November 5, 2012

Churchill Downs Incorporated Reports 2012 Third-Quarter Results

  • Revenues of $164.9 million declined 1% compared to 2011's third-quarter record high due to fewer live race days at Churchill Downs Racetrack
  • EBITDA was $21.3 million, the second highest all-time third-quarter EBITDA

LOUISVILLE, Ky., Nov. 5, 2012 (GLOBE NEWSWIRE) -- Churchill Downs Incorporated ("CDI" or the "Company") ( Nasdaq:CHDN) today, Nov. 5, 2012, reported results for the third quarter and nine months ended Sept. 30, 2012.

Net revenues from continuing operations for the third quarter of 2012 declined 1%, or $1.5 million, to $164.9 million compared to the same period of the prior year. Third quarter EBITDA (earnings before interest, taxes, depreciation and amortization) declined to $21.3 million, from $43.0 million, during the third quarter of 2011. Net earnings from continued operations for the period were $6.0 million, or $0.34 per diluted common share, a decrease of 70% from net earnings from continued operations of $19.7 million, or $1.16 per diluted common share, during the third quarter of 2011. The decline in EBITDA and net earnings was predominately the result of the $19.3 million in Illinois Horse Racing Equity Trust Fund payments that were received in the third quarter of 2011.

Online Business (consisting of Twinspires.com, Luckity.com, Velocity and the Company's equity investment in HRTV) net revenues for the third quarter increased 9% over the same period of the prior year to $45.6 million. CDI's online wagering company, TwinSpires.com, reported a handle increase of 10.6%, or $20.5 million, compared to 2.2% growth of total U.S. thoroughbred industry wagering for the same period, according to Equibase.com.

Despite growth in TwinSpires.com revenue and handle, third-quarter Online Business EBITDA declined $0.8 million, or 8%, primarily due to $1.0 million of expenditures related to the launch of the Company's new real money gaming site, Luckity.com, and the continuation of spending on the development of an exchange wagering platform; increased losses of $0.4 million from our equity investment in horseracing television network HRTV; and severance and other non-recurring costs of $0.6 million.

Racing Operations revenues decreased 6%, or $3.9 million, due to three fewer racing days at Churchill Downs Racetrack and weather-related cancellations at Calder Race Course. Racing Operations EBITDA decreased $19.5 million, due to the impact of recognizing $19.3 million from the Illinois Horse Racing Equity Trust Fund along with recognition of insurance proceeds net of losses of $0.6 million during 2011's third quarter. Partially offsetting these prior year items were EBITDA improvements as operating efficiencies from cost control measures more than offset the fewer live race days and weather-related cancellations.

Gaming revenues decreased $2.4 million, or 5%, during the quarter largely due to continued competition in the South Florida market and the closure of the Company's casino and video poker operations in New Orleans for five days in September as the result of Hurricane Isaac. Gaming EBITDA decreased $1.1 million driven primarily by revenue losses at Calder Casino.

CDI Chairman and Chief Executive Officer Robert L. Evans said the Company made a lot of progress building its portfolio of growth opportunities in the third quarter and in the few weeks since.

"We hope to see the revenue and EBITDA growth impact of these new opportunities starting in the fourth quarter of this year, and into 2013 and 2014, including our decision to proceed with construction of our joint venture casino project near Lebanon, Ohio; the completion of the acquisition of Riverwalk Casino Hotel; the launch of the real-money gaming site, Luckity.com; and significant progress on the $15 million renovation and rebuilding of Harlow's following the 2011 Mississippi River flood which we expect to complete by year-end."

"We are also pleased with the construction progress at Churchill Downs Racetrack including the new ultra-luxury area known as The Mansion, which is 93% sold or committed under 3 to 7 year contracts, and the new Paddock Plaza area that will add over 200 upper-price-range seats to our inventory for various big events next year including the Kentucky Derby, the Kentucky Oaks and our night racing and other events," Evans said.

