<PAGE>
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
<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 September 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 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
</TABLE>
3
<PAGE>
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
<PAGE>
THE SANTA ANITA COMPANIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996 DECEMBER 31,
(UNAUDITED) 1995
-------------- -------------
(Restated)
<S> <C> <C>
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
============= =============
</TABLE>
See accompanying notes.
5
<PAGE>
THE SANTA ANITA COMPANIES
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------- --------------------------------
1996 1995 1996 1995
--------------- ---------------- -------------- ---------------
(Restated) (Restated)
<S> <C> <C> <C> <C>
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
=========== ============= ============ ============
</TABLE>
See accompanying notes.
6
<PAGE>
THE SANTA ANITA COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------- --------------
<S> <C> <C>
(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
========== ==========
</TABLE>
See accompanying notes.
7
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996 DECEMBER 31,
(UNAUDITED) 1995
-------------- -------------
(Restated)
<S> <C> <C>
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
============= ============
</TABLE>
See accompanying notes.
8
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
-------------- --------------- ------------- ---------------
(Restated) (Restated)
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>
See accompanying notes.
9
<PAGE>
SANTA ANITA REALTY ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------- --------------
(Restated)
<S> <C> <C>
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
============ ============
</TABLE>
See accompanying notes.
10
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996 DECEMBER 31,
(UNAUDITED) 1995
-------------- -------------
<S> <C> <C>
(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
=========== ===========
</TABLE>
See accompanying notes.
11
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------- --------------------------------
1996 1995 1996 1995
---------------- --------------- --------------- --------------
(Restated) (Restated)
<S> <C> <C> <C> <C>
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
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
12
<PAGE>
SANTA ANITA OPERATING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(Restated)
<S> <C> <C>
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
=========== ==========
</TABLE>
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, 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
<PAGE>
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- --------------------------
1996 1995 1996 1995
-------------- -------------- ---------- -------------
<S> <C> <C> <C> <C>
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)
<CAPTION>
September 30, December 31,
1996 1995
----------- ------------
<S> <C> <C>
Shareholders' equity:
As originally reported $36,519,000 $ 25,642,000
As restated 20,672,000 25,842,000
</TABLE>
15
<PAGE>
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.").
<TABLE>
<CAPTION>
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
------------- ------------- ------------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
(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
======== ======= ===== ======== ===== =======
</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 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
<PAGE>
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:
<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 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
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
Note 5 - Investments in Unconsolidated Joint Ventures (continued)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------------- ---------------
<S> <C> <C>
(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)
============ ============
</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 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
<PAGE>
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
<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 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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<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.
<TABLE>
<CAPTION>
SANTA ANITA REALTY ENTERPRISES, INC SANTA ANITA OPERATING COMPANY
<S> <C>
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
</TABLE>
26
<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 SEPTEMBER 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> SEP-30-1996
<CASH> 15,330,000
<SECURITIES> 0
<RECEIVABLES> 564,000
<ALLOWANCES> (159,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 65,258,000
<DEPRECIATION> (30,846,000)
<TOTAL-ASSETS> 68,280,000
<CURRENT-LIABILITIES> 0
<BONDS> 22,188,000
0
14,337,000
<COMMON> 1,150,000
<OTHER-SE> 19,522,000
<TOTAL-LIABILITY-AND-EQUITY> 68,280,000
<SALES> 0
<TOTAL-REVENUES> 15,941,000
<CGS> 0
<TOTAL-COSTS> 1,999,000
<OTHER-EXPENSES> 6,534,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,202,000
<INCOME-PRETAX> 5,206,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,206,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 393,000
<EPS-PRIMARY> 0.03
<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 SEPTEMBER 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> SEP-30-1996
<CASH> 2,621,000
<SECURITIES> 0
<RECEIVABLES> 2,074,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,244,000
<PP&E> 47,165,000
<DEPRECIATION> (27,579,000)
<TOTAL-ASSETS> 31,952,000
<CURRENT-LIABILITIES> 15,325,000
<BONDS> 1,091,000
0
1,050,000
<COMMON> 1,139,000
<OTHER-SE> 11,943,000
<TOTAL-LIABILITY-AND-EQUITY> 31,952,000
<SALES> 0
<TOTAL-REVENUES> 58,909,000
<CGS> 0
<TOTAL-COSTS> 49,717,000
<OTHER-EXPENSES> 7,728,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 206,000
<INCOME-PRETAX> 1,258,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,258,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,206,000
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0
</TABLE>
