SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): November 17, 2000
MAGNA ENTERTAINMENT CORP.
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(Exact Name of Registrant as Specified in its Charter)
Delaware, United States of America
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(State or Other Jurisdiction of Incorporation)
000-30578 98-0208374
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(Commission File Number) (I.R.S. Employer Identification No.)
337 Magna Drive, Aurora, Ontario, Canada L4G 7K1
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(Address of Principal Executive Offices) (Zip Code)
(905) 726-2462
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name or Former Address, if changed since Last Report)
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired.
-1-
Report of Independent Auditors
The Management Committee
Bay Meadows Operating Company, LLC
and Bay Meadows Catering
We have audited the accompanying combined balance sheets of Bay Meadows
Operating Company, LLC and Bay Meadows Catering (collectively the "Companies")
as of November 17, 2000 (Disposition Date) and December 31, 1999 and 1998, and
the related combined statements of income, equity, and cash flows for the
periods from January 1, 2000 through November 17, 2000, from February 1, 1999
through December 31, 1999, from January 1, 1999 through January 31, 1999, and
for the year ended December 31, 1998. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the Companies at
November 17, 2000 and December 31, 1999 and 1998, and the combined results of
their operations and their cash flows for the periods from January 1, 2000
through November 17, 2000 (Disposition Date), from February 1, 1999 through
December 31, 1999, from January 1, 1999 through January 31, 1999, and for the
year ended December 31, 1998, in conformity with accounting principles generally
accepted in the United States.
(signed) Ernst & Young LLP
San Francisco, California
December 22, 2000
1
Bay Meadows Operating Company, LLC and
Bay Meadows Catering
Combined Balance Sheets
November 17, December 31, December 31,
2000 1999 1998
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Assets
Current assets:
Cash and cash equivalents $ 83,200 $ 1,469,700 $ 1,452,000
Amounts held on deposit for Thoroughbred
horse owners -- 221,700 112,000
Accounts receivable, net of allowance
for doubtful accounts of $68,700 in 2000
(1999 - $56,500; 1998 - $45,000) 4,339,000 2,027,400 1,766,000
Due from affiliates -- 807,000 65,000
Prepaid expenses and other current assets 376,400 244,500 191,000
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Total current assets 4,798,600 4,770,300 3,586,000
Racetrack property improvements and equipment, net 1,545,900 8,161,300 4,217,000
Other assets 49,800 148,000 175,000
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Total assets $ 6,394,300 $ 13,079,600 $ 7,978,000
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Liabilities and equity
Current liabilities:
Accounts payable and accrued liabilities $ 3,861,600 $ 2,286,300 $ 2,327,000
Due to Thoroughbred horse owners -- 221,700 150,000
Due to affiliates 27,400 -- 1,626,000
Uncashed pari-mutuel tickets and vouchers 707,700 503,300 260,000
Other liabilities 517,500 165,600 23,000
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Total current liabilities 5,114,200 3,176,900 4,386,000
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COMMITMENTS AND CONTINGENCIES (Notes 3, 8 and 9)
Equity:
Common Stock, $100 par value--authorized 250 shares,
issued and outstanding 250 shares 25,000 25,000 25,000
Members' interest and retained earnings 1,255,100 9,877,700 3,567,000
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Total equity 1,280,100 9,902,700 3,592,000
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Total liabilities and equity $ 6,394,300 $ 13,079,600 $ 7,978,000
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See accompanying notes to the combined financial statements.
2
Bay Meadows Operating Company, LLC and
Bay Meadows Catering
Combined Statements of Income
For the periods from
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January 1, January 1, February 1, January 1, January 1,
2000 through 1999 through 1999 through 1999 though 1998 through
November 17, December 31, December 31, January 31, December 31,
2000 1999 1999 1999 1998
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Operating revenues:
Pari-mutuel revenues $19,183,600 $18,675,900 $17,072,900 $1,603,000 $17,848,000
Producer fees 250,000 249,800 218,800 31,000 686,000
Admissions 1,725,900 1,816,000 1,693,000 123,000 1,892,000
Catering operations 3,322,000 3,309,300 3,141,300 168,000 3,438,000
Parking 767,400 805,600 745,600 60,000 859,000
Programs 1,783,200 2,035,300 1,861,300 174,000 1,866,000
Rental revenues 2,052,100 2,520,700 2,420,700 100,000 1,333,000
Other operating revenues 755,800 896,500 796,500 100,000 801,000
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29,840,000 30,309,100 27,950,100 2,359,000 28,723,000
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Operating expenses:
Salaries, wages, benefits, and
other payroll-related expenses 11,687,100 11,779,900 10,799,900 980,000 10,712,000
Rental of facilities and equipment 14,800 1,918,300 1,487,300 431,000 5,237,000
Operating and maintenance services 4,337,000 4,744,500 4,270,500 474,000 5,253,000
Cost of catering 1,291,100 1,133,400 1,078,400 55,000 2,412,000
Depreciation and amortization 985,200 1,211,400 1,141,400 70,000 699,000
Advertising and public relations 1,199,500 1,061,200 930,200 131,000 1,100,000
General and administrative 1,184,900 1,372,200 1,270,200 102,000 1,020,000
Other operating expenses 83,800 88,400 81,400 7,000 96,000
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20,783,400 23,309,300 21,059,300 2,250,000 26,529,000
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Income from operations 9,056,600 6,999,800 6,890,800 109,000 2,194,000
Other income and expenses - net 173,900 122,800 115,800 7,000 58,000
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Income before provision for federal and
state income taxes 9,230,500 7,122,600 7,006,600 116,000 2,252,000
Provision for federal and state income taxes -- -- -- -- --
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Net income $ 9,230,500 7,122,600 $ 7,006,600 $ 116,000 $ 2,252,000
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See accompanying notes to the combined financial statements.
