[MEC LETTERHEAD] Magna Entertainment Corp.
337 Magna Drive
Aurora, Ontario,
Canada L4G 7K1
Tel (905) 726-2462
Fax (905) 726-2585
EXHIBIT 99
PRESS RELEASE
MAGNA ENTERTAINMENT CORP.
ANNOUNCES RESULTS FOR THE THIRD QUARTER
ENDED SEPTEMBER 30, 2002
October 31, 2002, Aurora, Ontario, Canada......Magna Entertainment Corp. ("MEC")
(NASDAQ: MIEC; TSX: MIE.A, MEH) today reported its financial results for the
third quarter ended September 30, 2002.
Three Months Ended Nine months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
(unaudited)
Revenues $ 65,433 $ 65,832 $ 442,400 $ 423,550
Earnings (loss) before interest, taxes,
depreciation and amortization ("EBITDA") $ (11,220) $ (2,825) $ 33,362 $ 52,816
Net income (loss) $ (9,742) $ (6,227) $ 9,955 $ 18,478
Diluted earnings (loss) per share $ (0.09) $ (0.07) $ 0.10 $ 0.22
Results Excluding the Sale of Non-Core Real Estate
Revenues $ 63,708 $ 64,741 $ 433,934 $ 386,314
EBITDA $ (11,186) $ (2,862) $ 31,277 $ 35,727
Net income (loss) $ (9,722) $ (6,249) $ 8,733 $ 8,327
Diluted earnings (loss) per share $ (0.09) $ (0.07) $ 0.09 $ 0.10
All amounts are reported in U.S. dollars in thousands, except per share figures.
In announcing these results, Jim McAlpine, President and Chief Executive Officer
of MEC, remarked: "The third quarter is traditionally our weakest quarter and
2002 is no exception as our premier racetracks offered only 24 days (same in
2001) of live racing during the period. The seasonal nature of our business will
be moderated going forward as we integrate the operations of Flamboro Downs,
Lone Star Park at Grand Prairie and, ultimately, The Maryland Jockey Club with
our existing properties. Revenues and net income, excluding the sale of non-core
real estate, for the nine months ended September 30, 2002, improved 12.3% and
4.9%, respectively, over last year. We are pleased with the numerous strategic
accomplishments that have been achieved so far in 2002."
These accomplishments include:
|X| The launch of our new Internet account wagering platform
(www.xpressbet.com) in January. On January 24, XpressBet(TM) was
granted a license to conduct account wagering in the State of
California and commenced operations under that license on January 25.
Page 1 of 14
|X| In February, we entered into a joint venture called Racetrack
Television Network ("RTN"), which is one-third owned by MEC. RTN is a
direct to home private subscription satellite service offering up to
eight channels dedicated to horseracing.
|X| In April, we completed a public offering of 23 million Class A
Subordinate Voting shares, which raised net proceeds of $142.1
million.
|X| In May, we increased our bank lines of credit by arranging a short-term
credit facility in the amount of $75 million.
|X| In July, we launched HorseRacing TV(TM), a new television channel
focused exclusively on horse racing. This channel is presently carried
on RTN. We are working to achieve broader distribution through
conventional satellite and cable systems.
|X| Also in July, we announced an agreement to acquire a majority interest
in Pimlico Race Course, home of the Preakness, and Laurel Park, which
are operated under the trade name "The Maryland Jockey Club". The
acquisition is subject to regulatory approvals and legislative review.
|X| In October, we entered into an amending agreement to increase our
short-term credit facility from $75.0 million to $100.0 million.
|X] Also in October, we completed the acquisition of Lone Star Park at
Grand Prairie, a Thoroughbred and American Quarter Horse racetrack
located near Dallas, Texas.
|X| We announced an important step toward the completion of the acquisition
of Flamboro Downs in October, as Ontario Racing Inc. ("ORI") completed
the acquisition of all of the shares of Flamboro Downs Holdings
Limited, a harness racetrack located in Hamilton, Ontario, 45 miles
west of Toronto. ORI is a former subsidiary of MEC that is presently
owned by an employee of MEC. Five days after MEC receives all necessary
regulatory approvals for the acquisition of Flamboro Downs, the shares
of ORI will be transferred to MEC. We expect approval within 90 days.
