UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) of the
SECURITIES
EXCHANGE ACT OF 1934
Date
of Report (Date of earliest event reported): March 15,
2006
(Exact
name of registrant as specified in its charter)
|
Kentucky
|
0-1469
|
61-0156015
|
|
(State
or other jurisdiction of incorporation or organization)
|
(Commission
File Number)
|
(IRS
Employer
Identification
No.)
|
700
Central Avenue, Louisville, Kentucky 40208
(Address
of principal executive offices)
(Zip
Code)
(502)
636-4400
(Registrant's
telephone number, including area code)
Not
Applicable
(Former
name or former address, if changed since last report)
Check
the
appropriate box below if the Form 8-K is intended to simultaneously satisfy
the
filing obligation of the registrant under any of the following
provisions:
|
[
]
|
Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
|
|
[
]
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
|
[
]
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR
240.14d-2(b))
|
|
[
]
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR
240.13e-4(c))
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Page
1
CHURCHILL
DOWNS INCORPORATED
INDEX
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Item
7.01
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Regulation
FD Disclosure
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|
Attached
and incorporated herein by reference as Exhibit 99.1 is a copy of
the
earnings release conference call transcript, dated March 15, 2006,
reporting the Registrant's financial results for the fourth quarter
and
full year of 2005.
|
|
|
Item
9.01
|
Financial
Statements and Exhibits
|
|
(c) Exhibits
Exhibit
99.1 Earnings release conference call transcript dated March 15,
2006.
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Page
2
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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CHURCHILL
DOWNS INCORPORATED
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|
|
March
17, 2006
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/s/ Michael E. Miller |
|
Michael
E. Miller
Executive
Vice President Finance and Chief Financial
Officer
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Page
3
CHURCHILL
DOWNS
Moderator:
Julie Koenig Loignon
March
15, 2006
9
a.m. EST
Operator: Good
day and
welcome to the Churchill Downs Incorporated fourth-quarter and year-end
conference call. Today's call is being recorded. At this time, for opening
remarks and introductions, I'd like to turn the call over to Ms. Julie Koenig.
Please go ahead.
Julie
Koenig Loignon: Thank you. Good
morning and welcome to the Churchill Downs Incorporated conference call to
review the Company's results for the fourth quarter and full year of 2005.
The
results were released yesterday afternoon in a news release that has been
covered by the financial media. A copy of this release announcing results
and
any other financial and statistical information about the period to be presented
in this conference call, including any information required by Regulation
G, is
available at the section of the Company's Web site, entitled “Company News,”
located at www.churchilldownsincorporated.com. Let me also note a release
has
been issued advising of the accessibility of this conference call on a
listen-only basis over the Internet.
As
we begin,
let me express that some statements made during this call will be
forward-looking statements as designed in the Private Securities Litigation
Reform Act of 1995. Forward-looking statements are statements that include
projections, expectations or beliefs about future events or results or otherwise
are not statements of historical fact. Actual performance of the Company
may
differ materially from that projected in such statements. Investors should
refer
to statements included in reports filed by the Company with the Securities
and
Exchange Commission for a discussion of additional information concerning
factors that could cause our actual results of operations to differ materially
from the forward-looking statements made in this call. The information being
provided today is of this date only, and Churchill Downs Incorporated expressly
disclaims any obligation to release, publicly, any updates or revisions to
these
forward looking statements to reflect any changes in expectations. I will
now
turn the call to Tom Meeker, president and chief executive officer.
Tom
Meeker: Thanks for joining us
this morning for a discussion of our Company's financial performance for
the
full year of 2005 and for the last quarter of 2005. During the course of
this
morning's conference call, I'll make a few general comments about the Company's
performance over the last year, followed by some comments about where the
Company will be focusing its efforts during the coming year. I'll then turn
the
call over to Mike Miller, our Chief Financial Officer, who will give you
some
more details about last year's performance. And thereafter, we'll stand ready
for any questions that you might have.
