Churchill Downs Incorporated Reports 2010 Q1 Results

Record first quarter revenue from continuing operations
Attendance and wagering records broken for Kentucky Oaks
16.5 million people view Kentucky Derby race on NBC, highest in 21 years

Churchill Downs Incorporated (“CDI”) (NASDAQ: CHDN), today reported results for the first quarter ended March 31, 2010.

Net revenues from continuing operations for the first quarter of 2010 totaled a record $75.1 million, an increase of 2 percent over net revenues from continuing operations of $73.7 million recorded during the first quarter of 2009.  Net revenues from continuing operations for the quarter were positively affected by revenue from the newly opened Calder Casino and revenue growth at TwinSpires.com, offset by the non-recurrence of $4.3 million in source market fee revenue that had been received by Arlington Park in the first quarter of 2009.

CDI typically records a net loss from continuing operations in the first quarter as it conducts minimal live racing during that period.  Net loss from continuing operations for the period was $8.4 million, or $0.62 per diluted common share, compared to a net loss from continuing operations of $5.1 million, or $0.37 per diluted common share, in the same period of 2009.  Total EBITDA (earnings before interest, taxes, depreciation and amortization) was negative $5.5 million in the first quarter, compared to negative $0.9 million for the first quarter of 2009.  The increased EBITDA loss was caused primarily by the following items:  the first quarter 2009 recognition of Arlington Park source market fee income, net of purses, of $2.1 million; expenses related to the Youbet.com, Inc. merger of $1.1 million; and pre-opening expenses related to the Calder Casino of $1.1 million.

CDI President and Chief Executive Officer, Robert L. Evans said, “We are generally pleased with the performance of our core business in the first quarter of 2010.  Operations at the Calder Casino, which opened on January 22, 2010, continue to progress.  Of the five pari-mutuel slot operators in Florida, month-to-date as of the April 18th reporting period, we are now second in the market with approximately 20 percent of net gaming revenue and approximately 22 percent of the total number of Florida gaming machines offered for play.  We continue to believe the Calder Casino will operate at between $80 million and $100 million in gross gaming revenue on an ongoing, annualized basis.  On April 28, 2010, the Florida governor signed into law legislation that, effective July 1, 2010, reduces the tax rate on Calder Casino slots revenue by 15 percentage points, 10 percentage points of which accrue to CDI, with the balance going to purses at Calder Race Course.  Additionally, this legislation reduces the Calder Casino’s annual license fee by $500,000 effective July 1, 2010, and by an additional $500,000 effective July 1, 2011.”

Evans continued, “CDI’s Online Business revenues grew 8 percent in the quarter, primarily due to an 8 percent increase in handle recorded by TwinSpires.com.  The Company’s pending acquisition of Youbet.com, Inc. continues to proceed through the U.S. Department of Justice’s review process, with a second quarter 2010 closing of the transaction still anticipated.”

The 136th running of the Kentucky Oaks and Kentucky Derby saw improved business performance across the board.  Combined, two-day attendance of 271,850 was up over 5 percent from last year, and was a new record.  Two-day all-sources handle of $198.7 million on the Churchill Downs race cards was up 7 percent and was less than 1.5 percent below the all-time record set in 2007.  While still preliminary, we estimate the contribution of Kentucky Derby Week to our Racing Operations EBITDA will likely increase $3 million or more over 2009.

“The growing strength of both the Kentucky Oaks and Kentucky Derby is remarkable,” said Evans.  “With record attendance and handle, the Kentucky Oaks now competes favorably with any race or sporting event, anywhere.  The Kentucky Derby continues to amaze and delight us and fans around the world.  Despite abysmal weather, 155,804 people, the sixth largest crowd ever, joined us at Churchill Downs, while 16.5 million more, the largest viewing audience in 21 years, joined us on NBC to watch the race.  We want to congratulate the Kentucky Derby winner, Super Saver, owners WinStar Farm’s Kenny and Lisa Troutt and Bill and Susan Casner, jockey Calvin Borel, and trainer Todd Pletcher.”

