<Page>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): February 21, 2003
MAGNA ENTERTAINMENT CORP.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
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(State or Other Jurisdiction of Incorporation)
000-30578 98-0208374
- ------------------------------------- ---------------------------------------
(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
- -------------------------------------------------------------------------------
(Former Name or Former Address, if changed since Last Report)
ITEM 5. OTHER EVENTS
On February 21, 2003, the Registrant issued a press release in which it
announced its unaudited financial results for the fourth quarter and year ended
December 31, 2002.
The full text of the press release issued by the Registrant is attached as
Exhibit 99 to this Current Report on Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
Exhibit 99 Copy of Registrant's press release dated February 21, 2003.
Page 1 of 19 pages
<Page>
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: February 25, 2003 by: /s/Gary M. Cohn
---------------------------
Gary M. Cohn, Secretary
<Page>
[MEC LOGO] MAGNA ENTERTAINMENT CORP.
337 Magna Drive
Aurora, Ontario,
Canada L4G 7K1
Tel (905) 726-2462
Fax (905) 726-2585
PRESS RELEASE
MAGNA ENTERTAINMENT CORP.
ANNOUNCES RESULTS FOR THE FOURTH QUARTER AND
YEAR ENDED DECEMBER 31, 2002
FEBRUARY 21, 2003, AURORA, ONTARIO, CANADA......MAGNA ENTERTAINMENT CORP.
("MEC") (NASDAQ: MIEC; TSX: MIE.A) today reported its financial results for the
fourth quarter and year ended December 31, 2002.
<Table>
<Caption>
Year Ended Three Months Ended
December 31, December 31,
2002 2001 2002 2001
--------- --------- --------- ---------
(unaudited)
Revenues $ 549,221 $ 519,061 $ 106,821 $ 92,511
Earnings (loss) before interest, taxes,
depreciation and amortization ("EBITDA") $ 553 $ 51,689 $ (32,809) $ (1,127)
Net income (loss) $ (14,395) $ 13,464 $ (24,350) $ (5,014)
Diluted earnings (loss) per share $ (0.14) $ 0.16 $ (0.23) $ (0.06)
RESULTS EXCLUDING THE SALE OF NON-CORE REAL
ESTATE AND WRITE-DOWNS
Revenues $ 540,330 $ 478,461 $ 106,396 $ 92,147
EBITDA $ 21,696 $ 31,260 $ (9,581) $ (4,467)
Net income (loss) $ (1,963) $ 1,407 $ (10,611) $ (7,036)
Diluted earnings (loss) per share $ (0.02) $ 0.02 $ (0.10) $ (0.08)
RESULTS INCLUDING THE SALE OF NON-CORE REAL
ESTATE AND EXCLUDING WRITE-DOWNS
Revenues $ 549,221 $ 519,061 $ 106,821 $ 92,511
EBITDA $ 23,869 $ 51,689 $ (9,493) $ (1,127)
Net income (loss) $ (602) $ 13,464 $ (10,557) $ (5,014)
Diluted earnings (loss) per share $ (0.01) $ 0.16 $ (0.10) $ (0.06)
</Table>
ALL AMOUNTS ARE REPORTED IN U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE FIGURES.
<Page>
In announcing these results, Jim McAlpine, President and Chief Executive Officer
of MEC, remarked: "The fourth quarter of 2002 was a pivotal period for MEC. We
completed the acquisitions of Lone Star Park at Grand Prairie and The Maryland
Jockey Club. We also took an important step with respect to the acquisition of
Flamboro Downs (the final closing of which remains subject to regulatory
approval, but is expected to occur during the first quarter). These three
businesses generated a combined EBITDA of approximately $22 million during 2002.
Our goal is to improve these results, as well as those at our other business
units, going forward. We also opened Palm Meadows, our world class thoroughbred
training center near Gulfstream Park in Florida, which has already had a
positive impact on racing during Gulfstream's 2003 meet to date.
On the financing side, we realized $72 million on the issuance of convertible
subordinated notes and $45 million from the sale of non-core real estate. At
year-end, after paying for the Lone Star, MJC and Flamboro transactions, we had
cash on hand of $88 million and unused and available credit facilities of
approximately $50 million.
EBITDA during the quarter, excluding the sale of non-core real estate and
write-downs, amounted to a loss of $9.6 million compared to a loss of $4.5
million in the same quarter last year.
The major reasons for the decline were a write-off of asset values recorded on a
prior year's acquisition, higher insurance and utility costs, costs associated
with the launch of XpressBet(TM) in California and HRTV(TM) and a weak economy
in many of the markets in which we operate. Losses incurred at Lone Star Park
and The Maryland Jockey Club between their dates of acquisition and year-end,
which arose because their primary race meets for the year were completed prior
to acquisition, contributed to the decline.
