October 26, 2011

Churchill Downs Incorporated Reports 2011 Third-Quarter Results

  • Net Revenues From Continuing Operations Grow 13 Percent, Reach New Q3 High
  • EBITDA More Than Doubles From Prior-Year Period
  • Growth in Gaming and Online Business Segments Fuels Higher Earnings

LOUISVILLE, Ky., Oct. 26, 2011 (GLOBE NEWSWIRE) -- Churchill Downs Incorporated ("CDI" or "the Company") (Nasdaq:CHDN) today reported business results for the third quarter and nine months ended Sept. 30, 2011.

Net revenues from continuing operations set a new record for the third quarter, climbing to $166.3 million, up 13 percent from the $147.5 million recorded during the third quarter of 2010. The increase was due primarily to the inclusion of net revenues of $13.4 million generated by Harlow's Casino Resort & Hotel ("Harlow's"), which the Company acquired in December 2010, as well as the improved quarter-over-quarter performance of the Calder Casino and the Company's Online business segment. CDI's online-wagering company, TwinSpires.com, experienced a wagering increase of 4.2 percent as compared to the prior-year period, which was partially due to growth in new customers and an increase in average-daily wagering through the platform. During the third quarter of 2011, total wagering on U.S. Thoroughbred races declined an average of 7.4 percent compared to the same period in 2010, according to statistics released by the Equibase Company.

EBITDA (earnings before interest, taxes, depreciation and amortization) for this year's third quarter more than doubled to $43.0 million from the $17.1 million recorded during the third quarter of 2010. Significant items affecting CDI's EBITDA growth include the impact of the receipt of $19.3 million in Illinois Horse Racing Equity Trust Fund proceeds recorded as miscellaneous, other income during the quarter. The Trust Fund monies were related to Illinois riverboat casino impact fees that had been held in escrow pending the resolution of litigation. CDI's share of the Trust Fund monies contributed to higher Racing Operations EBITDA for the third quarter of 2011. Gaming EBITDA also increased $5.3 million quarter-over-quarter, due to the inclusion of $4.0 million of EBITDA from Harlow's and an increase of $0.9 million of EBITDA from the Calder Casino. EBITDA from CDI's Online business grew $4.0 million compared to the year-earlier quarter, due to an increase of $2.2 million in pari-mutuel revenue as well as the impact of charges related to the Youbet.com integration that were recorded during the third quarter of 2010.

Net earnings from continuing operations for the period were $19.7 million, or $1.16 per diluted common share, versus $3.7 million, or $0.22 per diluted common share, in the third quarter of 2010. Net earnings from continuing operations were positively impacted by the continued growth of the Company's Gaming and Online business segments and the inclusion of Illinois Horse Racing Equity Trust Fund monies during the quarter.

CDI Chairman and Chief Executive Officer Robert L. Evans said, "It was a very good quarter, even when we exclude the impact of the Illinois Horse Racing Equity Trust Fund proceeds. Once again, the decline in net revenues and EBITDA—excluding those Trust Fund proceeds—in our Racing Operations was more than offset by significant gains in our Online and Gaming businesses. We used the resulting cash flow to pay down another $28.6 million in long-term debt during the third quarter, bringing our debt reduction for the first nine months of the year to $108.8 million."

