Magna Entertainment Corp. News
Magna Entertainment Corp. announces results for the first quarter ended March 31, 2008
————————————————————————————————————- Three Months Ended March 31, —————————————- 2008 2007 ————————————————————————————————————- (unaudited) Revenues(i) $ 230,976 $ 254,202 Earnings before interest, taxes, depreciation and amortization (\"EBITDA\")(i)(iii) $ 15,859 $ 24,554 Net income (loss) Continuing operations(iii) $ (12,967) $ 5,710 Discontinued operations(ii)(iii) (33,493) (3,241) ————————————————————————————————————- Net income (loss) $ (46,460) $ 2,469 ————————————————————————————————————- Diluted earnings (loss) per share Continuing operations(iii) $ (0.11) $ 0.05 Discontinued operations(ii)(iii) (0.29) (0.03) ————————————————————————————————————- Diluted earnings (loss) per share $ (0.40) $ 0.02 ————————————————————————————————————- (i) Revenues and EBITDA for all periods presented are from continuing operations only. (ii) Discontinued operations for the three months ended March 31, 2008 and 2007 include the operations of Remington Park in Oklahoma, Thistledown in Ohio, Portland Meadows in Oregon, Great Lakes Downs in Michigan and Magna Racino(TM) in Austria. (iii) EBITDA, net loss and diluted loss per share from continuing operations for the three months ended March 31, 2008 includes a write-down of $5.0 million related to the Dixon, California real estate property. Net loss and diluted loss per share from discontinued operations for the three months ended March 31, 2008 includes write-downs of $29.2 million related to Magna Racino(TM) long-lived assets and $3.1 million related to Instant Racing terminals and the associated facility at Portland Meadows. All amounts are reported in U.S. dollars in thousands, except per share figures. ————————————————————————————————————-
While the first quarter is typically our most profitable quarter because two of our largest racetracks, Santa Anita Park and Gulfstream Park, run live race meets principally during this period, our results for the first quarter of 2008 were negatively impacted by a number of factors, including: a net loss of eight live race days at Santa Anita Park as a result of heavy rains and track drainage issues affecting the new synthetic racetrack surface, underperformance at Gulfstream Park as a result of increased operating costs, decreased attendance and live handle due in part to a perceived parking disruption at the facility and heavy rains which caused the cancellation of turf racing on 21 live race days during the quarter and write-downs of long-lived assets totaling
Our racetracks operate for prescribed periods each year. As a result, our racing revenues and operating results for any quarter will not be indicative of our racing revenues and operating results for the year.
Revenues from continuing operations were
- California revenues below the prior year period by $17.2 million due to the net loss of eight live race days at Santa Anita Park due to excessive rain and track drainage issues with the new synthetic racing surface that was installed in the fall of 2007. In addition, Golden Gate Fields ran one less live race day in the three months ended March 31, 2008 compared to the prior year period; - Maryland revenues below the prior year period by $3.5 million due to 12 fewer live race days and decreased average daily attendance and handle at Laurel Park; - Florida revenues below the prior year period by $1.5 million primarily due to decreased attendance and live handle at Gulfstream Park due in part to a perceived parking disruption at the facility and heavy rain, which resulted in the cancellation of racing on the turf course on 21 live race days in the three months ended March 31, 2008. Races run on turf courses typically generate higher levels of wagering; and - Northern U.S. revenues below the prior year period by $1.2 million primarily due to 13 fewer live race days at The Meadows; partially offset by: - Real estate and other operations revenues above the prior year period by $1.8 million as the first quarter of 2008 includes $1.5 million of revenues related to the sale of two parcels of land in Porter, New York and increased housing unit sales at our European residential housing development in the three months ended March 31, 2008 compared to the three months ended March 31, 2007.
