Exhibit 99 Magna Entertainment Corp.
MEC
- ---
337 Magna Drive
Aurora, Ontario
Canada L4G 7K1
Tel (905) 726-2462
Fax (905) 726-7172
PRESS RELEASE
MAGNA ENTERTAINMENT CORP.
ANNOUNCES RESULTS FOR THE SECOND QUARTER
AND SIX MONTHS ENDED JUNE 30, 2001
August 1, 2001, Aurora, Ontario, Canada......Magna Entertainment Corp. ("MEC")
(NASDAQ: MIEC; TSE: MIE.A, MEH) today reported its financial results for the
second quarter and six months ended June 30, 2001.
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Six Months Ended Three Months Ended
June 30, June 30,
2001 2000 2001 2000
-------- -------- -------- --------
Revenue (1) $357,718 $288,812 $113,192 $102,344
Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA) $ 55,641 $ 35,566 $ 11,019 $ 9,132
Net Income $ 24,705 $ 14,732 $ 2,237 $ 2,752
Diluted earnings per share $ 0.30 $ 0.18 $ 0.03 $ 0.03
(1) Effective October 1, 2000, the Company changed its method of accounting for revenue recognition.
The change in accounting presentation has been retroactively applied.
All amounts are reported in thousands of U.S. dollars, except per share figures.
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Jim McAlpine, President and Chief Executive Officer of MEC, said that "we are
pleased with our improved operating and financial performance for the six months
ended June 30, 2001. The improvement reflects the continued consolidation of
strategic racetracks and the sale of non-core real estate, offset somewhat by
fewer live racing days at some of our California tracks and a weaker U.S.
economy. For the balance of 2001 and beyond, we will continue to focus our
attention on improving the performance of our existing race tracks. At the same
time, we will continue to pursue strategic acquisitions. These activities will
give us a strong content position from which we can expand our interactive
electronic wagering initiatives utilizing telephones, the Internet and
interactive television".
The financial results for the second quarter of 2001 reflect the full quarter's
operations for all of the Company's racetracks and related operations including
the businesses acquired from Ladbroke commencing April 5, 2001. The comparative
results for the second quarter of 2000 do not reflect the operations of Bay
Meadows or Ladbroke, which were acquired in November 2000 and April 2001,
respectively.
The Company's horse racetrack business is seasonal in nature. Generally, the
Company's horse racetrack revenues are greater in the first quarter of the
calendar year because three of the Company's largest racetracks, Santa Anita,
Gulfstream and Golden Gate Fields, run live meets principally during the first
quarter of the year. This seasonality can be expected to cause significant
quarterly fluctuations in revenue, earnings and diluted earnings per share. This
will change as the full impact of our acquisition and interactive wagering
initiatives are realized. Accordingly, the seasonal fluctuations are expected to
decrease as our operations mature.
Revenue for the first six months and second quarter of 2001 increased 24% to
$357.7 million and 11% to $113.2 million, respectively. The higher revenues in
the second quarter of 2001 reflect primarily the consolidation of Ladbroke
Pennsylvania, partially offset by a decline in revenues at Santa Anita as a
result of five fewer live racing days in the second quarter of 2001 compared to
the 2000 period.
EBITDA increased 56% and 21% to $55.6 million and $11.0 million for the first
six months and second quarter of 2001, respectively. EBITDA, excluding gains on
the sale of real estate, for the six months ended June 30, 2001 was $38.6
million compared to $33.2 million in the first six months of fiscal 2000 and for
the three months ended June 30, 2001 was $6.0 million compared to $6.8 million
in the second quarter of 2000.
The sale of non-core real estate holdings in the second quarter of 2001
aggregated $10.0 million resulting in EBITDA of $5.0 million compared to sales
in the second quarter of 2000 of $8.3 million and EBITDA of $2.4 million. The
Company expects further sales of non-core real estate throughout the second half
of 2001.
Net income increased 68% to $24.7 million for the first six months of 2001
compared to 2000 and decreased $0.5 million to $2.2 million in the second
quarter of 2001 compared to the second quarter of 2000.
