MI Developments announces 2004 fourth quarter and fiscal year
results AURORA, ON, Mar. 2 /PRNewswire-FirstCall/ -- MI
Developments Inc. (TSX: MIM.SV.A, MIM.MV.B; NYSE: MIM) ("MID" or
the "Company") today announced its results for the three months and
year ended December 31, 2004. All figures are in U.S. dollars
unless otherwise noted.
-------------------------------------------------------------------------
(in thousands, except per share figures) REAL ESTATE BUSINESS THREE
MONTHS YEAR ENDED ENDED DECEMBER 31, DECEMBER 31,
------------------------ ------------------------ 2004 2003 2004
2003 Pro Forma(1) ------------------------ ------------------------
Revenues $ 33,996 $ 30,969 $ 128,772 $ 116,356 Net income(2) $
17,576 $ 10,331 $ 52,263 $ 49,834 Funds from operations ("FFO")
(2)(3) $ 27,254 $ 22,697 $ 92,741 $ 87,283 Diluted FFO per
share(2)(3) $ 0.57 $ 0.47 $ 1.92 $ 1.81
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(in thousands, except per share figures) MID CONSOLIDATED THREE
MONTHS YEAR ENDED ENDED DECEMBER 31, DECEMBER 31,
------------------------ ----------------------- 2004 2003 2004
2003 ------------------------ ----------------------- Revenues Real
Estate Business $ 33,996 $ 30,969 $ 128,772 $ 116,180 Magna
Entertainment Corp. ("MEC") 135,467 134,929 725,188 697,786
Eliminations(5) (85) - (85) -
-------------------------------------------------- $ 169,378 $
165,898 $ 853,875 $ 813,966
--------------------------------------------------
-------------------------------------------------- Net income
(loss) Real Estate Business(2) $ 17,576 $ 10,331 $ 52,263 $ 29,972
MEC(4) (28,298) (60,737) (57,717) (62,316) Eliminations(5) (3,046)
- (3,046) - -------------------------------------------------- $
(13,768) $ (50,406) $ (8,500) $ (32,344)
--------------------------------------------------
-------------------------------------------------- Diluted loss per
share(4)(6) $ (0.29) $ (1.05) $ (0.18) $ (1.03)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) On August 19, 2003, the shareholders of Magna International
Inc. ("Magna") approved spin-off transactions to list MID as a
separate, publicly-traded company. Pro forma results for the Real
Estate Business give effect to the spin-off transactions, including
business combinations, changes in legal, capital and lease
structures, and committed levels of executive compensation for new
officers of MID, as though all of these changes had occurred
effective January 1, 2002. Pro forma results have been provided for
the Real Estate Business for the year ended December 31, 2003 in
order to allow a more meaningful basis for comparison of current
and prior year's financial performance. No pro forma adjustments
were required to be made to the results for the three months ended
December 31, 2003 and the three months and year ended December 31,
2004. (2) The Real Estate Business' results for the year ended
December 31, 2004 reflect (i) the impact of costs related to
employee settlement expenses of $7.0 million ($4.9 million net of
income taxes), including $3.9 million of costs incurred in the
first quarter ($3.0 million net of income taxes) and $3.1 million
of costs incurred in the third quarter ($1.9 million net of income
taxes), (ii) $2.7 million ($2.4 million net of income taxes) of
costs in the third quarter of 2004 related to the Company's
decision that it would not proceed with its offer to acquire all
the outstanding shares of Class A Subordinate Voting Stock of MEC
not owned by MID (the "Proposed MEC Privatization"), and (iii) a
$1.4 million net future income tax charge incurred in the second
quarter ($2.0 million charge) and fourth quarter ($0.6 million
credit) in order to revalue downwards future tax assets and
liabilities related to European operations to reflect decreases in
corporate income tax rates. For the year ended December 31, 2004,
excluding the impact of these items, the Real Estate Business' net
income was $61.0 million, FFO was $98.8 million, and diluted FFO
per share was $2.05. (3) FFO and diluted FFO per share are measures
widely used by analysts and investors in evaluating the operating
performance of real estate companies. However, FFO does not have a
standardized meaning under Canadian generally accepted accounting
principles ("GAAP") and therefore may not be comparable to similar
measures presented by other companies. Please refer to
"Reconciliation of Non-GAAP to GAAP Financial Measures" below. (4)
Net income (loss) for the year ended December 31, 2004 includes the
impact of non-cash write-downs of MEC's long-lived assets recorded
during the three months ended June 30, 2004 of $26.7 million (2003
- $134.9 million in the fourth quarter). The impact of these
write-downs to MEC's segment net income for the year ended December
31, 2004 was $15.6 million (2003 - $47.9 million). (5) Transactions
between the Real Estate Business and Magna Entertainment Corp. have
not been eliminated in the presentation of each segment's results
of operations. However, the effects of transactions between these
two segments are eliminated in the consolidated results of
operations of the Company. (6) Diluted earnings per share for the
year ended December 31, 2003 includes net income only for the
period subsequent to August 29, 2003, the effective date of the
spin-off from Magna. REAL ESTATE BUSINESS --------------------
Operating and Development Highlights In respect of our core rental
portfolio, we brought $70 million, or 1.2 million square feet, of
Magna related facilities on-stream during 2004 of which $50
million, or 760 thousand square feet, came on-stream in the fourth
quarter of 2004. Properties coming on-stream in the fourth quarter
include 717 thousand square feet of the 938 thousand square foot
facility in Bowling Green, Kentucky which we purchased from, and
leased back to, the Magna group. At December 31, 2004, MID's
construction group had five properties under development: two in
Canada and one each in Mexico, the U.S. and the Czech Republic.
These developments include new greenfield projects and expansions
to existing facilities, and when completed will add a total of 630
thousand square feet to our income-producing portfolio. The total
anticipated project costs related to these projects are $47.1
million, of which $31.5 million has been spent as of December 31,
2004. New projects under development received in the fourth quarter
include the remaining 221 thousand square feet of the Bowling Green
facility and one new project in Mexico for Magna's Intier group for
a 94 thousand square foot facility. In addition, we continue to
pursue the completion of definitive documents in respect of a 370
thousand square foot facility located in Saltillo, Mexico, which
the Company intends to purchase from, and subsequently lease to,
the Magna group. At December 31, 2004, the Real Estate Business had
25.6 million square feet of leasable area, with annualized lease
payments of $141.9 million, representing a return of 10.2% on the
gross carrying value of our income-producing property portfolio. In
respect of our relationship with Magna Entertainment Corp., in
December, we announced project financing of $192 million for the
reconstruction of facilities at Gulfstream Park racetrack in
Florida and The Meadows racetrack and slot facility in Pennsylvania
that provides MID an attractive return on its investment, coupled
with an appropriate security and covenant package. Also in
December, we issued Cdn.$265 million of 6.05% senior unsecured
debentures, due December 22, 2016, to fund ongoing construction
projects with the Magna Group, the MEC project financing, and for
general corporate purposes. "In our first full year as a public
company, we have continued to nurture our key Magna relationship
and have grown our core rental portfolio of industrial facilities
as evidenced by our strong 2004 results", stated John Simonetti,
Chief Executive Officer of MID. "We continue to see steady demand
for real estate developments coming not only from Magna, but also
from Magna Entertainment. In the fourth quarter, we announced
project financing for two key MEC facilities, which will boost the
cash flows of our Real Estate Business once these projects come
on-stream. We are fortunate to be in a position to evaluate both
Magna and MEC projects, and particularly, fortunate to be able to
do so with a conservatively leveraged balance sheet, which gives us
significant financial flexibility to run our business." Three
Months Ended December 31, 2004 For the three months ended December
31, 2004, revenues were $34.0 million, an increase of $3.0 million
or 10% over pro forma and actual revenues for the three months
ended December 31, 2003 of $31.0 million. The higher revenues
reflect $2.6 million of increases from contractual rent increases
and the weaker U.S. dollar, $0.8 million of increases from
completed development projects coming on-stream, and $0.1 million
of interest income earned from MEC, partially offset by the effect
of vacancies and other items, which decreased revenues by $0.5
million. Net income for the 2004 fourth quarter was $17.6 million,
an increase of $7.2 million or 70% over the prior year pro forma
and actual amount of $10.3 million. The increase in net income was
the result of higher revenues of $3.0 million, lower general and
administrative expenses of $0.8 million, additional interest income
and other gains of $0.3 million and lower income taxes of $3.3
million, partially offset by an increase in depreciation expense of
$0.2 million. The lower income tax expense was primarily due to
adjustments required to our 2003 full year tax provision which were
recorded in the fourth quarter of 2003 and a change in tax rates in
Germany which reduced the tax provision by $0.6 million in the
fourth quarter of 2004. FFO in the three months ended December 31,
2004 was $27.3 million, or $0.57 per share, an increase of 20% from
pro forma and actual FFO of $22.7 million, or $0.47 per share, for
the comparable period in 2003. The increase in FFO of $4.6 million
is primarily due to the revenue increase of $3.0 million and lower
general and administrative expenses, excluding the impact of
non-cash stock option expenses, of $1.2 million. Year Ended
December 31, 2004 On September 2, 2003, 100% of our shares were
distributed by Magna to its shareholders of record on August 29,
2003, and we became a separate, publicly-traded company. Pro forma
results of the Real Estate Business for the year ended December 31,
2003 give effect to the "spin-off" transactions as though they
occurred on January 1, 2002. Pro forma results have been provided
for the prior year in order to allow a more meaningful basis for
comparison of our current and prior year's financial performance.