Our racetracks operate for prescribed periods each year. As a result, our
racetrack revenues and operating results for any quarter will not be indicative
of our revenues and operating results for the year. We expect that these
seasonal fluctuations will reduce over time as the full impact of our
acquisition, off-track betting ("OTB") and account wagering initiatives are
realized.
Our financial results for the third 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 Flamboro Downs. The
comparative results for the third quarter of 2001 do not reflect the operations
of XpressBet(TM) under its California license, which commenced on January 25,
2002, and Multnomah, which was acquired in October 2001.
Revenues, excluding proceeds on the sale of non-core real estate, for the first
nine months of 2002 increased 12.3% to $433.9 million from the prior year
period. The higher revenues in the first nine months of 2002 reflect primarily
the additional live race days at Gulfstream, improved results at Santa Anita,
the acquisition of MEC Pennsylvania in the second quarter of 2001 and Multnomah
in the fourth quarter of 2001, the lease of Portland Meadows in the third
quarter of 2001 and the launch of XpressBet(TM) in California in the first
quarter of 2002. Revenues, excluding proceeds on the sale of non-core real
estate, for the third quarter of 2002 decreased 1.6% to $63.7 million from the
prior year period. The lower revenues in the third quarter of 2002 primarily
reflect lower average daily attendance at several of our facilities, fewer live
race days at The Meadows and decreased sales of residential properties in
Austria, partially offset by the acquisition of Multnomah in the fourth quarter
of 2001.
EBITDA, excluding gains on the sale of non-core real estate, decreased 12.5% to
$31.3 million for the nine months ended September 30, 2002 and was a loss of
$11.2 million for the third quarter ended September 30, 2002 compared to a loss
of $2.9 million in the prior year period. The decline in EBITDA is a result of
lower revenues and operating cost increases related to insurance and utilities
that have negatively impacted results in 2002. Insurance costs increased $1.1
million and $2.7 million, respectively, for the third quarter of 2002 and on a
year to date basis compared to the prior year periods. Utility costs increased
$0.1 million and $0.6 million, respectively, for the third quarter of 2002 and
on a year to date basis compared to the prior year periods. In addition, we have
incurred costs related to the startup of XpressBet(TM) and HorseRacing TV(TM) in
2002, which have negatively impacted our results.
Page 2 of 14
Revenue on the sale of non-core real estate in the third quarter of 2002 was
$1.7 million, resulting in a loss of $34 thousand compared to revenue in the
third quarter of 2001 of $1.1 million and a gain of $37 thousand. We continue to
market our remaining non-core real estate and expect to sell the remaining real
estate over the next 3 to 15 months, 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, increased 4.9%
to $8.7 million in the first nine months of 2002 compared to 2001 and decreased
$3.5 million in the third quarter of 2002 compared to the 2001 quarter. Diluted
loss per share, excluding gains on the sale of non-core real estate, increased
$0.02 per share for the third quarter of 2002 compared to the prior year period.
During the third quarter of 2002, cash used from operations before changes in
non-cash working capital was $7.1 million. Total cash used in investment
activities during the quarter was $46.6 million, which included real estate
property and fixed asset additions of $38.0 million and other asset additions of
$10.9 million, partially offset by proceeds on the sale of real estate of $2.3
million.
Looking to the future, we will continue to focus on earnings growth through the
implementation, throughout our operations, of best practices and common systems,
utilization of our corporate purchasing power to reduce costs, improved
production and distribution of our simulcast program, growth of our account
wagering business and sales of non-core real estate holdings. As previously
reported, the first phase of Palm Meadows, our world class thoroughbred training
facility located approximately 40 minutes north of Gulfstream, is expected to
commence operations prior to Gulfstream Park's 2003 winter meet. The next phase
of Palm Meadows is expected to be completed prior to Gulfstream's 2004 meet.
