UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 15, 2005
| CHURCHILL DOWNS INCORPORATED |
|
|
| (Exact name of registrant as specified in its charter) |
| Kentucky | 0-1469 | 61-0156015 |
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
| 700 Central Avenue Louisville, Kentucky |
40208 |
| (Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code (502) 636-4400
| N/A |
| (Former name or former address, if changed since last report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
The information provided in Item 4.02 of this Current Report on Form 8-K is incorporated by reference.
The Company's earnings press release dated March 16, 2005, reporting its fourth quarter 2004 and full year results of operation and financial condition, is attached hereto as Exhibit 99.1 and incorporated by reference herein. This information is being furnished to the U.S. Securities and Exchange Commission pursuant to Item 2.02 of Form 8-K.
ITEM 4.02. NON-RELIANCE ON PREVIOUSLY ISSUED FINANCIAL STATEMENTS OR A RELATED AUDIT REPORT OR COMPLETED INTERIM REVIEW.
(a) The Company recently determined that an accrued liability related to a supplemental benefit plan (the “Plan”) maintained by the Company for the chief executive officer was misstated. The Plan provides for a pre-determined monthly benefit to be paid upon the performance of service as defined in the Plan. The Company has historically recorded compensation expense equal to the estimated present value of future payments to be made under the Plan over the period of active employment of the employee covered under the Plan. The Company has now determined that, from inception of the Plan, the liability was recorded net of income tax benefits while also recording a separate income tax benefit in accordance with the recognition of the income tax accrual. As a result, the income tax benefit was recorded twice, and the accrued liability was understated at the end of each year. The liability was also understated as a result of using erroneous actuarial information to calculate the estimated present value of future payments. Accordingly, the Company's December 31, 2003 and 2002 Consolidated Financial Statements should no longer be relied upon. The Company will restate its Consolidated Financial Statements as of and for the years ended December 31, 2003 and 2002 for the effect of this error, with such restated financial information included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed on or about March 16, 2005. The restatement will serve to increase the liability to the estimated present value of future payments based on the terms of the Plan. The restatement will have no effect on the Consolidated Statements of Net Earnings for the years ended December 31, 2003 and 2002.
The following tables represent the effect of the restatements on the Company’s Consolidated Balance Sheets as of the years ended December 31, 2003, 2002 and 2001:
| As Previously Reported |
Adjustment | As Restated | |||||
| December 31, 2003 |
|||||||
| Other liabilities | $11,719 | $2,165 | $13,884 | ||||
| Deferred income tax liabilities | $13,327 | ($802 | ) | $12,525 | |||
| Retained earnings | $124,491 | ($1,363 | ) | $123,128 | |||
| As Previously Reported |
Adjustment | As Restated | |||||
| December 31, 2002 |
|||||||
| Other liabilities | $12,603 | $2,165 | $14,768 | ||||
| Deferred income tax liabilities | $13,112 | ($802 | ) | $12,310 | |||
| Retained earnings | $107,737 | ($1,363 | ) | $106,374 | |||
| As Previously Reported |
Adjustment | As Restated | |||||
| December 31, 2001 |
|||||||
| Other liabilities | $11,302 | $2,165 | $13,467 | ||||
| Deferred income tax liabilities | $15,124 | ($802 | ) | $14,322 | |||
| Retained earnings | $94,680 | ($1,363 | ) | $93,317 | |||
On March 15, 2005, the Company’s Audit Committee and senior management deemed the restatement necessary and discussed the matters disclosed in this item with the Company’s independent registered public accounting firm, PricewaterhouseCoopers, LLP. Investors should look to the restated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 filed on or about March 16, 2005.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of December 31, 2004, the Company did not maintain effective control over a supplemental retirement plan liability for its chief executive officer. Specifically, the accrued liability for this plan was understated as a result of errors caused by management using incorrect actuarial information and incorrectly recording the amount on an after-tax basis. The Company did not have effective review and approval controls to prevent or detect these errors on a timely basis. This control deficiency resulted in the restatement of the Company’s consolidated financial statements for 2002 and 2003. Additionally, this control deficiency could result in a misstatement of the accrued supplemental retirement plan liability and the related expense that would result in a material misstatement to annual or interim financial statements that would not be prevented or detected. Accordingly, management determined that this control deficiency constitutes a material weakness.
