $
Weighted
Average
Fair Value
Per Share
10.41
10.65
10.41
—
10.65
16.10
10.65
—
16.10
At December 31, 2018, there was approximately $50,000 of total unrecognized stock-based compensation expense
related to unvested deferred stock awards the Company expects to recognize in 2019.
Employee Deferred Stock Award Grants
Employee deferred stock awards are subject to forfeiture if an employee terminates prior to the vesting. Generally, the
awards vest ratably over a four-year period and compensation costs are recognized over the vesting period.
Compensation costs are recorded in “Salaries and benefits” on the Consolidated Statements of Operations.
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A summary of the changes in employee unvested deferred stock award grants as of December 31, 2018, is as follows:
Non-Vested Balance, December 31, 2016
Granted
Vested
Forfeited
Non-Vested Balance, December 31, 2017
Granted
Vested
Forfeited
Non-Vested Balance, December 31, 2018
Long Term Incentive Plan and Award of Deferred Stock
Weighted
Average
Fair Value
Per Share
10.46
-
10.46
-
10.46
-
10.46
-
-
Deferred
Stock
9,500 $
-
(4,375)
-
5,125 $
-
(5,125)
-
- $
In 2016, the Board of Directors of the Company approved a new plan for long-term incentive compensation of the
Company’s named executive officers (NEOs) and other Senior Executives called the Canterbury Park Holding
Corporation Long Term Incentive Plan (the “LTI Plan”). The LTI Plan authorizes the grant of Long Term Incentive
Awards that provide an opportunity to NEOs and other Senior Executives to receive a payment in cash or shares of the
Company’s common stock to the extent of achievement at the end of a period greater than one year (the “Performance
Period”) as compared to Performance Goals established at the beginning of the Performance Period. The Company uses
three years as the Performance Period. The LTI is a sub-plan of the Company’s Stock Plan which authorizes the grant of
Deferred Stock awards that represent the right to receive Company common stock if conditions specified in the awards
are satisfied.
The Board has approved granting opportunities in 2016, 2017, and 2018 to Company officers and key employees to earn
long-term incentive compensation under the LTI Plan. Each officer and key employee was granted an Incentive Award
(that was also a Deferred Stock Award under the Stock Plan) which provided an opportunity to receive a payout of
shares of the Company’s common stock to the extent of achievement compared to Performance Goals at the end of the
three year Performance Period. The Company will pay out 14,864 shares of deferred stock in the 2019 first quarter,
related to the Performance Period ended December 31, 2018. The number of shares to be paid out for the Performance
Period ending December 31, 2019 and 2020 will be determined based on actual achievement compared to Performance
Goals. Compensation expense for 2018 and 2017 was $216,000 and $207,000, respectively.
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6. NET INCOME PER SHARE COMPUTATIONS
The following is a reconciliation of the numerator and denominator of the net income per common share computations
for the years ended December 31, 2018 and 2017
Net income (numerator) amounts used for basic and diluted per share
computations:
Weighted average shares (denominator) of common stock outstanding:
Basic
Plus dilutive effect of stock options
Diluted
Net income per common share:
Basic
Diluted
Year Ended December 31,
2018
2017
$
5,718,444
$
4,090,781
4,481,667
53,269
4,534,936
4,379,346
23,474
4,402,820
$
1.28
1.26
$
0.93
0.93
There were no out of the money options at December 31, 2018 and 2017, thus, all outstanding options to purchase shares
of common stock were included in the computation of diluted net income per share.
7. GENERAL CREDIT AGREEMENT
The Company has a general credit and security agreement with a financial institution. This agreement was amended and
restated effective as of September 30, 2018 to extend the maturity date to September 30, 2019, increase the revolving
credit line to $8,000,000, and allow for letters of credit in the aggregate amount of up to $2,000,000 to be issued under
the credit agreement. The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles
of the Company. The Company had no borrowings under the credit line during the year ended December 31, 2018. The
credit agreement contains covenants requiring the Company to maintain certain financial ratios. The Company was in
compliance with these requirements at all times throughout 2018.
8. LEASES AND COMMITMENTS
Purchase Obligations
In March 2014, the Company entered into a seven-year agreement with a new totalizator provider. Pursuant to the
agreement, the vendor provides totalizator equipment and related software which records and processes all wagers and
calculates odds and payoffs. The amounts charged to operations for totalizator expenses for the years ended
December 31, 2018 and 2017 were $230,000 and $228,000, respectively.
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Capital Lease Obligations
The Company leases certain office equipment under agreements classified as capital leases. The future minimum
payments (principal and interest) under these agreements are as follows:
Year ended December 31,
2019
2020
2021
2022
2023
Total minimum lease obligations
Less: amounts representing interest
Present value of minimum lease payments
Less: current portion
Capital lease obligations, net of current portion
Operating Lease Obligations
$
$
Amount
28,743
28,743
28,743
28,743
21,727
136,699
(15,211)
121,488
(23,216)
98,272
The Company has entered into operating leases for rental of office equipment and for track equipment to maintain the
Racetrack. Amounts charged to operations under these agreements for the years ended December 31, 2018 and 2017
were $60,000 and $85,000, respectively. All such leases expire on or before December 2020.
Future minimum operating lease payments and purchase obligations are as follows:
Total Amount
Committed
Payment due by period
2019
2020
$
$
109,000
468,000
$
$
33,000
233,000
$
$
30,000
235,000
$
$
2021
23,000
—
2022
23,000
—
$
$
Obligations
Operating leases
Purchases
9. CONTINGENCIES
Canterbury Park Holding Corporation was incorporated on March 24, 1994. On March 29, 1994, the Company acquired
all the outstanding securities of Jacobs Realty, Inc. (“JRI”) from Irwin Jacobs and IMR Fund, L.P. (an investment fund
for various pension plans and trusts). JRI was merged into the Company, and the acquisition was accounted for under the
purchase method of accounting whereby the acquired assets and liabilities have been recorded at the Company’s cost.
The primary asset of JRI was Canterbury Downs Racetrack and the 325 acres of surrounding land.
On May 20, 1994, the Company adopted a plan of Reorganization pursuant to which the sole shareholder of Canterbury
Park Concessions, Inc. (“CPC”), and majority shareholder of the Company, agreed to exchange his shares of CPC stock
for 198,888 shares of the Company’s common stock concurrent with the closing of a public offering. Pursuant to the
Plan of Reorganization, CPC became a wholly-owned subsidiary of the Company in August 1994 when the Company
completed the initial public offering of its common stock. This reorganization was treated in a manner similar to a
pooling of interests. Net proceeds received by the Company from the public offering were approximately $4,847,000,
which along with additional borrowings under the Company’s line of credit with the majority shareholder, were used to
pay off the remaining notes payable from the acquisition of JRI.