The acquisition of The Maryland Jockey Club, which we expect to complete in
December, will be funded from available lines of credit and cash balances.
The Company also announced the resignations of Mr. John C. York II and Mr. James
Nicol from its Board of Directors. Mr. York's resignation was effective October
29, 2002 and Mr. Nicol's resignation is effective October 31, 2002. In their
place, the Board appointed Mr. Louis E. Lataif and Mr. William J. Menear as
directors.
In announcing the resignations and appointments, Frank Stronach, MEC's Chairman,
expressed the appreciation of the entire Board to Messrs. Nicol and York and for
their significant contributions during MEC's formative years and welcomed
Messrs. Lataif and Menear to the Board.
In delivering his resignation, Mr. York cited the time commitments required for
his continued involvement with his own operating businesses, which no longer
affords him the time to serve on the MEC Board.
In tendering his resignation, Mr. Nicol noted that the time constraints and
travel difficulties arising from his responsibilities as Chief Executive Officer
of Tomkins plc, based in the U.K., required that he resign his position on the
MEC Board.
The Company's subsidiary, MEC Holdings (Canada) Inc. (TSX: MEH), announced today
that its Board of Directors has called for the redemption of all of its
outstanding Exchangeable Shares, other than those currently held by the Company
or another subsidiary of the Company, on December 30, 2002. The Company has
exercised its redemption call right to purchase the Exchangeable Shares to be
redeemed, so the consideration for this exchange will be the issuance of one
share of Class A Subordinate Voting Stock of the Company for each Exchangeable
Share held. As such, the proposed redemption will not require any expenditure of
cash on the part of the Company or MEC Holdings (Canada) Inc.
MEC, one of the largest operators of premier horse racetracks in the United
States, acquires, develops and operates horse racetracks and related pari-mutuel
wagering operations, including off-track betting facilities, and owns and
operates a national account wagering system called XpressBet(TM).
Page 3 of 14
The Company will hold a conference call to discuss its third quarter 2002
results on November 1, 2002 at 11:00 a.m. New York time. The number to use for
this call is 1-888-793-1751. Please call 10 minutes prior to the start of the
conference call. The overseas number to call is 1-416-641-6652. 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
Page 4 of 14
MAGNA ENTERTAINMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
[Unaudited]
[U.S. dollars in thousands, except per share figures]
- ---------------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Revenues
Racetrack
Gross wagering $ 46,486 $ 45,085 $369,089 $321,574
Non-wagering 11,842 13,394 51,588 50,850
--------------- ---------------- --------------- ----------------
58,328 58,479 420,677 372,424
--------------- ---------------- --------------- ----------------
Real estate
Sale of real estate 1,725 1,091 8,466 37,236
Rental and other 5,380 6,262 13,257 13,890
--------------- ---------------- --------------- ----------------
7,105 7,353 21,723 51,126
--------------- ---------------- --------------- ----------------
65,433 65,832 442,400 423,550
=================================================================
Costs and expenses
Racetrack
Purses, awards and other 25,740 24,509 230,100 198,217
Operating costs 36,202 31,686 131,425 117,947
General and administrative 7,335 6,172 27,519 21,402
--------------- ---------------- --------------- ----------------
69,277 62,367 389,044 337,566
--------------- ---------------- --------------- ----------------
Real estate
Cost of real estate sold 1,759 1,054 6,381 20,147
Operating costs 4,744 4,466 10,105 9,882
General and administrative 803 282 1,814 829