EBITDA from continuing operations was
- A write-down of long-lived assets of $5.0 million recognized in the first quarter of 2008 related to our Dixon, California real estate property; - California operations below the prior year period by $4.2 million for the same reasons noted above which impacted California revenues; - Florida operations below the prior year period by $1.9 million primarily due to decreased attendance and live handle at Gulfstream Park for the same reasons noted above which impacted revenues at Gulfstream Park and increased marketing costs and property taxes at Gulfstream Park; and - Maryland operations below the prior year period by $1.6 million for the same reasons noted above which impacted Maryland revenues and the impact related to the expiry of agreements on December 31, 2007 with the Maryland Thoroughbred Horsemen's Association and the Maryland Breeders' Association, under which the horsemen and breeders each contributed 4.75% of the costs of simulcasting to The Maryland Jockey Club; partially offset by: - Recognition of $2.0 million of deferred gain on The Meadows transaction. On closing of the sale of The Meadows in November 2006, we deferred $5.6 million of the transaction gain related to the estimated future operating losses over the term of the racing services agreement that we entered into simultaneously with the closing of the sale transaction. Effective January 1, 2008, The Meadows entered into a new operating agreement with The Meadows Standardbred Owners Association, which expires on December 31, 2009 and is expected to reduce the operating losses at The Meadows over the term of the new agreement. Accordingly, the Company revised its estimate of the operating losses expected over the remaining term of the racing services agreement, which resulted in $2.0 million of previously deferred gain being recognized in income for the three months ended March 31, 2008.
During the three months ended
We will hold a conference call to discuss our first quarter results on
MEC,
This press release contains "forward-looking statements" within the meaning of applicable securities legislation, including Section 27A of the United States Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the United States Securities Exchange Act of 1934, as amended (the "Exchange Act") and forward-looking information as defined in the Securities Act (
Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or the times at or by which such performance or results will be achieved. Undue reliance should not be placed on such statements. Forward-looking statements are based on information available at the time and/or management's good faith assumptions and analyses made in light of our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances and are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control, that could cause actual events or results to differ materially from such forward-looking statements. Important factors that could cause actual results to differ materially from our forward-looking statements include, but may not be limited to, material adverse changes in: general economic conditions; the popularity of racing and other gaming activities as recreational activities; the regulatory environment affecting the horse racing and gaming industries; our ability to obtain or maintain government and other regulatory approvals necessary or desirable to proceed with proposed real estate developments; increased regulation affecting certain of our non-racetrack operations, such as broadcasting ventures; and our ability to develop, execute or finance our strategies and plans within expected timelines or budgets. In drawing conclusions set out in our forward-looking statements above, we have assumed, among other things, that we will able to successfully implement our debt elimination plan and comply with the terms of and/or obtain waivers or other concessions from our lenders and refinance or repay upon maturity our existing financing arrangements (including our short-term bridge loan with a subsidiary of MID and our senior secured revolving credit facility with a Canadian financial institution), and there will not be any material adverse changes in: general economic conditions; the popularity of horse racing and other gaming activities; weather and other environmental conditions at our facilities; the regulatory environment; and our ability to develop, execute or finance our strategies and plans as anticipated.
Forward-looking statements speak only as of the date the statements were made. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking statements. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect thereto or with respect to other forward-looking statements.