For the year ended December 31, 2004, revenue was $128.8 million,
an increase of $12.4 million or 11% over pro forma rental revenue
for the year ended December 31, 2003 of $116.4 million. The higher
rental revenue reflects an increase of $7.5 million due to the
strengthening of the Canadian dollar and the euro against the U.S.
dollar, contractual rent increases of $4.9 million, completed
development projects coming on-stream of $3.0 million, and $0.1
million of interest earned from MEC, partially offset by a decrease
in the straight-line rent adjustment of $2.6 million and the effect
of vacancies and other adjustments, which lowered revenues by $0.5
million. For the year ended December 31, 2004, net income of the
Real Estate Business was $52.3 million. Included in this amount are
unusual expenses, net of income taxes, of $8.7 million related to:
(i) $4.9 million for employee settlement expenses, (ii) $2.4
million of costs related to the Proposed MEC Privatization, and
(iii) a $1.4 million future income tax charge (see footnote (2)
above for details of each of these items). Absent these unusual
charges, net income of the Real Estate Business for the year ended
December 31, 2004 was $61.0 million, representing an increase of
$11.4 million or approximately 23% over the pro forma net income
for the year ended December 31, 2003. The increase in net income,
excluding the impact of these unusual items, is attributable to
increased revenues of $12.4 million, additional net interest income
and other gains of $1.3 million, and a reduction in income tax
expense of $3.8 million, partially offset by an increase in general
and administrative expenses of $4.0 million and an increase in
depreciation expense of $2.1 million. The increase in general and
administrative expenses is due to actual expenses for the year
ended December 31, 2004 being compared to four months of actual
expenses and eight months of pro forma expenses for the year ended
December 31, 2003. Actual general and administrative expenses are
higher than the prior year pro forma amounts due to the additional
public company costs and additional staffing costs (in addition to
the incremental "committed" executive compensation costs included
in the pre spin-off pro forma general and administrative expenses
for the year ended December 31, 2003) incurred by the Company
following the spin-off from Magna. FFO for the year ended December
31, 2004 was $92.7 million, or $1.92 per share. Excluding the
after-tax impact of unusual items amounting to $6.1 million,
including employee settlement expenses of $3.7 million and costs
related to the Proposed MEC Privatization of $2.4 million, FFO in
the year ended December 31, 2004 was $98.8 million, or $2.05 per
diluted share, an increase of 13% from pro forma FFO of $87.3
million, or $1.81 per diluted share, for the year ended December
31, 2003. MAGNA ENTERTAINMENT CORP. (MEC)
------------------------------- MEC's racetracks operate for
prescribed periods each year. As a result, racing revenues and
operating results for any quarter will not be indicative of MEC's
revenues and operating results for the year. MEC's financial
results for the fourth quarter of 2004 reflect the full quarter's
operations for all of MEC's racetracks and related pari-mutuel
wagering operations. The comparative results for the fourth quarter
of 2003 do not reflect the operations of Magna Racino(TM),
RaceONTV(TM) and MEC's international wagering business, which
commenced operations during 2004. Revenues for the fourth quarter
and year ending December 31, 2004 increased 0.4% to $135.5 million
and 3.9% to $725.2 million from the prior year comparable periods,
respectively. The increase in revenue for the year ended December
31, 2004 is primarily attributable to the acquisition of Flamboro
Downs, the opening of Magna Racino(TM) on April 4, 2004, increased
decoder revenues at MEC's California racetracks as a result of
revenue being recognized during the second quarter of 2004 for
amounts previously in dispute, increased attendance and wagering at
Pimlico on the Preakness Stakes(R), increased revenues earned at
Lone Star Park at Grand Prairie as a result of hosting the 2004
Breeders' Cup(TM) and increased stall rent at Palm Meadows(R),
MEC's thoroughbred training center in Palm Beach County, Florida,
partially offset by fewer live race days at MEC's largest tracks
and reduced on-track and inter-track wagering revenues at several
of MEC's facilities due to lower average daily attendance. Earnings
Before Interest, Taxes, Depreciation and Amortization ("EBITDA"),
excluding the impact of dilution losses, other gains and minority
interest, was a loss of $35.9 million in the year ended December
31, 2004, compared to a loss of $117.9 million in the prior year,
and was a loss of $24.7 million for the fourth quarter ended
December 31, 2004, compared to a loss of $148.1 million in the
prior year period. EBITDA was adversely impacted by non-cash
write-downs relating to long-lived assets of $26.7 million in the
second quarter of 2004 and $134.9 million in the fourth quarter of
2003. Excluding the non-cash write-downs of long-lived assets and
impairment charges, the $26.1 million decline in EBITDA for the
year ended December 31, 2004 is primarily attributable to $58.8
million of increased operating costs in 2004, partially offset by
increased revenues of $27.4 million. The increased operating costs
in 2004 are primarily due to increased predevelopment costs
incurred in the pursuit of alternative gaming opportunities and
regulatory reform, the opening of Magna Racino(TM), pre- operating
and start-up costs related to RaceONTV(TM) and other international
business developments, additional distribution costs at Horse
Racing TV(TM) as a result of the carriage agreement with the
operator of the Dish Network(TM) and increased costs at Santa Anita
Park with the opening of an entertainment facility including a new
restaurant and sports bar. Excluding the write-downs and impairment
charges, the $11.4 million decline in EBITDA for the three months
ended December 31, 2004 is primarily attributable to $13.2 million
of increased operating costs in the fourth quarter of 2004,
including $5.4 million of predevelopment costs, compared to the
fourth quarter of 2003. Net loss for the year ended December 31,
2004 decreased to a loss of $57.7 million compared to a loss of
$62.3 million in the prior year. The net loss in 2003 includes
$47.8 million, after related income taxes and minority interest, of
non-cash write-downs and impairment charges of long-lived and
intangible assets, compared to $15.6 million, after related income
taxes and minority interest, of non-cash write-downs of long-lived
assets in 2004. Excluding these non-cash write-downs, the net loss
in 2004 increased $27.6 million compared to the prior year,
primarily due to the increased EBITDA loss as noted previously,
higher interest expense on MEC's subordinated notes and other debt,
higher levels of depreciation related to the Magna Racino(TM) and
the Palm Meadows(R) training center and a lower recovery of income
taxes as the tax benefit of losses were not recognized in 2004. At
December 31, 2004, the market value of MID's shareholding in MEC
was $378.2 million, based on the closing price of $6.02 per share
for MEC Class A Subordinated Voting Stock (NASDAQ:MECA) on that
date. OTHER MATTERS ------------- Dividends MID's Board of
Directors has declared a dividend on MID's Class A Subordinate
Voting Shares and Class B Shares for the fourth quarter ended
December 31, 2004. A dividend of U.S. $0.09 per share is payable on
or after April 15, 2005 to shareholders of record at the close of
business on March 31, 2005. Annual and Special Meeting of
Shareholders On January 18, 2005, MID received a letter from a
shareholder requisitioning a shareholders' meeting to consider
proposals that the MID Board of Directors consider having MID
dispose of its equity stake in MEC and convert into a real estate
investment trust. The proposals are being considered by a Special
Committee of independent directors of MID comprised of Douglas
Young (Chairman), Philip Fricke, and Manfred Jakszus, each of whom
has been determined by the MID Board of Directors to be independent
of MEC, MID Management and MID's controlling shareholder, Frank
Stronach. The Special Committee has retained Goodmans LLP as its
independent legal advisor and CIBC World Markets Inc. as its
independent financial advisor. The recommendations of the Special
Committee and the MID Board of Directors with respect to the
proposals will be set out in the management information circular
that will be mailed to MID shareholders in advance of the Company's
annual and special meeting of shareholders to be held on May 4,
2005. The Company has set a record date of March 16, 2005 for the
determination of shareholders entitled to notice of the meeting. In
addition to customary annual meeting matters, the MID shareholders
will have the opportunity to consider the proposals at the meeting.
