SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period Ended: June 30, 2000
Commission File Number: 000-30578
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MAGNA ENTERTAINMENT CORP.
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(Exact Name of Registrant as Specified in its Charter)
Delaware, United States of America 98-0208374
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
285 West Huntington Drive, Arcadia, California 91007
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(Address of principal executive offices, including zip code)
(626) 574-7223
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(Registrant's telephone number, including area code)
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 Registrant had 13,731,168 shares of Class A Subordinate Voting Stock
outstanding as of August 11, 2000. In addition, as of August 11, 2000, there
were 14,823,187 Exchangeable Shares of the Registrant's subsidiary MEC Holdings
(Canada) Inc. issued and outstanding, each of which is exchangeable for one
share of the Registrant's Class A Subordinate Voting Stock.
1
MAGNA ENTERTAINMENT CORP.
FORM 10-Q - QUARTER ENDED JUNE 30, 2000
INDEX
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements 4 to 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 to 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
2
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
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Exhibit 27.1 Financial Data Schedule
Reports on Form 8-K
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Date Item Reported
- ---- -------------
May 15, 2000 Press release announcing unaudited financial results for
the three month period ended March 31, 2000
May 17, 2000 Press release announcing the acquisition of Bay Meadows
Racecourse in California
June 6, 2000 Interim Financial Report to Shareholders for the first
quarter of 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MAGNA ENTERTAINMENT CORP.
(Registrant)
Date: August 14, 2000 by: /s/ J. Brian Colburn
---------------------------------
J. Brian Colburn, Secretary
3
Item 1. Financial Statements
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MAGNA ENTERTAINMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
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[Unaudited]
[United States dollars in thousands,
except per share figures]
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Three months ended Six months ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
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Revenue
Racetrack
Wagering, net of purses 27,886 11,029 86,970 38,266
Non-wagering 12,374 6,704 30,332 15,932
Real estate
Sale of real estate 8,269 - 8,269 -
Rental and other 5,299 3,062 8,999 6,504
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53,828 20,795 134,570 60,702
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Costs and expenses
Racetrack
Operating costs 29,435 15,935 75,944 33,588
General and administrative 3,759 969 7,077 1,923
Real estate
Cost of real estate sold 5,914 - 5,914 -
Operating costs 4,178 3,110 7,160 6,086
General and administrative 240 198 468 426
Predevelopment and other costs 1,170 - 2,441 -
Depreciation and amortization 4,685 1,507 9,952 3,034
Interest expense 209 380 419 709
Interest income (253) (60) (454) (60)
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49,337 22,039 108,921 45,706
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Income (loss) before income taxes 4,491 (1,244) 25,649 14,996
Income tax provision (benefit) 1,739 (9) 10,917 6,906
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Net income (loss) 2,752 (1,235) 14,732 8,090
Other comprehensive loss:
Foreign currency translation adjustment 1,479 2,277 6,329 7,322
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Comprehensive income (loss) 1,273 (3,512) 8,403 768
=============================================================== ============== =============== ============== ==============
Earnings (loss) per share of Class A Subordinate
Voting Stock, Class B Stock or Exchangeable Share:
Basic $ 0.03 $(0.02) $ 0.18 $ 0.10
Diluted $ 0.03 $(0.02) $ 0.18 $ 0.10
=============================================================== ============== =============== ============== ==============
Average number of shares of Class A Subordinate
Voting Stock, Class B Stock and Exchangeable
Shares[in thousands]:
Basic 80,466 78,535 80,377 78,535
Diluted 80,466 78,535 80,377 78,535
=============================================================== ============== =============== ============== ==============
See accompanying condensed notes to the consolidated financial statements.