MAGNA ENTERTAINMENT CORP. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) ————————————————————————————————————- (Unaudited) (U.S. dollars in thousands, except per share figures) Three months ended March 31, ————————————— 2008 2007 ————————————————————————————————————- (restated- note 5) Revenues Racing and gaming Pari-mutuel wagering $ 182,893 $ 202,338 Gaming 13,637 13,665 Non-wagering 30,831 36,366 ————————————————————————————————————- 227,361 252,369 ————————————————————————————————————- Real estate and other Sale of real estate 1,492 - Residential development and other 2,123 1,833 ————————————————————————————————————- 3,615 1,833 ————————————————————————————————————- 230,976 254,202 ————————————————————————————————————- Costs, expenses and other income Racing and gaming Pari-mutuel purses, awards and other 112,028 126,749 Gaming purses, taxes and other 9,200 9,663 Operating costs 73,185 76,455 General and administrative 13,980 14,654 ————————————————————————————————————- 208,393 227,521 ————————————————————————————————————- Real estate and other Cost of real estate sold 1,492 - Operating costs 879 1,118 General and administrative 135 179 ————————————————————————————————————- 2,506 1,297 ————————————————————————————————————- Predevelopment and other costs 395 505 Depreciation and amortization 11,056 8,650 Interest expense, net 16,037 11,362 Write-down of long-lived assets 5,000 - Equity loss 836 325 Recognition of deferred gain on The Meadows transaction (2,013) - ————————————————————————————————————- 242,210 249,660 ————————————————————————————————————- Income (loss) from continuing operations before income taxes (11,234) 4,542 Income tax expense (benefit) 1,733 (1,168) ————————————————————————————————————- Income (loss) from continuing operations (12,967) 5,710 Loss from discontinued operations (33,493) (3,241) ————————————————————————————————————- Net income (loss) (46,460) 2,469 Other comprehensive income (loss) Foreign currency translation adjustment 2,489 746 Change in fair value of interest rate swap (616) (101) ————————————————————————————————————- Comprehensive income (loss) $ (44,587) $ 3,114 ————————————————————————————————————- ————————————————————————————————————- Earnings (loss) per share for Class A Subordinate Voting Stock and Class B Stock: Basic and Diluted Continuing operations $ (0.11) $ 0.05 Discontinued operations (0.29) (0.03) ————————————————————————————————————- Earnings (loss) per share $ (0.40) $ 0.02 ————————————————————————————————————- ————————————————————————————————————- Average number of shares of Class A Subordinate Voting Stock and Class B Stock outstanding during the period (in thousands): Basic 116,625 107,560 Diluted 116,625 137,813 ————————————————————————————————————- ————————————————————————————————————- See accompanying notes MAGNA ENTERTAINMENT CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ————————————————————————————————————- (Unaudited) (U.S. dollars in thousands, except per share figures) Three months ended March 31, ————————————— 2008 2007 ————————————————————————————————————- (restated- note 5) Cash provided from (used for): Operating activities of continuing operations: Income (loss) from continuing operations $ (12,967) $ 5,710 Items not involving current cash flows 17,075 8,382 ————————————————————————————————————- 4,108 14,092 Changes in non-cash working capital balances (7,685) (30,110) ————————————————————————————————————- (3,577) (16,018) ————————————————————————————————————- Investing activities of continuing operations: Real estate property and fixed asset additions (10,488) (13,349) Other asset additions (1,376) (1,052) Proceeds on disposal of real estate properties 1,492 - Proceeds on disposal of fixed assets 2,054 1,640 Proceeds on real estate sold to parent - 64,246 ————————————————————————————————————- (8,318) 51,485 ————————————————————————————————————- Financing activities of continuing operations: Proceeds from bank indebtedness 23,127 15,000 Proceeds from indebtedness and long-term debt with parent 19,074 9,927 Proceeds from long-term debt 2,731 275 Repayment of bank indebtedness (22,594) (6,515) Repayment of indebtedness and long-term debt with parent (2,216) (1,680) Repayment of long-term debt (3,186) (13,605) ————————————————————————————————————- 16,936 3,402 ————————————————————————————————————- Effect of exchange rate changes on cash and cash equivalents 57 (105) ————————————————————————————————————- Net cash flows provided from continuing operations 5,098 38,764 ————————————————————————————————————- Cash provided from (used for) discontinued operations: Operating activities of discontinued operations (1,162) (450) Investing activities of discontinued operations (908) (675) Financing activities of discontinued operations 668 (20,099) ————————————————————————————————————- Net cash flows used for discontinued operations (1,402) (21,224) ————————————————————————————————————- Net increase in cash and cash equivalents during the period 3,696 17,540 Cash and cash equivalents, beginning of period 43,393 58,291 ————————————————————————————————————- Cash and cash equivalents, end of period 47,089 75,831 Less: cash and cash equivalents, end of period of discontinued operations (9,631) (11,777) ————————————————————————————————————- Cash and cash equivalents, end of period of continuing operations $ 37,458 $ 64,054 ————————————————————————————————————- ————————————————————————————————————- See accompanying notes MAGNA ENTERTAINMENT CORP. CONSOLIDATED BALANCE SHEETS ————————————————————————————————————- (REFER TO NOTE 1 - GOING CONCERN) (Unaudited) (U.S. dollars and share amounts in thousands) March 31, December 31, 2008 2007 ————————————— (restated- notes 