July 31, 2013

Churchill Downs Incorporated Reports 2013 Q2 Results

  • Record net revenues of $283.8 million, a 5 percent increase over 2012's Q2
  • Record net earnings of $50.3 million, 4 percent above 2012's Q2
  • Record Kentucky Oaks and Derby Week Adjusted EBITDA grows $5.8 million over last year
  • Gaming net revenues increase 30% quarter-over-quarter due to the addition of Riverwalk Casino Hotel

LOUISVILLE, Ky., July 31, 2013 (GLOBE NEWSWIRE) -- Churchill Downs Incorporated (Nasdaq:CHDN) (CDI or Company) today reported results for the second-quarter and six months ended June 30, 2013.

MANAGEMENT COMMENTARY

Robert L. Evans, Chairman and CEO: "With record second-quarter net revenues and net earnings, we were pleased with the quarter. Our Gaming segment Adjusted EBITDA was up $4.4 million reflecting the addition of our Riverwalk Casino Hotel property in Vicksburg, Miss., that we acquired in October of last year. The Adjusted EBITDA increase of Kentucky Oaks and Derby Week was $5.8 million, the third consecutive year where Kentucky Oaks and Derby Week Adjusted EBITDA growth has exceeded $5.0 million.

"TwinSpires.com's handle was up only 1.3% for the quarter, reflecting the expiration of Illinois' Advance Deposit Wagering (ADW) legislation at the end of 2012, which was not reinstated until June 7. Excluding the impact from Illinois, TwinSpires.com's handle was up 7.2% in the second-quarter outpacing the U.S. thoroughbred industry handle growth of 1.0% as reported by Equibase.com.

"We continue to build our growth portfolio as we closed on our acquisition of the Oxford Casino in Maine, on July 17, and will invest approximately $3.2 million to expand the gaming floor. Construction of Miami Valley Gaming, our 1,600-video-lottery-terminal joint venture project north of Cincinnati, Ohio, is progressing on budget and ahead of schedule and we hope to open the property in early-to-mid December 2013. We announced a $14.5 million project at Churchill Downs Racetrack to construct 51,000 square feet of new space adding 2,400 new reserved seats and new amenities serving 20,400 existing seats. We intend to complete this project in time for the 140th running of the Kentucky Oaks and Derby in May 2014."

2013 SECOND-QUARTER BUSINESS RESULTS

Due primarily to the expansion of CDI's Gaming segment with the addition of Riverwalk Casino Hotel's (Riverwalk) revenues, the Company's net revenues for the second-quarter of 2013 increased 5%, or approximately $13.0 million, to $283.8 million from $270.8 million, during the same period of the prior year.

Gaming revenues increased 30%, or $15.5 million, reflecting $14.1 million in revenues generated by Riverwalk. Racing revenues decreased $3.1 million, or 2%, from $160.4 million to $157.4 million, compared to the same period last year. The strong performance of Kentucky Oaks and Derby week was offset primarily by the loss of host revenues at Calder Race Course. Online Business revenues were virtually unchanged as lost wagering by Illinois customers were offset by growth in other jurisdictions.

Racing Operations Adjusted EBITDA (earnings from continuing operations before interest, taxes, depreciation, amortization, insurance recoveries of net losses, Illinois Horse Racing Equity Trust Fund proceeds, share based compensation expenses, pre-opening expenses, including those of our equity investments, the impairment of assets and other changes and recoveries) increased $3.1 million and was primarily driven by increased profitability of $5.8 million from Kentucky Oaks and Derby week. Partially offsetting this was a decline in Adjusted EBITDA at Calder of $2.2 million due to the loss of Florida hosting revenues and a decline in Adjusted EBITDA of $0.8 million at Fair Grounds due to the timing of the Louisiana Derby and inclement weather during Jazz Fest.

Our Gaming segment Adjusted EBITDA increased $4.4 million from the same period of the prior year due to the addition of Riverwalk's Adjusted EBITDA of $4.8 million. Also, Calder Casino Adjusted EBITDA increased $0.5 million as a result of successful marketing efforts and the closure of internet cafes in the state. Partially offsetting these increases was a decrease in Adjusted EBITDA at Harlow's Casino Resort and Spa of $1.0 million over the same period of the prior year.

