August 6, 2012

Churchill Downs Incorporated Reports 2012 Q2 Results

  • Record net revenues from continuing operations of $270.8 million, an 8 percent increase over 2011 Q2
  • Record net earnings from continuing operations of $48.6 million, a 21 percent climb over 2011 Q2
  • Record EBITDA of $95.3 million, 12 percent growth over 2011 Q2
  • Record Kentucky Oaks and Derby Week EBITDA grows $5.4 million over last year

LOUISVILLE, Ky., Aug. 6, 2012 (GLOBE NEWSWIRE) -- Churchill Downs Incorporated (Nasdaq:CHDN) ("Company") today reported results for the second quarter and six months ended June 30, 2012.

Due primarily to growth within CDI's Racing Operations, including a record Kentucky Oaks and Derby week, and growth in the Company's Online Business segment, the Company's net revenues from continuing operations for the second quarter of 2012 increased 8%, or $21.1 million, to $270.8 million from $249.7 million during the same period of the prior year.

CDI's online wagering company, Twinspires.com, experienced a second quarter handle increase of 13%, or $29.7 million, as compared to the prior-year period, driven primarily by new customer growth and an increase in average daily wagering.

Racing Operations EBITDA increased $6.6 million and was primarily driven by increased EBITDA of $5.4 million from Kentucky Oaks and Derby week related to increased admissions, sponsorships and pari-mutuel revenues, as well as 17 additional live race days.

Our Gaming Business segment EBITDA increased $6.6 million, or 52%, as insurance recoveries, net of losses, increased $4.6 million from the same period of the prior year. During the three months ended June 30, 2012, we received insurance recoveries, net of losses, of $5.0 million, which reflects the final insurance claim settlement from the 2011 flood damage sustained at Harlow's Casino Resort & Hotel ("Harlow's"), which was closed for 25 days during the three months ended June 30, 2011, due to the Mississippi River flooding.  During the three months ended June 30, 2011, we received insurance recoveries, net of losses, of $0.4 million, which reflects a settlement for wind damage sustained at Harlow's during 2011. Partially offsetting this increase was a decrease in EBITDA of $1.1 million at Calder Casino due to the impact of heightened competition in the south Florida market.

Net earnings from continuing operations for the period were $48.6 million, or $2.77 per diluted common share, an increase of 21% from net earnings from continuing operations of $40.1 million, or $2.36 per diluted common share, during the second quarter of 2011.

CDI Chairman and Chief Executive Officer Robert L. Evans:   

"We continue to build our portfolio of growth opportunities. Construction of the super-premium seating venue, The Mansion at Churchill Downs, has begun along with sales for this area for the 2013 Kentucky Oaks and Kentucky Derby. On June 29, 2012, the Illinois expanded gaming legislation, Senate Bill 1849, was sent to Governor Quinn, who has 60 days to sign or veto the measure. On July 26, 2012, our joint venture entity with Delaware North Gaming and Entertainment, known as Miami Valley Gaming & Racing LLC, submitted its gaming and racing license applications to the state of Ohio. Later this year we hope to launch the real-money gaming site Luckity.com. And we continue to aggressively evaluate various ventures and potential acquisitions."

A conference call regarding this news release is scheduled for Tuesday, August 7, 2012, at 9 a.m. ET. Investors and other interested parties may listen to the teleconference by accessing the online, real-time webcast and broadcast of the call at www.churchilldownsincorporated.com or www.earnings.com, or by dialing (877) 372-0878 and entering the pass code 14736794 at least 10 minutes before the appointed time. International callers should dial (253) 237-1169. A copy of the Company'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"), the Company 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. The Company believes the use of this measure enables management and investors to evaluate and compare, from period to period, the Company's operating performance in a meaningful and consistent manner. This non-GAAP measurement is not intended to replace the presentation of the Company's financial results in accordance with GAAP.

ABOUT CHURCHILL DOWNS INCORPORATED

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 totalisator company, United Tote; Bluff Media, an Atlanta-based multimedia poker content, brand and publishing company; 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 news release 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 news release 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 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 inability 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.