--------------- ---------------- --------------- ----------------
7,306 5,802 18,300 30,858
--------------- ---------------- --------------- ----------------
Predevelopment and other costs 70 488 1,694 2,310
Depreciation and amortization 5,414 7,376 16,684 19,360
Interest (income) expense, net (121) 282 (307) 2,360
--------------- ---------------- --------------- ----------------
81,946 76,315 425,415 392,454
--------------- ---------------- --------------- ----------------
Income (loss) before income taxes (16,513) (10,483) 16,985 31,096
Income tax provision (benefit) (6,771) (4,256) 7,030 12,618
--------------- ---------------- --------------- ----------------
Net income (loss) (9,742) (6,227) 9,955 18,478
Other comprehensive income (loss)
Foreign currency translation adjustment (3,462) 2,974 9,637 (5,982)
--------------- ---------------- --------------- ----------------
Comprehensive income (loss) $ (13,204) $ (3,253) $ 19,592 $ 12,496
=================================================================
Earnings (loss) per share of Class A Subordinate Voting Stock, Class B Stock or
Exchangeable Share:
Basic
Diluted $ (0.09) $ (0.07) $ 0.10 $ 0.23
$ (0.09) $ (0.07) $ 0.10 $ 0.22
=================================================================
Average number of shares of Class A Subordinate Voting Stock,
Class B Stock and Exchangeable Shares outstanding during
the period [in thousands]:
Basic 107,107 83,719 98,643 82,107
Diluted 107,128 83,977 99,453 82,439
=================================================================
Page 5 of 14
MAGNA ENTERTAINMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------------
[Unaudited]
[U.S. dollars in thousands]
Three months ended Nine months ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2002 2001 2002 2001
-------------- -------------------- -------------- ----------------
Cash provided from (used for):
OPERATING ACTIVITIES
Net income (loss) $ (9,742) $ (6,227) $ 9,955 $18,478
Items not involving current cash flows 2,643 6,857 14,218 (4,476)
---------------- -------------------- -------------- ----------------
(7,099) 630 24,173 14,002
Changes in non-cash items related to operations (4,089) (3,956) (5,057) 6,357
---------------- -------------------- -------------- ----------------
(11,188) (3,326) 19,116 20,359
---------------- -------------------- -------------- ----------------
INVESTMENT ACTIVITIES
Acquisition of business, net of cash (594) - (594) (21,035)
Real estate property and fixed asset additions (38,003) (9,111) (71,822) (25,494)
Other asset additions (10,306) (530) (13,340) (366)
Proceeds on sale of real estate 2,284 3,888 9,109 36,793
---------------- -------------------- -------------- ----------------
(46,619) (5,753) (76,647) (10,102)
---------------- -------------------- -------------- ----------------
FINANCING ACTIVITIES
Decrease in bank indebtedness - - - (7,609)
(Repayment of) increase in long-term debt, net (959) (1,090) (9,519) 7,571
Issuance of share capital 29 33 142,393 476
---------------- -------------------- -------------- ----------------
(930) (1,057) 132,874 438
---------------- -------------------- -------------- ----------------
Effect of exchange rate changes on cash
and cash equivalents (231) 1,811 3,197 186
---------------- -------------------- -------------- ----------------
Net increase (decrease) in cash and cash equivalents
during the period (58,968) (8,325) 78,540 10,881
Cash and cash equivalents, beginning of period 176,720 51,182 39,212 31,976
---------------- -------------------- -------------- ----------------
Cash and cash equivalents, end of period $117,752 $42,857 $117,752 $42,857
=====================================================================
Page 6 of 14
MAGNA ENTERTAINMENT CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------ ---------------------- ---------------------
[Unaudited]
[U.S. dollars and share amounts in thousands]