Despite
the natural disasters we faced in 2005, the Company performed exceptionally
well. As you know, we experienced three significant casualty losses in 2005
brought about by hurricane Wilma that caused extensive damage to our Calder
property, hurricane Katrina that ravaged the Gulf Coast, flooded New Orleans
and
inflicted severe damage on our Fair Grounds property and an unexpected, but
powerful tornado that caused significant damage to our Ellis Park property.
Throughout the third and fourth quarters, our team members devoted countless
hours reacting to these events and in short, they did an exemplary job
protecting not only our properties, but meeting the needs of our team members
who were personally affected by these events. And in many cases, our team
members were displaced from their homes and moved to other locations. As
previously reported, these casualty losses were insured with the exception
of
some deductibles, which Mike will talk about. Mike will also give you a status
on all of the claims that we are filing.
In
2005,
we sold Hollywood Park, which resulted in a significant improvement of our
balance sheet. While I regret having to leave California racing, the sale
has
allowed the Company to concentrate its human and capital resources on areas
within the industry that have significantly greater growth potential. The
casualty losses and the sale of Hollywood Park did not inhibit our ability
to
grow our continuing operations. And during 2005, which included our first
full
year of revenues from our Louisiana operations, revenues grew 13.2 percent
year
over year. EBITDA grew 16.2 percent year over year and net earnings grew
31.1
percent year over year. Mike will give you the underlying details associated
with these increases, but one of the most important factors was the solid
performance of Churchill Downs Racetrack. The facts clearly demonstrate that
the
$121 million capital investment we made under the Master Plan was well-planned,
thoughtfully financed and most important, well received by our customers.
In
short, it has and will continue to be a solid investment for the
Company.
Our
continuing operations also performed well against the backdrop of a challenging
year for the horse racing industry as a whole. The market was down almost
3.4
percent in 2005, and there were a number of factors contributing to this
decrease. First, the year got off to a poor start in California, where
unprecedented rainfall significantly impacted California racing and the access
to that market for our simulcast products. Due to ongoing construction,
Gulfstream Park in South Florida did not perform as well as in previous years.
Churchill Downs’ Spring Meet was significantly impacted by multiple equine
illnesses, including strangles and equine herpes, that led to repeated
quarantines and kept horses from regular training schedules. Additionally,
hurricane season - the record hurricane season -- impacted second, third
and
fourth quarter results in the important South Florida market. Finally, we
had
the effects of Hurricane Katrina, which negatively impacted the New Orleans
market. In spite of those challenges, Churchill Downs made progress on a
number
of strategic initiatives in 2005. By the end of the year we had in place
all of
the CRM platforms and programs developed by the Company. We are beginning
to see
positive results from the CRM initiative. Customer satisfaction polls conducted
at all of our locations are significantly higher than in previous years.
The
Twin Spires Club membership is up. The total handle run through the Twin
Spires
Club program, which is our affinity program, is also significantly higher
than
in previous years. Moreover, our CRM program was put to the test in responding
to an industry problem that surfaced in the first and second quarters of
2005 --
namely, the shortage of runners per race at tracks throughout the country.
Mid-year we embarked upon Project Breakout, which was targeted at improving
our
runners per race at various tracks. Based on the data we had available under
our
CRM program and, more importantly, analytical tools resonant in the programs
and
platforms, we were able to significantly improve the number of runners per
race
at the Churchill Downs Fall Meet. Through target efforts to enhance the level
of
customer service directed at our Kentucky horsemen, including the creation
of a
horseman services center, we increased our runners per race average from
9.8
runners per race to 10.2 runners per race in a year-over-year meet
comparison.
In
summary, 2005 was a challenging year, but despite the challenges, the Company
continued to grow, strengthened its balance sheet and continued to move forward
on important strategic initiatives. As we look forward, I see yet more
challenges but, more important, I see some exciting opportunities. And let
me
describe where the Company will focus its efforts during the coming year.