CONFERENCE CALL --------------- A conference call will be held for
interested analysts and shareholders to discuss our fourth quarter
results on March 2, 2005 at 10:00 am EST (Toronto time). The number
to use for this call is 1-800-814-4859. The number for overseas
callers is 416-640-4127. Please call 10 minutes prior to the start
of the conference call. MID will also webcast the conference call
at http://www.midevelopments.com/. The conference call will be
chaired by John D. Simonetti, Chief Executive Officer. For anyone
unable to listen to the scheduled call, the rebroadcast numbers
will be: North America - 1-877-289-8525 and Overseas - 416-640-1917
(reservation number is 21113186 followed by the number sign) and
the rebroadcast will be available until March 9, 2005. ABOUT MID
--------- MID is a real estate operating company engaged in the
ownership, management, leasing, development and acquisition of
industrial and commercial real estate properties located in North
America and Europe. Virtually all of its income-producing
properties are under lease to Magna and its subsidiaries. MID also
holds a controlling investment in MEC, a publicly-traded company
that, based on revenues, is North America's number one owner and
operator of horse racetracks, and one of the world's leading
suppliers, via simulcasting, of live racing content to the growing
inter-track, off-track and account wagering markets. For further
information, please contact Doug Tatters, Executive Vice- President
and Chief Financial Officer, at 905-726-7507. For teleconferencing
questions, please contact Deborah Fox at 905-726-7626. The contents
of this press release contain statements which constitute
"forward-looking statements" within the meaning of Section 21E of
the United States Securities Exchange Act of 1934 and the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements may include, among others, statements regarding the
Company's future plans, costs, objectives or economic performance,
or the assumptions underlying any of the foregoing. 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 future
performance will be achieved. Forward-looking statements are
subject to known and unknown risks, uncertainties and other
unpredictable factors, many of which are beyond the Company's
control. MID expressly disclaims any intention and undertakes no
obligation to update or revise any forward-looking statements to
reflect subsequent information, events or circumstances or
otherwise. RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES
REAL ESTATE BUSINESS RECONCILIATION OF NET INCOME TO FUNDS FROM
OPERATIONS (U.S. dollars in thousands, except per share figures)
(Unaudited) Three Months Year Ended Ended December 31, December 31,
------------------------ ------------------------ 2004 2004 2003
Actual 2003(1) Actual Pro Forma
-------------------------------------------------------------------------
Net income $ 17,576 $ 10,331 $ 52,263 $ 49,834 Add back (deduct)
non-cash items: Depreciation and amortization 8,806 8,577 34,211
32,122 Future income taxes 193 3,718 4,350 7,526 Stock-based
compensation expense 275 - 1,833 - Straight-line rent adjustment
404 91 300 (2,313) (Gain) loss on disposal of real estate - (20)
(216) 114
-------------------------------------------------------------------------
Funds from operations $ 27,254 $ 22,697 $ 92,741 $ 87,283
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Funds from operations per share Basic and diluted $ 0.57 $ 0.47 $
1.92 $ 1.81
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average number of shares outstanding (thousands) Basic 48,168
48,130 48,157 48,130 Diluted 48,184 48,140 48,195 48,140
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) For the three months ended December 31, 2003, the Real Estate
Business' pro forma results of operations are identical to its
actual results of operations in accordance with GAAP. Consolidated
Statements of Income (Loss) (U.S. dollars in thousands, except per
share figures) (Unaudited)
-------------------------------------------------------------------------
Real Estate Magna Consolidated Business Entertainment Corp.
------------------- ------------------- ------------------- Three
Months Ended Three Months Ended Three Months Ended December 31,
December 31, December 31, ------------------- -------------------
------------------- 2004 2003 2004 2003 2004 2003
-------------------------------------------------------------------------
Revenues Rental revenue (note 15) $ 33,911 $ 30,969 $ 33,911 $
30,969 $ - $ - Racing and other (note 15) 135,467 134,929 - -
135,467 134,929 Interest income from MEC (note 15) - - 85 - - -
-------------------------------------------------------------------------
169,378 165,898 33,996 30,969 135,467 134,929
-------------------------------------------------------------------------
Operating costs and expenses Purses, awards and other 58,114 59,042
- - 58,114 59,042 Operating costs 81,865 68,687 - - 81,865 68,687
General and administrative (note 15) 27,188 25,439 4,064 4,916
20,163 20,523 Depreciation and amortization 19,109 17,317 8,806
8,577 10,303 8,740 Interest expense (income), net 6,570 4,883 (321)
(29) 6,891 4,912 Write-down of MEC's long- lived and intangibles
assets (note 3) - 134,856 - - - 134,856
-------------------------------------------------------------------------
Operating income (loss) (23,468) (144,326) 21,447 17,505 (41,869)
(161,831) Gain (loss) on disposal of real estate - 51 - 20 - 31
-------------------------------------------------------------------------
Income (loss) before income taxes and minority interest (23,468)
(144,275) 21,447 17,525 (41,869) (161,800) Income tax expense
(recovery) 10,349 (51,025) 3,871 7,194 6,478 (58,219) Minority
interest (20,049) (42,844) - - (20,049) (42,844)
-------------------------------------------------------------------------
Net income (loss) $(13,768) $(50,406) $ 17,576 $ 10,331 $(28,298)
$(60,737)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic and diluted loss per Class A Subordinate Voting or Class B
Share (note 5) $ (0.29) $ (1.05) ---------------------------------
--------------------------------- Average number of Class A
Subordinate Voting and Class B Shares outstanding during the period
(in thousands) (note 5) Basic and Diluted 48,168 48,130
--------------------------------- ---------------------------------
See accompanying notes Consolidated Statements of Income (Loss)
(U.S. dollars in thousands, except per share figures) (Unaudited)
-------------------------------------------------------------------------
Real Estate Magna Consolidated Business Entertainment Corp.
