[LETTERHEAD OF MAGNA ENTERTAINMENT CORP.]
EXHIBIT 99
PRESS RELEASE
MAGNA ENTERTAINMENT CORP.
ANNOUNCES RESULTS FOR THE SECOND QUARTER
ENDED JUNE 30, 2002
July 31, 2002, Aurora, Ontario, Canada......Magna Entertainment Corp. ("MEC")
(NASDAQ: MIEC; TSE: MIE.A, MEH) today reported its financial results for the
second quarter ended June 30, 2002.
- -------------------------------------------------------------------------------------------------------------------
Three Months Ended Six months Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
(unaudited)
Revenues $128,168 $113,192 $376,967 $357,718
Earnings before interest, taxes,
depreciation and amortization ("EBITDA") $ 7,536 $ 11,019 $ 44,582 $ 55,641
Net income $ 1,082 $ 2,237 $ 19,697 $ 24,705
Diluted earnings per share $ 0.01 $ 0.03 $ 0.21 $ 0.30
Results Excluding the Sale of Non-Core Real Estate
Revenues $122,064 $103,198 $370,226 $321,573
EBITDA $ 5,767 $ 6,025 $ 42,463 $ 38,589
Net income (loss) $ 45 $ (774) $ 18,451 $ 14,576
Diluted earnings (loss) per share $ - $ (0.01) $ 0.19 $ 0.18
All amounts are reported in U.S. dollars in thousands, except per share figures.
- -------------------------------------------------------------------------------------------------------------------
In announcing these results, Jim McAlpine, President and Chief Executive Officer
of MEC, remarked: "We are pleased with our improved racetrack operating and
financial performance for the six months ended June 30, 2002. Revenues and
EBITDA, excluding the sale of non-core real estate for the six months ended June
30, 2002, improved 15.1% and 10.0%, respectively, over last year.
To date in 2002, MEC has successfully completed our first public offering,
arranged for an additional credit facility and entered into agreements to
acquire three significant racetrack operations, including our first Canadian
racetrack and gaming operation."
The following strategic developments have occurred to date in 2002:
. We launched our new Internet account wagering platform
(www.xpressbet.com) in January. On January 24, XpressBet(TM) was
granted a license to conduct account wagering in the State of
California and commenced operations on January 25.
. In February, we entered into a joint venture called Racetrack
Television Network ("RTN"), which is one-
Page 3 of 14
third owned by MEC. RTN is a direct to home private subscription
satellite service offering up to eight channels dedicated to
horseracing. In July, we launched HorseRacing TV(TM), a new television
channel focused exclusively on horse racing. This channel is presently
carried on RTN. We are working to achieve broader distribution through
conventional satellite and cable systems.
. In March, we entered into an agreement to acquire substantially alL of
the operations and related assets of Lone Star Park at Grand Prairie
near Dallas, Texas, subject to regulatory approvals.
. In April, we completed a public offering of 23 million Class A
Subordinate Voting shares, which raised net proceeds of $142.1
million.
. In May, we increased our bank lines of credit by arranging a short-
term credit facility in the amount of $75 million.
. In June, we entered into an agreement to acquire all the shares of
Flamboro Downs Holdings Limited, the owner and operator of Flamboro
Downs, a harness racetrack located near Hamilton, Ontario, 45 miles
west of Toronto, subject to regulatory approvals. Flamboro Downs also
houses a gaming facility of 752 slot machines operated by the Ontario
Lottery and Gaming Corporation.
. Most recently and subsequent to June 30, 2002, we announced an
alliance with the De Francis family to own and operate Pimlico Race
Course, home of the Preakness, and Laurel Park, which are operated
under the trade name "Maryland Jockey Club". The acquisition is
subject to regulatory approvals and legislative review.
Our racetracks operate for prescribed periods each year. As a result, our
racetrack revenues and operating results for any quarter will not be indicative
of our revenues and operating results for the year. We expect that these
seasonal fluctuations will reduce over time as the full impact of our
acquisition, off-track betting ("OTB") and account wagering initiatives are
realized.
