-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q9/dxGqxRsyCGYSsHyK5Qm22cMGaY4O5TJiJu6z597v+Fd9hq+carY8Wt4lT//tE fprVoazUVrlZ6G0XnQSMKg== 0000898430-97-001780.txt : 19970501 0000898430-97-001780.hdr.sgml : 19970501 ACCESSION NUMBER: 0000898430-97-001780 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19970430 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANTA ANITA REALTY ENTERPRISES INC CENTRAL INDEX KEY: 0000314661 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-RACING, INCLUDING TRACK OPERATION [7948] IRS NUMBER: 953520818 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08131 FILM NUMBER: 97591035 BUSINESS ADDRESS: STREET 1: 301 W HUNTINGTON DR STREET 2: STE 405 CITY: ARCADIA STATE: CA ZIP: 91007 BUSINESS PHONE: 8185745550 MAIL ADDRESS: STREET 1: 301 W HUNTINGTON DR STREET 2: STE 405 CITY: ARCADIA STATE: CA ZIP: 91007 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANTA ANITA OPERATING CO CENTRAL INDEX KEY: 0000313749 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-RACING, INCLUDING TRACK OPERATION [7948] IRS NUMBER: 953419438 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08132 FILM NUMBER: 97591036 BUSINESS ADDRESS: STREET 1: 285 W HUNTINGTON DR STREET 2: PO BOX 808 CITY: ARCADIA STATE: CA ZIP: 91066-0808 BUSINESS PHONE: 8185747223 MAIL ADDRESS: STREET 1: 285 W HUNTINGTON DRIVE STREET 2: P O BOX 808 CITY: ARCADIA STATE: CA ZIP: 91066-0808 10-Q/A 1 AMENDMENT TO QUARTERLY REPORT ON FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 [ ] 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 0-9109 Commission file number 0-9110 SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY - ------------------------------------ ------------------------------- (Exact name of registrant as (Exact name of registrant as specified in its charter) specified in its charter) Delaware Delaware - ------------------------------------ ------------------------------- (State or other jurisdiction of (State or other jurisdiction of incorporation or organization) incorporation or organization) 95-3520818 95-3419438 - ------------------------------------ ------------------------------- (I.R.S. Employer (I.R.S. Employer Identification No.) Identification No.) 301 West Huntington Drive, Suite 405 285 West Huntington Drive Arcadia, California 91007 Arcadia, California 91007 - ------------------------------------ ------------------------------- (Address of principal executive (Address of principal executive offices including zip code) offices including zip code) (818) 574-5550 (818) 574-7223 - ------------------------------------ ------------------------------- (Registrant's telephone number (Registrant's telephone number, including area code) including area code) Indicate by check mark whether the registrants (1) have 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of each of the issuers' classes of common stock, as of the close of business on November 5, 1996 were: Santa Anita Realty Enterprises, Inc. 11,497,700 Santa Anita Operating Company 11,385,200 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES The Companies hereby amend Part I. Financial Information - Item 1. Financial Statements and Item 2. Managements' Discussion and Analysis of Financial Condition and Results of Operations of the Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, to reflect the restatements described in Notes to Financial Statements - Note 2 - Restatement. 2 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES FORM 10-Q/A INDEX
Page No. PART I. FINANCIAL INFORMATION 4 THE SANTA ANITA COMPANIES Combined Balance Sheets as of September 30, 1996 and 5 December 31, 1995 Combined Statements of Operations for the three months and nine 6 months ended September 30, 1996 and 1995 Combined Statements of Cash Flows for the nine months 7 ended September 30, 1996 and 1995 SANTA ANITA REALTY ENTERPRISES, INC. Consolidated Balance Sheets as of September 30, 1996 and 8 December 31, 1995 Consolidated Statements of Operations for the three months and nine 9 months ended September 30, 1996 and 1995 Consolidated Statements of Cash Flows for the nine months 10 ended September 30, 1996 and 1995 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES Consolidated Balance Sheets as of September 30, 1996 and 11 December 31, 1995 Consolidated Statements of Operations for the three months and nine 12 months ended September 30, 1996 and 1995 Consolidated Statements of Cash Flows for the nine months 13 ended September 30, 1996 and 1995 NOTES TO FINANCIAL STATEMENTS 14 MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL 20 CONDITION AND RESULTS OF OPERATIONS SIGNATURES 26
3 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES FORM 10-Q/A FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The accompanying balance sheets as of September 30, 1996 and December 31, 1995 of The Santa Anita Companies (the "Companies"), Santa Anita Realty Enterprises, Inc. ("Realty") and Santa Anita Operating Company and Subsidiaries ("Operating Company"), the statements of operations for the three months and nine months ended September 30, 1996 and 1995, and the related statements of cash flows for the nine months ended September 30, 1996 and 1995, were prepared by management and, except for the balance sheet as of December 31, 1995, are unaudited. In the opinion of management, the accompanying financial statements include all adjustments, including normal recurring items, considered necessary for a fair presentation. The following financial statements should be read in conjunction with the accompanying notes and the Joint Annual Report on Form 10-K of Realty and Operating Company for the year ended December 31, 1995. 4 THE SANTA ANITA COMPANIES COMBINED BALANCE SHEETS
SEPTEMBER 30, 1996 DECEMBER 31, (UNAUDITED) 1995 -------------- ------------- (Restated) ASSETS Real estate assets Santa Anita Racetrack, less accumulated depreciation of $20,905,000 and $20,216,000 $ 9,344,000 $ 9,030,000 Commercial properties, less accumulated depreciation of $4,164,000 and $3,631,000 9,871,000 10,342,000 Commercial properties to be sold, less accumulated depreciation of $3,947,000 and $16,737,000 12,222,000 27,337,000 Investments in and advances to unconsolidated joint ventures (1,117,000) 871,000 Real estate loans receivable 10,795,000 10,954,000 ------------- ------------- 41,115,000 58,534,000 Cash and cash equivalents 17,951,000 13,877,000 Accounts receivable 2,479,000 3,771,000 Prepaid expenses and other assets 8,856,000 6,494,000 Investment in Pacific Gulf Properties Inc. - 12,967,000 Property, plant and equipment, less accumulated depreciation of $27,579,000 and $24,968,000 19,586,000 19,233,000 ------------- ------------- $ 89,987,000 $ 114,876,000 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Real estate loans payable $ 22,188,000 $ 28,389,000 Bank loans payable 1,091,000 22,685,000 Accounts payable 6,051,000 11,208,000 Other liabilities 11,839,000 14,495,000 Income taxes - 326,000 Dividends payable 2,451,000 2,254,000 Deferred revenues 1,103,000 2,379,000 Deferred income taxes 1,229,000 1,239,000 ------------- ------------- 45,952,000 82,975,000 ------------- ------------- Series A Redeemable Preferred Stock, $.10 par value; 867,343 shares authorized, issued and outstanding 15,387,000 - ------------- ------------- Shareholders' equity Preferred stock, $.10 par value; authorized 5,132,657 shares - - Common stock, $.10 par value; authorized 19,000,000 shares; issued and outstanding 11,385,200 and 11,270,500 shares 2,277,000 2,253,000 Additional paid-in capital 137,952,000 136,552,000) Unearned compensation expense (676,000) (1,209,000) Retained earnings (deficit) 110,905,000) (105,695,000 ------------- ------------- 28,648,000 31,901,000 ------------- ------------- $ 89,987,000 $ 114,876,000 ============= =============