------------------- ------------------- ------------------- Year
Ended Year Ended Year Ended December 31, December 31, December 31,
------------------- ------------------- ------------------- 2004
2003 2004 2003 2004 2003
-------------------------------------------------------------------------
Revenues Rental revenue (note 15) $128,687 $116,180 $128,687
$116,180 $ - $ - Racing and other (note 15) 725,188 697,786 - -
725,188 - Interest income from MEC (note 15) - - 85 - - -
-------------------------------------------------------------------------
853,875 813,966 128,772 116,180 725,188 697,786
-------------------------------------------------------------------------
Operating costs and expenses Purses, awards and other 339,991
336,770 - - 339,991 336,770 Operating costs 333,935 275,114 - -
333,935 275,114 General and administrative (note 15) 98,544 79,975
25,502 10,962 70,081 69,013 Depreciation and amortization 72,466
63,983 34,211 32,086 38,255 31,897 Interest expense (income), net
25,224 40,178 (963) 25,032 26,187 15,146 Write-down of MEC's long-
lived assets (note 3) 26,685 134,856 - - 26,685 134,856
-------------------------------------------------------------------------
Operating income (loss) (42,970) (116,910) 70,022 48,100 (109,946)
(165,010) Gain (loss) on disposal of real estate 9,842 (83) 216
(114) 9,626 31 Dilution losses and other gains (note 15) 883 - - -
883 -
-------------------------------------------------------------------------
Income (loss) before income taxes and minority interest (32,245)
(116,993) 70,238 47,986 (99,437) (164,979) Income tax expense
(recovery) 16,030 (40,692) 17,975 18,014 (1,945) (58,706) Minority
interest (39,775) (43,957) - - (39,775) (43,957)
-------------------------------------------------------------------------
Net income (loss) $ (8,500) $(32,344) $ 52,263 $ 29,972 $(57,717)
$(62,316)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic and diluted loss per Class A Subordinate Voting or Class B
Share (note 5) $ (0.18) $ (1.03) ---------------------------------
--------------------------------- Average number of Class A
Subordinate Voting and Class B Shares outstanding during the period
(in thousands) (note 5) Basic and Diluted 48,157 48,130
--------------------------------- ---------------------------------
See accompanying notes Consolidated Statements of Changes in
Retained Earnings (Deficit) (U.S. dollars in thousands) (Unaudited)
-------------------------------------------------------------------------
Three months ended Year Ended December 31, December 31,
---------------------- ---------------------- 2004 2003 2004 2003
-------------------------------------------------------------------------
Retained earnings (deficit), beginning of period, as previously
reported (note 11) $ (61,356) $ 918 $ (49,488) $ - Adjustment for
change in accounting policy related to stock-based compensation
(note 2) - - (4,134) -
-------------------------------------------------------------------------
Retained earnings (deficit), beginning of period, after change in
accounting policy (61,356) 918 (53,622) - Magna's net investment,
beginning of period - - - 1,432,225 Net loss (13,768) (50,406)
(8,500) (32,344) Costs associated with capital transactions of
subsidiaries (472) - (472) - Dividends (4,336) - (17,338) - Net
distributions to Magna - - - (1,440,640) Charge to net investment
related to lease amendments - - - (5,494) Change in currency
translation adjustment - - - (3,235)
-------------------------------------------------------------------------
Deficit, end of period $ (79,932) $ (49,488) $ (79,932) $ (49,488)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes Consolidated Statements of Cash Flows (U.S.
dollars in thousands) (Unaudited)
-------------------------------------------------------------------------
Real Estate Magna Consolidated Business Entertainment Corp.
------------------- ------------------- ------------------- Three
Months Ended Three Months Ended Three Months Ended December 31,
December 31, December 31, ------------------- -------------------
------------------- 2004 2003 2004 2003 2004 2003
-------------------------------------------------------------------------
OPERATING ACTIVITIES Net income (loss) $(13,768) $(50,406) $ 17,576
$ 10,331 $(28,298) $(60,737) Items not involving current cash flows
(note 13) 2,599 53,046 9,475 11,866 (6,961) 41,180 Changes in
non-cash balances (note 13) 11,089 39,055 (46) 14,981 11,135 24,074
-------------------------------------------------------------------------
Cash provided by (used in) operating activities (80) 41,695 27,005
37,178 (24,124) 4,517
-------------------------------------------------------------------------
INVESTMENT ACTIVITIES Property and fixed asset additions (91,641)
(88,640) (52,819) (37,016) (38,822) (51,624) Other assets disposals
(additions) 32 (282) 148 (1,437) (116) 1,155 Proceeds on disposal
of real estate properties 2,746 13,610 - 362 2,746 13,248 Loan
receivable from MEC (note 15) - - (26,341) - - -
-------------------------------------------------------------------------
Cash used in investment activities (88,863) (75,312) (79,012)
(38,091) (36,192) (37,221)
-------------------------------------------------------------------------
FINANCING ACTIVITIES Increase (decrease) in bank indebtedness 2,500
1,887 - (307) 2,500 2,194 Issuance of long-term debt 99,979 26,682
- 26,682 99,979 - Repayment of long-term debt (49,926) (31,516)
(308) (29,395) (49,618) (2,121) Issuance of senior unsecured
debentures, net 213,133 - 213,133 - - - Loan payable to MID, net
(note 15) - - - - 23,380 - Issuance of shares 781 - 781 - - - Costs
associated with capital transactions of subsidiaries (472) - (472)
- - - Dividends paid (4,336) - (4,336) - - -
-------------------------------------------------------------------------
Cash provided by (used in) financing activities 261,659 (2,947)
208,798 (3,020) 76,241 73
-------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 3,022
5,060 1,260 6,427 1,762 (1,367)
-------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents during the
period 175,738 (31,504) 158,051 2,494 17,687 (33,998) Cash and cash
equivalents, beginning of period 113,952 161,398 70,823 27,593
43,129 133,805
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $289,690 $129,894 $228,874
$ 30,087 $ 60,816 $ 99,807
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes Consolidated Statements of Cash Flows (U.S.
dollars in thousands) (Unaudited)
-------------------------------------------------------------------------
Real Estate Magna Consolidated Business Entertainment Corp.
