Kentucky
|
61-0156015
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification No.)
|
700
Central Avenue, Louisville, Kentucky 40208
|
(502)
636-4400
|
(Address
of principal executive offices) (zip code)
|
(Registrant's
telephone number, including area code)
|
Securities
registered pursuant to Section 12(b) of the Act:
|
|
None
|
None
|
(Title
of each class registered)
|
(Name
of each exchange on which registered)
|
Securities
registered pursuant to Section 12(g) of the Act:
|
|
Common
Stock, No Par Value
|
|
(Title
of class)
|
A.
|
Introduction
|
B.
|
Live
Racing and Alternative Gaming
Operations
|
C.
|
Simulcast
Operations
|
D.
|
Sources
of Revenue
|
E.
|
Licenses
and Live Race Dates
|
2006
|
2005
|
||||||||
Racetrack
|
Racing
Dates
|
#
of Days
|
Racing
Dates
|
#
of Days
|
|||||
Churchill
Downs
|
|||||||||
Spring
Meet
|
April
29 - July 16
|
57
|
April
30 - July 10
|
52
|
|||||
Fall
Meet
|
Oct.
29 - Nov. 25
|
21
|
|
Oct.
30 - Nov. 26
|
21
|
||||
78
|
73
|
||||||||
Calder
Race Course
|
|||||||||
Calder
Meet
|
April
25 - Oct. 15
|
112
|
April
25 - Oct. 16
|
120
|
|||||
Tropical
Meet 05/06
|
Jan.
1 - Jan. 2
|
2
|
Jan.
1 - Jan. 2.
|
2
|
|||||
Tropical
Meet 06/07
|
Oct.
16 - Dec. 31
|
58
|
Oct.
17 - Dec. 31
|
53
|
|||||
172
|
175
|
||||||||
Arlington
Park
|
May
5 - Sept. 14
|
94
|
May
13 - Sept. 18
|
94
|
|||||
Ellis
Park
|
July
19 - Sept. 4
|
36
|
July
13 - Sept. 5
|
41
|
|||||
Hoosier
Park
|
|||||||||
Standardbred
Meet
|
April
1 - June 24
|
60
|
April
2 - June 25
|
61
|
|||||
Thoroughbred
Meet
|
Sept.
2 - Nov. 25
|
61
|
Sept.
3 - Nov. 25
|
57
|
|||||
121
|
118
|
||||||||
Fair
Grounds
|
|||||||||
Winter
Meet 04/05
|
Jan.
1 - March 27
|
61
|
|||||||
Winter
Meet 05/06*
|
Jan.
1 - Jan. 22
|
12
|
Nov.
19 - Dec. 31
|
25
|
|||||
Winter
Meet 06/07**
|
Nov.
23 - Dec. 31
|
23
|
|||||||
35
|
86
|
||||||||
Hollywood
Park
|
|||||||||
Spring/Summer
Meet
|
N/A
|
April
22 - July 17
|
64
|
F.
|
Competition
|
· |
Higher
racetrack revenues and purse levels with pass through benefits to
breed
developers and breeding farms;
|
· |
Increased
tax revenues for states and local municipalities;
and
|
· |
Increased
attendance at live track facilities driven primarily by "casual fans,"
or
those who are patrons of traditional gaming operations such as casinos
but
are not racing customers.
|
G.
|
Legislative
Changes
|
H.
|
Environmental
Matters
|
I.
|
Service
Marks
|
J.
|
Employees
|
K.
|
Internet
Access
|
ITEM
1A.
|
ITEM
1B.
|
ITEM
2.
|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
ITEM
5.