- ------------------------------------------------------------------------------------ ---------------------- ---------------------
September 30, December 31,
2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $117,752 $ 39,212
Restricted cash 7,260 18,782
Accounts receivable 36,116 33,101
Prepaid expenses and other 6,098 5,162
---------------------- ---------------------
167,226 96,257
---------------------- ---------------------
Real estate properties and fixed assets, net 631,128 574,677
---------------------- ---------------------
Other assets, net 189,124 179,665
---------------------- ---------------------
Future tax assets 3,685 3,657
---------------------- ---------------------
$991,163 $854,256
============================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other liabilities $ 62,203 $ 78,337
Income taxes payable 892 1,312
Long-term debt due within one year 18,671 18,133
---------------------- ---------------------
81,766 97,782
---------------------- ---------------------
Long-term debt 58,549 67,768
---------------------- ---------------------
Other long-term liabilities 5,334 2,576
---------------------- ---------------------
Future tax liabilities 115,675 118,276
---------------------- ---------------------
Shareholders' equity:
Capital stock issued and outstanding -
Class A Subordinate Voting Stock
(issued: 2002 - 46,818; 2001 - 23,324) 303,290 157,633
Exchangeable Shares (issued: 2002 - 1,824; 2001 - 2,263) 13,536 16,800
Class B Stock (issued: 2002 and 2001 - 58,466) 394,094 394,094
Contributed surplus 7,290 7,290
Retained earnings 21,429 11,474
Accumulated comprehensive loss (9,800) (19,437)
---------------------- ---------------------
729,839 567,854
---------------------- ---------------------
$991,163 $854,256
============================================
Page 7 of 14
MAGNA ENTERTAINMENT CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with United States generally accepted accounting principles ("U.S.
GAAP") for interim financial information and with instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by U.S. GAAP for complete financial
statements. The preparation of the consolidated financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from estimates. In the opinion
of management, all adjustments, which consist of normal and recurring
adjustments, necessary for fair presentation have been included. Operating
results for the three and nine month periods ended September 30, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 2001.
The Company's racetrack business is seasonal in nature. The Company's racetrack
revenues and operating results for any quarter will not be indicative of the
revenues and operating results for the year. A disproportionate share of annual
revenues and net income are earned in the first quarter of each year.
2. Accounting Change, 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. The Company completed the required initial impairment
test during the first quarter of 2002 and determined that the value of
its racing licenses was not impaired. As at September 30, 2002, racing
licenses with a net book value of $167.6 million are included in Other
Assets on the balance sheet.
b) Acquisitions
On April 5, 2001, the Company completed the acquisition of Ladbroke
Racing Pennsylvania, Inc. ("Ladbroke") and Sport Broadcasting, Inc.
("SBI"). On October 26, 2001, the Company acquired all the outstanding
capital stock of MKC Acquisition Co. ("MKC"), operating as Multnomah
Greyhound Park. Both of these acquisitions are fully disclosed in the
Company's consolidated financial statements for the year ended December
31, 2001. As a result of the timing of these acquisitions, the results
of operations of MKC are not included in the Company's results for the
three and nine month periods ended September 30, 2001 and the results
of operations of Ladbroke are not included for the first quarter of
2001.