A conference call regarding this news release is scheduled for Tuesday, Nov. 6, 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 59454442 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.; a casino resort in Greenville, Miss.; as well as a casino hotel in Vicksburg, Miss.; CDI also owns the country's premier advance-deposit wagering company, TwinSpires.com; the totalisator company, United Tote; Luckity.com, where people can legally play fun games online for a chance to win cash prizes; 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 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 Sept. 30, 2012 and 2011
(Unaudited) (In thousands, except per share data) 
       
 Three Months Ended
 Sept. 30,
 20122011% Change
Net revenues      
Racing  $ 62,919  $ 66,776 (6)
Gaming  49,493  51,922 (5)
Online  45,593  42,015 9
Other  6,872  5,636 22
   164,877  166,349 (1)
Operating expenses      
Racing  61,953  65,154 (5)
Gaming  37,891  39,051 (3)
Online  32,190  30,584 5
Other  6,793  5,335 27
Selling, general and administrative expenses  18,237  16,753 9
Insurance recoveries, net of losses  --  (615) U
Operating income   7,813  10,087 (23)
       
Other income (expense):      
Interest income  31  116 (73)
Interest expense  (873)  (1,576) (45)
Equity in losses of unconsolidated investments  (471)  (467) 1
Miscellaneous, net  569  19,934 (97)
   (744)  18,007 U
Earnings from continuing operations before provision for income taxes  7,069  28,094 (75)
Income tax provision  (1,096)  (8,374) (87)
Earnings from continuing operations  5,973  19,720 (70)
Discontinued operations, net of income taxes:      
Earnings from operations  --  60 U
Net earnings and comprehensive income  $ 5,973  $ 19,780 (70)
       
Net earnings per common share data:      
Basic      
 Earnings from continuing operations  $ 0.34  $ 1.17 (71)
 Discontinued operations  --  -- --
 Net earnings  $ 0.34  $ 1.17 (71)
       
Diluted      
 Earnings from continuing operations  $ 0.34  $ 1.16 (71)
 Discontinued operations  --  0.01 U
 Net earnings  $ 0.34  $ 1.17 (71)
       
Weighted average shares outstanding:      
Basic  17,130  16,858  
Diluted  17,575  16,974  
       
U: > 100% unfavorable      F: > 100% favorable      
 
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the nine months ended Sept. 30, 2012 and 2011
(Unaudited) (In thousands, except per share data)
       
 Nine Months Ended
 Sept. 30,
 20122011% Change
Net revenues      
Racing  $ 253,541  $ 246,858 3
Gaming  160,200  160,468 --
Online  142,330  125,344 14
Other  17,818  14,919 19
   573,889  547,589 5
Operating expenses      
Racing  200,425  202,755 (1)
Gaming  117,122  118,690 (1)
Online  95,266  85,800 11
Other  19,368  15,192 27
Selling, general and administrative expenses  54,506  51,453 6
Insurance recoveries, net of losses  (6,514)  (1,010) F
Operating income   93,716  74,709 25
       
Other income (expense):      
Interest income  84  240 (65)
Interest expense  (3,078)  (7,497) (59)
Equity in losses of unconsolidated investments  (1,255)  (423) U
Miscellaneous, net  639  23,549 (97)
   (3,610)  15,869 U
Earnings from continuing operations before provision for income taxes  90,106  90,578 (1)
Income tax provision  (34,203)  (34,054) --
Earnings from continuing operations  55,903  56,524 (1)
Discontinued operations, net of income taxes:      
(Loss) earnings from operations  (1)  61 U
Gain on sale of assets  --  157 U
Net earnings and comprehensive income  $ 55,902  $ 56,742 (1)
       
Net earnings per common share data:      
Basic      
 Earnings from continuing operations  $ 3.24  $ 3.36 (4)
 Discontinued operations  --  0.01 U
 Net earnings  $ 3.24  $ 3.37 (4)
       
Diluted      
 Earnings from continuing operations  $ 3.20  $ 3.34 (4)
 Discontinued operations  --  0.01 U
 Net earnings  $ 3.20  $ 3.35 (4)
       
Weighted average shares outstanding:      
Basic  17,004  16,555  
Diluted  17,465  16,939  
       
 U: > 100% unfavorable      F: > 100% favorable      
 
CHURCHILL DOWNS INCORPORATED
SUPPLEMENTAL INFORMATION BY OPERATING UNIT
for the three months ended Sept. 30, 2012 and 2011
(Unaudited) (In thousands)
       
 Three Months Ended
 Sept. 30,
 20122011% Change
       
Net revenues from external customers:      
 Churchill Downs  $ 3,873  $ 6,148 (37)
 Arlington  30,578  30,875 (1)
 Calder  22,633  23,673 (4)
 Fair Grounds  5,835  6,080 (4)
 Total Racing Operations  62,919  66,776 (6)
 Calder Casino  17,841  20,251 (12)
 Fair Ground Slots  10,109  9,880 2
 VSI  8,089  8,350 (3)
 Harlow's Casino  13,454  13,441 --
 Total Gaming  49,493  51,922 (5)
 Online Business  45,593  42,015 9
 Other Investments  6,543  5,583 17
 Corporate  329  53 F
 Net revenues from external customers  $ 164,877  $ 166,349 (1)
       