A conference call regarding this news release is scheduled for Thursday, Oct. 27, 2011, at 9 a.m. EDT. Investors and other interested parties may listen to the teleconference by accessing the online, real-time webcast and broadcast of the call at http://ir.churchilldownsincorporated.com/events.cfm or by dialing (877) 372-0878 and entering the conference ID number 52962986 at least 10 minutes before the appointed time. International callers should dial (253) 237-1169. An online replay of the call will be available at http://ir.churchilldownsincorporated.com/events.cfm by noon EDT. A copy of the Churchill Downs Incorporated's news release announcing quarterly results and relevant financial and statistical information about the period will be accessible at 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"). CDI 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") (Nasdaq:CHDN), headquartered in Louisville, Ky., owns and operates the world-renowned Churchill Downs Racetrack, home of the Kentucky Derby and Kentucky Oaks, as well as racetrack and casino operations and a poker room in Miami Gardens, Fla.; racetrack, casino and video poker operations in New Orleans,. La.; racetrack operations in Arlington Heights, Ill.; and a casino resort in Greenville, Miss. CDI also owns the country's premier account-wagering company, TwinSpires.com, and other advance-deposit wagering providers; the totalizator company, United Tote; and a collection of racing-related telecommunications and data companies. Information about CDI can be found online 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 Quarterly Report on Form 10-Q 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; a decrease in consumers' discretionary income; 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, online gaming and riverboat, cruise ship and land-based casinos) and other sports and entertainment options in the markets in which we operate; our ability to maintain racing and gaming licenses to conduct our businesses; the impact of live racing day competition with other Florida, Illinois and Louisiana racetracks within those respective markets; the impact of higher purses and other incentives in states that compete with our racetracks; 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 Kentucky, Florida, Illinois or Louisiana law or regulations that impact revenues or costs of racing operations in those states; the presence of wagering and gaming operations at other states' racetracks and casinos 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 enter into agreements with other industry constituents for the purchase and sale of racing content for wagering purposes; our ability to execute our acquisition strategy and to complete or successfully operate planned expansion projects; our ability to successfully complete any divestiture transaction; market reaction to our expansion projects; the inability of our totalisator company, United Tote, to maintain its processes accurately or keep its technology current; our accountability for environmental contamination; the ability of our online business to prevent security breaches within its online technologies; the loss of key personnel; the impact of natural and other disasters on our operations and our ability to obtain insurance recoveries in respect of such losses (including losses related to business interruption); our ability to integrate any businesses we acquire into our existing operations, 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 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.

The reader should read this discussion in conjunction with the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K for the year ended Dec. 31, 2010, for further information, including Part I — Item 1A, "Risk Factors" for a discussion regarding some of the reasons that actual results may be materially different from those we anticipate, as modified by Part II — Item 1A, "Risk Factors" of this Quarterly Report on Form 10-Q.

CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF NET EARNINGS
For the three months ended Sept. 30, 2011, and 2010
(Unaudited)
(in thousands, except per common share data) 
       
   
 Three Months Ended
September 30,
 20112010% Change
Net revenues      
Racing  $ 66,539  $ 67,348 (1)
Gaming  51,922  34,667 50
Online  42,015  39,232 7
Other  5,873  6,299 (7)
   166,349  147,546 13
Operating expenses      
Racing  64,681  67,083 (4)
Gaming  39,051  27,978 40
Online  30,584  28,559 7
Other  5,808  5,350 9
Selling, general and administrative expenses  16,138  15,281 6
       
Operating income  10,087  3,295 F
       
Other income (expense):      
Interest income  116  30 F
Interest expense  (1,576)  (1,625) (3)
Equity in loss of unconsolidated investments   (467)  (470) (1)
Miscellaneous, net  19,934  1,832 F
   18,007  (233) F
       
Earnings from continuing operations before provision for income taxes  28,094  3,062 F
       
Income tax provision  (8,374)  638 U
       
Earnings from continuing operations  19,720  3,700 F
       
Discontinued operations, net of income taxes  60  (4,389) F
       
Net earnings (loss)  $ 19,780  $ (689) F
       
Net earnings (loss) per common share data:      
Basic      
Earnings from continuing operations  $ 1.17  $ 0.22 F
Discontinued operations  --  (0.26) F
Net earnings (loss)  $ 1.17  $ (0.04) F
       
Diluted      
Earnings from continuing operations  $ 1.16  $ 0.22 F
Discontinued operations  0.01  (0.26) F
Net earnings (loss)  $ 1.17  $ (0.04) F
       
Weighted average shares outstanding      
Basic  16,858  16,311  
Diluted  16,974  16,768  
       
NM: Not meaningful U: > 100% unfavorable F: > 100% favorable  
 
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF NET EARNINGS
For the nine months ended Sept. 30, 2011, and 2010
(Unaudited)
(in thousands, except per common share data) 
       
 Nine Months Ended
September 30,
 20112010% Change
Net revenues      
Racing  $ 246,372  $ 247,801 (1)
Gaming  160,468  104,263 54
Online  125,344  87,374 43
Other  15,405  8,666 78
   547,589  448,104 22
Operating expenses      
Racing  201,356  209,918 (4)
Gaming  118,690  88,502 34
Online  85,800  61,950 38
Other  16,591  7,961 U
Selling, general and administrative expenses  50,443  43,937 15
       