In connection with the purchase of the Racetrack, the Company entered into an Earn Out Promissory Note dated
March 29, 1994. In accordance with the Earn Out Note, if (i) off-track betting becomes legally permissible in the State of
Minnesota and (ii) the Company begins to conduct off-track betting with respect to or in connection with its operations,
the Company will be required to pay to the IMR Fund, L.P. the greater of $700,000 per operating year,
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as defined, or 20% of the net pretax profit, as defined for each of five operating years. At this time, management believes
that the likelihood that these two conditions will be met and that the Company will be required to pay these amounts is
remote. At the date (if any) that these two conditions are met, the five minimum payments will be discounted back to
their present value and the sum of those discounted payments will be capitalized as part of the purchase price in
accordance with generally accepted accounting principles. The purchase price will be further increased if payments
become due under the “20% of Net Pretax Profit” calculation. The first payment is to be made 90 days after the end of
the third operating year in which off-track betting is conducted by the Company. Remaining payments would be made
within 90 days of the end of each of the next four operating years.
Effective on June 15, 2012, the Company entered into a Cooperative Marketing Agreement (the “CMA”) with the
Shakopee Mdewakanton Sioux Community (“SMSC”). The CMA was amended in January 2015, 2016, 2017, and 2018.
The CMA contains certain covenants which, if breached, would trigger an obligation to repay a specified amount related
to such covenant. At this time, management believes that the likelihood that the breach of a covenant will occur and that
the Company will be required to pay the specified amount related to such covenant is remote.
The Company is periodically involved in various claims and legal actions arising in the normal course of business.
Management believes that the resolution of any pending claims and legal actions at December 31, 2018 and as of the
date of this report will not have a material impact on the Company’s consolidated financial positions or results of
operations.
The Company has committed to payment of statutory distributions under a $500,000 bond issued to the Minnesota
Racing Commission as required by Minnesota statute. The Company was not required to make any payments related to
this bond in 2018 or 2017, and there is no liability related to this bond on the balance sheet as of December 31, 2018.
10. OPERATING SEGMENTS
The Company has four reportable operating segments: horse racing, Card Casino, food and beverage, and development.
The horse racing segment primarily represents simulcast and live horse racing operations. The Card Casino segment
represents operations of Canterbury Park’s Card Casino, the food and beverage segment represents food and beverage
operations provided during simulcast and live racing, in the Card Casino, and during special events, and the development
segment represents our real estate development operations. The Company’s reportable operating segments are strategic
business units that offer different products and services. They are managed separately because the segments differ in the
nature of the products and services provided as well as process to produce those products and services. The Minnesota
Racing Commission regulates the horse racing and Card Casino segments.
Depreciation, interest expense and income taxes are allocated to the segments but no allocation is made to food and
beverage for shared facilities. However, the food and beverage segment pays approximately 25% of gross revenues
earned on live racing and special event days to the horse racing segment for use of the facilities.
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The following tables represent a disaggregation of revenues from contracts with customers along with the Company’s
operating segments (in 000’s):
Year Ended December 31, 2018
Net revenues from external customers
Intersegment revenues
Net interest income
Depreciation
Segment income before income taxes
Segment tax expense (benefit)
Horse Racing Card Casino Food and Beverage Development
$
16,764 $ 33,920 $
Total
806
25
2,371
279
(784)
—
—
5
7,195
1,858
8,458 $
1,393
—
188
1,197
309
— $ 59,142
2,199
—
62
37
2,564
—
11,021
2,350
1,990
607
Segment Assets
$
35,992 $
623 $
23,680 $
24,647 $ 84,942
At December 31, 2018
Year Ended December 31, 2017
Net revenues from external customers
Intersegment revenues
Net interest income
Depreciation
Segment (loss) income before income taxes
Segment tax expense (benefit)
Horse Racing Card Casino Food and Beverage Development
$
16,692 $ 31,980 $
Total
769
4
1,997
(1,609)
(350)
—
—
372
6,830
717
8,281 $
1,447
—
160
1,479
155
— $ 56,953
2,216
—
50
46
2,529
—
6,301
(399)
480
(42)
Segment Assets
$
41,077 $
642 $
21,583 $
11,436 $ 74,738
At December 31, 2017
The following are reconciliations of reportable segment revenues, income before income taxes, and assets, to the Company’s
consolidated totals for the years ended December 31, 2018 and 2017 (in 000’s):
Revenues
Total net revenue for reportable segments
Elimination of intersegment revenues
Total consolidated net revenues
Income before income taxes
Total segment income before income taxes
Elimination of intersegment income before income taxes
Total consolidated income before income taxes
Assets
Total assets for reportable segments
Elimination of intercompany balances
Total consolidated assets
Year Ended December 31, 2018
2018
2017
$
$
$
$
$
$
61,341
(2,199)
59,142
11,021
(3,313)
7,708
December 31,
2018
84,942
(23,516)
61,426
$
$
$
$
$
$
59,168
(2,215)
56,953
6,301
(1,730)
4,571
December 31,
2017
74,738
(20,201)
54,537
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11. SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
2018 Quarter Ended
Net revenues
Operating expenses
Net income
Basic net income per share
Diluted net income per share
Net revenues
Operating expenses
Net income
Basic net income per share
Diluted net income per share
June 30
September 30
December 31
March 31
$ 12,219,946 $ 16,512,724 $ 18,370,511 $ 12,038,389
8,779,324
2,370,558
0.52
0.52
10,863,193
989,690
0.22
0.22
16,338,866
1,632,845
0.36
0.36
15,513,258
725,351
0.16
0.16
2017 Quarter Ended
June 30
September 30
March 31
December 31
$ 11,443,071 $ 15,846,475 $ 17,666,841 $ 11,996,389
11,065,012
1,908,576
0.43
0.43
10,581,262
512,997
0.12
0.12
14,655,317
716,573
0.16
0.16
16,130,028
952,635
0.22
0.22
12. COOPERATIVE MARKETING AGREEMENT
On June 4, 2012, the Company entered into the CMA with the SMSC. The primary purpose of the CMA is to increase
purses paid during live horse racing at Canterbury Park’s Racetrack in order to strengthen Minnesota’s thoroughbred and
quarter horse industry. Under the CMA, as amended, this is achieved through “Purse Enhancement Payments to
Horsemen” paid directly to the MHBPA. Such payments have no direct impact on the Company’s consolidated financial
statements or operations. Under the terms of the CMA, as amended, the SMSC paid the horsemen $7.3 million and $7.2
million for purse enhancements for the years ended December 31, 2018 and 2017, respectively.