Online Business Adjusted EBITDA increased $0.3 million compared to the same period of the previous year due to the increase in Velocity's Adjusted EBITDA from the addition of new high volume wagering customers and improvement in our equity investment in HRTV. These improvements in Adjusted EBITDA were partially offset by the impact of the expiration of Illinois legislation allowing Illinois residents to wager online.

Net earnings for the three months ended June 30, 2013, was $50.3 million, or $2.81 per diluted common share, an increase in net earnings of 4%, from $48.6 million, or $2.77 per diluted common share, during the second-quarter of 2012.

A conference call regarding this news release is scheduled for Thursday, August 1, 2013, 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 http://ir.churchilldownsincorporated.com/events.cfm or by dialing (877) 372-0878 and entering the conference ID number 23597619 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 ET on Thursday, Aug. 1.

In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), the Company has provided Adjusted EBITDA, a non-GAAP measure, which the Company defines as earnings from continuing operations before interest, taxes, depreciation, amortization, insurance recoveries of net losses, Illinois Horse Racing Equity Trust Fund proceeds, share based compensation expenses, pre-opening expenses, including those of our equity investments, the impairment of assets and other changes and recoveries.

Churchill Downs Incorporated uses Adjusted EBITDA, which the Company implemented during the three months ended June 30, 2013, 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.; a casino resort hotel in Vicksburg, Miss.; as well as a casino in Oxford, Maine; 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 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," "hope," "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, keep its technology current or maintain its significant customers; 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.

       
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands, except per common share data)
       
 Three Months Ended  
 June 30, 
 20132012% Change
Net revenues:      
Racing $157,387 $160,440 (2)
Gaming 66,887 51,371 30
Online 52,531 52,702
Other 6,968 6,303 11
  283,773 270,816 5
Operating expenses:      
Racing 90,160 95,484 (6)
Gaming 49,624 38,291 30
Online 33,218 32,925 1
Other 6,573 6,866 (4)
Selling, general and administrative expenses 22,096 20,070 10
Insurance recoveries, net of losses (5,003) (100)
Operating income 82,102 82,183
Other income (expense):      
Interest income 89 35 F
Interest expense (1,256) (982) (28)
Equity in losses of unconsolidated investments (631) (564) (12)
Miscellaneous, net 1,023 37 F
  (775) (1,474) 47
Earnings from continuing operations before provision for income taxes 81,327 80,709 1
Income tax provision (31,029) (32,133) 3
Earnings from continuing operations 50,298 48,576 4
       
Net earnings and comprehensive income $50,298 $48,576 4
       
Net earnings per common share data:      
Basic $2.85 $2.82 1
Diluted $2.81 $2.77 1
       
Weighted average shares outstanding:      
Basic 17,268 16,978  
Diluted 17,921 17,502  
       
       
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands, except per common share data)
       
 Six Months Ended  
 June 30, 
 20132012% Change
Net revenues:      
Racing $185,200 $190,622 (3)
Gaming 138,976 110,707 26
Online 95,447 96,737 (1)
Other 12,223 10,946 12
  431,846 409,012 6
Operating expenses:      
Racing 131,280 138,472 (5)
Gaming 100,612 79,231 27
Online 63,580 63,076 1
Other 12,000 12,575 (5)
Selling, general and administrative expenses 39,654 36,269 9
Insurance recoveries, net of losses (375) (6,514) (94)
Operating income 85,095 85,903 (1)
Other income (expense):      
Interest income 99 53 87
Interest expense (2,732) (2,205) (24)
Equity in losses of unconsolidated investments (795) (784) (1)
Miscellaneous, net 1,030 70 F
  (2,398) (2,866) 16
Earnings from continuing operations before provision for income taxes 82,697 83,037
Income tax provision (31,340) (33,107) 5
Earnings from continuing operations 51,357 49,930 3
Discontinued operations, net of income taxes:      
Loss from operations (1) (1)
Net earnings and comprehensive income $51,356 $49,929 3
       
Net earnings per common share data:      
Basic $2.91 $2.90
Diluted $2.87 $2.86
       
Weighted average shares outstanding:      
Basic 17,239 16,940  
Diluted 17,882 17,443  
       
       
CHURCHILL DOWNS INCORPORATED 
SUPPLEMENTAL INFORMATION BY OPERATING UNIT
for the three months ended June 30, 
(Unaudited) (in thousands, except per common share data)
       