See accompanying notes. 5 THE SANTA ANITA COMPANIES COMBINED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------- -------------------------------- 1996 1995 1996 1995 --------------- ---------------- -------------- --------------- (Restated) (Restated) Revenues Horse racing $ 6,418,000 $ 6,133,000 $58,390,000 $ 58,307,000 Rental property 1,638,000 2,218,000 5,625,000 6,473,000 Interest and other 384,000 482,000 1,457,000 1,592,000 ----------- ------------ ----------- ------------ 8,440,000 8,833,000 65,472,000 66,372,000 ----------- ------------ ----------- ------------ Costs and expenses Horse racing operating costs 5,384,000 4,952,000 40,583,000 39,385,000 Rental property operating expenses 627,000 686,000 1,999,000 1,921,000 Depreciation and amortization 447,000 1,001,000 3,904,000 5,703,000 General and administrative 2,895,000 1,915,000 8,187,000 7,500,000 Interest and other 527,000 1,156,000 2,231,000 3,572,000 Losses from unconsolidated joint ventures 514,000 443,000 1,181,000 1,519,000 Program for disposition of non-core real estate assets 90,000 26,300,000 945,000 26,300,000 Costs of equity offering - - - 750,000 Card club option write-off - 2,000,000 - 2,000,000 ----------- ------------ ----------- ------------ 10,484,000 38,453,000 59,030,000 88,650,000 ----------- ------------ ----------- ------------ Net income (loss) (2,044,000) (29,620,000) 6,442,000 (22,278,000) Preferred stock dividends 4,865,000 - 4,865,000 - ----------- ------------ ----------- ------------ Net income (loss) applicable to common shares $(6,909,000) $ (29,620,000) $ 1,577,000 $(22,278,000) =========== ============= =========== ============ Weighted average common shares outstanding 11,302,437 11,270,500 11,281,223 11,194,883 =========== ============= =========== ============ Net income (loss) per common share $ (.61) $ (2.63) $ .14 $ (1.99) =========== ============= =========== ============ Dividends declared per common share $ .20 $ .20 $ .60 $ .60 =========== ============= ============ ============
See accompanying notes. 6 THE SANTA ANITA COMPANIES COMBINED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited)
1996 1995 ------------- -------------- (Restated) Cash flows from operating activities: Net income (loss) $ 6,442,000 $(22,278,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 3,904,000 5,703,000 Amortization of unearned compensation expense 533,000 469,000 Equity in losses of unconsolidated joint ventures 1,181,000 1,519,000 Equity in earnings from investment in Pacific Gulf Properties Inc. - (261,000) Program for disposition of non-core real estate assets 945,000 26,300,000 Card club option write-off - 2,000,000 Deferred income taxes (404,000) 68,000 Net decrease in certain other assets 510,000 1,140,000 Net decrease in certain other liabilities (9,021,000) (10,157,000) ---------- ---------- Net cash provided by operating activities 4,090,000 4,503,000 ---------- ---------- Cash flows from investing activities: Payments received on loans receivable 175,000 343,000 Additions and improvements to real estate assets (1,864,000) (2,028,000) Additions to property, plant and equipment (2,964,000) (3,246,000) Additions to certain other assets (2,306,000) (4,055,000) Investments in and advances to unconsolidated joint ventures (1,111,000) (2,280,000) Capital distributions from unconsolidated joint ventures 1,918,000 1,887,000 Sale of Pacific Gulf Properties Inc. common stock 12,139,000 - Sale of non-core real estate assets 16,436,000 - Dividends received from Pacific Gulf Properties Inc. in 1995 - 918,000 ---------- ---------- Net cash provided by (used in) investing activities 22,423,000 (8,461,000) ---------- ---------- Cash flows from financing activities: Proceeds from bank loans payable - 4,400,000 Repayment of real estate loans payable (6,201,000) (444,000) Repayment of bank loans payable (21,594,000) (589,000) Dividends paid (6,763,000) (6,712,000) Issuance of common and preferred stock 12,085,000 - Exercise of stock options 34,000 - Issuance of common stock from restricted stock awards - 13,000 ---------- ---------- Net cash used in financing activities (22,439,000) (3,332,000) ---------- ---------- Net increase (decrease) in cash and cash equivalents 4,074,000 (7,290,000) Cash and cash equivalents at beginning of year 13,877,000 15,094,000 ---------- ---------- Cash and cash equivalents at September 30, 17,951,000 7,804,000 ========== ==========
See accompanying notes. 7 SANTA ANITA REALTY ENTERPRISES, INC. CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 DECEMBER 31, (UNAUDITED) 1995 -------------- ------------- (Restated) ASSETS Real estate assets Santa Anita Racetrack, less accumulated depreciation of $20,905,000 and $20,216,000 $ 9,344,000 $ 9,030,000 Commercial properties, less accumulated depreciation of $4,646,000 and $4,068,000 12,531,000 13,047,000 Commercial properties to be sold, less accumulated depreciation of $5,295,000 and $18,085,000 12,537,000 27,652,000 Investments in and advances to unconsolidated joint ventures (1,117,000) 871,000 Real estate loans receivable 10,795,000 10,954,000 ------------- ------------ 44,090,000 61,554,000 Cash and cash equivalents 15,330,000 167,000 Accounts receivable 405,000 658,000 Prepaid expenses and other assets 8,455,000 5,726,000 Investment in Pacific Gulf Properties Inc. - 12,967,000 ------------- ------------ $ 68,280,000 $ 81,072,000 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY Real estate loans payable $ 22,188,000 $ 28,389,000 Bank loans payable - 20,950,000 Acccounts payable 744,000 420,000 Other liabilities 2,727,000 2,779,000 Dividends payable 2,473,000 2,277,000 Due to Operating Company 5,139,000 415,000 ------------- ------------ 33,271,000 55,230,000 ------------- ------------ Series A Redeemable Preferred Stock, $.10 par value; 867,343 shares authorized, issued and outstanding 14,337,000 - ------------- ------------ Shareholders' equity Preferred stock, $.10 par value; authorized 5,132,657 shares - - Common stock, $.10 par value; authorized 19,000,000 shares; issued and outstanding 11,497,700 and 11,383,000 shares 1,150,000 1,138,000 Additional paid-in capital 120,160,000 118,881,000 Retained earnings (deficit) (100,638,000) (94,177,000) ------------- ------------ 20,672,000 25,842,000 ------------- ------------ $ 68,280,000 $ 81,072,000 ============= ============
See accompanying notes. 8 SANTA ANITA REALTY ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- ------------------------------- 1996 1995 1996 1995 -------------- --------------- ------------- --------------- (Restated) (Restated) Revenues Rent from Racetrack $ 427,000 $ 375,000 $ 9,134,000 $ 9,227,000 Shopping centers 689,000 1,168,000 2,638,000 3,398,000 Office buildings 949,000 1,050,000 2,987,000 3,075,000 Interest and other 314,000 416,000 1,182,000 1,170,000 ---------- ---------- ---------- ---------- 2,379,000 3,009,000 15,941,000 16,870,000 ---------- ---------- ---------- ---------- Costs and expenses Shopping centers 173,000 204,000 704,000 714,000 Office buildings 454,000 482,000 1,295,000 1,207,000 Depreciation and amortization 224,000 811,000 1,338,000 2,944,000 General and administrative 1,280,000 1,229,000 3,070,000 2,725,000 Interest and other 502,000 1,074,000 2,202,000 3,312,000 Losses from unconsolidated joint ventures 514,000 443,000 1,181,000 1,519,000 Program for disposition of non-core real estate assets 90,000 26,300,000 945,000 26,300,000 Costs of equity offering - - - 700,000 Card club option write-off - 2,000,000 - 2,000,000 --------- ---------- ---------- ---------- 3,237,000 32,543,000 10,735,000 41,421,000 --------- ---------- ---------- ---------- Net income (loss) (858,000) (29,534,000) 5,206,000 (24,551,000) Preferred stock dividends 4,813,000 - 4,813,000 - ---------- ---------- ---------- ---------- Net income (loss) applicable to common shares $ (5,671,000) $(29,534,000) $ 393,000 $(24,551,000) ========= ========== ========= ========== Weighted average common shares outstanding 11,414,937 11,383,000 11,393,723 11,307,383 ========== ========== ========== ========== Net income (loss) per common share $ (.50) $ (2.59) $ .03 $ (2.17) ========== ========= ========== ========== Dividends declared per common share $ 20 $ .20 $ .60 $ .60 ========== ========== ========== ==========