3
Bay Meadows Operating Company, LLC and
Bay Meadows Catering
Combined Statements of Equity
For the year ended December 31, 1998, and the periods from January 1, 1999
through January 31, 1999, February 1, 1999 through December 31, 1999, and
January 1, 2000 through November 17, 2000 (Disposition Date)
Members'
Interest and
Common Retained Total
Stock Earnings Equity
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Balance at January 1, 1998 $25,000 $ 1,315,000 $ 1,340,000
Distributions -- -- --
Net income -- 2,252,000 2,252,000
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Balance at December 31, 1998 25,000 3,567,000 3,592,000
Distributions -- -- --
Net income -- 116,000 116,000
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Balance at January 31, 1999 25,000 3,683,000 3,708,000
Purchase accounting adjustment -- 6,963,900 6,963,900
Distributions -- (7,775,800) (7,775,800)
Net income -- 7,006,600 7,006,600
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Balance at December 31, 1999 25,000 9,877,700 9,902,700
Distributions -- (12,200,000) (12,200,000)
Distribution of fixed assets -- (5,653,100) (5,653,100)
Net income -- 9,230,500 9,230,500
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Balance at November 17, 2000 $25,000 $ 1,255,100 $ 1,280,100
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See accompanying notes to the combined financial statements.
4
Bay Meadows Operating Company, LLC and
Bay Meadows Catering
Combined Statements of Cash Flows
For the periods from
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January 1, January 1, February 1, January 1, January 1,
2000 through 1999 through 1999 through 1999 though 1998 through
November 17, December 31, December 31, January 31, December 31,
2000 1999 1999 1999 1998
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Operating activities:
Net income $ 9,230,500 $ 7,122,600 $ 7,006,600 $ 116,000 $ 2,252,000
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 985,200 1,211,400 1,141,400 70,000 699,000
Loss on disposal of assets 12,000 16,700 16,700 -- 76,000
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (2,311,600) (261,400) 1,390,600 (1,652,000) 360,000
Decrease (increase) in prepaid expenses and
other current assets (131,900) (53,500) (78,500) 25,000 167,000
Decrease (increase) in other assets 98,200 27,000 25,000 2,000 (29,000)
Increase (decrease) in due to/from affiliates 834,400 (312,000) (632,000) 320,000 (1,704,000)
Increase (decrease) in accounts payable
and accrued liabilities 1,575,300 28,600 (1,278,400) 1,307,000 770,000
Increase in amounts held/due to Thouroughbred
horse owners -- (38,000) -- (38,000) 44,000
Increase in uncashed pari-mutuel tickets and
vouchers 204,400 243,300 21,300 222,000 (466,000)
Increase (decrease) in other liabilities 351,900 142,600 (134,400) 277,000 (96,000)
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Net cash provided by operating activities 10,848,400 8,127,300 7,478,300 649,000 2,073,000
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Investing activities:
Purchase of racetrack property
improvements and equipment (66,000) (363,400) (266,400) (97,000) (1,899,000)
Proceeds from sale of racetrack property
improvements and equipment 31,100 29,600 29,600 -- 3,000
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Net cash provided by (used in) investing activities (34,900) (333,800) (236,800) (97,000) (1,896,000)
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Financing activities:
Distributions (12,200,000) (7,775,800) (7,775,800) -- --
Advances from affiliates -- -- -- -- 2,360,000
Payments on advances from affiliates -- -- -- -- (2,513,000)
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Net cash used in financing activities (12,200,000) (7,775,800) (7,775,800) -- (153,000)
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Increase (decrease) in cash and cash equivalents (1,386,500) 17,700 534,300 552,000 24,000
Cash and cash equivalents, beginning of period 1,469,700 1,452,000 2,004,000 1,452,000 1,428,000
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Cash and cash equivalents, end of period $ 83,200 1,469,700 $ 1,469,700 $ 2,004,000 $ 1,452,000
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Noncash investing activities:
Distribution of racetrack property improvements
and equipment to parent company $ 5,653,100 -- -- -- --
Fair value increment to racetrack property and
improvements and equipment at Acquisition Date -- $ 4,838,600 $ 4,838,600 -- --
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See accompanying notes to the combined financial statements.
5
Bay Meadows Operating Company, LLC and
Bay Meadows Catering
Notes to Combined Financial Statements
For the year ended December 31, 1998, and the periods from January 1, 1999
through January 31, 1999, February 1, 1999 through December 31, 1999, and
January 1, 2000 through November 17, 2000 (Disposition Date)
1. Business and Accounting Policies
Business
Bay Meadows Operating Company, LLC ("BMOC") is a Delaware limited liability
company. BMOC was formed on July 1, 1997 (Inception), and is engaged primarily
in operating the Bay Meadows racetrack for Thoroughbred horse racing, the
conduct of which is subject to the licensing provisions of the California Horse
Racing Board ("CHRB"). The Bay Meadows racetrack is located in San Mateo,
California. Bay Meadows Catering ("BMC") is a California corporation formed in
1965 and provides the food and beverage service to the Bay Meadows racetrack.
BMOC and BMC are referred to, collectively, as the "Companies."
For the period from January 1, 1998 through to January 31, 1999, Wyndham
International Operating Partnership ("Wyndham") and Patriot Holding LLC were 99%
and 1% members, respectively of BMOC. Also during this period, BMC was owned
100% by Wyndham.
On February 1, 1999 ("Acquisition Date"), BMOC Acquisitions XIV, LLC, a newly
formed Delaware limited liability company, purchased all membership interests in
BMOC and all of the capital stock in BMC for a purchase price of $10,671,900 of
which $2,003,900 represented net cash acquired at the Acquisition Date.
The acquisition was accounted for under the purchase method of accounting,
accordingly, the assets and liabilities of BMOC and BMC were recorded at their
fair market value as of February 1, 1999. A complete change in accounting basis
was appropriate given the change in control of voting interests. The financial
statements for periods subsequent to February 1, 1999 present the financial
position of the Companies and its results of operations after the allocation of
the purchase price relating to the BMOC Acquisitions XIV, LLC acquisition. The
accompanying financial statements for the periods prior to and including January
31, 1999 do not include the effects of the above purchase accounting
adjustments.
On November 17, 2000, Magna Entertainment Corporation, a publicly traded
Delaware company, purchased all membership interests in BMOC and all of the
capital stock in BMC for a purchase price of $24,100,000.
6
Bay Meadows Operating Company, LLC and
Bay Meadows Catering
Notes to Combined Financial Statements (continued)
1. Business and Accounting Policies (continued)
In order to conduct a Thoroughbred horse racing meet and to act as a satellite
facility, BMOC needs to secure, on an annual basis, a license from the CHRB. The
issuance of this license to BMOC is essential for it to continue to conduct
Thoroughbred horse racing meets at Bay Meadows racetrack. Although BMOC has
received its license for the 2000 race meet, there is no assurance that BMOC
will continue to receive this annual license. Bay Meadows has been granted an
annual license each year since 1934.