A conference call regarding this news release is scheduled for Thursday, May 6, 2010 at 9 a.m. ET.  Investors and other interested parties may listen to the conference call by accessing the online, real-time webcast of the call at www.ChurchillDownsIncorporated.com or www.OpenCompany.Info as well as on the Yahoo Finance Calendar, or by dialing toll-free: 877-815-1625 or, if dialing internationally, using the toll number 973-796-5004 at least 10 minutes before the appointed time.  The conference ID number for this call is 67088322.  The online replay will be available within 90 minutes from the conclusion of the conference call, and continue for a year.  A copy of CDI’s news release announcing the quarterly and relevant financial and statistical information about the period will be posted to the CDI website: www.ChurchillDownsIncorporated.com.

In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), CDI has provided a non-GAAP measurement, which presents a financial measure of earnings before interest, taxes, depreciation and amortization (“EBITDA”).  Churchill Downs Incorporated uses EBITDA as a key performance measure of results of operations for purposes of evaluating performance internally.  CDI believes the use of this measure enables management and investors to evaluate and compare, from period to period, CDI’s operating performance in a meaningful and consistent manner.  This non-GAAP measurement is not intended to replace the presentation of CDI’s financial results in accordance with GAAP.  A reconciliation of EBITDA to net earnings is included in the Supplemental Information by Operating Unit table within this news release.

Churchill Downs Incorporated (“CDI”), headquartered in Louisville, Ky., owns and operates four world renowned Thoroughbred racing facilities: Arlington Park in Illinois, Calder Casino and Race Course in Florida, Churchill Downs Race Track in Kentucky and Fair Grounds Race Course & Slots in Louisiana.  CDI operates slots and gaming operations in Louisiana and Florida.  CDI tracks are host to North America’s most prestigious races, including the Arlington Million, the Kentucky Derby and the Kentucky Oaks, the Louisiana Derby and the Princess Rooney, along with hosting the Breeders’ Cup World Championships for a record seventh time on Nov. 5-6, 2010.  CDI also owns off-track betting facilities, TwinSpires.com and other advance-deposit wagering channels, television production, telecommunications and racing service companies such as BRIS and a 50-percent interest in the national cable and satellite network, HorseRacing TV, which supports CDI’s network of simulcasting and racing operations.  CDI’s Entertainment Group produces the HullabaLOU Music Festival at Churchill Downs Racetrack, which premieres on Jul. 23-25, 2010.  CDI trades on the NASDAQ Global Select Market under the symbol CHDN and can be found at www.ChurchillDownsIncorporated.com

Information set forth in this discussion and analysis contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 (the “Act”) provides certain “safe harbor” provisions for forward-looking statements. All forward-looking statements made in this Annual Report on Form 10-K are made pursuant to the Act. The reader is cautioned that such forward-looking statements are based on information available at the time and/or management’s good faith belief with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Forward-looking statements speak only as of the date the statement was made. We assume no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. Forward-looking statements are typically identified by the use of terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “should,” “will,” and similar words, although some forward-looking statements are expressed differently. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from expectations include: the effect of global economic conditions, including any disruptions in the credit markets; the effect (including possible increases in the cost of doing business) resulting from future war and terrorist activities or political uncertainties; the overall economic environment; the impact of increasing insurance costs; the impact of interest rate fluctuations; the effect of any change in our accounting policies or practices; the financial performance of our racing operations; the impact of gaming competition (including lotteries and riverboat, cruise ship and land-based casinos) and other sports and entertainment options in those markets in which we operate; the impact of live racing day competition with other Florida and Louisiana racetracks within those respective markets; costs associated with our efforts in support of alternative gaming initiatives; costs associated with customer relationship management initiatives; a substantial change in law or regulations affecting pari-mutuel and gaming activities; a substantial change in allocation of live racing days; changes in Illinois law that impact revenues of racing operations in Illinois; the presence of wagering facilities of Indiana racetracks near our operations; our continued ability to effectively compete for the country’s horses and trainers necessary to achieve full field horse races; our continued ability to grow our share of the interstate simulcast market and obtain the consents of horsemen’s groups to interstate simulcasting; our ability to execute our acquisition strategy and to complete or successfully operate planned expansion projects; our ability to successfully complete any divestiture transaction; our ability to execute on our permanent slot facility in Louisiana and permanent slot facility in Florida; market reaction to our expansion projects; the loss of our totalisator companies or their inability to provide us assurance of the reliability of their internal control processes through Statement on Auditing Standards No. 70 audits or to keep their technology current; the need for various alternative gaming approvals in Louisiana; our accountability for environmental contamination; the loss of key personnel; the impact of natural disasters on our operations and our ability to adjust the casualty losses through our property and business interruption insurance coverage; any business disruption associated with a natural disaster and/or its aftermath; our ability to integrate businesses we acquire, including our ability to maintain revenues at historic levels and achieve anticipated cost savings; the impact of wagering laws, including changes in laws or enforcement of those laws by regulatory agencies; the outcome of pending or threatened litigation; changes in our relationships with horsemen's groups and their memberships; our ability to reach agreement with horsemen's groups on future purse and other agreements (including, without limiting, agreements on the sharing of revenues from gaming and advance deposit wagering); the effect of claims of third parties to intellectual property rights; and the volatility of our stock price.