Operating income  74,709  35,836 F
       
Other income (expense):      
Interest income  240  158 52
Interest expense  (7,497)  (4,303) 74
Equity in earnings of unconsolidated investments   (423)  (317) 33
Miscellaneous, net  23,549  2,485 F
   15,869  (1,977) F
       
Earnings from continuing operations before provision for income taxes  90,578  33,859 F
       
Income tax provision  (34,054)  (10,034) U
       
Earnings from continuing operations  56,524  23,825 F
       
Discontinued operations, net of income taxes:      
Earnings (loss) from operations  61  (5,577) F
Gain on sale of assets  157  -- F
       
Net earnings  $ 56,742  $ 18,248 F
       
Net earnings per common share data:      
Basic      
Earnings from continuing operations  $ 3.36  $ 1.56 F
Discontinued operations  0.01  (0.36) F
Net earnings  $ 3.37  $ 1.20 F
       
Diluted      
Earnings from continuing operations  $ 3.34  $ 1.56 F
Discontinued operations  0.01  (0.36) F
Net earnings  $ 3.35  $ 1.20 F
       
Weighted average shares outstanding      
Basic  16,555  14,796  
Diluted  16,939  15,257  
       
NM: Not meaningful U: > 100% unfavorable F: > 100% favorable  
 
CHURCHILL DOWNS INCORPORATED 
SUPPLEMENTAL INFORMATION BY OPERATING UNIT
For the three months ended Sept. 30, 2011, and 2010
(in thousands, except per common share data)
       
 Three Months Ended
September 30,
 20112010% Change
       
Net revenues from external customers:      
Churchill Downs  $ 5,911  $ 6,005 (2)
Arlington Park  30,875  30,208 2
Calder  23,673  24,396 (3)
Fair Grounds  6,080  6,739 (10)
Total Racing Operations  66,539  67,348 (1)
Calder Casino  20,251  17,089 19
Fair Grounds Slots  9,880  9,329 6
VSI  8,350  8,249 1
Harlow's Casino  13,441  -- F
Total Gaming  51,922  34,667 50
Online Business  42,015  39,232 7
Other Investments  5,820  6,235 (7)
Corporate  53  64 (17)
Net revenues   $ 166,349  $ 147,546 13
       
Intercompany net revenues:      
Churchill Downs  $ 381  $ 336 13
Arlington Park  1,468  1,199 22
Calder  582  557 4
Fair Grounds  21  39 (46)
Total Racing Operations  2,452  2,131 15
Online Business  186  152 22
Other Investments  1,148  589 95
Eliminations  (3,786)  (2,872) 32
Net revenues   $ --   $ --   
       
Reconciliation of Segment EBITDA to net earnings:      
Racing   $ 20,414  $ 1,254 F
Gaming  13,148  7,892 67
Online   9,818  5,818 69
Other Investments  1,157  1,792 (35)
Corporate  (1,540)  296 U
Total EBITDA  42,997  17,052 F
Depreciation and amortization  (13,443)  (12,395) 8
Interest (expense) income, net  (1,460)  (1,595) (8)
Income tax expense  (8,374)  638 U
Earnings from continuing operations  19,720  3,700 F
Discontinued operations, net of income taxes  60  (4,389) F
Net earnings   $ 19,780  $ (689) F
       
NM: Not meaningful U: > 100% unfavorable F: > 100% favorable  
 
CHURCHILL DOWNS INCORPORATED 
SUPPLEMENTAL INFORMATION BY OPERATING UNIT
For the nine months ended Sept. 30, 2011, and 2010
(in thousands, except per common share data)
       
 Nine Months Ended
September 30,
 20112010% Change
       
Net revenues from external customers:      
Churchill Downs  $ 104,072  $ 100,609 3
Arlington Park  62,273  63,994 (3)
Calder  45,753  48,015 (5)
Fair Grounds  34,274  35,183 (3)
Total Racing Operations  246,372  247,801 (1)
Calder Casino  62,574  48,848 28
Fair Grounds Slots  31,510  29,979 5
VSI  26,566  25,436 4
Harlow's Casino  39,818  -- F
Total Gaming  160,468  104,263 54
Online Business  125,344  87,374 43
Other Investments  15,143  8,599 76
Corporate  262  67 F
Net revenues   $ 547,589  $ 448,104 22
       