Thoroughbred horse racing is highly regulated by state law, and the number of
days available for racing in Northern California is within the discretion of the
CHRB, but subject to a maximum number established by statute. There is no
assurance that competition for racing days will not affect the allocation of
racing days to BMOC in the future.
Basis of Presentation
The accompanying combined financial statements include the accounts of the
Companies and all intercompany transactions have been eliminated in combination.
Operating Revenues and Costs
The Companies record operating revenues associated with Thoroughbred horse
racing (including food and beverage operations) at the Bay Meadows racetrack on
a daily basis, except for season admission tickets, which are recorded ratably
over the racing season. Costs and expenses associated with Thoroughbred horse
racing revenues are charged to operations in those periods in which the
Thoroughbred horse racing revenues are recognized. Other costs and expenses are
recognized as they actually occur throughout the year.
Income Taxes
BMOC, as a limited liability company, is treated as a partnership for income tax
purposes; therefore, BMOC does not provide for income taxes since all results of
operations flow through to its members for inclusion in their tax returns.
7
Bay Meadows Operating Company, LLC and
Bay Meadows Catering
Notes to Combined Financial Statements (continued)
BMC provides for income taxes under the provisions of Financial Accounting
Standards ("FAS") No. 109 "Accounting for Income Taxes". This statement requires
an asset and liability based approach in accounting for income taxes.
8
Bay Meadows Operating Company, LLC and
Bay Meadows Catering
Notes to Combined Financial Statements (continued)
1. Business and Accounting Policies (continued)
Cash and Cash Equivalents
For purposes of combined financial statement presentation, the Companies
consider all highly liquid investment instruments with original maturities of
three months or less to be cash equivalents.
Amounts Held on Deposit for Thoroughbred Horse Owners
Amounts held on deposit for Thoroughbred horse owners (and the corresponding
liability) represent purses, net of entry fees, collected by BMOC and placed on
deposit for the benefit of certain Thoroughbred owners. These amounts and a
portion of the interest earned on these amounts, both of which are not available
for BMOC's purposes, are the property of such Thoroughbred owners and are
physically segregated in accordance with an agreement between the owners and
BMOC.
Advertising
Advertising costs are expensed as incurred.
Inventory
BMC inventory is recorded at the lower of cost or market and is included in
other assets. At November 17, 2000, inventory totaled $80,000 (December 31,
1999 - $76,700; December 31, 1998 - $67,000).
Concentrations of Credit Risks
Financial instruments which potentially subject the Companies to concentrations
of credit risk are primarily cash investments and receivables. The Companies
place their cash in institutions, which limit the amount of credit exposure to
any one commercial issuer. Concentrations of credit risk with respect to
accounts receivable are limited due to the numbers of satellite locations and
Bay Meadows group event patrons.
9
Bay Meadows Operating Company, LLC and
Bay Meadows Catering
Notes to Combined Financial Statements (continued)
1. Business and Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the combined financial
statements and accompanying notes. Actual results could differ from those
estimates.
2. Racetrack Property and Equipment
BMOC recorded racetrack property improvements at their estimated market value at
Inception; BMC equipment was recorded at cost. For the period from Inception
through January 31, 1999, additions acquired were recorded at cost. Racetrack
property improvements were amortized using the straight line method over the
lesser of the remaining lease term or the estimated useful lives of the
improvements (see Note 4 for discussion of leasing contract). Depreciation was
calculated using the straight-line method over the estimated useful lives of the
equipment, ranging from three to seven years.
The Companies' racetrack property improvements and equipment were recorded at
their estimated fair market value at the Acquisition Date. Additions acquired
subsequent to the Acquisition Date are recorded at cost. Racetrack property
improvements are depreciated using the straight-line method over the 15 year
estimated useful life of the improvements. Equipment is depreciated using the
straight-line method over the estimated useful lives, ranging from three to
seven years.
Racetrack property improvements and equipment consist of the following:
November 17, December 31, December 31,
2000 1999 1998
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Racetrack property improvements $ -- $ 6,559,900 $ 2,466,000
Equipment 2,609,200 2,736,700 3,378,000
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2,609,200 9,296,600 5,844,000
Less accumulated depreciation (1,063,300) (1,135,300) (1,627,000)
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$ 1,545,900 $ 8,161,300 $ 4,217,000
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10
Bay Meadows Operating Company, LLC and
Bay Meadows Catering
Notes to Combined Financial Statements (continued)
2. Racetrack Property and Equipment (continued)
The Companies evaluates their racetrack property improvements and equipment in
accordance with FASB Statement No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of (FAS 121). FAS 121
requires that when events or changes in circumstances indicate that the carrying
amount of the assets might not be recoverable, companies should evaluate the
need for an impairment write-down. Management believes that no impairment of
long-lived assets has occurred as of November 17, 2000, since management's
estimate of undiscounted cash flows to be generated from future Thoroughbred
horse racing activities at the Bay Meadows race track are in excess of the
carrying value of the Companies' racetrack property improvements and equipment
as of November 17, 2000.
The estimation process involved in the determination of future undiscounted cash
flows is inherently uncertain since it requires estimates as to future events
and conditions. Management's future cash flow estimates assume the continuation
of Thoroughbred horse racing activities at the Bay Meadows racetrack. Should
such horse racing activities be discontinued, the fair value of the racetrack
property improvements and equipment could be impaired and the amount of the
impairment could be material.
3. Operating Lease
BMOC entered into an operating lease for two starting gates with an unrelated
third party commencing on January 22, 1998, with a term covering the 2000 racing
season, with no option to extend. The lease term specifies that BMOC leases the
gates only on live racing days, and that the lessor can remove the gates on non-
live racing days. Rent per racing day for the period ended November 17, 2000,
totaled $325 (1999 - $325; 1998 - $300). For the period January 1, 2000 to
November 17, 2000, BMOC incurred $34,450 (for the period from February 1, 1999
through December 31, 1999 - $30,450; for the period from January 1, 1999 through
January 31, 1999 - $2,700; and for the year ended December 31, 1998 - $31,000)
in starting gate lease expense, all of which was paid. Starting gate lease
expense is included in operating and maintenance services.