You 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 December 31, 2011 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 COMPREHENSIVE INCOME
for the three months ended June 30, 2012 and 2011
(Unaudited) (In thousands, except per share data)
       
 Three Months Ended
 June 30,
 20122011% Change
Net revenues      
Racing  $ 160,440  $ 148,371 8
Gaming  51,371  49,459 4
Online  52,702  46,526 13
Other  6,303  5,330 18
   270,816  249,686 8
Operating expenses      
Racing  95,484  91,555 4
Gaming  38,291  38,237 -
Online  32,925  28,851 14
Other  6,866  5,267 30
Selling, general and administrative expenses  20,070  18,696 7
Insurance recoveries, net of losses  (5,003)  (395) F
       
Operating income   82,183  67,475 22
       
Other income (expense):      
Interest income  35  56 (38)
Interest expense  (982)  (3,461) (72)
Equity in (loss) gain of unconsolidated investments  (564)  460 U
Miscellaneous, net  37  3,158 (99)
   (1,474)  213 U
       
Earnings from continuing operations before provision for income taxes  80,709  67,688 19
Income tax provision  (32,133)  (27,698) 16
Earnings from continuing operations  48,576  39,990 21
Discontinued operations, net of income taxes:      
Gain on sale of assets  -  157 U
Net earnings and comprehensive income  $ 48,576  $ 40,147 21
       
       
Net earnings per common share data:      
Basic      
Earnings from continuing operations  $ 2.82  $ 2.38 18
Discontinued operations  -  0.01 U
Net earnings  $ 2.82  $ 2.39 18
       
Diluted      
Earnings from continuing operations  $ 2.77  $ 2.36 17
Discontinued operations  -  0.01 U
Net earnings  $ 2.77  $ 2.37 17
       
Weighted average shares outstanding:      
Basic  16,978  16,444  
Diluted  17,502  16,935  
       
U: > 100% unfavorable           F: > 100% favorable      
 
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the six months ended June 30, 2012 and 2011
(Unaudited) (In thousands, except per share data) 
 
 Six Months Ended
 June 30,
 20122011% Change
Net revenues      
Racing  $ 190,622  $ 180,082 6
Gaming  110,707  108,546 2
Online  96,737  83,329 16
Other  10,946  9,283 18
   409,012  381,240 7
Operating expenses      
Racing  138,472  137,601 1
Gaming  79,231  79,639 (1)
Online  63,076  55,216 14
Other  12,575  9,857 28
Selling, general and administrative expenses  36,269  34,700 5
Insurance recoveries, net of losses  (6,514)  (395) F
       
Operating income   85,903  64,622 33
       
Other income (expense):      
Interest income  53  124 (57)
Interest expense  (2,205)  (5,921) (63)
Equity in (loss) gain of unconsolidated investments  (784)  44 U
Miscellaneous, net  70  3,615 (98)
   (2,866)  (2,138) 34
       
Earnings from continuing operations before provision for income taxes  83,037  62,484 33
Income tax provision  (33,107)  (25,680) 29
Earnings from continuing operations  49,930  36,804 36
Discontinued operations, net of income taxes:      
(Loss) earnings from operations  (1)  1 U
Gain on sale of assets  -  157 U
Net earnings and comprehensive income  $ 49,929  $ 36,962 35
       
       
Net earnings per common share data:      
Basic      
Earnings from continuing operations  $ 2.90  $ 2.19 32
Discontinued operations  -  0.01 U
Net earnings  $ 2.90  $ 2.20 32
       
Diluted      
Earnings from continuing operations  $ 2.86  $ 2.18 31
Discontinued operations  -  0.01 U
Net earnings  $ 2.86  $ 2.19 31
       
Weighted average shares outstanding:      
Basic  16,940  16,401  
Diluted  17,443  16,899  
       
 U: > 100% unfavorable           F: > 100% favorable      
 
CHURCHILL DOWNS INCORPORATED
SUPPLEMENTAL INFORMATION BY OPERATING UNIT
for the three months ended June 30, 2012 and 2011
(Unaudited) (In thousands)
 
 Three Months Ended
 June 30,
 20122011% Change
       
Net revenues from external customers:      
Churchill Downs  $ 102,874  $ 96,005 7
Arlington Park  22,807  22,050 3
Calder  22,873  19,412 18
Fair Grounds  11,886  10,904 9
Total Racing Operations  160,440  148,371 8
Calder Casino  19,188  21,711 (12)
Fair Ground Slots  9,586  9,458 1
VSI  8,814  8,789 -
Harlow's Casino  13,783  9,501 45
Total Gaming  51,371  49,459 4
Online Business  52,702  46,526 13
Other Investments  5,967  5,192 15
Corporate  336  138 F
Net revenues from external customers  $ 270,816  $ 249,686 8
       