 

 

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF NET LOSS

for the three months ended March 31, 2010 and 2009

(Unaudited)

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 31,

 

 

 

 

2010

 

2009

 

% Change

Net revenues

 

 $         75,050

 

 $         73,737

 

2

Operating expenses

 

            77,905

 

            70,283

 

11

Selling, general and administrative expenses

 

            13,371

 

            12,449

 

7

 

Operating loss

 

          (16,226)

 

            (8,995)

 

(80)

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Interest income

 

                 111

 

                 123

 

(10)

 

Interest expense

 

            (1,258)

 

               (316)

 

U

 

Equity in earnings of unconsolidated investments

 

                 443

 

                 322

 

38

 

Miscellaneous, net

 

                 294

 

                 320

 

(8)

 

 

 

 

               (410)

 

                 449

 

U

Loss from continuing operations before

 

 

 

 

 

 

 

benefit for income taxes

 

          (16,636)

 

            (8,546)

 

(95)

Income tax benefit

 

              8,227

 

              3,479

 

F

Loss from continuing operations

 

            (8,409)

 

            (5,067)

 

(66)

Discontinued operations, net of income taxes:

 

 

 

 

 

 

 

(Loss) earnings from operations

 

               (259)

 

                 241

 

U

Net loss

 

 $         (8,668)

 

 $         (4,826)

 

(80)

 

 

 

 

 

 

 

 

 

Net loss per common share data:

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

Loss  from continuing operations

 

 $           (0.62)

 

 $           (0.37)

 

(68)

 

 

Discontinued operations

 

              (0.02)

 

                0.01

 

U

 

 

Net loss

 

 $           (0.64)

 

 $           (0.36)

 

(78)

 

Diluted

 

 

 

 

 

 

 

 

Loss  from continuing operations

 

 $           (0.62)

 

 $           (0.37)

 

(68)

 

 

Discontinued operations

 

              (0.02)

 

                0.01

 

U

 

 

Net loss

 

 $           (0.64)

 

 $           (0.36)

 

(78)

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

 

            13,609

 

            13,573

 

 

 

Diluted

 

            13,609

 

            13,573

 

 

 

 

 

 

CHURCHILL DOWNS INCORPORATED

SUPPLEMENTAL INFORMATION BY OPERATING UNIT

for the three months ended March 31, 2010 and 2009

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

March 31,

 

2010

 

2009

 

% Change

 

 

 

 

 

 

Net revenues from external customers:

 

 

 

 

 

  Churchill Downs

 $           2,140

 

 $           2,071

 

3

  Arlington Park

              9,038

 

            16,041

 

(44)

  Calder

              2,950

 

              2,184

 

35

  Fair Grounds

            16,527

 

            18,688

 

(12)

      Total Racing Operations

            30,655

 

            38,984

 

(21)

  Online Business

            17,957

 

            16,650

 

8

  Gaming

            26,332

 