11
Bay Meadows Operating Company, LLC and
Bay Meadows Catering
Notes to Combined Financial Statements (continued)
4. Related-Party Transactions
[a] For the period from January 1, 1998 through January 31, 1999
From time to time, Wyndham and certain of its affiliates provided working
capital and capital improvement advances to the Companies to meet the
operational needs in the off-season. Payables to affiliates at December 31,
1998 represent such amounts advanced, do not bear interest, and are due on
demand.
BMOC leased the race track facilities, including the grandstand and race
track, from Patriot Racetrack Land LLC ("Patriot Racetrack"), an affiliate
of Wyndham. Pursuant to the terms of the lease agreement, which commenced on
July 1, 1997 and contracted to expire on June 29, 2004, Patriot Racetrack
received the greater of (i) $1,000,000 annually or (ii) the sum of (1) a
percentage amount calculated as follows: 1% (for the period from July 1,
1997 through March 31, 2001) or .6% (for the period from April 1, 2001
through June 29 2004) of the on-track racing handle at BMOC and at guest
locations that constitute part of the Northern California Satellite Network;
plus (2) the applicable percentage following of all racing handle at BMOC on
live races conducted at a Northern California race track or at a California
race track conducting harness or quarter horse races at night; the
percentages shall be 1%, .85%, .4%, .5% and .25% for the periods July 1,
1997 through March 31, 1999, April 1, 1999 through March 31, 2000, April 1,
2000 through March 31, 2001, April 1, 2001 through March 31, 2001, and April
1, 2002 though March 29, 2004, respectively.
Rent of $500,000 was due on December 10 of each year, with the balance
payable by April 30 of the following year. For year ended December 31, 1998,
BMOC incurred $2,039,000 (for the month ended January 1999 - $159,000) of
rent expense on the race track facilities, all of which was paid. At
December 31, 1998, BMOC had a prepaid rent amount of $440,000, which is
offset against payable to affiliates. At Acquisition Date, this lease was
cancelled.
BMOC also leased the land under the race track facilities from Patriot
Racetrack, which commenced on July 1, 1997 and expired June 29, 2004. Rent
expense of $3,188,000 associated with the land lease was incurred in 1998,
all of which was paid.
12
Bay Meadows Operating Company, LLC and
Bay Meadows Catering
Notes to Combined Financial Statements (continued)
4. Related-Party Transactions (continued)
[b] For the period from February 1, 1999 (Acquisition Date) through November 17,
2000 (Disposal Date)
BMOC leased the land under the racetrack facilities from PW Acquisitions IV,
LLC an affiliate of the Companies. The lease agreement was assumed at the
Acquisition Date and was subsequently terminated on July 7, 1999. Rent
expense of $1,474,200 was incurred and paid from February 1, 1999 to the
lease termination date of July 7, 1999, all of which is included in rental
of facilities and equipment. Subsequent to July 7, 1999, BMOC has not
incurred rent expenses for its use of the Bay Meadows racetrack.
Due from affiliates represents reimbursements due to BMOC from Northern
California Off-Track Wagering, Inc. ("NCOTWINC") related to vanning and
stabling expenses and the distribution of excess revenue over expenses.
Due to affiliates represents amounts due to NCOTWINC.
5. Satellite Wagering
On June 30, 1992, NCOTWINC was incorporated as a closely held corporation to
operate the Satellite Wagering System. BMOC holds 25% of the outstanding shares
of NCOTWINC at a cost of $48,000 that is included in other assets. BMOC's
investment in NCOTWINC is accounted for under the cost basis of accounting.
NCOTWINC does not generate revenues, but rather receives statutory amounts based
on handle from its host shareholders for operating expenses that it incurs on
their behalf to conduct satellite wagering. The statutory distribution from
BMOC to NCOTWINC totaled $4,989,091 for the period from January 1, 2000 to
November 17, 2000 (for the period from February 1, 1999 through December 31,
1999 - $4,469,600; for the month ended January 31, 1999 -$414,661; and for the
year ended December 31, 1998 - $3,629,000) for satellite wagering expenses.
These distributions have been offset against pari-mutuel revenues.
BMOC recorded $350,091 for the period from January 1, 2000 through November 17,
2000 (for the period from February 1, 1999 through December 31, 1999 - $324,300;
for the month ended January 31, 1999 - $41,184; and for the year ended December
31, 1998 -
13
Bay Meadows Operating Company, LLC and
Bay Meadows Catering
Notes to Combined Financial Statements (continued)
$44,000) as other operating revenues, which represents distributions due to
excess revenue generated over expenses incurred by NCOTWINC.
14
Bay Meadows Operating Company, LLC and
Bay Meadows Catering
Notes to Combined Financial Statements (continued)
6. Income Taxes
Deferred income taxes arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred tax assets are recorded to reflect deductible temporary
differences and operating loss and tax credit carryfowards while deferred tax
liabilities are recorded to reflect taxable temporary differences.
At November 17, 2000, BMC has a net operating loss carryforward for federal
income tax purposes of approximately $248,000, of which approximately $62,000
expires in 2012 and $186,000 expires in 2020. In addition, as of November 17,
2000, BMC has a state net operating loss carry forward of approximately $102,000
expiring in 2010. For financial reporting purposes, a valuation allowance of
$89,000 has been recognized to offset the deferred tax assets related to those
carryforwards. Significant components of BMC's deferred tax asset are as
follows:
November 17, December 31, December 31,
2000 1999 1998
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Current
Federal net operating loss carryforward $ 80,000 $ 63,900 $ 73,000
State net operating loss carryforward 9,000 8,000 --
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89,000 71,900 73,000
Less valuation allowance (89,000) (71,900) (73,000)
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$ -- $ -- $ --
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7. Pension Plans
The Companies contribute to several multi-employer defined benefit pension plans
for union employees and to the California Race Track Pension Plan for nonunion
employees. The total expense under these plans was $700,900 for the period from
January 1, 2000 through November 17, 2000 (for the period from February 1, 1999
through December 31, 1999 - $759,900; for the month ended January 31, 1999 -
$95,000; and for the year ended December 31, 1998 - $872,000). Pension costs
are funded currently.
Information about the accumulated plan benefits and plan net assets relative to
the participation of the Companies in the various plans has not been separately
determined.
15
Bay Meadows Operating Company, LLC and
Bay Meadows Catering
Notes to Combined Financial Statements (continued)
8. Union Contracts
The following is a list of the union contracts that are scheduled to be
renegotiated during 2001:
International Brotherhood of Electrical Workers, Local #617
International Brotherhood of Teamsters, Local #495
Certain of the Companies' employees are members of unions. These unions provide
services for pari-mutuel wagering, building maintenance and racing officials and
comprise 2% of the Companies' total workforce during live race days. Management
expects to renew the union contracts when they become due in the normal course
of business.