------------------- ------------------- ------------------- Year
Ended Year Ended Year Ended December 31, December 31, December 31,
------------------- ------------------- ------------------- 2004
2003 2004 2003 2004 2003
-------------------------------------------------------------------------
OPERATING ACTIVITIES Net income (loss) $ (8,500) $(32,344) $ 52,263
$ 29,972 $(57,717) $(62,316) Items not involving current cash flows
(note 13) 52,823 99,668 40,395 37,370 12,343 62,298 Changes in
non-cash balances (note 13) 23,992 19,996 13,917 6,318 10,075
13,678
-------------------------------------------------------------------------
Cash provided by (used in) operating activities 68,315 87,320
106,575 73,660 (35,299) 13,660
-------------------------------------------------------------------------
INVESTMENT ACTIVITIES Property and fixed asset additions (224,665)
(215,705) (83,680) (109,747) (140,985) (105,958) Other assets
disposals (additions) (622) (16,867) (40) (318) (582) (16,549)
Proceeds on disposal of real estate properties 22,319 15,145 2,478
1,897 19,841 13,248 Loan receivable from MEC (note 15) - - (26,341)
- - -
-------------------------------------------------------------------------
Cash used in investment activities (202,968) (217,427) (107,583)
(108,168) (121,726) (109,259)
-------------------------------------------------------------------------
FINANCING ACTIVITIES Increase (decrease) in bank indebtedness
29,500 (43,690) - (911) 29,500 (42,779) Issuance of long-term debt
119,236 45,255 - 29,145 119,236 16,110 Repayment of long-term debt
(56,217) (47,123) (566) (29,610) (55,651) (17,513) Issuance of note
obligations - 145,000 - - - 145,000 Issuance of senior unsecured
debentures, net 213,133 - 213,133 - - - Loan payable to MID, net
(note 15) - - - - 23,380 - Issuance of shares 1,502 - 1,502 - - -
Minority investment in subsidiary 852 173 - - 852 173 Costs
associated with capital transactions of subsidiaries (472) - (472)
- - - Dividends paid (17,338) - (17,338) - - - Net contribution by
(to) Magna - 55,363 - 55,363 - -
-------------------------------------------------------------------------
Cash provided by (used in) financing activities 290,196 154,978
196,259 53,987 117,317 100,991
-------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 4,253
10,133 3,536 3,399 717 6,734
-------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents during the
period 159,796 35,004 198,787 22,878 (38,991) 12,126 Cash and cash
equivalents, beginning of period 129,894 94,890 30,087 7,209 99,807
87,681
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $289,690 $129,894 $228,874
$ 30,087 $ 60,816 $ 99,807
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See accompanying notes Consolidated Balance Sheets (U.S. dollars in
thousands) (Unaudited) Real Estate Consolidated Business
------------------------- ------------------------- As at December
31, 2004 2003 2004 2003
-------------------------------------------------------------------------
ASSETS
-------------------------------------------------------------------------
Current assets: Cash and cash equivalents $ 289,690 $ 129,894 $
228,874 $ 30,087 Restricted cash 26,575 24,738 - - Accounts
receivable 61,484 51,223 12,356 17,008 Income taxes receivable
2,073 1,809 - - Prepaid expenses and other 16,570 13,457 212 518
-------------------------------------------------------------------------
396,392 221,121 241,442 47,613
-------------------------------------------------------------------------
Real estate properties, net (note 6) 2,269,842 2,066,382 1,357,700
1,227,512 Fixed assets, net 56,161 31,562 532 208 Loan receivable
from MEC (note 15) - - 26,426 - Deferred rent receivable 13,851
13,930 13,851 13,930 Racing licenses 240,893 236,098 - - Other
assets, net 18,348 20,229 2,430 323 Future tax assets 44,379 42,820
9,134 12,790
-------------------------------------------------------------------------
$ 3,039,866 $ 2,632,142 $ 1,651,515 $ 1,302,376
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------
Current liabilities: Bank indebtedness (note 9) $ 27,500 $ 6,696 $
- $ - Accounts payable and accrued liabilities 176,756 128,481
39,520 18,487 Income taxes payable 5,907 2,571 5,907 2,571
Long-term debt due within one year (note 7) 18,076 58,618 313 570
Deferred revenue 29,434 19,335 - -
-------------------------------------------------------------------------
257,673 215,701 45,740 21,628
-------------------------------------------------------------------------
Long-term debt (note 7) 248,003 128,387 6,505 6,361 Note
obligations 211,062 208,933 - - Senior unsecured debentures (note
8) 219,228 - 219,228 - Loan payable to MID (note 15) - - - - Future
tax liabilities 169,781 164,275 33,325 30,790 Minority interest
253,726 282,752 - -
-------------------------------------------------------------------------
1,359,473 1,000,048 304,798 58,779
-------------------------------------------------------------------------
Shareholders' equity: Class A Subordinate Voting Shares (note 10)
1,554,779 1,552,901 Class B Shares (note 10) 17,893 17,893
Contributed surplus 2,387 - Deficit (note 11) (79,932) (49,488)
Currency translation adjustment 185,266 110,788
-------------------------------------------------------------------------
1,680,393 1,632,094 1,346,717 1,243,597
-------------------------------------------------------------------------
$ 3,039,866 $ 2,632,142 $ 1,651,515 $ 1,302,376
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Magna Entertainment Corp. ------------------------ As at December
31, 2004 2003 -----------------------------------------------
ASSETS ----------------------------------------------- Current
assets: Cash and cash equivalents $ 60,816 $ 99,807 Restricted cash
26,575 24,738 Accounts receivable 49,128 34,215 Income taxes
receivable 2,073 1,809 Prepaid expenses and other 16,358 12,939
----------------------------------------------- 154,950 173,508
----------------------------------------------- Real estate
properties, net (note 6) 912,243 838,870 Fixed assets, net 55,629
31,354 Loan receivable from MEC (note 15) - - Deferred rent
receivable - - Racing licenses 240,893 236,098 Other assets, net
18,863 19,906 Future tax assets 35,245 30,030
----------------------------------------------- $ 1,417,823 $
1,329,766 -----------------------------------------------
----------------------------------------------- LIABILITIES AND
SHAREHOLDERS' EQUITY
----------------------------------------------- Current
liabilities: Bank indebtedness (note 9) $ 27,500 $ 6,696 Accounts
payable and accrued liabilities 137,236 109,994 Income taxes
payable - - Long-term debt due within one year (note 7) 17,763
58,048 Deferred revenue 29,434 19,335
----------------------------------------------- 211,933 194,073
----------------------------------------------- Long-term debt
(note 7) 241,498 122,026 Note obligations 211,062 208,933 Senior
unsecured debentures (note 8) - - Loan payable to MID (note 15)
26,426 - Future tax liabilities 136,456 133,485 Minority interest
253,726 282,752 -----------------------------------------------
1,081,101 941,269 -----------------------------------------------
Shareholders' equity: Class A Subordinate Voting Shares (note 10)
Class B Shares (note 10) Contributed surplus Deficit (note 11)
Currency translation adjustment
----------------------------------------------- 336,722 388,497
----------------------------------------------- $ 1,417,823 $
1,329,766 -----------------------------------------------
----------------------------------------------- Commitments and
contingencies (note 16) See accompanying notes Notes to Interim
Consolidated Financial Statements (All amounts in U.S. dollars and
all tabular amounts in thousands unless otherwise noted) (All
amounts as at December 31, 2004 and 2003 and for the three months
and year ended December 31, 2004 and 2003 are unaudited) 1. BASIS
OF PRESENTATION The unaudited interim consolidated financial
statements have been prepared in U.S. dollars following the
accounting policies as set out in the annual consolidated financial
statements for the year ended December 31, 2003, except as
discussed in note 2 below. The Company has reclassified certain
prior period amounts to conform to the current period's
presentation. The unaudited interim consolidated financial
statements include the accounts of MI Developments Inc. and its
subsidiaries (collectively "MID" or the "Company"). MID is the
former real estate division of Magna International Inc. ("Magna")
and became a separate, publicly traded company on September 2,
2003. The Company's results for the three months and year ended
December 31, 2003 are presented on a carve-out basis from Magna.
The Company holds an investment in Magna Entertainment Corp.
("MEC"), an owner and operator of horse racetracks and a supplier
of live racing content to the inter-track, off-track, and account
wagering markets. The Company owns approximately 59% of MEC's total
equity, representing 96.6% of the total voting power of its
outstanding stock. MEC's results are consolidated with the
Company's results, with minority ownership accounted for as
minority interest. The unaudited interim consolidated financial
statements do not conform in all respects to the requirements of
generally accepted accounting principles for annual financial
statements. Accordingly, these unaudited interim consolidated
financial statements should be read in conjunction with the 2003
annual consolidated financial statements. In the opinion of
management, the unaudited interim consolidated financial statements
reflect all adjustments, which consist only of normal and recurring
adjustments, necessary to present fairly the financial position at
December 31, 2004 and 2003 and the results of operations and cash
flows for the three month periods and years ended December 31, 2004
and 2003. MEC's racing business is seasonal in nature. MEC's racing
revenues and operating results for any quarter will not be
indicative of the racing revenues and operating results for the
year. A disproportionate share of annual revenues and net income is
earned in the first quarter of each year. Financial data and
related measurements are presented on the unaudited interim
consolidated statements of income (loss), unaudited interim
consolidated statements of cash flows, and unaudited interim
consolidated balance sheets in two categories, "Real Estate
Business" and "Magna Entertainment Corp.", which correspond to the
Company's reporting segments as described in note 14 to the
unaudited interim consolidated financial statements. Related party
transactions and balances between the "Real Estate Business" and
"Magna Entertainment Corp." have not been eliminated in the
presentation of each segment's financial data and related
measurements. However, the effects of transactions between these
two segments, which are further described in note 15(a), are
eliminated in the consolidated results of operations and financial
position of the Company. 2. ACCOUNTING CHANGES Stock-based
Compensation In November 2003, The Canadian Institute of Chartered
Accountants ("CICA") amended Handbook Section 3870, "Stock-based
Compensation and Other Stock-based Payments", to require the
expensing of all stock-based compensation awards for fiscal years
beginning on or after January 1, 2004. The Company adopted these
requirements effective January 1, 2004. The standard has been
applied on a retroactive basis. The consolidated statements of
income (loss) for the three months and year ended December 31, 2003
have not been restated. For the year ended December 31, 2004, the
cumulative impact of stock-based compensation for the fiscal years
ended December 31, 2003 and 2002 was recognized in the financial
statements as an adjustment to opening deficit at January 1, 2004.
