Magna Posts Losses But Growth Plan Continues

Magna Entertainment Corp. recorded a net loss of $25.4 million in the second quarter of 2004, but officials said the company continues to "see meaningful results" from cost-cutting initiatives and the work of its Continuous Improvement Team.

Meanwhile, MEC president and chief executive officer Jim McAlpine indicated plans to expand into the international simulcast market. McAlpine said the company's Magna Racino near Vienna, Austria, would serve as the hub for MEC as it seeks to get North American racing into wagering outlets in other countries.

Revenue for the second quarter and first six months of this year increased 5.4% to $198.5 million and 7% to $490.3 million, respectively. The bulk of it was derived from the sale of non-core real estate holdings.

The company posted a net loss of $25.5 million in the second quarter compared to net income of $0.8 million for the second quarter of 2003. For the first six months of 2004, MEC had a net loss of $4.4 million compared with net income of $13.5 million for the same period in 2003.

Earnings before interest, taxes, depreciation, and amortization for the second quarter that ended June 30 of this year was a loss of $15.3 million. The second quarter and first six months were adversely impacted by a non-cash write-down of long-lived assets of $26.7 million related to the redevelopment of the Gulfstream Park and the racing surfaces at Laurel Park.

McAlpine, during an Aug. 5 conference call, said cost continues to run ahead of revenue, but progress is being made in part because of the work of a Continuous Improvement Team that seeks to make racetrack operations cost-effective.

McAlpine also said MEC owns about 3,000 acres of prime real estate and is exploring financing options. He cited Gulfstream in Florida, and Golden Gate Fields and Santa Anita Park in California, as growth properties in terms of retail and entertainment projects.

"We will bring thousands of new customers each day to the front doors of three of our premier racetracks," McAlpine said.

On the international simulcast front, McAlpine said he isn't privy to the exclusive contracts some racetracks may have with companies like TV Games Network, but MEC plans to obtain as much product as possible.

"We're optimistic some of these signals could be obtained and distributed through our system as we grow it," he said. "We talk to everybody we can about putting their content on our channels."

McAlpine said the company believes there is hope for passage of a referendum on racetrack slots in California, but in Florida, it has taken a wait-and-see approach and hasn't participated financially in the push for alternative gaming.

"We've looked at the proposal (made by others in the pari-mutuel industry), and we're trying to work through the issues and determine what our position in that market should be," McAlpine said of Florida.

In July, MI Developments, a Magna real estate company, announced it plan to acquire the outstanding shares of stock in MEC and take the company private. A committee of independent directors was formed to study the plan and make recommendations. No timetable was provided.

The plan to go private has generated concern by some MEC shareholders given the fact the company is making progress in key areas and is poised to benefit from expanded gaming in Pennsylvania through its ownership of The Meadows near Pittsburgh.

"We've certainly been advised by a number of shareholders in regard to their feelings about the transaction," McAlpine said. "At this stage, the board has taken the appropriate steps with the formation of an independent committee. It's premature to talk about it."