|
2005
- By Quarter
|
2004
- By Quarter
|
|||||||||
1st
|
2nd
|
3rd
|
4th
|
1st
|
2nd
|
3rd
|
4th
|
|||
High
Sale
|
$48.30
|
$45.63
|
$48.40
|
$39.19
|
$40.02
|
$40.95
|
$40.73
|
$47.61
|
||
Low
Sale
|
$36.99
|
$36.58
|
$32.91
|
$31.07
|
$34.79
|
$35.51
|
$33.76
|
$33.31
|
||
Dividend
per share:
|
$0.50
|
$0.50
|
Period
|
Total
Number of
Shares
Purchased
|
Average
Price
Paid
Per Share
|
Total
Number of
Shares
Purchased
as
Part of Publicly Announced Plans
or
Programs
|
Approximate
Dollar
Value
of Shares That
May
Yet Be
Purchased
Under the
Plans
or Programs
|
|||
Period
1
|
|||||||
10/1/05
- 10/31/05
|
-
|
-
|
-
|
-
|
|||
Period
2
|
|||||||
11/1/05
- 11/30/05
|
5,456
(1)
|
$36.30
|
-
|
-
|
|||
Period
3
|
|||||||
12/1/05
- 12/31/05
|
-
|
-
|
-
|
-
|
|||
Total
|
5,456
|
$36.30
|
-
|
-
|
(1)
|
Shares
of common stock were acquired from a stock option plan participant
in
payment of the exercise price on exercised stock
options.
|
ITEM
6.
|
(In
thousands, except per share data)
|
Years
ended December 31,
|
||||||||||||||||||
2005
|
2004
|
2003
|
2002
|
2001
|
|
||||||||||||||
Operations:
|
|||||||||||||||||||
Net
revenues
|
$408,801
|
$361,187
|
$348,505
|
$356,886
|
$341,333
|
||||||||||||||
Operating
income
|
$20,887
|
$24,583
|
$37,066
|
$31,496
|
$37,279
|
||||||||||||||
Net
earnings from continuing operations
|
$12,810
|
$9,769
|
$23,308
|
$17,528
|
21,904
|
||||||||||||||
Discontinued
operations, net of income taxes
|
$66,098
|
$(854
|
)
|
$71
|
2,107
|
$(364
|
)
|
||||||||||||
Net
earnings
|
$78,908
|
$8,915
|
$23,379
|
$19,635
|
$21,540
|
||||||||||||||
Basic
net earnings from continuing operations per common share
|
$0.98
|
$0.74
|
$1.77
|
$1.35
|
$1.67
|
||||||||||||||
Basic
net earnings per common share
|
$5.92
|
$0.67
|
$1.77
|
$1.50
|
$1.65
|
||||||||||||||
Diluted
net earnings from continuing operations per common share
|
$0.96
|
$0.73
|
$1.74
|
$1.31
|
$1.66
|
||||||||||||||
Diluted
net earnings per common share
|
$5.86
|
$0.67
|
$1.75
|
$1.47
|
$1.63
|
||||||||||||||
Annual
dividends paid per common share
|
$0.50
|
$0.50
|
$0.50
|
$0.50
|
$0.50
|
||||||||||||||
Balance
Sheet Data at Period End:
|
|||||||||||||||||||
Total
assets
|
$514,542
|
$642,277
|
$502,910
|
$467,934
|
$473,418
|
||||||||||||||
Working
capital (deficiency) surplus
|
$(35,929
|
)
|
$115,081
|
$91,169
|
$111,805
|
$107,251
|
|||||||||||||
Long-term
debt
|
$33,793
|
$242,770
|
$126,836
|
$123,348
|
$133,348
|
||||||||||||||
Other
Data:
|
|||||||||||||||||||
Shareholders'
equity
|
$316,231
|
$238,428
|
$251,350
|
$232,130
|
$215,702
|
||||||||||||||
Shareholders'
equity per common share
|
$24.08
|
$18.48
|
$18.97
|
$17.64
|
$16.47
|
||||||||||||||
Additions
to racing plant and equipment, exclusive of business acquisitions,
net
|
$43,238
|
$77,172
|
$40,855
|
$22,723
|
$14,626
|
(1)
|
During
2005, the Company recognized a gain of $69.9 million, net of income
taxes,
on the sale of the assets of Hollywood
Park.
|
(2)
|
During
2004, the Company recorded a $4.3 million loss representing an unrealized
loss on derivative instruments embedded in a convertible promissory
note,
a $1.6 million gain on the sale of our 19% interest in Kentucky Downs
and
a $6.2 million asset impairment loss recorded to write down the assets
of
Ellis Park (part of our Kentucky Operations segment) to its estimated
fair
value.