Diluted earnings per share were $0.30 for the first six months and $0.03 for the
second quarter of 2001 representing increases of 67% and no change over the
prior year periods, respectively.
During the second quarter of 2001, cash generated from operations before changes
in non-cash working capital was $0.4 million. Total cash used for investment
activities during the quarter was $6.8 million, including $21.0 million for the
Ladbroke Pennsylvania acquisition and $12.2 million for real estate property and
fixed asset additions, partially offset by $26.4 million of cash proceeds from
the sale of non-core real estate and other assets.
During the second half of 2001, the Company will continue to focus on earnings
growth through the implementation, throughout its operations, of best practices
and common systems, utilization of its corporate purchasing power to reduce
costs, improved production and distribution of its simulcast program, and the
sale of non-core real estate holdings. These activities have already begun to
take effect and will pick up momentum as we move through 2001 and 2002.
MEC also announced that its Board of Directors has approved the acquisition of
Multnomah Greyhound Park and that the Company has recently been granted a racing
license to operate Portland Meadows thoroughbred racetrack.
MEC, one of the largest operators of premier horse racetracks in the United
States, acquires, develops and operates horse racetracks and related pari-mutuel
wagering operations, including OTB's, and owns and operates a national account
wagering system called "Call-A-Bet."
The Company will hold a conference call to discuss its second quarter results on
Thursday August 2, 2001 at 11:00 a.m. New York time. The number to use for this
call is 1-888-433-1680. Please call 10 minutes prior to the conference call. The
overseas number to call is 1-416-641-6702. The conference call will be chaired
by Jim McAlpine, President and Chief Executive Officer.
This press release contains various "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"). The
Act provides certain "safe harbor" provisions for forward-looking statements.
All forward-looking statements made in this press release 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
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.
For more information contact:
Graham Orr
Executive Vice President
& Chief Financial Officer
Magna Entertainment Corp.
337 Magna Drive
Aurora, ON L4G 7K1
Tel: 905-726-7099
MAGNA ENTERTAINMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
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[Unaudited]
[U.S. 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,
2001 2000 2001 2000
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(restated, (restated,
see note 1) see note 1)
Revenue
Racetrack
Gross wagering $ 84,163 $ 76,402 $276,489 $241,212
Non-wagering 14,867 12,374 37,456 30,332
Real estate
Sale of real estate 9,994 8,269 36,145 8,269
Rental and other 4,168 5,299 7,628 8,999
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113,192 102,344 357,718 288,812
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Costs and expenses
Racetrack
Purses, awards and other 51,476 48,516 173,708 154,242
Operating costs 35,285 29,435 86,261 75,944
General and administrative 7,268 3,759 15,230 7,077
Real estate
Cost of real estate sold 5,000 5,914 19,093 5,914
Operating costs 2,728 4,178 5,416 7,160
General and administrative 302 240 547 468
Predevelopment and other costs 114 1,170 1,822 2,441
Depreciation and amortization 6,630 4,685 11,984 9,952
Interest expense (income), net 678 (44) 2,078 (35)
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109,481 97,853 316,139 263,163
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Income before income taxes 3,711 4,491 41,579 25,649
Income tax provision 1,474 1,739 16,874 10,917
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Net income 2,237 2,752 24,705 14,732
Other comprehensive income
Foreign currency translation adjustment 102 1,479 8,956 6,329
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Comprehensive income $ 2,135 $ 1,273 $ 15,749 $ 8,403
========================================================================================================
Earnings per share of Class A Subordinate Voting
Stock, Class B Stock or Exchangeable Shares:
Basic $0.03 $0.03 $0.30 $0.18
Diluted $0.03 $0.03 $0.30 $0.18
========================================================================================================
Average number of shares of Class A Subordinate
Voting Stock, Class B Stock and Exchangeable
Shares outstanding during the period [in
thousands]:
Basic 83,566 80,466 82,027 80,377
Diluted 83,788 80,466 82,249 80,377
========================================================================================================
MAGNA ENTERTAINMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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[Unaudited]
[U.S. dollars in thousands]
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Three months ended Six months ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
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Cash provided from (used for):
OPERATING ACTIVITIES
Net income $ 2,237 $ 2,752 $ 24,705 $ 14,732
Items not involving current cash flows (1,826) 2,304 (11,333) 7,302
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411 5,056 13,372 22,034