4 & 5) ASSETS ————————————————————————————————————- Current assets: Cash and cash equivalents $ 37,458 $ 34,152 Restricted cash 25,657 28,264 Accounts receivable 56,401 32,157 Due from parent 1,173 4,463 Income taxes receivable - 1,234 Inventories 5,682 6,351 Prepaid expenses and other 14,828 9,946 Assets held for sale 34,482 35,658 Discontinued operations 111,197 75,455 ————————————————————————————————————- 286,878 227,680 ————————————————————————————————————- Real estate properties, net 705,949 705,069 Fixed assets, net 83,443 85,908 Racing licenses 109,868 109,868 Other assets, net 7,746 10,980 Future tax assets 39,207 39,621 Assets held for sale - 4,482 Discontinued operations - 60,268 ————————————————————————————————————- $ 1,233,091 $ 1,243,876 ————————————————————————————————————- ————————————————————————————————————- LIABILITIES AND SHAREHOLDERS' EQUITY ————————————————————————————————————- Current liabilities: Bank indebtedness $ 39,747 $ 39,214 Accounts payable 73,120 65,351 Accrued salaries and wages 9,768 8,198 Customer deposits 2,923 2,575 Other accrued liabilities 43,161 46,124 Income taxes payable 559 - Long-term debt due within one year 9,405 10,654 Due to parent 155,851 137,003 Deferred revenue 6,683 4,339 Liabilities related to assets held for sale 876 1,047 Discontinued operations 94,423 75,396 ————————————————————————————————————- 436,516 389,901 ————————————————————————————————————- Long-term debt 90,676 89,680 Long-term debt due to parent 67,416 67,107 Convertible subordinated notes 222,799 222,527 Other long-term liabilities 16,877 18,255 Future tax liabilities 80,637 80,076 Discontinued operations - 13,617 ————————————————————————————————————- 914,921 881,163 ————————————————————————————————————- Shareholders' equity: Class A Subordinate Voting Stock (Issued: 2008 and 2007 - 58,159) 339,435 339,435 Class B Stock (Convertible into Class A Subordinate Voting Stock) (Issued: 2008 and 2007 - 58,466) 394,094 394,094 Contributed surplus 91,825 91,825 Other paid-in-capital 2,075 2,031 Accumulated deficit (556,517) (510,057) Accumulated comprehensive income 47,258 45,385 ————————————————————————————————————- 318,170 362,713 ————————————————————————————————————- $ 1,233,091 $ 1,243,876 ————————————————————————————————————- ————————————————————————————————————- See accompanying notes MAGNA ENTERTAINMENT CORP. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ————————————————————————————————————- (Unaudited) (All amounts in U.S. dollars unless otherwise noted and all tabular amounts in thousands, except per share figures) 1. GOING CONCERN These consolidated financial statements of Magna Entertainment Corp. ("MEC" or the "Company") have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. The Company has incurred a net loss of $46.5 million for the three months ended March 31, 2008, has incurred net losses of $113.8 million, $87.4 million and $105.3 million for the years ended December 31, 2007, 2006 and 2005, respectively, and at March 31, 2008 has an accumulated deficit of $556.5 million and a working capital deficiency of $149.6 million. At March 31, 2008, the Company had $229.1 million of debt due to mature in the 12-month period ending March 31, 2009, including amounts owing under the Company's $40.0 million senior secured revolving credit facility with a Canadian financial institution, which is scheduled to mature on May 23, 2008, amounts owing under its bridge loan facility of up to $80.0 million with a subsidiary of MI Developments Inc. ("MID"), the Company's controlling shareholder, which is scheduled to mature on May 31, 2008, and the Company's obligation to repay $100.0 million of indebtedness under the Gulfstream Park project financings with a subsidiary of MID by May 31, 2008. Accordingly, the Company's ability to continue as a going concern is in substantial doubt and is dependent on the Company generating cash flows that are adequate to sustain the operations of the business, renewing or extending current financing arrangements and meeting its obligations with respect to secured and unsecured creditors, none of which is assured. If the Company is unable to repay its obligations when due or meet required covenants in debt agreements, substantially all of the Company's other current and long-term debt will also become due on demand as a result of cross-default provisions within loan agreements, unless the Company is able to obtain waivers or extensions. On September 12, 2007, the Company's Board of Directors approved a debt elimination plan designed to eliminate net debt by December 31, 2008 by generating funding from the sale of assets, entering into strategic transactions involving certain of the Company's racing, gaming and technology operations, and a possible future equity issuance. The success of the debt elimination plan is not assured. To address short-term liquidity concerns and provide sufficient time to implement the debt elimination plan, the Company arranged $100.0 million of funding in September 2007, comprised of (i) a $20.0 million private placement of the Company's Class A Subordinate Voting Stock to Fair Enterprise Limited ("Fair Enterprise"), a company that forms part of an estate planning