See accompanying notes. 9 SANTA ANITA REALTY ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited)
1996 1995 ------------- -------------- (Restated) Cash flows from operating activities: Net income (loss) $ 5,206,000 $(24,551,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,338,000 2,944,000 Equity in losses of unconsolidated joint ventures 1,181,000 1,519,000 Equity in earnings from investment in Pacific Gulf Properties Inc. - (261,000) Program for disposition of non-core real estate assets 945,000 26,300,000 Card club option write-off - 2,000,000 Net increase in certain other assets (896,000) (489,000) Net increase (decrease) in certain other liabilities 271,000 (185,000) ------------ ------------ Net cash provided by operating activities 8,045,000 7,277,000 ------------ ------------ Cash flows from investing activities: Payments received on loans receivable 175,000 343,000 Additions and improvements to real estate assets (1,864,000) (2,028,000) Additions to certain other assets (2,306,000) (4,055,000) Investments in and advances to unconsolidated joint ventures (1,111,000) (2,280,000) Capital distributions from unconsolidated joint ventures 1,918,000 1,887,000 Sale of Pacific Gulf Properties Inc. common stock 12,139,000 - Sale of non-core real estate assets 16,436,000 - Dividends received from Pacific Gulf Properties Inc. in 1995 - 918,000 ------------ ------------ Net cash provided by (used in) investing activities 25,387,000 (5,215,000) ------------ ------------ Cash flows from financing activities: Proceeds from bank loans payable - 4,400,000 Repayment of real estate loans payable (6,201,000) (444,000) Repayment of bank loans payable (20,950,000) - Increase in due to Operating Company 4,724,000 1,604,000 Dividends paid (6,830,000) (6,779,000) Issuance of common and preferred stock 10,957,000 - Exercise of stock options 31,000 - Issuance of common stock from restricted stock awards - 13,000 ------------ ------------ Net cash used in financing activities (18,269,000) (1,206,000) ------------ ------------ Net increase in cash and cash equivalents 15,163,000 856,000 Cash at beginning of year 167,000 2,251,000 ------------ ------------ Cash and cash equivalents at September 30, $ 15,330,000 $ 3,107,000 ============ ============
See accompanying notes. 10 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 DECEMBER 31, (UNAUDITED) 1995 -------------- ------------- (Restated) ASSETS Current assets Cash and cash equivalents $ 2,621,000 $13,710,000 Accounts receivable 2,074,000 3,113,000 Prepaid expenses and other assets 410,000 777,000 Due from Realty 5,139,000 415,000 ----------- ----------- Total current assets 10,244,000 18,015,000 Investment in common stock of Realty 2,122,000 2,122,000 Property, plant and equipment, less accumulated depreciation of $27,579,000 and $24,968,000 19,586,000 19,233,000 ----------- ----------- $31,952,000 $39,370,000 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 5,307,000 $10,788,000 Other liabilities 9,090,000 11,693,000 Bank loans payable 928,000 868,000 Income taxes - 326,000 ----------- ----------- Total current liabilities 15,325,000 23,675,000 Bank loans payable 163,000 867,000 Deferred revenues 1,103,000 2,379,000 Deferred income taxes 1,229,000 1,239,000 ----------- ----------- 17,820,000 28,160,000 ----------- ----------- Series A Redeemable Preferred Stock, $.10 par value; 867,343 shares authorized, isued and outstanding 1,050,000 - ----------- ----------- Shareholders' equity Preferred stock, $.10 par value; authorized 5,132,657 shares - - Common stock, $.10 par value; authorized 19,000,000 shares; issued and outstanding 11,385,200 and 11,270,500 shares 1,139,000 1,127,000 Additional paid-in capital 20,857,000 20,736,000 Unearned compensation expense (676,000) (1,209,000) Retained earnings (deficit) (8,238,000) (9,444,000) ----------- ----------- 13,082,000 11,210,000 ----------- ----------- $31,952,000 $39,370,000 =========== ===========
See accompanying notes. 11 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------- -------------------------------- 1996 1995 1996 1995 ---------------- --------------- --------------- -------------- (Restated) (Restated) Revenues Wagering commissions $ 3,398,000 $ 3,010,000 $39,009,000 $38,760,000 Admission related 3,020,000 3,123,000 19,381,000 19,547,000 Interest and other 131,000 136,000 519,000 537,000 ----------- ----------- ----------- ----------- 6,549,000 6,269,000 58,909,000 58,844,000 ----------- ----------- ----------- ----------- Costs and expenses Horse racing operating costs 5,384,000 4,952,000 40,583,000 39,385,000 Depreciation and amortization 238,000 233,000 2,611,000 2,888,000 General and administrative 1,615,000 686,000 5,117,000 4,825,000 Interest 64,000 130,000 206,000 308,000 Rental expense to Realty 427,000 375,000 9,134,000 9,227,000 ----------- ----------- ----------- ----------- 7,728,000 6,376,000 57,651,000 56,633,000 ----------- ----------- ----------- ----------- Net income (loss) (1,179,000) (107,000) 1,258,000 2,211,000 Preferred stock dividend 52,000 - 52,000 - ----------- ----------- ----------- ----------- Net income (loss) applicable to common shares $(1,231,000) $ (107,000) $ 1,206,000 $ 2,211,000 =========== =========== =========== =========== Weighted average common shares outstanding 11,302,437 11,270,500 11,281,223 11,194,883 =========== =========== =========== =========== Net income (loss) per common share $ (.11) $ (.01) $ .11 $ .20 =========== =========== =========== ===========
See accompanying notes. 12 SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (Unaudited)
1996 1995 ----------- ----------- (Restated) Cash flows from operating activities: Net income $ 1,258,000 $ 2,211,000 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 2,611,000 2,888,000 Amortization of unearned compensation expense 533,000 469,000 Deferred income taxes (404,000) 68,000 Net decrease in certain other assets 1,406,000 1,629,000 Net decrease in certain other liabilities (9,292,000) (9,972,000) ----------- ---------- Net cash used in operating activities (3,888,000) (2,707,000) ----------- ---------- Cash flows from investing activities: Additions to property, plant and equipment (2,964,000 (3,246,000 ----------- ---------- Cash flows from financing activities: Repayment of bank loans payable (644,000) (589,000) Increase in due from Realty (4,724,000) (1,604,000) Issuance of common and preferred stock 1,128,000 - Exercise of stock options 3,000 - ----------- ---------- Net cash used in financing activities (4,237,000) (2,193,000) ----------- ---------- Net decrease in cash and cash equivalents (11,089,000) (8,146,000) Cash and cash equivalents at beginning of year 13,710,000 12,843,000 ----------- ---------- Cash and cash equivalents at September 30, $ 2,621,000 $ 4,697,000 =========== ==========
