<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
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 June 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 specified (Exact name of registrant as specified
in its charter) 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 Identification No.) (I.R.S. Employer 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 August 7, 1996 were:
Santa Anita Realty Enterprises, Inc. 11,383,000
Santa Anita Operating Company 11,270,500
<PAGE>
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 June 30, 1996, to reflect the restatements described
in Notes to Financial Statements - Note 2 - Restatement.
2
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
FORM 10-Q/A
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I. FINANCIAL INFORMATION 4
THE SANTA ANITA COMPANIES
Combined Balance Sheets as of June 30, 1996 and 5
December 31, 1995
Combined Statements of Operations for the three 6
months and six months ended June 30, 1996 and 1995
Combined Statements of Cash Flows for 7
the six months ended June 30, 1996 and 1995
SANTA ANITA REALTY ENTERPRISES, INC.
Consolidated Balance Sheets as of June 30, 1996 and 8
December 31, 1995
Consolidated Statements of Operations for the three 9
months and six months ended June 30, 1996 and 1995
Consolidated Statements of Cash Flows for the six 10
months ended June 30, 1996 and 1995
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets as of June 30, 1996 and 11
December 31, 1995
Consolidated Statements of Operations for the three 12
months and six months ended June 30, 1996 and 1995
Consolidated Statements of Cash Flows for the six 13
months ended June 30, 1996 and 1995
NOTES TO FINANCIAL STATEMENTS 14
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 19
SIGNATURES 24
</TABLE>
3
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC. AND
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
FORM 10-Q/A
FOR THE SIX MONTHS ENDED JUNE 30, 1996
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying balance sheets as of June 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 six
months ended June 30, 1996 and 1995, and the related statements of cash flows
for the six months ended June 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
<PAGE>
THE SANTA ANITA COMPANIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1996 DECEMBER 31,
(UNAUDITED) 1995
------------- -------------
(Restated)
<S> <C> <C>
ASSETS
Real estate assets
Santa Anita Racetrack, less accumulated depreciation
of $20,877,000 and $20,216,000 $ 8,369,000 $ 9,030,000
Commercial properties, less accumulated depreciation
of $3,987,000 and $3,631,000 10,010,000 10,342,000
Commercial properties to be sold, less accumulated
depreciation of $13,467,000 and $16,737,000 20,167,000 27,337,000
Investments in and advances to unconsolidated joint ventures (622,000) 871,000
Real estate loans receivable 10,814,000 10,954,000
------------- -------------
48,738,000 58,534,000
Cash 193,000 11,355,000
Short-term investments, at cost (approximates market) 9,468,000 2,522,000
Accounts receivable 4,766,000 3,771,000
Prepaid expenses and other assets 7,612,000 6,494,000
Investment in Pacific Gulf Properties Inc. - 12,967,000
Property, plant and equipment, less accumulated depreciation
of $27,341,000 and $24,968,000 17,728,000 19,233,000
------------- -------------
$ 88,505,000 $ 114,876,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Real estate loans payable $ 22,295,000 $ 28,389,000
Bank loans payable 3,611,000 22,685,000
Accounts payable 6,278,000 11,208,000
Other liabilities 14,406,000 14,495,000
Income taxes - 326,000
Dividends payable 2,254,000 2,254,000
Deferred revenues 2,198,000 2,379,000
Deferred income taxes 1,229,000 1,239,000
------------- -------------
52,271,000 82,975,000
------------- -------------
Shareholders' equity
Preferred stock, $.10 par value; authorized 6,000,000
shares; none issued - -
Common stock, $.10 par value; authorized 19,000,000
shares; issued and outstanding 11,270,500 shares 2,253,000 2,253,000
Additional paid-in capital 136,552,000 136,552,000
Unearned compensation expense (854,000) (1,209,000)
Retained earnings (deficit) (101,717,000) (105,695,000)
------------- -------------
36,234,000 31,901,000
------------- -------------
$ 88,505,000 $ 114,876,000
============= =============
</TABLE>
See accompanying notes.