ITEM 9.01 FINANICAL STATEMENTS AND EXHIBITS.
| (c) | Exhibits | |
| Exhibit 99.1 Press release dated March 16, 2005 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| CHURCHILL DOWNS INCORPORATED | |
| March 16, 2005 | /s/ Michael W. Anderson Michael W. Anderson VP Finance and Treasurer |
EXHIBIT 99.1
| FOR IMMEDIATE RELEASE | Contact: Mike Ogburn (502) 636-4415, office (502) 262-0224, cellular mogburn@kyderby.com |
CHURCHILL DOWNS INCORPORATED REPORTS 2004 EARNINGS
LOUISVILLE, Ky. (March 16, 2005) - Churchill Downs Incorporated (Nasdaq: CHDN) ("CDI" or "Company") today reported earnings results for the fourth quarter and year ended Dec. 31, 2004.
Net revenues for the year totaled $463.1 million, a 4.3-percent increase from revenues of $444.1 million in 2003. Net earnings totaled $0.67 per fully diluted share, compared with $1.75 per fully diluted share in 2003. The 2004 results included a one-time, $1.6 million gain from the sale of a portion of the Company’s ownership in Kentucky Downs offset by $5.9 million in expenses related to alternative gaming ballot initiatives, $6.2 million in non-cash impairment charges at Ellis Park, and a $4.3 million non-cash, unrealized loss related to the terms of a convertible note issued in the fourth quarter.
For the fourth quarter of 2004, the Company reported net revenues of $116.1 million, an increase of 17.5 percent from the $98.8 million reported during the same period in 2003. The net loss was $3.2 million, or ($0.25) per diluted share, versus a loss of $389,000 or ($0.03) per diluted share in the fourth quarter of 2003. The results include the non-cash, $4.3 million mark-to-market, unrealized loss related to the terms of a convertible note issued in the fourth quarter of 2004.
Thomas H. Meeker, CDI’s president and chief executive officer, described 2004 as a pivotal year for the Company. “Our 2004 performance was strong across our operations, especially when looking beyond the unusual items that reduced our earnings by approximately $0.98 per share,” stated Meeker. “In 2004 we grew our revenues, maintained our gross profit margin of 17 percent and generated EBITDA of more than $50 million.
“We also achieved several key objectives over the course of the year. We acquired Fair Grounds Race Course and in the process gained first quarter racing and an entry into the ‘racino’ business. We gained statewide approval to pursue alternative gaming in Florida, and despite a setback at the local level, remain hopeful that we can win an enabling vote in 2007. We continued the build out of our Customer Relationship Management (“CRM”) platform, and have nearly completed the renovations at Churchill Downs racetrack, where sales of our new luxury suites and personal seat licenses more than exceeded our expectations. These achievements are significant examples of steps we are taking to position our Company for future growth.
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Churchill Downs
Incorporated Reports 2004 Earnings
March 16, 2005
Page 2
“In 2005, we anticipate an exceptional Kentucky Derby and Oaks in our newly renovated Churchill Downs facility, improvement in our simulcast sales and initial returns from our CRM initiative,” Meeker continued. “We also will continue to aggressively pursue additional opportunities to build shareholder value, including ongoing development initiatives, exploration of options to maximize our Hollywood Park asset, and the potential incorporation of slot machines at Fair Grounds in 2006.”
Meeker concluded, “Because of the unpredictable nature of these development-related activities, both in the coming years and the recent past, providing guidance on an earnings per share (“EPS”) basis has proven to be more and more difficult and less meaningful. Consequently, we have made a decision to suspend our practice of assigning an EPS target to our various reporting periods. We will continue to provide updates on business trends, operational results and ongoing development initiatives, but will not attempt to quantify their impact through EPS guidance.”
Note: As part of the 2004 internal controls review mandated by Sarbanes Oxley, the Company identified two material weaknesses in its controls and disclosed them in the Form 10-K filed for the period discussed in this press release. One of these issues has been resolved and is no longer a material weakness. The second involves the controls and audit procedures of our tote vendors, and will be resolved by Dec. 31, 2005.
A conference call regarding this release is scheduled for Thursday, March 17, 2005, beginning at 9 a.m. EST. 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.fulldisclosure.com or by calling (719) 457-2727 at least 10 minutes before the appointed time. The online replay will be available at approximately noon and continue for two weeks. A six-day telephonic replay will be available two hours after the call ends by dialing (719) 457-0820 and entering 5620447 when prompted for the access code. A copy of this press release announcing earnings and relevant financial and statistical information about the period will be accessible at www.churchilldownsincorporated.com/investor_relations.
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”). CDI 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, 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.
