FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal year ended June 30, 1995
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from
to
Commission file number 0-9624
International Thoroughbred Breeders, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
22-2332039
(I.R.S. Employer Identification No.)
P.O. Box 1232 Cherry Hill, New Jersey 08034
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code (609) 488-3838
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $2.00 par value
Series A Convertible Preferred Stock, $100.00 par value
Name of each exchange on which registered
American Stock Exchange
American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $2.00 par value
(Title of class)
Series A Convertible Preferred Stock, $100.00 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
The aggregate market value of the registrant's common stock held by
non-affiliates of the registrant at September 15, 1995 was approximately
$20,459,360 based upon the closing sales price for such stock on the American
Stock Exchange as reported by The National Quotation Bureau Incorporated.
Indicate the number of shares outstanding of each of the registrant's classes
of Common Stock, as of the latest practicable date.
9,551,397 shares of Common Stock, $2.00 par value outstanding
as of September 15, 1995<PAGE>
PART I
ITEM 1 - BUSINESS
(A) General Development of Business
International Thoroughbred Breeders, Inc., a Delaware corporation incorporated
October 31, 1980, is primarily engaged through its wholly owned subsidiary,
Garden State Race Track, Inc. in the ownership and operation of the Garden
State Park racetrack in Cherry Hill, New Jersey and subsequent to the
Company's acquisition effective January 1, 1995 of all of the outstanding
capital stock of Freehold Racing Association, Atlantic City Harness, Inc. and
Circa 1850, Inc., the three corporations which own and operate Freehold
Raceway, in the ownership and operation of Freehold Raceway in Freehold, New
Jersey. It is also engaged in the business of purchasing, owning, breeding,
and selling of thoroughbred horses used in thoroughbred (non-harness) racing
and interests in same. Management believes that the breeding operation has
become insignificant to the overall operation of the Company. As used herein,
the term the "Company" shall include International Thoroughbred Breeders, Inc.
and its wholly owned subsidiaries unless the context otherwise requires.
During the year ended June 30, 1995, the Company realized after tax income of
$2,398,452 in comparison to after tax income of $2,500,595 for the prior
fiscal year. The decrease in net income is primarily the net result of: 1) a
decrease in income generated by Garden State Park during fiscal 1995; 2)
increased costs associated with casino gaming development efforts during
fiscal 1995 as compared to fiscal 1994 via the Company's wholly owned
subsidiary, International Thoroughbred Gaming Development Corporation; offset
by 3) increased income generated by Freehold Raceway which was acquired
1/1/95.
For the fiscal year ended June 30, 1995, Garden State Race Track, Inc.
realized income from operations of $201,873 before interest expense, taxes and
interest due to the parent as compared to operating income of $818,718 for the
prior fiscal year. The decrease in net income is primarily the result of a
decrease in average handles for live racing offset by simulcast receiving and
an increase in revenues generated by simulcasting of live racing to other
racetracks during the current fiscal year as compared to last fiscal year.
Subsequent to the purchase and under the Company's ownership for the six month
period ended June 30, 1995, Freehold Raceway realized income from operations
of $2,366,411 before interest expense, taxes and interest due to the parent.
(See PART II, ITEM 7 - "Management's Discussion and Analysis of Financial
Conditions and Results of Operations.")
Developments Since the Beginning of the Last Fiscal Year:
On December 20, 1994, the Company received stockholder approval for the
following employee stock option plans. Under the plan, options to purchase
the following number of shares were granted; 275,000 to Arthur Winkler,
president of the Company, 75,000 to William H. Warner, treasurer of the
Company, 75,000 to Richard E. Orbann, general manager of Garden State Park and
50,000 to Christopher C. Castens, secretary of the Company. These options,
exercisable for a five year period which commenced on December 20, 1994 at a
price of $5.875, are non-transferable and are only exercisable by the holder
while he is employed by the Company or a subsidiary of the Company. In
addition, non-transferable options were granted to purchase 1,000,000 shares
of common stock at prices ranging from $12 to $24 to Francis W. Murray,
President of International Thoroughbred Gaming Development Corporation. These
options are exercisable during a two-year period which commenced on December
20, 1994 and only while Mr. Murray is employed by the Company or a subsidiary
of the Company.
On January 25, 1995 the Company agreed to modify certain terms of: 1) the
asset purchase agreement dated October 12, 1990 relating to the sale of its
Philadelphia Park subsidiary; and 2) the agreement whereby the Company
assigned its rights under the purchase money mortgage and note it held on
Philadelphia Park. Under the terms of this modification, the Company is
released from all liability for environmental clean-up at Philadelphia Park to
the extent that such clean-up costs exceed $370,500 (previously the Company
had been responsible for up to $3.35 million in clean-up costs). In
consideration for this release, the Company has waived its right to: 1)
certain fees that it was entitled to receive under the asset purchase
agreement based upon a percentage of Philadelphia Park's handle when operating
in competition with Garden State Park; and 2) all future contingent payments
due the Company in connection with its sale of the Philadelphia Park mortgage
note based upon possible future profitable operations of Philadelphia Park.
The Company retained the right to receive an accounting from the assignee of
the Philadelphia Park mortgage note so that the Company may determine to what
extent, if any, an amount equal to the 1994 and 1995 contingent fees are
payable under the terms of the proposed partial settlement of the putative
"class action". The assignee of the Philadelphia Park mortgage note has
provided said accountings and no contingent fees would have been due for 1994
and 1995. Consequently, no additional payments will be made in settlement of
the above-described legal action.
On February 2, 1995, The Company completed the purchase of all of the
outstanding stock of Freehold Racing Association ("FRA") and Atlantic City
Harness, Inc., ("ACH") the operating companies of Freehold Raceway, and CIRCA
1850, Inc., a small real estate holding company, (herein and after
collectively referred to as Freehold Raceway) from an unrelated party. FRA
and ACH will continue to hold the racing permits and conduct the racing
programs at Freehold Raceway. The purchase price of the stock was $17.8
million with approximately $2.7 million paid in cash and the balance financed
by: 1) an eight year, $12.5 million note at eighty percent of the prevailing
prime rate, not to exceed six percent; and 2) an eleven and one half year
$2.6 million promissory note at eighty percent of the prevailing prime rate.
The note is secured by a mortgage on the land and buildings at Freehold
Raceway and other collateral including 2,000,000 shares of the Company's
Common Stock pledged by the Company's principal stockholder. The transaction,
completed on February 2, 1995, was effective as of January 1, 1995. At
closing, $5.2 million of FRA debt was retired with ITB and the seller each
advancing to FRA approximately $2.6 million. The seller and ITB received from
FRA promissory notes evidencing the indebtedness secured by the same
collateral securing the above described $12.5 million note. (See Notes 2 & 5
of notes to the Company's financial statements in PART II, ITEM 8 for
additional financial information concerning this transaction.)
On March 27, 1995, the United States Court of Appeals for the Third Circuit
affirmed the district court's approval of the following settlement. The
United States District Court for the District of New Jersey signed an order on
October 20, 1993 granting preliminary approval to a proposed partial
settlement of the consolidated class action pending since 1986 against the
Company, its officers and directors and various other defendants alleging
various violations of federal securities laws and other statutes. Although
the Company believes this lawsuit is totally without merit, it had incurred
approximately $1,150,000 in legal expense in defending against the lawsuit and
would have been required to expend significant additional amounts to continue
the defense through trial. Therefore, in order to avoid further expense,
inconvenience and delay and to dispose of this expensive, burdensome and
protracted litigation, the Company executed the proposed partial Settlement
Agreement. The proposed partial settlement required the Company to make a
$250,000 settlement payment and an additional payment of up to $150,000
contingent upon receipt of future amounts by the Company from its sale of the
Philadelphia Park mortgage note. On January 25, 1995, the Company agreed to
modify the terms of the agreement pertaining to the Philadelphia Park mortgage
note which provides that no additional payments will be made (See paragraph
above). The settlement disposes of all class claims made against the Company,
its officers and directors and all derivative claims made on behalf of the
Company against all parties in the litigation. As part of the proposed
settlement, the Company's directors and officers' liability insurance carrier
will pay $3,125,000 plus an additional $4,125,000 which latter amount is
subject to reduction on a dollar for dollar basis in the event of collections
from certain non-settling defendants. On April 12, 1994, an order was entered
in the United States District Court of New Jersey approving the settlement
agreement and entering a final judgment of dismissal of the plaintiffs claims
against the Company and the Director defendants in their capacity as officers
and directors of the Company associated with the proposed partial settlement
of the consolidated class action suit. Certain non-settling defendants,
including the Company's Chairman of the Board and principal stockholder,
appealed the order approving the settlement. On March 27, 1995, the United
States Court of Appeals for the Third Circuit affirmed the District Court's
approval of the settlement.
Dennis Dowd, President of Freehold Raceway, has resigned his position
effective September 9, 1995. He will be assuming a similar position with the
harness tracks in Maryland, Rosecroft and Del Marva Raceways. Arthur Winkler,
the Company's President and Chief Operating Officer, will serve as Chairman
and President of Freehold Raceway effective September 10, 1995.
The Company is continuing the process of obtaining the necessary government
approvals and commitment from future tenants with respect to the development
as a retail shopping center an approximate 56 acre portion of the property at
the Garden State Park racetrack which is presently unused for racing purposes.
No assurances can be given that the approvals will be granted. Further, while
solicitation of tenants is underway, no assurances can be given that adequate
leases can be consummated with retail tenants if all governmental approvals
are obtained.
(B) Financial Information
The Company is currently engaged primarily in operations at Garden State Park
in Cherry Hill, New Jersey and following the Company's acquisition effective
January 1, 1995 in the operation of Freehold Raceway in Freehold, New Jersey.
The racetracks accounted for approximately 94% of the Company's total revenues
in fiscal 1995.
(c) Narrative Description of Business
(1) Garden State Park
Ownership, Location and Property Description
Opened by the Company for racing on April 1, 1985, Garden State Park is
owned and operated by Garden State Race Track, Inc., a wholly owned subsidiary
of the Company. The Company purchased the racetrack site on March 15, 1983,
and through June 30, 1986 completed an extensive reconstruction of the racing
facility as well as the construction of a separate sales pavilion. Garden
State Park is situated on a tract of land (currently approximately 280 acres)
located in Cherry Hill, New Jersey.
The reconstructed grandstand and clubhouse is a 500,000 square foot,
seven level, steel frame, glass enclosed, fully heated and air-conditioned
facility with an adjacent multi-level glass covered thoroughbred paddock area.
The facility can accommodate a total capacity of 24,000, with seating for
approximately 9,500, and has three sit-down restaurants and 17 concession food
stands. The backstretch area includes 27 barns and stables capable of
accommodating approximately 1,500 horses, a harness paddock, a training track,
dormitories, cafeteria and recreation buildings for backstretch personnel, an
administration building, and other service buildings. Reconstruction also
included restoration of the main dirt and turf tracks, installation of
lighting for nighttime racing, paving of parking facilities that accommodate
approximately 11,500 automobiles, landscaping, fencing and other amenities
including furniture, fixtures and equipment.
During fiscal 1986, the Company completed construction of a 56,000
square foot, 1-1/2 story sales pavilion which has a seating capacity of
approximately 1,500. The Company uses the pavilion as a sales arena to conduct
horse auctions, for closed circuit television events (racing as well as other
sporting and non-sporting events), wagering, concerts, special events,
concessions and other conveniences.
Operations
The Company is required to obtain and intends to annually renew
thoroughbred and harness racing permits issued by the New Jersey Racing
Commission in order to operate the racetrack facility.
RACING DATES - Garden State Park's racing dates are primarily nighttime
racing dates. For the fiscal year ended June 30, 1995, Garden State Park
conducted its 1994 (fiscal 1995) Harness Meet from September 7, 1994 through
December 10, 1994 on a four night per week basis for a total of 55 racing
dates. Garden State Park conducted its 1995 Thoroughbred Meet from January
13, 1995 through May 27, 1995 for a total of 75 racing dates. Racing was
conducted on a three night a week basis during January and for four nights a
week during the remainder of the meet,. The Company has received approval and
plans to run a 1995 Harness Meet at Garden State Park on a four night per week
basis. The meet, consisting of 49 racing dates, is scheduled to run from
September 8, 1995 through December 2, 1995.
ATTENDANCE AND HANDLES - The following summarizes average daily
attendance and wagering at Garden State Park and races simulcast to other
racing facilities during the past three fiscal years:
<TABLE>
DAILY AVERAGES
THOROUGHBRED MEETS 1995 1994
<CAPTION>
<S> <C> <C>
Attendance 3,292 3,492
Live Handle $212,580 $248,534
Simulcast Sending Signal:
New Jersey Tracks $311,763 $387,670
Atlantic City Casinos $ 43,503 $ 39,830
Out-of-State Tracks $792,269 $607,926
Combined Handles $1,360,115 $1,283,960
Number of Live Race Days 75 62
</TABLE>
<TABLE>
DAILY AVERAGES
THOROUGHBRED MEETS 1993
<CAPTION>
<S> <C>
Attendance 4,234
Live Handle $363,499
Simulcast Sending Signal:
New Jersey Tracks $478,218
Atlantic City Casinos $ 0*
Out-of-State Tracks $209,642
Combined Handles $1,052,397
Number of Live Race Days 74
*Simulcasting into Atlantic City Casinos was only for a two day period.
</TABLE>
<TABLE>
DAILY AVERAGES
HARNESS MEETS 1994 1993
<CAPTION>
<S> <C> <C>
Attendance 2,767 2,674
Live Handle $207,747 $237,558
Simulcast Sending Signal:
New Jersey Tracks $456,522 $550,057
Atlantic City Casinos $ 35,578 $ 33,228
Out-of-State Tracks $658,699 $367,498
Combined Handles $1,358,546 $1,188,340
Number of Live Race Days 55 55
</TABLE>
<TABLE>
DAILY AVERAGES
HARNESS MEETS 1992
<CAPTION>
<S> <C>
Attendance 3,330
Live Handle $303,908
Simulcast Sending Signal:
New Jersey Tracks $501,853
Atlantic City Casinos $ 0
Out-of-State Tracks $164,547
Combined Handles $970,308
Number of Live Race Days 53
</TABLE>
SIMULCASTING - Simulcasting is the transmission of live horse racing by
television signal from one racetrack to another with pari-mutuel wagering being
conducted at the receiving track and a portion of the commission on the handle
being shared with the sending track. To date, the simulcasting arrangements
entered into by Garden State Park require the receiving track to remit a
percentage of the pari-mutuel handle at such track to the sending track as
commission. In addition, a portion of the handle at the receiving track is
remitted to the sending track in New Jersey to be used for purses. This portion
of the handle received at Garden State Park is required to be used for purses
in the current live race meeting, or at the next live race meeting if live
racing is not in progress at the time of simulcasting.
The following summarizes average handles experienced by Garden State Park
in connection with receiving simulcasts during the past three fiscal years:
<TABLE>
AVERAGES DAILY SIMULCAST HANDLES
1995 1994
From Tracks: # of days $ # of days $
<CAPTION>
New Jersey Tracks:
<S> <C> <C> <C> <C> <C>
Atlantic City(T) 59 61,672 70 99,851
Freehold (S) 216 33,353 211 41,510
Meadowlands (T,S) 251 98,652 240 127,036
Monmouth (T) 73 81,164 72 105,056
Out-of-State
Tracks (T,S) 364 236,650 362 233,320
Total Receiving Handle 364 127,669,977 362 138,262,608
(T)=Thoroughbred, (S)=Standardbred
</TABLE>
<TABLE>
AVERAGES DAILY SIMULCAST HANDLES
1993
From Tracks: # of days $
<CAPTION>
New Jersey Tracks:
<S> <C> <C> <C>
Atlantic City(T) 72 167,165
Freehold (S) 218 58,278
Meadowlands (T,S) 247 197,922
Monmouth (T) 73 162,107
Out-of-State
Tracks (T,S) 348 168,133
Total Receiving Handle 348 143,825,377
(T)=Thoroughbred, (S)=Standardbred
</TABLE>
Loans and Existing Contracts
In November, 1983, Garden State granted the exclusive right to operate
all food and retail services and to sell or rent all food products and
merchandise sold or rented at the racetrack facility to Servomation
Corporation, which company has since become Service America Corporation
("Service America"), an unaffiliated third party experienced in the business,
with principal offices in Stamford,Connecticut. The term of the agreement
is for the 15 year period commencing on opening day of the racetrack.