5
<PAGE>
THE SANTA ANITA COMPANIES
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Revenues
Horse racing $13,891,000 $15,333,000 $51,972,000 $52,174,000
Rental property 1,971,000 2,125,000 3,987,000 4,255,000
Interest and other 384,000 512,000 1,073,000 1,110,000
----------- ----------- ----------- -----------
16,246,000 17,970,000 57,032,000 57,539,000
----------- ----------- ----------- -----------
Costs and expenses
Horse racing operating costs 10,309,000 10,769,000 35,199,000 34,433,000
Rental property operating expenses 682,000 643,000 1,372,000 1,235,000
Depreciation and amortization 982,000 1,441,000 3,457,000 4,702,000
General and administrative 1,925,000 2,126,000 5,292,000 5,585,000
Losses from unconsolidated
joint ventures 261,000 402,000 667,000 1,076,000
Program for disposition of non-core
real estate assets 855,000 - 855,000 -
Interest and other 753,000 1,205,000 1,704,000 2,416,000
Costs of equity offering - 750,000 - 750,000
----------- ----------- ----------- -----------
15,767,000 17,336,000 48,546,000 50,197,000
----------- ----------- ----------- -----------
Net income $ 479,000 $ 634,000 $ 8,486,000 $ 7,342,000
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 11,270,500 11,168,904 11,270,500 11,156,448
=========== =========== =========== ===========
Net income per common share $ .04 $ .06 $ .75 $ .66
=========== =========== =========== ===========
Dividends declared per common share $ .20 $ .20 $ .40 $ .40
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
6
<PAGE>
THE SANTA ANITA COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
(Restated)
Cash flows from operating activities:
Net income $ 8,486,000 $ 7,342,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,457,000 4,702,000
Amortization of unearned compensatin expense 355,000 377,000
Equity in losses of unconsolidated joint ventures 667,000 1,076,000
Equity in earnings from investment in
Pacific Gulf Properties Inc. - (177,000)
Deferred income taxes (404,000) 68,000
Program for disposition of non-core real estate assets 855,000 -
Net increase in certain other assets (591,000) (1,624,000)
Net decrease in certain other liabilities (5,132,000) (5,568,000)
------------ -----------
Net cash provided by operating activites 7,693,000 6,196,000
------------ -----------
Cash flows from investing activities:
Payments received on loans receivable 143,000 385,000
Additions and improvements to real estate assets (717,000) (992,000)
Additions to property, plant and equipment (868,000) (1,965,000)
Additions to certain other assets (1,859,000) (3,225,000)
Investments in and advances to unconsolidated joint ventures (734,000) (1,831,000)
Capital distributions from unconsolidated joint ventures 1,560,000 1,603,000
Sale of Pacific Gulf Properties Inc. common stock 12,139,000 -
Sale of Phoenix properties 8,103,000 -
Dividends received from Pacific Gulf Properties Inc. in 1995 - 612,000
------------ -----------
Net cash provided by (used in) investing activities 17,767,000 (5,413,000)
------------ -----------
Cash flows from financing activities:
Proceeds from bank loans payable - 4,300,000
Repayment of real estate loans payable (6,094,000) (293,000)
Repayment of bank loans payable (19,074,000) (388,000)
Dividends paid (4,508,000) (4,458,000)
Issuance of common stock from restricted stock awards - 13,000
------------ -----------
Net cash used in financing activities (29,676,000) (826,000)
------------ -----------
Net decrease in cash and cash equivalents (4,216,000) (43,000)
------------ ------------
Cash and cash equivalents at beginning of year 13,877,000 15,094,000
------------ -----------
Cash and cash equivalents at June 30, $ 9,661,000 $15,051,000
============ ===========
</TABLE>
See accompanying notes.
7
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1996 DECEMBER 31,
(UNAUDITED) 1995
------------- -------------
(Restated)
<S> <C> <C>
ASSETS
Real estate assets
Santa Anita Racetrack, less accumulated depreciation
of $20,877,000 and $20,216,000 $ 8,369,000 $ 9,030,000
Commercial properties, less accumulated depreciation
of $4,454,000 and $4,068,000 12,685,000 13,047,000
Commercial properties to be sold, less accumulated
depreciation of $14,815,000 and $18,085,000 20,482,000 27,652,000
Investments in and advances to unconsolidated joint ventures (622,000) 871,000
Real estate loans receivable 10,814,000 10,954,000
------------ ------------
51,728,000 61,554,000
Cash 125,000 167,000
Accounts receivable 434,000 658,000
Prepaid expenses and other assets 7,500,000 5,726,000
Investment in Pacific Gulf Properties Inc. - 12,967,000
------------ ------------
$ 59,787,000 $ 81,072,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Real estate loans payable $ 22,295,000 $ 28,389,000
Bank loans payable 2,300,000 20,950,000
Accounts payable 425,000 420,000
Other liabilities 2,142,000 2,779,000
Dividends payable 2,277,000 2,277,000
Due to Operating Company 2,995,000 415,000
------------ ------------
32,434,000 55,230,000
------------ ------------
Shareholders' equity
Preferred stock, $.10 par value; authorized 6,000,000
shares; none issued - -
Common stock, $.10 par value; authorized 19,000,000
shares; issued and outstanding 11,383,000 shares 1,138,000 1,138,000
Additional paid-in capital 118,881,000 118,881,000
Retained earnings (deficit) (92,666,000) (94,177,000)
------------ ------------
27,353,000 25,842,000
------------ ------------
$ 59,787,000 $ 81,072,000
============ ============
</TABLE>
See accompanying notes.