            17,875

 

47

  Other Investments

                   99

 

                 101

 

(2)

  Corporate

                     7

 

                 127

 

(94)

  Net revenues

 $         75,050

 

 $         73,737

 

2

 

 

 

 

 

 

Intercompany net revenues:

 

 

 

 

 

  Churchill Downs

 $              108

 

 $                -  

 

NM

  Arlington Park

                 424

 

                 242

 

75

  Calder

                   24

 

                   20

 

20

  Fair Grounds

                 539

 

                 580

 

(7)

      Total Racing Operations

              1,095

 

                 842

 

30

  Online Business

                 164

 

                 124

 

32

  Other Investments

                 373

 

                 375

 

(1)

  Eliminations

            (1,632)

 

            (1,341)

 

(22)

      Intercompany net revenues

 $                  -

 

 $                  -

 

-

 

 

 

 

 

 

Segment EBITDA and net loss:

 

 

 

 

 

  Racing Operations

 $       (12,863)

 

 $       (10,749)

 

(20)

  Online Business

              3,995

 

              3,738

 

7

  Gaming

              4,939

 

              6,692

 

(26)

  Other Investments

               (223)

 

                 378

 

U

  Corporate

            (1,312)

 

               (995)

 

(32)

     Total EBITDA

            (5,464)

 

               (936)

 

U

  Depreciation and amortization

          (10,025)

 

            (7,417)

 

(35)

  Interest income (expense), net

            (1,147)

 

               (193)

 

U

  Income tax benefit

              8,227

 

              3,479

 

F

       Loss  from continuing operations

            (8,409)

 

            (5,067)

 

(66)

  Discontinued operations, net of income taxes

               (259)

 

                 241

 

U

       Net loss 

 $         (8,668)

 

 $         (4,826)

 

(80)

 

 

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

 

 

2010

 

2009

ASSETS

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

 $17,360

 

 $13,643

 

Restricted cash

 

              30,687

 

              35,125

 

Accounts receivable, net

 

              16,666

 

              33,446

 

Deferred income taxes

 

                6,408

 

                6,408

 

Income taxes receivable

 

                7,818

 

                       -

 

Other current assets

 

              25,019

 

              16,003

 

 

Total current assets

 

            103,958

 

            104,625

 

 

 

 

 

 

 

Property and equipment, net

 

            463,482

 

            458,222

Goodwill

 

            115,349

 

            115,349

Other intangible assets, net

 

              32,388

 

              34,329

Other assets

 

              13,278

 

              12,877

 

 

Total assets

 

 $728,455

 

 $725,402

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

 $36,167

 

 $38,772

 

Purses payable

 

              10,224

 

              11,857

 

Accrued expenses

 

              41,823

 

              46,603

 

Dividends payable

 

                       -

 

                6,777

 

Deferred revenue

 

              50,140

 

              30,972

 

Income taxes payable

 

                     -  

 

                1,997

 

Deferred riverboat subsidy

 

              23,987

 

              23,965

 

Note payable, related party

 

              24,043

 

              24,043

 

 

Total current liabilities

 

            186,384

 

            184,986

 

 

 

 

 

 

 

Long-term debt

 

              80,328

 

              71,132

Convertible note payable, related party

 

              14,670

 

              14,655

Other liabilities

 

              19,403

 

              19,137

Deferred revenue

 

              16,720

 

              16,720

Deferred income taxes

 

              10,542

 

              11,750

 

 

Total liabilities

 

            328,047

 

            318,380

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

Shareholders' equity:

 

 

 

 

 

Preferred stock, no par value; 250 shares authorized; no shares issued

 

                       -

 

                       -

 

Common stock, no par value; 50,000 shares authorized; 13,774 shares issued

 

 

 

 

 

 

March 31, 2010 and 13,684 shares issued at December 31, 2009

 

            147,477

 

            145,423

 

Retained earnings

 

            252,931

 

            261,599

 

 

Total shareholders' equity

 

            400,408

 

            407,022

 

 

Total liabilities and shareholders' equity

 

 $728,455

 

 $725,402