9. Commitments and Contingencies
As a result of the purchase of the Companies by Magna Entertainment Corporation,
the Companies' accounting for certain of its health and welfare benefits has
come into question. The Companies do not believe any additional commitment
exists beyond that recorded in its financial statements, and any additional
commitment, if actualized, would not have a material effect on the 2000 combined
financial statements.
In the ordinary course of business, the Companies are involved as plaintiff or
defendant in various legal proceedings and are subject to regulation by various
government agencies with respect to environmental and other laws. The claims and
counterclaims in such litigation, including those for punitive damages,
individually in certain cases and in the aggregate, involve amounts which may be
material. However, it is the opinion of the Companies' management, based in part
upon the advice of legal counsel, that the ultimate resolution of pending
litigation or administrative proceedings will not be material in relation to the
Companies' combined financial position and results of operations.
(b) Pro forma financial information.
16
MAGNA ENTERTAINMENT CORP.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (LOSS) AND COMPREHENSIVE INCOME
(LOSS)
For the year ended December 31, 1999
[Unaudited]
[U.S. dollars in thousands, except per share information]
Magna Gulfstream Remington
Entertainment Gulfstream Adjustments Remington Adjustments
Corp. (note 2(a)(i)) (note 2(a)(ii) (note 2(b)(i)) (note 2(b)(ii)
- ----------------------------------------------------------------------------------------------------------------------------------
Revenue
Racetrack
Wagering, net of purses 48,404 21,477 9,604
Non-wagering 31,022 2,553 2,878
Real estate
Gain on disposal of real estate property 628
Rental and other 19,370
- -----------------------------------------------------------------------------------------------------------------------------------
99,424 24,030 - 12,482 -
- -----------------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Racetrack costs and expenses 69,289 13,614 12,541
Real estate costs and expenses 19,904 -
Predevelopment and other costs 454 -
Depreciation and amortization 7,924 1,292 2,400 563 79
Interest expense (income), net (920) 2,041 (1,980) (116)
- -----------------------------------------------------------------------------------------------------------------------------------
96,651 16,947 420 12,988 79
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 2,773 7,083 (420) (506) (79)
Income tax provision (benefit) 2,835 2,810 (167) (205)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) (62) 4,273 (253) (506) 126
Other comprehensive loss:
Foreign currency translation adjustment (7,493)
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) (7,555) 4,273 (253) (506) 126
- -----------------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share of
Class A Subordinate Voting and Class B
Stock and Exchangeable Shares -
- -----------------------------------------------------------------------------------------------------------------------------------
Average number of shares of Class A
Subordinate Voting and Class B Stock
and Exchangeable Shares outstanding
during the period [in thousands]:
Basic and diluted 78,686
- -----------------------------------------------------------------------------------------------------------------------------------
Thistledown Golden Golden Gate
Thistledown Adjustments Gate Adjustments Bay Meadows
(note 2(c)(i)) (note 2(c)(ii)) (note 2(d)(i)) (note 2(d)(ii)) (note 2(c)(i))
- -----------------------------------------------------------------------------------------------------------------------------------
Revenue
Racetrack
Wagering, net of purses 11,250 17,421 18,676
Non-wagering 4,418 8,154 11,633
Real estate
Gain on disposal of real estate property
Rental and other
- -----------------------------------------------------------------------------------------------------------------------------------
15,668 - 25,575 - 30,309
- -----------------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Racetrack costs and expenses 14,059 21,205 (285) 21,975
Real estate costs and expenses
Predevelopment and other costs -
Depreciation and amortization 1,249 181 2,309 1,105 1,211
Interest expense (income), net 173 (308) 2,381 (1,014) -
- -----------------------------------------------------------------------------------------------------------------------------------
15,481 (127) 25,895 (194) 23,186
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 187 127 (320) 194 7,123
Income tax provision (benefit) 38 88 2,795 (2,839)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 149 39 (3,115) 3,033 7,123
Other comprehensive loss:
Foreign currency translation adjustment
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) 149 39 (3,115) 3,033 7,123
- -----------------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share of
Class A Subordinate Voting and Class B
Stock and Exchangeable Shares
- -----------------------------------------------------------------------------------------------------------------------------------
Average number of shares of Class A
Subordinate Voting and Class B Stock
and Exchangeable Shares outstanding
during the period [in thousands]:
Basic and diluted 651 1,012
- -----------------------------------------------------------------------------------------------------------------------------------
Bay Meadows (note 2(e)(v))
--------------------------------------------------------------------------
Reduction in
Depreciation Record Tax
Goodwill Other asset and Provision Pro Forma
Amor- Amor- Amor- Reverse Rent Charge on BMOC Consolidated
tization tization tization Rent Charge to Mec and BMC Total
- ------------------------------------------------------------------------------------------------------------------------------------
Revenue
Racetrack
Wagering, net of purses 126,832
Non-wagering 60,658
Real estate
Gain on disposal of real estate property 628
Rental and other 19,370
- -----------------------------------------------------------------------------------------------------------------------------------
- - - - - - 207,488
- -----------------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Racetrack costs and expenses (1,633) 1,000 151,765
Real estate costs and expenses 19,904
Predevelopment and other costs 454
Depreciation and amortization 37 873 (606) 18,617
Interest expense (income), net 257
- -----------------------------------------------------------------------------------------------------------------------------------
37 873 (606) (1,633) 1,000 - 190,997
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (37) (873) 606 1,633 (1,000) - 16,491
Income tax provision (benefit) 2,981 8,336
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) (37) (873) 606 1,633 (1,000) (2,981) 8,155
Other comprehensive loss:
Foreign currency translation adjustment (7,493)
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) (37) (873) 606 1,633 (1,000) (2,981) 662
- -----------------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share of
Class A Subordinate Voting and Class B
Stock and Exchangeable Shares $ 0.10
- -----------------------------------------------------------------------------------------------------------------------------------
Average number of shares of Class A
Subordinate Voting and Class B Stock
and Exchangeable Shares outstanding
during the period [in thousands]:
Basic and diluted 80,349
- -----------------------------------------------------------------------------------------------------------------------------------
MAGNA ENTERTAINMENT CORP.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (LOSS) AND COMPREHENSIVE INCOME
(LOSS)
For the Nine Months Ended September 30, 2000
[Unaudited]