In addition, we incurred costs attempting to improve the regulatory framework
for a variety of our business operations. We also retained a number of experts
to advise on matters relating to possible alternative gaming at our racetracks
in 2002.
Finally, we recently completed the annual exercise of re-evaluating the carrying
value of approximately $800 million of long-lived and intangible assets. The
result was that we recorded a non-cash write-down of $23 million in the fourth
quarter of 2002, which is more fully explained below.
The combination of these factors resulted in an overall net loss for the quarter
of $24.4 million for the quarter and $14.4 million for the full year.
A major highlight since the year-end was the successful running of the
inaugural Sunshine Millions(TM), thoroughbred racing's newest event. This
event was conceived and produced by MEC. The Sunshine Millions(TM) featured
large fields with head to head competition between California and Florida
thoroughbreds. The eight Sunshine Millions(TM) races, which were run at two
of MEC's premier properties, Santa Anita and Gulfstream, were heavily
supported by breeders and owners from California and Florida. The event,
which contributed to increases in attendance and handle for the day across
our entire network of racetracks of 41% and 32%, respectively, was covered on
a national broadcast on NBC and demonstrates what can be done to grow our
business in the future.
Despite the net loss during the quarter and for the year, our basic strategy
remains intact. Today we are North America's number one owner and operator of
horse racetracks and related pari-mutuel wagering operations, a position that
will benefit MEC and its stakeholders in the years ahead."
In accordance with Financial Accounting Standards Board Statement No.144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", and Statement
No.142, "Goodwill and other Intangible Assets", our long-lived assets and racing
licenses were tested for impairment after completion of our annual business
planning process. At our Remington Park and Great Lakes Downs racetracks, the
carrying value of our assets exceeded their fair value and accordingly we
recognized an impairment in value of $14.7 million related to long-lived assets
and an impairment in value of racing licenses of $2.8 million in the fourth
quarter of 2002.
2
<Page>
As previously disclosed, in November 2002, we entered into an agreement with the
East Bay Regional Park District, a California Special District, to sell
approximately 16 acres of excess real estate located at Golden Gate Fields in
Berkeley, California. The value of the consideration to be received for the real
estate, excluding certain tax benefits of $1.4 million, is $8.5 million. The
carrying value of the property was $14.3 million which was based on an
allocation of the purchase price for the Golden Gate Fields acquisition in 1999.
The transaction is expected to close in the third quarter of 2003, subject to
certain conditions, including completion by the purchaser of certain due
diligence procedures. In the fourth quarter of 2002, we recorded a write-down of
this real estate which resulted in a loss before and after income taxes of $5.8
million and $2.4 million, respectively.
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 the seasonality of
our business to gradually diminish as our recent acquisitions, off-track betting
("OTB") and account wagering initiatives evolve.
Our financial results for the fourth quarter of 2002 reflect the full quarter's
operations for all of MEC's racetracks and related pari-mutuel wagering
operations except for Lone Star Park at Grand Prairie and The Maryland Jockey
Club, which were acquired in the fourth quarter and whose results have been
reflected for the period subsequent to their acquisition dates. In addition,
Ontario Racing Inc., which owns Flamboro Downs, has been equity accounted for in
the fourth quarter commencing October 18, 2002. The comparative results for the
fourth quarter of 2001 do not reflect the current year acquisitions or the
operations of XpressBet(TM) under its California license, which commenced on
January 25, 2002.
Revenues, excluding proceeds on the sale of non-core real estate, were $540.3
million in 2002, compared to $478.5 million in 2001, an increase of $61.9
million or 12.9%. The increase resulted primarily from additional live race days
at Gulfstream, the acquisition of MEC Pennsylvania in April 2001 and Multnomah
Greyhound Park in October 2001, the lease of Portland Meadows in July 2001 and
the acquisition of Lone Star Park in October 2002 and The Maryland Jockey Club
in November 2002, the launch of XpressBet(TM) in California in January 2002 and
increased wagering at Santa Anita Park, partially offset by decreased revenues
at certain of our racetracks as a result of lower average daily attendance,
fewer live race days and a generally weak U.S. economy.
EBITDA, excluding gains on the sale of non-core real estate and write-downs,
decreased $9.6 million to $21.7 million in 2002 and was a loss of $9.6 million
for the fourth quarter ended December 31, 2002 compared to a loss of $4.5
million in the prior year period. The decline in EBITDA is partially
attributable to operating cost increases related to insurance and utilities that
have negatively impacted results in 2002. Insurance costs, excluding current
year acquisitions, increased $0.7 million and $3.6 million, respectively, for
the fourth quarter of 2002 and on a full year basis compared to the prior year
periods. Utility costs, excluding current year acquisitions, increased $0.2
million and $0.8 million, respectively, for the fourth quarter of 2002 and on a
full year basis compared to the prior year periods. We have also incurred higher
general and administrative costs at our corporate head office in order to
provide additional management to achieve our strategic plan. In addition, we
have incurred operating losses related to the startup of XpressBet(TM) in
California and HorseRacing TV(TM) of approximately $3.2 million in 2002, which
have negatively impacted our results.