4
MAGNA ENTERTAINMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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[Unaudited]
[United States dollars in thousands]
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Three months ended Six months ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
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Cash provided from (used for):
OPERATING ACTIVITIES
Net income 2,752 (1,235) 14,732 8,090
Items not involving current cash flows 2,304 1,831 7,302 3,724
- --------------------------------------------------------------- ------------- -------------- ------------- -------------
5,056 596 22,034 11,814
Changes in non-cash items related to operations (2,671) (13,652) (25,951) (10,442)
- --------------------------------------------------------------- ------------- -------------- ------------- -------------
Net cash provided from (used for) Operating 2,385 (13,056) (3,917) 1,372
Activities
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INVESTMENT ACTIVITIES
Acquisition of business - (6,375) (1,770) (6,375)
Real estate property and fixed asset additions (6,381) (5,348) (8,767) (7,158)
Proceeds on sale of real estate 8,269 - 8,269 -
Proceeds (cost) on real estate sold to Magna 6,147 - 6,147 -
Other assets disposals (additions) 1,049 - 1,749 -
- --------------------------------------------------------------- ------------- -------------- ------------- -------------
Net cash provided from (used for) Investing
Activities 9,084 (11,087) 5,628 (13,533)
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FINANCING ACTIVITIES
Increase (decrease) in bank indebtedness 1,498 (12,722) (2,056) (2,047)
Repayment of long-term debt (2,857) (60) (6,767) (104)
Issue of Class A Subordinate Stock - - 1,846 -
Contributed capital, net of tax 1,352 - 1,352 -
Increase in note payable to Magna - 23,869 - 24,346
Net contribution by Magna - - - (12,120)
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Net cash provided from (used for) Financing
Activities (7) 11,087 (5,625) (10,075)
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Effect of exchange rate changes on cash
and cash equivalents 14 (1) (55) (7)
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Net increase (decrease) in cash and cash
equivalents during the period 11,476 (13,693) (3,969) (2,093)
Cash and cash equivalents, beginning of period 35,215 29,103 50,660 17,503
- --------------------------------------------------------------- ------------- -------------- ------------- -------------
Cash and cash equivalents, end of period 46,691 15,410 46,691 15,410
=============================================================== ============= ============== ============= =============
See accompanying condensed notes to the consolidated financial statements.
5
MAGNA ENTERTAINMENT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
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[Unaudited]
[United States dollars in thousands]
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June 30, December 31,
2000 1999
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ASSETS
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Current assets:
Cash and cash equivalents 46,691 50,660
Restricted cash 6,915 7,752
Accounts receivable 32,032 25,887
Prepaid expenses and other 4,337 3,931
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89,975 88,230
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Real estate properties and fixed assets, net 557,356 564,789
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Other assets, net 97,559 100,967
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Deferred income taxes 6,367 6,367
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751,257 760,353
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Bank indebtedness 5,079 7,259
Accounts payable and other liabilities 44,909 66,151
Income taxes payable 12,131 7,554
Long-term debt due within one year 12,919 19,119
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75,038 100,083
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Long-term debt 24,478 19,506
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Other long-term liabilities 437 494
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Deferred income taxes 92,616 93,183
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Shareholders' equity:
Capital stock issued and outstanding -
Class A Subordinate Voting Stock 85,310 11,500
Exchangeable Shares 73,398 110,000
Class B Stock 394,093 429,455
Contributed surplus 1,352 -
Retained earnings (deficit) 12,301 (2,431)
Accumulated comprehensive loss (7,766) (1,437)
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558,688 547,087
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751,257 760,353
============================================================================================================================
See accompanying condensed notes to the consolidated financial statements.
6
MAGNA ENTERTAINMENT CORP.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Summary of significant accounting policies
Basis of presentation
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The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The preparation of the consolidated financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could
differ from estimates. In the opinion of management, all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation have been
included. Operating results for the three and six month periods ended June 30,
2000 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1999.
Because of the seasonal nature of the Company's business, revenues and operating
results for any interim quarter are not indicative of the revenues and operating
results for the year and are not necessarily comparable with results for the
corresponding period of the previous year. The accompanying condensed
consolidated financial statements reflect a disproportionate share of annual net
earnings as the Company normally earns a substantial portion of its net earnings
in the first and second quarters of each year.
Stock-based compensation
- ------------------------
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation" ("Statement 123") which provides companies an alternative to
accounting for stock-based compensation as prescribed under APB Opinion No. 25
(APB 25). Statement 123 encourages, but does not require companies to recognize
expense for stock-based awards based on their fair value at date of grant.