Under the CMA, as amended, SMSC also agreed to make “Marketing Payments” to the Company relating to joint
marketing efforts for the mutual benefit of the Company and SMSC, including signage, joint promotions, player benefits
and events. Under the CMA, the SMSC paid the Company $1,620,000 and $1,581,000 for marketing purposes for
the years ended December 31, 2018 and 2017, respectively.
In January 2015, 2016, 2017, and 2018 the CMA was amended to adjust the payment amounts between the “Purse
Enhancement Payments to Horsemen” and “Marketing Payments to Canterbury Park.” SMSC is currently obligated to
make the following purse enhancement and marketing payments for 2019 through 2022:
Year
2019
2020
2021
2022
Purse Enhancement Payments to Marketing Payments to
Horsemen (1)
Canterbury Park
7,380,000
7,380,000
7,380,000
7,380,000
1,620,000
1,620,000
1,620,000
1,620,000
(1) - Includes $100,000 each year payable to various horsemen associations
The amounts received from the marketing payments are recorded as a component of other revenue and the related
expenses are recorded as a component of advertising and marketing expense and depreciation in the Company’s
consolidated statements of operations. For the year ended December 31, 2018, the Company recorded $1,275,000 in
other revenue and incurred $1,049,000 in advertising and marketing expense and $226,000 in depreciation related to the
SMSC marketing payment. For the year ended December 31, 2017, the Company recorded $1,399,000 in other revenue
and incurred $1,173,000 in advertising and marketing expense and $226,000 in depreciation related to the SMSC
marketing payment.
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Under the CMA, the Company agreed for the term of the CMA that it would not promote or lobby the Minnesota
legislature for expanded gambling authority and will support the SMSC’s lobbying efforts against expanding gambling
authority.
13. INSURANCE RECOVERIES
During 2014, the Company incurred damage to buildings from multiple severe storms at the Racetrack. During the year
ended December 31, 2015, the Company recognized as a reduction in operating expenses a $495,000 insurance
recoveries gain in the Consolidated Statements of Operations as “Gain on insurance recoveries.” For the year ended
December 31, 2016, the Company received additional insurance proceeds of $592,000 and recognized as a reduction in
operating expenses as insurance recoveries gain in the Consolidated Statements of Operations as “Gain on insurance
recoveries”. The Company had also concluded an additional $873,000 of insurance reimbursement was to be received
when roof repair work was completed. However, the Company was notified in 2017 that the costs of the repairs have
exceeded the original contract price. Thus, the Company recognized an additional $141,000 and $21,000 “Gain on
insurance recoveries” as a reduction in operating expenses in the 2017 and 2018, respectively, Consolidated Statements
of Operations. Because the claim has been accepted and confirmed by the insurance company, that total amount of $1.6
million has been recognized as a gain on insurance recovery receivable in accordance with U.S. GAAP. The storms did
not cause any interruptions to the business or impact on the Company’s consolidated financial results of operations.
14. REAL ESTATE DEVELOPMENT
Land Sale and Repurchase
On October 6, 2015, the Company sold six acres of land adjacent to the Racetrack for $1,459,000 and recorded a gain of
$660,000 on the Consolidated Statements of Operations – Gain on sale of land. Under the agreement with the buyer, the
Company had the option to repurchase up to one acre within three years from closing date at the sale price of
approximately $240,000 per acre. According to ASC 360‑20‑40‑38 - Derecognition, the Company recorded the
repurchase option acre as a deferred gain liability in the amount of $240,000 on the Consolidated Balance Sheets. Since
the risks and rewards were not completely transferred to the buyer based on the repurchase option, the Company
maintained the asset on our financials in the amount of $110,000. The repurchase option lapsed on October 6, 2018, and
the Company did not repurchase the one acre of land. Therefore, a gain on sale of land of $129,500 was recognized on
the Consolidated Statements of Operations for the year ended December 31, 2018.
Equity Investment
On April 2, 2018, the Company’s subsidiary Canterbury Development LLC entered into an Operating Agreement
(“Operating Agreement”) with an affiliate of Doran Companies (“Doran”), a national commercial and residential real
estate developer, as the two members of a Minnesota limited liability company named Doran Canterbury I, LLC (“Doran
Canterbury I”). Doran Canterbury I was formed as part of a joint venture between Doran and Canterbury Development
LLC to construct an upscale apartment complex on land adjacent to the Company’s Racetrack (the “Project”). Doran
Canterbury is developing Phase I of the Project, which will include approximately 300 units, a heated parking ramp, and
a clubhouse.
In connection with the execution of the Amended Doran Canterbury I Agreement, on August 18, 2018 Canterbury
Development LLC entered into an Operating Agreement with Doran Shakopee, LLC as the two members of a Minnesota
limited liability company entitled Doran Canterbury II, LLC (“Doran Canterbury II”). Under the Doran Canterbury II
Operating Agreement, Doran Canterbury II will pursue development of Phase II of the Project, which is expected to
begin upon rental stabilization of Phase I. Phase II will include an additional 300 apartment units. Canterbury
Development’s equity contribution to Doran Canterbury for Phase II will be approximately 10 acres of land. In
connection with its contribution, Canterbury Development will become a 27.4% equity member in Doran Canterbury II
with Doran owning the remaining 72.6%.
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On September 27, 2018, Canterbury Development LLC contributed approximately 13 acres of land as its equity
contribution in the joint venture and became a 27.4% equity member. On December 20, 2018, financing for Doran
Canterbury I was secured. As the Company is able to assert significant influence, but not control, over Doran Canterbury
I’s operational and financial policies, the Company will account for the joint venture as an equity method investment. In
accordance with ASC 610-20, we determined that we do not have a controlling financial interest in the joint venture and
the arrangement meets the criteria to be accounted for as a contract. Therefore, we derecognized the land and recognized
a full gain (approximately $2,241,000) between the carrying amount of the land and the estimated fair value of the land
transferred. In future periods, the Company will recognize its proportionate share of Doran Canterbury I’s earnings
(after the effect of basis differences) as an increase or decrease in its Investment in Doran Canterbury I and as Income or
Loss from Investment in Doran Canterbury I.