Changes in non-cash items related to operations 1,599 (2,671) 10,313 (25,875)
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2,010 2,385 23,685 (3,841)
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INVESTMENT ACTIVITIES
Acquisition of business, net of cash (21,035) - (21,035) -
Real estate property and fixed asset additions (12,179) (6,381) (16,383) (8,767)
Proceeds on disposal of real estate 26,127 8,269 32,905 8,269
Other asset disposals 289 1,049 164 1,749
Proceeds on real estate sold to Magna - 6,147 - 6,147
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(6,798) 9,084 (4,349) 7,398
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FINANCING ACTIVITIES
Increase (decrease) in bank indebtedness - 1,498 (7,609) (2,056)
(Repayment of) increase in long-term debt (1,215) (2,857) 8,661 (6,767)
Contributed capital - 1,352 - 1,352
Issuance of share capital 403 - 443 -
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(812) (7) 1,495 (7,471)
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Effect of exchange rate changes on cash
and cash equivalents (747) 14 (1,625) (55)
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Net (decrease) increase in cash and cash
equivalents during the period (6,347) 11,476 19,206 (3,969)
Cash and cash equivalents, beginning of period 57,529 35,215 31,976 50,660
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Cash and cash equivalents, end of period $ 51,182 $46,691 $ 51,182 $ 46,691
============================================================================================================================
MAGNA ENTERTAINMENT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
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[Unaudited]
[U.S. dollars in thousands]
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June 30, December 31,
2001 2000
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ASSETS
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Current assets:
Cash and cash equivalents $ 51,182 $ 31,976
Restricted cash 7,189 13,461
Accounts receivable 31,618 33,399
Prepaid expenses and other 10,195 7,984
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100,184 86,820
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Real estate properties and fixed assets, net 568,649 568,265
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Other assets, net 175,619 117,561
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Future tax assets 6,943 8,393
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$851,395 $781,039
========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Bank indebtedness $ - $ 7,609
Accounts payable and other liabilities 57,732 64,847
Income taxes payable 16,231 1,111
Long-term debt due within one year 23,053 12,754
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97,016 86,321
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Long-term debt 74,034 63,343
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Other long-term liabilities 300 234
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Future tax liabilities 108,815 89,353
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Shareholders' equity:
Capital stock issued and outstanding -
Class A Subordinate Voting Stock 119,635 100,770
Exchangeable Shares 52,765 57,937
Class B Stock 394,094 394,094
Contributed surplus 1,352 1,352
Retained earnings (deficit) 22,715 (1,990)
Accumulated comprehensive loss (19,331) (10,375)
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571,230 541,788
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$851,395 $781,039
========================================================================================================================
MAGNA ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Summary of significant accounting policies
Basis of presentation
- ---------------------
The accompanying unaudited 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,
2001 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2001. 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, 2000.
As a result of the seasonal nature of our racetrack business, racetrack revenues
and operating results for any quarter will not be indicative of the revenues and
operating results for the year. The accompanying consolidated statement of
operations and comprehensive income for the six months ended June 30th, reflect
a disproportionate share of annual net earnings as the Company normally earns a
substantial portion of its net earnings in the first quarter of each year.
Effective October 1, 2000, the Company changed its method of accounting for
revenue recognition in accordance with Staff Accounting Bulletin (SAB) No. 101,
Revenue Recognition in Financial Statements and guidance provided by EITF 99-19
Recording Revenue Gross as a Principal versus Net as an Agent. Previously the
Company recorded its wagering revenue net of "purses, stakes and awards" and
"pari-mutuel wagering taxes". Under the new accounting method adopted during the
fourth quarter of 2000, the Company now recognizes revenue gross of "Purses,
stakes and awards" and "pari-mutuel wagering taxes". The costs relating to these
amounts are shown as "Purses, awards and other" in the accompanying consolidated
statement of operations and comprehensive income. In accordance with SAB 101
guidance, all prior period income statements have been retroactively
reclassified to comply with the new accounting method.