At the segment level, the impact of this recognition was an
increase in MEC's minority interest of $3.2 million and a decrease
in MEC's shareholders' equity of $3.2 million. On a consolidated
basis, the impact of the restatement was an increase in minority
interest of $3.2 million, an increase in deficit of $4.1 million,
and an increase in contributed surplus of $0.9 million. In the
three months ended December 31, 2004, the effect of the adoption of
the fair value method for stock-based compensation expense was an
increase in general and administrative expenses of $0.4 million
(Real Estate Business - $0.2 million; MEC - $0.2 million) and a
decrease in minority interest expense of $0.1 million. For the year
ended December 31, 2004, the effect of the adoption of the fair
value method for stock-based compensation expense was an increase
in general and administrative expenses of $2.8 million (Real Estate
Business - $1.8 million; MEC - $1.0 million) and a decrease in
minority interest expense of $0.4 million. Compensation expense is
recognized for stock options granted based upon the fair value of
the options at the grant date. Compensation expense is recognized
over the vesting period of the options in general and
administrative expenses with a corresponding amount included in
equity as contributed surplus. The fair value of stock options is
estimated at the grant date using the Black-Scholes option pricing
model. This model requires the input of a number of assumptions,
including expected dividend yields, expected stock price
volatility, expected time until exercise and risk-free interest
rates. Although the assumptions used reflect management's best
estimates, they involve inherent uncertainties based on market
conditions outside of the Company's control. If other assumptions
are used, stock-based compensation expense could be significantly
impacted. The contributed surplus balance is reduced as the options
are exercised and the amount initially recorded for the options in
contributed surplus is credited to Class A Subordinate Voting
Shares, along with the proceeds received on exercise. In the event
that options are forfeited or cancelled prior to having vested, any
previously recognized expense is reversed in the period in which
the options are forfeited or cancelled. Hedging Relationships In
November 2002 and June 2003, the CICA approved certain amendments
to Accounting Guideline 13, "Hedging Relationships" ("AcG-13")
which were adopted by the Company effective January 1, 2004. AcG-13
provides guidance on the identification, designation, documentation
and effectiveness of hedging relationships for the purpose of
applying hedge accounting, and for the discontinuance of hedge
accounting. The amendments clarified certain of the requirements in
AcG-13 and provided additional application guidance. The adoption
of AcG-13 did not have an impact on the Company's unaudited interim
consolidated financial statements for the three months and year
ended December 31, 2004. 3. WRITE-DOWN OF MEC'S LONG-LIVED ASSETS
MEC's long-lived assets and racing licenses were tested for
impairment upon completion of MEC's annual business planning
process. The fair value of the racetracks was determined using the
discounted cash flow method, including a probability-weighted
approach in considering the likelihood of possible outcomes. This
method also included a determination of the estimated future cash
flows associated with the racing licenses and long-lived assets
directly associated with, and expected to arise as a direct result
of, the use and disposition of those assets. The fair value
determined was then compared to the carrying value of the racing
licenses and long-lived assets in order to determine the amount of
the impairment. The long-lived assets consist of fixed assets and
real estate properties. Write-downs and impairment charges relating
to long-lived and intangible assets recognized are as follows: Year
August 30, ended 2003 to December 31, December 31, 2004(a) 2003(b)
-------------------------------------------------------------------------
Gulfstream Park $ 26,252 $ 49,078 The Maryland Jockey Club ("MJC")
433 47,712 Bay Meadows - 20,294 Multnomah Greyhound Park - 5,538
Remington Park - 4,780 Portland Meadows - 3,754 Thistletown - 3,700
-------------------------------------------------------------------------
$ 26,685 $ 134,856
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(a) MEC commenced a major redevelopment of its Gulfstream Park
racetrack and demolished certain long-lived assets. As a result,
MEC recognized a non-cash write-down of $26.3 million in the three
months ended June 30, 2004 and the year ended December 31, 2004
related to Gulfstream Park's long-lived assets in connection with
the redevelopment. MEC has also commenced the redevelopment of the
racing surfaces at Laurel Park. As a result, MEC recognized a
non-cash write-down of $0.4 million in the three months ended June
30, 2004 and in the year ended December 31, 2004 related to Laurel
Park's long-lived assets in connection with the redevelopment. (b)
During the year ended December 31, 2003, Gulfstream Park and MJC
experienced lower average daily attendance, and decreased on-track
wagering activity compared to the prior year. Based on these
impairment indicators, MEC tested Gulfstream Park's and MJC's
long-lived and intangible assets for recoverability. MEC used an
expected present value approach of estimated future cash flows,
including a probability weighted approach in considering the
likelihood of possible outcomes, to determine the fair value of the
long-lived and intangible assets. Based on this analysis, non-cash
impairment charges were required of Gulfstream Park's racing
license of $49.1 million and a portion of MJC's racing license of
$47.7 million in the three months and year ended December 31, 2003.
A non-cash impairment charge of the Bay Meadows' racing license of
$19.6 million and goodwill of $0.7 million was recorded in the
three months and year ended December 31, 2003 based on uncertainty
regarding future renewals of the lease of the Bay Meadows'
facility, which was renewed on a year-to-year basis in each of 2002
and 2003, but expired on December 31, 2004. The operations at
Multnomah Greyhound Park, Remington Park, Portland Meadows and
Thistledown produced operating losses in 2003. Based on this
impairment indicator, MEC tested these racetrack's respective
long-lived and intangible assets for recoverability. MEC used an
expected present value approach of estimated future cash flows,
including a probability weighted approach in considering the
likelihood of possible outcomes, to determine the fair value of the
long-lived and intangible assets. Based on this analysis, non-cash
impairment charges were recorded in the three months and year ended
December 31, 2003 for Multnomah Greyhound Park's racing license of
$5.5 million, Remington Park's fixed assets of $3.9 million and
other intangible assets of $0.9 million, Portland Meadows' racing
license of $0.2 million and other intangible assets of $3.6 million
and Thistledown's racing license of $3.7 million. 4. SALE AND LEASE
ARRANGEMENT OF GREAT LAKES DOWNS On August 24, 2004, MI Racing
Inc., a wholly owned subsidiary of MEC, sold the real property and
associated racetrack license of Great Lakes Downs to Richmond
Racing Co., LLC ("Richmond Racing") for approximately $4.2 million.
The consideration included cash of $0.2 million and the issuance of
a 20-year promissory note with a principal amount of $4.0 million.