Tax Increment Financing
On August 8, 2018, the City Council of the City of Shakopee, Minnesota approved a Contract for Private
Redevelopment (“Redevelopment Agreement”) between the City of Shakopee Economic Development Authority
(“Shakopee EDA”) and Canterbury Park Holding Corporation and its subsidiary Canterbury Development LLC in
connection with a Tax Increment Financing District (“TIF District”) that the City had approved in April 2018. The City
of Shakopee, the Shakopee EDA and the Company entered into the Redevelopment Agreement on August 10, 2018.
Under the Redevelopment Agreement, the Company has agreed to undertake a number of specific infrastructure
improvements within the TIF District, including the development of public streets, utilities, sidewalks, and other public
infrastructure. More specifically, the Company is obligated to construct improvements on Shenandoah Drive and
Barenscheer Boulevard with these improvements required to be substantially complete on or before December 31, 2019
and December 31, 2020, respectively.
If the Company does not proceed with the improvements to Shenandoah Drive on or before December 15, 2018 or the
improvements to Barenscheer Boulevard on or before December 15, 2019, the City of Shakopee has the right to
construct the improvements itself and assess the Company for the costs of these improvements. As of December 31,
2018, the Company was proceeding with the improvements to Shenandoah Drive.
Under the Redevelopment Agreement, the City of Shakopee has agreed that a portion of the tax increment revenue
generated from the developed property will be paid to the Company to reimburse it for its expense in constructing
infrastructure improvements. The total estimated cost of TIF eligible improvements to be borne by the Company is
$23,336,500. A detailed Schedule of the Public Improvements under the Redevelopment Agreement, the timeline for
their construction and the source and amount of funding is set forth on Exhibit C of the Redevelopment Agreement,
which was filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended June 30, 2018. The total amount of
funding that Canterbury will be paid as reimbursement under the TIF program for these improvements is not guaranteed,
however, and will depend on future tax revenues generated from the developed property. As of December 31, 2018, the
Company recorded a TIF receivable of $1,900,000.
The Company expects to finance its improvements under the Redevelopment Agreement with funds from its current
operating resources and existing credit facility and, potentially, third-party financing sources.
Purchase and Sale Agreements
As part of its development efforts, the Company has recently entered into several real estate purchase and sale
agreements.
On October 22, 2018, the Company entered into an agreement to sell approximately 1.7 acres of land on the West side of
the Racetrack to a third party for total consideration of approximately $564,000. Closing is subject to the satisfaction of
certain customary conditions. The Company expects the transaction to close in 2019.
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On October 30, 2018, the Company entered into an agreement to purchase approximately 2.6 acres of land on the East
side of the Racetrack for total consideration of approximately $1.0 million. Closing is subject to the satisfaction of
certain customary conditions. The Company expects the transaction to close in 2019.
On November 1, 2018, the Company entered into an agreement to sell between 19 and 21 acres of land on the East side
of the Racetrack to a third party for total consideration of approximately $3.7 million to $4.1 million, depending upon
completion of a survey and determination of the final acreage. The inspection period noted in the agreement expires on
May 4, 2019, however, the Company believes the likelihood the transaction will be consummated is remote. The
Company will explore new opportunities for this area.
15. NOTES RECEIVABLE
During May 2016, the Company sold approximately 24 acres of land adjacent to the Racetrack for a total consideration
of approximately $4.3 million. Promissory notes receivable consist of two promissory notes totaling $3,191,000 bearing
interest at the mid-term applicable federal rate, which equaled 1.43%. On May 31, 2017, the Company signed an
amendment extending the maturity date of the notes to May 2020. The payments totaling $1,094,000 are due annually.
The promissory notes are secured by the mortgage of approximately 24 acres and management believes no allowance for
doubtful accounts is necessary. The following tables show future principal payments:
Year ended December 31,
2019
2020
Total principal payments
Less: current portion
Long-term portion of principal payments
16. RELATED PARTY RECEIVABLES
Amount
1,063,650
1,078,861
2,142,511
(1,063,650)
1,078,861
$
On December 20, 2018, the Company entered into a loan agreement with Doran Family Holdings, a related party that is
the controlling partner in the Doran Canterbury I joint venture. The Company loaned Doran Family Holdings $2,910,000
and received a promissory note totaling $2,940,000 bearing interest at 5%. The note will mature at the earliest of (i) the
date of closing by Doran Canterbury II, LLC on Phase II Project Financing; (ii) the closing on any purchase of the Phase
II Land by Doran Shakopee, LLC pursuant to its option under Section 3.9(a) of the Operating Agreement; (iii) the date of
final determination that the Phase II Project will not be developed by either Doran Canterbury II, LLC; or (iv) three (3)
years following the date of the note. The promissory note is fully and unconditionally guaranteed by Doran Family
Holdings. Management believes no allowance for doubtful accounts is necessary.
In 2018, the Company incurred $269,000 of costs for preliminary grading work on parcels of land the Company has
designated for Doran Canterbury II. The Company will be fully reimbursed for these costs upon the commencement of
the Doran Canterbury II project and thus, recorded the amount as a receivable for the year ended December 31, 2018.
Although there is a possibility Doran Canterbury II will not materialize, the Company currently believes the likelihood of
that is remote.
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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not Applicable.
Item 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures:
The Company’s Chief Executive Officer, Randall D. Sampson, and Chief Financial Officer Robert M. Wolf, have
reviewed the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end
of the period covered by this report. Based upon this review, these officers have concluded that, due to the material
weakness in internal controls described below, the Company’s disclosure controls and procedures were not effective
to ensure that information required to be disclosed in the reports that the Company files under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC
and that the disclosure controls were also not effective to ensure that information required to be disclosed in the
Company’s Exchange Act reports is accumulated and communicated to management, including the chief executive
officer and chief financial officer, to allow timely decisions regarding required disclosure.
(b) Management’s annual report on internal control over financial reporting:
Management is responsible for establishing and maintaining an adequate system of internal control over financial
reporting of the Company. This system is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America.