Churchill Downs Incorporated, headquartered in Louisville, Ky., owns and operates world-renowned horse racing venues throughout the United States. The Company’s seven racetracks in California, Florida, Illinois, Indiana, Kentucky and Louisiana host 121 graded-stakes events and many of North America’s most prestigious races, including the Kentucky Derby and Kentucky Oaks,
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Churchill Downs
Incorporated Reports 2004 Earnings
March 16, 2005
Page 3
Hollywood Gold Cup and Arlington Million. CDI racetracks have hosted nine Breeders’ Cup World Thoroughbred Championships – more than any other North American racing company. CDI also owns off-track betting facilities and has interests in various television production, telecommunications and racing services companies that support CDI’s network of simulcasting and racing operations. CDI trades on the Nasdaq National Market under the symbol CHDN and can be found on the Internet at www.churchilldownsincorporated.com.
This news release contains forward-looking statements made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The reader is cautioned that such forward-looking statements involve risks and uncertainties that could cause our actual operating results and financial condition to differ materially. 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 our expectations include: the effect of global economic conditions; the effect (including possible increases in the cost of doing business) resulting from future war and terrorist activities or political uncertainties; the economic environment; the impact of increasing insurance costs; the impact of interest rate fluctuations; the effect of any change in the Company’s accounting policies or practices; the financial performance of our racing operations; the impact of gaming competition (including lotteries and riverboat, cruise ship and land-based casinos) and other sports and entertainment options in those markets in which we operate; the impact of live racing day competition with other Florida and California racetracks within those respective markets; costs associated with our efforts in support of alternative gaming initiatives; costs associated with our Customer Relationship Management initiatives; a substantial change in law or regulations affecting our pari-mutuel and gaming activities; a substantial change in allocation of live racing days; litigation surrounding the Rosemont, Illinois, riverboat casino; changes in Illinois law that impact revenues of racing operations in Illinois; a decrease in riverboat admissions subsidy revenue from our Indiana operations; the impact of an additional Indiana racetrack and its wagering facilities near our operations; our continued ability to effectively compete for the country’s top horses and trainers necessary to field high-quality horse racing; our continued ability to grow our share of the interstate simulcast market; our ability to execute our acquisition strategy and to complete or successfully operate planned expansion projects; our ability to adequately integrate acquired businesses; market reaction to our expansion projects; any business disruption associated with our facility renovations; the loss of our totalisator companies or their inability to provide adequate reliance on their internal control processes through SAS 70 reports or to keep their technology current; our accountability for environmental contamination; the loss of key personnel and the volatility of our stock price.
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Churchill Downs
Incorporated Reports 2004 Earnings
March 16, 2005
Page 4
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF NET EARNINGS
for the twelve and three months ended December 31, 2004 and 2003
(Unaudited) (In thousands, except per share data)
Twelve Months Ended Three Months Ended
December 31, December 31,
2004 2003 2004 2003
---- ---- ---- ----
Net revenues $463,113 $444,056 $116,066 $98,799
Operating expenses:
Purses 150,760 149,805 39,837 39,613
Other direct expenses 232,703 217,101 63,080 50,346
------- -------- -------- -------
383,463 366,906 102,917 89,959
Gross profit 79,650 77,150 13,149 8,840
Selling, general and administrative expenses 42,759 34,091 10,347 8,683
Asset impairment loss 6,202 - - -
------- -------- -------- -------
Operating income 30,689 43,059 2,802 157
------- -------- -------- -------
Other income (expense):
Interest income 435 1,316 132 120
Interest expense (6,690) (6,221) (2,606) (1,505)
Unrealized loss on derivative instruments (4,254) - (4,254) -
Miscellaneous, net 2,725 1,028 1,586 386
------- -------- -------- -------
(7,784) (3,877) (5,142) (999)
------- -------- -------- -------
Earnings (loss) before income taxes 22,905 39,182 (2,340) (842)
Income tax (provision) benefit (13,990) (15,803) (854) 453
------- -------- -------- -------
Net earnings (loss) $ 8,915 $ 23,379 $ (3,194) $ (389)
======== ======== ======== =======
Net earnings (loss) per common share data:
Basic $0.67 $1.77 $(0.25) $(0.03)
Diluted $0.67 $1.75 $(0.25) $(0.03)
Weighted average shares outstanding:
Basic 13,196 13,189 12,933 13,231
Diluted 13,372 13,392 12,933 13,231
Certain financial statement amounts have been reclassified in the prior periods to conform to current period presentation.