Service America agreed to invest $7,000,000 in the
concession premises at the racetrack facility. The investment is being
depreciated on a straight line basis over the term of the agreement, with
Garden State paying Service America an amount equal to the undepreciated
balance (if any) upon termination and thereby acquiring title to the
improvements. As of June 30, 1995,
the undepreciated balance is approximately $2,200,000. The agreement contains a
schedule of varying percentages of adjusted gross sales of beverages, food and
other items which Service America is required to pay as concession fees to
Garden State on a monthly basis. In addition, Service America pays the Company a
percentage of net profits on the Garden State Park Phoenix Restaurant's
operations. Garden State Park is responsible for any net operating losses of the
Phoenix restaurant. Service America has obtained a license to permit the sale of
alcoholic beverages at the racetrack. Garden State has a right of first
refusal to purchase same at the expiration of the agreement subject to
regulatory approval.
An agreement was signed in May, 1993, whereby the Company agreed to
permit the annual New Jersey State Fair to be held at Garden State Park for a
mutually determined number of days in July and/or August, until 1997 in
consideration of
a percentage of the receipts from admissions, concessions, parking and other
amenities received by the operator of the Fair. Provisions in the contract
allowed that either party could terminate the agreement with notice, in certain
circumstances. The Fair was held at Garden State Park in 1993 and 1994. The
contract was mutually terminated in December, 1994. Garden State Park
conducted a fair in fiscal 1995 and is scheduled to conduct a fair in
fiscal 1996, however,there is no long-term commitment with the fair operator.
Garden State Park has a number of contractual arrangements including
a contract with American Totalisator Co., Inc. for the leasing of a
parimutuel system. Some of the other larger contracts with other entities
are for video manpower, and program printing. The Company regards
these contracts as typical for the industry.
(2) Freehold Raceway
Ownership, Location and Property Description
Freehold Raceway, a wholly owned subsidiary of the Company subsequent
to its stock purchase effective January 1, 1995, is located on a 51 acre
site in the Western Monmouth County section of New Jersey.
This facility is the nation's oldest harness track. Daytime racing has been
conducted at Freehold Raceway since 1853; parimutuel wagering licensed by
the State of New Jersey commenced at the racetrack in 1941. The purchase
price of the stock was $17.8 million with approximately $5.3 million paid
in cash and the balance financed by an eight year,
$12.5 million note at eighty percent of the prevailing prime rate, not to exceed
six percent. The note is secured by a mortgage on the land and buildings at
Freehold Raceway and other collateral including 2,000,000 shares of ITB's Common
Stock pledged by ITB's principal stockholder.
The principal assets include a five level, steel frame, fully heated
and air conditioned 350,000 square foot enclosed grandstand constructed in
1986. The facility can accommodate a total capacity of 10,000 with seating
for approximately 2,500 and has a sit-down restaurant along with 7 concession
stands. Additional
principal assets include a 1/2 mile oval racetrack, receiving barns with
an adjacent
paddock, parking facilities that accommodate approximately 2500 vehicles,
machinery and equipment and a two story administration building.
Operations
The Company is required to obtain and intends to annually renew
harness racing
permits issued by the New Jersey Racing Commission in order to operate the
racetrack facility. The Company maintains two racing permits for standardbred
racing at Freehold Raceway, Atlantic City Harness, Inc. ("ACH") and Freehold
Racing Association ("FRA"), both of which are licensed by the New Jersey Racing
Commission.
RACING DATES - Freehold Raceway's racing dates are strictly daytime
harness
dates. For the six months ended June 30, 1995, ACH conducted a standardbred
racing meet from January 2, 1995 through May 29, 1995 on a five day per week
basis
for a total of 107 racing dates. The Company has received approval and plans to
conduct a 101 day FRA meet from August 17, 1995 through December 30, 1995. This
meet will operate six days a week in August and five days a week from September
through December. Additionally, the track hosts full-card simulcast betting on
thoroughbred and harness racing from numerous tracks throughout the country.
ATTENDANCE AND HANDLES - The following summarizes average daily
attendance and wagering at Freehold Raceway and races simulcast to other
racing facilities during the past three fiscal years:
<TABLE>
DAILY AVERAGES
ACH HARNESS MEETS 1995 1994
<CAPTION>
<S> <C> <C>
Attendance 2,298 2,318
Live Handle $290,449 $302,918
Simulcast Sending Signal:
New Jersey Tracks $184,427 $200,796
Atlantic City Casinos $ 25,203 $ 21,569
Out-of-State Tracks $322,948 $350,322
Combined Handles $823,026 $875,605
Number of Live Race Days 107 98
</TABLE>
<TABLE>
DAILY AVERAGES
ACH HARNESS MEETS 1993
<CAPTION>
<S> <C>
Attendance 2,240
Live Handle $328,601
Simulcast Sending Signal:
New Jersey Tracks $234,856
Atlantic City Casinos $ 357*
Out-of-State Tracks $ 84,925
Combined Handles $648,739
Number of Live Race Days 111
*Simulcasting into Atlantic City Casinos was only for a two day period
</TABLE>
<TABLE>
DAILY AVERAGES
FRA HARNESS MEETS 1994 1993
<CAPTION>
<S> <C> <C>
Attendance 2,421 2,517
Live Handle $323,079 $327,881
Simulcast Sending Signal:
New Jersey Tracks $182,427 $192,054
Atlantic City Casinos $ 25,304 $ 19,662
Out-of-State Tracks $292,914 $270,902
Combined Handles $823,724 $810,499
Number of Live Race Days 109 114
</TABLE>
<TABLE>
DAILY AVERAGES
FRA HARNESS MEETS 1992
<CAPTION>
<S> <C>
Attendance 2,383
Live Handle $393,230
Simulcast Sending Signal:
New Jersey Tracks $227,167
Atlantic City Casinos $ 0
Out-of-State Tracks $ 91,335
Combined Handles $711,732
Number of Live Race Days 112
</TABLE>
SIMULCASTING - Simulcasting is the transmission of live horse racing by
television signal from one racetrack to another with pari-mutuel wagering being
conducted at the receiving track and a portion of the commission on the handle
being shared with the sending track. To date, the simulcasting arrangements
entered into by Freehold Raceway require the receiving track to remit a
percentage
of the pari-mutuel handle at such track to the sending track as commission. In
addition, a portion of the handle at the receiving track is remitted to the
sending track in New Jersey to be used for purses. This portion of the handle
received at Freehold Raceway is required to be used for purses in the current
live
race meeting, or at the next live race meeting if live racing is not in progress
at the time of simulcasting.
The following summarizes average handles experienced by Freehold Raceway in
in connection with receiving simulcasts during the past three fiscal years:
<TABLE>
ACH HARNESS MEETS
AVERAGES DAILY SIMULCAST HANDLES
1995 1994
From Tracks: # of days $ # of days $
<CAPTION>
New Jersey Tracks:
<S> <C> <C> <C> <C> <C>
Atlantic City (T) 18 32,447 17 43,464
Garden State Par(T,S) 75 32,308 63 28,813
Meadowlands (T,S) 145 120,717 132 125,172
Monmouth (T) N/A N/A N/A N/A
Out-of-State
Tracks (T,S) 171 188,854 152 151,842
Total Receiving Handle 52,804,695 42,347,266
(T)=Thoroughbred, (S)=Standardbred
</TABLE>
<TABLE>
ACH HARNESS MEETS
AVERAGES DAILY SIMULCAST HANDLES
1993
From Tracks: # of days $
<CAPTION>
New Jersey Tracks:
<S> <C> <C> <C>
Atlantic City (T) 22 51,732
Garden State Par(T,S) 75 36,744
Meadowlands (T,S) 140 138,551
Monmouth (T) N/A N/A
Out-of-State
Tracks (T,S) 120 76,142
Total Receiving Handle 32,428,143
(T)=Thoroughbred, (S)=Standardbred
</TABLE>
<TABLE>
FRA HARNESS MEETS
AVERAGES DAILY SIMULCAST HANDLES
1994 1993
From Tracks: # of days $ # of days $
<CAPTION>
New Jersey Tracks:
<S> <C> <C> <C> <C> <C>
Atlantic City (T) 39 54,053 48 58,603
Garden State Par(T,S) 55 83,228 55 83,756
Meadowlands (T,S) 104 92,874 105 84,218
Monmouth (T) n/a n/a n/a n/a
Out-of-State
Tracks (T,S) 169 130,189 145 127,997
Total Receiving Handle 38,346,452 34,821,979
(T)=Thoroughbred, (S)=Standardbred
</TABLE>
<TABLE>
FRA HARNESS MEETS
AVERAGES DAILY SIMULCAST HANDLES
1992
From Tracks: # of days $
<CAPTION>
New Jersey Tracks:
<S> <C> <C> <C>
Atlantic City (T) 49 76,396
Garden State Par(T,S) 52 105,829
Meadowlands (T,S) 38 174,795
Monmouth (T) n/a n/a
Out-of-State
Tracks (T,S) 95 56,943
Total Receiving Handle 21,298,300
(T)=Thoroughbred, (S)=Standardbred
</TABLE>
Loans and Existing Contracts
In December 1985 Freehold Raceway granted the exclusive right and
privilege to
sell, vend and dispense within the racetrack facility all food or food products
to
Sportservice, Inc., an unaffiliated third party experienced in the business,
with
principal offices in Buffalo, New York. The agreement contains a schedule of
varying percentages of adjusted gross receipts which Sportservice is required to
pay as concession fees to Freehold Raceway on a monthly basis. The term of this
agreement is for a period of ten years commencing with the completion of the
reconstruction of the grandstand in the fall of 1986. Sportservice holds a
license to permit the sale of alcoholic beverages at the racetrack.
Sportservice
has agreed to a consent to transfer said license back to Freehold Raceway at the
expiration of this agreement.
Freehold Raceway has a number of additional contractual arrangements
including
a contract with Autotote Limited, Inc. for the leasing of a parimutuel system.
Some of the other larger contracts with other entities are for video equipment
and
manpower, and program printing. The Company regards these contracts as typical
for
the industry.
(3) Competition
Freehold Raceway conducts all its live harness racing during the day.
Garden
State Park's live thoroughbred and harness racing is conducted at night. It is
the Company's intention to conduct live harness racing at night at Garden State
Park on some dates when live harness racing is being conducted at Freehold
Raceway.
On most days throughout the year, Garden State Park and Freehold Raceway
conduct simulcasting in competition with live and simulcast racing at the
other's
facility. In addition, each track receives simulcasts of thoroughbred and
harness races at various times from other tracks when the same type of racing
may
be conducted live at either track.
The Company's Garden State Park in Cherry Hill, New Jersey and its
Freehold
Raceway in Freehold, New Jersey face direct competition from year-round daytime
thoroughbred racing at Philadelphia Park in Bucks County, Pennsylvania as well
as three off-track betting parlors in the Philadelphia area operated by
Philadelphia Park. (Up to three more off-track betting parlors in the
Philadelphia area may be opened by Philadelphia Park. Whether these will be
in competitive locations is unknown at this time.) The Company's
racetracks also face competition from Atlantic City Race Course
(summer night thoroughbred racing) and Delaware Park near Wilmington,
Delaware (day thoroughbred racing). Garden State Park and
Freehold Raceway also face competition from Monmouth Park (day thoroughbred
racing) and The Meadowlands (night thoroughbred and harness racing). These
tracks
lie greater distances from Garden State Park and Freehold, with the exception of
Monmouth in relation to Freehold. Garden State Park and Freehold Raceway
simulcast certain or all of their racing to and receive simulcasting of certain
or
all of their racing from all of the above racetracks. A state law enacted in
1992
permitting Garden State Park, Freehold Raceway, other New Jersey racetracks and
the Atlantic City Casinos to receive entire race cards from out-of-state tracks
may have had and may in the future have the effect of increasing the competition
the Company's racetracks face in the state of New Jersey. Off-track wagering
and
full card simulcasting commenced in the state of Maryland in April, 1993 and
full
card simulcasting commenced in the state of Pennsylvania in May, 1993. Effective
September, 1995, Delaware Park and other Delaware racetracks will commence video
lottery terminals. This may have had and may in the future have the effect of
increasing the competition the Company's racetracks face from off-track betting
parlors in the nearby Mid-Atlantic area. Competition from off-track betting,
casino gambling (in Atlantic City), various state lotteries and other forms of
gambling and entertainment including professional and collegiate sporting events
may also have had and may in the future have a material adverse effect on
racetrack attendance, wagering and thus profitability at Garden State Park and
Freehold Raceway. From time to time, legislation has been introduced in
New Jersey
and neighboring states which would further expand gambling opportunities.
Approval
of such legislation could increase competition for the Company in the future.
(4) Racing Industry
The Company's racetrack operations are dependent upon continued
governmental
acceptance of racing as a form of legalized gambling. As a form of gambling,
racing could be subjected at any time to restrictive regulation or banned
entirely, although in the opinion of management of the Company, the introduction
and expansion of off-track betting and/or pari-mutuel wagering in various
jurisdictions in recent years would tend to indicate that racing is gaining even
greater governmental acceptance and is contributing to the general positive
economic status of the states.
(5) Insurance Coverage
The Company has currently contracted through an insurance broker,
Keystone National Companies, Inc., general liability insurance,
excess liability insurance,
athletic participants coverage, workers compensation, automobile damage and
garagekeepers liability insurance for Garden State Park and Freehold Raceway.
See PART III, ITEM 3 - "Certain Relationships and Related Transactions"
as to revenue received by the Company from related parties for the above
activities.
(6) Dependency on a Single Customer
During fiscal 1995, no single customer or group of customers
accounted for ten percent or more of the racetrack revenues.
(7) Research and Development
The Company does not spend material amounts on research and development
activities.
(8) Employees and Consultants
In connection with the operation of Garden State Park, the Company
directly employs approximately 440 persons during the thoroughbred meet and 360
during the harness meet in connection with the operation of Garden State Park.
Personnel include pari-mutuel machine tellers, security personnel, admissions,
cleaning, maintenance, and parking personnel, most of whom are presently
represented by unions with which the Company has entered into contracts.
Non-union racing department officials and starters are also employed during
each meet.
In connection with the operation of Freehold Raceway, the Company
directly employs approximately 250 persons during its harness meets. Personnel
include pari-mutuel machine tellers, security personnel, admissions,
maintenance, and parking personnel, most of whom are presently represented
by unions with which the Company has entered into contracts. Non-union racing
department officials and starters are also employed during each meet.
In addition, the two tracks combined employ approximately 100 persons
on a full time basis. This personnel provides information, media, marketing,
executive, administrative and clerical services and support for the tracks.
At June 30, 1995, the Company employed 11 full-time corporate executive,
administrative, and clerical personnel. The Company may also engage consultants
from time to time to provide advisory services.
ITEM 2 - PROPERTIES
The Company owns a condominium unit and ownership interest in the Ocala
Jockey Club in Reddick, Florida. CIRCA 1850, Inc. owns five properties,
including four single family homes and a condominium. All of these properties
are held for the purpose of rental income, and in the case of CIRCA 1850,
Inc., for future use as parking lots in the event necessary.
See PART I, ITEM 1, (C) "Narrative Description of Business" as to
the Company's Garden State Park and Freehold properties.
ITEM 3 - LEGAL PROCEEDINGS
The Company, certain of its present and former directors, and certain
other parties including the Underwriter of the Company's four public offerings
from 1983 through 1986 (a broker-dealer firm owned by the Company's Chairman of
the Board and principal stockholder), were the defendants in two putative class
actions filed in August, 1986 and July, 1987 in the United States District
Court for the Southern District of New York. The complaint filed in August,
1986 was also asserted derivatively against all defendants except the Company.