|
(3)
|
During
2003, the Company recorded a $4.1 million gain related to an Illinois
real
estate tax settlement. The amount recorded, net of attorney's fees
and
other reductions, approximates $3.1 million reflected as a reduction
in
operating expenses and $1.0 million in earned interest income.
|
(4)
|
During
2002, an asset impairment loss of $4.5 million was recorded to write
down
the assets of Ellis Park (part of our Kentucky Operations segment)
to
their estimated fair value.
|
(5)
|
On
January 1, 2002, we adopted Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" which required us
to
discontinue the amortization of goodwill. In 2001, goodwill amortization
amounted to $1.4 million.
|
In thousands, except per share data and live race days) |
Year
ended December 31,
|
05
vs. 04 Change
|
04
vs. 03
Change
|
|||||||||||||||||
2005
|
2004
|
2003
|
$
|
%
|
$
|
%
|
||||||||||||||
Total
pari-mutuel handle
|
$
|
3,617,104
|
$
|
3,351,031
|
$
|
3,287,317
|
$
|
266,073
|
8
|
%
|
$
|
63,714
|
2
|
%
|
||||||
No.
of live race days
|
587
|
542
|
525
|
45
|
8
|
%
|
17
|
3
|
%
|
|||||||||||
Net
pari-mutuel revenues
|
$
|
297,509
|
$
|
274,374
|
$
|
271,313
|
$
|
23,135
|
8
|
%
|
$
|
3,061
|
1
|
%
|
||||||
Other
operating revenues
|
111,292
|
86,813
|
77,192
|
24,479
|
28
|
%
|
9,621
|
12
|
%
|
|||||||||||
Total
net revenues
|
$
|
408,801
|
$
|
361,187
|
$
|
348,505
|
$
|
47,614
|
13
|
%
|
$
|
12,682
|
4
|
%
|
||||||
Gross
profit
|
$
|
66,572
|
$
|
66,768
|
$
|
67,434
|
$
|
(196
|
)
|
-
|
$
|
(666
|
)
|
(1
|
)%
|
|||||
Gross
margin percentage
|
16
|
%
|
18
|
%
|
19
|
%
|
||||||||||||||
Operating
income
|
$
|
20,887
|
$
|
24,583
|
$
|
37,066
|
$
|
(3,696
|
)
|
(15
|
)%
|
$
|
(12,483
|
)
|
(34
|
)%
|
||||
Net
earnings from continuing operations
|
$
|
12,810
|
$
|
9,769
|
$
|
23,308
|
$
|
3,041
|
31
|
%
|
$
|
(13,539
|
)
|
(58
|
)%
|
|||||
Diluted
net earnings from continuing operations per common share
|
$
|
0.96
|
$
|
0.73
|
$
|
1.74
|
· |
We
recorded a $6.2 million asset impairment loss at Ellis Park during
the
third quarter of 2004 based on management's consideration of historical
and forecasted operating results of the
facility.
|
· |
Corporate
expenses increased $7.6 million during the year ended December 31,
2005,
primarily as a result of increased costs associated with our initiative
to
attract and retain appropriate personnel to achieve our business
objectives, including increased costs of $2.2 million associated
with a
supplemental benefit plan for the chief executive officer as a result
of
an amendment to an employment contract during 2005. Additionally,
we
incurred increased professional fees related to obtaining compliance
with
the Sarbanes-Oxley Act of 2002 and increased costs associated with
our
customer relationship marketing
initiative.
|
· |
During
the year ended December 31, 2005, we recognized a reduction of selling,
general and administrative expenses of $2.2 million related to an
estimate
of insurance proceeds that management determined are probable of
recovery
in connection with damages sustained from Hurricane Katrina by the
Louisiana Operations.
|
· |
During
the year ended December 31, 2005, we recognized an unrealized gain
on
derivative instruments of $0.8 million compared to losses of $4.3
million
in the prior year, which were attributable to changes in the fair
market
value of embedded derivatives within a convertible promissory note
issued
during the fourth quarter of 2004.
|
· |
Our
effective tax rate decreased from 57% in 2004 to 43% in 2005 resulting
primarily from the unrealized gain on derivative instruments and
the
non-deductible portion of the asset impairment loss recognized during
2004.