The Company’s internal control over financial reporting (as such term is defined in Rule 13a‑15(f) under the
Securities Exchange Act of 1934) includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of the Company are being made only in accordance with authorizations of management and directors of the
Company; (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting can only provide reasonable assurance
and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of the system of internal control over financial reporting
as of December 31, 2018. In making this evaluation, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework
(2013). Based on management’s evaluation and those criteria, management concluded that the Company’s system of
internal control over financial reporting was not effective as of December 31, 2018, as described below.
Based on management’s testing and evaluation, we concluded that our internal control over financial reporting was
not effective in the quarter ended September 30, 2018, and as a result, resulted in a material weakness in internal
controls. The identified material weakness arose as a result of management’s incorrect initial determination of the
effective date to recognize the gain associated with the Company’s transfer of land to the Doran Canterbury I joint
venture described in Note 10 of Notes to Financial Statements in the Form 10-Q for the quarter ended September 30,
2018. On September 27, 2018, the Company’s subsidiary Canterbury Development LLC contributed approximately
13 acres of land to Doran Canterbury I as its equity contribution to the joint venture and became a 27.4% equity
member. Under the Doran Canterbury I Operating Agreement, Doran was responsible for securing financing for
Doran Canterbury I, and if financing were not secured for
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Doran Canterbury I, the Company had the ability to withdraw from Doran Canterbury I. As long as the Company
has the right to withdraw its land contribution, the Company was not able to recognize the gain. As of November 14,
2018, financing for Doran Canterbury I had not been secured. Therefore, as of September 30, 2018, the Company
could not record (i) any gain associated with investment in this joint venture, or (ii) its interest in this joint venture.
Because management initially determined the Company would recognize a gain associated the Company’s transfer
of land to the Doran Canterbury I joint venture and corrected this determination later in connection with finalizing
the Form 10-Q, the Company concluded that a reasonable possibility existed that a material misstatement in the
Company’s consolidated financial statements would not have been prevented or detected on a timely basis. The
Doran Canterbury I joint venture is the Company’s first significant venture into real estate development and the
agreements associated with these transactions are complex. The Company initially erred in making and recording
the gain for the contribution of land because management did not realize that its ability to reclaim the property if the
financing is not secured prevented it from recognizing the income on a current basis.
On December 20, 2018, financing for Doran Canterbury I was secured and the Company included a $2.2 million
gain on its transfer of land to the Doran Canterbury I joint venture
Remediation Plan for Material Weaknesses in Internal Control over Financial Reporting
During our 2018 fiscal fourth quarter, we began implementing a remediation plan to address the material weakness
described above. The Company believes that it must acquire additional technical expertise either within the
Company or by engaging a third party to help it understand the intricacies of some of the applicable revenue
recognition rules in connection with the Doran joint venture and any future joint venture agreements or future
Company development efforts. The Company has engaged a third party to assist it in the process, but has
determined that the remediation plan is not complete as the date of this Form 10-K.
(c) Changes in Internal Control Over Financial Reporting:
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) under the
Securities Exchange Act of 1934) that occurred during our fiscal quarter ended December 31, 2018, that have
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, except
that as noted above, the Company is taking steps to remediate the material weakness in internal control over
financial reporting.
Item 9B. OTHER INFORMATION
Not Applicable.
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Table of Contents
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information Incorporated by Reference.
PART III
Information required under Item 401 (except as noted below), 405, 406, and 407 (c) (3), (d) (4), and (d) (5) of
Regulation S-K to the extent applicable to the Company will be set forth in the Company’s Proxy Statement for the
Annual Meeting of Shareholders to be held on June 5, 2019 (the “Proxy Statement”), a definitive copy of which will
be filed with the Commission within 120 days of the close of the 2018 fiscal year, which information is incorporated
herein by reference. Information required under Item 402 of Regulation S-K regarding executive officers is
presented under Item 1(c)(x) herein.
Code of Ethics
The Company has adopted a code of ethics applicable to all employees of and consultants to the Company. A copy
of the Code of Conduct can be obtained free of charge upon written request directed to the Company’s Secretary at
the executive offices of the Company.
Item 11. EXECUTIVE COMPENSATION
Information required under Item 402 of Regulation S-K to the extent applicable to the Company will be set forth in
the Company’s Proxy Statement, which information is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information required under Item 201(d) and 403 of Regulation S-K to the extent applicable to the Company will be
set forth in the Company’s Proxy Statement, which information is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information, if any, required by Item 404 of Regulation S-K to the extent applicable to the Company will be set
forth in the Company’s Proxy Statement which information is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by Item 14 of this Form 10‑K and Item 9(e) of Schedule 14A will be set forth in a section
entitled “The Company’s Auditors” in the Company’s 2018 Proxy Statement which information is incorporated
herein by reference.
60
Table of Contents
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a). The following Consolidated Financial Statements of Canterbury Park Holding Corporation and subsidiaries
are included in Part II, Item 8 pages 31‑50:
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Operations for the years ended December 31, 2018 and 2017
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2018 and
2017
Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2017
Notes to Consolidated Financial statements
(b). Exhibits
Exhibit Table
Reference
3 Articles of Incorporation and Bylaws:
Title of Document
3.1
3.2
Restated Articles of Incorporation, filed as Exhibit 3.1 to Form 8‑K dated June 30, 2016 and
incorporated herein by reference
Bylaws, filed as Exhibit 3.2 to Form 8‑K dated June 30, 2016 and incorporated herein by reference
10 Material contracts and management compensation plans and arrangements:
10.1
Letter dated April 4, 1994 from the Minnesota Horsemen’s Benevolent and Protective
Association, Inc. to Minnesota Racing Commission waiving 125 day racing minimum, filed as
Exhibit 10.7 to the SB‑2 Registration Statement (File 33‑81262C0) and incorporated herein by
reference
10.2*
Stock Option Plan, as amended, filed as Exhibit 10.5 to the Form 8‑K dated June 7, 2017 and
incorporated herein by reference
* Denotes an exhibit that covers management contracts or compensatory plans or arrangements.
61
Table of Contents
Exhibit Table
Reference
Title of Document
10.3
General Credit and Security Agreement dated as of November 11, 2016 between Canterbury Park
Holding Corporation and Bremer Bank N.A., filed as Exhibit 10.10 to 2017 Form 10‑K and
incorporated herein by reference
10.3.1
Credit Amendment Agreement, dated as of September 30, 2018, between and among Canterbury
Park Holding Corporation and Bremer Bank N.A, filed as Exhibit 10.1 to Form 10-Q dated
November 14, 2018 and incorporated herein by reference.