The essential allegations of the complaints in the two actions were that the
Company's prospectuses utilized in connection with the Company's said four
public offerings violated the federal securities laws by containing false and
misleading information and omitting to disclose other material information,
and that the defendants were liable therefor. The actions sought judgments in
amounts equal to approximately $200,000,000 representing the gross proceeds of
the Company's said four public offerings, as well as punitive damages against
all defendants and treble damages and attorneys' fees against all defendants
other than the Company. In fiscal 1988, the U.S. District Court transferred
both cases from the Southern District of New York to the District of New
Jersey. On June 7, 1988, a consolidated amended complaint was filed by the
plaintiffs in the two putative "class action" suits described above, in the
United States District Court in Trenton. This complaint was substantially
similar to the original suits filed separately except to expand the number of
current and former directors as defendants. On July 27, 1989, based upon
motions filed by the Company, the United States District Court, District of New
Jersey, dismissed some, but not all of the claims asserted in the consolidated
amended complaint.
The factual allegations underlying the remaining claims are that the
prospectuses issued in the Company's 1984, 1985 and 1986 public offerings failed
to disclose that (a) the profitability of Garden State, and by extension, ITB,
was directly dependent upon Garden State's betting handle and attendance; (b)
that Garden State's ability to attract customers and betting dollars was
limited by the demographics of the population of the Delaware Valley area in
which it was based;
(c) that the reasonable market potential for Garden State's attendance and
betting handle were delimited by the attendance and betting handle of the
previous Garden State Park racetrack ("Old Garden State"); (d) that there is a
direct ratio between the number of days in a racing meet and the daily
attendance and betting handle, i.e., the longer the meet, the smaller the
average daily attendance and betting handle; (e) that based upon its costs of
acquisition and construction, in order for Garden State to "break even" on an
operating basis, it needed an average on track daily betting handle of at least
$1.7 million based on a racing meet of approximately 100 days; (f) that the
Old Garden State had not achieved a $1.7 million average daily betting handle
since 1971 when the racing meet was only 60 days; that the $1.7 million level
was attained prior to the competition from the
casinos in nearby Atlantic City; that the Old Garden State's average daily
betting handle in 1977, its last year of operation, was less than
$1.2 million; and that the average daily betting handle for the Old Garden
State's last five years of operation was $1.347 million; (g) that Garden State's
revenues would in large part be derived from harness racing meets which had
never been held at the Old Garden State; and (h) that both thoroughbred and
harness racing were experiencing steep declines in attendance and betting
handle both nationally and regionally over the years.
On October 20, 1993, the United States District Court for the District
of New Jersey signed an order granting preliminary approval to a proposed
partial settlement of the consolidated class action pending since 1986 against
the Company, its officers and directors and various other defendants alleging
various violations of federal securities laws and other statutes. Although
the Company believes this lawsuit is totally without merit, it had incurred
approximately $1,150,000 in legal expense in defending against the lawsuit
and would have been required to expend significant additional amounts to
continue the defense through trial. Therefore in order to avoid further
expense, inconvenience and delay and to dispose of this expensive, burdensome
and protracted litigation, the Company executed the proposed partial
Settlement Agreement. The proposed partial settlement required the Company
to make a $250,000 settlement payment and an additional payment of up to
$150,000 contingent upon receipt of future amounts by the Company from its
sale of the Philadelphia Park mortgage note. On January 25, 1995, the Company
agreed to modify the terms of the agreement pertaining to the Philadelphia
Park mortgage note which provides that no additional payments will be made.
The settlement disposes of all class claims made against the Company, its
officers and directors and all derivative claims made on behalf of the Company
against all parties in the litigation. As part of the proposed settlement, the
Company's directors and officers' liability insurance carrier will pay
$3,125,000 plus an additional $4,125,000 which latter amount is subject to
reduction on a dollar for dollar basis in the event of collections from
certain non-settling defendants. On April 12, 1994, an order was entered
approving the settlement agreement and entering a final judgment of dismissal
of the plaintiffs claims against the Company and the Director defendants in
their capacity as officers and directors of the Company.
Certain non-settling defendants including the Company's Chairman of the
Board and principal stockholder, appealed the order approving the
settlement. On March 27, 1995, the United States Court of Appeals for the Third
Circuit affirmed the District Court's approval of the settlement.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted by the Company to a vote of its security
holders during the quarter ended June 30, 1995.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(A) Market Information
The Company's Common Stock has been traded on the American Stock
Exchange since April 4, 1985, under the symbol "ITB". The following table
indicates the high and low sales prices for such stock on the American Stock
Exchange on a quarterly basis for the two years ended June 30, 1995, based
upon information supplied by the American Stock Exchange.
<TABLE>
AMERICAN STOCK EXCHANGE
Sales Price
Quarter Ended: High Low
<CAPTION>
<S> <C> <C>
September 30, 1993 $5.75 $4.00
December 31,1993 5.88 4.50
March 31, 1994 8.25 4.75
June 30, 1994 7.25 4.88
September 30, 1994 5.63 3.75
December 31, 1994 4.25 2.56
March 31, 1995 3.63 2.63
June 30, 1995 7.25 3.00
</TABLE>
(B) Holders
As of June 30, 1995, the number of record holders of the Company's
Common Stock was 33,771.
(C) Dividends
The Company has not paid any dividends on its Common Stock since its
inception. Anticipated capital requirements of the Company make it unlikely
that any dividends will be declared in the foreseeable future on the
Company's Common Stock. Furthermore, 25% of "net racetrack earnings", as
defined in the Company's financial statements (See Note 15 of the Company's
financial statements Item 8),from the Company's Garden State Park racetrack
facility are required to be paid by the Company in dividends on its Series A
Convertible Preferred Stock and thus would not be available for payment as
dividends on the Common Stock.
Item 6 - SELECTED FINANCIAL DATA
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
<TABLE>
Years Ended June 30,
1995 1994
<CAPTION>
<S> <C> <C> <C> <C>
Revenue from Operations $ 55,094,950 $ 37,334,236
Investment Income Revenue 3,487,788 3,343,274
Total Revenue $ 58,582,738 $ 40,677,510
Income(Loss) from
Continuing Operations $ 2,514,052 $ 2,500,595
Net Income (Loss) $ 2,398,452 $ 2,500,595
Net Income (Loss) from
Continuing Operations
per Common Share $ 0.26 $ 0.26
Working Capital (Deficiency) $ 9,202,399 $ 16,757,837
Total Assets $ 97,469,045 $ 74,433,411
Short Term Debt $ 1,441,399 $ 40,000
Long-Term Debt $ 15,510,257 $ -0-
Shareholders' Equity $ 72,206,437 $ 69,807,985
Cash Dividends Per Share $ -0- $ -0-
Weighted Average Number
of Shares 9,551,369 9,547,900
Common Shares Outstanding 9,551,386 9,551,255
</TABLE>
<TABLE>
Years Ended June 30,
1993 1992
<CAPTION>
<S> <C> <C> <C> <C>
Revenue from Operations $ 38,478,067 $ 39,505,622
Investment Income Revenue 3,394,805 5,610,502
Total Revenue $ 41,872,872 $ 45,116,124
Income(Loss) from Continuing
Operations $ (3,543,567)$ (7,266,183)
Net Income (Loss) $ (29,410,166)$ (6,466,152)
Net Income (Loss) from
Continuing Operations per
Common Share $ (0.40)$ (1.49)
Working Capital (Deficiency) $ 14,128,362 $ (2,098,249)
Total Assets $ 72,263,542 $ 204,235,883
Short Term Debt $ 35,418 $ 2,900,896
Long-Term Debt $ 50,000 $ 24,885,264
Shareholders' Equity $ 67,307,389 $ 171,203,740
Cash Dividends Per Share $ -0- $ -0-
Weighted Average Number
of Shares 8,950,025 4,868,001
Common Shares Outstanding 9,511,415 4,869,046
</TABLE>
<TABLE>
Years Ended June 30,
1991
<CAPTION>
<S> <C> <C>
Revenue from Operations $ 67,657,622
Investment Income Revenue 3,725,168
Total Revenue $ 71,382,790
Income(Loss) from Continuing
Operations $ (10,977,558)
Net Income (Loss) $ 4,288,480
Net Income (Loss) from
Continuing Operations per
Common Share $ (2.16)
Working Capital (Deficiency) $ 2,434,656
Total Assets $ 211,083,683
Short Term Debt $ 3,883,608
Long-Term Debt $ 24,920,282
Shareholders' Equity $ 177,669,892
Cash Dividends Per Share $ -0-
Weighted Average Number
of Shares 5,090,256
Common Shares Outstanding 4,867,507
</TABLE>
(1) Total Assets and Shareholders' Equity for June 30, 1993 reflect the
effects of a quasi-reorganization of the Company's assets during the
fiscal year ended June 30, 1993. The 1995 and 1994 statements of
operation are not comparable to prior years.
(2) The rights offering in August, 1992 materially affects the
comparability of the loss per share data.
(3) The weighted average number of shares, the per share data and the
common shares outstanding have been restated for all periods to
reflect the one-for-twenty reverse stock split effected on
March 13, 1992.
(4) One of the Company's two racetracks was sold in the fiscal year
ended June 30, 1991 which materially affects the comparability of
a portion of the information reflected in the above data.
(5) The Company completed its purchase during the fiscal year ended
June 30, 1995 of a racetrack operation effective January 1, 1995 which
materially affects the comparability of a portion of the information
reflected in the above data.
ITEM 7 - MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
FISCAL YEAR 1995 VS. FISCAL YEAR 1994
(A)Liquidity and Capital Resources
The Company's working capital, on a consolidated basis, as of
June 30, 1995, was $9,302,399 which represents a decrease of $7,455,438 from
the comparable period in the prior fiscal year. This decrease is primarily
the result of the effect of: 1) the utilization of approximately $5,300,000
in cash for the purchase of the Freehold racetrack (See Note 2); 2) a
decrease of $726,263 as a result of the effect on the Company's working
capital of current liabilities exceeding current assets for the Freehold
Raceway operation at June 30, 1995; and 3) an increase in the utilization of
approximately $950,000 related to the pursuit of
casino development under the direction of the International Thoroughbred Gaming
Development Corporation subsidiary. The Company is committed to a minimum of
$400,000 in additional expenses related to the pursuit of casino development
and other related projects. Freehold Raceway has entered into an agreement
to purchase land, previously leased as a parking lot, at Freehold for
$981,720 (See Note 19). A money mortgage note previously executed by Freehold
Raceway has a balloon payment of $1,405,000 due on August 20, 1996 if no
extension is negotiated. (See Note 5-B)
(B) Operations
During the year ended June 30, 1995, the Company realized after tax
income of $2,398,452 in comparison to after tax income in the prior fiscal
year of $2,500,595. The $102,143 or 4% decrease in net income is primarily
the net result of: 1) the net increased income generated by the purchase
of Freehold Raceway;
reduced by 2) the increased costs associated with casino gaming development;
3) interest expense of $556,799 associated with the mortgages on Freehold
Raceway; 4) a decrease in income from breeding operations; and 5) an increase
in general and administrative expenses primarily associated with the purchase
of Freehold Raceway. Total revenues increased by approximately 44% from
$40,677,510 in fiscal 1994 to $58,582,738 in fiscal 1995 primarily as a net
result of the purchase of Freehold Raceway, which significantly increased
racetrack revenues for the comparable periods. Total expenses increased
$17,891,771 or 47% from $38,176,915 in fiscal 1994 to $56,068,686 in fiscal
1995 primarily as a result of: 1) significant additional operating and
interest expenses during the second half of fiscal 1995 as a result of the
purchase of Freehold Raceway; and 2) increased
corporate expenses during comparable periods of approximately $620,000
associated with the development of casino gaming within racetrack structures
and with the development of other potential casino gaming operations,
via the Company's subsidiary, International Thoroughbred Gaming Development
Corporation ("ITG").
Management believes that the breeding operation has become insignificant
to the overall operation of the Company. The breeding operation recognized
a loss before taxes of $2,041 for the fiscal year ended June 30, 1995 as
compared to income of $171,337 for the comparable period in fiscal 1994.
During the year ended June 30, 1995, the Company realized investment income of
$3,487,788. This represents an increase of $144,514 from the 1994 investment
income of $3,343,274. This increase is primarily the result of an increase in
short term investment gains.
During the year ended June 30, 1995, the racetracks realized income of
$2,683,884 before taxes as compared to income of $818,717 before taxes for the
prior fiscal year. Interest expense of $556,799 for the current fiscal year
associated primarily with the mortgages on the Freehold racetrack is recognized
as a corporate expense, not that of the racetrack.
Garden State Park
During the current fiscal year (July 1, 1994 to June 30, 1995) Garden
State Park ran its tenth standardbred (harness) meet from September 7, 1994
through December 10, 1994 (55 dates) and its eleventh thoroughbred meet from
January 13, 1995 through May 27, 1995 (75 dates). During these race meetings,
Garden State Park simulcasts its live racing to other racetracks, other
licensed venues and certain Atlantic City casinos. Simulcasting into the
racetrack from other racetracks continues throughout the fiscal year.
During the year ended June 30, 1995 Garden State's revenue decreased $348,318
when compared to the prior fiscal year, primarily reflecting: 1) a significant
net decrease in revenues generated during the period from simulcasting into
Garden State Park from other racetracks; partially offset by (2) an increase
in revenues generated by the simulcasting out of Garden State Park's live
races to the other racetracks. The cost of revenues, primarily purse expenses
and simulcasting commissions, and operating expenses increased $367,118 or 1%
when compared to the same period last year. General and administrative
expenses were reduced by $140,380 or 4% primarily as a result of a cost
reduction program in effect for the year. As a net result of decreased
revenues and increased expenses during the fiscal year ended June 30, 1995,
Garden State Park's operating income was $201,872 before interest and income
taxes compared to income during the fiscal year ended June 30, 1994 of
$818,717.
The 1994 (fiscal 1995) Harness Meet (55 days) resulted in operating
income of approximately $855,000, compared with the 1993 Harness Meet's
(55 days) operating income of approximately $1,146,000. The decrease primarily
reflects the effect of reduced total live and simulcast receiving handles,
which generate higher commission rates, versus significantly increased total
simulcast sending handles, which carry a lower commission rate to the sending
track, while expenses remain approximately the same for the comparable periods.
Daily on-track attendance and wagering at the track's 1994 Harness Meet,
averaged 2,767 and $207,747, respectively, as compared to 2,674 and $237,558,
respectively, during the 1993 Harness Meet.
The 1995 Thoroughbred Meet (75 days) had an operating loss of
approximately $311,000 compared to the 1994 Thoroughbred Meet (62 days),
which had an operating loss of approximately $360,000. This decrease in
operating losses primarily reflects the net effect of the increased revenues
and expenses associated with an increase in the number of race days, due to
more favorable weather conditions, during the third quarter of this fiscal year
as compared to the comparable period in the prior fiscal year. Daily
on-track attendance and wagering at Garden State
Park's 1995 Thoroughbred Meet averaged 3,292 and $212,580, respectively. During
the 1994 Thoroughbred Meet, attendance and on-track wagering averaged 3,244 and
$248,534, respectively.
During the fiscal year ended June 30, 1995 the track had an operating
loss of approximately $342,000 during the non-racing periods between meets
as compared to income of approximately $35,000 in the prior fiscal year.
The increase in operating loss was primarily due to lower simulcasting handles.
Simulcasting, both to and from other New Jersey racetracks as well as
out-of-state racetracks and casinos, accounted for approximately 75% of
revenue whilelive racing and other income accounted for approximately 25% of
revenue at Garden State Park during fiscal 1995 and 1994.
Freehold Raceway
During the six months subsequent to the Company's purchase effective
January 1, 1995 (January 1, 1995 to June 30, 1995), Freehold Raceway ran
its Atlantic City Harness (ACH) standardbred (harness) meet from
January 2, 1995 through May 29, 1995 (107 dates). During this race meeting,
Freehold Raceway simulcasts its live racing to other racetracks, other
licensed venues and certain Atlantic City casinos. Simulcasting into the
racetrack from other racetracks continues throughout the fiscal year.