Intercompany net revenues:      
Churchill Downs  $ 3,993  $ 2,872 39
Arlington Park  3,160  2,542 24
Calder  1,129  932 21
Fair Grounds  799  586 36
Total Racing Operations  9,081  6,932 31
Online Business  601  533 13
Other Investments  2,900  1,604 81
Eliminations  (12,582)  (9,069) 39
Net revenues   $ --   $ --   
       
Reconciliation of Segment EBITDA to net earnings:      
Racing   $ 66,223  $ 37,819 75
Gaming  43,479  19,537 F
Online   28,671  14,467 98
Other Investments  2,110  2,918 (28)
Corporate  (1,329)  (2,327) (43)
Total EBITDA  139,154  72,414 92
Depreciation and amortization  (41,319)  (34,410) 20
Interest (expense) income, net  (7,257)  (4,145) 75
Income tax expense  (34,054)  (10,034) U
Earnings from continuing operations  56,524  23,825 F
Discontinued operations, net of income taxes  218  (5,577) F
Net earnings   $ 56,742  $ 18,248 F
 
CHURCHILL DOWNS INCORPORATED 
SUPPLEMENTAL INFORMATION BY OPERATING UNIT
For the three and nine months ended Sept. 30, 2011, and 2010
(in thousands, except per common share data)
         
 Three Months Ended 
September 30,
Change
Management fee expense (income):20112010$%
Racing Operations  $ 2,830  $ 1,676  $ 1,154 69%
Gaming  2,053  809  1,244 U
Online Business  1,659  1,258  401 32%
Other Investments  595  244  351 U
Corporate Income  (7,137)  (3,987)  (3,150) 79%
Total management fees  $ --  $ --  $ --  
         
 Nine Months Ended 
September 30,
Change
Management fee expense (income):20112010$%
Racing Operations  $ 8,820  $ 9,148  $ (328) -4%
Gaming  5,540  3,123  2,417 77%
Online Business  4,349  3,284  1,065 32%
Other Investments  951  387  564 U
Corporate Income  (19,660)  (15,942)  (3,718) 23%
Total management fees  $ --  $ --  $ --  
 
CHURCHILL DOWNS INCORPORATED 
SUPPLEMENTAL INFORMATION BY OPERATING UNIT
For the three and nine months ended Sept. 30, 2011, and 2010
(in thousands, except per common share data)
       
 Three Months Ended September 30, 2010
 Previously
Reported
RevisedEffect of 
Change
       
Net revenues from external customers:      
Churchill Downs  $ 5,449  $ 6,005  $ 556
Arlington Park  29,445  30,208  763
Calder  21,604  24,396  2,792
Fair Grounds  5,942  6,739  797
Total Racing Operations  62,440  67,348  4,908
Calder Casino  13,161  17,089  3,928
Fair Grounds Slots  8,600  9,329  729
VSI  6,545  8,249  1,704
Total Gaming  28,306  34,667  6,361
Online Business  38,739  39,232  493
Other Investments  6,195  6,235  40
Corporate  64  64  --
Net revenues from external customers  $ 135,744  $ 147,546  $ 11,802
       
 Nine Months Ended September 30, 2010
 Previously
Reported
RevisedEffect of 
Change
       
Net revenues from external customers:      
Churchill Downs  $ 96,979  $ 100,609  $ 3,630
Arlington Park  61,533  63,994  2,461
Calder  42,848  48,015  5,167
Fair Grounds  32,367  35,183  2,816
Total Racing Operations  233,727  247,801  14,074
Calder Casino  34,906  48,848  13,942
Fair Grounds Slots  27,716  29,979  2,263
VSI  20,202  25,436  5,234
Total Gaming  82,824  104,263  21,439
Online Business  86,089  87,374  1,285
Other Investments  8,599  8,599  --
Corporate  67  67  --
Net revenues from external customers  $ 411,306  $ 448,104  $ 36,798
 