Statement 123 allows companies to continue to follow existing accounting rules
(intrinsic value method under APB 25) provided that pro-forma disclosures are
made of what net income and earnings per share would have been had the new fair
value method been used. The Company has elected to adopt the disclosure
requirements of Statement 123 but will continue to account for stock-based
compensation under APB 25.
7
2. Business Acquisition
On February 29, 2000 the Company acquired the assets and assumed approximately
$9.3 million of liabilities of Great Lakes Downs, Inc. racetrack in Muskegon,
Michigan for a purchase price of $1.8 million. The purchase price was paid by
issuance of 267,416 shares of Class A Subordinate Voting Stock.
The purchase price has been allocated to the assets and liabilities as follows
(in thousands):
Non-cash working capital $ (3,370)
Real estate properties and fixed assets 10,088
Other assets 1,340
Debt (6,280)
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Net assets acquired and total
purchase price, net of cash acquired $ 1,770
========
3. Debt
In March 2000 the Company completed the renegotiation of two credit facilities -
a new $63 million three year term loan facility and the renewal of the $10
million revolving line of credit. Both credit facilities bear interest at rates
ranging between Prime and LIBOR plus 2.2% per annum. At June 30, 2000, the
Company had no borrowings outstanding on these two facilities.
4. Capital Stock
Changes in Class A Subordinate Voting Stock, Class B Stock and Exchangeable
Shares for the six months ended June 30, 2000 are shown in the following table
(number of shares and stated value in the following table have been rounded to
the nearest thousand):
Class A Subordinate Exchangeable
Voting Stock Shares Class B Stock
--------------------- --------------------- --------------------
Number of Stated Number of Stated Number of Stated
shares value shares value shares value
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$ $ $
Issued and outstanding at
December 31, 1999 1,663 11,500 14,823 110,000 63,712 429,455
Issued on acquisition of
Great Lakes Downs on
February 29, 2000 268 1,846 -- -- -- --
Conversion of Class B
Stock to Class A
Shares 5,246 35,362 -- -- (5,246) (35,362)
Conversion of Exchangeable
Shares to Class A
Shares 4,932 36,602 (4,932) (36,602) -- --
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Issued and outstanding
at June 30, 2000 12,109 85,310 9,891 73,398 58,466 394,093
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The Company has a Long-Term Incentive Plan (the Plan). Under the Plan the
Company has granted non-qualifying options to certain directors and incentive
stock options to certain senior executives to purchase shares of the Company's
Class A Subordinate Voting Stock at a price no less than the fair market value
of the Class A Subordinate Voting Stock at the date of grant. The non-qualifying
8
options vest over a four-year period. The incentive stock options vest based on
terms approved by the Company's Board of Directors.
At June 30, 2000, there were 1,140,000 options outstanding that were all granted
during 2000. None of the stock options granted in 2000 were exercised or
canceled during the six month period ended June 30, 2000. The exercise price of
the stock options outstanding at June 30, 2000 ranged from $4.875 to $6.90 with
a weighted average exercise price of $6.65.
There were 250,000 options exercisable at June 30, 2000 with an exercise price
of $6.90.
The Company has adopted the disclosure requirement provision of SFAS No. 123 in
accounting for stock based compensation issued to employees. The fair value of
the Company's options was estimated utilizing prescribed valuation models and
assumptions as of each grant date. Based on the results of such estimates,
management determined that there was no material effect on net income or
earnings per share for the six-month period ended June 30, 2000.
