Exhibit 99.4
Magna Entertainment Corp.
Pro Forma Consolidated Statement of Operations and Comprehensive Income
For the six months ended June 30, 2001
(Unaudited)
(U.S. dollars in thousands, except per share information)
Magna Ladbroke Ladbroke Sport
Entertainment Adjustments Broadcasting, Inc.
Corp. (note 2(a)(i)) (note 2(a)(ii)) (note 2(b)(i))
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Revenue
Racetrack
Gross wagering 276,489 16,759 1,683
Non-wagering 37,456 1,470
Real Estate
Sale of real estate 36,145
Rental and other 7,628
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357,718 18,229 1,683
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Costs and Expenses
Racetrack
Purses, awards and other 173,708 4,088 1,302
Operating costs 86,261 10,953
General and administrative 15,230 566
Real Estate
Real estate sold 19,093
Operating costs 5,416
General and administrative 547
Depreciation and amortization 11,984 495 731
Predevelopment and other costs (income) 1,822 430
Interest expense, net 2,078 549
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316,139 16,102 2,582 430
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Income (loss) before income taxes 41,579 2,127 (899) (430)
Income tax provision (benefit) 16,874 884 (360)
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Net income (loss) 24,705 1,243 (539) (430)
Other comprehensive loss
Foreign currency translation adjustment (8,956)
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Comprehensive income (loss) 15,749 1,243 (539) (430)
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Earnings per share for the Class A
Subordinate Voting Stock, Class B Stock
or Exchangeable Shares:
Basic $ 0.30
Diluted $ 0.30
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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 82,027 1,589
Diluted 82,249 1,589
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Sport Pro-Forma
Broadcasting, Inc. Consolidated
Adjustments Total
(note (2)(b)(ii))
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Revenue
Racetrack
Gross wagering 294,931
Non-wagering 38,926
Real Estate
Sale of real estate 36,145
Rental and other 7,628
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377,630
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Costs and Expenses
Racetrack
Purses, awards and other 179,098
Operating costs 97,214
General and administrative 15,796
Real Estate
Real estate sold 19,093
Operating costs 5,416
General and administrative 547
Depreciation and amortization 13,210
Predevelopment and other costs (income) 101 2,353
Interest expense, net 2,627
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101 335,354
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Income (loss) before income taxes (101) 42,276
Income tax provision (benefit) 17,398
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Net income (loss) (101) 24,878
Other comprehensive loss (8,956)
Foreign currency translation adjustment
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Comprehensive income (loss) (101) 15,922
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Earnings per share for the Class A
Subordinate Voting Stock, Class B Stock
or Exchangeable Shares:
Basic $ 0.30
Diluted $ 0.30
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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 83,616
Diluted 83,838
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MAGNA ENTERTAINMENT CORP.
NOTES TO THE PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS AND
COMPREHENSIVE INCOME
JUNE 30, 2001
(UNAUDITED)
1. BASIS OF PRESENTATION
Pro Forma Consolidated Statement of Operations and Comprehensive Income
The pro forma consolidated statement of operations and comprehensive income
for the six month period ended June 30, 2001 has been prepared from:
(i) the unaudited consolidated statement of operations and comprehensive
income of Magna Entertainment Corp. ("the Company") for the six month
period ended June 30, 2001;
(ii) the unaudited consolidated statement of operations of Ladbroke Racing
Pennsylvania and Subsidiaries ("Ladbroke") for the period from
January 1, 2001 to April 4, 2001; and
(iii) the unaudited statement of operations of Sport Broadcasting, Inc.
("SBI") for the three month period ended March 31, 2001.
This pro forma consolidated statement of operations and comprehensive income
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.
This pro forma consolidated statement of operations and comprehensive income has
been prepared in accordance with accounting principles generally accepted in the
United States ("US GAAP").
This pro forma consolidated statement of operations and comprehensive income is
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.
2. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS
This pro forma consolidated statement of operations and comprehensive income has
been presented assuming that the acquisition described below had been completed
as of January 1, 2001. 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
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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 six month period ended June 30, 2001 includes the
results of Ladbroke for the same period.
(ii) The pro forma consolidated statement of operations and comprehensive
income for the six month period ended June 30, 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 six month
period ended June 30, 2001 are:
- The Ladbroke statement of operations present gross wagering
revenues net of pari-mutuel taxes. For the period to our
acquisition, 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 to the date of our
acquistion of $76,295,000. As such, the tax reduction would
decrease purses, awards and other expenses by $381,000.
- 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).
(b) Sport Broadcasting, Inc.
(i) The pro forma statement of operations and comprehensive income for the
six month period ended June 30, 2001 includes the results of SBI for
the same period.
(ii) The pro forma statement of operations and comprehensive income
includes an adjustment to adjust the loss in SBI to only the
contributions made to SBI in the six month period ended June 30, 2001.
Contributions during the six month period ended June 30, 2001 were
$943,000. Of these amounts, $531,000 were up to the date of our
acquisition and $412,000 were sebsequent to our acquisition.
Contributions subsequent to our acquisition are included in the Magna
Entertainment Corp. balances. For the period to the date of
acquisition, an adjustment to increase pre-development and other costs
by $101,000 is required to reflect the $531,000 of contributions made.
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