[U.S. dollars in thousands, except per share information]
Bay Meadows (Note 2(e)(v))
BMOC and -----------------------------------------------------------
BMC Reduction in
Magna Companies Depreciation
Entertainment (Note Goodwill Other Asset and Rent Charge
Corp. 2(e)(i)) Amortization Amortization Amortization to MEC
- ------------------------------------------------------------------------------------------------------------------------------------
Revenue
Racetrack
Wagering, net of purses 96,852 13,978
Non-wagering 38,424 8,708
Real estate
Sale of real estate 25,035 -
Rental and other 13,849 -
- ------------------------------------------------------------------------------------------------------------------------------------
174,160 22,686 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Operating costs 97,021 13,742 750
General and administrative 11,019 638
Real estate
Cost of real estate sold 18,984 -
Operating costs 11,650 -
General and administrative 721 -
Predevelopment and other costs 3,262 -
Depreciation and amortization 14,744 828 28 655 (414)
Interest expense 1,950 82
Interest income (2,156) -
- ------------------------------------------------------------------------------------------------------------------------------------
157,195 15,290 28 655 (414) 750
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss)before income taxes 16,965 7,396 (28) (655) 414 (750)
Income tax provision 7,343 16
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 9,622 7,380 (28) (655) 414 (750)
Other comprehensive (loss) income:
Foreign currency translation
adjustment (13,742) -
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive (loss) income (4,120) 7,380 (28) (655) 414 (750)
====================================================================================================================================
Basic and diluted earnings per share of
Class A Subordinate Voting and Class B
Stock or Exchangeable Shares: $ 0.12
====================================================================================================================================
Average number of shares of Class A
Subordinate Voting and Class B Stock
and Exchangeable Shares outstanding
during the period [in thousands]:
Basic 80,407
Diluted 80,411
====================================================================================================================================
---------------
Record Tax Pro forma
Provision on Consolidated
BMOC and BMC Total
- ---------------------------------------------------------------------------------
Revenue
Racetrack
Wagering, net of purses 110,830
Non-wagering 47,132
Real estate
Sale of real estate 25,035
Rental and other 13,849
- ---------------------------------------------------------------------------------
- 196,846
- ---------------------------------------------------------------------------------
Costs and expenses
Racetrack
Operating costs 111,513
General and administrative 11,657
Real estate
Cost of real estate sold 18,984
Operating costs 11,650
General and administrative 721
Predevelopment and other costs 3,262
Depreciation and amortization 15,841
Interest expense 2,032
Interest income (2,156)
- ---------------------------------------------------------------------------------
- 173,504
- ---------------------------------------------------------------------------------
Income (loss)before income taxes - 23,342
Income tax provision 2,535 9,894
- ---------------------------------------------------------------------------------
Net income (loss) (2,535) 13,448
Other comprehensive (loss) income:
Foreign currency translation
adjustment (13,742)
- ---------------------------------------------------------------------------------
Comprehensive (loss) income (2,535) (294)
=================================================================================
Basic and diluted earnings per share of
Class A Subordinate Voting and Class B
Stock or Exchangeable Shares: $ 0.17
=================================================================================
Average number of shares of Class A
Subordinate Voting and Class B Stock
and Exchangeable Shares outstanding
during the period [in thousands]:
Basic 80,407
Diluted 80,411
=================================================================================
MAGNA ENTERTAINMENT CORP.
PRO FORMA CONSOLIDATED BALANCE SHEET
as at September 30, 2000
[Unaudited]
[U.S. dollars in thousands]
BMOC and
Magna BMC Distribution of Consolidation Pro Forma
Entertainment Companies Fixed Assets Entries Consolidated
Corp. (Note (Note (Note Balance
2(e)(ii)) 2(e)(iii)) 2(e)(iv)) Sheet
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents 43,590 2,351 (24,199) 21,742
Restricted cash 6,600 1,955 8,555
Accounts receivable 26,118 2,597 28,715
Prepaid expenses and other 3,926 707 2,100 6,733
------------------------------------------------------------------------------------------------------------------
80,234 7,610 - (22,099) 65,745
------------------------------------------------------------------------------------------------------------------
Real estate properties and fixed
assets, net 538,171 7,439 (5,653) 539,957
------------------------------------------------------------------------------------------------------------------
Other assets, net 96,529 109 17,458 114,096
------------------------------------------------------------------------------------------------------------------
Deferred income taxes 6,176 - 6,176
------------------------------------------------------------------------------------------------------------------
Goodwill - - 749 749
------------------------------------------------------------------------------------------------------------------
721,110 15,158 (5,653) (3,892) 726,723
==================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness 93 - 93
Accounts payable and other
liabilities 38,675 5,613 44,288
Income taxes payable 9,031 - 9,031
Long-term debt due within one year 12,833 - 12,833
------------------------------------------------------------------------------------------------------------------
60,632 5,613 - - 66,245
------------------------------------------------------------------------------------------------------------------
Long-term debt 23,664 - 23,664
------------------------------------------------------------------------------------------------------------------
Other long-term liabilities 412 - 412
------------------------------------------------------------------------------------------------------------------
Deferred income taxes 90,237 - 90,237
------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Capital stock issued and outstanding -
Class A Subordinate Voting Stock 100,299 - 100,299
Exchangeable Shares 58,408 - 58,408
Class B Stock 394,094 - 394,094
Contributed surplus 1,352 25 (25) 1,352
Retained earnings (deficit) 7,191 9,520 (5,653) (3,867) 7,191
Accumulated comprehensive loss (15,179) - (15,179)
------------------------------------------------------------------------------------------------------------------
546,165 9,545 (5,653) (3,892) 546,165
------------------------------------------------------------------------------------------------------------------
721,110 15,158 (5,653) (3,892) 726,723
==================================================================================================================
MAGNA ENTERTAINMENT CORP.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
1. BASIS OF PRESENTATION
[a] Pro Forma Consolidated Balance Sheet
The pro forma consolidated balance sheet at September 30, 2000 has been
prepared from:
(i) the unaudited consolidated balance sheet of Magna Entertainment Corp.
(the "Company") as of September 30, 2000, and
(ii) the unaudited combined balance sheet of Bay Meadows Operating Company,
LLC ("BMOC") and Bay Meadows Catering ("BMC") (collectively "Bay
Meadows") as of September 30, 2000.