First,
we have cause for optimism as we look at the business levels across the industry
in the first two months. The pari-mutuel market is up almost 2.5 percent
through
the end of February year over year on strong results from California, Kentucky
and improved results from Maryland. Average field sizes have improved and
the
impact of the Mare Reproductive Loss Syndrome, which has contributed to smaller
field sizes over the last couple years, is diminishing.
Switching
from the domestic to the international market. As I've indicated over several
years, U.S. racing must concentrate its efforts on international deployment
as a
long-term growth strategy. Towards that end, we will continue to pursue
initiatives individually and collectively with other industry organizations
and
companies that are targeted at opening up new markets for U.S. wagering
products. Similarly, we will continue our efforts to improve the domestic
account- wagering operations. Beginning in March 2007, our exclusive
account-wagering contracts with TVG will begin to expire. The first contract
set
to expire is with Churchill Downs Racetrack and as we look to the future,
several objectives are clear. First, we must reexamine the business model
in
this area to ensure that horsemen and tracks obtain a fair share of the revenues
associated with this growth channel. Second, we must develop a system that
provides the account-wagering platform operator with the necessary tools,
such
as rebating, to compete with non-regulated offshore platforms. Third, major
racing states, such as Florida and Illinois, must be encouraged to pass
legislation that allows for account wagering, thereby strengthening not only
the
local industry, but the industry at large. Finally and most important, we
must
begin to operate the account wagering systems - system or systems in a
customer-centric manner. Simply put, our customers deserve more from the
industry, and absent that commitment, our customers will seemingly go elsewhere.
Similarly, our customers are entitled to a more secure and efficient tote
system
and during 2005, Churchill Downs, together with Magna, Woodbine and other
track
operators, commenced a process that will, in the end, deliver a more secure
customer-friendly and efficient tote system for the industry. I'm pleased
to
report that progress is being made. With a little luck and continued hard
work
by all of our partners, I firmly believe that the reengineering process of
the
tote system will accelerate in 2006 and in the near future, the industry
will be
processing wagers more efficiently, with more speed and most important, across
a
more secure system. Just as important, the system will have an open architecture
that will allow new and exciting customer interface technologies to be deployed
by those account- wagering systems operating across the tote system. During
2006
we will continue to focus on our under-performing assets. We are looking
at a
number of things including downsizing facilities consistent with the diminished
role of on-track attendance and handle on overall revenues. Developing
alternative uses for excess real estate and as we have successfully done
at
Churchill Downs Racetrack, developing a year round utilization strategy for
each
of our properties. Asset utilization is also a focus of our continuing efforts
to obtain favorable slot legislations. We will continue these efforts in
all
jurisdictions in which we do business. This year, we made progress in Kentucky,
where for the first time we obtained industry consensus on a number of
significant issues attending our slot legislation. In Illinois, we saw a
subsidy
bill barely miss passing in the House, and we look forward to the veto session
later on this year. In Indiana, there was little action taken on the slot
initiatives, but in place is a strong industry consensus as to where the
industry should be going. Finally, in Florida, we were disappointed in the
enabling legislation passed by the legislature. But, despite the lack of
a
favorable tax rate, we continue to believe that a business can be built around
alternative gaming in Florida. We are actively working to defeat a piece
of
legislation that would allow for yet another referendum that, if passed,
would
prevent voters in Miami-Dade where our Calder Race Course is located, from
making their own decision on whether to allow slots at racetracks. Finally,
we
will continue to prepare, consistent with what I've just said, for a second
countywide vote in the Miami-Dade county location on the issue of slots at
racetracks.
With
that
in mind, having said all that, I will turn the call over to Mike Miller who
will
give you all the details associated with our 2005 performance.
Mike
Miller: Thank you, Tom and
good morning everyone. I'll briefly cover our results for the year as well
as
comment on our financial position at the end of the year and then, as Tom
reported, we will respond to any questions you may have.
