Magna Has Mixed Second Quarter, Gulfstream Project Delayed

Magna Entertainment reported mixed results for its second quarter on Wednesday and announced it had delayed a major renovation of Gulfstream Park.

The Ontario-based racing conglomerate increased revenue, excluding the sale of non-core real estate, by 18.3% and improved net income from a loss of $774,000 to a gain of $45,000, but earnings before interest, taxes, depreciation, and amortization (EBITDA) fell 4.3%.

Considering all company operations, including the sale of non-core real estate, Magna reported a 13.2% increase in revenue for the quarter, a 31.6% decline in EBITDA, and a 51.6% decrease in net income.

Figures for the first six months (excluding non-core real estate sales) were much rosier. Revenue increased 15.1% to $128.2 million, EBITDA was up 10.1% to $5.8 million, and diluted earnings per share increased from a loss of 1 cent per share for the first six months of 2001 to a breakeven point.

"Our racetracks operate for prescribed periods each year," said Jim McAlpine, president and chief executive officer of Magna. "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 acquisitions, off-track betting and account wagering initiatives are realized."

Magna has deals pending to acquire Lone Star Park near Dallas, Texas, and a major interest in the Maryland Jockey Club that owns and operates Pimlico and Laurel Park.

The second quarter reflects the full operation of all Magna racetracks and pari-mutuel operations. During the same period of 2001, the company was not operating its XpressBet California account wagering service, which began Jan. 25, and had not begun operating Oregon's Portland Meadows horse track or Multnomah Greyhound track. Magna acquired the operating rights to Portland Meadows in July 2001 and acquired Multnomah in October of last year.

Higher revenues for the quarter were attributed to additional live racing days at Santa Anita Park and Gulfstream Park, the launch of XpressBet, and the acquisition of Multnomah. Also during the quarter, Magna experienced an increase in operating cost due to insurance and utility cost hikes. Insurance increased $1.1 million for the second quarter and utility costs increased $500,000 for the same period.

McAlpine said Magna main focus for the rest of the year is completing the Palm Meadows training center in time for the 2003 Gulfstream Park meet. Because Hialeah Park closed this year, South Florida had a stall shortage that contributed to a lackluster performance at Gulfstream during its prime racing dates from January through mid-March. Magna had plans to begin tearing down a portion of the Gulfstream grandstand soon after the meet ended this year and begin work on a comprehensive entertainment and retail complex.

"In order to ensure high quality racing at Gulfstream, we have decided to focus first on completing Palm Meadows and to defer any decision concerning the Gulfstream redevelopment for the time being," said McAlpine. "Our first priority is to provide high quality racing for the enjoyment of our racing and wagering customers. This will result in higher revenues, increased purses for our horsemen and enhanced returns for our shareholders."

Investors were apparently optimistic about Magna's second quarter. The company's stock rose 13.3% to $5.55 on moderately heavy trading Wednesday. Magna did not release its earnings report until well after 8 p.m.