vehicle for the family of Frank Stronach, the Chairman and Interim Chief Executive Officer of the Company, which was completed in October 2007; and (ii) a short-term bridge loan facility of up to $80.0 million with a subsidiary of MID. Although the Company continues to implement its debt elimination plan, the sale of assets under the debt elimination plan is taking longer than originally contemplated. As a result, the Company will likely need to seek additional funds in the short-term from one or more possible sources. The availability of such additional funds is not assured and, if available, the terms thereof are not determinable at this time. These consolidated financial statements do not give effect to any adjustments to recorded amounts and their classification, which would be necessary should the Company be unable to continue as a going concern and, therefore, be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the consolidated financial statements. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("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 interim consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the interim consolidated financial statements and accompanying notes. Actual results could differ from these 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, 2007. Seasonality 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 racing revenues and operating results for the year. The Company's racing operations have historically operated at a loss in the second half of the year, with the third quarter generating the largest operating loss. This seasonality has resulted in large quarterly fluctuations in revenues and operating results. Comparative Amounts Certain of the comparative amounts have been reclassified to reflect discontinued operations and assets held for sale. Impact of Recently Adopted Accounting Standards In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard # 157, Fair Value Measurements ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position # 157-2, Effective Date of FASB Statement # 157, which defers the effective date of SFAS 157 for non-financial assets and liabilities, except for items that are recognised or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008. Effective January 1, 2008, the Company adopted the provisions of SFAS 157 prospectively, except with respect to certain non-financial assets and liabilities which have been deferred. The adoption of SFAS 157 did not have a material effect on the Company's consolidated financial statements. The following table represents information related to the Company's financial assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2008: Quoted Prices in Active Markets Significant for Identical Other Significant Assets or Observable Unobservable Liabilities Inputs Inputs (Level 1) (Level 2) (Level 3) ——————————————————————————————————- Assets carried at fair value: Cash equivalents $ 1,700 $ - $ - ——————————————————————————————————- ——————————————————————————————————- Liabilities carried at fair value: Interest rate swaps $ - $ 2,343 $ - ——————————————————————————————————- ——————————————————————————————————- In February 2007, the FASB issued Statement of Financial Accounting Standard # 159, The Fair Value Option for Financial Assets and Liabilities ("SFAS 159"). SFAS 159 allows companies to voluntarily choose, at specified election dates, to measure certain financial assets and liabilities, as well as certain non-financial instruments that are similar to financial instruments, at fair value (the "fair value option"). The election is made on an instrument-by-instrument basis and is irrevocable. If the fair value option is elected for an instrument, SFAS 159 specifies that all subsequent changes in fair value for that instrument be reported in income. The provisions of SFAS 159 are effective for fiscal years beginning after November 15, 2007. Effective January 1, 2008, the Company adopted the provisions of SFAS 159 prospectively. The Company has elected not to measure certain financial assets and liabilities, as well as certain non- financial instruments that are similar to financial instruments, as defined in SFAS 159 under the fair value option. Accordingly, the adoption of SFAS 159 did not have an effect on the Company's consolidated financial statements. Impact of Recently Issued Accounting Standards In December 2007, the FASB issued Statement of Financial Accounting Standard # 141(R), Business Combinations ("SFAS 141(R)"). SFAS 141(R) changes the accounting model for business combinations from a cost allocation standard to a standard that provides, with limited exception, for the recognition of all identifiable assets and liabilities of the business acquired at fair value, regardless of whether the acquirer acquires 100% or a lesser controlling interest of the business. SFAS 141(R) defines the acquisition date of a business acquisition as the date on which control is achieved (generally the closing date of the acquisition). SFAS 141(R) requires recognition of assets and liabilities arising from contractual contingencies and non-contractual contingencies meeting a "more- likely-than-not" threshold at fair value at the acquisition