03/05/2007 1:00AM

Magna posts $87M loss


Magna Entertainment Corp., the largest racetrack operator in the U.S., lost $87.5 million in 2006, the fourth straight year in which the company has posted a large loss on its operations, according to financial statements released on Monday morning.

Including the 2006 results, Magna has now lost approximately $400 million over the past five years. Magna posted the $87.5 million loss this year despite a $126.4 million gain on the sale in the fourth quarter of the Meadows, a harness track in Pennsylvania. That sale was offset by non-cash charges of $88.6 million to reflect poor results at its racetrack and casino in Austria and at other properties.

The 2006 results underline ongoing financial problems at Magna that have proven to be remarkably stubborn. Although Magna used $116.8 million of the proceeds from the sale of the Meadows to pay down debt to its parent company, MI Developments, the company still had $581 million in debt at the end of 2006, compared with revenue during the year of $702.1 million.

In a note to its financial statements, the company said that it had an accumulated deficit of $396.3 million and a working capital deficiency of $94.2 million as of the end of last year. "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," the note stated.

Magna's financial statements for 2005 also questioned the company's ability to continue as a going concern.

Michael Neuman, who was hired as the company's chief executive officer last week, said in a conference call on Monday that Magna has not been able to capitalize yet on its strategy of acquiring racetracks and developing distribution platforms such as its account-wagering operation, XpressBet, and horseracing broadcast channel, HRTV.

"While the vision is strong," Neuman said, "our mission now is to execute and focus on" profits and losses.

Not including the sale of the Meadows, revenue for 2006 of $702.1 million was a 16.2 percent increase over revenue in 2006. Revenue from parimutuel wagering was $501.3 million, up from $488.5 million, while revenue from slot machines was $64.8 million, up from $6.4 million. Magna opened a casino at Gulfstream Park in Florida during the year.

Expenses rose to $794.4 million, up from $707.6 million. During the year, Magna had interest expense of $60.7 million, compared to $32.8 million in 2005.

Magna's stock declined 11 cents, or 2.7 percent, to $3.92 a share on Monday.