8
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1996 1995 1996 1995
------------ ------------ ----------- -----------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Revenues
Rent from Racetrack $ 1,992,000 $ 2,374,000 $ 8,707,000 $ 8,852,000
Shopping centers 936,000 1,118,000 1,949,000 2,230,000
Office buildings 1,035,000 1,007,000 2,038,000 2,025,000
Interest and other 277,000 296,000 868,000 754,000
----------- ----------- ----------- -----------
4,240,000 4,795,000 13,562,000 13,861,000
----------- ----------- ----------- -----------
Costs and expenses
Shopping centers 254,000 269,000 531,000 510,000
Office buildings 428,000 374,000 841,000 725,000
Depreciation and amortization 381,000 931,000 1,114,000 2,133,000
General and administrative 897,000 737,000 1,790,000 1,496,000
Interest and other 756,000 1,118,000 1,700,000 2,238,000
Losses from unconsolidated joint ventures 261,000 402,000 667,000 1,076,000
Program for disposition of non-core real estate assets 855,000 - 855,000 -
Costs of equity offering - 700,000 - 700,000
----------- ----------- ----------- -----------
3,832,000 4,531,000 7,498,000 8,878,000
----------- ----------- ----------- -----------
Net income $ 408,000 $ 264,000 $ 6,064,000 $ 4,983,000
=========== =========== =========== ===========
Weighted average number of common shares outstanding 11,383,000 11,281,404 11,383,000 11,268,948
=========== =========== =========== ===========
Net income per common share $ .04 $ .02 $ .53 $ 44
=========== =========== =========== ===========
Dividends declared per common share $ .20 $ .20 $ .40 $ .40
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
9
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------- ------------
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,064,000 $ 4,983,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,114,000 2,133,000
Equity in losses of unconsolidated joint ventures 667,000 1,076,000
Equity in earnings from investment in
Pacific Gulf Properties Inc. - (177,000)
Program for disposition of non-core real estate assets 855,000 -
Net increase in certain other assets (28,000) (440,000)
Net (decrease) increase in certain other liabilities (632,000) 246,000
------------ -----------
Net cash provided by operating activities 8,040,000 7,821,000
------------ -----------
Cash flows from investing activities:
Payments received on loans receivable 143,000 385,000
Additions and improvements to real estate assets (717,000) (992,000)
Additions to certain other assets (1,859,000) (3,225,000)
Investments in and advances to unconsolidated joint ventures (734,000) (1,831,000)
Capital distributions from unconsolidated joint ventures 1,560,000 1,603,000
Sale of Pacific Gulf Properties Inc. common stock 12,139,000 -
Sale of Phoenix properties 8,103,000 -
Dividends received from Pacific Gulf Properties Inc. in 1995 - 612,000
------------ -----------
Net cash provided by (used in) investing activities 18,635,000 (3,448,000)
------------ -----------
Cash flows from financing activities:
Proceeds from bank loans payable - 4,300,000
Repayment of real estate loans payable (6,094,000) (293,000)
Repayment of bank loans payable (18,650,000) -
Increase (decrease) in due to Operating Company 2,580,000 (1,310,000)
Dividends paid (4,553,000) (4,503,000)
Issuance of common stock from restricted stock awards - 13,000
------------ -----------
Net cash used in financing activities (26,717,000) (1,793,000)
------------ -----------
Net (decrease) increase in cash and cash equivalents (42,000) 2,580,000
Cash at beginning of year 167,000 2,251,000
------------ -----------
Cash and cash equivalents at June 30, $ 125,000 $ 4,831,000
============ ===========
</TABLE>
See accompanying notes.