date. SFAS 141(R) also provides for the recognition of acquisition costs as expenses when incurred and for expanded disclosures. SFAS 141(R) is effective for acquisitions closing after December 15, 2008, with earlier adoption prohibited. The Company is currently reviewing SFAS 141(R), but has not yet determined the future impact, if any, on the Company's consolidated financial statements. In December 2007, the FASB issued Statement of Financial Accounting Standard # 160, Non-controlling Interests in Consolidated Financial Statements ("SFAS 160"). SFAS 160 establishes accounting and reporting standards for non-controlling interests in subsidiaries and for the deconsolidation of a subsidiary and also amends certain consolidation procedures for consistency with SFAS 141(R). Under SFAS 160, non-controlling interests in consolidated subsidiaries (formerly known as "minority interests") are reported in the consolidated statement of financial position as a separate component within shareholders' equity. Net earnings and comprehensive income attributable to the controlling and non-controlling interests are to be shown separately in the consolidated statements of earnings and comprehensive income. Any changes in ownership interests of a non- controlling interest where the parent retains a controlling financial interest in the subsidiary are to be reported as equity transactions. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008, with earlier adoption prohibited. When adopted, SFAS 160 is to be applied prospectively at the beginning of the year, except that the presentation and disclosure requirements are to be applied retrospectively for all periods presented. The Company is currently reviewing SFAS 160, but has not yet determined the future impact, if any, on the Company's consolidated financial statements. 3. THE MEADOWS TRANSACTION On November 14, 2006, the Company completed the sale of all of the outstanding shares of Washington Trotting Association, Inc., Mountain Laurel Racing, Inc. and MEC Pennsylvania Racing, Inc. (collectively "The Meadows"), each a wholly-owned subsidiary of the Company, through which the Company owned and operated The Meadows, a standardbred racetrack in Pennsylvania, to PA Meadows, LLC, a company jointly owned by William Paulos and William Wortman, controlling shareholders of Millennium Gaming, Inc., and a fund managed by Oaktree Capital Management, LLC ("Oaktree" and together, with PA Meadows, LLC, "Millennium-Oaktree"). On closing, the Company received cash consideration of $171.8 million, net of transaction costs of $3.2 million, and a holdback agreement, under which $25.0 million is payable to the Company over a five-year period, subject to offset for certain indemnification obligations. Under the terms of the holdback agreement, the Company agreed to release the security requirement for the holdback amount, defer subordinate payments under the holdback, defer receipt of holdback payments until the opening of the permanent casino at The Meadows and defer receipt of holdback payments to the extent of available cash flows as defined in the holdback agreement, in exchange for Millennium-Oaktree providing an additional $25.0 million of equity support for PA Meadows, LLC. The Company also entered into a racing services agreement whereby the Company pays $50 thousand per annum and continues to operate, for its own account, the racing operations at The Meadows for at least five years. On December 12, 2007, Cannery Casino Resorts, LLC, the parent company of Millennium-Oaktree, announced it had entered into an agreement to sell Millennium-Oaktree to Crown Limited. If the deal is consummated, either party to the racing services agreement will have the option to terminate the arrangement. The transaction proceeds of $171.8 million were allocated to the assets of The Meadows as follows: (i) $7.2 million was allocated to the long-lived assets representing the fair value of the underlying real estate and fixed assets based on appraised values; and (ii) $164.6 million was allocated to the intangible assets representing the fair value of the racing/gaming licenses based on applying the residual method to determine the fair value of the intangible assets. On the closing date of the transaction, the net book value of the long-lived assets was $18.4 million, resulting in a non-cash impairment loss of $11.2 million relating to the long-lived assets, and the net book value of the intangible assets was $32.6 million, resulting in a gain of $132.0 million on the sale of the intangible assets. This gain was reduced by $5.6 million, representing the net estimated present value of the operating losses expected over the term of the racing services agreement. Accordingly, the net gain recognized by the Company on the disposition of the intangible assets was $126.4 million for the year ended December 31, 2006. Given that the racing services agreement was effectively a lease of property, plant and equipment and since the amount owing under the holdback note is to be paid to the extent of available cash flows as defined in the holdback agreement, the Company was deemed to have continuing involvement with the long-lived assets for accounting purposes. As