13 SANTA ANITA REALTY ENTERPRISES, INC. AND SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Note 1 - Summary of Significant Accounting Policies Real Estate and Long-Lived Assets Effective January 1, 1996, Realty adopted Financial Accounting Standard No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FAS No. 121"). FAS No. 121 requires that impairment losses be recorded on long-lived assets used in operations when events or changes in circumstances indicate that the undiscounted cash flows to be generated by these assets are less than their carrying amount. In this case an impairment loss is recognized to the extent the carrying amount exceeds the fair value of the asset. FAS No. 121 also requires that long-lived assets to be disposed of be reported at the lower of their carrying amount or fair value, less cost to sell. Depreciation of real estate assets held and used in operations is provided on a straight-line basis over the estimated useful lives of the properties, ranging primarily from 5 to 45 years. No depreciation was provided for assets held for sale. Prior to 1996, real estate assets held for investment and used in operations were carried at depreciated cost, subject to tests for impairment, and consisted of land, buildings and related improvements. The carrying values of such assets were reviewed for impairment when certain events and circumstances (including operating results and change in use) indicated that such assets might be impaired if impairment indicators were present. The sum of the undiscounted cash flows estimated to be generated by an individual asset over its remaining estimated useful life was compared to its carrying value. If the carrying value exceeded the estimated undiscounted cash flow, then the carrying value was written down by the amount of the shortfall. Real estate assets to be sold were carried at the lower of depreciated cost or estimated sales price less costs to sell. Interim Period Accounting Policy Operating Company records operating revenues associated with thoroughbred horse racing at Santa Anita Racetrack on a daily basis, except for season admissions which are recorded ratably over the racing season. Costs and expenses associated with thoroughbred horse racing revenues are charged against income in those interim periods in which the thoroughbred horse racing revenues are recognized. Other costs and expenses are recognized as they actually occur throughout the year. The rental fee paid by Operating Company to Realty is recognized by both Realty and Operating Company as it is earned. Certain prior period amounts have been reclassified to conform to current period presentation. In the opinion of management, all adjustments (including normal recurring items) considered necessary for the fair presentation of financial position, results of operations and cash flows have been included. Note 2 - Restatement Historically, Realty and its partners have viewed Towson Town Center and the Joppa parcel as a common economic component since the properties had common ownership, were physically adjacent and were both commercial retail operations. Prior to Realty's decision to dispose of its non-core real estate assets in 1995, Realty's investments in H-T Associates and Joppa Associates were evaluated for impairment on a combined basis (see "Note 5 - Investments in Unconsolidated Joint Ventures"). In addition, Realty historically recorded its share of Joppa Associates' losses based on Realty's 33 1/3% interest. During 1996, it was determined that those two investments should have been evaluated for impairment on a separate basis. Also, Realty determined that since it was probable that one of Realty's partners would not bear its share of losses, Realty should have been recording 50%, not 33 1/3%, of Joppa Associates losses. Accordingly, the impairment loss recorded in the 1995 financial statements related to Joppa Associates should have been reported 14 NOTES TO FINANCIAL STATEMENTS (Continued) Note 2 - Restatement (Continued) in prior years when the investment was impaired as a result of reduced expansion plans for Towson Town Center and the related Joppa parcel. Additionally, net income (loss) as originally reported for the three months and nine months ended September 30, 1996, did not reflect the loss of $850,000 on the sale of Pacific Gulf Properties Inc. ("Pacific") common stock in the 1996 second quarter, the loss of $5,000 on the sale of the three neighborhood shopping centers in Phoenix, Arizona, in the 1996 second quarter and the loss of $90,000 on the sale of the two commercial office buildings in Upland and Santa Ana, California in the 1996 third quarter (see "Note 3 - Disposition of Non-Core Real Estate Assets"), as these losses had been offset against expected gains on the other properties remaining to be sold. Realty has restated its financial statements to reflect these items in the period in which the transactions occurred. In addition, the Series A Redeemable Preferred Stock has been reflected as a separate caption between liabilities and shareholders' equity rather than as a component of shareholders' equity and preferred stock accretion and preferred dividends declared have been reflected as preferred stock dividends and have been deducted from net income (loss) in calculating net income (loss) applicable to common shares. This restatement had an insignificant effect on Operating Company's net income (loss) applicable to common shares and related per share amounts for the three months and nine months ended September 30, 1996. The effect of the restatements on Realty is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- -------------------------- 1996 1995 1996 1995 -------------- -------------- ---------- ------------- Losses from unconsolidated joint ventures As originally reported $ 451,000 $ 378,000 $ 989,000 $ 1,314,000 As restated 514,000 443,000 1,181,000 1,519,000 Program for disposition of non-core real estate assets: As originally reported $ - $ 34,500,000 $ - $ 34,500,000 As restated 90,000 26,300,000 945,000 26,300,000 Net income (loss): As originally reported $ (705,000) $(37,669,000) $6,343,000 $(32,546,000) As restated (858,000) (29,534,000) 5,206,000 (24,551,000) Preferred stock dividends: As originally reported $ - $ - $ - $ - As restated 4,813,000 - 4,813,000 - Net income (loss) applicable to common shares: As originally reported $ (705,000) $(37,669,000) $6,343,000 $(32,546,000) As restated (5,671,000) (29,534,000) 393,000 (24,551,000) Net income (loss) per common share: As originally reported $ (.06) $ (3.31) $ .55 $ (2.88) As restated (.50) (2.59) .03 (2.17) September 30, December 31, 1996 1995 ----------- ------------ Shareholders' equity: As originally reported $36,519,000 $ 25,642,000 As restated 20,672,000 25,842,000
15 NOTES TO FINANCIAL STATEMENTS (Continued) Note 3 - Disposition of Non-core Real Estate Assets During 1995, Realty adopted a plan to dispose of its non-core real estate assets. The objective of this plan was to reduce Realty's debt levels, improve financial flexibility and improve capital availability for the construction of a major commercial development on excess land at Santa Anita Park. Accordingly, Realty reduced the book value of the assets intended to be sold to their estimated sale price less costs of sale, resulting in a nonrecurring charge in 1995 of $30,300,000 (after restatement ), reflected as "Program for disposition of non-core real estate assets" in The Santa Anita Companies and Realty statements of operations for the year ended December 31, 1995. The assets to be disposed of at December 31, 1995 consisted of six neighborhood shopping centers in Southern California, and Phoenix, Arizona, two office buildings in Santa Ana and Upland, California, an investment in Joppa Associates, a partnership which owns a vacant retail facility and undeveloped land adjacent to Towson Town Center shopping center in Maryland (see "Note 5 - Investments in Unconsolidated Joint Ventures" and "Note 2 - Restatement"), an investment in French Valley Ventures, a partnership which owns undeveloped land in Temecula, California, and mortgage notes receivable, During 1996, the disposition plan was expanded to include an investment in Pacific common stock (see "Note 4 - Investment in Pacific Gulf Properties Inc.").
NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 ---------------------------------------------------------------- ------------- BEGINNING NET ASSET NET BOOK ENDING (REDUCTION) VALUE ADDITIONS SALES LOSS ON NET BOOK (AS RESTATED) (AS RESTATED) (REDUCTIONS) PROCEEDS SALE VALUE ------------- ------------- ------------ ---------- -------- --------- (IN THOUSANDS) 1995 PROGRAM Neighborhood Shopping Centers $(14,580) $19,673 $ 692 $ (8,103) $ (5) $12,257 Office Buildings (13,020) 7,699 724 (8,333) (90) - Investment in French Valley (200) 280 - - - 280 Investment in Joppa Associates - (2,235) (566) - - (2,801) Notes Receivable (2,500) 10,954 (159) - - 10,795 1996 PROGRAM Investment in Pacific Stock - 12,967 22 (12,139) (850) - -------- ------- ----- -------- ----- ------- $(30,300) $49,338 $ 713 $(28,575) $(945) $20,531 ======== ======= ===== ======== ===== =======
During the 1996 second quarter, Realty completed the sale of three neighborhood shopping centers in Phoenix, Arizona, for net proceeds totaling $8,103,000, resulting in a loss on the sale of $5,000 and sold its investment in Pacific common stock for net proceeds of $12,139,000, resulting in a loss of $850,000. The total nonrecurring charge for the asset disposal program in the 1996 second quarter was $855,000. During the 1996 third quarter, Realty completed the sale of a commercial office building in Upland, California, for net proceeds of $1,419,000 and completed the sale of a commercial office building in Santa Ana, California for net proceeds of $6,914,000. The net loss on the sale of these two commercial office buildings totaling $90,000 was recorded as a nonrecurring charge in the 1996 third quarter. The nonrecurring charges were reflected as "Program for disposition of non-core real estate assets" in The Santa Anita Companies and Realty statements of operations. Included in the results of operations for the three months ended September 30, 1996, were operating income, net of interest expense, of $223,000 pertaining to the commercial properties sold and $146,000 pertaining to the commercial properties to be sold, a loss of $190,000 pertaining to the unconsolidated joint venture to be sold, a loss of $12,000 pertaining to the consolidated joint venture to be sold and interest income of $262,000 pertaining to the notes receivable to be sold. 16 NOTES TO FINANCIAL STATEMENTS (Continued) Note 3 - Disposition of Non-Core Real Estate Assets (Continued) Included in the results of operations for the nine months ended September 30, 1996, were operating income, net of interest expense, of $1,045,000 pertaining to the commercial properties sold and $351,000 pertaining to the commercial properties to be sold, a loss of $577,000 pertaining to the unconsolidated joint venture to be sold, a loss of $44,000 pertaining to the consolidated joint venture to be sold and interest income of $797,000 pertaining to the notes receivable to be sold. Note 4 - Investment in Pacific Gulf Properties Inc. As of December 31, 1995, Realty owned 784,419 shares of Pacific common stock and accounted for its investment under the equity method of accounting. Effective January 1, 1996, Realty accounted for its investment under the cost method of accounting. Realty changed its method of accounting in 1996, since it no longer had a common board member with Pacific and determined it no longer had the ability to exercise significant influence. On May 30, 1996, Realty sold its shares of Pacific common stock pursuant to the terms of an underwritten, registered public offering, at a gross selling price of $16.375 per share. The loss on the sale of Pacific common stock of $850,000 was reflected as "Program for disposition of non-core real estate assets" in The Santa Anita Companies and Realty statements of operations. Note 5 - Investments in Unconsolidated Joint Ventures Realty's investments in unconsolidated joint ventures include investments in the following commercial real estate ventures at September 30, 1996:
NAME OWNERSHIP PROJECT ------------------- ---------- ------------- Anita Associates 50% Regional mall H-T Associates 50% Regional mall Joppa Associates 50% Retail
The Anita Associates partnership was formed to develop and operate Santa Anita Fashion Park in Arcadia, California. The H-T Associates partnership has a 65% ownership interest in a partnership formed to develop and operate Towson Town Center in Towson, Maryland. The Joppa Associates partnership was formed to develop an adjacent retail building and undeveloped land in an expansion of the Towson Town Center. During the 1995 fourth quarter, Realty reevaluated its consolidation policy with respect to 50% owned joint ventures that had been previously consolidated. Realty determined that it did not have sufficient involvement in these joint ventures to warrant consolidation and reported these joint ventures on the equity method at December 31, 1995. All prior period financial statements and disclosures have been restated to conform to this presentation. The restatement had no effect on reported net income for the nine months ended September 30, 1995 or shareholders' equity as of September 30, 1995, but did have the effect of reducing Realty's assets and liabilities by $59,854,000 at September 30, 1995, and of reducing Realty's revenues and expenses by $9,423,000 for the nine months ended September 30, 1995. Combined condensed financial statement information for unconsolidated joint ventures as of September 30, 1996 and December 31, 1995, and for the nine months ended September 30, 1996 and 1995, is as follows (unaudited except for financial statement information as of December 31, 1995): 17 NOTES TO FINANCIAL STATEMENTS (Continued) Note 5 - Investments in Unconsolidated Joint Ventures (continued)
SEPTEMBER 30, DECEMBER 31, 1996 1995 --------------- --------------- (Restated) Real estate assets $259,043,000 $259,168,000 ============ ============ Liabilities Secured real estate loans $241,727,000 $242,332,000 Other 42,592,000 35,558,000 ------------ ------------ $284,319,000 $277,890,000 ============ ============ Partners' equity Realty $(12,656,000) $ (9,359,000) Others (12,620,000) (9,363,000) ------------ ------------ $(25,276,000) $(18,722,000) ============ ============ Nine Months Ended September 30, 1996 1995 ------------ ------------ (Restated) Revenues $ 27,712,000 $ 26,224,000 ============ ============ Net Loss Realty $ (1,181,000) $ (1,519,000) Others (2,277,000) (2,611,000) ------------ ------------ $ (3,458,000) $ (4,130,000) ============ ============
A major expansion of Towson Town Center opened in 1991. Prior to the development of this expansion, Realty and its partners acquired and planned to develop the Joppa parcel. Subsequently, the partners actively pursued alternative retail/entertainment projects for the Joppa parcel until the 1995 third quarter, when development activities ceased and the parcel was placed for sale. Prior to his decision, no impairment loss was recognized since the expected undiscounted cash flow from the combined Towson/Joppa investment provided recovery of net book value over a period substantially less than the remaining useful life of the properties. During 1996, Realty determined that the two properties should have been analyzed on a separate basis with respect to impairment (see "Note 3 - Disposition of Non-Core Real Estate Assets") and restated prior periods to reflect impairment of the Joppa property. During 1996 and 1995, Realty determined that proceeds from the sale of the Joppa property combined with partnership cash would be insufficient to pay partnership debts, primarily a mortgage on a partnership property of $16,494,000 due October 31, 1996 (which mortgage was subject to a Realty corporate guarantee of $8,247,000). As a result, it was anticipated that Realty would be required to make an additional capital contribution to the partnership of approximately $4,350,000, net of estimated proceeds of $2,500,000 on sale of the Joppa property. During the 1995 fourth quarter, Realty funded $1,855,000 of this obligation. At September 30, 1996 and December 31, 1995, Realty's investment balance in Joppa Associates was a credit of $2,801,000 and $2,235,000. 