10
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------- -------------
<S> <C> <C>
(Unaudited)
ASSETS
Current assets
Cash $ 68,000 $11,188,000
Short-term investments, at cost (approximates market) 9,468,000 2,522,000
Accounts receivable 4,332,000 3,113,000
Prepaid expenses and other assets 121,000 777,000
Due from Realty 2,995,000 415,000
----------- -----------
Total current assets 16,984,000 18,015,000
Investment in common stock of Realty 2,122,000 2,122,000
Property, plant and equipment, less accumulated
depreciation of $27,341,000 and $24,968,000 17,728,000 19,233,000
----------- -----------
$36,834,000 $39,370,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,853,000 $10,788,000
Other liabilities 12,241,000 11,693,000
Bank loans payable 908,000 868,000
Income taxes - 326,000
----------- -----------
Total current liabilities 19,002,000 23,675,000
Bank loans payable 403,000 867,000
Deferred revenues 2,198,000 2,379,000
Deferred income taxes 1,229,000 1,239,000
----------- -----------
22,832,000 28,160,000
----------- -----------
Shareholders' equity
Preferred stock, $.10 par value; authorized 6,000,000
shares; none issued - -
Common stock, $.10 par value; authorized 19,000,000
shares; issued and outstanding 11,270,500 shares 1,127,000 1,127,000
Additional paid-in capital 20,736,000 20,736,000
Unearned compensation expense (854,000) (1,209,000)
Retained earnings (deficit) (7,007,000) (9,444,000)
----------- -----------
14,002,000 11,210,000
----------- -----------
$36,834,000 $39,370,000
=========== ===========
</TABLE>
See accompanying notes.
11
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Wagering commissions $ 8,257,000 $ 9,366,000 $35,611,000 $35,750,000
Admission related 5,634,000 5,967,000 16,361,000 16,424,000
Interest and other 202,000 239,000 388,000 401,000
----------- ----------- ----------- -----------
14,093,000 15,572,000 52,360,000 52,575,000
----------- ----------- ----------- -----------
Costs and expenses
Horse racing operating costs 10,309,000 10,769,000 35,199,000 34,433,000
Depreciation and amortization 616,000 553,000 2,373,000 2,655,000
General and administrative 1,028,000 1,439,000 3,502,000 4,139,000
Interest 69,000 87,000 142,000 178,000
Rental expense to Realty 1,992,000 2,374,000 8,707,000 8,852,000
----------- ----------- ----------- -----------
14,014,000 15,222,000 49,923,000 50,257,000
----------- ----------- ----------- -----------
Net income $ 79,000 $ 350,000 $ 2,437,000 $ 2,318,000
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 11,270,500 11,168,904 11,270,500 11,156,448
=========== =========== =========== ===========
Net income per common share $ .01 $ .03 $ .22 $ .21
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
12
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,437,000 $ 2,318,000
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 2,373,000 2,655,000
Amortization of unearned compensation expense 355,000 377,000
Deferred income taxes (404,000) 68,000
Net increase in certain other assets (563,000) (1,184,000)
Net decrease in certain other liabilities (4,500,000) (5,814,000)
----------- -----------
Net cash used in operating activities (302,000) (1,580,000)
----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (868,000) (1,965,000)
----------- -----------
Cash flows from financing activities:
Repayment of bank loans payable (424,000) (388,000)
(Increase) decrease in due from Realty (2,580,000) 1,310,000
----------- -----------
Net cash (used in) provided by financing activities (3,004,000) 922,000
----------- -----------
Net decrease in cash and cash equivalents (4,174,000) (2,623,000)
Cash and cash equivalents at beginning of year 13,710,000 12,843,000
----------- -----------
Cash and cash equivalents at June 30, $ 9,536,000 $10,220,000
=========== ===========
</TABLE>
See accompanying notes.