Intercompany net revenues:      
 Churchill Downs  $ 151  $ 381 (60)
 Arlington   1,758  1,468 20
 Calder  554  582 (5)
 Fair Grounds  11  21 (48)
 Total Racing Operations  2,474  2,452 1
 Online Business  233  186 25
 Other Investments  824  638 29
 Eliminations  (3,531)  (3,276) (8)
 Intercompany net revenues  $ --  $ -- --
       
Reconciliation of Segment EBITDA to net earnings :      
 Racing Operations  $ 1,243  $ 20,789 (94)
 Gaming  12,029  13,148 (9)
 Online Business  8,986  9,818 (8)
 Other Investments  421  782 (46)
 Corporate  (1,398)  (1,540) (9)
 Total EBITDA   21,281  42,997 (51)
 Depreciation and amortization  (13,370)  (13,443) (1)
 Interest income (expense), net  (842)  (1,460) (42)
 Income tax provision  (1,096)  (8,374) (87)
 Earnings from continuing operations  5,973  19,720 (70)
 Discontinued operations, net of income taxes  --   60 (100)
 Net earnings and comprehensive income  $ 5,973  $ 19,780 (70)
       
U: > 100% unfavorable      F: > 100% favorable      
 
CHURCHILL DOWNS INCORPORATED
SUPPLEMENTAL INFORMATION BY OPERATING UNIT
for the nine months ended Sept. 30, 2012 and 2011
(Unaudited) (In thousands)
 Nine Months Ended
 Sept. 30,
 20122011% Change
       
Net revenues from external customers:      
 Churchill Downs  $ 109,297  $ 104,558 5
 Arlington  62,802  62,273 1
 Calder  47,374  45,753 4
 Fair Grounds  34,068  34,274 (1)
 Total Racing Operations  253,541  246,858 3
 Calder Casino  58,908  62,574 (6)
 Fair Ground Slots  31,726  31,510 1
 VSI  26,466  26,566 --
 Harlow's Casino  43,100  39,818 8
 Total Gaming  160,200  160,468 --
 Online Business  142,330  125,344 14
 Other Investments  17,012  14,657 16
 Corporate  806  262 F
 Net revenues from external customers  $ 573,889  $ 547,589 5
       
Intercompany net revenues:      
 Churchill Downs  $ 4,419  $ 3,993 11
 Arlington   3,810  3,160 21
 Calder  1,150  1,129 2
 Fair Grounds  833  799 4
 Total Racing Operations  10,212  9,081 12
 Online Business  669  601 11
 Other Investments  2,646  1,397 89
 Eliminations  (13,527)  (11,079) (22)
 Intercompany net revenues  $ --  $ -- --
       
Reconciliation of Segment EBITDA to net earnings:    
 Racing Operations  $ 55,094  $ 67,116 (18)
 Gaming  51,856  43,479 19
 Online Business  31,946  28,671 11
 Other Investments  (13)  1,217 U
 Corporate  (4,968)  (1,329) U
 Total EBITDA   133,915  139,154 (4)
 Depreciation and amortization  (40,815)  (41,319) (1)
 Interest income (expense), net  (2,994)  (7,257) 59
 Income tax provision  (34,203)  (34,054) --
 Earnings from continuing operations  55,903  56,524 (1)
 Discontinued operations, net of income taxes  (1)  218 (100)
 Net earnings and comprehensive income  $ 55,902  $ 56,742 (1)
       
 U: > 100% unfavorable      F: > 100% favorable    
 
CHURCHILL DOWNS INCORPORATED
SUPPLEMENTAL INFORMATION BY OPERATING UNIT
for the three and nine months ended Sept. 30, 2012 and 2011
(Unaudited) (In thousands)
         
 Three Months Ended
Sept. 30,
Change
Management fee (expense) income:20122011$%
Racing Operations  $ (2,935)  $ (2,830)  $ 105 4
Gaming  (2,116)  (2,053)  63 3
Online Business  (1,929)  (1,659)  270 16
Other Investments  (280)  (595)  (315) (53)
Corporate  7,260  7,137  (123) 2
Total management fees  $ --  $ --  $ --  -- 
         