18 NOTES TO FINANCIAL STATEMENTS (Continued) Note 6 - Santa Anita Commercial Center The development, construction and operation of a major commercial center on excess land at Santa Anita Park has been a corporate strategy of Realty since 1994. In March 1995, Realty submitted zoning and general plan amendment applications to the City of Arcadia for the development of a 1.5 million square foot retail/entertainment project on 125 acres. In June 1995, Realty filed with the City of Arcadia a specific plan application for the project. In April 1996, Realty made the strategic decision to withdraw the 1.5 million square foot specific plan application due to mitigation and public use requirements which were likely to be imposed on the project. Subsequent to the specific plan application withdrawal, Realty management continued development plans for the larger project and continued to pursue a land use designation in the City's general plan to accommodate the project. In September 1996, a new City general plan was adopted which provided for a commercial land use designation allowing 1.1 million square feet of commercial development on the Santa Anita property. In July 1996, a petition circulated by a group of citizens of Arcadia that would have prevented a development on the Realty property without a majority vote of the Arcadia citizens was certified to be placed on the November ballot. Realty intends to actively campaign for defeat of this ballot initiative. At September 30, 1996 $5,621,000 of Commercial Center development costs associated with entitlement, planning and leasing activities have been reflected in "Prepaid expenses and other assets" in The Santa Anita Companies and Realty balance sheets. Note 7 - Transaction with Colony Investors II, L.P. On August 19, 1996, the Companies announced a major transaction with Colony Investors II, L.P. ("Colony"), a $625 million, Los Angeles based real estate investment company administered by Colony Capital, Inc., which pursuant to the terms of an agreement, will invest, over time, a total of $138 million. The transaction is subject to shareholder approval. On September 5, 1996, as an initial step of the investment, Colony acquired 112,700 newly issued shares of paired common stock and 867,343 newly issued paired shares of Series A Redeemable Preferred Stock of Realty and Operating Company for $12.7 million, resulting in an ownership interest in the Companies of 8%. Upon shareholder approval of the transaction, Realty and Operating Company will contribute substantially all of their assets into newly formed limited liability company subsidiaries (LLCs) in exchange for LLC units and Colony will contribute $125.6 million of cash (which contribution will be made from time to time, but by no later than October 1, 1998) in exchange for LLC units, representing an interest in the LLCs of up to 40.2%. LLC units will be exchangeable for, at the option of the Companies, paired shares of common stock on a one-for-one basis, the equivalent in cash or a combination of the two. Substantially all future business activities of Realty and Operating Company will be conducted through the LLCs as operating entities. In the event shareholder approval of the exchange of preferred shares for common shares is not obtained, Colony will have the option of exchanging its paired preferred shares for cash and a six-month note at the then current trading price of the paired share common stock, including payment of any unpaid dividends. Common and preferred share issuance costs totaling $631,000, charged $573,000 to Realty and $58,000 to Operating Company were reflected in shareholders' equity in The Santa Anita Companies, Realty and Operating Company balance sheets. 19 Item 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. SANTA ANITA REALTY ENTERPRISES, INC. The following narrative discusses Realty's results of operations for the third quarter and nine months ended September 30, 1996 and 1995, together with liquidity and capital resources as of September 30, 1996. Results of Operations - Third Quarter 1996 Compared with Third Quarter 1995 Realty's revenues are derived principally from the rental of real property. Total revenues for the three months ended September 30, 1996 were $2,379,000, compared with $3,009,000 for the three months ended September 30, 1995, a decrease of 20.9%. The lower 1996 revenues were due primarily to a decrease in rental revenues from shopping center and office building real estate investments. Rental revenues from shopping center and office building real estate investments in 1996 were $1,638,000, a decrease of 26.1% from revenues of $2,218,000 in 1995. The decrease in 1996 was due primarily to the sale of the three neighborhood shopping centers located in Phoenix, Arizona, on June 3, 1996, and the office buildings located in Upland, California, on August 13, 1996, and in Santa Ana, California, on September 27, 1996. Costs and expenses for 1996 were $2,918,000 (excluding costs associated with the program for disposition of non-core real estate assets totaling $90,000 - see "Note 2 - Restatement" and "Note 3 - Disposition of Non-Core Real Estate Assets" and executive severance of $229,000 included in general and administrative expense), a decrease of 31.2% from costs and expenses of $4,243,000 in 1995, (excluding costs associated with the program for disposition of non-core real estate assets totaling $26,300,000 - see "Note 2 - Restatement" and card club option write-off costs of $2,000,000). The decrease resulted primarily from decreases in depreciation and amortization expense of $587,000 and interest and other expense of $572,000. The decrease in depreciation and amortization expense was due to no depreciation expense being taken in 1996 on the assets held for sale, which treatment is in accordance with FAS No. 121. The decrease in interest expense is due primarily to payoff of the mortgage loan on the Santa Ana office building in November 1995, payoff of the mortgage loans on the three Phoenix shopping centers in May 1996, and pay down of borrowings under the revolving credit agreement in May 1996, utilizing proceeds from the sale of Pacific common stock. Results of Operations - Nine Months Ended September 30, 1996 Compared with Nine Months Ended September 30, 1995 Total revenues for the nine months ended September 30, 1996 were $15,941,000, compared with $16,870,000 for the nine months ended September 30, 1995, a decrease of 5.5%. The lower 1996 revenues were due primarily to a decrease in rental revenues from shopping center and office building real estate investments. The most significant source of rental revenue is the lease of Santa Anita Racetrack. Racetrack rental revenues for 1996 were $9,134,000, a decrease of 1.0% from revenues of $9,227,000 in 1995. The decrease in rental revenues was due to a decrease in on-track and California satellite wagering, partially offset by an increase in total wagering which resulted from an increase in the number of days Santa Anita Racetrack operated as a satellite wagering facility. Rental revenues from shopping center and office building real estate investments in 1996 were $5,625,000, a decrease of 13.1% from revenues of $6,473,000 in 1995. The decrease in 1996 was due primarily to the sale of the three neighborhood shopping centers located in Phoenix, Arizona, on June 3, 1996, and the office buildings located in Upland, California, on August 13, 1996, and in Santa Ana, California, on September 27, 1996. 20 Item 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Results of Operations - Nine Months Ended September 30, 1996 Compared with Nine Months Ended September 30, 1995 (Continued) Costs and expenses for 1996 were $9,561,000 (excluding costs associated with the program for disposition of non-core real estate assets totaling $945,000 - see "Note 2 - Restatement" and "Note 3 - Disposition of Non-Core Real Estate Assets" and executive severance of $229,000 included in general and administrative expense), a decrease of 23.0% from costs and expenses of $12,421,000 in 1995, (excluding costs associated with the program for disposition of non-core real estate assets totaling $26,300,000 - see "Note 2 - Restatement", costs of an equity offering which was withdrawn totaling $700,000 and card club option write-off costs of $2,000,000). The decrease resulted primarily from decreases in depreciation and amortization expense of $1,606,000, and interest and other expense of $1,110,000. The decrease in depreciation and amortization expense was due to no depreciation expense being taken in 1996 on the assets held for sale, which treatment is in accordance with FAS No. 121. The decrease in interest expense is due to payoff of the mortgage loan on the Santa Ana office building in November 1995, payoff of the