[b] Pro Forma Consolidated Statement of Income (Loss) and Comprehensive Income
(Loss)
I. The pro forma consolidated statement of income (loss) and comprehensive
income (loss) for the nine months ended September 30, 2000 has been
prepared from:
(i) the unaudited consolidated statement of income (loss) and
comprehensive income (loss) of the Company for the nine months
ended September 30, 2000; and
(ii) the unaudited combined statement of income of BMOC and BMC for
the nine months ended September 30, 2000.
II. The pro forma consolidated statement of income (loss) and comprehensive
income (loss) for the year ended December 31, 1999 has been prepared
from:
(i) the audited consolidated statements of income (loss) and
comprehensive income (loss) of the Company for the year ended
December 31, 1999;
(ii) the audited combined statement of income of BMOC and BMC for the
period from January 1, 1999 through January 31, 1999 and the
audited combined statement of income of BMOC and BMC for the
period from February 1, 1999 through December 31, 1999;
(iii) the unaudited consolidated statement of income of Gulfstream Park
Racing Association, Inc. ("Gulfstream") for the period from
January 1, 1999 through September 1, 1999, the date of
acquisition;
(iv) the unaudited statements of operations and accumulated deficit of
Remington Park, Inc. ("Remington") and Thistledown, Inc.
("Thistledown") for the period from January 1, 1999 through
November 12, 1999, the date of acquisition; and
(v) the unaudited combined statement of operations of Golden Gate
Fields ("Golden Gate") for the period from January 1, 1999
through December 10, 1999, the date of acquisition.
These pro forma consolidated financial statements should be read in conjunction
with the historical financial statements of the Company, BMOC and BMC including
the related notes thereto, presented elsewhere herein, as well as the historical
financial statements of Gulfstream, Remington, Thistledown and Golden Gate
including the related notes thereto, previously filed with the Securities and
Exchange Commission.
The pro forma consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States ("U.S.
GAAP") which are also in conformity, in all material respects, with accounting
principles generally accepted in Canada ("Canadian GAAP") except as described
in note 3 to these pro forma consolidated financial statements.
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.
MAGNA ENTERTAINMENT CORP.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
[Unaudited]
2. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS
The pro forma consolidated financial statements have been presented assuming
that the Acquisition described below had been completed as of January 1, 1999
for the pro forma consolidated statements of income (loss) and comprehensive
income (loss), and as of September 30, 2000 for the pro forma consolidated
balance sheet. The pro forma consolidated financial statements give effect to
the following items:
[a] Gulfstream
On September 1, 1999, the Company acquired all the outstanding capital
stock of Gulfstream for a purchase price, including estimated transaction
costs, of $89,200,000 paid in cash.
(i) The pro forma consolidated statement of income (loss) and
comprehensive income (loss) for the year ended December 31, 1999
includes the results of operations of Gulfstream for the period from
January 1, 1999 through September 1, 1999, the date of acquisition.
(ii) The pro forma consolidated statement of income (loss) and
comprehensive income (loss) for the year ended December 31, 1999
includes adjustments that arise as a result of the acquisition of
Gulfstream on September 1, 1999 and the application of purchase
accounting. The adjustments to the results of operations of
Gulfstream included in the pro forma consolidated statement of income
(loss) and comprehensive income (loss) for the year ended December
31, 1999 are:
-- additional depreciation and amortization expense of $2,400,000 as
a result of the increase in the book value of the buildings by
$19,355,000 and racing licence by $62,527,000, based on the
purchase price allocation, and accounting policies to depreciate
buildings over 40 years and amortize the racing licence over 20
years;
-- reversal of interest expense of $1,933,000 as a result of the
repayment of $48,000,000 of long-term debt;
-- reversal of long-term debt related fees (reflected in interest
expense (income), net) of $47,000 paid to the former owner of
Gulfstream; and
-- reduction of the tax expense by $167,000 as a result of the above
noted adjustments effected at a combined federal and state tax
rate of 40%.
[b] Remington
On November 12, 1999, the Company acquired all the outstanding capital
stock of Remington for a purchase price, including estimated transaction
costs, of $10,250,000 paid in cash.
(i) The pro forma consolidated statement of income (loss) and
comprehensive income (loss) for the year ended December 31, 1999
includes the results of operations of Remington for the period from
January 1, 1999 through November 12, 1999, the acquisition date.
(ii) The pro forma consolidated statement of income (loss) and
comprehensive income (loss) for the year ended December 31, 1999
includes adjustments that arise as a result of the acquisition of
Remington and the application of purchase accounting. The adjustments
to the results of operations of Remington included in the pro forma
consolidated statement of income (loss) and comprehensive income
(loss) for the year ended December 31, 1999 are:
-- additional depreciation and amortization expense of $79,000 as a
result of the increase in the book value of the racing licence by
$1,805,600, based on the purchase price allocation, and an
accounting policy to amortize the racing licence over 20 years;
-- additional tax recovery of $205,000 as a result of the above
noted adjustment and the losses of Remington being available to
be applied against the earnings of the Company for federal income
tax filing purposes, effected at the federal tax rate of 35%.
MAGNA ENTERTAINMENT CORP.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
[Unaudited]
[c] Thistledown
On November 12, 1999, the Company acquired all the outstanding capital
stock of Thistledown for a purchase price, including estimated transaction
costs, of $14,250,000 of which $9,750,000 was paid in cash and $4,500,000
was paid through the issuance of shares of the Company.
(i) The pro forma consolidated statement of income (loss) and
comprehensive income (loss) for the year ended December 31, 1999
includes the results of operations of Thistledown for the period from
January 1, 1999 through November 12, 1999, the date of acquisition.
(ii) The pro forma consolidated statement of income (loss) and
comprehensive income (loss) for the year ended December 31, 1999
includes adjustments that arise as a result of the acquisition of
Thistledown and the application of purchase accounting. The
adjustments to the results of operations of Thistledown included in
the pro forma consolidated statement of income (loss) and
comprehensive income (loss) for the year ended December 31, 1999 are:
-- additional depreciation and amortization expense of $181,000 as a
result of the increase in the book value of the racing licence by
$4,130,300, based on the purchase price allocation, and an
accounting policy to amortize the racing licence over 20 years;
-- reversal of interest expense of $308,000 as a result of the
repayment of long-term debt of $61,629,000;
-- additional tax expense of $88,000 as a result of the above noted
adjustments effected at a combined federal and state tax rate of
40%.