13
<PAGE>
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,
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - RESTATEMENT (CONTINUED)
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 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 as originally
reported for the three months and six months ended June 30, 1996, did not
reflect the loss of $850,000 on sale of Pacific Gulf Properties Inc. ("Pacific")
common stock and the loss of $5,000 on the sale of the three neighborhood
shopping centers in Phoenix, Arizona, (see "Note 3 - Disposition of Non-Core
Real Estate Assets"), as these losses had been offset against expected gains on
other properties remaining to be sold. Realty has restated its financial
statements to reflect these items in the period in which the transactions
occurred. The restatement has the following impact.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------ -------------------------
1996 1995 1996 1995
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Losses from unconsolidated joint ventures:
As originally reported $ 199,000 $334,000 $ 538,000 $ 936,000
As restated 261,000 402,000 667,000 1,076,000
Program for disposition of non-core real
estate assets:
As originally reported $ - $ - $ - $ -
As restated 855,000 - 855,000 -
Net income:
As originally reported $1,325,000 $332,000 $7,048,000 $5,123,000
As restated 408,000 264,000 6,064,000 4,983,000
Net Income per common share:
As originally reported $ .12 $ .03 $ .62 $ .45
As restated .04 .02 .53 .44
</TABLE>
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 the 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 assets intended to be sold to their estimated
sales 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.").
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - DISPOSITION OF NON-CORE REAL ESTATE ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 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)
<S> <C> <C> <C> <C> <C> <C>
1995 PROGRAM
Neighborhood Shopping
Centers $(14,580) $19,673 $ 555 $ (8,103) $ (5) $12,120
Office Buildings (13,020) 7,699 383 - - 8,082
Investment in French
Valley (200) 280 - - - 280
Investment in Joppa
Associates - (2,235) (376) - - (2,611)
Notes Receivable (2,500) 10,954 (140) - - 10,814
1996 PROGRAM
Investment in Pacific
Stock - 12,967 22 (12,139) (850) -
-------- ------- ----- -------- ----- -------
$(30,300) $49,338 $ 444 $(20,242) $(855) $28,685
======== ======= ===== ======== ===== =======
</TABLE>
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 of $855,000 was 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 June 30,
1996, were operating income, net of interest expense, of $136,000 pertaining to
the commercial properties sold and $405,000 pertaining to the commercial
properties to be sold, a loss of $186,000 pertaining to the unconsolidated joint
venture to be sold, a loss of $21,000 pertaining to the consolidated joint
venture to be sold and interest income of $269,000 pertaining to the notes
receivable to be sold.
Included in the results of operations for the six months ended June 30,
1996, were operating income, net of interest expense, of $255,000 pertaining to
the commercial properties sold and $771,000 pertaining to the commercial
properties to be sold, a loss of $387,000 pertaining to the unconsolidated joint
venture to be sold, a loss of $32,000 pertaining to the consolidated joint
venture to be sold and interest income of $535,000 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.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - INVESTMENT IN PACIFIC GULF PROPERTIES INC. (CONTINUED)
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 June 30, 1996:
<TABLE>
<CAPTION>
NAME OWNERSHIP PROJECT
------------------- ---------- -------------
<S> <C> <C>
Anita Associates 50% Regional mall
H-T Associates 50% Regional mall
Joppa Associates 50% Retail
</TABLE>
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 six months ended
June 30, 1995 or shareholders' equity as of June 30, 1995, but did have the
effect of reducing Realty's assets and liabilities by $59,649,000 at June 30,
1995, and of reducing Realty's revenues and expenses by $5,781,000 for the six
months ended June 30, 1995.
Combined condensed financial statement information for unconsolidated
joint ventures as of June 30, 1996 and December 31, 1995, and for the six months
ended June 30, 1996 and 1995, is as follows (unaudited except for financial
statement information as of December 31, 1995):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------------- --------------
(Restated)
<S> <C> <C>
Real estate assets $259,297,000 $259,168,000
============ ============
Liabilities
Secured real estate loans $241,933,000 $242,332,000
Other 40,799,000 35,558,000
------------ ------------
$282,732,000 $277,890,000
============ ============
Partners' equity
Realty $(11,693,000) $ (9,359,000)
Others (11,742,000) (9,363,000)
------------ ------------
$(23,435,000) $(18,722,000)
============ ============
</TABLE>
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
1996 1995
------------- -------------
<S> <C> <C>
(Restated)
Revenues $18,124,000 $16,691,000
=========== ===========
Net Loss
Realty $ (667,000) $(1,076,000)
Others (1,326,000) (1,818,000)
----------- -----------
$(1,993,000) $(2,894,000)
=========== ===========
</TABLE>
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 this 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 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 June
30, 1996 and December 31, 1995, Realty's investment balance in Joppa Associates
was a credit of $2,611,000 and $2,235,000.
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. At June 30, 1996, $5,175,000 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.