|
· |
We
recorded a $6.2 million asset impairment loss at Ellis Park during
the
third quarter of 2004 based on management's consideration of the
historical and forecasted operating results of the
facility.
|
· |
We
incurred $3.6 million of additional expenses related to alternative
gaming
legislative initiatives in Florida during
2004.
|
· |
Interest
income decreased $0.9 million during 2004 compared to 2003 as a result
of
interest income related to a property tax refund in Illinois recognized
during the third quarter of 2003.
|
· |
We
recorded an unrealized loss on derivative instruments of $4.3 million
related to changes in the fair market value of embedded derivatives
within
a convertible promissory note issued during the fourth quarter of
2004.
|
· |
Our
effective tax rate rose from 39% in 2003 to 57% in 2004 resulting
from the
non-deductibility of the legislative initiative costs, a portion
of the
asset impairment loss and the unrealized loss on derivative
instruments.
|
(In thousands) |
Year
ended December 31,
|
05
vs. 04 Change
|
04
vs. 03 Change
|
||||||||||||||||
2005
|
2004
|
2003
|
$
|
%
|
$
|
%
|
|||||||||||||
Purse
expenses
|
$
|
127,139
|
$
|
114,164
|
$
|
113,484
|
$
|
12,975
|
11
|
%
|
$
|
680
|
1
|
% | |||||
Depreciation/amortization
|
21,389
|
15,666
|
14,632
|
5,723
|
37
|
%
|
1,034
|
7
|
% | ||||||||||
Other operating expenses |
193,701
|
164,589
|
152,955
|
29,112
|
18
|
%
|
11,634
|
8
|
% | ||||||||||
SG&A
expenses
|
45,685
|
35,983
|
30,368
|
9,702
|
27
|
%
|
5,615
|
18
|
% | ||||||||||
Impairment
losses
|
-
|
6,202
|
-
|
(6,202
|
)
|
(100
|
)%
|
6,202
|
100
|
% | |||||||||
Total
|
$
|
387,914
|
$
|
336,604
|
$
|
311,439
|
$
|
51,310
|
15
|
%
|
$
|
25,165
|
8
|
% | |||||
Percent
of revenue
|
95
|
%
|
93
|
%
|
89
|
%
|
(In thousands) |
Year
ended December 31,
|
05
vs. 04 Change
|
04
vs. 03 Change
|
||||||||||||||||
|
2005
|
|
2004
|
|
2003
|
|
$
|
% |
$
|
% | |||||||||
Interest
income
|
$
|
622
|
$
|
413
|
$ |
1,297
|
$ |
209
|
51
|
%
|
$ |
(884
|
)
|
(68
|
)%
|
||||
Interest
expense
|
(1,576
|
)
|
(1,003
|
)
|
(916
|
)
|
(573
|
) |
(57
|
)%
|
(87
|
)
|
(9
|
)%
|
|||||
Unrealized
gain (loss) on derivative instruments
|
818
|
(4,254
|
)
|
-
|
5,072
|
119
|
%
|
(4,254
|
)
|
(100
|
)%
|
||||||||
Miscellaneous,
net
|
1,910
|
2,737
|
1,028
|
(827
|
) |
(30
|
)%
|
1,709
|
166
|
%
|
|||||||||
Other
income (expense)
|
$
|
1,774
|
$ |
(2,107
|
)
|
$ |
1,409
|
$ |
3,881
|
184
|
%
|
$ |
(3,516
|
)
|
(250
|
)%
|
|||
Provision
for income taxes
|
$
|
(9,851
|
)
|
$ |
(12,707
|
)
|
$ |
(15,167
|
)
|
$ |
2,856
|
22
|
%
|
$ |
2,460
|
16
|
%
|
||
Effective
tax rate
|
43
|
%
|
57
|
%
|
39
|
%
|
· |
Interest
expense increased during 2005 primarily due to additional borrowings
for
the acquisition of the Louisiana Operations combined with a rising
interest rate environment offset partially by a reduction of interest
expense during the fourth quarter of 2005 resulting from lower debt
balances due to the pay-off of debt in conjunction with the sale
of the
assets of Hollywood Park.