5. Earnings Per Share
The following is a reconciliation of the numerator and denominator of the basic
and diluted per share computations (in thousands except per share amounts):
Three Months Ended June 30,
2000 1999
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Net Income (loss) $ 2,752 $ (1,235)
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Basic & Diluted Weighted Average Shares Outstanding:
Class A Subordinate Voting Stock 10,518 --
Class B Stock 58,466 63,712
Exchangeable Shares 11,482 14,823
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80,466 78,535
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Basic Earnings (Loss) Per Share $ 0.03 $ (0.02)
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Diluted Earnings (Loss) Per Share $ 0.03 $ (0.02)
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Six Months Ended June 30,
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2000 1999
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Net Income $ 14,732 $ 8,090
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Basic & Diluted Weighted Average Shares Outstanding:
Class A Subordinate Voting Stock 6,943 --
Class B Stock 60,484 63,712
Exchangeable Shares 12,950 14,823
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80,377 78,535
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Basic Earnings Per Share $ 0.18 $ 0.10
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9
Diluted Earnings Per Share $ 0.18 $ 0.10
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Outstanding stock options are not included in the computation
of diluted net earnings per share as their effect is anti-
dilutive.
6. Segment Information
In July 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"), which establishes standards for the way that public business enterprises
report information about operating segments. This statement is effective for
financial statements for periods beginning after December 15, 1997. The Company
has adopted this standard.
The Company's reportable segments reflect the Company's significant operating
activities that are evaluated separately by management. The company has two
reportable segments: racetrack operations and real estate operations.
The accounting policies of the segments are the same as those described in the
"Principles of Consolidation" in the Company's annual report on Form 10-K for
the year ended December 31, 1999.
The following summary presents key information by operating segment (in
thousands):
Three months ended June 30, 2000
Racetrack Real Estate
Operations Operations Total
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Revenue $ 40,260 $ 13,568 $ 53,828
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Income before income taxes $ 2,076 $ 2,415 $ 4,491
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Real estate properties and fixed asset
net additions (disposals) $ 3,634 $ (9,314) $ (5,680)
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Three months ended June 30, 1999
Racetrack Real Estate
Operations Operations Total
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Revenue $ 17,733 $ 3,062 $ 20,795
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Loss before income taxes $ (71) $ (1,173) $ (1,244)
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Real estate properties and fixed asset
net additions (disposals) $ 2,983 $ 2,365 $ 5,348
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Six months ended June 30, 2000
Racetrack Real Estate
Operations Operations Total
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Revenue $ 117,302 $ 17,268 $ 134,570
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Income before income taxes $ 23,516 $ 2,133 $ 25,649
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Real estate properties and fixed asset
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10
net additions (disposals) $ 5,198 $ (8,492) $ (3,294)
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Six months ended June 30, 1999
Racetrack Real Estate
Operations Operations Total
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Revenue $ 54,198 $ 6,504 $ 60,702
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Income (loss) before income taxes $ 16,899 $ (1,903) $ 14,996
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Real estate properties and fixed asset
net additions (disposals) $ 3,775 $ 3,383 $ 7,158
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7. Related Party Transactions
During the three months ended June 30, 2000, certain real estate properties were
sold to wholly owned subsidiaries of Magna International Inc ("Magna"). Proceeds
of $8.0 million were received on the sale of these properties. Due to the
related party nature of the transactions, the gain on sale, net of taxes, was
recorded as a contribution to equity.
8. Commitments and contingencies
One of the Company's subsidiaries has been named as a defendant in a class
action brought in a United States District Court by Gutwillig et al. The
plaintiffs in this action claim unspecified compensatory and punitive damages,
for resolution and disgorgement of profits, all in relation to forced labor
performed by the plaintiffs for such subsidiary and certain other Austrian and
German corporate defendants at their facilities in Europe during World War II.
As a result of the Reorganization, the Company acquired shares of such
subsidiary. Under Austrian law, such subsidiary would be jointly and severally
liable for the damages awarded in respect of this class action claim. An
Austrian subsidiary of Magna has agreed to indemnify such subsidiary for any
damages or expenses associated with this claim.
A subsidiary of Magna has agreed to indemnify the Company in respect of
environmental remediation costs and expenses relating to existing conditions in
certain of the Company's Austrian real estate properties.