Our financial results for the second quarter of 2002 reflect the full quarter's
operations for all of MEC's racetracks and related pari-mutuel wagering
operations. The comparative results for the second quarter of 2001 do not
reflect the operations of XpressBet(TM) California, which commenced on January
25, 2002, Portland Meadows, which commenced activity in July 2001 and Multnomah,
which was acquired in October 2001.
Revenues, excluding proceeds on the sale of non-core real estate, for the first
six months and second quarter of 2002 increased 15.1% to $370.2 million and
18.3% to $122.1 million from the prior year period, respectively. The higher
revenues in the second quarter of 2002 reflect primarily the additional live
race days at Gulfstream and Santa Anita, the launch of XpressBet(TM) in the
California market and the acquisition of Multnomah in the fourth quarter of
2001.
EBITDA, excluding gains on the sale of non-core real estate, increased 10.0% to
$42.5 million for the first six months ended June 30, 2002 and was $5.8 million
for the second quarter ended June 30, 2002 compared to $6.0 million in the prior
year period. Operating cost increases related to insurance and utility costs
have negatively impacted results in 2002. Insurance costs increased $1.1 million
and $1.8 million, respectively, for the second quarter of 2002 and on a year to
date basis compared to the prior year periods. Utility costs increased $0.5
million and $0.8 million, respectively, for the second quarter of 2002 and on a
year to date basis compared to the prior year periods.
Revenue on the sale of non-core real estate in the second quarter of 2002 was
$6.1 million, resulting in EBITDA of $1.8 million compared to revenue in the
second quarter of 2001 of $10.0 million and EBITDA of $5.0 million. We continue
to market our remaining non-core real estate, however, the timing of future
sales is uncertain.
Net income, excluding gains on the sale of non-core real estate, increased 26.6%
to $18.5 million in the first six months of 2002 compared to 2001 and increased
$0.8 million in the second quarter of 2002 compared to the 2001 quarter. Diluted
earnings per share, excluding gains on the sale of non-core real estate,
increased $0.01 per share for the second quarter of 2002 compared to the prior
year period.
Net income on the sale of non-core real estate was $1.0 million in the second
quarter of 2002 compared to $3.0 million in the comparative period. Diluted
earnings per share relating to the sale of non-core real estate were $0.01 in
the second quarter of 2002 compared to $0.04 in the comparative period.
Page 4 of 14
During the second quarter of 2002, cash generated from operations before changes
in non-cash working capital was $7.2 million. Total cash used in investment
activities during the quarter was $16.5 million, which included real estate
property and fixed asset additions of $20.2 million and other asset additions of
$1.9 million, offset by proceeds on the sale of real estate of $5.6 million.
Over the balance of the year, we will continue to focus on earnings growth
through the implementation, throughout our operations, of best practices and
common systems, utilization of our corporate purchasing power to reduce costs,
improved production and distribution of our simulcast program, growth of our
account wagering business and sales of non-core real estate holdings.
One of the main priorities over the balance of the year is to prepare for
Gulfstream Park's 2003 winter meet. Our goal is to enhance Gulfstream's position
as one of the premier winter racing venues in the country. In order to
accomplish this, several months ago we began construction of Palm Meadows, a
world class thoroughbred training facility located approximately 40 minutes
north of Gulfstream. As previously reported, MEC is also considering a major
redevelopment of Gulfstream's facilities as part of our Florida strategy. Our
first priority is to provide high quality racing for the enjoyment of our racing
and wagering customers. This will result in higher revenues, increased purses
for our horsemen and enhanced returns for our shareholders. In order to ensure
high quality racing at Gulfstream, we have decided to focus first on completing
Palm Meadows and to defer any decision concerning the Gulfstream redevelopment
for the time being.
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 off-track betting facilities, and owns and
operates a national account wagering system called XpressBet(TM).
The Company will hold a conference call to discuss its second quarter 2002
results on August 1, 2002 at 11:00 a.m. New York time. The number to use for
this call is 1-888-303-1331. Please call 10 minutes prior to the start of the
conference call. The overseas number to call is 1-416-641-6693. The conference
call will be chaired by Jim McAlpine, President and Chief Executive Officer of
MEC. We will also be webcasting the conference call at
www.magnaentertainment.com.