First
turning to the balance sheet, there are some significant changes when compared
to 2004, primarily as a result of the disposition of Hollywood Park last
September. Our overall decrease in assets is attributable to the sale, offset
by
a $22-million increase in plant equipment as well as a $5-million increase
in
other current assets. The increase in fixed assets is largely a result of
the
completion of the Master Plan during the second quarter just prior to Derby
last
year. Our ongoing capital expenditure program, with the exception of what
may
happen in New Orleans, would appear to be less than our anticipated depreciation
and amortization expense of approximately $22 million. The change in other
current assets is the result of an increase in the estimated receivable from
our
carriers for worker's compensation and general liability claims,, which also
partially explains the increase in the accrued expense category. The remainder
of the $12 million increase in that category, is attributable to liabilities
recorded at the time of the Hollywood Park sale, representing our best estimate
of the future potential cost we may incur related to our portion of
under-funding with certain multi-employer defined benefit plans in California.
With respect to the assets damaged by the hurricanes and the tornado, we
continue to believe that our insurance coverage provides adequate protection
and
that there will be no significant impairment incurred. We have received advances
from our carriers, and recovery efforts are well underway at all locations.
We,
and all businesses are, however, paying the price for these disasters. We
recently renewed property and casualty coverage for the Company, and for
the
year beginning this very month, we will pay an additional $3 million in
premiums, and our combined deductibles for wind losses at Calder and Fair
Grounds will increase by approximately $5 million to $6 million. Others in
the
hospitality gaming industry in the Gulf Coast are experiencing the same,
if not
worse, increases, but we certainly take no comfort in that fact.
At
year-end, our long-term debt outstanding to banks was only $15 million, which
reflects the result of applying the approximate $200 million of after-tax
proceeds from the Hollywood Park sale to de-lever. We continue to maintain
our
$200 million bank revolver with very favorable terms conditions, and thus
our
access to capital for growth activities is excellent. The balance of our
long-term debt was created in 2004 in connection with a convertible note
issued
in conjunction with a stock redemption. For those of you who have followed
us in
the past, you know that we are not afraid to lever the Company for the right
growth opportunities so long as we can foresee that these investments producing
reasonable cash flow, which in turn, will be used to de-lever.
In
the
equity section, please note the unearned stock compensation representing
the
unamortized portion of restricted stock grants that were made in 2004 and
2005.
Such grants are being amortized as expenses using the straight-line method
over
the five-year cliff-vesting period.
Shifting
now to the income statement in the segment information, I would like to echo
Tom's comments relative to how pleased we are with our accomplishments in
2005,
particularly in light of the significant obstacles our employees faced. At
Churchill Downs, the team performed beyond expectations as it opened the
completely renovated facility for the first time, producing yet another record
Oaks and Derby. The Master Plan, with this new venue and amenities, out
performed the original estimates developed several years ago when the project
was conceived. Likewise at Calder, Ellis Park and Fair Grounds, our employees
more than rose to the occasion to overcome the problems created by the
disasters. The result of all these efforts was to produce a 13-percent increase
to revenues for our continuing operations, largely influenced by the first
full
year inclusion of our Louisiana property. Arlington Park experienced a decrease
in revenues primarily attributable to a loss of dark day monies resulting
from
an administrative proceeding with the Illinois Racing Board and is, therefore,
not reflective of 2005 operations.
EBITDA
growth from continuing operations also experienced double-digit growth in
spite
of the negative cash flow at Fair Grounds and the reductions at Arlington
Park.
We do expect a turnaround this year in New Orleans due to very strong video
poker business at our OTBs as well as strong pari-mutuel business. We have
fewer
OTBs open this time than we did last year, but we are currently producing
almost
twice the EBITDA. Our pari-mutuel business is up 33 percent year over year,
and
video poker revenues are nearly doubled. We are presently working on a plan
to
open Fair Grounds for racing once we can establish that a workforce will
be in
place and that a reasonable market exists for our product. We expect to make
a
final decision on the matter prior to April 15.