10.4
Contract for Private Redevelopment dated August 10, 2018 between the City of Shakopee,
Minnesota, Economic Development Authority for the City of Shakopee, Minnesota, Canterbury
Development LLC, and Canterbury Park Holding Corporation. Filed as Exhibit 10.1 to the Form 10-
Q dated August 14, 2018 and incorporated herein by reference.
10.5
Cooperative Marketing Agreement dated as of June 4, 2012 between Canterbury Park Holding
Corporation and Shakopee Mdewakanton Sioux Community. Filed as Exhibit 99.1 to Form 10-Q
dated August 14, 2012 and incorporated herein by reference.
10.6
Canterbury Park Holding Corporation Annual Incentive Plan filed as Exhibit 99.1 to Form 8-K dated
April 5, 2016 and incorporated herein by reference.
10.7
Canterbury Park Holding Corporation Long Term Annual Incentive Plan filed as Exhibit 99.2 to
Form 8-K dated April 5, 2016 and incorporated herein by reference.
Filed herewith, in addition to items, if any, specifically identified above:
21
23.1
24
31.1
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Power of Attorney, Included in Signature Page
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
31.2
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
32
99.1
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Press Release dated March 29, 2019 announcing 2018 Fourth Quarter and Year-End Results
***Pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, certain information has been deleted from
this exhibit, as filed, and separately filed with the SEC subject to a confidential treatment request on the basis that disclosure
of this information would cause the Company competitive harm is not necessary for the protection of investors.
(c). No financial statement schedules are required by Item 8 and Item 15(c) of Form 10‑K.
The exhibits referred to in this Exhibit will be supplied to a shareholder at a charge of $.25 per page upon
written request directed to the Company’s Secretary at the executive offices of the Company.
62
Table of Contents
Item 16. FORM 10‑K SUMMARY
None.
63
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 29, 2019
CANTERBURY PARK HOLDING CORPORATION
By /s/ Randall D. Sampson
Randall D. Sampson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the
Registrant and in the capacities and the dates indicated have signed this report below.
Power of Attorney
Each person whose signature appears below constitutes and appoints CURTIS A. SAMPSON, DALE H.
SCHENIAN and RANDALL D. SAMPSON as his or her true and lawful attorneys-in-fact and agents, each acting alone,
with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all
capacities, to sign any of all amendments to this Annual Report on Form 10‑K and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all said attorneys-in-fact and agents, each acting alone, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Vice Chairman; Director
March 29, 2019
Signature
Title
Chairman of the Board
/s/ Curtis A. Sampson
Curtis A. Sampson
/s/ Dale H. Schenian
Dale H. Schenian
/s/ Randall D. Sampson
Randall D. Sampson
Chief Executive Officer, President,
Treasurer, and Director
Director
Director
/s/ Burton F. Dahlberg
Burton F. Dahlberg
/s/ Carin J. Offerman
Carin J. Offerman
/s/ Robert M. Wolf
Robert M. Wolf
* Principal Accounting Officer
Date
March 29, 2019
March 29, 2019
March 29, 2019
March 29, 2019
Chief Financial Officer* and Secretary
March 29, 2019
64
SUBSIDIARIES OF CANTERBURY PARK HOLDING CORPORATION
Exhibit 21
Subsidiaries
Canterbury Park Concessions, Inc.
Canterbury Development LLC
Canterbury Park Entertainment LLC
Jurisdiction of
Incorporation
Minnesota
Minnesota
Minnesota
The subsidiaries are 100%-owned directly by Canterbury Park Holding Corporation. The financial statements of such subsidiaries are
included in the Consolidated Financial Statements of Canterbury Park Holding Corporation.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our report dated March 29, 2019, with respect to the consolidated financial statements included in the Annual Report of
Canterbury Park Holding Corporation on Form 10-K for the years ended December 31, 2018 and 2017. We hereby consent to the
incorporation by reference of said report in the Registration Statements of Canterbury Park Holding Corporation on Form S-8 (File No.
333-224111, File No. 333-120377, File No. 333-97537, File No. 333-97533, File No. 333-34509, File No. 333-91591, File No. 333-
150037, File No. 33-96582 and File No. 33-96580).
Exhibit 23.1
/s/ Wipfli LLP
Minneapolis, Minnesota
March 29, 2019
Exhibit 31.1
Certification
I, Randall D. Sampson certify that:
1. I have reviewed this annual report on Form 10-K of Canterbury Park Holding Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this
report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a. all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal controls over financial reporting.
Date: March 29, 2019
/s/ Randall D. Sampson
Randall D. Sampson
President and Chief Executive Officer
Canterbury Park Holding Corporation
Exhibit 31.2
I, Robert M. Wolf certify that:
Certification
1. I have reviewed this annual report on Form 10-K of Canterbury Park Holding Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this
report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a. all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal controls over financial reporting.
Date: March 29, 2019
/s/ Robert M. Wolf
Robert M. Wolf
Senior Vice President and Chief Financial Officer
Canterbury Park Holding Corporation
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32
Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we the undersigned Chief Executive
Officer and Chief Financial Officer, respectively, of Canterbury Park Holding Corporation (the “Company”), hereby certify that:
(1) The Annual Report of the Company on Form 10-K for the period ended December 31, 2018, (the “Report”) fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Date: March 29, 2019
Date: March 29, 2019
/s/ Randall D. Sampson
Randall D. Sampson
President and Chief Executive Officer
Canterbury Park Holding Corporation
/s/ Robert M. Wolf
Robert M. Wolf
Senior Vice President and Chief Financial Officer
Canterbury Park Holding Corporation
Exhibit 99.1
CANTERBURY PARK
1100 Canterbury Road
Shakopee, MN 55379
CANTERBURY PARK HOLDING CORPORATION
REPORTS RECORD 2018 FINANCIAL RESULTS
FOR IMMEDIATE RELEASE
March 29, 2019
CONTACT: Randy Sampson
(952) 445-7223
SHAKOPEE, MN - Canterbury Park Holding Corporation (NASDAQ:CPHC) today announced financial results for its fourth
quarter and year ended December 31, 2018.
Results for the Year Ended December 31, 2018
The Company’s 2018 net revenues were $59.1 million, an increase of 3.8% compared to 2017 net revenues of $57.0 million.
Pari-Mutuel revenues increased $262,000, or 2.5%, primarily due to an increase in Guest Fee and simulcast revenues,
partially offset by a reduction in live racing revenue. Card Casino revenues increased $1.9 million, or 6.1%, due to a $2.3
million increase in table games revenue, partially offset by a decrease in poker revenues of $626,000. Food and beverage
revenues increased $79,000, or 1.0%.