Revenue on the sale of non-core real estate in 2002 was $8.9 million, resulting
in a gain of $2.2 million, compared to revenue in 2001 of $40.6 million and a
gain of $20.4 million. Revenue on the sale of non-core real estate in the fourth
quarter of 2002 was $0.4 million, resulting in a gain of $0.1 million, compared
to revenue in the fourth quarter of 2001 of $3.4 million and a gain of $3.3
million. We continue to market our remaining non-core real estate and expect to
sell the remainder over the next year, however, the timing of future sales
cannot at this time be stated with certainty.
Net income, excluding gains on the sale of non-core real estate and write-downs,
decreased $3.4 million to a loss of $2.0 million in 2002 compared to 2001 and
decreased $3.6 million in the fourth quarter of 2002 compared to the 2001
quarter. Diluted loss per share, excluding gains on the sale of non-core real
estate and write-downs, increased $0.02 per share for the fourth quarter of 2002
compared to the prior year period.
3
<Page>
During 2002, cash provided from operations before changes in non-cash working
capital was $19.7 million. Total cash used in investment activities during the
year was $226.2 million, which included $146.3 million for acquisitions,
primarily for Lone Star Park and The Maryland Jockey Club, real estate property
and fixed asset additions of $107.2 million and other asset additions of $26.6
million, partially offset by proceeds on the sale of non-core real estate of
$53.9 million.
MEC confirmed that it has reached agreement with the property owner on an
extension of the site lease for Bay Meadows Racecourse. The extension runs
through December 31, 2003, subject to a further one year extension at the
landlord's option.
MEC also announced a pending change in its stock symbols. Commencing February
26, 2003, the Class A Subordinate Voting Stock of Magna Entertainment Corp. will
be traded on the Nasdaq National Market under the trading symbol "MECA" and on
the Toronto Stock Exchange ("TSX") under the trading symbol "MEC.A".
MEC, North America's number one owner and operator of horse racetracks,
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).
We will hold a conference call to discuss our fourth quarter 2002 and year end
results on February 21, 2003 at 3:30 p.m. New York time. The number to use for
this call is 1-800-346-5998. Please call 10 minutes prior to the start of the
conference call. The overseas number to call is 1-416-641-6696. 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; our ability to obtain additional financing; the impact of
inclement weather; and our ability to integrate recent and pending 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
4
<Page>
MAGNA ENTERTAINMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
- -------------------------------------------------------------------------------
[UNAUDITED]
[U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE FIGURES]
- -------------------------------------------------------------------------------
<Table>
<Caption>
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
- ---------------------------------------------------------------------------------------------
2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------
REVENUES
Racing
Gross wagering $ 81,643 $ 72,407 $ 450,732 $ 393,981
Non-wagering 20,301 14,580 71,889 65,430
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101,944 86,987 522,621 459,411
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Real estate
Sale of real estate 425 3,364 8,891 40,600
Rental and other 4,452 5,160 17,709 19,050
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4,877 8,524 26,600 59,650
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106,821 95,511 549,221 519,061
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COSTS AND EXPENSES
Racing
Purses, awards and other 45,919 45,172 276,019 243,389
Operating costs 51,945 34,614 183,370 152,561
General and administrative 14,003 9,690 41,522 31,092
- ---------------------------------------------------------------------------------------------
111,867 89,476 500,911 427,042
- ---------------------------------------------------------------------------------------------
Real estate
Cost of real estate sold 337 24 6,718 20,171
Operating costs 3,516 5,907 13,621 15,789
General and administrative 452 301 2,266 1,130
- ---------------------------------------------------------------------------------------------
4,305 6,232 22,605 37,090
- ---------------------------------------------------------------------------------------------
Predevelopment and other costs 605 930 2,299 3,240
Depreciation and amortization 6,150 6,834 22,834 26,194
Interest expense, net 1,016 322 709 2,682
Write-down of long-lived and intangible assets 17,493 -- 17,493 --
Write-down of excess real estate 5,823 -- 5,823 --
Equity income (463) -- (463) --
- ---------------------------------------------------------------------------------------------
146,796 103,794 572,211 496,248
- ---------------------------------------------------------------------------------------------
Income (loss) before income taxes (39,975) (8,283) (22,990) 22,813
Income tax provision (benefit) (15,625) (3,269) (8,595) 9,349
- ---------------------------------------------------------------------------------------------
Net income (loss) (24,350) (5,014) (14,395) 13,464
Other comprehensive income (loss)
Foreign currency translation adjustment 6,698 (3,080) 16,335 (9,062)
Change in fair value of interest rate swap (1,306) -- (1,306) --
- ---------------------------------------------------------------------------------------------
Comprehensive income (loss) $ (18,958) $ (8,094) $ 634 $ 4,402
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Earnings (loss) per share of Class A
Subordinate Voting Stock, Class B Stock
or Exchangeable Share:
Basic $ (0.23) $ (0.06) $ (0.14) $ 0.16
Diluted $ (0.23) $ (0.06) $ (0.14) $ 0.16
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Average number of shares of Class A
Subordinate Voting Stock, Class B Stock
and Exchangeable Shares outstanding during
the period [in thousands]:
Basic 107,112 83,956 100,674 82,930
Diluted 107,112 83,956 100,674 83,242
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</Table>
5
<Page>
MAGNA ENTERTAINMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
[UNAUDITED]
[U.S. DOLLARS IN THOUSANDS]
- -------------------------------------------------------------------------------
<Table>
<Caption>
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
- --------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------------
CASH PROVIDED FROM (USED FOR):
OPERATING ACTIVITIES
Net income (loss) $ (24,350) $ (5,014) $ (14,395) $ 13,464
Items not involving current cash flows 19,920 17,323 34,138 12,847
- --------------------------------------------------------------------------------------------------------
(4,430) 12,309 19,743 26,311
Changes in non-cash working capital 5,500 (7,039) 443 (682)
- --------------------------------------------------------------------------------------------------------
1,070 5,270 20,186 25,629
- --------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES
Acquisition of businesses, net of cash (145,710) (2,916) (146,304) (23,951)
Real estate property and fixed asset additions (35,343) (13,368) (107,165) (38,862)
Other assets additions (13,313) (842) (26,653) (1,208)
Proceeds on real estate sold to a related party 42,363 12,436 42,363 12,436
Proceeds on disposal of real estate 2,401 7,246 11,510 44,039
- --------------------------------------------------------------------------------------------------------
(149,602) 2,556 (226,249) (7,546)
- --------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in bank indebtedness 49,475 -- 49,475 (7,609)
Repayment of long-term debt, net (5,404) (10,597) (14,922) (3,026)
Issuance of share capital 29 -- 142,422 476
Issuance of convertible subordinated notes 72,200 -- 72,200 --
- --------------------------------------------------------------------------------------------------------
116,300 (10,597) 249,175 (10,159)
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Effect of exchange rate changes on cash
and cash equivalents 2,161 (874) 5,357 (688)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents
during the period (30,071) (3,645) 48,469 7,236
Cash and cash equivalents, beginning of period 117,752 42,857 39,212 31,976
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 87,681 $ 39,212 $ 87,681 $ 39,212
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</Table>
6
<Page>
MAGNA ENTERTAINMENT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
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[UNAUDITED]
[U.S. DOLLARS AND SHARE AMOUNTS IN THOUSANDS]
- -------------------------------------------------------------------------------
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2002 2001
- ------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 87,681 $ 39,212
Restricted cash 18,692 18,782
Accounts receivable 46,138 33,101
Income taxes receivable 2,262 --
Prepaid expenses and other 8,094 5,162
- ------------------------------------------------------------------------------------------
162,867 96,257
- ------------------------------------------------------------------------------------------
Real estate properties, net 717,446 542,006
- ------------------------------------------------------------------------------------------
Fixed assets, net 34,684 32,671
- ------------------------------------------------------------------------------------------
Other assets, net 329,705 179,665
- ------------------------------------------------------------------------------------------
Future tax assets 12,103 7,174
- ------------------------------------------------------------------------------------------
$ 1,256,805 $ 857,773
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Bank indebtedness $ 49,475 $ --
Accounts payable and other liabilities 112,749 78,337
Income taxes payable -- 1,312
Long-term debt due within one year 15,049 18,133
- ------------------------------------------------------------------------------------------
177,273 97,782
- ------------------------------------------------------------------------------------------
Long-term debt 117,801 67,768
- ------------------------------------------------------------------------------------------
Convertible subordinated notes 72,233 --
- ------------------------------------------------------------------------------------------
Other long-term liabilities 8,405 2,576
- ------------------------------------------------------------------------------------------
Future tax liabilities 160,191 121,793
- ------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Capital stock issued and outstanding -
Class A Subordinate Voting Stock
(issued: 2002 - 48,648; 2001 - 23,324) 316,855 157,633
Exchangeable Shares (issued: 2002 - nil; 2001 - 2,263) -- 16,800
Class B Stock (issued: 2002 and 2001 - 58,466) 394,094 394,094
Contributed surplus 17,282 7,290
Retained earnings (deficit) (2,921) 11,474
Accumulated comprehensive loss (4,408) (19,437)
- ------------------------------------------------------------------------------------------
720,902 567,854
- ------------------------------------------------------------------------------------------
$ 1,256,805 $ 857,773
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</Table>
7
<Page>
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. 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 racing business is seasonal in nature. The Company's racing
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 is earned in the first quarter of each year.