Page 8 of 14
c) Impact of Accounting Change and Acquisitions
The pro-forma impact of the implementation of SFAS 142 and our
acquisitions is as follows (in thousands, except per share figures):
Three months ended Nine months ended
September 30, September 30,
Revenues 2002 2001 2002 2001
------------------------------------------------------------------------------
Revenues as reported $65,433 $65,832 $442,400 $423,550
Restatement for acquisitions - 5,032 - 28,280
------------------------------------------------------------------------------
Pro-forma revenues $65,433 $70,864 $442,400 $451,830
------------------------------------------------------------------------------
Pro-forma revenues excluding
proceeds on the sale of real estate $63,708 $69,773 $433,934 $414,594
------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
Net Income 2002 2001 2002 2001
------------------------------------------------------------------------------
Net income (loss) as reported $(9,742) $(6,227) $9,955 $18,478
Restatement for change in
intangible assets amortization - 1,411 - 3,352
Restatement for acquisitions - 332 - (810)
------------------------------------------------------------------------------
Pro-forma net income (loss) $(9,742) $(4,484) $9,955 $21,020
------------------------------------------------------------------------------
Pro-forma net income (loss) excluding
------------------------------------------------------------------------------
gains on the sale of real estate $(9,722) $(4,506) $8,733 $10,865
------------------------------------------------------------------------------
Three months ended Nine months ended
Basic and Diluted September 30, September 30,
Earnings per Share 2002 2001 2002 2001
------------------------------------------------------------------------------
Earnings (loss) per share as reported
Basic $(0.09) $(0.07) $0.10 $0.23
Diluted (0.09) (0.07) 0.10 0.22
Restatement for change in
intangible assets amortization - 0.02 - 0.04
Restatement for acquisitions - - - (0.01)
------------------------------------------------------------------------------
Pro-forma earnings (loss) per share
Basic $(0.09) $(0.05) $0.10 $0.26
Diluted (0.09) (0.05) 0.10 0.25
------------------------------------------------------------------------------
Pro-forma basic and diluted earnings
(loss) per share excluding gains on
the sale of real estate $(0.09) $(0.05) $0.09 $0.13
------------------------------------------------------------------------------
Page 9 of 14
3. Capital Stock
Changes in Class A Subordinate Voting Stock, Exchangeable Shares and Class B
Stock for the nine months ended September 30, 2002 are shown in the following
table (number of shares and stated value in the following table have been
rounded to the nearest thousand):
Class A Subordinate Exchangeable Class B Stock
Voting Stock Shares
------------------------ ------------------------- ------------------------
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
Conversion of Exchangeable 6 29 - - - -
Shares to Class A
Subordinate Voting Stock
132 981 (132) (981) - -
------------ ----------- -- ------------ ------------ --- ------------ -----------
Issued and outstanding at
June 30, 2002 46,787 $303,071 1,849 $13,726 58,466 $394,094
------------ ----------- -- ------------ ------------ --- ------------ -----------
Issued on exercise of stock options
Conversion of Exchangeable 6 29 - - - -
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
- ------------------------------------ ------------ ----------- -- ------------ ------------ --- ------------ -----------
(i) On April 10, 2002, the Company completed a public offering of 23 million
shares of its Class A Subordinate Voting Stock, at a price to the public of
U.S. $6.65 per share in the United States, or Cdn. $10.60 per share in
Canada. Expenses of the issue of approximately $10.9 million have been
netted against the cash proceeds.
The Company has a Long-term Incentive Plan (the "Plan") (adopted in 2000) which
allows for the grant of nonqualified stock options, incentive stock options,
stock appreciation rights, restricted stock, bonus stock and performance shares
to directors, officers, employees, consultants, independent contractors and
agents. A maximum of 7.9 million shares are available to be issued under the
Plan, of which 6.5 million are available for issuance pursuant to stock options
and tandem stock appreciation rights and 1.4 million are available for issuance
pursuant to any other type of award under the Plan. During the three months
ended September 30, 2002, 6,000 shares were issued on the exercise of stock
options under the Plan. During the nine months ended September 30, 2002, 54,900
shares were issued under the Plan, including 12,000 shares issued on the
exercise of stock options.
Page 10 of 14
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 nine months ended September 30, 2002, 137,500 stock options were
granted, 12,000 stock options were exercised and 17,000 stock options were
cancelled. At September 30, 2002, there were 4,561,833 options outstanding with
the exercise price of the options ranging from $3.91 to $9.43 and an average
exercise price of $6.08.
There were 3,632,696 options exercisable at September 30, 2002 with an average
exercise price of $5.98.