I
also
want to call your attention to the new presentation of our segment data,
particularly the allocation of corporate expenses, which in turn, mirrors
the
way in which operations are managed. We are allocating 80 percent of such
expenses incurred by corporate departments to the operating units based on
their
live pari-mutuel revenues or, in the case of Louisiana, pari-mutuel revenues
as
well as video poker revenues. This decision has been brought about by our
focus
on centralizing certain administrative functions to enhance overall operating
efficiency. We will continue to challenge this method from time to time to
ensure this more clearly reflects our operation.
For
2005,
$11.8 million of expenses were allocated to the operating units. I would
refer
you to the 2004 amounts prior to restatement to better understand the impact
of
this change. On the face of the income statements, the pre-tax line for
continuing operations is flat from year to year. As is usually the case,
there
are several moving parts to this equation, but I would want to point out
some of
the more significant components. In 2004, we had $10.5 million of unusual
charges resulting from an impairment loss as well as a non-cash loss from
the
issuance of a derivative instrument. In 2005, our depreciation and amortization
expense increased by $5.7 million primarily as a result of the completed
Master
Plan. We also incurred $2.2 million in charges to reflect new contract changes
for the CEO, as well as absorbing a $3 million EBITDA loss in New Orleans
and
approximately $1 million in severance related costs related to staffing
realignment.
I
could
ramble on with more items, but I don't want to sound apologetic. We are very,
very pleased with our results and are excited about the prospects for the
future
and our current financial position. That having been said, we will always
closely examine non- or under-performing assets and will continue to scrub
our
cost structure for expense reduction opportunities. One final word related
to
EPS: what would appear to be a significant increase in EPS from 74 cents
to 98
cents, also requires some explanation. We experienced an anomaly with our
effective tax rate in 2004 due to the non-deductibility of the derivative
loss,
a significant portion of the impairment loss and legislative expenses. We
began
a return to normalcy in 2005, with respect to our effective tax rate and
expect
this trend to continue for 2006.
Now,
I'll
turn the call back to the operator and we will address whatever questions
you
may have.
Operator: Thank
you.
The question and answer session will be conducted electronically. If you'd
like
to ask a question, please do so by pressing the star key followed by the
digit
one on your touch-tone telephone. If you're using a speakerphone, please
make
sure your mute function is turned off to allow your signal to reach our
equipment. Once, again, it's *1 for questions, and we'll pause for just a
moment
to allow everyone a chance to signal.
We'll
take our first question from Tim Rice with Rice Voelker.
Tim
Rice: Good
morning.
Tom
Meeker: Good
morning.
Tim
Rice: My question - my
question relates to the Fair Grounds operation. You mentioned you'd make
a
decision by April 15, which I guess is the day you need to make a decision
for
the commission as far -
Tom
Meeker: That's
correct.
Tim
Rice: - as your racing
days. If you were to opt not to run the meet, what would be the impact on
your
OTB operations? Would you have to - would you still be allowed to run
those?
Tom
Meeker: Well, the OTB
operations are dependent upon the underlying license you have for the live
meet.
Last year, we obtained a waiver of that requirement by displacing up to
Shreveport -
Tim
Rice: Right.
Tom
Meeker: - and I - we’ve had a
number of discussions with the Commission. We are both vectored towards the
same
target and that is ensuring that we do the right thing for racing in Louisiana.
I don't think our OTB operations are in jeopardy at this point, even if we
had
to return to Shreveport to run the Fair Grounds meet. Our objective, though,
as
we've stated to the commission is to as quickly as possible, return to New
Orleans, given the fact that there are a number - or notwithstanding there
are a
number of contingencies, including such things as market and employment base
-
an employee base that we need down there to operate in that location. Basic
things such as water, electricity, we still - I'm not sure, we're hoping
to have
electricity on - in fact, it may be on by now. But there are a number of
factors
that we have to kind of sort our way through to ensure that the - when we
do
reopen, that we can run the best possible meet.