Certain comparative figures have been reclassified to conform to the current
year's method of presentation.
2. ACCOUNTING CHANGE, ACQUISITIONS 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.
[b] Acquisitions
The following two acquisitions were accounted for using the purchase
method:
LONE STAR PARK AT GRAND PRAIRIE
On October 23, 2002, the Company completed the acquisition of
substantially all the operations and related assets of Lone Star Park
at Grand Prairie, for a total cash purchase price, including
transaction costs, of $79.1 million, net of cash acquired of $1.8
million. Lone Star Park at Grand Prairie operates Thoroughbred and
American Quarter Horse race meets at its racetrack located near Dallas,
Texas.
8
<Page>
THE MARYLAND JOCKEY CLUB
On November 27, 2002, the Company completed the acquisition of a
controlling interest in the Pimlico Race Course and Laurel Park, which
are operated under the trade name "The Maryland Jockey Club ("MJC")",
for a total purchase price, including transaction costs, of $84.9
million, net of cash acquired of $5.3 million. The total purchase price
was satisfied by cash payments of $66.6 million and the obligation to
pay $18.3 million, which bears interest at the six month London
Inter-bank Offered Rate ("LIBOR"), upon the exercise of either the put
or call option described below. Under the terms of the agreements, the
Company acquired 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. The
Company also purchased options from the De Francis family to buy their
remaining 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 option to sell such
interests to the Company at any time during the first five years after
the closing. In consideration for these options, the Company paid $18.4
million on closing and an additional $18.3 million, plus interest at
the six month LIBOR, will be paid on exercise of the options. The put
and call options are viewed, for accounting purposes, on a combined
basis with the minority interest and accounted for as a financing of
the Company's purchase of such minority interest. Accordingly, the
Company has consolidated 100% of the operations of MJC from the date of
acquisition. Pimlico Race Course, the home of the Preakness Stakes(R),
the middle jewel in thoroughbred racing's Triple Crown, and Laurel
Park, are located in the Baltimore, Maryland area.
The purchase price of these acquisitions, which may be adjusted
further, has been allocated to the assets and liabilities acquired as
follows:
<Table>
<Caption>
LONE STAR PARK THE MARYLAND
AT GRAND PRAIRIE JOCKEY CLUB OTHER TOTAL
-----------------------------------------------------------------------------------------------------------
Non-cash working capital $ (4,087) $(12,159) $(384) $(16,630)
Real estate properties and fixed assets 64,010 70,458 393 134,861
Other assets 34,797 96,832 585 132,214
Debt due within one year (62) (1,041) - (1,103)
Long-term debt (15,563) (25,489) - (41,052)
Future taxes - (43,674) - (43,674)
-----------------------------------------------------------------------------------------------------------
Net assets acquired and total
purchase price, net of cash acquired $ 79,095 $ 84,927 $ 594 $164,616
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
The purchase consideration for these
acquisitions is as follows:
Cash $ 79,095 $ 66,615 $ 594 $146,304
Issuance of long-term debt - 18,312 - 18,312
-----------------------------------------------------------------------------------------------------------
$ 79,095 $ 84,927 $ 594 $164,616
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
</Table>
9
<Page>
FLAMBORO DOWNS
On October 18, 2002, the shares of Flamboro Downs Holdings Limited, the
owner and operator of Flamboro Downs, a harness racetrack located in
Hamilton, Ontario, 45 miles west of Toronto, were acquired by Ontario
Racing Inc. ("ORI"). The purchase price, net of cash, was approximately
$55.9 million, consisting of a cash payment of $23.1 million on
closing, with the remainder satisfied by ongoing payments under secured
notes of approximately $32.8 million. Flamboro Downs also houses a
gaming facility with 750 slot machines operated by the Ontario Lottery
and Gaming Corporation. ORI is a former subsidiary of the Company that
is presently owned by an employee of the Company. Five business days
after the Company receives all necessary regulatory approvals for the
acquisition of Flamboro Downs, the shares of ORI will be transferred to
the Company. The results of operations of ORI, which owns Flamboro
Downs, have been accounted for under the equity method pending receipt
of the approvals, which are expected to be received in the first
quarter of 2003.