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD LOOKING STATEMENTS:
Information set forth in this discussion and analysis contain various "forward-
looking statements" within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. The Private
Securities Litigation Reform Act of 1995 (the "Act") provides certain "safe
harbor" provisions for forward-looking statements. All forward-looking
statements made in this Quarterly Report on Form 10-Q are made pursuant to the
Act. The reader is cautioned that these statements represent our judgment
concerning the future and are subject to risks and uncertainties that could
cause our actual operating results and financial condition to differ materially.
Forward-looking statements are typically identified by the use of terms such as
"may," "will," "expect," "anticipate," "estimate," and similar words, although
some forward-looking statements are expressed differently. Although we believe
that the expectations reflected in such forward-looking statements are
reasonable we can give no assurance that such expectations will prove to be
correct. Important factors that could cause actual results to differ materially
from our expectations include, but are not limited to: the impact of competition
from operators of other racetracks and from other forms of gaming (including
from Internet and on-line wagering); a substantial change in law or regulations
affecting our gaming activities; a substantial change in allocation of live
racing days; our continued ability to effectively compete for the country's top
horses and trainers necessary to field high-quality horse racing; our continued
ability to complete expansion projects designed to generate new revenues and
attract new patrons; our ability to sell some of our real estate when we need to
or at a price we want; the impact of inclement weather; and our ability to
integrate recent racetrack acquisitions.
Overview
We operate horse racetracks and wagering operations and media sports wagering
operations, and are currently considering developing telephone account,
interactive television and Internet-based wagering operations, as well as
leisure and retail-based real estate projects on the land surrounding some of
our racetracks. We also own a real estate portfolio that includes a gated
residential community currently under development, two golf courses and related
recreational facilities, and other real estate. We are considering a number of
options with respect to the two golf courses, including direct operation or
leasing to third party operators, as well as sale and leaseback transactions or
outright sale. We intend gradually to sell the balance of our real estate
portfolio in order to provide capital to be used in our business.
Racetrack operations
Because of the seasonal nature of our racetrack business, revenues and operating
results for any interim quarter will not be indicative of the revenues and
operating results for the year. Our live racing schedule also dictates that we
will earn a substantial portion of our net earnings in the first quarter of each
year, which is when The Santa Anita Park Meet and the annual meet at Gulfstream
Park occur. Historically our second quarter of each year has the second largest
net earnings of each year, when the larger of the two annual meets at Golden
Gate Fields occurs.
12
Real estate operations
Following the initiation of a disposition plan for the Company's excess
properties, net proceeds of $8.3 million were received during the second
quarter. In addition a further $8.0 million was received on real estate sold to
a related party. For financial statement purposes, the gain on real estate sales
from the related party are reported, net of tax, as a contribution to equity. In
total, the Company's real estate sales generated $4.3 million in excess of the
historical cost of the properties sold. Furthermore, the Company has entered
into sales agreements for properties that will provide anticipated proceeds of
approximately $20.0 million in the third and fourth quarters.
Results of Operations
Six months ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Racetrack operations
Revenues from our racetrack operations were $117.3 million for the six months
ended June 30, 2000. The revenues were primarily earned from Santa Anita Park,
Gulfstream Park and Golden Gate Fields, with Santa Anita Park ending their meet
during the latter half of April and operating as an inter-track wagering site
and Golden Gate Fields running their meet through most of the second quarter. As
Santa Anita Park was the only track owned in the first half of 1999, our total
revenues from racetrack operations in the comparable 1999 period were from Santa
Anita Park and totaled $54.2 million.
In the six months ended June 30, 2000, our share of total pari-mutuel wagering
revenues for our racetracks was $87.0 million and non-wagering revenues were
$30.3 million. The major components of our non-wagering revenues for the six
months ended June 30, 2000 were admission related revenues of $13.1 million
(comprising primarily admissions, parking, and program sales) and food and
beverage sales of $9.7 million, collectively 75% of total non-wagering revenues.
Racetrack costs and expenses, before depreciation and interest, were $83.0
million for the six months ended June 30, 2000. The major component of our costs
and expenses, before depreciation and interest, was payroll costs ($43.7
million) representing approximately 53% of our total costs.