For the six months of operation under the Company's ownership during the
fiscal year ended June 30, 1995, Freehold Raceway realized operating income
of $2,482,012 before interest and income taxes. Revenue for the six month
was $18,210,033. The cost of revenues, primarily purse expenses and
simulcasting commissions, was $6,966,572. Operating and depreciation expenses
were $7,662,338 and $382,363, respectively. General and administrative
expenses were $716,748. Daily on-track attendance and wagering at the track's
1995 ACH Harness Meet, averaged 2,298 and $290,449, respectively.
Live racing accounted for approximately 54% of revenue at Freehold
Raceway during the six months of operation under the Company's ownership.
Simulcasting, both to and from other New Jersey racetracks as well as
out-of-state racetracks and casinos, accounted for approximately 46% of
revenue at Freehold Raceway during the six months of operation under the
Company's ownership.
FISCAL YEAR 1994 VS. FISCAL YEAR 1993
(A) Liquidity and Capital Resources
The Company's working capital, on a consolidated basis, as of June 30,
1994, was $16,757,857. The Company's working capital position increased
$2,629,475 for this fiscal year as compared to the fiscal year ended June 30,
1993 primarily as a result of a positive cash flow from operations and gains
realized from trading securities. The Company is committed to a minimum of
$550,000 in expenses related to the pursuit of casino development under the
direction of the newly created International Thoroughbred Gaming Development
Corporation subsidiary.
(1) Racetrack Segment
The working capital of the racetrack segment increased $708,616, before
interest due to the parent, as a primary result of earnings for the year. The
Company is committed to spending a minimum of $330,000 in connection to the
development of the 56 acre parcel of racetrack property as a retail shopping
center.
(2) Thoroughbred Horse Breeding Segment
At June 30, 1994, the Company owned two thoroughbred broodmares, four
stallion shares in four thoroughbred stallions, one season, one yearling,
one other horse and a two thirds interest in one other horse.
The sale of a broodmare or stallion share, reduces the producing assets
of the Company and would have an effect on future earnings; the sale of foals
would not. During fiscal 1993 and 1994, the Company continued a reduction of
its bloodstock holdings begun during fiscal 1986 in response to what management
believed to be a long term downturn in the bloodstock market and the continuing
need to raise cash for the operating requirements of the racetracks. The
Company plans to continue its bloodstock reduction program in fiscal 1995.
(B) Operations
During the year ended June 30, 1994, the Company realized after tax
income of $2,500,596 in comparison to a loss after taxes in the prior fiscal
year of $29,410,166. The change from a significant net loss to net income is
primarily the result of: 1) a significant decrease in depreciation expense as
a result of the quasi-reorganization at June 30, 1993; 2) reduced interest
expense as a result of the extinguishment of the debt on the Garden State Park
racetrack; 3) operating profits before interest due parent generated by Garden
State Park and operating profits generated by the breeding segment.
Total revenues decreased by approximately 3% from $41,872,872 in fiscal 1993
to $40,667,510 in fiscal 1994
primarily as a net result of increased revenues generated by Garden State Park
during the first half of the fiscal year reduced by a decrease in revenues
generated by Garden State Park during the second half of fiscal 1994. Total
expenses decreased $7,239,524 or 16% from $45,416,439 in fiscal 1993 to
$38,176,915 in fiscal 1994 primarily as a result of decreased depreciation and
interest expense as discussed above.
During the year ended June 30, 1994, the Company realized investment
income of $3,343,274. This represents a decrease of $51,531 from the 1993
investment income of $3,394,805. The decrease is primarily the net result
of the elimination of mortgage interest as a result of the sale of the mortgage
note held on Philadelphia Park and the increase in short term investment gains
realized from trading securities. (See Note 7 of the accompanying financial
statements.)
(1) Racetrack Segment
During the year ended June 30, 1994, the racetrack segment realized
income of $818,718 before taxes as compared to a loss of $2,451,790 before
taxes for the prior fiscal year. For purposes of segment discussion, interest
expense of $628,068 for the prior fiscal year associated primarily with the
mortgage on the racetrack is recognized as a corporate expense, not that of
the racetrack segment.
During the current fiscal year (July 1, 1993 to June 30, 1994) Garden
State Park ran its ninth standardbred (harness) meet from September 8, 1993
through December 11, 1993 (55 dates) and its tenth thoroughbred meet from
January 13, 1994 through May 28, 1994 (62 dates). During these race meetings,
Garden State Park simulcasts its live racing to out-of-state racetracks in
addition to other racetracks in New Jersey. Simulcasting of the live race
meetings into certain Atlantic City casinos was also conducted during the year.
Simulcasting into the racetrack from out-of-state racetracks and New Jersey
racetracks continues throughout the fiscal year.
During the fiscal year ended June 30, 1994, Garden State Park realized
operating income of $818,718 before interest and income taxes compared to a loss
during the fiscal year ended June 30, 1993 of $4,184,421. The change from
operating losses to operating income for the racetrack primarily reflect the
effect of the quasi-reorganization which significantly reduced depreciation
expense by approximately $5,000,000. Operating expenses decreased $1,260,597 or
5% primarily as a result of a reduction in the cost of outside service
contracts.
General and administrative expenses were reduced by $782,604 or 18% primarily
as a result of a cost reduction program in effect for the year.
The 1993 (fiscal 1994) Harness Meet (55 days) resulted in operating
income of approximately $1,146,000, compared with the 1992 Harness Meet's
(53 days) operating losses of approximately $951,000. The change primarily
reflects the significant decrease in depreciation expense as discussed above.
In addition, the racetrack experienced decreases in the average daily
attendance and handle which reduced revenues generated by live racing offset
by increased revenues generated by the simulcasting out of these races to New
Jersey and out-of-state racetracks and the Atlantic City casinos.
Daily on-track attendance and wagering at the track's 1993 Harness Meet,
averaged 2,674 and $237,558, respectively, as compared to 3,330 and
$303,908, respectively, during the 1992 Harness Meet.
Although Garden State Park received approval to conduct its 1994
Thoroughbred Meet on a four night per week basis for 79
nights from January 13, 1994 through May 28, 1994, racing was only conducted
for 62 of those nights due to severe
weather conditions that forced the cancellation of 17 of those scheduled race
dates. The 1994 Thoroughbred Meet (62 days) had an operating loss of
approximately $360,000 compared to the 1993 Thoroughbred Meet (74 days),
which had an operating loss of approximately $1,272,000. This decrease in
operating losses also primarily reflects the significantly reduced depreciation
expense as discussed above. Daily on-track attendance and wagering at
Garden State Park's 1994 Thoroughbred Meet averaged 3,492 and $248,534,
respectively. During the 1993
Thoroughbred Meet, attendance and on-track wagering averaged 4,234 and $363,499,
respectively.
During the fiscal year ended June 30, 1994 the track realized income of
approximately $35,000 during the non-racing periods between meets as compared to
a loss of approximately $1,961,000 in the prior fiscal year. The change was
primarily due to the significantly decreased depreciation expense during this
fiscal year as compared to last.
Simulcasting, both to and from other New Jersey racetracks as well as
out-of-state racetracks and casinos, accounted for approximately 75% of
revenue at Garden State Park during fiscal 1994 and 1993.
(2) Thoroughbred Horse Breeding Operations
Revenues and expenses from breeding operations for the current fiscal
year ended June 30, 1994 were approximately 1% of total revenues and
expenses of the Company for the period.
Revenues from breeding operations for the fiscal years ended June 30,
1994 and 1993 were $573,323 and $273,499, respectively, representing an
increase of $299,824 primarily of the increased value of the breeding stock
sold during comparable periods.
As a result of the Company having a lower cost basis in the breeding
stock sold during the 1994 fiscal year as compared to fiscal 1993, the cost
of revenues generated by the breeding segment in the current fiscal year was
$166,649, representing a $130,229 or 44% decrease in comparison to last fiscal
year.
Operating and depreciation expenses for the current fiscal year were $167,370
representing a $162,034 or 49% decrease from the prior fiscal year due to the
number of animals owned during the periods being significantly reduced.
The breeding segment realized income before taxes of $171,336 as
compared to a loss before taxes of $429,697 for the prior fiscal year,
primarily reflecting the increase in revenues and decrease in expenses
during fiscal 1994 as discussed above.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached.
ITEM 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements on accounting and financial disclosure
between the Company and its independent public accountants.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
International Thoroughbred Breeders, Inc.
We have audited the accompanying consolidated balance sheets of
International Thoroughbred Breeders, Inc. and its subsidiaries as of
June 30, 1995 and 1994, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended June 30, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements.An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
International Thoroughbred Breeders, Inc. and its subsidiaries as of June 30,
1995 and 1994, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended June 30, 1995, in
conformity with generally accepted accounting principles.
MORTENSON AND ASSOCIATES, P.C.
Certified Public Accountants
Cranford, New Jersey
September 25, 1995
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1995 AND 1994
ASSETS
<TABLE>
June 30, June 30,
1995 1994
<CAPTION>
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash $ 4,167,811 $ 2,683,361
Short-Term Investments 7,633,483 13,392,730
TOTAL CASH AND CASH EQUIVALENTS 11,801,294 16,076,091
Restricted Cash and Investments 2,151,411 2,690,072
Accounts Receivable - Net 2,285,792 937,921
Prepaid Expenses 1,143,007 907,654
Other Current Assets 22,795 52,142
TOTAL CURRENT ASSETS 17,404,299 20,663,880
LAND, BUILDINGS, EQUIPMENT AND LIVESTOCK:
Land and Buildings 74,296,090 52,133,715
Equipment 3,666,168 1,800,630
Livestock 17,517 187,951
TOTAL LAND, BUILDINGS, EQUIPMENT
AND LIVESTOCK 77,979,775 54,122,296
LESS: Accumulated Depreciation 1,570,024 801,031
TOTAL LAND, BUILDINGS, EQUIPMENT
AND LIVESTOCK - NET 76,409,751 53,321,265
OTHER ASSETS:
Deposits and Other Assets 392,531 448,266
Goodwill - Net 3,262,464 0
TOTAL OTHER ASSETS 3,654,995 448,266
TOTAL ASSETS $ 97,469,045 $ 74,433,411
See Notes to Financial Statements.
</TABLE>
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1995 AND 1994
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
June 30, June 30,
1995 1994
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C> <C> <C>
Accounts Payable and Accrued Expenses $ 6,656,061 $ 3,866,043
Notes and Mortgages Payable -
Current Portion 1,341,399 40,000
State Income Taxes Payable 115,600 0
TOTAL CURRENT LIABILITIES 8,113,060 3,906,043
DEFERRED INCOME 1,550,451 719,383
NOTES AND MORTGAGES PAYABLE - Long
Term Portion 15,599,097 0
COMMITMENTS AND CONTINGENCIES 0 0
SHAREHOLDERS' EQUITY:
Series A (Convertible) Preferred
Stock $100.00 Par Value,Authorized
500,000 Shares, Issued and Outstanding,
362,450 and 362,443 Shares, Respectively 36,244,975 36,244,275
Common Stock $2.00 Par Value, Authorized
25,000,000 Shares,Issued and Outstanding,
9,551,386 and 9,551,255 Shares,
Respectively 19,102,771 19,102,509
Capital in Excess of Par 11,959,643 11,960,605
Retained Earnings (subsequent to
June 30, 1993, date of quasi-reorganization,
total deficit eliminated $102,729,936) 4,899,048 2,500,596
TOTAL SHAREHOLDERS' EQUITY 72,206,437 69,807,985
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 97,469,045 $ 74,433,411
</TABLE>
See Notes to Financial Statements.
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
Years Ended June 30,
1995 1994
<CAPTION>
REVENUES:
<S> <C> <C> <C> <C>
Revenue from Operations $ 55,094,950 $ 37,334,236
Investment Income 3,487,788 3,343,274
TOTAL REVENUES 58,582,738 40,677,510
EXPENSES:
Cost of Revenues 17,342,134 10,416,610
Operating Expenses 29,892,282 22,088,521
Depreciation & Amortization 965,026 544,344
General & Administrative Expenses 7,312,445 5,127,440
Interest Expense 556,799 0
TOTAL EXPENSES 56,068,686 38,176,915
INCOME (LOSS) FROM OPERATIONS BEFORE
TAXES, NON-OPERATING INCOME (LOSS) AND
EXTRAORDINARY ITEM 2,514,052 2,500,595
NON-OPERATING LOSS 0 0
INCOME (LOSS) BEFORE TAXES AND
EXTRAORDINARY ITEM 2,514,052 2,500,595
LESS: Income Tax Expense 115,600 0
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 2,398,452 2,500,595
EXTRAORDINARY ITEM:
Gain on Extinguishment of Debt 0 0
NET INCOME (LOSS) $ 2,398,452 $ 2,500,595
PER SHARE:
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM $ 0.25 $ 0.26
NET INCOME (LOSS) $ 0.25 $ 0.26
See Notes to Financial Statements.
</TABLE>
<TABLE>
Years ended June 30,
1993
<CAPTION>
REVENUES:
<S> <C> <C>
Revenue from Operations $ 38,478,067
Investment Income 3,394,805
TOTAL REVENUES 41,872,872
EXPENSES:
Cost of Revenues 9,970,694
Operating Expenses 23,308,378
Depreciation & Amortization 5,601,887
General & Administrative Expenses 5,896,787
Interest Expense 638,693
TOTAL EXPENSES 45,416,439
INCOME (LOSS) FROM OPERATIONS BEFORE
TAXES, NON-OPERATING INCOME (LOSS) AND
EXTRAORDINARY ITEM (3,543,567)
NON-OPERATING LOSS (27,599,230)
INCOME (LOSS) BEFORE TAXES AND
EXTRAORDINARY ITEM (31,142,797)
LESS: Income Tax Expense 0
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (31,142,797)
EXTRAORDINARY ITEM:
Gain on Extinguishment of Debt 1,732,631
NET INCOME (LOSS) $ (29,410,166)
PER SHARE:
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM $ (3.48)
NET INCOME (LOSS) $ (3.29)
See Notes to Financial Statements.
</TABLE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
Common
Number of
Shares Amount
<CAPTION>
<S> <C> <C>
BALANCE - JUNE 30, 1992 4,869,046 9,738,092
Sale of Common Stock From
Rights Offering 4,640,103 9,280,206
Shares Issued for Fractional
Exchanges With Respect to the
One-for-twenty Reverse
Stock Split effected on March
13,1992 278 556
Exchange of Preferred Stock
for Common Stock 1,988 3,976
Quasi-reorganization
Revaluation adjustments, net --- ---
Transfer to additional capital --- ---
Net (Loss) for the Year Ended
June 30, 1993 --- ---
BALANCE - JUNE 30, 1993 9,511,415 19,022,830
Shares Issued for Fractional
Exchanges With Respect to the
One-for-twenty Reverse
Stock Split effected on March 211 422
13, 1992
Exchange of Preferred Stock for
Common Stock 39,629 79,257
Net Income for the Year Ended
June 30, 1994 --- ---
BALANCE - JUNE 30, 1994 9,551,255 19,102,509
Shares Issued for Fractional Exchanges
With Respect to the One-for-twenty
Reverse Stock Split effected on
March 13, 1992 131 262
Net Income for the Year
Ended June 30, 1995 --- ---
BALANCE - JUNE 30, 1995 9,551,386 19,102,771
See Notes to Financial Statements.