The promissory note, which bears interest at 5.0% per annum, is
repayable by Richmond Racing in monthly principal and interest
payments of $26 thousand until maturity. MI Racing Inc. also has an
option to repurchase the property and associated racetrack license
of Great Lakes Downs from Richmond Racing in the event that MEC is
unsuccessful in obtaining a racetrack license for a proposed
racetrack in Romulus, Michigan, or in the event that state law in
Michigan is amended to allow an entity to hold more than one
racetrack license. MI Racing Inc. has also entered into a lease
agreement with Richmond Racing, which gives MI Racing Inc. the
conditional right to continue operating Great Lakes Downs and
conducting thoroughbred race meetings at the racetrack. The lease
is for an initial term of five years with an option to renew the
lease for up to three additional periods of five years each. The
lease requires MI Racing Inc. to make monthly rental payments of
$30 thousand to Richmond Racing. Based on the terms contained in
the sale and lease arrangement between MI Racing Inc. and Richmond
Racing, for accounting purposes the transaction has not been
accounted for as a sale and leaseback, but rather using the
financing method of accounting under generally accepted accounting
principles. 5. LOSS PER SHARE The computation of diluted loss per
share for the three months ended December 31, 2004 excludes the
effect of the potential exercise of a weighted average of 364,000
(575,000 for the three months ended December 31, 2003) options to
acquire Class A Subordinate Voting Shares because the effect would
be anti-dilutive. The computation of diluted loss per share in for
the year ended December 31, 2004 excludes the effect of the
potential exercise of a weighted average of 553,060 (August 30,
2003 to December 31, 2003 - 545,259) options to acquire Class A
Subordinate Voting Shares because the effect would be
anti-dilutive. The Company's loss per share for the year ended
December 31, 2003 reflects the Company's net loss only for the
period subsequent to August 29, 2003, the date when Magna's net
investment was exchanged for Class A Subordinate Voting Shares and
Class B Shares of the Company as part of the Company's spin-off
from Magna. The weighted average number of basic and fully diluted
outstanding shares is calculated for the same period of August 30,
2003 to December 31, 2003. 6. REAL ESTATE PROPERTIES Real estate
properties consist of: December 31, December 31, 2004 2003
-------------------------------------------------------------------------
Real Estate Business Income-producing properties under operating
leases Land $ 198,940 $ 179,848 Buildings, parking lots and
roadways - cost 1,186,112 1,058,948 Buildings, parking lots and
roadways - accumulated depreciation (195,654) (150,913)
-------------------------------------------------------------------------
1,189,398 1,087,883
-------------------------------------------------------------------------
Development properties Land and improvements 105,408 124,926
Properties under development 31,477 8,700
-------------------------------------------------------------------------
136,885 133,626
-------------------------------------------------------------------------
Properties held for sale 31,417 6,003
-------------------------------------------------------------------------
1,357,700 1,227,512
-------------------------------------------------------------------------
MEC Revenue-producing racetrack properties Land and improvements
219,028 210,859 Buildings - cost 426,947 253,619 Buildings -
accumulated depreciation (73,269) (36,454) Construction in progress
104,596 101,216
-------------------------------------------------------------------------
677,302 529,240
-------------------------------------------------------------------------
Excess racetrack properties 98,332 97,201
-------------------------------------------------------------------------
Development properties Land and improvements 49,400 60,089
Properties under development 1,222 62,441
-------------------------------------------------------------------------
50,622 122,530
-------------------------------------------------------------------------
Revenue-producing non-racetrack properties Land and improvements
37,543 35,236 Buildings - cost 56,957 53,939 Buildings -
accumulated depreciation (11,025) (8,621)
-------------------------------------------------------------------------
83,475 80,554
-------------------------------------------------------------------------
Properties held for sale 2,512 9,345
-------------------------------------------------------------------------
912,243 838,870
-------------------------------------------------------------------------
Eliminations (note 15(a)) (101) -
-------------------------------------------------------------------------
Consolidated $ 2,269,842 $ 2,066,382
-------------------------------------------------------------------------
-------------------------------------------------------------------------
7. LONG-TERM DEBT (a) Long-term debt consists of the following:
2004 2003
---------------------------------------------------------------------
Real Estate Business Mortgage bearing interest at 8.0% per annum
with a maturity date of January 2009. The mortgage is repayable in
equal blended monthly payments of Cdn$49 thousand and is secured by
the underlying property. $ 4,005 $ 3,895 Mortgage bearing interest
at 8.1% per annum with a maturity date of January 2011. The
mortgage is repayable in equal blended monthly payments of Cdn$35
thousand and is secured by the underlying property. 2,813 2,736
Mortgage bearing interest at 11.0% per annum that matured and was
repaid in September 2004. - 300
---------------------------------------------------------------------
6,818 6,931
---------------------------------------------------------------------
MEC Term loan facility, bearing interest at the London Interbank
Offered Rate ("LIBOR") plus 2.0% per annum (4.4% at December 31,
2004) with a maturity date of October 7, 2007, subject to a further
extension at MEC's option to October 7, 2009. The facility is
guaranteed by the Los Angeles Turf Club, Incorporated ("LATC") and
is secured by a first deed of trust on Santa Anita Park and the
surrounding real property, an assignment of the lease between LATC,
the racetrack operator, and The Santa Anita Companies, Inc. ("SAC")
and a pledge of all of the outstanding capital stock of LATC and
SAC. At December 31, 2004, the term loan is fully drawn and is
repayable in monthly principal amounts of $417 thousand until
maturity. 73,750 - Term loan facility repaid during the year. -
51,100 Promissory note denominated in Canadian dollars bearing
interest at the five-year Government of Canada benchmark bank bond
rate plus 1.5% per annum, with a maturity date of June 30, 2007.
The interest rate is not to be less than 6.0% per annum and cannot
exceed 7.0% per annum (6.0% at December 31, 2004). The note is
secured by two first mortgages and a debenture against Flamboro
Downs racetrack and related real estate. The promissory note is
repayable in annual instalments of $2.1 million (Cdn$2.5 million)
with the remaining amount due upon maturity. 38,796 38,135 Term
loan facility of 17.6 million euros, bearing interest at an
implicit rate of 5.2% per annum, collateralized by an assignment of
future amounts receivable under the Fontana Sports access
agreement, repayable in nine annual principal and interest payments
of 2.5 million euros commencing January 1, 2006 until the ninth
instalment has been made in 2014. 23,869 - Term loan facility of 15
million euros, bearing interest at 4.0% per annum with a maturity
date of February 9, 2007, secured by a pledge of land and a
guarantee by MEC. 20,304 18,887 Term loan facility of 15 million
euros, bearing interest at the European Interbank Offered Rate
("EURIBOR") plus 2.0% per annum (4.0% at December 31, 2004) with a
maturity date of December 15, 2006, secured by a first and second
mortgage on land in Austria owned by a European subsidiary. 20,304
- Obligation to pay $18.3 million on exercise of either the put or
call option for the remaining minority interest in The Maryland
Jockey Club, bearing interest at the six-month LIBOR (2.6% at
December 31, 2004). 18,312 18,312 Term loan facilities bearing
interest at either the U.S. Prime rate or LIBOR plus 2.6% per annum
(5.0% at December 31, 2004) until December 1, 2008, with a maturity
date of December 1, 2013. On December 1, 2008, the interest rate is
reset to the market rate for a United States Treasury security of
an equivalent term plus 2.6%. The term loans are repayable in
quarterly principal and interest payments. The loans are secured by
deeds of trust on land, buildings and improvements and security
interests in all other assets of certain affiliates of The Maryland
Jockey Club. 17,786 18,744 Capital lease (imputed interest rate of
8.5%) maturing April 1, 2027, secured by buildings and improvements
at Lone Star Park at Grand Prairie. 15,520 15,521 Term loan
facility, bearing interest at either the U.S. Prime rate or LIBOR
plus 2.6% per annum (5.0% at December 31, 2004), with a maturity
date of December 15, 2019. The term loan is repayable in quarterly
principal and interest payments. The loan is secured by deeds of
trust on land, buildings and improvements and security interests in
all other assets of certain affiliates of The Maryland Jockey Club.
10,000 - Bank term line of credit denominated in euros, bearing
interest at EURIBOR plus 0.625% per annum (2.8% at December 31,
2004). The term line of credit is repayable in annual instalments
of $3.9 million (2.9 million euros) maturing in July 2006. A
European subsidiary of MEC has provided two first mortgages on real
estate properties as security for this facility. 7,870 7,328
Obligation to pay Cdn $5.5 million with respect to the extension of
Flamboro Downs agreement with the Ontario Lottery and Gaming
Corporation regarding the slot facility, bearing interest at the
five-year Government of Canada benchmark bank bond rate plus 1.5%
per annum. The interest rate is not to be less than 6.0% per annum
and cannot exceed 7.0% per annum (6.0% at December 31, 2004). 4,569
4,264 Term loan facility, bearing interest at 7.0% per annum until
June 7, 2007, with a maturity date of June 7, 2017. On June 7, 2007
and June 7, 2012, the interest rate is reset to the market rate for
a United States Treasury security of an equivalent term plus 2.6%.