|
· |
We
recognized an unrealized gain on derivative instruments of $0.8 million
in
2005 compared to losses of $4.3 million in the prior year, which
was
attributable to changes in the fair market value of embedded derivatives
within a convertible promissory note issued during the fourth quarter
of
2004.
|
· |
Miscellaneous
income decreased during 2005 as a result of a $1.6 million gain realized
on the sale of 19% of our interest in Kentucky Downs during the fourth
quarter of 2004, which was partially offset by increased minority
interest
income related to the investment in Hoosier
Park.
|
· |
Our
effective tax rate decreased from 57% in 2004 to 43% in 2005 resulting
from the non-taxable unrealized gain on derivative instruments and
the
non-deductible portion of the asset impairment loss recognized during
2004.
|
· |
Interest
income decreased $0.9 million during 2004 compared to 2003 as a result
of
interest income related to a property tax refund in Illinois recognized
during the third quarter of 2003.
|
· |
We
recognized an unrealized loss on derivative instruments of $4.3 million
related to changes in the fair market value of embedded derivatives
within
a convertible promissory note issued during the fourth quarter of
2004.
|
· |
Miscellaneous
income increased during 2004 as a result of a $1.6 million gain realized
on the sale of 19% of our interest in Kentucky Downs during the fourth
quarter of 2004.
|
· |
Our
effective tax rate increased from 39% in 2003 to 57% in 2004 resulting
from the non-deductibility of the legislative initiative costs, a
portion
of the asset impairment loss and the unrealized loss on derivative
instruments.
|
(In thousands) |
Year
ended December 31
|
05
vs. 04 Change
|
04
vs. 03 Change
|
||||||||||||||||
|
2005
|
|
2004
|
|
2003
|
|
$
|
%
|
$
|
%
|
|||||||||
Kentucky
Operations
|
$ |
119,642
|
$ |
112,710
|
$ |
110,845
|
$ |
6,932
|
6
|
%
|
$ |
1,865
|
2
|
%
|
|||||
Arlington
Park
|
84,188
|
87,951
|
87,012
|
(3,76
|
)
|
(4
|
)%
|
939
|
1
|
%
|
|||||||||
Calder
Race Course
|
92,736
|
92,111
|
91,753
|
625
|
1
|
%
|
358
|
-
|
|||||||||||
Hoosier
Park
|
40,869
|
41,649
|
43,011
|
(780
|
)
|
(2
|
)%
|
(1,362
|
)
|
(3
|
)%
|
||||||||
Louisiana
Operations
|
55,564
|
13,237
|
-
|
42,327
|
320
|
%
|
13,237
|
100
|
%
|
||||||||||
CDSN
|
67,272
|
60,121
|
60,721
|
7,151
|
12
|
%
|
(600
|
)
|
(1
|
)%
|
|||||||||
Total
racing operations
|
460,271
|
407,779
|
393,342
|
52,492
|
13
|
%
|
14,437
|
4
|
%
|
||||||||||
Other
investments
|
2,954
|
3,040
|
5,060
|
(86
|
)
|
(3
|
)%
|
(2,020
|
)
|
(40
|
)%
|
||||||||
Corporate
revenues
|
702
|
21
|
28
|
681
|
3,243
|
%
|
(7
|
)
|
(25
|
)%
|
|||||||||
Eliminations
|
(55,126
|
)
|
(49,653
|
)
|
(49,925
|
)
|
(5,473
|
)
|
(11
|
)%
|
272
|
1
|
%
|
||||||
$ |
408,801
|
$ |
361,187
|
$ |
348,505
|
$ |
47,614
|
13
|
%
|
$ |
12,682
|
4
|
%
|
· |
During
the fourth quarter of 2004, we completed our acquisition of the Louisiana
Operations, which contributed $42.3 million to the overall increase
in
revenues. Additionally, CDSN revenues and eliminations increased
primarily
as a result of the acquisition of the Louisiana
Operations.
|
· |
Net
revenues from the Kentucky Operations increased as we realized benefits
from the opening of the newly renovated Churchill Downs racetrack
facility, including increased attendance during the week of the Kentucky
Derby, which was partially offset by lower revenues at Ellis Park
primarily due to 13 fewer days of live racing during the year ended
December 31, 2005 compared to 2004.