Operating expenses in 2018 were $51.5 million, a decrease of 1.8% compared to $52.4 million in 2017. Operating expenses in
2018 included a $2.2 million gain on transfer of land related to the Doran Canterbury I joint venture and a gain on sale of land
of $130,000, both of which were accounted for as a reduction in operating expenses. In 2018, the Company also recorded a
loss on disposal of assets of $121,000. Operating expenses in 2017 included a $141,000 gain on insurance recoveries related
to 2014 storm damage that was accounted for as a reduction in operating expense. Excluding these 2018 and 2017 gains and
losses, operating expenses for 2018 increased $1.2 million, or 2.3% compared to 2017. The increase is primarily due to an
increase in purse expense and salaries and benefits.
Income tax expense for 2018 was $2.0 million, an increase of $1.5 million compared to $480,000 in 2017. In connection with
the U.S. Tax Cuts and Jobs Act (“TCJA”) signed on December 22, 2017, the Company recorded a $1.3 million tax benefit in
the 2017 fourth quarter as a result of revaluation of the net deferred tax liabilities due to the corporate tax rate decrease from
34% to 21% starting in 2018.
The Company’s net income increased 39.8% to $5.7 million, or $1.26 per diluted share, in 2018 compared to net income of
$4.1 million, or $0.93 per diluted share, in 2017.
For the twelve months ended December 31, 2018 compared to the same period in 2017, earnings before interest, taxes,
depreciation and amortization (“EBITDA”) increased to
$10.2 million from $7.1 million. Adjusted EBITDA, which excludes the gains and loss included in operating expenses, was
$7.9 million in 2018 compared to $6.9 million in 2017.
Results for the Quarter Ended December 31, 2018
The Company’s net revenues for the three months ended December 31, 2018 were $12.0 million, unchanged from the same
period in 2017. Pari-Mutuel revenues increased $41,000, or 2.6%, primarily due to an increase in source market fees collected
as a result of the ADW legislation. Card Casino revenues increased $340,000, or 4.2%, due to an increase in table games
revenue of $296,000. Food and beverage revenues increased $13,000, or 1.2%. These increases were partially offset by a
decrease in Other Revenues of $353,000 primarily due to the absence of a customer leasing space from us during the 2017
fourth quarter in preparation for the Super Bowl that was held in Minneapolis in February 2018.
The Company’s operating expenses for the three months ended December 31, 2018 were $8.8 million, a decrease of 20.7%
compared to $11.1 million for the same period in 2017. Operating expenses in the 2018 fourth quarter included a $2.2 million
gain on transfer of land related to the Doran Canterbury I joint venture and a gain on sale of land of $130,000, both of which
were accounted for as a reduction in operating expenses. The Company also recorded a loss on disposal of assets of
$121,000 in the 2018 fourth quarter. Operating expenses in 2017 included a $141,000 gain on insurance recoveries related to
2014 storm damage that was accounted for as a reduction in operating expense. Excluding these 2018 and 2017 gains and
losses, operating expenses for the 2018 period decreased $78,000 or 0.7% compared to the 2017 period. The decrease is
primarily due to a decrease in advertising and marketing expense, partially offset by an increase in salaries and benefits
expense.
The Company recorded income tax expense for the 2018 fourth quarter of $924,000, an increase of $1.9 million compared to
the 2017 fourth quarter when the Company recorded an income tax benefit of $965,000 as a result of the TCJA discussed
above.
The Company’s net income for the three months ended December 31, 2018 increased 24.4% to $2.4 million, or $0.52 per
diluted share, compared to net income of $1.9 million, or $0.43 per diluted share, for the same period in 2017.
For the three months ended December 31, 2018 compared to the same period in 2017, EBITDA increased to $3.9 million from
$1.6 million. Adjusted EBITDA was $1.6 million in 2018 compared to $1.5 million in 2017.
Additional Financial Information
Further financial information for the fourth quarter and year ended December 31, 2018 is presented in the accompanying
table, and additional information will be provided in the Company’s Form 10-K Report that will be filed on or about March 29,
2019 with the Securities and Exchange Commission.
2
Management Comments
Canterbury Park’s President and Chief Executive Officer Mr. Randy Sampson commented: “We are pleased with the strong
increases in revenue and net income over the prior year, as well as the fact that we achieved year-over-year revenue growth
for the tenth consecutive year. Our 2018 revenues and net income were the highest in the Company’s history. We believe we
are continuing to make progress in growing our core business as well as our real estate development efforts.”
Commenting on results in the Company’s core businesses, Mr. Sampson added: “Our increase in Card Casino revenue in
2018 of 6.1% was due to a higher hold percentage on our tables game, as well as an increase in volume resulting from a
strong economy and increased promotional expenditures. Pari-mutuel revenues increased by 2.5% in 2018 compared to 2017
due to a 3.0% increase in simulcast revenues and a 15.9% increase in guest fee revenue as a result of increased out-of-state
handle due to two additional racing days as well as our schedule change that included live racing on Wednesdays in August
compared to Sundays in 2017. Those increases were partially offset by a reduction in live racing revenues from on-track
handle due primarily to the change to Wednesday racing. Food and Beverage revenues also increased slightly in 2018,
benefitting from the two additional live racing days as well as price increases compared to the prior year.”
Mr. Sampson added: “Looking ahead to 2019, we remain confident about prospects for the Company’s core businesses. We
continue to make investments in our facility, including the recent expansion of the Card Casino and upgrade of our Food and
Beverage venues. In March 2019 we completed an expansion of the Card Casino with updated decor and the addition of three
gaming tables. We also opened the Trifecta Café, which significantly improved dining options for our Card Casino guests. In
April 2019, we will open the Little Chicago Chophouse, which we anticipate will be a major step in making Canterbury Park a
dining destination and to help attract new guests. In addition, we are excited to host the first annual Twin Cities Summer Jam
in July 2019. This major 3-day music festival, to be conducted in the infield of the racetrack, will combine rock, pop, and
country music in what we expect to be the largest music festival in the Twin Cities. We believe this event, as well as the recent
facility improvements will have a positive impact on our efforts to grow our core business.”