Real estate operations
Net proceeds on sale of real estate were $8.3 million for the six months ended
June 30, 2000. Total proceeds received of $16.3 million included the cost of
real estate sold to a related party of $6.1 and $1.9 million (less tax) which
was recorded as a capital contribution. Revenues from our real estate rental and
other operations were $9.0 million for the six months ended June 30, 2000
compared to $6.5 million for the six months ended June 30, 1999.
13
Real estate costs and expenses were $7.6 million for the six months ended June
30, 2000 and $6.5 million for the six months ended June 30, 1999.
Predevelopment and other costs
Predevelopment and other costs were $2.4 million for the six months ended June
30, 2000. These costs include consultants' fees associated with feasibility
studies, construction designs, market analysis, site models and alternative site
investigations, and were incurred on our racetrack sites and land sites in
Europe.
Depreciation and amortization
Depreciation and amortization increased by $7.0 million to $10.0 million for the
six months ended June 30, 2000, primarily as a result of depreciation related to
our acquisitions of Gulfstream Park on September 1, 1999, Thistledown and
Remington Park on November 12, 1999, Golden Gate Fields on December 10, 1999 and
Great Lakes Downs on February 29, 2000.
Income tax provision
We recorded an income tax provision of $10.9 million on pre-tax income of $25.6
million for the six months ended June 30, 2000 compared to an income tax
provision of $6.9 million on pre-tax income of $15.0 million for the six months
ended June 30, 1999. Our income tax provision relates primarily to the income of
our racetrack operations which was calculated based on a consolidated tax
sharing arrangement.
Three months ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Racetrack operations
Revenues from our racetrack operations were $40.3 million for the three months
ended June 30, 2000. The revenues were primarily earned from Santa Anita Park
and Golden Gate Fields, with Santa Anita Park ending their meet during the
latter half of April and operating as an inter-track wagering site and Golden
Gate Fields running their meet through most of the second quarter. As Santa
Anita Park was the only track owned in the second quarter of 1999, our total
revenues from racetrack operations in the comparable 1999 period were from Santa
Anita Park and totaled $17.7 million.
In the three months ended June 30, 2000, our share of total pari-mutuel wagering
revenues for our racetracks was $27.9 million and non-wagering revenues were
$12.4 million. The major components of our non-wagering revenues for the three
months ended June 30, 2000 were admission related revenues of $4.9 million
(comprising primarily admissions, parking, and program sales) and food and
beverage sales of $4.8 million, collectively 78% of total non-wagering revenues.
14
Racetrack costs and expenses, before depreciation and interest, were $33.2
million for the three months ended June 30, 2000. The major component of our
costs and expenses, before depreciation and interest, was payroll costs ($19.9
million) representing approximately 60% of our total costs.
Real estate operations
Net proceeds on sale of real estate were $8.3 million for the three months ended
June 30, 2000. Total proceeds received of $16.3 million included the cost of
real estate sold to a related party of $6.1 and $1.9 million (less tax) which
was recorded as a capital contribution. Revenues from our real estate rental and
other operations were $5.3 million for the three months ended June 30, 2000
compared to $3.1 million for the three months ended June 30, 1999.
Real estate costs and expenses were $4.4 million for the three months ended June
30, 2000 and $3.3 million for the three months ended June 30, 1999.
Predevelopment and other costs
Predevelopment and other costs were $1.2 million for the three months ended June
30, 2000. These costs include consultants' fees associated with feasibility
studies, construction designs, market analysis, site models and alternative site
investigations, and were incurred on our racetrack sites and land sites in
Europe.
Depreciation and amortization
Depreciation and amortization increased by $3.2 million to $4.7 million for the
three months ended June 30, 2000, primarily as a result of depreciation related
to our acquisitions of Gulfstream Park on September 1, 1999, Thistledown and
Remington Park on November 12, 1999, Golden Gate Fields on December 10, 1999 and
Great Lakes Downs on February 29, 2000.
Income tax provision
We recorded an income tax provision of $1.7 million on pre-tax income of $4.5
million for the three months ended June 30, 2000 compared to no tax provision on
a pre-tax loss of $1.2 million for the three months ended June 30, 1999. Our
income tax provision relates primarily to the income of our racetrack operations
which was calculated based on a consolidated tax sharing arrangement.