a result, the sale of The Meadows' real estate and fixed assets was precluded from sales recognition and not accounted for as a sale-leaseback, but rather using the financing method of accounting under U.S. GAAP. Accordingly, $12.8 million of the proceeds were deferred, representing the fair value of long-lived assets of $7.2 million and the net present value of the operating losses expected over the term of the racing services agreement of $5.6 million, and recorded as "other long-term liabilities" on the consolidated balance sheet at the date of completion of the transaction. The deferred proceeds are being recognized in the consolidated statements of operations and comprehensive income (loss) over the five-year term of the racing services agreement and/or at the point when the sale-leaseback subsequently qualifies for sales recognition. For the three months ended March 31, 2008 and 2007, the Company recognized $0.1 million and $0.4 million, respectively, of the deferred proceeds in income, which is recorded as an offset to racing and gaming "general and administrative" expenses on the accompanying consolidated statements of operations and comprehensive income (loss). Effective January 1, 2008, The Meadows entered into an agreement with The Meadows Standardbred Owners Association, which expires on December 31, 2009, whereby the horsemen will make contributions to subsidize backside maintenance and marketing expenses at The Meadows. As a result, the Company revised its estimate of the operating losses expected over the remaining term of the racing services agreement, which resulted in an additional $2.0 million of deferred gain being recognized in income for the three months ended March 31, 2008. At March 31, 2008, the remaining balance of the deferred proceeds is $8.9 million. With respect to the $25.0 million holdback agreement, the Company will recognize this consideration upon the settlement of the indemnification obligations and as payments are received (refer to Note 14(k)). 4. ASSETS HELD FOR SALE (a) In November and December 2007, the Company entered into sale agreements for three parcels of excess real estate comprising approximately 825 acres in Porter, New York, subject to the completion of due diligence by the purchasers and customary closing conditions. The sale of one parcel was completed in December 2007 for cash consideration of $0.3 million, net of transaction costs, and the sales of the remaining two parcels were completed in January 2008 for total cash consideration of $1.5 million, net of transaction costs. The two parcels of excess real estate for which the sales were completed in January 2008 have been reflected as "assets held for sale" on the consolidated balance sheet at December 31, 2007. The net proceeds received on closing were used to repay a portion of the bridge loan facility of up to $80.0 million with a subsidiary of MID during the three months ended March 31, 2008. (b) On December 21, 2007, the Company entered into an agreement to sell 225 acres of excess real estate located in Ebreichsdorf, Austria to a subsidiary of Magna International Inc. ("Magna"), a related party, for a purchase price of Euros 20.0 million (U.S. $31.6 million). The sale transaction was completed on April 11, 2008. Of the net proceeds that were received on closing, Euros 7.5 million was used to repay a portion of a Euros 15.0 million term loan facility and the remaining portion of the net proceeds was used to repay a portion of the bridge loan facility of up to $80.0 million with a subsidiary of MID. (c) On August 9, 2007, the Company announced its intention to sell real estate properties located in Dixon, California and Ocala, Florida. In addition, in March 2008, the Company committed to a plan to sell excess real estate located in Oberwaltersdorf, Austria. The Company has initiated an active program to locate potential buyers for these properties and has listed the properties for sale with a real estate broker. Accordingly, at March 31, 2008 and December 31, 2007, these real estate properties are classified as "assets held for sale" on the consolidated balance sheets in accordance with Statement of Financial Accounting Standard # 144, Accounting for Impairment or Disposal of Long-Lived Assets ("SFAS 144"). In accordance with the terms of the Company's bridge loan agreement with a subsidiary of MID, the Company is required to use the net proceeds from the sale of these real estate properties to pay down principal amounts outstanding under the bridge loan and the amount of such net proceeds will permanently reduce the committed amount of the bridge loan. (d) The Company's assets held for sale and related liabilities at March 31, 2008 and December 31, 2007 are shown below. All assets held for sale and related liabilities are classified as current at March 31, 2008 as the assets and related liabilities described in sections (a) through (c) above have been or are expected to be sold within one year from the consolidated balance sheet date. March 31, December 31, 2008 2007 ————————————— ASSETS ————————————————————————————————- Real estate properties, net Dixon, California (refer to Note 6) $ 14,139 $ 19,139 Ocala, Florida 8,407 8,407 