</TABLE>
<TABLE>
Preferred
Number of
Shares Amount
<CAPTION>
<S> <C> <C>
BALANCE - JUNE 30, 1992 445,371 44,537,075
Sale of Common Stock From
Rights Offering --- ---
Shares Issued for Fractional
Exchanges With Respect to the
One-for-twenty Reverse
Stock Split effected on March
13, 1992 251 25,100
Exchange of Preferred Stock for
Common Stock (3,958) (395,800)
Quasi-reorganization
Revaluation adjustments, net --- ---
Transfer to additional capital --- ---
Net (Loss) for the Year Ended
June 30, 1993 --- ---
BALANCE - JUNE 30, 1993 441,664 44,166,375
Shares Issued for Fractional
Exchanges With Respect to the
One-for-twenty Reverse Stock Split
effected on March 13, 1992 36 3,600
Exchange of Preferred Stock for
Common Stock (79,257) (7,925,700)
Net Income for the Year Ended
June 30, 1994 --- ---
BALANCE - JUNE 30, 1994 362,443 36,244,275
Shares Issued for Fractional
Exchanges With Respect to the
One-for-twenty Reverse Stock Split
effected on March 13, 1992 7 700
Net Income for the Year Ended
June 30, 1995 --- ---
BALANCE - JUNE 30, 1995 362,450 36,244,975
See Notes to Financial Statements.
</TABLE>
<TABLE>
Capital
in Excess Retained
of Par Earnings
<CAPTION>
<S> <C> <C>
BALANCE - JUNE 30, 1992 190,248,343 (73,319,770)
Sale of Common Stock From
Rights Offering (286,377) ---
Shares Issued for Fractional
Exchanges With Respect to the
One-for-twenty Reverse Stock Split
effected on March 13, 1992 (25,656) ---
Exchange of Preferred Stock
for Common Stock 391,824 ---
Quasi-reorganization
Revaluation adjustments, net (83,480,014) ---
Transfer to additional capital (102,729,936) 102,729,936
Net (Loss) for the Year Ended
June 30, 1993 --- (29,410,166)
BALANCE - JUNE 30, 1993 4,118,184 0
Shares Issued for Fractional
Exchanges With Respect to the
One-for-twenty Reverse Stock Split
effected on March 13,1992 (4,022) ---
Exchange of Preferred Stock for
Common Stock 7,846,443 ---
Net Income for the Year Ended
June 30,1994 --- 2,500,596
BALANCE - JUNE 30, 1994 11,960,605 2,500,596
Shares Issued for Fractional
Exchanges With Respect to the
One-for-twenty Reverse Stock Split
effected on March 13, 1992 (962) ---
Net Income for the Year Ended
June 30,1995 --- 2,398,452
BALANCE - JUNE 30, 1995 11,959,643 4,899,048
See Notes to Financial Statements.
</TABLE>
<TABLE>
Total
<CAPTION>
<S> <C>
BALANCE - JUNE 30, 1992 171,203,740
Sale of Common Stock From
Rights Offering 8,993,830
Shares Issued for Fractional
Exchanges With Respect to the
One-for-twenty Reverse Stock Split
effected on March 13, 1992 ---
Exchange of Preferred Stock for
Common Stock ---
Quasi-reorganization
Revaluation adjustments, net (83,480,014)
Transfer to additional capital 0
Net (Loss) for the Year Ended
June 30, 1993 (29,410,166)
BALANCE - JUNE 30, 1993 67,307,389
Shares Issued for Fractional
Exchanges With Respect to the
One-for-twenty Reverse Stock
Split effected on March 13, 1992 ---
Exchange of Preferred Stock for
Common Stock ---
Net Income for the Year Ended
June 30, 1994 2,500,596
BALANCE - JUNE 30, 1994 69,807,985
Shares Issued for Fractional
Exchanges With Respect to the
One-for-twenty Reverse Stock
Split effected on March 13, 1992 ---
Net Income for the Year Ended
June 30, 1995 2,398,452
BALANCE - JUNE 30, 1995 72,206,437
See Notes to Financial Statements.
</TABLE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
Years Ended June 30,
1995 1994
<CAPTION>
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Cash Received from Customers $ 55,501,775 $ 36,888,487
Cash Paid to Suppliers and Employees (56,806,149) (38,174,512)
Interest Received 677,488 420,460
Mortgage Interest Received 0 0
Interest Paid (160,674) 0
Cash Used to Purchase Trading Securties (2,234,000) (7,225,000)
Cash Received from Sale of Trading
Securities 5,602,485 10,107,546
Change in Restricted Cash & Investments (21,339) (745,055)
NET CASH PROVIDED BY OPERATIONS 2,559,585 1,271,926
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Livestock 178,359 473,164
Proceeds from Sale of Equipment 8,500 67,000
Decrease in Mortgage Receivable 0 0
Purchase Freehold Racetrack -
Net of Cash Received (94,602) 0
Capital Expenditures (1,090,904) (1,019,886)
(Increase)Decrease in Other
Investment Activity (187,188) (18,349)
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (1,185,835) (498,071)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Common Stock 0 0
Principal Payments on Acquired Debt
Freehold (5,169,098) 0
Principal Payments on Long Term Notes (479,449) (35,418)
NET CASH USED BY FINANCING ACTIVITIES (5,648,547) (35,418)
NET INCREASE(DECREASE) IN CASH AND
CASH EQUIVALENTS (4,274,797) 738,437
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 16,076,091 15,337,655
CASH AND CASH EQUIVALENTS AT
END OF THE YEAR $ 11,801,294 $ 16,076,091
See Notes to Financial Statements.
</TABLE>
<TABLE>
Years Ended June 30,
1993
<CAPTION>
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Cash Received from Customers $ 38,497,194
Cash Paid to Suppliers and Employees (39,474,874)
Interest Received 311,251
Mortgage Interest Received 3,591,983
Interest Paid (638,693)
Cash Used to Purchase Trading Securties 0
Cash Received from Sale of Trading
Securities 0
Change in Restricted Cash & Investments (386,739)
NET CASH PROVIDED BY OPERATIONS 1,900,122
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Livestock 233,154
Proceeds from Sale of Equipment 42,879
Decrease in Mortgage Receivable 27,264,042
Purchase Freehold Racetrack - Net
of Cash Received 0
Capital Expenditures (300,285)
(Increase)Decrease in Other Investment
Activity 11,758
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES 27,251,548
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Common Stock 8,993,830
Principal Payments on Acquired Debt
Freehold 0
Principal Payments on Long Term Notes (24,600,000)
NET CASH USED BY FINANCING ACTIVITIES (15,606,170)
NET INCREASE(DECREASE) IN CASH AND
CASH EQUIVALENTS 13,545,500
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 1,792,155
CASH AND CASH EQUIVALENTS AT
END OF THE YEAR $ 15,337,655
See Notes to Financial Statements
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
Years Ended June 30,
1995 1994
<CAPTION>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $ 2,398,452 $ 2,500,596
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization 965,026 544,344
(Gain)Loss on Disposal of Investment 0 164,478
(Gain)Loss on Sale of Buildings &
Equipment (3,314) (8,000)
(Gain) Loss on Sale of Livestock (110,024) (330,534)
Non Operating (Income)Loss 0 0
Extraordinary Item 0 0
Changes in Assets and Liabilities -
(Increase)Decrease in Restricted Cash (21,339) (745,055)
(Increase)Decrease in Accounts Receivable 12,576 (222,198)
(Increase)Decrease in Mortgage Receivable 0 0
(Increase)Decrease in Other Assets 102,324 146,129
(Increase)Decrease in Notes Payable 479,449 0
(Increase)Decrease in Accrued Interest 44,185 (40,268)
(Increase)Decrease in Inventory (32,416) 7,155
(Increase)Decrease in Prepaid Expenses (138,661) (211,835)
Increase(Decrease) in Account Payable
and Accrued Expenses (1,967,740) (837,528)
Increase(Decrease) in Deferred Income 831,068 304,642
TOTAL ADJUSTMENTS 161,134 (1,228,670)
NET CASH PROVIDED(USED) BY OPERATING
ACTIVITIES $ 2,559,585 $ 1,271,926
See Notes to Financial Statements.
</TABLE>
<TABLE>
Years Ended June 30,
1993
<CAPTION>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
<S> <C> <C>
NET INCOME (LOSS) $ (29,410,166)
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization 5,601,887
(Gain)Loss on Disposal of Investment 0
(Gain)Loss on Sale of Buildings &
Equipment 2,136
(Gain) Loss on Sale of Livestock 52,042
Non Operating (Income)Loss 27,599,230
Extraordinary Item (1,732,631)
Changes in Assets and Liabilities -
(Increase)Decrease in Restricted Cash (386,739)
(Increase)Decrease in Accounts Receivable 99,682
(Increase)Decrease in Mortgage Receivable 264,042
(Increase)Decrease in Other Assets (34,979)
(Increase)Decrease in Notes Payable 0
(Increase)Decrease in Accrued Interest 512,600
(Increase)Decrease in Inventory 2,720
(Increase)Decrease in Prepaid Expenses (11,806)
Increase(Decrease) in Account Payable
and Accrued Expenses (853,375)
Increase(Decrease) in Deferred Income 195,477
TOTAL ADJUSTMENTS 31,310,288
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 1,900,122
See Notes to Financial Statements.
</TABLE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Consolidation - The accounts of all wholly owned subsidiaries are
included in the consolidated financial statements. All material intercompany
transactions have been eliminated.
(B) Classifications - Certain prior year amounts have been reclassified
to conform with the current year's presentation.
(C) Allowance for Bad Debts - The Company recognizes bad debts on the
allowance method. Bad debt allowance for fiscal years ended June 30, 1995 and
1994 was $20,000.
(D) Goodwill - Goodwill is the excess of the cost of acquired net assets
over their fair value. It is being amortized over 30 years under the straight
line method. Accumulated amortization at June 30, 1995 is $58,165.
Management of the Company evaluates the periods of goodwill amortization
to determine whether later events and circumstances warrant revised estimates
of useful lives. Management also evaluates whether the carrying value of
goodwill has become impaired. This evaluation is done by analyzing the
projected undiscounted cash flow from related operations.
(E) Revenue Recognition - The Company recognizes the revenues associated
with horse racing at Garden State Park and Freehold Raceway as they are earned.
Costs and expenses associated with horse racing revenues are charged against
income in those periods in which the horse racing revenues are recognized.
Other costs and expenses are recognized as they actually occur throughout the
year. Deferred income primarily consists of prepaid purse income.
(F) Deferred Income Taxes - Deferred income taxes reflect the tax
consequences on future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts.
(G) Cash Flows - The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
(H) Concentrations of Credit Risk - As of June 30, 1995, financial
instruments which potentially subject the Company to concentrations of credit
risk are cash and cash equivalents and receivables arising primarily from
event planning customers whose credit is routinely evaluated. The Company
places its cash investments with high credit quality financial institutions
and currently invests primarily in U.S. government obligations that have
maturities of less than 3 months. The amount on deposit in any one
institution that exceeds federally insured limits is subject to credit risk.
The Company believes no significant concentration of credit risk exists with
respect to these cash investments.
(2) STOCK PURCHASE OF FREEHOLD RACEWAY
On February 2, 1995, ITB completed the purchase of all of the outstanding
stock of Freehold Racing Association ("FRA") and Atlantic City Harness, Inc.,
("ACH") the operating companies of Freehold Raceway, and CIRCA 1850, Inc.,
a small real estate holding company, (herein and after collectively referred to
as Freehold Raceway) from an unrelated party. FRA and ACH will continue to
hold the racing permits and conduct the racing programs at Freehold Raceway.
The purchase price of the stock was $17.8 million with approximately $2.7
million paid in cash and the balance financed with the seller by: 1) an eight
year, $12.5 million note at eighty percent of the prevailing prime rate, not to
exceed six percent; and 2) an eleven and one half year $2.6 million promissory
note at eighty percent of the prevailing prime rate. The note is secured by a
mortgage on the land and buildings at Freehold Raceway and other collateral
including 2,000,000 shares of ITB's Common Stock pledged by ITB's principal
stockholder. (See Note 5-A) The transaction, completed on February 2, 1995,
was effective as of January 1, 1995. The results of operations of FRA for six
months are included in the consolidated statement of operations for the year
ended June 30, 1995.
The total cost of $18,153,480 exceeded the fair value of net assets
acquired by $3,317,628, which is presented as goodwill in the accompanying
financial statements. (See Note 1-D).
The following unaudited pro forma combined results of operations account
for the acquisition as if it had occurred on July 1, 1993. The pro forma
results give effect to depreciation of fixed assets purchased, amortization of
goodwill, and interest expense.
International Thoroughbred Breeders, Inc.
Pro Forma Combined Results of Operations
<TABLE>
For The Years Ended June 30,
1995 1994
<CAPTION>
<S> <C> <C>
Total Revenues $81,108,421 $73,421,902
Net Earnings 4,327,260 4,389,154
Net Earnings
Per Common Share 0.45 0.46
Weighted Average Number
of Shares Outstanding 9,551,369 9,547,900
</TABLE>
These pro forma amounts may not be indicative of results that actually
would have occurred if the combination had been in effect on the dates indicated
or which may be obtained in the future.
(3) INVESTMENTS
Short term investments, classified as cash equivalents, consist of
interest bearing certificates of deposit, repurchase agreements and commercial
paper, whose cost approximates fair value.
(4) LAND, BUILDINGS, EQUIPMENT AND LIVESTOCK
For the fiscal year ended June 30, 1995 livestock, equipment, land and
buildings were carried at their adjusted fair value in accordance with
accounting principals applicable to a quasi-reorganization of the Company's
assets which was completed in fiscal 1993. Depreciation is being computed over
the estimated remaining useful lives using the straight-line method.
A summary of livestock, equipment, land and buildings and depreciation
recorded for the fiscal year ended June 30, 1995 and 1994, is as follows:
<TABLE>
Accumulated
June 30, 1995 Adjusted Depreciation Depreciation
Class Basis Charged June 30, 1995
<CAPTION>
<S> <C> <C> <C>
Land $45,605,000 $n/a $ n/a
Building & Improvements(A) 28,691,090 685,154 1,222,800
Furniture, Fixtures,
Machinery & Equipment 3,666,168 220,709 346,224
Broodmares
& Other Horses (B) 17,517 1,000 1,000
Stallion Shares 0 0 0
Totals $77,979,775 $906,863 $1,570,024
</TABLE>
<TABLE>
Accumulated
June 30, 1994 Adjusted Depreciation Depreciation
Class Basis Charged June 30, 1994
<CAPTION>
<S> <C> <C> <C>
Land $38,000,000 $ n/a $ n/a
Building & Improvements(A) 14,133,715 427,048 537,646
Furniture, Fixtures,
Machinery & Equipment 1,800,630 109,046 136,387
Broodmares
& Other Horses (B) 56,954 0 0
Stallion Shares 130,997 8,250 126,998
Totals $54,122,296 $544,344 $801,031
</TABLE>
(A) Includes property not yet placed in service costing $21,520 and $439,694
as ofJune 30, 1995 and 1994 respectively, on which no depreciation was taken.
(B) Includes horses costing $7,521 and $56,952 as of June 30, 1995 and 1994
respectively, on which no depreciation was taken since the horses were either
not yet placed in breeding service or were being held for resale.
The depreciable life of buildings & improvements is based on a 15 to 40
year life. Furniture, fixtures, machines and equipment is being depreciated over
a 5 to 15 year period and livestock is being depreciated between 2 and 10 years.
(5) NOTES AND MORTGAGES PAYABLE
( A ) On February 2, 1995, the Company entered into an agreement with the
former owner of FRA whereby the $12.5 million balance of the purchase price of
the Freehold Raceway (See Note 2) was financed by an eight year promissory note
at 80% of the prevailing prime rate, adjusted on each anniversary date, not to
exceed 6%. Yearly principal and interest payments during the first five (5)
years commencing January 31, 1996 shall be paid based upon a twenty (20) year
principal amortization schedule. During each of the next three (3) years,
commencing January 21, 2001, yearly principal and interest payments shall be
based upon a ten (10) year amortization schedule. On December 31, 2003, the
entire unpaid principal balance, together with any accrued interest, becomes
due and payable.
At January 31, 1995, the prime rate was 8.5%, therefore interest due on the note
for the first year shall be calculated at 6%. The note is secured by a mortgage
on the land and buildings at Freehold Raceway and other collateral. At June 30,
1995, $625,000 of the principal balance was classified as short term and
$11,875,000 was classified as long term.