As of December 31, 2002, the Company has advanced $23.1 million to ORI,
representing acquisition costs, which is recorded in other assets.
[c] Impact of Accounting Change and Acquisitions
The pro-forma impact of the implementation of SFAS 142 and our
acquisitions is as follows (in thousands, except per share figures):
<Table>
<Caption>
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
REVENUES 2002 2001 2002 2001
-----------------------------------------------------------------------------------------------------------
Revenues as reported $106,821 $95,511 $549,221 $519,061
Restatement for acquisitions 20,345 38,165 159,117 207,189
-----------------------------------------------------------------------------------------------------------
Pro-forma revenues $127,166 $133,676 $708,338 $726,250
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Pro-forma revenues excluding
proceeds on the sale of
real estate $126,741 $130,312 $699,447 $685,650
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
NET INCOME 2002 2001 2002 2001
-----------------------------------------------------------------------------------------------------------
Net income (loss) as reported $(24,350) $(5,014) $(14,395) $13,464
Restatement for change in
intangible assets amortization - 1,470 - 4,822
Restatement for acquisitions (888) (1,409) 1,521 405
-----------------------------------------------------------------------------------------------------------
Pro-forma net income (loss) $(25,238) $(4,953) $(12,874) $18,691
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Pro-forma net income (loss) excluding
gains on the sale of real estate and
write-downs $(11,499) $(6,975) $(442) $6,634
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
</Table>
10
<Page>
<Table>
<Caption>
THREE MONTHS ENDED YEAR ENDED
BASIC AND DILUTED DECEMBER 31, DECEMBER 31,
EARNINGS PER SHARE 2002 2001 2002 2001
--------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share as reported
Basic and Diluted $(0.23) $(0.06) $(0.14) $0.16
Restatement for change in
intangible assets amortization - 0.02 - 0.06
Restatement for acquisitions (0.01) (0.02) 0.02 (0.00)
--------------------------------------------------------------------------------------------------------------------
Pro-forma earnings (loss) per share
Basic and Diluted $(0.24) $(0.06) $(0.12) $0.22
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Pro-forma basic and diluted earnings
(loss) per share excluding gains on
the sale of real estate and
write-downs $(0.11) $(0.08) $0.00 $0.08
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
</Table>
3. WRITE-DOWN OF LONG-LIVED AND INTANGIBLE ASSETS
Pursuant to Financial Accounting Standards Board Statement No. 144 ("SFAS 144"),
"Accounting for the Impairment or Disposal of Long-Lived Assets", and SFAS 142,
"Goodwill and Other Intangible Assets", the Company's long-lived assets and
racing licenses were tested for impairment after completion of the Company's
annual business planning process. As a result of declining attendance and
related revenues at Remington Park and Great Lakes Downs, operating profits and
cash flows were lower than expected in 2002. Based on these results, the
earnings forecasts for these two racetracks were revised.
The fair value of the racetracks was determined using the discounted cash flow
method, including a probability-weighted approach in considering the likelihood
of possible outcomes. It also includes the estimated future cash flows
associated with the racing licenses and long-lived assets directly associated
with, and expected to arise as a direct result of, the use and disposition of
those assets. The fair value determined was then compared to the carrying value
of the racing licenses and long-lived assets in order to determine the amount of
the impairment. The long-lived assets consist of fixed assets and real estate
properties.
As a result of the assets' carrying value exceeding their fair value at
Remington Park and Great Lakes Downs, the Company recognized an impairment of
$14.7 million related to their long-lived assets, which has been allocated to
the fixed assets and real estate properties on a pro-rata basis using the
relative carrying values of the assets, and an impairment of racing licenses of
$2.8 million in the fourth quarter of 2002.
11
<Page>
4. WRITE-DOWN OF EXCESS REAL ESTATE
In November 2002, the Company entered into an agreement with the East Bay
Regional Park District, a California Special District, to sell approximately 16
acres of excess real estate located at Golden Gate Fields in Berkeley,
California. The value of the consideration to be received by the Company for the
real estate, excluding certain tax benefits of $1.4 million, is $8.5 million.
The carrying value of the property was $14.3 million which was based on an
allocation of the purchase price for the Golden Gate Fields acquisition in 1999.
The transaction is expected to close in the third quarter of 2003, subject to
certain conditions, including the purchaser completing certain due diligence
procedures. In 2002, the Company has recorded a write-down of this real estate
which has resulted in a loss before income taxes and a loss after income taxes
of $5.8 million and $2.4 million, respectively.