Intercompany net revenues:      
Churchill Downs  $ 4,082  $ 3,464 18
Arlington Park  1,496  1,159 29
Calder  586  486 21
Fair Grounds  75  -  F
Total Racing Operations  6,239  5,109 22
Online Business  230  219 5
Other Investments  1,072  606 77
Eliminations  (7,541)  (5,934) (27)
Intercompany net revenues  $ -  $ - -
       
Reconciliation of Segment EBITDA to net earnings :      
Racing Operations  $ 65,390  $ 58,815 11
Gaming  19,438  12,798 52
Online Business  12,539  11,308 11
Other Investments  (104)  677 U
Corporate  (1,969)  1,385 U
Total EBITDA   95,294  84,983 12
Depreciation and amortization  (13,638)  (13,890) (2)
Interest income (expense), net  (947)  (3,405) (72)
Income tax provision  (32,133)  (27,698) 16
Earnings from continuing operations  48,576  39,990 21
Discontinued operations, net of income taxes  -   157 U
Net earnings and comprehensive income  $ 48,576  $ 40,147 21
       
U: > 100% unfavorable           F: > 100% favorable      
 
CHURCHILL DOWNS INCORPORATED
SUPPLEMENTAL INFORMATION BY OPERATING UNIT
for the six months ended June 30, 2012 and 2011
(Unaudited) (In thousands)
 
 Six Months Ended
 June 30,
 20122011% Change
       
Net revenues from external customers:      
Churchill Downs  $ 105,424  $ 98,410 7
Arlington Park  32,224  31,398 3
Calder  24,741  22,080 12
Fair Grounds  28,233  28,194 -
Total Racing Operations  190,622  180,082 6
Calder Casino  41,067  42,323 (3)
Fair Ground Slots  21,617  21,630 -
VSI  18,377  18,216 1
Harlow's Casino  29,646  26,377 12
Total Gaming  110,707  108,546 2
Online Business  96,737  83,329 16
Other Investments  10,469  9,074 15
Corporate  477  209 F
Net revenues from external customers  $ 409,012  $ 381,240 7
       
Intercompany net revenues:      
Churchill Downs  $ 4,268  $ 3,612 18
Arlington Park  2,052  1,692 21
Calder  596  547 9
Fair Grounds  822  778 6
Total Racing Operations  7,738  6,629 17
Online Business  436  415 5
Other Investments  1,822  759 F
Eliminations  (9,996)  (7,803) (28)
Intercompany net revenues  $ -  $ - -
       
Reconciliation of Segment EBITDA to net earnings:      
Racing Operations  $ 53,851  $ 46,327 16
Gaming  39,827  30,331 31
Online Business  22,960  18,853 22
Other Investments  (434)  435 U
Corporate  (3,570)  211 U
Total EBITDA   112,634  96,157 17
Depreciation and amortization  (27,445)  (27,876) (2)
Interest income (expense), net  (2,152)  (5,797) (63)
Income tax provision  (33,107)  (25,680) 29
Earnings from continuing operations  49,930  36,804 36
Discontinued operations, net of income taxes  (1)  158 U
Net earnings and comprehensive income  $ 49,929  $ 36,962 35
       
U: > 100% unfavorable           F: > 100% favorable      
 
CHURCHILL DOWNS INCORPORATED
SUPPLEMENTAL INFORMATION BY OPERATING UNIT
for the three and six months ended June 30, 2012 and 2011
(Unaudited) (In thousands)
 
 Three Months Ended 
  June 30,Change
Management fee (expense) income:20122011$%
Racing Operations  $ (5,202)  $ (4,528)  $ 674 15%
Gaming  (1,055)  (880)  175 20%
Online Business  (1,267)  (1,058)  209 20%
Other Investments  (151)  (155)  (4) -3%
Corporate  7,675  6,621  (1,054) 16%
Total management fees  $ -  $ -  $ -  -
         