Mr. Sampson continued: “During 2018, we continued to make progress in our goal to deliver additional shareholder value
through the development of Canterbury Commons. The first phase of the Triple Crown apartment project (Doran Canterbury I,
LLC) continues to progress. Construction financing closed in the fourth quarter of 2018 and construction of the first phase of
over 300 units is well underway. We anticipate pre-leasing to begin this fall with first occupancy in early 2020. The Company
recognized a gain of $2.2 million resulting from transferring approximately 13 acres of land as part its equity contribution in the
Doran Canterbury I, LLC joint venture. We have also begun construction on Shenandoah Drive, an obligation of the Company
under the Redevelopment Agreement we entered into with the City of Shakopee in August 2018. We expect construction of
Shenandoah Drive will be completed by November 2019. Building on the solid development progress that was made in 2018,
we will continue to pursue other residential, commercial, retail, hospitality and entertainment development opportunities. We
expect to report further progress on these efforts over the remainder of 2019.”
3
Mr. Sampson concluded: “We are also thrilled that on May 3, 2019, we will celebrate a major milestone in the history of
Canterbury Park with the start of our 25 live racing season under our current ownership. We thank the fans, employees,
horsemen, and shareholders that have supported us through the years and made our successes to date possible. We are
excited about the future and looking forward to continued success in 2019 and beyond.”
th
Annual Shareholders Meeting
The Company will hold its Annual Meeting of Shareholders on Wednesday, June 5, 2019 at 10 a.m., at the Racetrack in
Shakopee, Minnesota. The record date for shareholders entitled to vote at the Annual Meeting is April 8, 2019.
Use of Non-GAAP Financial Measures
To supplement our financial statements, we also provide investors with information about our EBITDA and Adjusted EBITDA,
each of which is a non-GAAP measure. EBITDA is not a measure of performance or liquidity calculated in accordance with
generally accepted accounting principles ("GAAP"), and should not be considered an alternative to, or more meaningful than,
net income as an indicator of our operating performance, or cash flows from operating activities as a measure of liquidity. We
have presented EBITDA as a supplemental disclosure because it is a widely used measure of performance and basis for
valuation of companies in our industry. Other companies that provide EBITDA information may calculate EBITDA differently
than we do. Adjusted EBITDA represents our earnings before interest income, income tax expense, depreciation and
amortization and loss from disposal of assets, gain on sale of land, gain on transfer of land, and gain from insurance
recoveries. We have presented Adjusted EBITDA as a supplemental disclosure because it enables investors to understand
our results excluding the effect of these four items.
About Canterbury Park
Canterbury Park Holding Corporation owns and operates Canterbury Park Racetrack and Card Casino in Shakopee,
Minnesota, the only thoroughbred and quarter horse racing facility in the State. The Company offers live racing from May to
September. The Card Casino hosts card games 24 hours a day, seven days a week, dealing both poker and table games. The
Company also conducts year-round wagering on simulcast horse racing and hosts a variety of other entertainment and special
events at its Shakopee facility. The Company is redeveloping 140 acres of underutilized land surrounding the Racetrack in a
project know as Canterbury Commons. The Company is pursuing several mixed-use development opportunities for this land,
directly and through joint ventures. For more information about the Company, please visit www.canterburypark.com.
4
Cautionary Statement
From time to time, in reports filed with the Securities and Exchange Commission, in press releases, and in other
communications to shareholders or the investing public, we may make forward-looking statements concerning possible or
anticipated future financial performance, business activities or plans. These statements are typically preceded by the words
“believes,” “expects,” “anticipates,” “intends” or similar expressions. For these forward-looking statements, we claim the
protection of the safe harbor for forward-looking statements contained in federal securities laws. Shareholders and the
investing public should understand that these forward-looking statements are subject to risks and uncertainties which could
affect our actual results and cause actual results to differ materially from those indicated in the forward-looking
statements. We report these risks and uncertainties in our Form 10-K Report to the SEC. They include, but are not limited to:
material fluctuations in attendance at the Racetrack; material changes in the level of wagering by patrons; decline in interest in
the unbanked card games offered in the Card Casino; competition from other venues offering unbanked card games or other
forms of wagering; competition from other sports and entertainment options; increases in compensation and employee benefit
costs; increases in the percentage of revenues allocated for purse fund payments; higher than expected expense related to
new marketing initiatives; the impact of wagering products and technologies introduced by competitors; the general health of
the gaming sector; legislative and regulatory decisions and changes; our ability to successfully develop our real estate; and
other factors that are beyond our ability to control or predict.
NOTE: Financial summary on following page.
5
CANTERBURY PARK HOLDING CORPORATION’S
SUMMARY OF OPERATING RESULTS
Net Operating Revenues
(Unaudited)
Three Months Three Months Twelve Months Twelve Months
Ended
Ended
Ended
Ended
December 31, December 31, December 31, December 31,
2018
$ 12,038,389 $
2017
11,996,386 $
2018
59,141,570 $
2017
56,952,776
Operating Expenses
($8,779,324)
($11,065,022)
($52,994,641)
($52,431,619)
Income from Operations
$
3,259,065 $
931,364 $
7,646,929 $
4,521,157
Non-Operating Revenues, net
$
35,492 $
12,446 $
61,515 $
49,624
Income Tax Benefit (Expense)
($924,000) $
964,753
($1,990,000)
($480,000)
Net Income
$
2,370,558 $
1,908,563 $
5,718,444 $
4,090,781
Basic Net Income Per Common Share
Diluted Net Income Per Common Share
$
$
0.52 $
0.43 $
0.52 $
0.43 $
1.28 $
1.26 $
0.93
0.93
RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA
(Unaudited)
Three months ended
December 31,
Twelve months ended
December 31,
2018
2017
2018
2017
NET INCOME
Interest income, net
$
2,370,558 $ 1,908,563 $ 5,718,444 $ 4,090,781
(35,492)
(12,446)
(61,515)
(49,624)
Income tax expense (benefit)
924,000
(964,753)
1,990,000
480,000
Depreciation
EBITDA
667,857
660,389 2,563,579 2,529,437
3,926,923 1,591,753 10,210,509 7,050,594
Loss on disposal of assets
21,006
2,198
120,940
2,198
Gain on sale of land
Gain on transfer of land
(129,580)
—
(129,580)
(2,241,206)
— (2,241,206)
—
—
Gain on insurance recoveries
—
(140,552)
(21,064)
(140,552)
ADJUSTED EBITDA
$
1,577,143 $ 1,453,399 $ 7,939,599 $ 6,912,240