4. 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):
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
----------------------- --------------------- --------------------- ---------------------
Net Income (Loss) $(9,742) $(6,227) $9,955 $18,478
----------------------- --------------------- --------------------- ---------------------
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
Weighted Average Shares
Outstanding:
Class A Subordinate
Voting Stock 46,801 46,822 20,496 20,754 38,213 39,023 17,001 17,333
Class B Stock 58,466 58,466 58,466 58,466 58,466 58,466 58,466 58,466
Exchangeable Shares 1,840 1,840 4,757 4,757 1,964 1,964 6,640 6,640
----------------------- --------------------- --------------------- ---------------------
107,107 107,128 83,719 83,977 98,643 99,453 82,107 82,439
----------------------- --------------------- --------------------- ---------------------
Earnings (Loss) Per Share $(0.09) $(0.09) $(0.07) $(0.07) $0.10 $0.10 $0.23 $0.22
----------------------- --------------------- --------------------- ---------------------
5. Commitments and Contingencies
a) Although the Company is considering a major redevelopment of its
Gulfstream Park racetrack in Florida (the "Gulfstream Park
Redevelopment"), it has deferred a decision on the project 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 September 30,
2002 of the assets that would be demolished if the Gulfstream Park
Redevelopment were to be completed is approximately $23.0 million. If
the Company decides to proceed with the Gulfstream Park Redevelopment
and obtains the approval of its Board of Directors, a reduction in the
expected life of the existing assets would occur and a write-down would
be necessary.
Page 11 of 14
b) On July 15, 2002, the Company entered into agreements to acquire a
majority interest in Pimlico Race Course and Laurel Park, which are
operated under the trade name "The Maryland Jockey Club" ("MJC"). Under
the terms of the agreements, the Company will be purchasing a 51%
equity and voting interest in The Maryland Jockey Club of Baltimore
City, Inc., the owner of Pimlico Race Course, a 51% voting interest and
a 58% equity interest on a fully diluted basis in Laurel Racing Assoc.,
Inc., the general partner and manager of Laurel Racing Association
Limited Partnership ("LRALP"), the owner of Laurel Park, and the entire
limited partnership interest in LRALP. Each of the general partner and
limited partner of LRALP is entitled to 50% of the profits or losses of
LRALP. All of these interests are being acquired for an aggregate price
of approximately $50.6 million in cash, subject to normal closing
adjustments. In addition, the Company has agreed to purchase options
from the De Francis family to buy their voting and equity interests in
MJC, which represent all of the minority interests, at any time during
the period starting 48 months and ending 60 months after the closing of
the transaction. The Company has also granted the De Francis family the
right to sell such interests to the Company at any time during the
first five years after the closing. In consideration for its options,
the Company has agreed to pay $18.4 million on closing and an
additional $18.3 million on exercise of the options, subject to an
interest adjustment. The closing of the transaction is expected to
occur in the fourth quarter of 2002, subject to regulatory approvals
and legislative review.
6. Segment Information
The Company's reportable segments reflect how the Company is organized and
managed by senior management. The Company has two operating segments: racetrack
and real estate and other operations. The racetrack segment includes the
operation of eight thoroughbred racetracks, one standardbred racetrack, one
greyhound track and one horse boarding and training center. In addition, the
racetrack segment includes off-track betting ("OTB") facilities and a national
account wagering business. The real estate and other operations segment includes
the operation of two golf courses and related facilities, a residential housing
development adjacent to our golf course located in Austria and other real estate
holdings.
The accounting policies of each segment are the same as those described in the
"Significant Accounting Policies" section in the Company's annual report on Form
10-K for the year ended December 31, 2001.