 20132012% Change
       
Net revenues from external customers:      
Churchill Downs $108,278 $102,874 5
Arlington Park 22,006 22,807 (4)
Calder 17,031 22,873 (26)
Fair Grounds 10,072 11,886 (15)
Total Racing Operations 157,387 160,440 (2)
Calder Casino 20,466 19,188 7
Fair Grounds Slots 9,978 9,586 4
VSI 9,245 8,814 5
Harlow's Casino 13,097 13,783 (5)
Riverwalk Casino 14,101 F
Total Gaming 66,887 51,371 30
Online Business 52,531 52,702
Other Investments 6,550 5,967 10
Corporate 418 336 24
Net revenues from external customers $283,773 $270,816 5
       
Intercompany net revenues:      
Churchill Downs $4,607 $4,082 13
Arlington Park 903 1,496 (40)
Calder 492 586 (16)
Fair Grounds 75 (100)
Total Racing Operations 6,002 6,239 (4)
Online Business 233 230 1
Other Investments 1,348 1,072 26
Eliminations (7,583) (7,541) 1
Net revenues $— $—
       
Reconciliation of Segment Adjusted EBITDA to net earnings:      
Racing Operations $70,517 $67,423 5
Gaming 19,365 14,992 29
Online Business 14,091 13,806 2
Other Investments 902 (25) F
Corporate (988) (1,189) 17
Total Adjusted EBITDA 103,887 95,007 9
Insurance recoveries, net of losses 5,003 (100)
HRE Trust Fund proceeds 292 F
Share-based compensation expense (6,214) (4,715) (32)
Pre-opening costs (480) U
Depreciation and amortization (14,991) (13,639) (10)
Interest income (expense), net (1,167) (947) (23)
Income tax provision (31,029) (32,133) 3
Earnings from continuing operations 50,298 48,576 4
Discontinued operations, net of income taxes
Net earnings $50,298 $48,576 4
       
       
CHURCHILL DOWNS INCORPORATED 
SUPPLEMENTAL INFORMATION BY OPERATING UNIT
for the six months ended June 30, 
(Unaudited) (in thousands, except per common share data)
       
 20132012% Change
       
Net revenues from external customers:      
Churchill Downs $110,578 $105,424 5
Arlington Park 29,247 32,224 (9)
Calder 19,311 24,741 (22)
Fair Grounds 26,064 28,233 (8)
Total Racing Operations 185,200 190,622 (3)
Calder Casino 40,952 41,067
Fair Grounds Slots 22,342 21,617 3
VSI 19,006 18,377 3
Harlow's Casino 28,451 29,646 (4)
Riverwalk Casino 28,225 F
Total Gaming 138,976 110,707 26
Online Business 95,447 96,737 (1)
Other Investments 11,649 10,469 11
Corporate 574 477 20
Net revenues from external customers $431,846 $409,012 6
       
Intercompany net revenues:      
Churchill Downs $4,796 $4,268 12
Arlington Park 1,040 2,052 (49)
Calder 505 596 (15)
Fair Grounds 833 822 1
Total Racing Operations 7,174 7,738 (7)
Online Business 446 436 2
Other Investments 2,250 1,822 23
Eliminations (9,870) (9,996) (1)
Net revenues $— $—
       
Reconciliation of Segment Adjusted EBITDA to net earnings:      
Racing Operations $59,260 $56,370 5
Gaming 41,373 34,765 19
Online Business 25,426 25,434
Other Investments 1,083 (273) F
Corporate (2,165) (2,277) 5
Total Adjusted EBITDA 124,977 114,019 10
Insurance recoveries, net of losses 375 6,514 (94)
HRE Trust Fund proceeds 292 F
Share-based compensation expense (9,577) (7,899) (21)
Pre-opening costs (711) U
Depreciation and amortization (30,026) (27,445) (9)
Interest income (expense), net (2,633) (2,152) (22)
Income tax provision (31,340) (33,107) 5
Earnings from continuing operations 51,357 49,930 3
Discontinued operations, net of income taxes (1) (1)
Net earnings $51,356 $49,929 3
       
         
CHURCHILL DOWNS INCORPORATED 
SUPPLEMENTAL INFORMATION BY OPERATING UNIT
for the three and six months ended June 30,
(in thousands)
         