Ebreichsdorf, Austria 7,135 6,619 Oberwaltersdorf, Austria 4,801 - Porter, New York - 1,493 ————————————————————————————————- 34,482 35,658 Oberwaltersdorf, Austria - 4,482 ————————————————————————————————- $ 34,482 $ 40,140 ————————————————————————————————- ————————————————————————————————- LIABILITIES ————————————————————————————————- Future tax liabilities $ 876 $ 1,047 ————————————————————————————————- ————————————————————————————————- (e) On September 12, 2007, the Company's Board of Directors approved a debt elimination plan designed to eliminate net debt by generating funding from the sale of certain assets, entering into strategic transactions involving the Company's racing, gaming and technology operations, and a possible future equity issuance. In addition to the sales of real estate described in sections (a) through (c) above, the debt elimination plan also contemplates the sale of real estate properties located in Aventura and Hallandale, Florida, both adjacent to Gulfstream Park and in Anne Arundel County, Maryland, adjacent to Laurel Park. The Company also intends to explore selling its membership interests in the mixed-use developments at Gulfstream Park in Florida and Santa Anita Park in California that the Company is pursuing under joint venture arrangements with Forest City Enterprises, Inc. ("Forest City") and Caruso Affiliated, respectively. The Company also intends to sell Great Lakes Downs in Michigan, Thistledown in Ohio, and its interest in Portland Meadows in Oregon. The Company also intends to explore other strategic transactions involving other racing, gaming and technology operations, including: partnerships or joint ventures in respect of the existing gaming facility at Gulfstream Park; partnerships or joint ventures in respect of potential alternative gaming operations at certain of the Company's other racetracks that currently do not have gaming operations; the sale of Remington Park, a horse racetrack and gaming facility in Oklahoma City; and transactions involving the Company's technology operations, which may include one or more of the assets that comprise the Company's PariMax business. For those properties that have not been classified as held for sale as noted in sections (a) through (c) above, the Company has determined that they do not meet all of the criteria required in SFAS 144 for the following reasons and, accordingly, these assets continue to be classified as held and used at March 31, 2008: - Real estate properties located in Aventura and Hallandale, Florida (adjacent to Gulfstream Park): At March 31, 2008, the Company had not established a selling price for these properties since it had not completed its market price analysis. Also, the Company had not initiated an active program to locate a buyer for these assets as the properties had not been listed for sale with an external agent and were not being actively marketed for sale. - Real estate property in Anne Arundel County, Maryland (adjacent to Laurel Park): At March 31, 2008, the Company had not established a selling price for this property since it had not completed its market price analysis. Also, the Company had not initiated an active program to locate a buyer for this asset as the property had not been listed for sale with an external agent and was not being actively marketed for sale. In addition, given the near term potential for a legislative change to permit video lottery terminals at Laurel Park and the possible effect on the Company's development plans for the overall property is such that at March 31, 2008, the Company does not expect to complete the sale of this asset within one year. - Membership interest in the mixed-use development at Gulfstream Park with Forest City and membership interest in the mixed-use development at Santa Anita Park with Caruso Affiliated: At March 31, 2008, the Company had not established a selling price for either of these assets since it had not completed its market analysis and independent appraisal process. As such, these assets were not being actively marketed for sale at a price that is reasonable in relation to their current fair value. The following assets have met the criteria of SFAS 144 to be reflected as assets held for sale and also met the requirements to be reflected as discontinued operations at March 31, 2008 and have been presented accordingly: - Great Lakes Downs: In October 2007, the property was listed for sale with a real estate broker. The 2007 race meet at Great Lakes Downs concluded on November 4, 2007 and the facility was then closed. In order to facilitate the sale of this property, the Company re-acquired Great Lakes Downs from Richmond Racing Co., LLC in December 2007 pursuant to a prior existing option right. - Thistledown and Remington Park: In September 2007, the Company engaged a U.S. investment bank to assist in soliciting potential purchasers and managing the sale process for certain assets contemplated in the debt elimination plan. In October 2007, the U.S. investment bank initiated an active program to locate potential buyers and began marketing these assets for sale. - Portland Meadows: In November 2007, the Company initiat
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