This press release may contain "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. Any
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. In this regard, readers are referred to
the Company's Annual Report on Form 10-K for the year ended December 31, 2001
and subsequent public filings. The Company disclaims any intention and
undertakes no obligation to update or revise any forward-looking statements to
reflect subsequent information, events or circumstances, or otherwise.
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
Page 5 of 14
MAGNA ENTERTAINMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
- --------------------------------------------------------------------------------
[Unaudited]
[U.S. dollars in thousands, except per share figures]
- --------------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
Revenues
Racetrack
Gross wagering $102,250 $ 84,163 $322,603 $276,489
Non-wagering 16,071 14,867 39,746 37,456
-------- --------- -------- --------
118,321 99,030 362,349 313,945
-------- --------- -------- --------
Real estate
Sale of real estate 6,104 9,994 6,741 36,145
Rental and other 3,743 4,168 7,877 7,628
-------- --------- --------- --------
9,847 14,162 14,618 43,773
- --------------------------------------------------------------------------------------------------------------------------
128,168 113,192 376,967 357,718
- --------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Racetrack
Purses, awards and other 63,837 51,476 204,360 173,708
Operating costs 39,879 35,285 95,223 86,261
General and administrative 9,551 7,268 20,184 15,230
-------- --------- -------- --------
113,267 94,029 319,767 275,199
-------- --------- -------- --------
Real estate
Cost of real estate sold 4,335 5,000 4,622 19,093
Operating costs 2,437 2,728 5,361 5,416
General and administrative 510 302 1,011 547
-------- --------- -------- --------
7,282 8,030 10,994 25,056
-------- --------- -------- --------
Predevelopment and other costs 83 114 1,624 1,822
Depreciation and amortization 5,944 6,630 11,270 11,984
Interest (income) expense, net (253) 678 (186) 2,078
- --------------------------------------------------------------------------------------------------------------------------
126,323 109,481 343,469 316,139
- --------------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,845 3,711 33,498 41,579
Income taxes 763 1,474 13,801 16,874
- --------------------------------------------------------------------------------------------------------------------------
Net income 1,082 2,237 19,697 24,705
Other comprehensive income (loss)
Foreign currency translation adjustment 13,758 (102) 13,099 (8,956)
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 14,840 $ 2,135 $ 32,796 $ 15,749
==========================================================================================================================
Earnings per Class A Subordinate Voting Stock,
Class B Stock or Exchangeable Share:
Basic $ 0.01 $ 0.03 $ 0.21 $ 0.30
Diluted $ 0.01 $ 0.03 $ 0.21 $ 0.30
==========================================================================================================================
Average number of Class A Subordinate Voting
Stock, Class B Stock and Exchangeable Shares
outstanding during the period [in thousands]:
Basic 104,573 83,566 94,391 82,027
Diluted 105,526 83,788 95,596 82,249
==========================================================================================================================
Page 6 of 14
MAGNA ENTERTAINMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[Unaudited]
[U.S. dollars in thousands]
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided from (used for):
OPERATING ACTIVITIES
Net income $ 1,082 $ 2,237 $19,697 $24,705
Items not involving current cash flows 6,105 (1,826) 11,575 (11,333)
- -----------------------------------------------------------------------------------------------------------------------------
7,187 411 31,272 13,372
Changes in non-cash items related to operations 2,168 1,599 (968) 10,313
- -----------------------------------------------------------------------------------------------------------------------------
9,355 2,010 30,304 23,685
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Acquisition of business, net of cash - (21,035) - (21,035)
Real estate property and fixed asset additions (20,221) (12,179) (33,819) (16,383)
Other asset (additions) disposals (1,925) 289 (3,034) 164
Proceeds on sale of real estate 5,627 26,127 6,825 32,905
- -----------------------------------------------------------------------------------------------------------------------------
(16,519) (6,798) (30,028) (4,349)
- -----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Decrease in bank indebtedness - - - (7,609)
(Repayment of) increase in long-term debt, net (7,579) (1,215) (8,560) 8,661
Issuance of share capital 142,113 403 142,364 443
- -----------------------------------------------------------------------------------------------------------------------------
134,534 (812) 133,804 1,495
- -----------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash
and cash equivalents 3,495 (747) 3,428 (1,625)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents during the period 130,865 (6,347) 137,508 19,206
Cash and cash equivalents, beginning of period 45,855 57,529 39,212 31,976
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $176,720 $51,182 $176,720 $51,182
=============================================================================================================================
Page 7 of 14
MAGNA ENTERTAINMENT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------------
[Unaudited]
[U.S. dollars and share amounts in thousands]
- -----------------------------------------------------------------------------------------------------------------------
June 30, December 31,
2002 2001
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 176,720 $ 39,212
Restricted cash 7,239 18,782
Accounts receivable 36,806 33,101
Prepaid expenses and other 5,937 5,162
- -----------------------------------------------------------------------------------------------------------------------
226,702 96,257
- -----------------------------------------------------------------------------------------------------------------------
Real estate properties and fixed assets, net 604,604 574,677
- -----------------------------------------------------------------------------------------------------------------------
Other assets, net 182,440 179,665
- -----------------------------------------------------------------------------------------------------------------------
Future tax assets 3,876 3,657
- -----------------------------------------------------------------------------------------------------------------------
$1,017,622 $ 854,256
=======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable and other liabilities $ 61,815 $ 78,337
Income taxes payable 7,362 1,312
Long-term debt due within one year 18,604 18,133
- -----------------------------------------------------------------------------------------------------------------------
87,781 97,782
- -----------------------------------------------------------------------------------------------------------------------
Long-term debt 59,654 67,768
- -----------------------------------------------------------------------------------------------------------------------
Other long-term liabilities 4,747 2,576
- -----------------------------------------------------------------------------------------------------------------------
Future tax liabilities 122,426 118,276
- -----------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Capital stock issued and outstanding -
Class A Subordinate Voting Stock (issued: 2002 - 46,787; 2001 - 23,324) 303,071 157,633
Exchangeable Shares (issued: 2002 - 1,849; 2001 - 2,263) 13,726 16,800
Class B Stock (issued: 2002 and 2001 - 58,466) 394,094 394,094
Contributed surplus 7,290 7,290
Retained earnings 31,171 11,474
Accumulated comprehensive loss (6,338) (19,437)
- -----------------------------------------------------------------------------------------------------------------------
743,014 567,854
- -----------------------------------------------------------------------------------------------------------------------
$1,017,622 $ 854,256
=======================================================================================================================
Page 8 of 14
MAGNA ENTERTAINMENT CORP.
NOTES TO THE 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 United States generally accepted accounting principles ("U.S.
GAAP") 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 U.S. GAAP for complete financial
statements. The preparation of the consolidated financial statements in
conformity with U.S. GAAP 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, which consist of normal and recurring
adjustments, necessary for fair presentation have been included. Operating
results for the three and six month periods ended June 30, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. 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, 2001.
The Company's racetrack business is seasonal in nature. The Company's racetrack
revenues and operating results for any quarter will not be indicative of the
revenues and operating results for the year. A disproportionate share of annual
revenues and net income are earned in the first quarter of each year.
2. Accounting Change and Pro-Forma Impact
a) Accounting Change
Effective January 1, 2002, the Company implemented Financial Accounting
Standards Board Statement No. 142 ("SFAS 142") Goodwill and Other
Intangible Assets. SFAS 142 requires the application of the non-
amortization and impairment rules for existing goodwill and other
intangible assets that meet the criteria for indefinite life beginning
January 1, 2002. The Company completed the required initial impairment
test during the first quarter of 2002 and determined that the value of
its racing licenses was not impaired. As at June 30, 2002, racing
licenses with a net book value of $171.3 million are included in Other
Assets on the balance sheet.
b) Acquisitions
On April 5, 2001, the Company completed the acquisition of Ladbroke
Racing Pennsylvania, Inc. ("Ladbroke") and Sport Broadcasting, Inc.