[d] Golden Gate
On December 10, 1999, the Company acquired all the outstanding capital
stock of Golden Gate for a purchase price, including estimated transaction
costs, of $88,000,000 of which $61,000,000 was paid in cash, $7,000,000 was
paid through the issuance of shares of the Company and $20,000,000 was paid
through the issuance of a non-interest bearing note, $10,000,000 of which
matures on the first anniversary of the date of closing and $5,000,000 of
which matures on each of the second and third anniversaries.
(i) The pro forma consolidated statement of income (loss) and
comprehensive income (loss) for the year ended December 31, 1999
includes the results of operations of Golden Gate for the period from
January 1, 1999 through December 10, 1999, the date of acquisition.
(ii) The pro forma consolidated statement of income (loss) and
comprehensive income (loss) for the year ended December 31, 1999
include adjustments that arise as a result of the acquisition of
Golden Gate and the application of purchase accounting. The
adjustments to the results of operations of Golden Gate included in
the pro forma consolidated statement of income (loss) and
comprehensive income (loss) for the year ended December 31, 1999 are:
-- reversal of racetrack operating costs of $285,000 related to
assets not acquired;
-- additional depreciation and amortization expense of $1,384,000 as
a result of the increase in the book value of the racing licence
by $29,287,900, based on the purchase price allocation, and an
accounting policy to amortize the racing licence over 20 years;
-- reversal of depreciation expense of $279,000 on a prepaid lease
with the previous owner of Golden Gate which was cancelled and
the value of the lease was added to assets not acquired;
-- reversal of interest expense of $4,807,000 as a result of the
elimination of long-term debt of $59,591,000;
-- reversal of interest income of $2,353,000 as a result of the
removal of cash not acquired of $45,534,000;
-- additional interest expense accrued of $1,440,000 on the
discounted $20,000,000 non-interest bearing note issued; and
-- additional tax recovery of $503,000 as a result of the above
noted adjustments, effected at the federal tax rate of 35%, plus
$2,336,000 of tax expense related to operations not acquired.
MAGNA ENTERTAINMENT CORP.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
[Unaudited]
[e] Bay Meadows
On November 17, 2000, the Company acquired all the membership interests in
BMOC and all of the capital stock in BMC for a purchase price, including
estimated transaction costs, of $24,199,000 paid in cash.
(i) The pro forma consolidated statements of income (loss) and
comprehensive income (loss) for the year ended December 31, 1999 and
the nine months ended September 30, 2000 include the results of
operations of BMOC and BMC for the same periods.
(ii) The pro forma consolidated balance sheet as at September 30, 2000
includes the financial position of BMOC and BMC as at the same date.
(iii) The pro forma consolidated balance sheet as at September 30, 2000
includes an adjustment to record the distribution of $5,653,000 of
racetrack property improvements and equipment to the parent company
of Bay Meadows prior to the Company's acquisition.
(iv) The pro forma consolidated balance sheet as at September 30, 2000
includes an adjustment to record the application of purchase
accounting to the September 30, 2000 balance sheet. Other assets
(comprising the racing licence) and goodwill are increased by
$17,458,000 and $749,000, respectively, cash and cash equivalents are
reduced by the Company's purchase price paid of $24,199,000, prepaid
expenses and other are increased by $2,100,000 for prepaid rent of
the Bay Meadows premises, and the contributed surplus and retained
earnings of Bay Meadows of $25,000 and $3,867,000, respectively, are
eliminated.
(v) The pro forma consolidated statements of income (loss) and
comprehensive income (loss) for the year ended December 31, 1999 and
the nine months ended September 30, 2000 include adjustments that
arise as a result of the acquisition of Bay Meadows and the
application of purchase accounting. The adjustments to the results of
operations of BMOC and BMC included in the pro forma consolidated
statements of income (loss) and comprehensive income (loss) for the
year ended December 31, 1999 and the nine months ended September 30,
2000 are:
-- additional depreciation and amortization expense of $910,000 and
$683,000, respectively, as a result of the increase in the book
value of the racing licence by $17,458,000 and goodwill by
$749,000, based on the purchase price allocation, and accounting
policies to amortize the racing licence and goodwill, each over
20 years;
-- decrease in depreciation and amortization expense of $606,000 and
$414,000, respectively, as a result of racetrack property
improvements and equipment not acquired;
-- reversal of rent expense of $1,633,000 and nil, respectively. For
the period from January 1, 1999 through July 7, 1999, BMOC leased
the racetrack land and facilities from its parent company. This
lease was terminated prior to acquisition and has been replace
with a new rental agreement;
-- increase in rent expense of $1,000,000 and $750,000,
respectively, as a result of the prepaid lease agreement entered
into between the Company and the owner of the racetrack land and
facilities; and
-- additional tax expense of $2,981,000 and $2,535,000,
respectively, as a result of the above noted adjustments and the
taxation of the BMOC results in the Company, effected at a
combined federal and state tax rate of 40%.
3. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA
The Company's accounting policies as reflected in these pro forma
consolidated financial statements do not materially differ from Canadian GAAP
except for:
[a] For purposes of reconciling to Canadian GAAP, the Company has early
adopted the provisions of The Canadian Institute of Chartered
Accountants Handbook Section 3461 "Employee Future Benefits" on a
retroactive basis. Accordingly, net pension expense and accrued pension
liabilities are the same as those determined by the application of U.S.
GAAP.
[b] Under Canadian GAAP, there is no requirement to disclose comprehensive
income (loss).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MAGNA ENTERTAINMENT CORP.
(Registrant)
Date: March 27, 2001 by: /s/ Gary M. Cohn
--------------------------------
Gary M. Cohn, Secretary
(c) Exhibits. Page
----
Exhibit 2 Purchase Agreement dated as of August 25, Previously filed
2000 between Magna Entertainment Corp.,
BMOC Acquisitions XIV, LLC and Paine Webber
Real Estate Securities, Inc. (The Exhibits
to this Agreement, which are identified in
the list appearing at the end of the Table
of Contents, have been omitted but will be
furnished supplementally to the Commission
upon request.)
Exhibit 23 Consent of Ernst & Young LLP
Exhibit 99.1 Copy of the Company's press release dated Previously filed
November 17, 2000