Magna Entertainment Corp.
Pro Forma Consolidated Balance Sheet
As at March 31, 2001 Exhibit 99.3
(Unaudited)
(U.S. dollars in thousands)
Magna Ladbroke Ladbroke
Entertainment Acquisition
Corp. (notes 2(a)(iii)
(note 2(a)(ii)) and (v)
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ASSETS
Current assets:
Cash and cash equivalents 57,529 6,974 (28,009)
Restricted cash 27,538 268
Accounts receivable 62,030 462
Prepaid expenses and other 9,124 594
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156,221 8,298 (28,009)
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Real estate properties and fixed assets, net 546,720 17,740 2,208
Other assets, net 115,962 6,640 54,910
Future tax assets 8,600
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827,503 32,678 29,109
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other liabilities 83,418 7,629 123
Income taxes payable 16,434 87
Long-term debt due within one year 12,538 6,625
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112,390 7,716 6,748
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Deferred revenue 406 (406)
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Long-term debt 72,795 6,625
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Other long-term liabilities 257
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Future tax liabilities 86,619 381 27,067
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Shareholders' equity
Class A Subordinate Voting Stock 101,337 13,250
Exchangeable Shares 57,410
Class B Stock 394,094
Contributed Surplus 1,352 11,782 (11,782)
Accumulated retained earnings (deficit) 20,478 12,393 (12,393)
Accumulated comprehensive loss (19,229)
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555,442 24,175 (10,925)
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827,503 32,678 29,109
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Sport Sport Pro Forma
Broadcasting, Inc. Broadcasting, Inc. Consolidated
Adjustments Balance
(note 2(b)(ii)) (note 2(b)(iv)) Sheet
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ASSETS
Current assets:
Cash and cash equivalents 36,494
Restricted cash 27,806
Accounts receivable 62,492
Prepaid expenses and other 9,718
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- - 136,510
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Real estate properties and fixed assets, net 566,668
Other assets, net 898 (898) 177,512
Future tax assets 8,600
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898 (898) 889,290
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and other liabilities 91,170
Income taxes payable 16,521
Long-term debt due within one year 19,163
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- - 126,854
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Deferred revenue -
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Long-term debt 79,420
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Other long-term liabilities 257
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Future tax liabilities 114,067
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Shareholders' equity
Class A Subordinate Voting Stock 114,587
Exchangeable Shares 57,410
Class B Stock 394,094
Contributed Surplus 5,053 (5,053) 1,352
Accumulated retained earnings (deficit) (4,155) 4,155 20,478
Accumulated comprehensive loss (19,229)
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898 (898) 568,692
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898 (898) 889,290
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Magna Entertainment Corp.
Pro Forma Consolidated Statement of Operations and Comprehensive Income
For the three months ended March 31, 2001
(Unaudited)
(U.S. dollars in thousands, except per share information)
Magna Ladbroke Ladbroke
Entertainment Adjustments
Corp.
