Magna Reports $9.2 Million Fourth Quarter Loss
Updated: Sunday, February 25, 2001 3:22 PM
Posted: Monday, February 19, 2001 9:24 PM
Photo: Barbara D. Livingston
Magna's Stronach: "We believe that conducting wagering on horse racing is ideally suited to become a global business."
Magna Entertainment reported a disappointing fourth quarter Monday with earnings per share falling to 11 cents per share, down 175% from the same quarter a year ago. For the year, the numbers were slightly better with the racing conglomerate, chaired by owner-breeder Frank Stronach, reporting a profit of 1 cent per share. In 1999 the company and its shareholders broke even.
Company executives said during a Tuesday teleconference that more profitable times are ahead. Magna has a strong core of racetracks and a more stable management team working out of its new headquarters in Aurora, Ontario, Canada. From such a solid base, the company can implement more efficient operating methods at its tracks and expand it presence around the globe.
"We have introduced a number of initiatives to improve the wagering proposition and the entertainment value of horse racing," said Jim McAlpine, Magna's new president and chief executive officer. "Ultimately, we believe the real opportunity lies with taking horse racing and pari-mutuel wagering into the living rooms of patrons throughout the world through simulcasting, account wagering, and the Internet."
But exactly how Magna intends to capitalize on the opporunity is unclear since McAlpine and Graham Orr, Magna's chief financial officer, provided few details.
Magna has a pending deal to acquire Ladbrokes' "Call-A-Bet" account wagering business, the Meadows harness track, four off-track betting outlets near Pittsburgh, Pa., and a interest in the Racing Network for $53 million.
Will "Call-A-Bet" and the Racing Network be the backbone of Magna's proposed interactive wagering service, or will it build a system from scratch?
"It's all of the above," McAlpine said.
When asked if Magna would consider renewing a relationship with the TV Games Network, McAlpine said it was being considered.
And what role does the company's interest in the New York City Off-Track Betting Corp. play in the long-term plan?
"No comment," McAlpine said.
Basically, shareholders must have faith and look for silver linings in the latest quarterly report.
McAlpine admitted the fourth quarter was disappointing overall, but said the seasonal nature of horse racing was a significant factor. Magna's revenues are generally greater in the first and second quarters of the calendar year than in the third and fourth quarters. Three of the company's premier racetracks -- Santa Anita Park, Golden Gate Fields and Gulfstream Park -- run live meets principally during the first half of the year.
For the fourth quarter, Magna reported a net loss of $9.2 million. Revenue for the quarter rose 70% to $74.5 million, but operating costs and expenses increased 86% when compared with the same period of 1999. McAlpine said fourth quarter operating costs were higher than expected. A key factor was the cost in relocating the corporate office from Southern California to Ontario. The cost of this restructuring and other one-time costs amounted to approximately $7.5 million.
"We believe we will start to see positive results from our acquisition and consolidation activities as we progress through 2001," he said.
For the year, the company reported net income of $441,000 compared with a net loss of $62,000 in 1999, and revenue increased 121% to $413.6 million. The company's earnings before interest, taxes, depreciation and amortization (EBITDA) was $21.8 million compared with $9.8 million a year ago.
Magna reported that during fiscal 2000, cash generated from operations was $7.7 million, before changes in non-cash working capital. Total investment activities during the year were $34.4 million, including $25.9 million on the acquisitions of Bay Meadows and Great Lakes Downs, $54.0 million on real estate and fixed asset additions, partially offset by $43.8 million of proceeds from the disposal of real estate. In addition, approximately $32.1 million of net long- term bank debt was incurred during the year.
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