mortgage loans on the three Phoenix shopping centers in May 1996, and paydown of borrowings under the revolving credit agreement in May 1996, utilizing proceeds from the sale of Pacific common stock. Liquidity and Capital Resources Realty has funds available from a combination of short- and long-term sources. Short-term sources included cash and cash equivalents of $15,330,000 at September 30, 1996. The increase in cash and cash equivalents for the nine months ended September 30, 1996 was $15,163,000, compared with an increase in cash and cash equivalents of $856,000 for the nine months ended September 30, 1995. The comparative increase in cash and cash equivalents of $14,307,000 was attributable to an increase of $768,000 in cash provided by operating activities and an increase of $30,602,000 in cash provided by investing activities, partially offset by an increase of $17,063,000 in cash used in financing activities. The increase in cash provided by operating activities of $768,000 was due primarily to a decrease in interest expense of $1,110,000, equity offering costs of $700,000 in 1995, and an increase in other liabilities, primarily accounts payable and accrued liabilities, of $271,000 in 1996, compared with a decrease in other liabilities, primarily accounts payable and accrued liabilities, of $185,000 in 1995. These increases in cash provided were partially offset by a decrease in shopping center and office building operating income of $926,000, due to sale of non-core real estate assets, and an increase in other assets, primarily accounts receivable and prepaid expenses, of $896,000 in 1996 compared with an increase in other assets, primarily accounts receivable and prepaid expenses, of $489,000 in 1995. The increase in cash provided by investing activities of $30,602,000 in 1996 was due primarily to cash received on the sale of Pacific common stock of $12,139,000 and on the sale of non-core real estate assets of $16,436,000, a decrease of $1,749,000 in additions to certain other assets, primarily the purchase of the option on the Bell casino in 1995, partially offset by an increase in expenditures associated with development of the Santa Anita Commercial Center, and a decrease of $1,169,000 in investments in and advances to unconsoldiated joint ventures. The increases in cash provided were partially offset by dividends of $918,000 received from Pacific in 1995. The increase in cash used in financing activities of $17,063,000 in 1996 was due primarily to repayment of borrowings under the revolving credit agreement of $20,950,000 in 1996, compared with additional borrowings under the revolving credit agreement of $4,400,000 in 1995 and to an increase in repayment of mortgage loans payable of $5,757,000. These increases in cash used were partially offset by the issuance of common and preferred stock of $10,957,000 in connection with the Colony transaction and by an increase in intercompany payables of $3,120,000. 21 Item 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Liquidity and Capital Resources (Continued) In January 1996, Realty's revolving credit agreement with a commercial bank was extended to June 30, 1996 and available borrowings were reduced to $20,000,000. In June 1996, the revolving credit agreement was further extended to February 1, 1997. At September 30, 1996, there were no outstanding borrowings under this facility. Borrowings bear interest, at Realty's option, at the prime rate, at LIBOR plus 1%, or at the six-month certificate of deposit rate plus 1%. Effective July 1, 1996, the interest rate spread on LIBOR and certificate of deposit based borrowings was increased to 1 1/4%. Realty's Racetrack rental revenues have been pledged as collateral under the credit agreement. The revolving credit agreement contains a restriction on the payment of dividends, in any twelve-month period, to the greater of $.80 per share or the minimum amount necessary to maintain Realty's status as a real estate investment trust or to avoid the imposition of federal income tax or excise tax. Realty's current dividend policy is in compliance with this dividend restriction. Additionally, at September 30, 1996, Realty was in compliance with the other financial ratio and maintenance restrictions. SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES The following narrative discusses Operating Company's results of operations for the three and nine months ended September 30, 1996 and 1995 together with liquidity and capital resources as of September 30, 1996. Results of Operations -- Third Quarter 1996 Compared with Third Quarter 1995 Operating Company derives its revenues from thoroughbred horse racing activities. Horse racing revenues in the third quarter of 1996 were $6,418,000, up 4.6% from $6,133,000 in 1995, primarily due to Santa Anita acting as a satellite wagering facility for the Los Angeles County Fair Association race meeting at Fairplex Park in Pomona, California ("Fairplex"). In the third quarter ended September 30, Santa Anita Racetrack operated 16 days in 1996 and 20 days in 1995 as a satellite wagering facility for Hollywood Park. Total attendance as a satellite wagering facility was down 31.5% while average daily attendance was down 14.4% compared with the year ago period. Total wagering was down 24.9% while average daily wagering was down 6.2% for the third quarter of 1996 compared with the same period last year. Also, in the third quarter ended September 30, Santa Anita Racetrack operated 43 days in 1996 and 43 days in 1995 as a satellite wagering facility for Del Mar. Total and average daily attendance as a satellite wagering facility were down 6.2%, in the third quarter of 1996 compared with the year ago period. Total and average daily wagering were up 0.3%, for the third quarter of 1996 compared with the year ago period. In addition, in the third quarter ended September 30, Santa Anita Racetrack operated 19 days in 1996 as a satellite wagering facility for Fairplex. Total attendance as a satellite wagering facility was 44,753. Total wagering was $12,309,000. As this is the first year Santa Anita Racetrack has operated as a satellite wagering facility for Fairplex, there are no comparable amounts for the year ago period. Management anticipates that the movement from on-track attendance and wagering to off-site is likely to continue. The growth rate in off-site wagering is dependent primarily upon such factors as Operating Company's ability to access new markets and the removal of various legal barriers which inhibit entry into such markets. 22 Item 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Results of Operations -- Third Quarter 1996 Compared with Third Quarter 1995 (Continued) Horse racing operating costs in the third quarter of 1996 were $5,384,000 (or 83.9% of horse racing revenues) compared with $4,952,000 (or 80.7% of horse racing revenues) in the same period last year. The operating margin decline in the third quarter of 1996 compared with the same period last year was primarily due to management's decision to enhance the appearance of Santa Anita Racetrack by performing additional repair and maintenance projects. Depreciation expense in the third quarter of 1996 was $238,000, or $5,000 higher than the $233,000 in the comparable period last year. General and administrative expenses were $764,000 (excluding $851,000 in executive severance) in the third quarter of 1996, an increase of 11.4% from the $686,000 in the comparable period last year due to increased shareholder related expenses and insurance costs for the quarter. Interest expense decreased to $64,000 in the third quarter of 1996 from $130,000 in the third quarter of 1995. Rental expense to Realty was $427,000 in the third quarter of 1996 compared with $375,000 in the same period last year. The 13.9% increase in rental expense was primarily due to the increase in total wagering which resulted from an increase in the number of race days Santa Anita Racetrack operated as a satellite wagering facility. Under the lease terms between LATC and Realty, LATC pays to Realty 1.5% of the on-track wagering on live races at Santa Anita Racetrack and 26.5% of its wagering commissions from all satellite wagering. Results of Operations -- Nine Months Ended September 30, 1996 Compared with the Nine Months ended September 30, 1995 Horse racing revenues in the first nine months of 1996 were $58,390,000, up 0.1% from $58,307,000 in 1995, primarily due to an increase in sublease revenues and an increase in the