CHURCHILL DOWNS INCORPORATED
CONDENSED, CONSOLIDATED BALANCE SHEETS
(in thousands)
     
 September 30,
2011
December 31, 
2010
ASSETS    
Current assets:    
Cash and cash equivalents  $ 26,883  $ 26,901
Restricted cash 50,472  61,891
Accounts receivable, net of allowance for doubtful accounts of $4,164 in 2011 and $4,098 in 2010 33,083  33,307
Deferred income taxes 16,417  16,136
Income taxes receivable  --   11,674
Other current assets 18,782  20,086
Total current assets 145,637 169,995
     
Property and equipment, net 482,005  507,476
Goodwill 213,712  214,528
Other intangible assets, net 106,729  113,436
Other assets 8,787  12,284
Total assets  $ 956,870  $ 1,017,719
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
Current liabilities:    
Accounts payable  $ 42,512  $ 47,703
Bank overdraft  10,279  5,660
Purses payable  23,315  12,265
Accrued expenses  47,826  49,754
Income taxes payable  16,120  -- 
Dividends payable  --   8,165
Deferred revenue  18,750  24,512
Deferred riverboat subsidy  --   40,492
Total current liabilities  158,802  188,551
     
Long-term debt  156,270  265,117
Convertible note payable, related party  --   15,075
Other liabilities  30,181  17,775
Deferred revenue  17,025  15,556
Deferred income taxes  8,803  9,431
Total liabilities  371,081  511,505
     
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; 17,166 shares issued at September 30, 2011 and 16,571 shares issued at December 31, 2010  259,336  236,503
Retained earnings  326,453  269,711
Total shareholders' equity  585,789  506,214
Total liabilities and shareholders' equity  $ 956,870  $ 1,017,719
 
CHURCHILL DOWNS INCORPORATED
CONDENSED, CONSOLIDATED STATEMENT OF CASH FLOWS
For the nine months ended Sept. 30, 2011, and 2010
(unaudited)
(in thousands)
     
 20112010
Cash flows from operating activities:    
Net earnings  $ 56,742  $ 18,248
Adjustments to reconcile net earnings to net cash provided by operating activities:    
Depreciation and amortization  41,319  34,410
Asset impairment loss  482  1,598
Gain on sale of business  (271)  --
Equity in losses of unconsolidated investments  423  317
Gain on derivative instruments  (3,096)  (612)
Share-based compensation   4,332  2,388
Other  2,139  1,192
 Increase (decrease) in cash resulting from changes in operating assets and liabilities, net of business acquisitions:    
Restricted cash  11,536  (20,395)
Accounts receivable  1,825  2,099
Other current assets  (3,865)  (1,549)
Accounts payable  229  (6,656)
Purses payable   11,051  4,367
Accrued expenses  3,099  7,250
Deferred revenue  2,121  (3,225)
Deferred riverboat subsidy  (40,492)  14,648
Income taxes payable   27,560  (554)
Other assets and liabilities  16,498  1,815
Net cash provided by operating activities  131,632  55,341
Cash flows from investing activities:    
Additions to property and equipment  (16,802)  (56,493)
Acquisition of business, net of cash acquired  --  (32,408)
Purchases of minority investments  (158)  (400)
Acquisition of gaming license  (2,250)  (2,750)
Proceeds on sale of property and equipment  50  16
Change in deposit wagering asset  (117)  (37)
Net cash used in investing activities  (19,277)  (92,072)
Cash flows from financing activities:    
Borrowings on bank line of credit  230,311  204,260
Repayments on bank line of credit  (339,158)  (141,849)
Repayment of note payable, related party  --  (24,043)
Change in book overdraft  4,618  6,929
Payment of dividends  (8,165)  (6,777)
Repurchase of common stock   (732)  (1,354)
Common stock issued  635  459
Change in deposit wagering liability  118  (4)
Net cash (used in) provided by financing activities  (112,373)  37,621
Net (decrease) increase in cash and cash equivalents  (18)  890
Cash and cash equivalents, beginning of period  26,901  13,643
Cash and cash equivalents, end of period  $ 26,883  $ 14,533
CONTACT: Julie Koenig Loignon

         (502) 636-4502 (office)

         (502) 262-5461 (mobile)

         Julie.Koenig@kyderby.com


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