2. Business Acquisition
On April 5, 2001, the Company completed the acquisition of Ladbroke Racing
Pennsylvania Inc. and Sport Broadcasting, Inc. (collectively the "Ladbroke
Companies") for a total purchase price, including cash acquired of $7.0 million
and transaction costs, of $54.5 million. The total purchase price was satisfied
by cash payments of $28 million, the issuance of two promissory notes totalling
$13.25 million which bear interest at 6% with the first note in the amount of
$6,625,000 maturing on the first anniversary of the closing date and the second
note in the amount of $6,625,000 maturing on the second anniversary of the
closing date and by the issuance of 3,178,297 shares of Class A Subordinate
Voting Stock. The Ladbroke Companies include account wagering operations, the
Meadows harness track, four off-track betting facilities and an 18.3% interest
in The Racing Network.
The purchase price, which may be adjusted further, has been allocated to the
assets and liabilities acquired as follows (in thousands):
Non-cash working capital $ (6,514)
Real estate properties and fixed assets 19,947
Other assets 61,550
Deferred income taxes (27,448)
--------
Net assets acquired and total
purchase price, net of cash acquired $ 47,535
========
The purchase consideration for this acquisition is as follows:
Cash $ 21,035
Issuance of shares of Class A Subordinate Voting Stock 13,250
Issuance of two promissory notes 13,250
--------
$ 47,535
========
Pro-Forma Impact
If the acquisition of the Ladbroke Companies had occurred on January 1, 2000,
the Company's unaudited pro-forma results would have been:
For the six months For the six months
ended June 30, 2001 ended June 30, 2000
Revenues $379,592 $330,676
Expenses 335,485 301,698
-------- --------
Income before income taxes 44,107 28,978
======== ========
Net income 25,718 15,968
======== ========
Net income per share
(basic and diluted) $ 0.31 $ 0.19
======== ========
3. Capital Stock
Changes in Class A Subordinate Voting Stock, Class B Stock and Exchangeable
Shares for the six months ended June 30, 2001 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 Share Shares Class B Stock
--------------------------- ----------------------------- ----------------------------
Number of Stated Number of Stated Number of Stated
Shares Value Shares Value Shares Value
- -------------------------------------------------------------------------------------------------------------------------------
$ $ $
Issued and outstanding at
December 31, 2000 14,192 100,770 7,807 57,937 58,466 394,094
Issued on exercise of stock
options 9 40 - - - -
Conversion of Exchangeable
Shares to Class A
Subordinate Voting Stock 71 527 (71) (527) - -
- -------------------------------------------------------------------------------------------------------------------------------
Issued and outstanding at
March 31, 2001 14,272 101,337 7,736 57,410 58,466 394,094
Issued on acquisition of the
Ladbroke Companies on
April 5, 2001 3,178 13,250 - - - -
Issued under the Plan 63 403 - - - -
Conversion of Exchangeable
Shares to Class A
Subordinate Voting Stock 626 4,645 (626) (4,645) - -
- -------------------------------------------------------------------------------------------------------------------------------
Issued and outstanding at
June 30, 2001 18,139 119,635 7,110 52,765 58,466 394,094
- -------------------------------------------------------------------------------------------------------------------------------
The Company has a Long-term Incentive Plan (the "Plan") (adopted in 2000) which
allows for the grant of nonqualified stock options, incentive stock options,
stock appreciation rights, restricted stock, bonus stock and performance shares
to directors, officers, employees, consultants, independent contractors and
agents. A maximum of 8.0 million shares could be issued under the Plan, of which
6.5 million are available for issuance pursuant to stock options and tandem
stock appreciation rights and 1.5 million are available for issuance pursuant to
any other type of award under the Plan. During the six months ended June 30,
2001, 63,094 shares were issued under the Plan.
The Company grants stock options to certain directors, officers and key
employees to purchase shares of the Company's Class A Subordinate Voting Stock.