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Incorporated Reports 2004 Earnings
March 16, 2005
Page 5
CHURCHILL DOWNS INCORPORATED
SUPPLEMENTAL INFORMATION BY OPERATING UNIT
for the twelve and three months ended December 31, 2004 and 2003
(Unaudited) (In thousands)
Twelve Months Ended Three Months Ended
December 31, December 31,
2004 2003 2004 2003
---- ---- ---- ----
Net revenues from external customers:
Kentucky Operations $ 87,313 $ 84,010 $ 11,105 $ 12,359
Hollywood Park 83,484 78,839 23,271 19,821
Arlington Park 79,586 78,290 8,484 8,122
Calder Race Course 79,469 78,472 29,220 27,513
Hoosier Park 41,487 42,801 10,824 11,631
Louisiana Operations 11,629 - 11,629 -
CDSN 77,848 77,423 21,200 18,681
--------- --------- --------- ---------
Total racing operations 460,816 439,835 115,733 98,127
Other investments 953 2,889 78 341
Corporate revenues 1,344 1,332 257 331
--------- --------- --------- ---------
$ 463,113 $ 444,056 $ 116,066 $ 98,799
========= ========= ========= ========
Intercompany net revenues:
Kentucky Operations $ 24,074 $ 25,531 $ 3,857 $ 5,014
Hollywood Park 13,577 12,795 4,674 3,844
Arlington Park 8,365 8,722 16 55
Calder Race Course 12,642 13,281 5,742 5,480
Hoosier Park 162 210 74 121
Louisiana Operations 2,206 - - -
--------- --------- --------- ---------
Total racing operations 61,026 60,539 16,569 14,514
Other investments 2,087 2,171 561 703
Corporate expenses 967 984 209 219
Eliminations (64,080) (63,694) (17,339) (15,436)
--------- --------- --------- ---------
$ - $ - $ - $ -
========= ========= ========= =========
EBITDA:
Kentucky Operations $ 12,207 $ 18,093 $ (2,667) $ (2,549)
Hollywood Park 7,300 7,179 3,255 393
Arlington Park 11,003 8,708 (2,223) (2,355)
Calder Race Course 9,498 14,329 6,993 6,818
Hoosier Park 1,856 2,422 438 408
Louisiana Operations 23 - 23 -
CDSN 18,832 18,912 5,298 4,489
---------- --------- --------- ---------
Total racing operations 60,719 69,643 11,117 7,204
Other investments 3,302 1,457 1,703 381
Corporate expenses (12,895) (6,530) (6,971) (1,874)
Eliminations (6) - - -
Total EBITDA 51,120 64,570 5,849 5,711
Depreciation and amortization (21,960) (20,483) (5,715) (5,168)
Interest income (expense), net (6,255) (4,905) (2,474) (1,385)
Provision for income taxes (13,990) (15,803) (854) 453
---------- --------- --------- ---------
Net earnings $ 8,915 $ 23,379 $ (3,194) $ (389)
========== ========= ========= =========
Certain financial statement amounts have been reclassified in the prior periods to conform to current period presentation.
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Churchill Downs
Incorporated Reports 2004 Earnings
March 16, 2005
Page 6
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
December 31, December 31,
2004 2003
---- ----
ASSETS (as restated)
Current assets:
Cash and cash equivalents $ 27,712 $ 16,440
Restricted cash 7,267 1,613
Accounts receivable, net 50,523 35,604
Deferred income taxes 3,940 3,767
Other current assets 3,999 1,613
--------- --------
Total current assets 93,441 59,037
Other assets 17,196 16,941
Plant and equipment, net 458,644 367,229
Goodwill, net 53,528 52,239
Other intangible assets, net 19,149 7,464
--------- -----
Total assets $ 641,958 $502,910
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 34,233 $ 26,565
Purses payable 8,464 8,584
Accrued expenses 37,511 38,491
Dividends payable 6,430 6,625
Deferred revenue 25,941 18,050
Long-term debt, current portion - 5,740
--------- --------
Total current liabilities 112,579 104,055
Long-term debt, due after one year 242,770 121,096
Other liabilities 20,424 13,884
Deferred revenue 19,071 -
Deferred income taxes 8,686 12,525
--------- --------
Total liabilities 403,530 251,560
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; issued: 12,904 shares December
31, 2004 and 13,250 shares December 31,
2003 114,930 128,583
Retained earnings 125,613 123,128
Accumulated other comprehensive loss (180) (361)
Unearned compensation (1,935) -
-------- --------
Total shareholders' equity 238,428 251,350
-------- --------
Total liabilities and shareholders' equity $ 641,958 $502,910
========= ========
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