("SBI"). On October 26, 2001, the Company acquired all the outstanding
capital stock of MKC Acquisition Co. ("MKC"), operating as Multnomah
Greyhound Park. Both of these acquisitions are fully disclosed in the
Company's consolidated financial statements for the year ended December
31, 2001. As a result of the timing of these acquisitions, the results of
operations of MKC are not included in the Company's results for the three
and six month periods ended June 30, 2001 and the results of operations
of Ladbroke are not included for the first quarter of 2001.
Page 9 of 14
c) Impact of Accounting Change and Acquisitions
The pro-forma impact of the implementation of SFAS 142 and our
acquisitions is as follows:
Three months ended Six months ended
June 30, June 30,
Revenues 2002 2001 2002 2001
------------------------- ------------------------
Revenues as reported $128,168 $113,192 $376,967 $357,718
Restatement for acquisitions - 3,083 - 23,248
---------- ---------- --------- ----------
Pro-forma revenues $128,168 $116,275 $376,967 $380,966
========== ========== ========= =========
Pro-forma revenues excluding
proceeds on the sale of real estate $122,064 $106,281 $370,226 $344,821
========== ========== ========= =========
Three months ended Six months ended
June 30, June 30,
Net Income 2002 2001 2002 2001
------------------------- ------------------------
Net income as reported $ 1,082 $ 2,237 $ 19,697 $ 24,705
Restatement for change in
intangible assets amortization - 1,109 - 1,941
Restatement for acquisitions - (155) - (1,142)
---------- ---------- --------- ----------
Pro-forma net income $ 1,082 $ 3,191 $ 19,697 $ 25,504
========== ========== ========= =========
Pro-forma net income excluding
gains on the sale of real estate $ 45 $ 181 $ 18,451 $ 15,372
========== ========== ========= =========
Three months ended Six months ended
Basic and Diluted June 30, June 30,
Earnings per Share 2002 2001 2002 2001
------------------------- ------------------------
Basic and diluted earnings per share
as reported $ 0.01 $ 0.03 $ 0.21 $ 0.30
Restatement for change in
intangible assets amortization - 0.01 - 0.02
Restatement for acquisitions - - - (0.02)
---------- ---------- --------- ----------
Pro-forma basic and diluted earnings
per share $ 0.01 $ 0.04 $ 0.21 $ 0.30
========== ========== ========= ==========
Pro-forma basic and diluted earnings
per share excluding gains on
the sale of real estate $ - $ - $ 0.19 $ 0.19
========== ========== ========= ==========
Page 10 of 14
3. Capital Stock
Changes in Class A Subordinate Voting Stock, Exchangeable Shares and Class B
Stock for the six months ended June 30, 2002 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 Stated Number Stated Number Stated
of Shares Value of Shares Value of Shares Value
- -----------------------------------------------------------------------------------------------------------------------
Issued and outstanding at
December 31, 2001 23,324 $157,633 2,263 $16,800 58,466 $394,094
Issued under the Plan 43 251 - - - -
Conversion of Exchangeable
Shares to Class A
Subordinate Voting Stock 282 2,093 (282) (2,093) - -
- -----------------------------------------------------------------------------------------------------------------------
Issued and outstanding at
March 31, 2002 23,649 $159,977 1,981 $14,707 58,466 $394,094
- -----------------------------------------------------------------------------------------------------------------------
Issued on completion of
public offering/(i)/ 23,000 142,084 - - - -
Issued on exercise of stock options
Conversion of Exchangeable 6 29 - - - -
Shares to Class A
Subordinate Voting Stock 132 981 (132) (981) - -
- -----------------------------------------------------------------------------------------------------------------------
Issued and outstanding at
June 30, 2002 46,787 $303,071 1,849 $13,726 58,466 $394,094
- -----------------------------------------------------------------------------------------------------------------------
(i) On April 10, 2002, the Company completed a public offering of 23 million
shares of its Class A Subordinate Voting Stock, at a price to the public of
U.S. $6.65 per share in the United States, or Cdn. $10.60 per share in
Canada. Expenses of the issue of approximately $10.9 million have been
netted against the cash proceeds.