Tim
Rice: Great. I certainly
hope that's sooner rather than later.
Tom
Meeker: Well, so do we. We're
very encouraged by the level of business at the OTBs. As Mike indicated,
we are
down to about seven OTBs, I believe it is right now and they're performing
far
in excess of what they were performing prior to the hurricane.
Tim
Rice: Well, there are a lot
of people hungry for live racing down there.
Tom
Meeker: Right.
Tim
Rice: The other question
was relating to Calder. What - can you talk a little bit about your progress
in
restoring that property in the wake of its hurricane damage?
Tom
Meeker: It's fully restored
with exception of a couple of barns that we still have to re-roof and we're
hopefully going to have the new tote board, and actually a much improved
tote
board, installed down there - Andy, when's that going to be?
Andy
Skehan (Chief Operating Officer): Shortly after the
meet begins.
Tom
Meeker: OK.
Mike
Miller: Tim, the damage there
was largely in the barn area. Particularly, roofs in the barn area. There
wasn't
a tremendous amount of damage on the front side other than the loss of the
tote
board. We started repairing those barns probably a day or two after the storm
and it's just about completed. And we lost very little business. We had other
accommodations for horsemen for barn areas, but just about have it back to
where
it needs to be.
Tim
Rice: Great. Thanks very
much.
Tom
Meeker: Sure
enough.
Operator: We'll
go next
to Ryan Worst with Brean Murray.
Ryan
Worst: Thank you very much.
Mike, you guys really didn't mention too much about the fourth quarter
specifically and it looks like costs increased quite a bit during the quarter.
Could you kind of shed some light, if there's any kind of one-time-in-nature
cause associated with clean ups and costs to get things back up and running
at
the facilities impacted by the natural disasters? And then I have a couple
other
follow-up questions.
Mike
Miller: Well, most of those
clean up costs we believe are covered by insurance, Ryan, so that shouldn't
be
the reason for any increase. We did have a couple unusual items. We had a
$2.2
million adjustment for the SERP for the CEO related again to some contract
changes. We have about a million dollars incurred for severance-related costs
in
that quarter as well. So those are some big drivers of cost for the
quarter.
Ryan
Worst: Mike, where would
those items show up on the EBITDA breakout between the facilities.
Mike
Miller: Well, there would be
some in corporate and some spread to the facilities - the operating units
as I -
as I talked about with our approach now spreading corporate costs to the
units.
They would be spread, really throughout all of them, Ryan, including
corporate.
Ryan
Worst: So, there's
approximately, I guess, $3.2 million in one-time kind of costs associated
with
what you mentioned?
Mike
Miller: Yes. That's what
comes to mind. They're probably some others, but they --
Ryan
Worst: And then the $3
million loss in New Orleans at the Fair Grounds?
Mike
Miller: Right.
Ryan
Worst: Was that a function
of, you know, just lower business lines? It sounds like business volumes
have
done pretty well, or is that kind of - you know, what's the reason behind
such a
significant loss there?
Mike
Miller: Well, you need - you
need a little bit of history there. As you recall when we bought that property
in October of 2004, it had been losing a significant amount of money. And
so, we
ran the first live meet there beginning November of 2004 and ran a very
successful live meet, but by the same token, we had not even anticipated
turning
that operation fully around in 2005. So, the amount of loss for the year,
$3
million, was not unanticipated, but it was exacerbated by obviously the storm.
We're very encouraged by the OTB operations, but that having been said, from
Aug. 28, I think the date of the storm, until sometime in October, we had
no
business there. And then, the OTBs got back up and running in the latter
part of
October.
Tom
Meeker: But that was scaled,
it was slow, they didn't all just come back online.