The term loan is repayable in quarterly principal and interest
payments. The term loan is callable on December 31, 2006 or
December 31, 2011. The loan is secured by a deed of trust on land,
buildings and improvements and security interests in all other
assets of certain affiliates of The Maryland Jockey Club. 4,501
4,712 Unsecured promissory note bearing interest at 6.1% per annum,
with a maturity date of September 14, 2005. 2,500 2,500 Other loans
to various subsidiaries from various banks and city governments,
including equipment loans and a term loan, with interest rates
ranging from 4.0% to 9.0%. 1,180 571
---------------------------------------------------------------------
259,261 180,074
---------------------------------------------------------------------
---------------------------------------------------------------------
Consolidated total debt 266,079 187,005 Less: current portion
18,076 58,618
---------------------------------------------------------------------
Consolidated long-term debt $ 248,003 $ 128,387
---------------------------------------------------------------------
---------------------------------------------------------------------
(b) Prior to the spin-off of MID from Magna, the Real Estate
Business' continuing funding requirements were advanced by Magna.
These advances bore interest at rates not exceeding the borrowing
jurisdiction's bank prime rate and were recorded as part of Magna's
net investment. 8. DEBENTURES On December 22, 2004, MID issued
Cdn$265.0 million of 6.05% senior unsecured debentures (the
"Debentures") due December 22, 2016, at a price of Cdn$995.70 per
Cdn$1,000.00 of principal amount. Proceeds to MID, net of Cdn$3.0
million of issue expenses, amounted to Cdn$260.9 million. The
Debentures rank equally with all of MID's existing and future
senior unsecured indebtedness. The Debentures are redeemable, in
whole or in part, at MID's option at any time and from time to
time, at a price equal to accrued and unpaid interest plus the
greater of (a) 100% of the principal amount of the Debentures to be
redeemed; and (b) the Canada Yield Price. The Canada Yield Price
means, in respect of a Debenture, a price equal to the price which,
if the Debenture were to be issued at such price on the redemption
date, would provide a yield thereon from the redemption date to its
maturity date equal to 42.5 basis points above the yield that a
non-callable Government of Canada bond, trading at par, would carry
if issued on the redemption date with a maturity date of December
22, 2016. At December 31, 2004, all the notes remained outstanding.
Interest on the Debentures is payable in Canadian dollars on a
semi-annual basis. The discount of Cdn$1.1 million will be accreted
into the carrying value of the Debentures over the term to maturity
with a corresponding charge to interest expense. 9. BANK
INDEBTEDNESS Real Estate Business The Company has an unsecured
senior revolving credit facility in the amount of $50.0 million.
The credit facility is available by way of U.S. or Canadian dollar
loans or letters of credit. The credit facility expires on December
23, 2005, unless extended with the consent of both parties.
Interest on drawn amounts is calculated based on an applicable
margin determined by the Real Estate Business' ratio of funded debt
to earnings before interest, income tax expense, depreciation and
amortization. Currently, the Company is subject to the lowest
applicable margin available, with drawn amounts incurring interest
at LIBOR or bankers' acceptance rates plus 1.0%, or the U.S. base
or Canadian prime rate. The credit facility contains negative and
affirmative financial and operating covenants. At December 31,
2004, the Company was in compliance with all of these covenants. At
December 31, 2004, the Company had no borrowings under the
facility, but the Company had issued letters of credit totaling
$0.3 million. MEC (a) MEC has a senior secured revolving credit
facility in the amount of $50.0 million. The credit facility is
available by way of U.S. dollar loans and letters of credit for
general corporate purposes. Loans under the facility are secured by
a first charge on the assets of Golden Gate Fields and a second
charge on the assets of Santa Anita Park, and are guaranteed by
certain of MEC's subsidiaries which own and operate Golden Gate
Fields, Santa Anita Park, Palm Meadows(R), Lone Star Park and the
off-track betting operations in Pennsylvania. At December 31, 2004,
MEC had borrowings under the facility of $27.5 million (2003 - nil)
and had issued letters of credit totalling $21.9 million (2003 -
$21.6 million) under the credit facility, such that $0.6 million
was unused and available. The credit facility expires on October
10, 2005, unless extended with the consent of both parties. The
loans under the credit facility bear interest at either the U.S.
base rate or LIBOR plus a margin based on MEC's ratio of debt to
earnings before interest, taxes, depreciation and amortization. The
weighted average interest rate on the loans outstanding under the
credit facility as at December 31, 2004 was 6.0%. On February 18,
2005, MEC amended its credit agreement including the financial
covenants for this facility. At December 31, 2004, MEC was in
compliance with the amended agreement and related financial
covenants. However, MEC's ability to continue to meet these
financial covenants may be adversely affected by a deterioration in
business conditions or results of operations, adverse regulatory
developments and other events beyond MEC's control. It is possible
that MEC may not be able to meet the financial covenants under the
$50.0 million senior revolving credit facility, as currently
stated, at the quarterly reporting dates during the remaining term
of the facility, which expires on October 10, 2005, unless extended
with the consent of both parties. If MEC fails to comply with these
financial covenants and the bank is unwilling to waive such a
covenant breach or amend the agreement and related financial
covenants, it will result in the occurrence of an event of default
under the facility, and the bank could, therefore, demand
repayment. In addition, as a result of the cross-default provision
in The Santa Anita Companies, Inc. term loan facility, a default
under the senior secured revolving credit facility would also
constitute an event of default under The Santa Anita Companies,
Inc. term loan facility, unless waived by the lender, and the
lender could therefore demand repayment. (b) At December 31, 2004,
a subsidiary of MEC had a $10.0 million revolving credit facility
that was scheduled to mature on September 7, 2004, but was extended
until October 28, 2004, at which date the facility was converted to
a term loan facility, which matures on December 15, 2019.
Accordingly, at December 31, 2004, the amount is included in
long-term debt (note 7). At December 31, 2003, borrowings under the
facility were $6.7 million and the annual interest rate applicable
to these advances then outstanding was 3.7%. 10. SHARE CAPITAL
Changes in Class A Subordinate Voting Shares and Class B Shares are
shown in the following table: Class A Subordinate Voting Shares
Class B Shares Total --------------------- -----------------
---------------------- Stated Stated Stated Number Value Number
Value Number Value
-------------------------------------------------------------------------
Shares issued as part of the spin-off transaction and outstanding
at December 31, 2003 47,582,083 $1,552,901 548,238 $17,893
48,130,321 $1,570,794 Issued on exercise of stock options 30,000
910 - - 30,000 910
-------------------------------------------------------------------------
Issued and outstanding, at March 31, 2004, June 30, 2004, and
September 30, 2004 47,612,083 1,553,811 548,238 17,893 48,160,321
1,571,704 Issued on exercise of stock options 30,000 968 - - 30,000
968
-------------------------------------------------------------------------
Issued and outstanding, December 31, 2004 47,642,083 $1,554,779
548,238 $17,893 48,190,321 $1,572,672
-------------------------------------------------------------------------
-------------------------------------------------------------------------
11. DEFICIT Deficit reflects only the operations of the Company
subsequent to August 29, 2003, which was the date when Magna's net
investment was fixed for the purpose of the distribution of the
Company's Class A Subordinate Voting Shares and Class B Shares to
Magna's shareholders. FIRST AND FINAL ADD TO FOLLOW DATASOURCE: MI
Developments Inc. CONTACT: please contact Doug Tatters, Executive
Vice-President and Chief Financial Officer, at (905) 726-7507. For
teleconferencing questions, please contact Deborah Fox at (905)
726-7626
Copyright