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 7.9 million shares are available to be issued under the
Plan, of which 6.5 million are available for issuance pursuant to stock options
and tandem stock appreciation rights and 1.4 million are available for issuance
pursuant to any other type of award under the Plan. During the three months
ended June 30, 2002, 6,000 shares were issued on the exercise of stock options
under the Plan. During the six months ended June 30, 2002, 48,900 shares were
issued under the Plan, including 6,000 shares issued on the exercise of stock
options.
The Company grants stock options to certain directors, officers, key employees
and consultants to purchase shares of the Company's Class A Subordinate Voting
Stock. All of such 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
1/7/th/ to 1/3/rd/ 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.
Page 11 of 14
During the six months ended June 30, 2002, 137,500 stock options were granted,
6,000 stock options were exercised and 5,000 stock options were cancelled. At
June 30, 2002, there were 4,579,833 options outstanding with the exercise price
of the options ranging from $3.91 to $9.43 and an average exercise price of
$6.08.
There were 2,742,744 options exercisable at June 30, 2002 with an average
exercise price of $6.11.
4. Earnings Per Share
The following is a reconciliation of the numerator and denominator of the basic
and diluted earnings per share computations (in thousands except per share
amounts):
Three months ended Six months ended
June 30, June 30,
2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------------
Net Income $1,082 $2,237 $19,697 $24,705
=======================================================================================================================
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
Weighted Average Shares
Outstanding:
Class A Subordinate
Voting Stock 44,198 45,151 17,676 17,898 33,980 35,185 15,964 16,186
Class B Stock 58,466 58,466 58,466 58,466 58,466 58,466 58,466 58,466
Exchangeable Shares 1,909 1,909 7,424 7,424 1,945 1,945 7,597 7,597
=======================================================================================================================
104,573 105,526 83,566 83,788 94,391 95,596 82,027 82,249
=======================================================================================================================
Earnings Per Share $ 0.01 $ 0.01 $ 0.03 $ 0.03 $ 0.21 $ 0.21 $ 0.30 $ 0.30
=======================================================================================================================
5. Commitments and Contingencies
a) Although the Company is considering a major redevelopment of its
Gulfstream Park racetrack in Florida (the "Gulfstream Park
Redevelopment"), it has deferred a decision on the project for the time
being. Should it proceed as currently contemplated, the Gulfstream Park
Redevelopment would include a simulcast pavilion, a sports and
entertainment arena and a new turf club and grandstand. In addition,
there would be significant modifications and enhancements to the
racetracks and stable areas. If completed, the Gulfstream Park
Redevelopment would require the demolition of a substantial portion of
the current buildings and related structures, which include the
grandstand, turf club and annex. The aggregate carrying value at June 30,
2002 of the assets that would be demolished if the Gulfstream Park
Redevelopment is completed is approximately $23.0 million. If the Company
decides to proceed with the Gulfstream Park Redevelopment and obtains the
approval of its Board of Directors, a reduction in the expected life of
the existing assets would occur and a write-down would be necessary.
b) On March 6, 2002, the Company entered into an agreement with Lone Star
Race Park, Ltd. and LSJC Development Corporation to acquire substantially
all the operations and related assets of Lone Star Park at Grand Prairie,
a Thoroughbred and American Quarter Horse racetrack located near Dallas,
Texas. The acquired assets include the rights under a long-term lease of
Lone Star Park and a related purchase option exercisable at termination
of the lease in 2027. The purchase price of the acquisition will be
satisfied by the payment of $80.0 million in cash and the assumption of
certain liabilities, including the Lone Star Park capital lease
obligation of approximately $19.0 million, subject to usual adjustments
at closing. The transaction is expected to close in the third quarter of
2002, subject to certain conditions, including the receipt of regulatory
approvals.
Page 12 of 14
c) On June 4, 2002, the Company entered into an agreement to acquire all the
shares of Flamboro Downs Holdings Limited, the owner and operator of
Flamboro Downs, a harness racetrack located near Hamilton, Ontario, 45
miles west of Toronto. Flamboro Downs also houses a gaming facility with
752 slot machines operated by the Ontario Lottery and Gaming Corporation.