5. BANK INDEBTEDNESS
During the year, the Company entered into a credit agreement with respect to a
senior, unsecured revolving credit facility for $100.0 million. The credit
facility is available by way of U.S. dollar loans and letters of credit for
general corporate purposes. The facility has been guaranteed by certain
subsidiaries of the Company which own and operate Bay Meadows, Golden Gate
Fields, Gulfstream Park, MEC Pennsylvania and The Maryland Jockey Club. As of
December 31, 2002, the Company had borrowed $49.5 million and issued letters of
credit totalling $20.0 million under the credit facility, such that $30.5
million was unused and available. Under the terms of the agreement, the amount
available under the credit facility will be reduced to $50.0 million on April
30, 2003. The credit facility expires on October 10, 2003, unless extended with
the consent of both parties. The loans under the facility bear interest at
either the U.S. Base rate or LIBOR plus a margin based on the ratio of debt to
earnings before interest, taxes, depreciation and amortization.
6. CONVERTIBLE SUBORDINATED NOTES
On December 2, 2002, the Company issued $75.0 million of 7.25% convertible
subordinated notes which mature on December 15, 2009. The unsecured notes are
convertible at any time at the option of the holders into shares of Class A
Subordinate Voting Stock at a conversion price of $8.50 per share. The
conversion price may be adjusted under certain circumstances. The notes are
redeemable in whole or in part, at the Company's option, on or after December
21, 2005, at the principal amount plus accrued and unpaid interest, provided
that, in connection with any redemption occurring on or after December 21, 2005
and before December 15, 2007, the closing price of the Class A Subordinate
Voting Stock has exceeded 125% of the conversion price for at least 20 trading
days in the 30 consecutive trading day period ending on the trading day prior to
mailing of the notice of redemption. At December 31, 2002, all the notes
remained outstanding.
The Company incurred issue expenses of $2.8 million, which have been recorded as
a reduction of the outstanding notes balance. The notes balance will be accreted
to its face value over the term to maturity.
12
<Page>
7. CAPITAL STOCK
Changes in Class A Subordinate Voting Stock, Exchangeable Shares and Class B
Stock for the year ended December 31, 2002 are shown in the following table
(number of shares and stated value in the following table have been rounded to
the nearest thousand):
<Table>
<Caption>
Class A Subordinate Exchangeable
Voting Stock Shares Class B Stock
--------------------- ---------------------- -------------------
Number of Stated Number of Stated Number of Stated
Shares Value Shares Value Shares Value
- ------------------------------------------------------------------------------------------------------------------------------
Issued and outstanding at
December 31, 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 6 29 - - - -
Conversion of Exchangeable
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
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Issued on exercise of stock options 6 29 - - - -
Conversion of Exchangeable
Shares to Class A
Subordinate Voting Stock 25 190 (25) (190) - -
- ------------------------------------------------------------------------------------------------------------------------------
Issued and outstanding at
September 30, 2002 46,818 $303,290 1,824 $13,536 58,466 $394,094
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Issued on exercise of stock options 6 29 - - - -
Conversion of Exchangeable
Shares to Class A
Subordinate Voting Stock (ii) 1,824 13,536 (1,824) (13,536) - -
- ------------------------------------------------------------------------------------------------------------------------------
ISSUED AND OUTSTANDING AT
DECEMBER 31, 2002 48,648 $316,855 - $ - 58,466 $394,094
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
(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 $6.65 per share or Cdn. $10.60 per share in Canada.
Expenses of the issue of approximately $10.9 million have been netted
against the cash proceeds.
(ii)On December 30, 2002, MEC Holdings (Canada) Inc. called for redemption
all remaining outstanding Exchangeable Shares not held by the Company.
The redemption call purchase price was satisfied in full upon delivery
by the Company to each holder of outstanding Exchangeable Shares of one
share of the Company's Class A Subordinate Voting Stock for each
Exchangeable Share held. As such, the redemption did not require any
expenditure of cash on the part of the Company or MEC Holdings (Canada)
Inc.
13
<Page>
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 December 31, 2002, 6,000 shares were issued on the exercise of stock
options under the Plan. During the twelve months ended December 31, 2002, 60,900
shares were issued under the Plan, including 18,000 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
1/7th to 1/3rd per year and expire on or before the tenth anniversary of the
date of grant, subject to earlier cancellation in the events specified in the
stock option agreements entered into by the Company with each recipient of
options.
During the year ended December 31, 2002, 947,500 stock options were granted,
18,000 stock options were exercised and 21,000 stock options were cancelled. At
December 31, 2002, there were 5,361,833 options outstanding with the exercise
price of the options ranging from $3.91 to $9.43 and a weighted average exercise
price of $6.18.
There were 3,905,623 options exercisable at December 31, 2002 with a weighted
average exercise price of $6.18.