(note 2(a)(i)) (note 2(a)(iv))
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Revenue
Racetrack
Gross wagering 192,326 16,759 1,683
Non-wagering 22,589 1,470
Real Estate
Sale of real estate 26,151
Rental and other 3,460
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244,526 18,229 1,683
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Costs and Expenses
Racetrack
Purses, awards and other 122,232 4,088 1,302
Operating costs 50,976 10,953
General and administrative 7,962 566
Real Estate
Real estate sold 14,093
Operating costs 2,688
General and administrative 245
Depreciation and amortization 5,354 495 731
Predevelopment and other costs 1,708
Interest expense, net 1,400 549
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206,658 16,102 2,582
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Income (loss) before income taxes 37,868 2,127 (899)
Income tax provision 15,400 884 (360)
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Net income (loss) 22,468 1,243 (539)
Other comprehensive loss
Foreign currency translation adjustment (8,854)
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Comprehensive income (loss) 13,614 1,243 (539)
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Earnings per share for the Class A
Subordinate Voting Stock, Class B Stock or
Exchangeable Shares:
Basic $ 0.28
Diluted $ 0.28
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Average number of shares of Class A
Subordinate Voting Stock, Class B Stock and
Exchangeable Shares outstanding during the
period (in thousands):
Basic 80,472 3,178
Diluted 80,472 3,178
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Sport Sport Pro Forma
Broadcasting, Inc. Broadcasting, Inc. Consolidated
Adjustments Total
(note 2(b)(i)) (note 2(b)(iii))
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Revenue
Racetrack
Gross wagering 210,768
Non-wagering 24,059
Real Estate
Sale of real estate 26,151
Rental and other 3,460
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264,438
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Costs and Expenses
Racetrack
Purses, awards and other 127,622
Operating costs 61,929
General and administrative 8,528
Real Estate
Real estate sold 14,093
Operating costs 2,688
General and administrative 245
Depreciation and amortization 6,580
Predevelopment and other costs 430 101 2,239
Interest expense, net 1,949
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430 101 225,873
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Income (loss) before income taxes (430) (101) 38,565
Income tax provision 15,924
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Net income (loss) (430) (101) 22,641
Other comprehensive loss
Foreign currency translation adjustment (8,854)
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Comprehensive income (loss) (430) (101) 13,787
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Earnings per share for the Class A
Subordinate Voting Stock, Class B Stock or
Exchangeable Shares:
Basic $ 0.27
Diluted $ 0.27
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Average number of shares of Class A
Subordinate Voting Stock, Class B Stock and
Exchangeable Shares outstanding during the
period (in thousands):
Basic 83,650
Diluted 83,650
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MAGNA ENTERTAINMENT CORP.
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(UNAUDITED)
1. BASIS OF PRESENTATION
(a) Pro Forma Consolidated Balance Sheet
The pro forma consolidated balance sheet as at March 31, 2001 has been
prepared from:
(i) the unaudited consolidated balance sheet of Magna Entertainment
Corp. (the "Company") as at March 31, 2001;
(ii) the unaudited consolidated balance sheet of Ladbroke Racing
Pennyslvania and Subsidiaries ("Ladbroke") as at April 4, 2001; and
(iii) the unaudited balance sheet of Sport Broadcasting, Inc. ("SBI") as
at March 31, 2001.
(b) Pro Forma Consolidated Statement of Operations and Comprehensive Income
The pro forma consolidated statement of operations and comprehensive income
for the three month period ended March 31, 2001 has been prepared from:
(i) the unaudited consolidated statement of operations and comprehensive
income of the Company for the period ended March 31, 2001;
(ii) the unaudited consolidated statement of operations of Ladbroke for
the period from January 1, 2001 to April 4, 2001; and
(iii) the unaudited statement of operations of SBI for the three month
period ended March 31, 2001.
These pro forma consolidated financial statements should be read in conjunction
with the historical financial statements of Ladbroke and SBI, presented
elsewhere herein, as well as the historical financial statements of the Company
including the related notes thereto, previously filed with the Securities and
Exchange Commission.
These pro forma consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
("US GAAP").
These pro forma consolidated financial statements are not necessarily indicative
of the financial position or results of operations that would have resulted had
the relevant transactions taken place at the respective dates referred to below.
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2. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS
These pro forma consolidated financial statements have been presented assuming
that the acquisition described below had been completed as of January 1, 2001
for the pro forma consolidated statement of operations and comprehensive income
and as of April 4, 2001 for the pro forma consolidated balance sheet. The pro
forma consolidated financial statements give effect to the following items:
(a) Ladbroke
On April 5, 2001, the Company completed the acquisition of Ladbroke Racing
Pennsylvania Inc. and Sport Broadcasting, Inc. (collectively "Ladbroke Racing
Pennsylvania and Subsidiaries" or "Ladbroke") 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 $13,250,000 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 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. Since the
submission of our 8-K/A on June 19, 2001, the Company has determined that the
excess of purchase price over net assets on the Ladbroke acquisition should be
allocated to racing licenses rather than goodwill as previously identified. In
this submission, the excess has been reflected as racing licenses and
accordingly a deferred tax liability has been established relating to this
asset.