18
<PAGE>
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
second quarter and six months ended June 30, 1996 and 1995, together with
liquidity and capital resources as of June 30, 1996.
RESULTS OF OPERATIONS - SECOND QUARTER 1996 COMPARED WITH SECOND QUARTER
1995
Realty's revenues are derived principally from the rental of real property.
Total revenues for the three months ended June 30, 1996 were $4,240,000,
compared with $4,795,000 for the three months ended June 30, 1995, a decrease of
11.6%. The lower 1996 revenues were due primarily to a decrease in Santa Anita
Racetrack rental revenues and a decrease in rental revenues from the other real
estate investments.
The most significant source of rental revenue is the lease of Santa Anita
Racetrack. Racetrack rental revenues for 1996 were $1,992,000, a decrease of
16.1% from revenues of $2,374,000 in 1995. The decrease in rental revenues was
due to the decrease in total wagering resulting from fewer race days.
Rental revenues from other real estate investments in 1996 were $1,971,000,
a decrease of 7.2% from revenues of $2,125,000 in 1995. The decrease in 1996 was
due primarily to the sale of the three neighborhood shopping centers located in
Phoenix, Arizona, effective June 3, 1996.
Costs and expenses were $2,977,000 in 1996 (excluding costs associated with
the program for disposition of non-core real estate assets totaling $855,000 -
see "Note 2 - Restatement" and "Note 3 - Disposition of Non-Core Real Estate
Assets"), a decrease of 22.3% from costs and expenses of $3,831,000 in 1995
(excluding the costs of an equity offering which was withdrawn). The decrease
resulted primarily from decreases in depreciation and amortization expense of
$550,000 and interest and other expense of $362,000.
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 and other
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, effective June 3, 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 - SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX
MONTHS ENDED JUNE 30, 1995
Total revenues for the six months ended June 30, 1996 were $13,562,000,
compared with $13,861,000 for the six months ended June 30, 1995, a decrease of
2.2%. The lower 1996 revenues were due primarily to a decrease in Santa Anita
Racetrack rental revenues and a decrease in rental revenues from the other real
estate investments.
Racetrack rental revenues for 1996 were $8,707,000, a decrease of 1.6% from
revenues of $8,852,000 in 1995. The decrease in rental revenues was due to the
decrease in on-track and California satellite wagering partially offset by the
increase in out-of-state wagering.
Rental revenues from other real estate investments in 1996 were $3,987,000,
a decrease of 6.3% from revenues of $4,255,000 in 1995. The decrease in 1996 was
due primarily to the sale of the three neighborhood shopping centers located in
Phoenix, Arizona, effective June 3, 1996.
Costs and expenses were $6,643,000 in 1996 (excluding costs associated with
the program for disposition of non-core real estate assets totaling $855,000 -
see "Note 2 - Restatement" and "Note 3 - Disposition of Non-Core Real Estate
Assets"), a decrease of 18.8% from costs and expenses of $8,178,000 in 1995
(excluding the costs of an equity offering which was withdrawn). The decrease
resulted primarily from decreases in depreciation and amortization expense of
$1,019,000 and interest and other expense of $538,000.
19
<PAGE>
ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX
MONTHS ENDED JUNE 30, 1995 (CONTINUED)
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, effective June 3, 1996, and pay down 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 of $125,000 at June 30, 1996.
The decrease in cash for the six months ended June 30, 1996 was $42,000,
compared with an increase in cash of $2,580,000 for the six months ended June
30, 1995. The comparative decrease in cash of $2,622,000 was attributable an
increase of $219,000 in cash provided by operating activities and an increase of
$22,083,000 in cash provided by investing activities, partially offset by an
increase of $24,924,000 in cash used in financing activities.
The increase in cash provided by operating activities of $219,000 was due
primarily to equity offering costs of $700,000 in 1995 and to a decrease in
other assets, primarily accounts receivable and prepaid expenses, of $28,000 in
1996 compared with a decrease in other assets, primarily accounts receivable and
prepaid expenses, of $440,000 in 1995. These increases in cash provided were
partially offset by a decrease in other liabilities, primarily accounts payable
and accrued liabilities, of $632,000 in 1996, compared with an increase in other
liabilities, primarily accounts payable and accrued liabilities, of $246,000 in
1995.