The majority of the stock options give the grantee the right to purchase Class A
Subordinate Voting Stock of the Company at a price no less than the fair market
value of such stock at the date of grant. Generally, stock options under the
Plan vest over a period of two to six years from the date of grant at rates of
1/7th to 1/3rd per year and expire on or before the tenth anniversary of the
date of grant, subject to earlier cancellation in the events specified in the
stock option agreements entered into by the Company with each recipient of
options.
During the six months ended June 30, 2001, 1,020,000 stock options were issued,
8,333 stock options were exercised and 100,000 stock options were revoked. At
June 30, 2001, there were 4,733,333 options outstanding that were all granted
during 2000 and 2001. The exercise price of the stock options outstanding at
June 30, 2001 ranged from $3.91 to $7.00 with an average exercise price of
$4.96.
There were 1,437,000 options exercisable at June 30, 2001 with an average
exercise price of $6.41.
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, 2001.
4. 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, Six months ended June 30,
2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
Net Income $ 2,237 $ 2,752 $24,705 $14,732
- ---------------------------------------------------------------------------------------------------------------------------
Basic Diluted Basic & Basic Diluted Basic &
Diluted Diluted
Weighted Average
Shares Outstanding:
Class A Subordinate Voting Stock 17,676 17,898 10,518 15,964 16,186 6,943
Class B Stock 58,466 58,466 58,466 58,466 58,466 60,484
Exchangeable Shares 7,424 7,424 11,482 7,597 7,597 12,950
- ---------------------------------------------------------------------------------------------------------------------------
83,566 83,788 80,466 82,027 82,249 80,377
- ---------------------------------------------------------------------------------------------------------------------------
Earnings Per Share $0.03 $ 0.03 $0.03 $0.30 $ 0.30 $0.18
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5. Segment Information
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 and other operations.
The accounting policies of the segments are the same as those described in the
"Significant Accounting Policies" section in the Company's annual report on Form
10-K for the year ended December 31, 2000.
The following summary presents key information by operating segment (in
thousands):
Three months ended June 30, 2001
Racetrack Real Estate &
Operations Other Operations Total
- ----------------------------------------------------------------------------------------------------------------------------
Revenue $ 99,030 $ 14,162 $ 113,192
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ (2,205) $ 5,916 $ 3,711
- ----------------------------------------------------------------------------------------------------------------------------
Real estate properties and fixed asset
additions, net $ 8,082 $ 4,097 $ 12,179
- ----------------------------------------------------------------------------------------------------------------------------
Three months ended June 30, 2000
Racetrack Real Estate &
Operations Other Operations Total
- ----------------------------------------------------------------------------------------------------------------------------
Revenue $ 88,776 $ 13,568 $ 102,344
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 2,000 $ 2,491 $ 4,491
- ----------------------------------------------------------------------------------------------------------------------------
Real estate properties and fixed asset
additions (disposals), net $ 3,634 $ (9,314) $ (5,680)
- ----------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 2001
Racetrack Real Estate &
Operations Other Operations Total
- ---------------------------------------------------------------------------------------------------------------------------
Revenue $ 313,945 $ 43,773 $ 357,718
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 23,670 $ 17,909 $ 41,579
- ---------------------------------------------------------------------------------------------------------------------------
Real estate properties and fixed asset
additions, net $ 9,002 $ 7,381 $ 16,383
- ---------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 2000
Racetrack Real Estate &
Operations Other Operations Total
- ----------------------------------------------------------------------------------------------------------------------------
Revenue $ 271,544 $ 17,268 $ 288,812
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 23,499 $ 2,150 $ 25,649
- ----------------------------------------------------------------------------------------------------------------------------
Real estate properties and fixed asset
additions (disposals), net $ 5,198 $ (8,492) $ (3,294)
- ----------------------------------------------------------------------------------------------------------------------------
6. Subsequent Events
On July 5, 2001, the Company announced that it had signed agreements to operate
Portland Meadows Thoroughbred Racetrack and to acquire the operations of
Multnomah Greyhound Park, both of which are located in Portland, Oregon. Both
agreements are subject to various regulatory and other approvals.