         
 Six Months Ended 
  June 30,Change
Management fee (expense) income:20122011$%
Racing Operations  $ (6,608)  $ (5,990)  $ 618 10%
Gaming  (3,688)  (3,487)  201 6%
Online Business  (3,230)  (2,690)  540 20%
Other Investments  (378)  (356)  22 6%
Corporate  13,904  12,523  (1,381) 11%
Total management fees  $ -  $ -  $ -  -
 
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended June 30, 2012 and 2011
(Unaudited) (In thousands)
 
 20122011
Cash flows from operating activities:    
Net earnings and comprehensive income  $ 49,929  $ 36,962
Adjustments to reconcile net earnings and comprehensive income to net cash provided by operating activities:  
Depreciation and amortization 27,445  27,876
Asset impairment loss  -  157
Gain on asset disposition (27)  (46)
Gain on sale of business  -  (271)
Gain on derivative instruments  -  (3,096)
Equity in loss (gain) of unconsolidated investments 784  (44)
Share-based compensation 4,414  2,966
Deferred tax provision  -  (1,566)
Other 455  2,036
Increase (decrease) in cash resulting from changes in operating assets and liabilities, net of business acquisition:  
Restricted cash (2,409)  (4,607)
Accounts receivable (20,157)  (7,810)
Other current assets (4,013)  (5,136)
Accounts payable 6,488  8,930
Purses payable 2,944  6,028
Accrued expenses 3,798  6,247
Deferred revenue (7,061)  3,306
Income taxes receivable and payable 30,993  31,097
Other assets and liabilities 2,467  1,780
Net cash provided by operating activities 96,050  104,809
Cash flows from investing activities:    
Additions to property and equipment (16,473)  (10,867)
Acquisition of business, net of cash (6,728)  -
Acquisition of gaming license  -  (2,250)
Investment in joint venture (5,400)  -
Purchases of minority investments (1,600)  -
Assumption of note receivable (1,100)  -
Proceeds on sale of property and equipment 88  46
Proceeds from insurance recoveries 9,870  -
Change in deposit wagering asset (6,651)  (873)
Net cash used in investing activities (27,994)  (13,944)
Cash flows from financing activities:    
Borrowings on bank line of credit 182,545  157,403
Repayments on bank line of credit (247,143)  (237,560)
Change in bank overdraft 1,280  1,159
Payment of dividends (10,110)  (8,165)
Repurchase of common stock (2,033)  (445)
Common stock issued 4,416  -
Windfall tax benefit from share-based compensation 640  -
Change in deposit wagering liability 6,811  873
Net cash used in financing activities (63,594)  (86,735)
Net increase in cash and cash equivalents 4,462  4,130
Cash and cash equivalents, beginning of period 27,325  26,901
Cash and cash equivalents, end of period  $ 31,787  $ 31,031
 
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2012, and December 31, 2011
(in thousands)
 
 June 30,December 31,
 20122011
ASSETS    
Current assets:    
Cash and cash equivalents  $ 31,787  $ 27,325
Restricted cash  53,619  44,559
Accounts receivable, net  44,111  49,773
Deferred income taxes  8,018  8,727
Income taxes receivable  -  3,679
Other current assets  14,031  10,399
Total current assets  151,566  144,462
     
Property and equipment, net  471,954  477,356
Goodwill  217,741  213,712
Other intangible assets, net  103,237  103,827
Other assets  14,917  8,665
Total assets  $ 959,415  $ 948,022
     
LIABILITIES AND SHAREHOLDERS' EQUITY  
Current liabilities:    
Accounts payable  $ 68,930  $ 56,514
Bank overdraft  6,753  5,473
Purses payable  23,009  20,066
Accrued expenses  49,358  47,816
Income taxes payable  27,314  -
Dividends payable  -  10,110
Deferred revenue  10,528  33,472
Total current liabilities  185,892  173,451
     
Long-term debt  62,964  127,563
Other liabilities  31,976  29,542
Deferred revenue  16,626  17,884
Deferred income taxes  16,356  15,552
Total liabilities  313,814  363,992
     
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; 17,403 shares issued at June 30, 2012 and 17,178 shares issued at December 31, 2011  271,841  260,199
Retained earnings  373,760  323,831
Total shareholders' equity  645,601  584,030
Total liabilities and shareholders' equity  $ 959,415  $ 948,022
CONTACT: Courtney Yopp Norris

         (502) 636-4564

         Courtney.Norris@kyderby.com


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