 Nine Months Ended
Sept. 30,
Change
Management fee (expense) income:20122011$%
Racing Operations  $ (9,543)  $ (8,820)  $ 723 8
Gaming  (5,804)  (5,540)  264 5
Online Business  (5,159)  (4,349)  810 19
Other Investments  (658)  (951)  (293) (31)
Corporate  21,164  19,660  (1,504) 8
Total management fees  $ --  $ --  $ --  -- 
 
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the nine months ended Sept. 30, 2012 and 2011
(Unaudited) (In thousands)
     
 20122011
Cash flows from operating activities:  
Net earnings and comprehensive income  $ 55,902  $ 56,742
Adjustments to reconcile net earnings and comprehensive income to net cash provided by operating activities:    
Depreciation and amortization 40,815  41,319
Asset impairment loss  25  299
Gain on sale of business  --  (271)
Gain on derivative instruments  --  (3,096)
Equity in loss of unconsolidated investments 1,255  423
Share-based compensation  6,083  4,332
Other 668  2,139
Increase (decrease) in cash resulting from changes in operating assets and liabilities, net of business acquisition:    
 Restricted cash 2,938  11,536
 Accounts receivable (12,500)  1,825
 Other current assets (1,895)  (3,865)
 Accounts payable 395  229
 Purses payable  (3,497)  11,051
 Accrued expenses 5,732  3,099
 Deferred revenue (7,689)  2,121
 Deferred riverboat subsidy  --  (40,492)
 Income taxes receivable and payable  12,149  27,560
 Other assets and liabilities 1,728  16,498
 Net cash provided by operating activities 102,109  131,449
Cash flows from investing activities:    
Additions to property and equipment (25,456)  (16,802)
Acquisition of business, net of cash (6,728)  --
Acquisition of gaming license  (2,250)  (2,250)
Investment in joint venture (6,525)  --
Purchases of minority investments (2,092)  (158)
Proceeds on sale of property and equipment 88  50
Proceeds from insurance recoveries 10,413  183
Change in deposit wagering asset (3,364)  (117)
 Net cash used in investing activities (35,914)  (19,094)
Cash flows from financing activities:  
Borrowings on bank line of credit 291,574  230,311
Repayments on bank line of credit (349,139)  (339,158)
Change in bank overdraft (3,034)  4,618
Payment of dividends (10,110)  (8,165)
Repurchase of common stock  (2,846)  (732)
Common stock issued 6,160  635
Windfall tax benefit from share-based compensation 819  --
Change in deposit wagering liability 3,055  118
 Net cash used in financing activities (63,521)  (112,373)
Net increase (decrease) in cash and cash equivalents 2,674  (18)
Cash and cash equivalents, beginning of period 27,325  26,901
Cash and cash equivalents, end of period  $ 29,999  $ 26,883
 
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
As of Sept. 30, 2012, and Dec. 31, 2011
(Unaudited) (In thousands)
 Sep. 30,Dec. 31,
 20122011
ASSETS    
Current assets:    
Cash and cash equivalents  $ 29,999  $ 27,325
Restricted cash  44,985  44,559
Accounts receivable, net  38,210  49,773
Deferred income taxes  8,057  8,727
Income taxes receivable  --  3,679
Other current assets  11,959  10,399
Total current assets  133,210  144,462
     
Property and equipment, net  469,520  477,356
Goodwill  217,741  213,712
Other intangible assets, net  102,907  103,827
Other assets  15,812  8,665
Total assets  $ 939,190  $ 948,022
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
Current liabilities:    
Accounts payable  $ 59,000  $ 56,514
Bank overdraft  2,439  5,473
Purses payable  25,169  20,066
Accrued expenses  51,336  47,816
Income taxes payable  8,470  --
Dividends payable  --  10,110
Deferred revenue  12,231  33,472
Total current liabilities  158,645  173,451
     
Long-term debt  69,998  127,563
Other liabilities  22,458  29,542
Deferred revenue  17,151  17,884
Deferred income taxes  16,583  15,552
Total liabilities  284,835  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; 17,461 shares issued at September 30, 2012 and 17,178 shares issued at December 31, 2011  274,622  260,199
Retained earnings  379,733  323,831
Total shareholders' equity  654,355  584,030
Total liabilities and shareholders' equity  $ 939,190  $ 948,022
CONTACT: Courtney Yopp Norris

         (502) 636-4564

         Courtney.Norris@kyderby.com


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