( B ) On February 2, 1995, the Company and the seller of FRA each
advanced to FRA $2,584,549 to retire the $5.2 million existing debt on FRA.
The seller and ITB received from FRA promissory notes evidencing the
indebtedness secured by mortgages on the racetrack property and other
collateral. Equal monthly principal installments of $18,750 beginning on
March 1, 1995 shall be paid to the seller together with accrued interest.
Interest shall be calculated at 80% of the prime
rate at January 31 of each year. The first year interest payments shall be
calculated at 6.8%. At June 30, 1995, $225,000 of the principal balance was
classified as short term and $2,265,799 was classified as long term.
( C ) On August 24, 1994, FRA renewed a two (2) year note payable to
Marine Midland Bank in the amount of $2,345,000. Twenty three principal
payments of $40,000 are to be paid monthly together with interest calculated
at the prime rate computed on the basis of a 360 day year for the actual
number of days elapsed. On August 20, 1996, the entire unpaid principal
balance, scheduled to be $1,405,000 if no extension is negotiated, together
with any accrued interest, becomes due and payable. At June 30, 1995,
$480,000 of the principal balance was classified as short term and $1,445,000
was classified as long term.
Notes and Mortgages Payable are summarized below:
<TABLE>
June 30, 1995
Interest % Current Long-Term
<CAPTION>
Freehold Raceway:
<S> <C> <C> <C>
Mortgage (A) 80% of Prime $625,000 $11,875,000
(Not to exceed 6%)
Mortgage (B) 80% of Prime 225,000 2,265,799
Note (C) Prime 480,000 1,445,000
Notes - Other Various 11,399 13,298
Garden State Park:
Notes: N/A 0 0
Totals $1,341,399 $15,599,097
</TABLE>
<TABLE>
June 30, 1994
Current Long-Term
<CAPTION>
Freehold Raceway:
<S> <C> <C>
Mortgage (A) $0 $0
Mortgage (B) 0 0
Note (C) 0 0
Notes - Other 0 0
Garden State Park:
Notes: 0 0
Totals $40,000 $0
</TABLE>
Annual maturities of the Company's consolidated long-term debt as of
June 30, 1995 are as follows:
To June 30, 1997 $ 1,341,399
To June 30, 1998 1,331,899
To June 30, 1999 1,330,000
To June 30, 2000 855,000
To June 30, 2001 850,000
Future Payments 9,890,799
Total $15,599,097
(6) COMMITMENTS AND CONTINGENCIES
The Company announced on March 22, 1994, an offer to purchase The
Meadowlands Sports Complex and Monmouth Park for $1 Billion from the New Jersey
Sports and Exposition Authority ("NJSEA"). An alternative offer also was made
to purchase Monmouth Park and The Meadowlands Race Track improvements for $125
million and to enter into a long-term lease for the Meadowlands Race Track
for $50 million per year. The offer is subject, among other conditions,
to adoption by the voters of the State of New Jersey of an appropriate
constitutional amendment authorizing the casino gaming at the Meadowlands
and Garden State Park racetracks. ITB acquired options to purchase Atlantic
City Race Course and Freehold Raceway. The option on the Atlantic City Race
Course was allowed to expire on March 18, 1995 and there are no plans
presently contemplated with regard to renegotiating the option. The option to
purchase Freehold Raceway was exercised and completed on February 2, 1995
(See Note 2). Assuming acceptance of the Company's offer by the NJSEA, and the
adoption of the said constitutional amendment, the Company proposes to
construct interactive gaming complexes that combine racing, casino gaming and
entertainment on land presently used to stable and train horses at The
Meadowlands and Garden State Park. The ITB offer proposes that up to 12
casinos be constructed and operated in the current stable area of each
racetrack. The existing operating, licensed casino owners/operators in
Atlantic City, New Jersey would be offered the opportunity to own and operate
all of those casinos with the Company paid rent by the casino operators.
The plan does provide that tracks can operate casinos within racetrack
structures. Monmouth Park would serve as the backstretch and training centers
for The Meadowlands and Garden State Park. There
has been no indication that the Sports Authority intends to treat the Company's
proposal favorably. No assurances can be given as to the outcome of the
Company's proposal.
The Company formed a wholly owned subsidiary, International Thoroughbred
Gaming Development Corporation (ITG), which is responsible for implementing
the development of casino gaming business opportunities. In addition to the
funds expended during the last two fiscal years of approximately $1,150,000
the Company is committed to approximately $400,000 in expenses, related to
the development of the above described project and other casino gaming business
opportunities. The Company's financial commitment could increase if
circumstances warrant.
No assurances can be given that the Company's offer will be accepted or
that the constitutional amendment will be placed on the ballot or adopted.
Furthermore, even assuming such acceptance and adoption, no assurance can be
given that the Company will be able to obtain the required financing.
The Company has lease contracts for various equipment and maintenance
contracts at Garden State Park and Freehold Raceway. The majority of these
contracts are based upon the daily average of the pari-mutuel wagers accepted
during the Company's racing meets with a minimum per day. The minimum rental
payments for the next five years are based on 130 and 208 annual racing dates
at Garden State Park and Freehold Raceway, respectively.
On July 1, 1995, the Company executed an agreement to lease office space
at 50 Broadway, New York, New York, under its subsidiary, Olde English
Management, Inc. The two year lease provides for a monthly rent of $18,168.75
beginning August, 1995. The following summarizes the commitments on all
contracts:
Year Ended June 30:
1996 $2,674,400
1997 2,297,554
1998 947,554
1999 500,000
2000 500,000
Subsequent to June 30,
2000 457,000
Garden State has granted the exclusive right to operate all food and
retail services and to sell or rent all food products and merchandise sold or
rented at the racetrack facility to Service America Corporation, an
unaffiliated third party experienced in the business. The term of the agreement
is for the 15 year period commencing on opening day of the racetrack. Service
America agreed to invest $7,000,000 in the concession premises at the racetrack
facility. As of June 30, 1995, the Company is contingently liable for
approximately $2,200,000 if this agreement were to be terminated.
Racing dates at Garden State Park and Freehold Raceway are awarded each
year at the discretion of the State Racing Commission.
On August 16, 1986, a putative "class action" was filed against the
Company, its Garden State Race Track, Inc. subsidiary, First Jersey
Securities, Inc. ("First Jersey"), two other broker-dealers, the Company's
Chairman of the Board and principal stockholder, and ten other present and
former directors of the Company alleging various violations of federal
securities laws and other statutes. On July 8, 1987, another putative
"class action" was filed against the Company, First Jersey, another
broker-dealer,the Company's Chairman of the Board and principal stockholder,
and six other present and former directors of the Company alleging various
violations of federal securities laws and other statutes. During
fiscal 1988, based upon a change of venue motion which had been filed by the
Company, the U.S. District Court transferred both cases from the Southern
District of New York to the District of New Jersey. On June 7, 1988 a
consolidated amended complaint was filed by the plaintiffs in the two putative
"class action" suits described above in federal court in Trenton. This complaint
was substantially similar to the original suits filed separately except to name
eleven current and former directors as defendants. On July 27, 1989, based upon
motions which had been filed by the Company, the United States District Court,
District of New Jersey dismissed several, but not all, of the claims and
allegations contained in the consolidated amended complaint. On October 20,
1993, the United States District Court for the District of New Jersey signed an
order granting preliminary approval to a proposed partial settlement of the
claims. Although the Company believes this lawsuit is totally without merit,
it has incurred approximately $1,150,000 in legal expense in defending against
the lawsuit and would have been required to expend significant additional
amounts to continue the defense through trial. In order to avoid further
expense, inconvenience and delay and to dispose of this expensive, burdensome
and protracted litigation, the Company executed a proposed partial Settlement
Agreement. The proposed partial settlement required the Company to make a
$250,000 settlement payment and an additional payment of up to $150,000
contingent upon receipt of future amounts by the Company from its sale
of the Philadelphia Park mortgage note. On January 25, 1995, the Company
agreed to modify the terms of the agreement pertaining to the Philadelphia Park
mortgage note which provides that no additional pyaments will be made.
The settlement disposes of all class claims made against the Company,
its officers and directors and all derivative claims made on behalf of the
Company against all parties in the litigation. As part of the proposed
settlement, the Company's directors and officers' liability insurance carrier
will pay $3,125,000 plus an additional $4,125,000 which latter amount is subject
to reduction on a dollar for dollar basis in the event of collections from
certain non-settling defendants. On April 12, 1994, an order was entered
approving the settlement agreement and entering a final judgment of dismissal
of the plaintiffs claims against the Company and the Director defendants in
their capacity as officers and directors of the Company. Certain non-settling
defendants appealed the order approving the settlement. On March 27, 1995,
the United States Court of Appeals for the Third Circuit affirmed
the district court's approval of the settlement.
On January 25, 1995 the Company agreed to modify certain terms of: 1)
the
asset purchase agreement dated October 12, 1990 relating to the sale of its
Philadelphia Park subsidiary; and 2) the agreement whereby the Company assigned
its rights under the purchase money mortgage and note it held on Philadelphia
Park. Under the terms of this modification, the Company is released from all
liability for environmental clean-up at Philadelphia Park to the extent that
such clean-up costs exceed $370,500 (previously the Company had been responsible
for up to $3.35 million in clean-up costs). In consideration for this release,
the Company has waived its right to: 1) certain fees that it was entitled to
receive under the asset purchase agreement based upon a percentage of
Philadelphia Park's handle when operating in competition with Garden State Park;
and 2) all future contingent payments due the Company in connection with its
sale of the Philadelphia Park mortgage note based upon possible future
profitable operations of Philadelphia Park. The Company retained the right to
receive an accounting from the assignee of the Philadelphia Park mortgage note
so that the Company may determine to what extent, if any, an amount equal to
the 1994 and 1995 contingent fees are payable under the terms of the proposed
partial settlement of the putative "class action". The assignee of the
Philadelphia Park mortgage note has provided said accountings and no
contingent fees would have been due for 1994 and 1995. Consequently, no
additional payments will be made in settlement of the above-described legal
action. (See Part I, Item 3 Legal Proceedings.)
(7) INVESTMENT INCOME
Investment income consists primarily of gains realized on trading
securities. In computing the realized gain, cost was determined under the
specific identification method.
(8) PRIOR YEAR INFORMATION
During the third quarter of fiscal 1993, the Company incurred a
non-operating loss of $27,599,230 as a result of the sale of Philadelphia Park
racetrack mortgage. A portion of the proceeds was used to retire the
debt on the Garden State Park racetrack. As a result of the early debt
extinguishment at a discount, the Company realized an extraordinary item of
$1,732,631.
(9) ACQUISITIONS AND DISPOSITIONS
. Fiscal 1995
In the fiscal year ended June 30, 1995, the Company completed the
purchase of all of the outstanding stock of Freehold Racing Association
and Atlantic City Harness, Inc., the operating companies of Freehold Raceway,
and CIRCA 1850, Inc., a small real estate holding company, from an unrelated
party. The purchase price of the stock was $17.8 million with approximately
$5.3 million paid in cash (exclusive of final adjustments) and the balance
financed by an eight year, $12.5 million note at eighty percent of the
prevailing prime rate, not to exceed six percent. The note is secured by a
mortgage on the land and buildings at Freehold Raceway and other collateral
including 2,000,000 shares of ITB's Common Stock pledged by ITB's principal
stockholder. The transaction, completed on February 2, 1995, was effective
as of January 1, 1995. At closing, $5.2 million of debt was
retired with the Company and the seller each advancing to FRA approximately $2.6
million. The seller and ITB received from FRA promissory notes evidencing the
indebtedness secured by the same collateral securing the above described $12.5
million note. (See Notes 2 & 5)
Approximately $660,000 in equipment, furniture and fixtures was acquired
in connection with improvements and replacements necessary to maintain
operations at the Company's subsidiaries. In addition, $88,000 of capital was
used for the continuation of real estate development at the Garden State Park
racetrack and approximately $343,000 was used in connection with improvements
of racetrack
property at Garden State Park and Freehold Raceway.
Fiscal 1994
In the fiscal year ended June 30, 1994 approximately $461,780 in
equipment, furniture and fixtures was acquired in connection with improvements
and replacements necessary to maintain operations. In addition, $394,715
of capital
was used for the continuation of real estate development at the racetrack and
approximately $45,000 was used in connection with improvements of racetrack
property.
Fiscal 1993
On January 22, 1993, the Company sold its interest in the purchase
money, non-recourse mortgage note held on Philadelphia Park for $27,000,000 in
cash. Inaddition, non-cumulative contingent payments of up to a maximum
aggregate amount of $10,000,000 were scheduled to have been paid to the
Company for the next seven
years. These payments were scheduled to be up to $2,000,000 with respect to
each calendar year from 1993 through 1995 and of up to $1,000,000 with respect
to each calendar year from 1996 through 1999 in the event Greenwood and its
subsidiaries achieve certain "Adjusted Earnings". The original agreement was
modified so that
no additional payment will be made. (See Note 6) The principal balance due
at the time of the sale was $55,655,958. The Company incurred a $28,655,958,
non-operating loss as a result of the sale. Deferred income tax expense
of $1,056,728 was also eliminated as a result of this transaction.
Consequently, the Company
incurred a net $27,599,230 non-operating loss.
(10) INCOME TAXES
Effective July 1, 1993, the Company adopted the provisions of Statement
of Financial Standards (SFAS) No. 109, Accounting for Income Taxes. This
Statement requires that deferred income taxes reflect the tax consequences on
future years of differences between the tax bases of assets and liabilities
and their financialreporting amounts. The effect of adoption of this Statement
on current and prior
financial statements is immaterial.
When the Company incurs income taxes in the future, any future income tax
benefits resulting from the utilization of net operating losses and other
carryforwards existing at June 30, 1993 to the extent resulting from the
quasi-reorganization, will be excluded from the results of operations and
credited to paid in capital.
Freehold Raceway incurred a state income tax liability for the six
months of the Company's ownership during the fiscal year 1995 and does not
have the benefit of any state income tax loss carryforwards to offset this
liability. A provision of $115,600 was made for this liability.
A reconciliation of income tax expense at the Federal statutory rate to income
tax expense at the Company's effective rate is as follows:
<TABLE>
Years ended June 30,
1995 1994 1993
<CAPTION>
<S> <C> <C> <C>
Income Taxes at the Federal
Statutory Rate $815,473 $850,202 $0
Utilization of Tax Depreciation (815,473) (850,202) 0
State Income Tax - Net of
Federal Tax Benefit 115,600 0 0
Provisions for Income Taxes $115,600 0 0
</TABLE>
At June 30, 1993, the Company went through a quasi-reorganization
(See Note 18) in accordance with generally accepted accounting principles.
The effect of the quasi-reorganization was to decrease asset values for
financial reporting, but not for Federal income tax purposes. Accordingly,
depreciation expense for Federal income tax purposes continues to be based on
amounts that do not reflect the accounting quasi-reorganization.
The Company has a net operating loss carryforward of approximately
$166,800,000 at June 30, 1995, expiring in the years after June 30, 2001
through June 30, 2009. SFAS No. 109 requires the establishment of a deferred
tax asset for all deductible temporary differences and operating loss
carryforwards. Because of the uncertainty that the Company will generate
income in the future sufficient to fully or partially utilize these
carryforwards, however, any deferred tax asset is
offset by an allowance of the same amount pursuant to SFAS No. 109.
Accordingly, no deferred tax asset is reflected in these financial statements.
The following summarizes the operating tax loss carry forwards by year of
expiration.
EXPIRATION DATE OF
AMOUNT TAX LOSS CARRYFORWARD
$47,776,318 7/1/2002
$26,421,817 7/1/2003
$19,899,773 7/1/2004
$15,617,154 7/1/2005
$11,781,307 7/1/2006
$45,333,941 7/1/2007 through 7/1/2010
(11) EARNINGS (LOSS) PER SHARE
The earnings (loss) per share for the fiscal years ended June 30, 1995,
1994 and 1993 was computed by dividing the earnings (loss) applicable to
common stock by the weighted average number of common shares outstanding during
each fiscal year (9,551,369 shares, 9,547,900 shares and 9,950,025 shares,
respectively). The convertible preferred stock and dilutive stock options are
assumed converted when dilutive. The conversion period for the Series A
Convertible Preferred Stock concluded as of July 31, 1993, therefore the
Convertible Preferred Stock has not
been included in the 1995 and 1994 computations.