Liquidity and Capital Resources
At June 30, 2000, we had cash and cash equivalents of $46.7 million and total
shareholder's equity of $558.7 million.
15
In the first quarter we successfully completed the renegotiation of two credit
facilities for two of our subsidiaries, The Santa Anita Companies, Inc. and the
Los Angeles Turf Club, Inc. These credit facilities consist of a new $63.0
million three year term loan facility and the renewal of the $10.0 million
revolving operating line of credit, both of which would bear interest at rates
ranging between the U.S. Prime Rate and LIBOR plus 2.2% per annum.
For the six months ended June 30, 2000 we incurred capital expenditures of
approximately $8.8 million. We currently anticipate capital expenditures of
approximately $52.5 million during the year ending December 31, 2000. The
capital expenditures relate to normal ongoing capital improvements to the
racetracks of approximately $11.1 million, extraordinary capital improvements of
approximately $11.0 million required to Santa Anita Park and Golden Gate Fields
related to commitments made on acquisition and $5.2 million on new racetrack
related projects. In addition, approximately $14.9 million is anticipated for
the completion of the Aurora golf course and infrastructure and holding costs of
adjacent lands, and approximately $5.3 million for infrastructure and holding
costs of other properties. Finally, $5.0 million will be expended during the
year on interactive television account wagering, Internet and broadcast
initiatives.
Operating activities
Cash used for operations was $3.9 million for the six months ended June 30, 2000
and cash provided from operations was $1.4 million for the six months ended June
30, 1999. Cash used for operations in the six months ended June 30, 2000 is
primarily a result of cash used in reducing our current liabilities offset by
cash generated by Golden Gate Fields, Gulfstream Park and Santa Anita Park
operations.
Investing activities
Cash provided by investing activities was $5.6 million for the six months ended
June 30, 2000 and cash used for investing activities was $13.5 million for the
six months ended June 30, 1999. Total investing activities for the six months
ended June 30, 2000 included proceeds on disposition of real estate of $8.3
million and the cost of real estate sold to a related party of $6.1 million,
offset by fixed asset additions of $8.8 million.
Financing activities
Cash used for financing activities netted to approximately $5.6 million for the
six months ended June 30, 2000. During this period the Company's bank
indebtedness decreased by $2.1 million and there were repayments of long-term
debt netting to $6.8 million. This was offset by a contribution of capital of
$1.4 million due to a gain realized on a sale of real estate to a related party
and an issue of stock of $1.8 million. For the six months ended June 30, 1999,
cash used for financing activities was $10.1 million and was comprised of an
increase in payables to Magna International Inc. of $24.3 million offset by a
contribution by Magna of $12.1 million and a decrease in bank indebtedness of
$2.1 million.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
16
No material changes since year-end.
17
INDEX TO EXHIBITS
Exhibit Number Description of Exhibit
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27.1 Financial Data Schedule
18
[ARTICLE] 5
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-2000
[PERIOD-START] APR-01-2000
[PERIOD-END] JUN-30-2000
[EXCHANGE-RATE] 1
[CASH] 46,691,000
[SECURITIES] 0
[RECEIVABLES] 32,032,000
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 89,975,000
[PP&E] 559,413,000
[DEPRECIATION] (2,057,000)
[TOTAL-ASSETS] 751,257,000
[CURRENT-LIABILITIES] 75,038,000
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 85,310,000
[OTHER-SE] 473,378,000
[TOTAL-LIABILITY-AND-EQUITY] 751,257,000
[SALES] 0
[TOTAL-REVENUES] 53,828,000
[CGS] 0
[TOTAL-COSTS] 43,526,000
[OTHER-EXPENSES] 5,855,000
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] (44,000)
[INCOME-PRETAX] 4,491,000
[INCOME-TAX] 1,739,000
[INCOME-CONTINUING] 2,752,000
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 2,752,000
[EPS-BASIC] 0.03
[EPS-DILUTED] 0.03