Mike
Miller: Yes. We opened them
as we were able and we still don't have all of them reopened. With respect
to
the live meet, our arrangement with the Louisiana Downs - the lease if you
would, as such - was that we would keep the export pari-mutuel revenues,
but the
- just about the balance of anything related to live meet would benefit
Louisiana Downs. So, actually I'm very pleased the loss didn’t exceed
that.
Ryan
Worst: OK. And then, Tom,
could you talk about where you are in the process of the (tote) RFP? I was
- I
thought that that - that a decision was going to be made in the near future.
Is
that still the case or has that been pushed out a little bit? And then if
you
could touch upon this announcement yesterday by Magna Entertainment to export
North American racing signals to the UK for Ladbrokes? Are you guys
participating in that? And then if you could maybe be more - a little more
specific on your - the options available to you as far as pursuing your
objectives for account wagering?
Tom
Meeker: OK. Let me go back.
What was the first one? The first one -
Mike
Miller: About the
tote.
Tom
Meeker: Oh, the tote. The
tote RFP process is fully engaged. There's some discussions going on right
now
among the participants in the RFP process as well as number of tote providers.
And I would think that within the coming month, we should have some clarity
that
we can deliver to the market on what is going to happen on that front. I
continue to say, not only from the standpoint of a more efficient system,
but
the transactional part of our business needs to be fixed and I'm not suggesting
there's any gross lack of integrity in the system, but as you well know,
we’re
not processing bets as quickly as we should. We have odds that are coming
up a
minute to two minutes passed the running of the race and so, it's a strategic
imperative from that standpoint. But more important, it's also a strategic
imperative that we develop a transactional platform that has an open
architecture on the front end so that we can start hooking on these new
technologies as they become available. Be they PDAs, self-serve machines,
you
name it. And I think that process and the architecture that was described
in the
RFP will be something we'll inure to the benefit of the entire
industry.
The
second question relates to?
Mike
Miller: Magna.
Tom
Meeker: Oh, Magna,
yes.
Ryan
Worst: Their agreement with
Ladbrokes?
Tom
Meeker: Yes. I'm not - I
can't comment on that, but we have been, under the guise of Racing World,
been
working with Magna for the last several months and we're encouraged by what
we
see as an opportunity in moving into the UK and Ireland, under the guise
of
Racing World. That's about all I can say about that.
Finally,
the account-wagering strategy for the Company. As you know, we made the decision
- in fact, ODS, which was the precursor of the TVG platform - that came out
of
our Company. We, together with the ODS folks, developed the original platform
and ultimately it was bought by TVG or Gemstar. And we were one of the original
signatories of the founders agreement, which committed us for a term of years
to
use TVG as our exclusive distributor and production and account-wagering
operator and those contracts, while they go over a period of about 13 months,
the first of which comes up in March 2007.
In
terms
of where we might be going, I can't really speak specifically, but we're
looking
at a myriad of opportunities that are available to us and the objectives
that I
set forth in the opening comments, are the objectives that will guide our
decision-making process as we determine how best to develop, not only for
our
Company but for the industry at large, a coherent, customer-friendly,
account-wagering platform. My questions - which I've asked our folks as well
as
the industry at large - my questions really center on the customer. Why does
the
customer have to have three, four, five accounts? Why can't the customer
choose
what he sees and where he wants to bet? Why do we provide barriers to our
customers in terms of wagering on events that they want or races that they
want
to wager on? So, those are going to be the baseline criteria that we will
use in
making a decision, not only for our Company, but hopefully, a decision will
inure to the benefit of the larger industry.
Ryan
Worst: All right,
thanks.
Operator: Once
again,
it's star one for questions.
And
we'll
go next to Jen Ganzi with Gabelli & Company.
Jen
Ganzi: Hi, I was just
wondering if you could possibly break out your revenues and EBITDA from the
video poker operations?
Mike
Miller: Well, no, we've
chosen not to that at this point in time, so, no, we will not do that as
we
speak.