The following summary presents key information by operating segment (in
thousands):
Three months ended September 30, 2002
-----------------------------------------------------
Real Estate
Racetrack and Other
Operations Operations Total
------------------ ----------------- ----------------
Revenues $ 58,328 $ 7,105 $ 65,433
------------------ ----------------- ----------------
Loss before income taxes $ (15,547) $ (966) $ (16,513)
------------------ ----------------- ----------------
Real estate property and fixed asset additions $ 36,244 $ 1,759 $ 38,003
------------------ ----------------- ----------------
Page 12 of 14
Three months ended September 30, 2001
-----------------------------------------------------
Real Estate
Racetrack and Other
Operations Operations Total
------------------ ----------------- ----------------
Revenues $ 58,479 $ 7,353 $ 65,832
------------------ ----------------- ----------------
Income (loss) before income taxes $ (11,942) $ 1,459 $ (10,483)
------------------ ----------------- ----------------
Real estate property and fixed asset additions $ 5,868 $ 3,243 $ 9,111
------------------ ----------------- ----------------
Nine months ended September 30, 2002
-----------------------------------------------------
Real Estate
Racetrack and Other
Operations Operations Total
------------------ ----------------- ----------------
Revenues $ 420,677 $ 21,723 $ 442,400
------------------ ----------------- ----------------
Income before income taxes $ 15,457 $ 1,528 $ 16,985
------------------ ----------------- ----------------
Real estate property and fixed asset additions $ 67,359 $ 4,463 $ 71,822
------------------ ----------------- ----------------
Nine months ended September 30, 2001
-----------------------------------------------------
Real Estate
Racetrack and Other
Operations Operations Total
------------------ ----------------- ----------------
Revenues $ 372,424 $ 51,126 $ 423,550
------------------ ----------------- ----------------
Income before income taxes $ 11,728 $ 19,368 $ 31,096
------------------ ----------------- ----------------
Real estate property and fixed asset additions $ 17,706 $ 7,788 $ 25,494
------------------ ----------------- ----------------
7. Subsequent Events
a) On October 11, 2002, the Company entered into an amending agreement to
increase its senior unsecured revolving credit facility from $75.0
million to $100.0 million. The credit facility has a term of one year,
which expires on October 10, 2003, and may be extended with the consent
of both parties.
b) On October 18, 2002, the shares of Flamboro Downs Holdings Limited, the
owner and operator of Flamboro Downs, a harness racetrack located near
Hamilton, Ontario, 45 miles west of Toronto, were acquired by Ontario
Racing Inc. ("ORI"). ORI is a former subsidiary of MEC that is
presently owned by an employee of MEC. Five 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.
Approval is expected to occur within 90 days. The Company will equity
account for these operations until the necessary regulatory approvals
are obtained.
Page 13 of 14
Flamboro Downs also houses a gaming facility with 750 slot machines
operated by the Ontario Lottery and Gaming Corporation. Pursuant to an
agreement with the Ontario Lottery and Gaming Corporation, Flamboro
Downs receives 20% of the "net win" (slot machine revenues minus payout
to slot players), with one-half of that amount distributed as purses
and the other half being retained by Flamboro Downs. The purchase
price, net of cash, was $55.2 million and was satisfied by vendor
take-back notes of approximately $36.4 million with the remainder paid
in cash. MEC has guaranteed the vendor take-back notes and funded the
cash portion of the purchase price.
c) On October 23, 2002, the Company completed the acquisition of
substantially all the operations and related assets of Lone Star Park
at Grand Prairie, a Thoroughbred and American Quarter Horse racetrack
located near Dallas, Texas. The acquired assets include the rights
under a long-term lease of Lone Star Park and a related purchase option
exercisable at termination of the lease in 2027. The purchase price of
the acquisition was satisfied by the payment of approximately $81.0
million in cash and the assumption of certain liabilities, including
the Lone Star Park capital lease obligation of approximately $19.0
million.
d) On October 31, 2002, the Board of Directors of the Company's
subsidiary, MEC Holdings (Canada) Inc., called for the redemption of
all of its outstanding Exchangeable Shares, other than those currently
held by the Company or another subsidiary of the Company, on December
30, 2002. The consideration for this redemption will be provided by the
Company, which has announced that it has elected to exercise its
Redemption Call Right to purchase the Exchangeable Shares to be
redeemed, by issuing in exchange one share of Class A Subordinate
Voting Stock of the Company for each such Exchangeable Share. As such,
the proposed redemption will not require any expenditure of cash on the
part of the Company or MEC Holdings (Canada) Inc.
Page 14 of 14