|
· |
During
January and February, when there is no live racing in Illinois, the
IRB
designates a Thoroughbred racetrack as the host track in Illinois
The IRB
appointed Arlington Park as the host track in Illinois for 29 days
during
January 2005 compared to 52 days during portions of January and February
of 2004, which resulted in reduced revenues of $4.4 million during
the
year ended December 31, 2005 compared to
2004.
|
· |
During
the fourth quarter of 2004, we completed our acquisition of the Louisiana
Operations which contributed $13.2 million to the overall increase
in
revenues.
|
· |
Our
Kentucky Operations revenues increased primarily due to incremental
Jockey
Club luxury suite sales for Kentucky Derby and Oaks days as well
as a
decision to run a six-day per week live meet at Ellis Park compared
to a
five-day per week live meet during 2003. These increases were partially
offset by a decrease in pari-mutuel revenues attributable to inclement
weather and reduced attendance resulting from the impact of the Churchill
Downs racetrack facility renovation project, referred to as the "Master
Plan."
|
· |
During
January and February when there is no live racing in Illinois, the
IRB
designates a Thoroughbred racetrack as the host track in Illinois.
The IRB
appointed Arlington Park as the host track in Illinois for 52 days
during
portions of January and February 2004 compared to 30 days during
January
2003. Additionally, Arlington Park pari-mutuel revenues improved
in 2004
as a result of the 2003 Illinois horsemen's strike, which negatively
affected wagering prior to the strike being resolved in April 2003.
Offsetting some of the revenue increases, pari-mutuel revenue decreased
due to eight fewer days of live racing during 2004 compared to
2003.
|
· |
Hoosier
Park revenues decreased primarily as a result of a $0.8 million decrease
in riverboat admission subsidies stemming from the change in allocation
after a new track was built in Indiana. The subsidy is now allocated
evenly between Hoosier Park and the new track. Additionally, the
decrease
resulted from an overall decrease in pari-mutuel business
levels.
|
· |
Other
investments decreased during 2004 primarily as a result of a reduced
number of service contracts held by Churchill Downs Simulcast Productions
upon purchasing the remaining 40% minority interest in Charlson Broadcast
Technologies LLC in December 2003.
|
(In thousands) |
Year
ended December 31
|
05
vs. 04 Change
|
04
vs. 03 Change
|
|||||||||||
2005
|
2004
|
2003
|
$
|
%
|
$
|
%
|
||||||||
Kentucky
Operations
|
$108,328
|
$107,919
|
$99,141
|
$409
|
-
|
$8,778
|
9
|
%
|
||||||
Arlington
Park
|
84,222
|
81,887
|
82,254
|
2,335
|
3
|
%
|
(367
|
)
|
-
|
|||||
Calder
Race Course
|
88,033
|
88,509
|
82,133
|
(476
|
)
|
(1
|
)%
|
6,376
|
8
|
%
|
||||
Hoosier
Park
|
42,062
|
41,268
|
42,138
|
794
|
2
|
%
|
(870
|
)
|
(2
|
)%
|
||||
Louisiana
Operations
|
61,438
|
13,749
|
-
|
47,689
|
347
|
%
|
13,749
|
100
|
%
|
|||||
CDSN
|
50,863
|
46,230
|
46,464
|
4,633
|
10
|
%
|
(234
|
)
|
(1
|
)%
|
||||
Total
racing operations
|
434,946
|
379,562
|
352,130
|
55,384
|
15
|
%
|
27,432
|
8
|
%
|
|||||
Other
investments
|
2,712
|
2,864
|
5,645
|
(152
|
)
|
(5
|
)%
|
(2,781
|
)
|
(49
|
)%
|
|||
Corporate
expenses
|
18,045
|
10,439
|
8,596
|
7,606
|
73
|
%
|
1,843
|
21
|
%
|
|||||
Eliminations
|
(67,789
|
)
|
(56,261
|
)
|
(54,932
|
)
|
(11,528
|
)
|
(20
|
)%
|
(1,329
|
)
|
(2
|
)%
|
$387,914
|
$336,604
|
$311,439
|
$51,310
|
15
|
%
|
$25,165
|
8
|
%
|
· |
During
the fourth quarter of 2004, we completed our acquisition of the Louisiana
Operations, which resulted in a $47.7 million increase in expenses.