The increase in cash provided by investing activities of $22,083,000 in
1996 was due primarily to cash received on the sale of Pacific common stock of
$12,139,000 and on the sale of the Phoenix properties of $8,103,000, a decrease
of $1,366,000 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 $1,097,000 in investments in and advances to unconsolidated
joint ventures. These increases in cash provided were partially offset by
dividends of $612,000 received from Pacific in 1995.
The increase in cash used in financing activities of $24,924,000 in 1996
was due primarily to repayment of borrowings under the revolving credit
agreement of $18,650,000 in 1996, compared with additional borrowings under the
revolving credit agreement of $4,300,000 in 1995, and an increase in repayment
of mortgage loans payables of $5,801,000. These increases in cash used were
partially offset by an increase in intercompany payables of $2,580,000 in 1996,
compared with a decrease of $1,310,000 in 1995.
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 June 30, 1996, Realty had borrowed $2,300,000 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.
20
<PAGE>
ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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 June 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 second quarter and six months ended June 30, 1996 and 1995, together
with liquidity and capital resources as of June 30, 1996.
RESULTS OF OPERATIONS - SECOND QUARTER 1996 COMPARED WITH SECOND QUARTER
1995
Operating Company derives its revenues from thoroughbred horse racing
activities. Horse racing revenues in the second quarter of 1996 were
$13,891,000, down 9.4% from $15,333,000 in 1995, primarily due to a decrease in
the number of race days, on-track attendance and total wagering.
In the second quarter of 1996, live thoroughbred horse racing at Santa
Anita Racetrack totaled 16 days compared with 19 days in the same period last
year. Total and average daily on-track attendance at the live racing events in
the second quarter of 1996 were down 15.9% and .1% from the comparable year ago
period. Total wagering in the second quarter of 1996 was down 8.0% while average
daily wagering was up 9.2% compared with the same period last year. The major
components of the wagering mix changed in the second quarter of 1996 compared
with the same period last year as follows: total and average daily on-track
wagering decreased 18.2% and 2.8%; total and average daily wagering at Southern
California satellite locations decreased 19.6% and 4.5%; total and average daily
wagering at out-of-state locations increased 30.5% and 54.9%; and total wagering
at Northern California locations decreased 15.6% while average daily wagering
increased .2%.
Also, in the second quarter ended June 30, Santa Anita Racetrack operated
51 days in 1996 and 48 days in 1995 as a satellite wagering facility for
Hollywood Park. Total attendance as a satellite wagering facility was up 2.1%
while average daily attendance was down 3.9% compared with the year ago period.
Total wagering was up 2.9% while average daily wagering was down 3.2% for the
second quarter 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.
Horse racing operating costs in the second quarter of 1996 were $10,309,000
(or 74.2% of horse racing revenues) compared with $10,769,000 (or 70.2% of horse
racing revenues) in the same period last year. The operating margin decline in
the second quarter of 1996 compared with the same period last year was primarily
due 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 second quarter of 1996 was $616,000, or $63,000
lower than the $553,000 in the comparable period last year. General and
administrative expenses were $1,028,000 in the second quarter of 1996, a
decrease of 28.5% from the $1,439,000 in the comparable period last year due to
lower shareholder related expenses and administrative salaries. Interest expense
decreased to $69,000 in the second quarter of 1996 from $87,000 in the second
quarter of 1995.
21
<PAGE>
ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS - SECOND QUARTER 1996 COMPARED WITH SECOND QUARTER
1995 (CONTINUED)
Rental expense to Realty was $1,992,000 in the second quarter of 1996
compared with $2,374,000 in the same period last year. The decrease in rental
expense of 16.1% was due to the decrease in total wagering resulting from fewer
race days. 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.
Due to the revenue and expense items previously discussed, Operating
Company reported net income in the second quarter of 1996 of $79,000 or $.01 per
share, compared with net income of $350,000 or $.03 per share for the same
period in 1995.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX
MONTHS ENDED JUNE 30, 1995
Horse racing revenues in the first six months of 1996 were $51,972,000,
down .4% from $52,174,000 in 1995, primarily due to fewer live race days and
lower on-track attendance and wagering.
In the first six 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 average daily on-track attendance at the live racing events in the
first six months of 1996 were down 5.5% and 4.3% from the comparable year ago
period. Total and average daily wagering in the first six 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 six months of 1996 compared with the 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 six months of the year, Santa Anita Racetrack operated
51 days in 1996 and 48 days in 1995 as a satellite wagering facility for
Hollywood Park. Total attendance as a satellite wagering facility was up 2.1%
while average daily attendance was down 3.9% compared with the year ago period.