(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following quarterly financial data is unaudited, but in the opinion
of management includes all necessary adjustments for a fair presentation of the
interim results.
<TABLE>
4th 3rd 2nd 1st
Quarter Quarter Quarter Quarter
Fiscal 1995
<CAPTION>
<S> <C> <C> <C> <C>
Revenues $ 15,956,533 $ 21,527,590 $10,516,821 $ 7,094,007
Gross Profit $ 10,668,717 $ 13,986,608 $ 7,281,861 $ 5,815,630
(Approximate)
Net Profit\(Loss) $ 1,276,215 $ 717,760 $ 357,866 $ 46,610
Net Profit\(Loss)
Per Share $ .13 $ .08 $ .04 $ .00
</TABLE>
<TABLE>
4th 3rd 2nd 1st
Quarter Quarter Quarter Quarter
Fiscal 1994
<CAPTION>
<S> <C> <C> <C> <C>
Revenues $ 9,961,805 $ 8,628,778 $ 11,282,588 $ 7,461,065
Gross Profit$ $ 6,879,022 $ 6,031,956 $ 7,634,399 $ 6,372,250
(Approximate)
Net Profit\(Loss) $ 1,000,142 $ (873,198) $ 1,842,283 $ 531,368
Net Profit\(Loss)
Per Share $ .10 $ (.09) $ .19 $ .06
</TABLE>
(13) PENSION PLAN
The Company has a deferred compensation plan pursuant to section 401(k) of
the Internal Revenue code for all its non-union full time employees
(approximately 111), who have completed one year of service. The Company's
basic contribution under the plan is 4% of each covered employee's compensation
for such calendar year. In addition, the Company contributes up to an
additional 50% of the first 4% of compensation contributed by any covered
employee to the plan (an employee's maximum contribution is $9,240 factored
for inflation annually). The Company's expense
totaled $194,949, $126,159 and $148,897 for the fiscal years ending June 30,
1995, 1994 and 1993, respectively. All contributions are funded currently.
(14) INCENTIVE STOCK OPTIONS
On June 2, 1994, the Board of Directors approved the adoption of an
employee stock option plan subject to stockholder approval. A block of 475,000
shares of common stock was reserved for options to be granted under the plan.
Under the plan, options to purchase the following number of shares were
granted; 275,000 to Arthur Winkler, president of the Company, 75,000 to William
H. Warner, treasurer of the Company, 75,000 to Richard E. Orbann, general
manager of Garden State Park and 50,000 to Christopher C. Castens, secretary
of the Company. These options, exercisable for a five year period which
commenced following stockholder approval on December 20, 1994 at a price of
$5.875, are non-transferable and are only exercisable by the holder while he is
employed by the Company or a subsidiary of the Company. On March 21, 1994,
the Board of Directors granted non-transferable options to purchase 1,000,000
shares of common stock at prices ranging from $12 to $24 to
Francis W. Murray, President of International Thoroughbred Gaming Development
Corporation, a recently formed wholly owned subsidiary of ITB. These options
are exercisable during a two-year period which commenced following stockholder
approval on December 20, 1994 and only while he is employed by the Company or a
subsidiary of the Company.
(15) DIVIDENDS
The Company is required to pay to the holders of the Company's Series A
(Convertible) Preferred Stock a cash dividend from any net racetrack earnings of
Garden State Park. The conversion period for the Company's Series A Convertible
Preferred Stock concluded as of July 31, 1993. The applicable percentage of
Garden State Park's "net racetrack earnings" (net after income tax, less an
annual management fee due the parent company of one-half of 1% of the gross
betting handle as computed by the Company's auditors) shall be 25% of such
earnings (if any) for each year. No dividends have been paid in the past.
A dividend will not be paid for the year ended June 30, 1995, since Garden
State Park did not produce "net racetrack earnings."
Below are the calculations of Garden State Park's profits (or losses) as
defined for the Preferred Stock for the past three fiscal years.
<TABLE>
June 30,
1995 1994 1993
<CAPTION>
<S> <C> <C> <C>
Net After Tax
Income (Loss) $201,873 $ 818,718 $ (2,451,790)
Less:
Management Fee 775,200 833,692 934,395
Interest on Advance
from Parent 12,000,184 8,291,562 8,492,569
Defined Profit (Loss)--
"Net Racetrack
Earnings (Loss)" $(12,573,511) $(8,306,536) $(11,878,754)
</TABLE>
(16) INTEREST EXPENSE
All interest expense of the subsidiaries is considered expense of the
parent company. In addition to the interest paid each year to third party
lenders, the parent company is due interest on funds it has advanced to
Freehold Raceway and to Garden State Park for the purchase, construction
and equipping of the racetracks and funding their operations as needed.
As of June 30, 1995, such advances totaled $8,499,695 to Freehold Raceway and
$152,538,000.84 to Garden State Park, the latter being in addition to initial
capitalization of $86,130,000 provided by the net proceeds of the Company's
preferred stock offering in July, 1983. The interest onthese advance is
computed at the average prime lending rate as published from time to time by
the "Wall Street Journal", Eastern Edition, which during the fiscal year
ranged between 7.25% and 9% for the year. The resulting interest owed to the
parent company for the fiscal year ended June 30, 1995 by Freehold Raceway
and Garden State Park totals $377,068 and $12,000,184, respectively.
(17) NEW AUTHORITATIVE PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", is effective for fiscal
years beginning after December 15, 1993. The Company adopted SFAS 115 on
June 30, 1994. (See Note 3) The adoption of SFAS No. 115 did not have a
material effect on the financial statements.
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires that the fair value of all financial instruments, including marketable
securities, be disclosed. SFAS No. 107 is effective for fiscal years ended
after December 15, 1992, except for entities with less than $150 million in
total assets; for those entities, the effective date is three years later
(See Note 4). The Company adopted SFAS 107 in fiscal 1993. The adoption of
SFAS No. 107 did not have a material effect on the financial statements.
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" is
effective for fiscal years beginning after December 15, 1994. The Company
does not have any loans that are subject to an impairment assessment as defined
by SFAS No. 114.
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions", is effective for fiscal years beginning after December 15, 1992.
SFAS No. 112, "Employers' Accounting for Postemployment Benefits, is effective
for fiscal years beginning after December 15, 1993. The Company does not
provide postretirement or postemployment benefits as defined by SFAS
Nos. 106 and 112.
SFAS No. 121, "Accounting For the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" is effective for fiscal years beginning
after December 15, 1995. The Company will adopt SFAS 121 on July 1, 1996.
The adoption of SFAS No. 121 will not have a material effect on the financial
statements.
(18) QUASI-REORGANIZATION
The Company, with the approval of the Board of Directors, adjusted its June
30, 1993 balance sheet to fair value and transferred the accumulated deficit of
$102,729,936 to Capital in Excess of Par in accordance with quasi-reorganization
accounting principles. The quasi-reorganization reflects management's judgment
that because of increased competition from the gaming industry and the decline
of racing in the last few years, the adjustment to fair value of racetrack
buildings and equipment and livestock was appropriate.
The effect of the quasi-reorganization is that future operations will
reflect depreciation and amortization which is more consistent with current
value. Future operating statements will not be comparable with those for
years ending through June 30, 1993. Any future income tax benefits resulting
from the utilization of new operating loss and other carryforwards existing
at June 30, 1993 and temporary differences resulting from the
quasi-reorganization, will be excluded from the results of operations
and credited to Capital in Excess of Par.
(19) SUBSEQUENT EVENTS
On July 21, 1995, FRA completed the purchase of a 4.659 acre section of
land, previously leased for parking space, from an unrelated party.
The purchase price was $981,720 with $406,720 to be paid in cash on January
2, 1996 and the balance financed by a three year $575,000 note at an eight
percent per annum rate. The note, secured by a purchase money mortgage on
the land, is payable in three yearly principal installments of $191,666
commencing July 31, 1997 plus accrued interest.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(A) Identification of Directors and Officers
The directors and/or executive officers of the Company are:
<TABLE>
Name Age Position held since Position with Company
<CAPTION>
<S> <C> <C> <C>
Robert E. Brennan (1)(2) 51 December, 1982 Chairman of the Board
April, 1988 Chief Executive Officer
Arthur Winkler (2)(5) 51 September, 1987 Director
April, 1988 Vice President,
July, 1992 Chief Operating Officer
President
William H. Warner 50 December, 1983 Treasurer
Christopher C. Castens
(5) 44 April, 1987 Secretary
Charles Dees, Jr. (3)
(4)(5)(6) 56 April, 1988 Director
Joseph K. Fisher (1)(3) 48 March, 1985 Director
Kerry B. Fitzpatrick (2)
(4) 55 October, 1980 Director
Ronald J. Riccio (1)
(3)(4)(6) 49 March, 1985 Director
Robert J. Quigley (4) 66 October, 1980 Director
</TABLE>
(1) Member of Audit Committee
(2) Member of Executive Committee
(3) Member of Related Party Transactions Committee
(4) Member of Executive Compensation Committee
(5) Member of Litigation Committee
(6) Member of Stock Option Committee
The Audit Committee and the Executive Committee were established in March,
1985 and the Related Party Transactions Committee in February, 1986. The
Litigation Committee was established in October, 1992, and the Executive
Compensation Committee was established in May, 1993.
The Audit Committee periodically confers with the Company's independent
auditors concerning the Company's accounting systems and the maintenance of its
books and records, reviews the scope of the audit of the Company's financial
statements and the results thereof and performs other services.
The Litigation Committee reviews litigation matters of the Company on a
periodic basis.
The Executive Committee, subject to the limitations of the Delaware
Corporation Law (which without an enabling resolution from the Board of
Directors, prohibits the Committee from authorizing a dividend, issuing
stock or merging the Company), possesses all other powers of the Board of
Directors in the management and direction of the business and affairs of the
Company.
The Related Parties Transactions Committee meets periodically to review and
approve any related party transactions considered and/or accepted by the
Company's management.
The Executive Compensation Committee reviews and recommends actions
regarding executive compensation.
The Stock Option Committee is responsible for the administration of the
employee stock option plan.
(B) Business Experience and Principal Occupations of Directors and
Executive Officers During Past Five Years
The following is a brief account of the business experience of each of the
Company's executive officers and directors during the past five years.
Robert E. Brennan has been principally engaged for the past five years as
the sole stockholder (and until September, 1986, as Chief Executive Officer
and Chairman of the Board) of the investment banking firm of First Jersey
Securities, Inc. ("FJS"). He is presently also a director of First Jersey.
Mr. Brennan is also the controlling stockholder and a director of FJS
Properties, Inc., the Managing General Partner of FJS Properties Fund I, LP,
a publicly owned limited partnership formed to acquire, own and operate
real estate investments. Mr. Brennan was elected a director
and Chairman of the Board of the Company in December, 1982 and Chief Executive
Officer in April of 1988. Mr. Brennan is Chairman of the Board of Regents of
Seton Hall University.
On June 19, 1995, Judge Robert Owen, District Judge of the United States
District Court for the Southern District of New York issued his opinion and on
July 14, 1995 entered a judgment in a lawsuit commenced in 1985 by the
Securities and Exchange Commission (the "Commission") against Robert E.
Brennan, the Company's chairman and principal stockholder and First Jersey
Securities, Inc., a broker-dealer wholly owned by Mr. Brennan.
In its opinion and judgment, the court determined that the defendants, with
respect to sales and resales of the securities of five issuers (not those of
the Company), charged excessive markups and markdowns
to FJS customer and thereby violated Section 17(a) of the Securities Act of
1933 (the
"Securities Act") and Section 10(b) of the Securities Exchange Act of 1934
(the "Exchange
Act") and Rule 10b-5 in that "...they deliberately used fraudulent devices in
those transactions...." As a result, the court permanently enjoined the
defendants from further violations of Securities Act Section 17(a), Exchange
Act Section 10(b) and Rule 10b-5.
In addition, the court ordered that the defendants disgorge an aggregate
$22,288,099 of profits together with $49,251,521 of prejudgment interest (as of
December 31, 1994). The court also ordered the appointment of a special agent
to examine the records of FJS for the period from November 1, 1982 through
January 31, 1987 for the purpose of determining whether excessive markups
and/or markdowns were charged to FJS customers beyond those proved at trial.
The defendants deny that they have committed violations of the federal
securities laws and believe that there are substantial grounds to support an
appeal of the judgment. The defendants have retained counsel to prosecute an
appeal. As a result of the judgment and in order to preserve control over
their assets pending the outcome of the appeal, on August 7, 1995, Robert E.
Brennan and FJS filed voluntary petitions for relief in the United States
Bankruptcy Court for the District of New Jersey under Chapter 11 of the
Bankruptcy Code. The bankruptcy proceedings are in the initial stages.
No assurances can be given as to the outcome of the appeal. Because of
the bankruptcy proceedings, the class action described in
Item 3 herein has been stayed with respect to Mr. Brennan and the other
non-settling defendants.
Arthur Winkler is an attorney who served as an Assistant Commissioner of
the New Jersey Department of Education from March, 1979, until August, 1980
and as House Counsel at the New Jersey Sports and Exposition Authority
(The Meadowlands) from August, 1980, until July, 1983. He joined the Company
in July, 1983 and served as Director of Administration for the Garden State
Park subsidiary until his resignation in October, 1986. In October, 1986 Mr.
Winkler became President and Chief Executive Officer of Winkler Capital
Management, Inc., Lawrenceville, New Jersey. He currently retains this
position although that company is no longer actively conducting business.
In May 1987, Mr. Winkler became an associate of the
Flemington, N. J. law firm of Schaff, Motiuk, Gladstone, Moeller and
Ligorano. In March, 1988, when Mr. Winkler rejoined the Company, he resigned
as an associate of the law firm and became "of counsel" to said law firm.
That relationship terminated on November 1, 1990. He was elected Director of
the Company in September, 1987 and Vice President and Chief Operating Officer
of the Company in April, 1988. Effective July 1992, Mr. Winkler succeeded
Robert J. Quigley as President of the Company as
well as its Garden State Park subsidiary.
William H. Warner is a certified public accountant and has been employed by
the Company since September, 1983.
Christopher C. Castens is an attorney who was admitted to practice law in
1978. He had served as house counsel and assistant to the executive vice
president of Harness Tracks of America for five years prior to joining the
Company in December, 1986 as house counsel.
Dr. Charles R. Dees, Jr. is currently Vice President of Institutional
Advancement at Fairleigh Dickinson University. Dr. Dees had been principally
engaged during the preceding five years as Vice Chancellor for University
Affairs at Seton Hall University in South Orange, New Jersey. He is not
actively engaged in the business of the Company.
Joseph K. Fisher has been principally engaged for the past five years as
President and Chief Executive Officer of Fisher and Company, a New York City
advertising agency. He is not actively engaged in the business of the Company.
Kerry B. Fitzpatrick was principally engaged as chief executive of
Southlake (NJ) Thoroughbred Services, a thoroughbred management and
consulting firm and as managing general partner of the Southlake (NJ) Stable,
a thoroughbred racing stable,
in 1980 prior to his election as President and Chief Executive Officer of the
Company. Mr. Fitzpatrick was elected to the Board of Trustees of the
Pennsylvania Horse Breeders Association for a three year term commencing
May of 1986. Mr. Fitzpatrick devoted all of his working time to the business
of the Company until his resignation as President and Chief Executive Officer
in the third quarter of fiscal 1988 for medical reasons. He continues to serve
as a Director of the Company and is on a paid disability leave of absence but
remains available to the Company for consultation.