number of days Santa Anita Racetrack operated as a satellite wagering facility, partially offset by fewer live race days and lower on-track attendance and wagering. In the first nine months of 1996, live thoroughbred horse racing at Santa Anita Racetrack totaled 82 days compared with 83 days in the same period last year. Total and average daily on-track attendance at the live racing events in the first nine months of 1996 were down 5.5% and 4.3% from the comparable year ago period. Total and average daily wagering in the first nine months of 1996 were up 4.6% and 5.8% compared with the same period last year. The major components of the wagering mix changed in the first nine months of 1996 compared with same period last year as follows: total and average daily on-track wagering decreased 4.4% and 3.3%; total and average daily wagering at Southern California satellite locations decreased 4.5% and 3.3%; total and average daily wagering at out-of-state locations increased 35.4% and 37.1%; and total and average wagering at Northern California locations decreased 5.4% and 4.2%. Also, in the first nine months of the year, Santa Anita Racetrack operated 129 days in 1996 and 111 days in 1995 as a satellite wagering facility for Hollywood Park, Del Mar and Fairplex. Total attendance as a satellite wagering facility was up 2.4% while average daily attendance was down 12.6% compared with the year ago period. Total wagering was up 6.9% while average daily wagering was down 8.9% for the first nine months of 1996 compared with the same period last year. Management anticipates that the movement from on-track attendance and wagering to off-site is likely to continue. The growth rate in off-site wagering is dependent primarily upon such factors as Operating Company's ability to access new markets and the removal of various legal barriers which inhibit entry into such markets. 23 Item 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Results of Operations -- Nine Months Ended September 30, 1996 Compared with the Nine Months Ended September 30, 1995 (Continued) Horse racing operating costs in the first nine months of 1996 were $40,583,000 (or 69.5% of horse racing revenues) compared with $39,385,000 (or 67.5% of horse racing revenues) in the same period last year. The operating margin decline in the first nine months of 1996 compared with the same period last year was due to management's decision to enhance the appearance of Santa Anita Racetrack by performing additional repair and maintenance projects and to a refinement of Operating Company's method of determining annual fixed costs and charging those costs and expenses against income when thoroughbred horse racing revenues are recognized. Depreciation expense in the first nine months of 1996 was $2,611,000, or $277,000 lower than the $2,888,000 in the comparable period last year. The 1995 depreciation expense includes an accelerated depreciation charge of $432,000 on the Santa Anita Racetrack turf course, which was replaced in April 1995. General and administrative expenses were $4,266,000 (excluding $851,000 of executive severance) in the first nine months of 1996, a decrease of 11.6% from $4,825,000 in the comparable period last year due to lower shareholder related expenses and administrative salaries. Interest expense decreased to $206,000 in the first nine months of 1996 from $308,000 in the first nine months of 1995. Rental expense to Realty was $9,134,000 in the first nine months of 1996 compared with $9,227,000 in the same period last year. The decrease in rental expense of 1.0% was due to a decrease in on-track and California satellite wagering, partially offset by an increase in total wagering which resulted from an increase in the number of days Santa Anita Racetrack operated as a satellite wagering facility. Under the lease terms between LATC and Realty, LATC pays to Realty 1.5% of the on-track wagering on live races at Santa Anita Racetrack and 26.5% of its wagering commissions from all satellite wagering. Seasonality Operating Company's operations are subject to seasonal fluctuations. Operating Company recognizes the majority of its revenues in the first quarter due to live racing activity at Santa Anita Racetrack. Therefore, the results of operations for interim periods are not necessarily indicative of the results that may be expected for the full year. Liquidity and Capital Resources At September 30, 1996, Operating Company's sources of liquidity included cash and cash equivalents of $2,621,000, together with a verbal commitment from Realty to provide up to $10,000,000 in short-term borrowings. As a part of this commitment, Realty has guaranteed an Operating Company capital lease of $1,091,000. Operating Company's ability to utilize Realty's line of credit is dependent upon Realty's liquidity and capital resources. (See Item 2. "Managements' Discussion and Analysis of Financial Condition and Results of Operations - Santa Anita Realty Enterprises, Inc. - Liquidity and Capital Resources"). For the nine months ending September 30, 1996, short-term investments earned interest income of $448,000. The cash balances and related interest income from short-term investments reflect seasonal variations associated with the Santa Anita meet. During the meet, large cash balances and short-term investments are maintained by LATC, including amounts to be disbursed for payment of license fees payable to the state, purses payable to horse owners and un-cashed winning pari-mutuel tickets payable to the public. 24 Item 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Liquidity and Capital Resources (Continued) Operating Company generated $1,181,000 less cash from operations in the first nine months of 1996 compared with the same period last year. Net cash used by operating activities was $3,888,000 in 1996 compared with $2,707,000 in 1995. The decrease in cash from operations was primarily due to decreased revenues and the payment of California Franchise Taxes. Net cash used in investment activities was $2,964,000 in the first nine months of 1996 compared with $3,246,000 in the same period last year. The $282,000 decrease in cash used in investment activities was attributable to a lower level of capital improvements at Santa Anita Racetrack in 1996. Net cash used in financing activities was $4,237,000 in the first nine months of 1996 compared with net cash used in financing activities of $2,193,000 in the same period last year. The $2,044,000 increase in cash used in financing activities was attributable to the Operating Company prepayment of rent due to Realty, partially offset by the issuance of common and preferred stock of $1,128,000 in connection with the Colony transaction. 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Realty and Operating Company have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.
SANTA ANITA REALTY ENTERPRISES, INC SANTA ANITA OPERATING COMPANY By: BRIAN L. FLEMING By: WILLIAM C. BAKER ---------------------- --------------------- Brian L. Fleming William C. Baker Acting President and Chairman of the Board and Chief Executive Officer and Chief Executive Officer Executive Vice President and (Principal Executive Officer) Chief Financial Officer (Principal Executive and Financial Officer) Date: April 25, 1997 Date: April 25, 1997 By: ROGER C. ALLEN By: ELIZABETH P. HAUG ---------------------- ---------------------- Roger C. Allen Elizabeth P. Haug Controller Controller (Principal Accounting Officer) (Principal Financial and Accounting Officer) Date: April 25, 1997 Date: April 25, 1997
26 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF SANTA ANITA REALTY ENTERPRISES, INC., FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000314661 SANTA ANITA REALTY ENTERPRISES, INC. 3-MOS DEC-31-1996 SEP-30-1996 15,330,000 0 564,000 (159,000) 0 0 65,258,000 (30,846,000) 68,280,000 0 22,188,000 0 14,337,000 1,150,000 19,522,000 68,280,000 0 15,941,000 0 1,999,000 6,534,000 0 2,202,000 5,206,000 0 5,206,000 0 0 0 393,000 0.03 0
EX-27.2 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF SANTA ANITA OPERATING COMPANY, FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000313749 SANTA ANITA OPERATING COMPANY 3-MOS DEC-31-1996 SEP-30-1996 2,621,000 0 2,074,000 0 0 10,244,000 47,165,000 (27,579,000) 31,952,000 15,325,000 1,091,000 0 1,050,000 1,139,000 11,943,000 31,952,000 0 58,909,000 0 49,717,000 7,728,000 0 206,000 1,258,000 0 1,258,000 0 0 0 1,206,000 0.11 0
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