Jen
Ganzi: OK. And just any -
just, you know, regarding the gaming legislation in Florida. I was wondering
when do you anticipate, you know, if there's going to be a vote in Miami-Dade
County? When do you anticipate that happening?
Tom
Meeker: We would hope in 2007
or early 2008. It depends on various issues down there attendant to local
elections.
Jen
Ganzi: So would that be
later 2007?
Tom
Meeker: Say
again?
Jen
Ganzi: Would that be in
later of 2007?
Tom
Meeker: Yes,
probably in the latter part of 2007, early part of 2008.
Jen
Ganzi: OK, and what about
Kentucky? Do you have any priority on that?
Tom
Meeker: Well, nothing other
than what has been reported widely across the press. There is a bill that
may or
may not get out of committee today that would allow for a statewide referendum
on the issue of slots at racetracks. And I think as we move down the road
- the
next couple weeks - we'll have much more clarity on that. I think the important
thing in Kentucky is the fact that we have for the first time, been able
to
achieve a consensus among all of the constituents involved in racing, be
they
horsemen, jockeys, track operators, racing commission, a myriad of folks
that
have a vested interest in this industry and there is a concerted effort that
has
been achieved or consensus I should say, and that is very
encouraging.
Jen
Ganzi: OK. Great. And any plans
for a share buy back? Or anything like that?
Mike
Miller: Not at this time,
no.
Tom
Meeker: If
there were, I don’t think we would announce it here.
Jen
Ganzi: OK. Thank
you.
Operator: We'll
take
our next question from Ryan Worst of Brean Murray.
Ryan
Worst: Thanks.
Mike, can you just go over again what you said about the increase in insurance
costs? I didn't quite catch all the numbers.
Mike
Miller: Well, the year begins
March 1. Our insurance year does. Our renewals, other than for property,
were
generally flat or slightly down. The slightly down would be as a result of
no
longer having Hollywood in our family. But our premiums for property coverage
will increase beginning in March on about a $3 million run rate annually.
And in
addition, our retentions - or our deductibles, if you would - for wind damage
at
Calder and Fair Grounds increased dramatically -- somewhere in the nature
of $5
million to $6 million more exposure for the Company. That is a result of
not
only the losses that we sustained, but that these carriers sustained in general
in the Gulf Region.
Ryan
Worst: OK. And then could
you just touch upon Arlington Park? If you look at the EBITDA break out,
it
looks like you guys lost almost $2 million more than last year in the fourth
quarter. And I was wondering what drove that decline?
Mike
Miller: Well, there was some
- there was some soft business in the fourth quarter. We also had some expenses
in the fourth quarter related to severance costs.
Ryan
Worst: OK.
Mike
Miller: And insurance costs.
And actually, Ryan, there's probably a list of about 10 things, not any one
of
which is significant, but they all added up.
Ryan
Worst: OK.
Thanks.
Operator: And
there are
no further questions at this time.
Tom
Meeker: Well
again, thank you for joining us this morning. I will tell you parenthetically
that last year in the fourth quarter, I looked forward to this call and I
somewhat dreaded it in light of all of the casualties that we were suffering
and
then, you know, with the events that culminated at Ellis Park, it was a fairly
bleak time within the Company. I'm pleased, though, to be with you this morning
and I'm more pleased with the fact that I was able to report that the Company,
despite all of these challenges that we faced in 2005, performed exceptionally
well by any measurement. And I'm even more pleased by what I was discussing
with
you this morning in terms of the opportunities that are available to the
industry, not only for our Company, but in terms of transforming the industry
and getting it on a growth path that is significant - that will be significant
for all of us.
So,
as we
move forward, I look forward to the next call that we will have to discuss
these
things and at that time be able to report, hopefully on equally exciting
news
and good performance.
Operator: Once
again, that does
conclude today's conference call. We appreciate your participation. You may
now
disconnect.
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END
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