Pursuant to an agreement with the Ontario Lottery and Gaming Corporation,
Flamboro Downs receives 20% of the "net win" (slot machine revenues minus
payout to slot players), with one-half of that amount added to purses and
the other half being retained by Flamboro Downs. The acquisition cost,
which is subject to the usual adjustments at closing, is expected to be
approximately $47 million, and will be satisfied by a vendor take-back
mortgage of approximately $26 million with the remainder paid in cash.
The transaction is expected to close in the third quarter of 2002,
subject to certain conditions, including the receipt of regulatory
approvals.
6. Segment Information
The Company's reportable segments reflect how the Company is organized and
managed by senior management. The Company has two operating segments: racetrack
and real estate operations. The racetrack segment includes the operation of
eight thoroughbred racetracks, one standardbred racetrack, one greyhound track
and one horse boarding and training center. In addition, the racetrack segment
includes off-track betting ("OTB") facilities and a national account wagering
business. The real estate segment includes the operation of two golf courses and
related facilities, a residential housing development adjacent to our golf
course located in Austria and other real estate holdings.
The accounting policies of each segment 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, 2001.
The following summary presents key information by operating segment (in
thousands):
Three months ended June 30, 2002
Real Estate
Racetrack and Other
Operations Operations Total
- ----------------------------------------------------------------------------------------------------------------
Revenues $ 118,321 $ 9,847 $ 128,168
================================================================================================================
Income before income taxes $ 66 $ 1,779 $ 1,845
================================================================================================================
Real estate property and fixed asset additions $ 9,584 $ 10,637 $ 20,221
================================================================================================================
Three months ended June 30, 2001
Real Estate
Racetrack and Other
Operations Operations Total
- ----------------------------------------------------------------------------------------------------------------
Revenues $ 99,030 $ 14,162 $ 113,192
================================================================================================================
Income (loss) before income taxes $ (2,205) $ 5,916 $ 3,711
================================================================================================================
Real estate property and fixed asset additions $ 8,082 $ 4,097 $ 12,179
================================================================================================================
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Six months ended June 30, 2002
Real Estate
Racetrack and Other
Operations Operations Total
- ----------------------------------------------------------------------------------------------------------------
Revenues $ 362,349 $ 14,618 $ 376,967
================================================================================================================
Income before income taxes $ 31,004 $ 2,494 $ 33,498
================================================================================================================
Real estate property and fixed asset additions $ 19,934 $ 13,885 $ 33,819
================================================================================================================
Six months ended June 30, 2001
Real Estate
Racetrack and Other
Operations Operations Total
- ----------------------------------------------------------------------------------------------------------------
Revenues $ 313,945 $ 43,773 $ 357,718
================================================================================================================
Income before income taxes $ 23,670 $ 17,909 $ 41,579
================================================================================================================
Real estate property and fixed asset additions $ 9,002 $ 7,381 $ 16,383
================================================================================================================
7. Subsequent Event
On July 15, 2002, the Company entered into agreements to form an alliance with
the De Francis family to own and operate Pimlico Race Course and Laurel Park,
which are operated under the trade name "Maryland Jockey Club" ("MJC"). Under
the terms of the agreements, the Company will be purchasing a 51% equity and
voting interest in The Maryland Jockey Club of Baltimore City, Inc., the owner
of Pimlico Race Course, a 51% voting interest and a 58% equity interest on a
fully diluted basis in Laurel Racing Assoc., Inc., the general partner and
manager of Laurel Racing Association Limited Partnership ("LRALP"), the owner of
Laurel Park, and the entire limited partnership interest in LRALP. Each of the
general partner and limited partner of LRALP is entitled to 50% of the profits
or losses of LRALP. All of these interests are being acquired for an aggregate
price of approximately $50.6 million in cash, subject to normal closing
adjustments. In addition, the Company has agreed to purchase options from the De
Francis family to buy their voting and equity interests in MJC, which represent
all of the minority interests, at any time during the period starting 48 months
and ending 60 months after the closing of the transaction. The Company has also
granted the De Francis family the right to sell such interests to the Company at
any time during the first five years after the closing. In consideration for its
options, the Company has agreed to pay $18.4 million on closing and an
additional $18.3 million on exercise of the options, subject to an interest
adjustment. The closing of the transaction is expected to occur in the fall of
2002, subject to regulatory approvals and legislative review.
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