Total wagering was up 2.9% while average daily wagering was down 3.2% for the
first six 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.
Horse racing operating costs in the first six months of 1996 were
$35,199,000 (or 67.7% of horse racing revenues) compared with $34,433,000 (or
66.0% of horse racing revenues) in the same period last year. The operating
margin decline in the first six months of 1996 compared with the same period
last year was primarily due 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 six months of 1996 was $2,373,000, or
$282,000 lower than the $2,655,000 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 $3,502,000 in the first six months of 1996, a
decrease of 15.4% from the $4,139,000 in the comparable period last year due to
lower shareholder related expenses and administrative salaries. Interest expense
decreased to $142,000 in the first six months of 1996 from $178,000 in the first
six months of 1995.
22
<PAGE>
ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX
MONTHS ENDED JUNE 30, 1995 (CONTINUED)
Rental expense to Realty was $8,707,000 in the first six months of 1996
compared with $8,852,000 in the same period last year. The decrease in rental
expense of 1.6% was due to the decrease in on-track and California satellite
wagering partially offset by the increase in out-of-state wagering. 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.
Due to the revenue and expense items previously discussed, Operating
Company reported net income in the first six months of 1996 of $2,437,000 or
$.22 per share, compared with net income of $2,318,000 or $.21 per share for the
same period in 1995.
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. 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 June 30, 1996, Operating Company's sources of liquidity included cash and
short-term investments of $9,536,000, together with a verbal commitment from
Realty to provide up to $10,000,000 in short-term borrowings. In addition,
Realty has guaranteed an Operating Company capital lease of $1,311,000.
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 six
months ended June 30, 1996, short-term investments earned interest income of
$340,000.
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.
Operating Company generated $1,551,000 less cash from operations in the
first six months of 1996 compared with the same period last year. Net cash used
by operating activities was $302,000 in 1996 compared with $1,580,000 in 1995.
The increase in cash from operating activities was primarily due to the accrual
of liabilities partially offset by the payment of California Franchise Taxes.
Net cash used in investment activities was $868,000 in the first six months
of 1996 compared with $1,965,000 in the same period last year. The $1,097,000
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 $3,004,000 in the first six
months of 1996 compared with net cash provided by financing activities of
$922,000 in the same period last year. In the first six months of 1996,
Operating Company prepaid their rental payments due to Realty.
23
<PAGE>
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
Chief Executive Officer and Chief Executive Officer
and Executive Vice President (Principal Executive Officer)
and 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
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SANTA ANITA REALTY ENTERPRISES, INC., FOR
THE QUARTERLY PERIOD ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000314661
<NAME> SANTA ANITA REALTY ENTERPRISES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 125,000
<SECURITIES> 0
<RECEIVABLES> 582,000
<ALLOWANCES> (148,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 81,682,000
<DEPRECIATION> (40,146,000)
<TOTAL-ASSETS> 59,787,000
<CURRENT-LIABILITIES> 0
<BONDS> 22,295,000
0
0
<COMMON> 1,138,000
<OTHER-SE> 26,215,000
<TOTAL-LIABILITY-AND-EQUITY> 59,787,000
<SALES> 0
<TOTAL-REVENUES> 13,562,000
<CGS> 0
<TOTAL-COSTS> 1,372,000
<OTHER-EXPENSES> 4,426,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,700,000
<INCOME-PRETAX> 6,064,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,064,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,064,000
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SANTA ANITA OPERATING COMPANY, FOR THE
QUARTERLY PERIOD ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000313749
<NAME> SANTA ANITA OPERATING COMPANY
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 68,000
<SECURITIES> 9,468,000
<RECEIVABLES> 4,332,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,984,000
<PP&E> 45,069,000
<DEPRECIATION> (27,341,000)
<TOTAL-ASSETS> 36,834,000
<CURRENT-LIABILITIES> 19,002,000
<BONDS> 1,311,000
0
0
<COMMON> 1,127,000
<OTHER-SE> 12,875,000
<TOTAL-LIABILITY-AND-EQUITY> 36,834,000
<SALES> 0
<TOTAL-REVENUES> 52,360,000
<CGS> 0
<TOTAL-COSTS> 43,906,000
<OTHER-EXPENSES> 5,875,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142,000
<INCOME-PRETAX> 2,437,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,437,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,437,000
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0
</TABLE>