(i) The pro forma consolidated statement of operations and comprehensive
income for the three month period ended March 31, 2001 includes the
results of Ladbroke for the period from January 1, 2001 to April 4,
2001.
(ii) The pro forma consolidated balance sheet as at March 31, 2001
includes the financial position of Ladbroke as at April 4, 2001.
(iii) The pro forma consolidated balance sheet as at March 31, 2001
includes an adjustment to record the application of purchase
accounting to the March 31, 2001 consolidated balance sheet. The
impact of applying purchase accounting is to increase other assets
(comprised of racing licences) by $54,910,000, share capital by
$13,250,000, long term debt by $13,250,000, other accrued
liabilities by $123,000, future income taxes by $27,067,000, fixed
assets by $2,614,000 and decrease cash by $28,009,000. The
contributed surplus and accumulated retained earnings of $11,782,000
and $12,393,000, respectively, are eliminated.
(iv) The pro forma consolidated statement of operations and comprehensive
income for the period ended March 31, 2001 include adjustments that
arise as a result of the Ladbroke acquisition and the application of
purchase accounting. The adjustments to the results of operations of
Ladbroke included in the pro forma consolidated statement of
operations and comprehensive income for the period ended March 31,
2001 are:
- The Ladbroke statement of operations present gross wagering
revenues net of pari-mutuel taxes. For the three month period
ended March 31, 2001, these taxes were $1,683,000. An adjustment
has been made to increase both gross wagering revenues and
purses, awards and other expenses by $1,683,000.
- Additional amortization expense of $769,000 as a result of the
increase in other assets, based on the purchase price allocation,
and accounting policy to amortize the other assets over a 20 year
period.
- The State of Pennsylvania has granted the Company a reduction in
pari-mutuel taxes of 0.5% for a period of three years. This
reduction has been calculated based on handle for the three month
period ended March 31, 2001 of $76,295,000. As such, the tax
reduction would decrease purses, awards and other expenses by
$381,000.
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- On acquisition, the Company issued promissory notes of
$13,250,000 which bear interest at 6% per annum. Accordingly,
there would be an increase in interest expense by $199,000.
- On acquisition, the Company paid cash of approximately $28
million. Accordingly there would be decreased interest income
earned in the period as a result of these funds being disbursed
at the beginning of the period of approximately $350,000.
- Ladbroke had previously amortized buildings over a 25 year
period. The Company's accounting policy is to amortize these
assets over a 40 year period. Accordingly, depreciation and
amortization expense has been reduced by $38,000 to reflect the
longer depreciation period.
- A decrease in income tax expense of $52,000 is required as a
result of the above noted adjustments, effected at a combined
federal and state tax rate of 40%.
- A decrease in deferred income tax expense of $308,000 as a result
of the reversal of deferred income taxes on the amortization of
the other assets (racing licences).
(v) To maintain consistency of presentation with the Company, $406,000
of deferred revenue, which relates to grants received to assist in
the acquisition of fixed assets, has been reclassified against the
respective fixed assets.
(b) Sport Broadcasting, Inc.
(i) The pro forma statement of operations and comprehensive income for
the three month period ended March 31, 2001 includes the results of
SBI for the same period.
(ii) The pro forma balance sheet as at March 31, 2001 includes the
financial position of SBI as at the same date.
(iii) The pro forma statement of operations and comprehensive income
includes an adjustment to reduce the loss in SBI to only the
contributions made to SBI in the first quarter of 2001.
Contributions during the period were $531,000. Accordingly, the
adjustment required is to increase pre-development and other costs
by $101,000.
(iv) The pro forma balance sheet as at March 31, 2001 includes an
adjustment to eliminate SBI's other assets, contributed surplus and
the accumulated deficit of $898,000, $5,053,000 and $4,155,000,
respectively. This adjustment is required as a result of the
valuation of the SBI investment at nil in the purchase accounting to
reflect the estimated fair market value of this investment.
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