 Three Months Ended June 30,Change 
Intercompany management fee (expense) income:20132012$%
Racing Operations $ (3,218) $ (3,207) $ (11)
Gaming (819) (549) (270) (49)
Online Business (745) (711) (34) (5)
Other Investments (112) (84) (28) (33)
Corporate Income 4,894 4,551 343 8
 Total management fees $— $— $—  
         
 Six Months Ended June 30,Change 
Intercompany management fee (expense) income:20132012$%
Racing Operations $ (4,059) $ (4,152) $93 2
Gaming (2,910) (2,317) (593) (26)
Online Business (1,976) (2,030) 54 3
Other Investments (275) (237) (38) (16)
Corporate Income 9,220 8,736 484 6
 Total management fees $— $— $—  
         
     
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30,
(in thousands)
 20132012
Cash flows from operating activities:    
Net earnings and comprehensive income $51,356 $49,929
Adjustments to reconcile net earnings and comprehensive income to net cash provided by operating activities:    
Depreciation and amortization 30,026 27,445
Gain on asset disposition (1) (27)
Equity in losses of unconsolidated investments 795 784
Share-based compensation 9,577 4,414
Other 421 455
Increase (decrease) in cash resulting from changes in operating assets and liabilities, net of business acquisitions and dispositions:    
Restricted cash (2,179) (2,409)
Accounts receivable (17,164) (20,157)
Other current assets (4,330) (4,013)
Accounts payable 16,405 6,488
Purses payable 2,956 2,944
Accrued expenses (601) 3,798
Deferred revenue (16,270) (7,061)
Income taxes receivable and payable 28,763 30,993
Other assets and liabilities 510 2,467
Net cash provided by operating activities 100,264 96,050
Cash flows from investing activities:    
Additions to property and equipment (23,772) (16,473)
Acquisition of businesses, net of cash (6,728)
Acquisition of gaming license (2,250)
Investment in joint venture (12,500) (5,400)
Purchases of minority investments (365) (1,600)
Assumption of note receivable (1,100)
Proceeds on sale of property and equipment 2 88
Proceeds from insurance recoveries 9,870
Change in deposit wagering asset (3,639) (6,651)
Net cash used in investing activities (42,524) (27,994)
Cash flows from financing activities:    
Borrowings on bank line of credit 350,956 182,545
Repayments of bank line of credit (407,199) (247,143)
Change in bank overdraft 1,320 1,280
Payments of dividends (10,110)
Repurchase of common stock (4,046) (2,033)
Common stock issued 244 4,416
Windfall tax benefit from share-based compensation 1,122 640
Loan origination fees (2,036)
Change in deposit wagering liability 3,639 6,811
Net cash provided by (used in) financing activities (56,000) (63,594)
Net increase in cash and cash equivalents 1,740 4,462
Cash and cash equivalents, beginning of year 37,177 27,325
Cash and cash equivalents, end of year $38,917 $31,787
     
     
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
     
 June 30,December 31,
 2013 2012
ASSETS    
Current assets:    
Cash and cash equivalents $38,917 $37,177
Restricted cash 44,058 38,241
Accounts receivable, net 46,645 47,152
Deferred income taxes 9,267 8,227
Income taxes receivable 2,915
Other current assets 17,368 13,352
Total current assets 156,255 147,064
Property and equipment, net 537,333 542,882
Goodwill 250,414 250,414
Other intangible assets, net 139,372 143,141
Other assets 45,740 30,836
Total assets $1,129,114 $1,114,337
LIABILITIES AND SHAREHOLDERS' EQUITY    
Current liabilities:    
Accounts payable $81,518 $62,278
Bank overdraft 7,347 6,027
Purses payable 22,041 19,084
Accrued expenses 53,312 65,537
Current maturities of long-term debt 209,728
Income taxes payable 26,888
Deferred revenue 11,905 43,916
Total current liabilities 203,011 406,570
Long-term debt, net of current maturities 153,484
Other liabilities 23,246 21,030
Deferred revenue 15,805 17,794
Deferred income taxes 24,648 24,648
Total liabilities 420,194 470,042
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; 17,925 shares issued at June 30, 2013 and 17,448 shares issued at December 31, 2012 287,978 274,709
Retained earnings 420,942 369,586
Total shareholders' equity 708,920 644,295
Total liabilities and shareholders' equity $1,129,114 $1,114,337
     
CONTACT: Courtney Yopp Norris

         (502) 636-4564

         Courtney.Norris@kyderby.com


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