Robert J. Quigley was General Manager-Racing for the New Jersey Sports and
Exposition Authority (The Meadowlands) for more than the preceding five years
until May, 1983 when he commenced to serve on a full-time salaried basis as
Vice President of the Company and President and Chief Executive Officer of
its Garden State Park subsidiary. He was also the President and Chief Executive
Officer of the Company's subsidiaries which owned and operated Philadelphia
Park. In April, 1988, Mr. Quigley was elected President of the Company.
Effective July 1992, Mr. Quigley resigned his positions to become president
and chief operating officer of Retama Park Association, Inc., engaged in
operating a new racetrack facility in San Antonio, Texas. Mr. Quigley continues
to serve as a member of the Company's board of directors.
Ronald J. Riccio is currently Dean of the School of Law at Seton Hall
University, a position he assumed effective July 1, 1988. He was principally
engaged for the preceding five years as a practicing attorney and a member
of the New Jersey law firm of Robinson, Wayne, Levin, Riccio and LaSala. He
is not actively engaged in the business of the Company.
ITEM 11 - EXECUTIVE COMPENSATION
(A) Cash Compensation of Officers and Directors
The following table sets forth information concerning the compensation
paid or accrued by the Company during the year ended on June 30, 1995 to its
Chief Executive Officer and its other executive officers who were serving as
executive officers of the Company on June 30, 1995. During the period ended
June 30, 1995, the Company did not grant any restricted stock awards or have
any long-term incentive plan in effect. All of the Company's group life,
health, hospitalization or medical reimbursement plans, if any, do not
discriminate in scope, terms or operation, in favor of the executive officers
or directors of the Company and are generally available to all salaried
employees.
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and
Principal Position Year Salary Bonus$ Other Annual Compensation $(b)
<CAPTION>
<S> <C> <C> <C> <C>
Arthur Winkler 1995 163,077 0 12,121
President 1994 141,827 0 9,627
1993 125,000 0 9,408
William H. Warner
Treasurer, CFO 1995 96,827 0 7,424
1994 93,221 0 6,846
1993 82,500 0 6,472
</TABLE>
<TABLE>
Long-Term Compensation
Name and Restricted LTIP All Other
Principal Position Year Options(a) Stock Awards Payouts(S) Compensation
<CAPTION>
<S> <C> <C> <C> <C> <C>
Arthur Winkler 1995 275,000 0 0 0
President 1994 0 0 0 0
1993 0 0 0 0
William H. Warner 1995 75,000 0 0 0
Treasurer, CFO 1994 0 0 0 0
1993 0 0 0 0
</TABLE>
(a) In December 1994, Mr. Winkler and Mr. Warner were awarded options to
purchase 275,000 and 75,000 shares of common stock, respectively.
(b) Consists of life insurance premiums paid by the Company with respect to
certain term life insurance payable on the officer's death to beneficiaries
designated by him and further, includes amounts contributed by the Company
to the officer's account under the Company's 401(k) plan. Amounts
attributable to such term life insurance are as follows:
Arthur Winkler
President 1995 $1,777
1994 1,764
1993 1,764
William H. Warner
Treasurer, CFO 1995 $1,688
1994 1,567
1993 1,458
The following table indicates options granted during the fiscal year
ended June 30, 1995 to each person who served as chief executive officer of
ITB during such
year and to each ITB executive officer who earned at least $100,000 in
compensation during such year:
<TABLE>
Option/ Grants in Last Fiscal Year
Individual Grants
% of Total
Number of Securites Options
Underlying Options/ Granted to Exercise
Name Granted (#) Employees or Base
In Fiscal Year Price Expiration
(2) ($/Share) Date
<CAPTION>
<S> <C> <C> <C> <C>
Arthur Winkler 275,000 58% $5.88 12/20/99
William H. Warner 75,000 16% $5.88 12/20/99
</TABLE>
<TABLE>
Potential Realizable Value
At Assumed Annual Rates of
Stock Price Appreciation
For Option Term (1)
Name 5% ($) 10% ($)
<CAPTION>
<S> <C> <C>
Arthur Winkler 0 0
William H. Warner 0 0
</TABLE>
(1) Assumes appreciation at the stated rates in the market price for ITB
Common Stock. The options will have no value unless, and then only to the
extent that the market price for ITB Common Stock appreciates from the grant
date to the exercise date.
(2) Does not include the options granted to purchase 1,000,000 shares of common
stock at prices ranging from $12 to $24 to Francis W. Murray, President
of ITG.
The following table indicates the outstanding stock options held at
June 30, 1995 by the individuals named in the Summary Compensation Table:
<TABLE>
1995 Fiscal Year-End Options
Value of Unexercised
Number of Unexercised Options In-the-Money Options at
Name At 1995 Fiscal Year End 6/30/95 (1)
<CAPTION>
<S> <C> <C>
Arthur Winkler 275,000 $ -0-
William H. Warner 75,000 $ -0-
</TABLE>
(1) The Option exercise price of $5.88 exceeded the last sales price for the
Common Stock on June 30, 1995 of $4.75.
Amounts contributed by the Company to the Company's 401(k) plan on behalf of the
named executive officer are as follows:
Arthur Winkler
President 1995 $ 9,448
1994 7,863
1993 7,644
William Warner
Treasurer, CFO 1995 $ 5,736
1994 5,279
1993 5,014
Compensation of Directors
For the fiscal year ended June 30, 1995, the Company paid $25,000 in
directors fees to each of four directors, namely Mr. Quigley, Dr. Dees and
Messrs. Fisher, and Riccio.
(B) Employees Retirement Plan
During fiscal 1985, the Company adopted an employee retirement and
savings profit sharing plan for its non-union employees (as of June 30, 1995
approximately 111) pursuant to Section 401(k) of the Internal Revenue Code.
The Company made a contribution with respect to fiscal 1995 and 1994 of
$194,949 and $126,159, respectively.
The Company's basic contribution under the Plan is 4% of each covered
employee's
compensation for such calendar year. In addition, commencing in fiscal 1986, the
Company contributed up to an additional 50% of the first 4% of compensation
contributed by any covered employee to the Plan (or up to an additional 2% of
compensation). Funds in the Plan become fully vested in six years or in the
event of the employee's death and can be withdrawn upon early retirement
(attainment of age 59 1/2 and completion of 10 years of service), normal
retirement (attainment of age 65) or separation from the Company.
(C) Other Compensation
See PART III, ITEM 13 - "Certain Relationships and Related Transactions"
for information on other related party activity.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 15, 1995, the number of
shares of the Company's Common Stock and Series A Preferred Stock owned
beneficially to the knowledge of the Company, by each beneficial owner of
more than 5% of such Common Stock and Series A Preferred Stock, by each
director owning shares and by all Officers and Directors of the Company as a
group. The percentages have been calculated on the basis of treating as
outstanding for purposes of computing the percentage ownership of a
particular individual, all shares of the Company's Common
Stock or Series A Preferred Stock outstanding as of such date. A convertibility
provision with respect to the preferred stock expired on July 31, 1993.
<TABLE>
COMMON STOCK
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership Percent of Class
<CAPTION>
<S> <C> <C>
5% Owners
Robert J. Quigley 2,909,848 shs (1)(2) 30.5%
Retama Park
P.O. Box 600
San Antonio, TX 78292
Robert E. Brennan 2,904,016 shs(2) 30.4%
50 Broadway
New York, NY 10004
Ronald J. Riccio 1,090,731 shs(3) 11.4%
Seton Hall University
Newark, NJ 07102
Other Directors
Joseph K. Fisher 800 shs -%
Kerry B. Fitzpatrick 1,274 shs -%
Arthur Winkler 121 shs -%
All Officers and Directors 4,003,096(1)(2)(3) 41.9%
as a Group (4)
</TABLE>
<TABLE>
SERIES A CONVERTIBLE PREFERRED STOCK
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership Percent of Class
<CAPTION>
5% Owners
<S> <C> <C>
Robert J. Quigley 0 0%
Retama Park
P.O. Box 600
San Antonio, TX 78292
Robert E. Brennan 0 0%
50 Broadway
New York, NY 10004
Ronald J. Riccio 0 0%
Seton Hall University
Newark, NJ 07102
Other Directors
Joseph K. Fisher 0 0%
Kerry B. Fitzpatrick 0 0%
Arthur Winkler 0 0%
All Officers and Directors 0 0%
as a Group
</TABLE>
(1) Includes 5,830 shares of Common Stock which are owned of record and
beneficially by Mr. Quigley.
(2) Includes 2,904,016 shares of Common Stock owned of record by Robert
E. Brennan. Mr. Brennan has given Mr. Quigley an irrevocable proxy expiring on
December 31, 1995 to vote such shares, and has also agreed not to sell,
assign, hypothecate, pledge or transfer any of such shares during the
period the proxy is in effect without Mr. Quigley's consent.
(3) Includes 1,090,731 shares of Common Stock which are owned of
record by Mr. Riccio as the sole trustee of The Family Investment Trust.
The grantor of the Trust is Mr. Brennan and the sole beneficiaries are the
three adult sons of Mr. Brennan. Mr.Brennan disclaims beneficial ownership of
the shares owned by The Family Investment Trust.
(4) Includes 324 shares of Common Stock owned of record and beneficially
by two officers.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A company operated by the family of Kevin Quigley, son of Robert J.
Quigley, former President and Director of the Company, maintained the stable
area cafeteria and stable area refreshment stand in the recreation hall at
Garden State Park making food and beverage service available for purchase by
stable employees. Although Kevin Quigley's company made investments in the
smallwares and some equipment and paid all direct costs in connection with
such operations, it used kitchen equipment permanently installed and owned
by Service America at a cost of approximately $445,000, without charge.
(Title to this equipment will automatically pass to Garden State Park in the
year 2000). These facilities provide three meals per day at prices that are
below the outside market prices for the benefit of licensed stable area
employees in a restrictive area not opened to the public. These facilities are
required to promote good relationships with the horsemen. These operations are
customary for racetracks in the industry. The Company believed these
arrangements were in its best interest as it believed it was the most
economical method to service the stable employees at the track without
significant expense or risk to the Company. Effective July 1, 1995, the
Company contracted with an unaffiliated party to continue to provide this
service following the Quigley family's relocation out of state.
The Company's wholly owned subsidiary, Olde English Equine Insurance
Agency, Inc., which was acquired in 1981, conducted a general insurance
agency business specializing in placing equine insurance until it assigned
its accounts to a third party insurance agency, Keystone National Companies,
Inc. of Cherry Hill, N.J. effective April 20, 1989. In order for Keystone
National Companies, Inc. to represent OEEIA, an officer of Keystone National
Companies, Inc. must also be an officer or on the Board of Directors of OEEIA.
Mr. Robert Tanke, of Keystone National Companies, Inc. is currently a member
of the Board of Directors of OEEIA. The Company has contracted to receive
50% of all commission earned on these equine accounts by Keystone. During
the past few fiscal years, no equine insurance has been placed through
Keystone National Companies, Inc. The Company has contracted
through Keystone National Companies, Inc. to purchase general liability
insurance,excess liability insurance, athletic participants coverage, workers
compensation, automobile damage and garagekeepers liability insurance for
Garden State Park and Freehold Raceway as well as corporate insurance.
The premium amounts associated with this insurance coverage are considered
normal in the industry.
In management's opinion, the Company's transactions with related parties
as described in this section were in the Company's best interests and were
made on terms no less favorable to the Company than could have been obtained
from unaffiliated third parties.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(A) Exhibits
Exhibit Incorporated by
Number Description of Exhibit Reference to
9.1 Robert E. Brennan irrevocable proxy
through December 31, 1996 to Robert J.
Quigley.
11.1 Computation of Earnings per Share
22 Subsidiaries - The following table indicates the wholly owned
subsidiaries of International Thoroughbred Breeders, Inc. and their states of
incorporation. All of such subsidiaries are wholly owned.
<TABLE>
State of
Name Incorporation
<CAPTION>
<S> <C>
International Thoroughbred Breeders
Management, Inc. New Jersey
Olde English Equine Insurance Agency, Inc. New Jersey
Garden State Race Track, Inc. New Jersey
Colonial Racing Club, Inc. Pennsylvania
Philadelphia Turf Club, Inc. Pennsylvania
International Thoroughbred Gaming
Development Corporation New Jersey
Olde English Management Co, Inc. New Jersey
Freehold Racing Association New Jersey
Atlantic City Harness, Inc. New Jersey
Circa 1850, Inc. New Jersey
</TABLE>
27 Financial Data Schedule
(B) Financial Statements
Report of independent certified public accountants.
Consolidated Balance Sheets as of June 30, 1995 and 1994.
Consolidated Statements of Operations for the Years Ended June 30, 1995,
1994 and 1993.
Consolidated Statements of Shareholders' Equity for the Years Ended June
30, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the Years Ended June 30, 1995,
1994 and 1993.
Notes to Financial Statements.
Report of Independent Certified Public Accountants on Supplementary
Schedules.
Supplementary Schedules.
(C) Reports on Form 8-K
The Company did not file any reports on Form 8-K with respect to the
quarter ended June 30, 1995.
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
EXHIBIT 11.1
EARNINGS (LOSS) PER SHARE
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
1995 1994
<CAPTION>
<S> <C> <C>
Average shares outstanding disregarding
dilutive outstanding stock options,
and preferred shares during each year 9,551,369 9,547,900
Dilutive stock options based on the
treasury stock method using the average
market price since it is higher than
year end price --- ---
Assumed conversion of
Series A Convertible Preferred Stock --- ---
Shares Outstanding 9,551,369 9,547,900
Net Income (Loss) $ 2,398,452 $ 2,500,595
Net Income (Loss) per Share $ 0.25 $ 0.26
This computation is submitted in accordance with Regulation S-K, Item 601(b)(11)
</TABLE>
<TABLE>
1993
<CAPTION>
<S> <C>
Average shares outstanding disregarding
dilutive outstanding stock options,
and preferred shares during each year 8,950,025
Dilutive stock options based on the
treasury stock method using the average
market price since it is higher than
year end price -0-
Assumed conversion of
Series A Convertible Preferred Stock ---
Shares Outstanding 8,950,025
Net Income (Loss) $ (29,410,166)
Net Income (Loss) per Share $ (3.29)
This computation is submitted in accordance with Regulation S-K, Item 601(b)(11)
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
(Registrant)
By/s/Arthur Winkler
Arthur Winkler, President and
Director
Date: September 22, 1995
By/s/William H. Warner
William H. Warner, Treasurer, Principal
Financial Officer and Accounting Officer
Date: September 22, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By/s/Robert E. Brennan By/s/Arthur Winkler
Robert E. Brennan, Chairman of Arthur Winkler, President
the Board and Chief Executive and Director
Officer
Date: September 22, 1995
Date: September 22, 1995
By/s/Charles R. Dees, Jr. By/s/Ronald J. Riccio
Charles R. Dees, Jr., Director Ronald J. Riccio, Director
Date: September 22, 1995 Date: September 22, 1995
By/s/Joseph K. Fisher By/s/Robert J. Quigley
Joseph K. Fisher, Director Robert J. Quigley, Director
Date: September 22, 1995 Date: September 22, 1995
By/s/Kerry B. Fitzpatrick
Kerry B. Fitzpatrick, Director
Date: September 22, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 11,801,294
<SECURITIES> 0
<RECEIVABLES> 2,305,792
<ALLOWANCES> 20,000
<INVENTORY> 0
<CURRENT-ASSETS> 17,404,299
<PP&E> 77,979,775
<DEPRECIATION> 1,570,024
<TOTAL-ASSETS> 97,469,045
<CURRENT-LIABILITIES> 8,101,900
<BONDS> 0
<COMMON> 19,102,771
0
36,244,975
<OTHER-SE> 16,858,691
<TOTAL-LIABILITY-AND-EQUITY> 97,469,045
<SALES> 55,094,950
<TOTAL-REVENUES> 58,582,738
<CGS> 17,342,134
<TOTAL-COSTS> 47,234,416
<OTHER-EXPENSES> 8,834,270
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 556,799
<INCOME-PRETAX> 2,514,052
<INCOME-TAX> 115,600
<INCOME-CONTINUING> 2,398,452
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,398,452
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