8. EARNINGS (LOSS) PER SHARE
The following is a reconciliation of the numerator and denominator of the basic
and diluted earnings (loss) per share computations (in thousands except per
share amounts):
<Table>
<Caption>
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $(24,350) $(5,014) $(14,395) $13,464
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Basic and Basic and Basic and Basic Diluted
Diluted Diluted Diluted
Weighted Average Shares
Outstanding:
Class A Subordinate
Voting Stock 46,936 23,162 40,306 18,911 19,223
Class B Stock 58,466 58,466 58,466 58,466 58,466
Exchangeable Shares 1,710 2,328 1,902 5,553 5,553
- ----------------------------------------------------------------------------------------------------------------------------------
107,112 83,956 100,674 82,930 83,242
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings (Loss) Per Share $(0.23) $(0.06) $(0.14) $0.16 $0.16
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
14
<Page>
As a result of the net loss reported for the year ended December 31, 2002, and
for the three months ended December 31, 2002 and 2001, there is no dilutive
effect of the stock options and convertible notes.
9. COMMITMENTS AND CONTINGENCIES
[a] In connection with its acquisition of a controlling interest in The
Maryland Jockey Club, Maryland Racing, Inc. ("MRI"), a wholly-owned
subsidiary of the Company, has agreed with the Maryland Racing Commission
to spend a minimum of $5.0 million by August 31, 2003, $5.0 million by
December 31, 2003, and $5.0 million by June 30, 2004 on capital
expenditures and renovations at Pimlico Race Course, Laurel Park, Bowie
Training Center and related facilities and operations.
[b] 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 at the present
time. 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 and turf club. The
aggregate carrying value at December 31, 2002 of the assets that would be
demolished if the Gulfstream Park Redevelopment is completed is
approximately $22.2 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.
10. SEGMENT INFORMATION
The Company's reportable segments reflect how the Company is organized and
managed by senior management. The Company has two operating segments: racing and
real estate and other operations. The racing segment includes the operation of
eleven thoroughbred racetracks, one standardbred racetrack, one greyhound track
and three thoroughbred training centers. In addition, the racing segment
includes off-track betting ("OTB") facilities and a national account wagering
business. The real estate and other operations segment includes the operation of
two golf courses and related facilities, residential housing developments
adjacent to our golf courses 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.
15
<Page>
The following summary presents key information by operating segment (in
thousands):
<Table>
<Caption>
THREE MONTHS ENDED DECEMBER 31, 2002
- ----------------------------------------------------------------------------------------------------------------------
REAL ESTATE
AND OTHER
RACING OPERATIONS OPERATIONS TOTAL
- ----------------------------------------------------------------------------------------------------------------------
Revenues $ 101,944 $ 4,877 $ 106,821
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Loss before income taxes $ (38,360) $ (1,615) $ (39,975)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Loss before income taxes and write-downs $ (15,044) $ (1,615) $ (16,659)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Real estate property and fixed asset additions $ 34,077 $ 1,266 $ 35,343
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
THREE MONTHS ENDED DECEMBER 31, 2001
- ----------------------------------------------------------------------------------------------------------------------
REAL ESTATE
AND OTHER
RACING OPERATIONS OPERATIONS TOTAL
- ----------------------------------------------------------------------------------------------------------------------
Revenues $ 86,987 $ 8,524 $ 95,511
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ (10,420) $ 2,137 $ (8,283)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Real estate property and fixed asset additions $ 6,637 $ 6,731 $ 13,368
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2002
- ----------------------------------------------------------------------------------------------------------------------
REAL ESTATE
AND OTHER
RACING OPERATIONS OPERATIONS TOTAL
- ----------------------------------------------------------------------------------------------------------------------
Revenues $ 522,621 $ 26,600 $ 549,221
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Loss before income taxes $ (22,903) $ (87) $ (22,990)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and write-downs $ 413 $ (87) $ 326
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Real estate property and fixed asset additions $ 96,746 $ 10,419 $ 107,165
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2001
- ----------------------------------------------------------------------------------------------------------------------
REAL ESTATE
AND OTHER
RACING OPERATIONS OPERATIONS TOTAL
- ----------------------------------------------------------------------------------------------------------------------
Revenues $ 459,411 $ 59,650 $ 519,061
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 1,308 $ 21,505 $ 22,813
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Real estate property and fixed asset additions $ 24,343 $ 14,519 $ 38,862
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</Table>
16
<Page>
11. TRANSACTIONS WITH RELATED PARTIES
In December 2002, the Company sold certain non-core real estate properties
located in Canada, the United States and Europe to affiliates of Magna
International Inc. ("Magna"), an entity holding a controlling interest in the
Company, for total proceeds of $42.4 million, for use in their automotive
business. The gain on the sale of the properties of approximately $10.0 million,
net of tax, is reported as a contribution to equity.
17