CDSN
expenses and eliminations also increased primarily as a result of
the
acquisition of the Louisiana
Operations.
|
· |
Corporate
expenses increased primarily as a result of increased costs associated
with our initiative to attract and retain appropriate personnel to
achieve
our business objectives, including increased costs of $2.2 million
associated with a supplemental benefit plan for the chief executive
officer as a result of an amendment to an employment contract during
2005.
Additionally, we incurred increased professional fees related to
obtaining
compliance with the Sarbanes-Oxley Act of 2002 and increased costs
associated with our customer relationship marketing
initiative.
|
· |
Arlington
Park expense increased primarily as a result of increased costs associated
with our initiative to attract and retain appropriate personnel to
achieve
our business objectives, which includes expenses of $0.4 million
associated with the retirement of the racetrack president during
2005,
lower purse overpayment recoveries, higher insurance and utility
costs and
increased costs associated with the customer relationship management
initiative, which was partially offset by decreased purse expense
as a
result of fewer days that Arlington Park was appointed the host track
in
Illinois.
|
· |
Expenses
from the Kentucky Operations increased primarily as a result of additional
depreciation expenses of $3.2 million, as well as increased operating
expense due to the completion of the Churchill Downs racetrack facility
renovation project during the second quarter of 2005, which was mostly
offset by impairment losses of $6.2 million recognized at Ellis Park
during the year ended December 31, 2004. Also, Ellis Park purse expenses
decreased primarily as a function of lower pari-mutuel revenues primarily
due to 13 fewer days of live
racing.
|
· |
During
the fourth quarter of 2004, we completed our acquisition of the Louisiana
Operations, which contributed $13.7 million to the overall increase
in
expenses.
|
· |
Kentucky
Operations expenses increased primarily as a result of the $6.2 million
asset impairment charges at Ellis Park during the third quarter of
2004
based on management's consideration of historical and forecasted
operating
results of the facility. The increase was also due to temporary facilities
expenses associated with our infield hospitality tent to accommodate
patrons during the Kentucky Oaks and Derby days as well as increased
expenses associated with our Personal Seats Licensing ("PSL") program.
|
· |
Calder
Race Course expenses increased partially as a result of $3.6 million
incurred in Florida related to the slot
initiative.
|
· |
Other
investment expenses decreased consistent with the decrease in revenues
as
noted above.
|
(In thousands) |
Year
ended December 31
|
05
vs. 04 Change
|
04
vs. 03 Change
|
||||||||||||||||
2005
|
2004
|
2003
|
$
|
%
|
$
|
%
|
|||||||||||||
Net
revenues
|
$ |
70,080
|
$ |
101,328
|
$ |
95,551
|
$ |
(31,248
|
)
|
(31
|
)%
|
$ |
5,777
|
6
|
%
|
||||
Operating
expenses
|
62,891
|
88,645
|
85,835
|
(25,754
|
)
|
(29
|
)%
|
2,810
|
3
|
%
|
|||||||||
Gross
profit
|
7,189
|
12,683
|
9,716
|
(5,494
|
)
|
(43
|
)%
|
2,967
|
31
|
%
|
|||||||||
Selling,
general and administrative expenses
|
3,261
|
6,592
|
3,723
|
(3,331
|
)
|
(51
|
)%
|
2,869
|
77
|
%
|
|||||||||
Operating
income
|
3,928
|
6,091
|
5,993
|
(2,163
|
)
|
(36
|
)%
|
98
|
2
|
%
|
|||||||||
Other
income (expense):
|
|
||||||||||||||||||
Interest
income
|
20
|
22
|
19
|
(2
|
)
|
(9
|
)%
|
3
|
16
|
%
|
|||||||||
Interest
expense
|
(8,806
|
)
|
(5,687
|
)
|
(5,305
|
)
|
(3,119
|
)
|
(55
|
)%
|
(382
|
)
|
(7
|
)%
|
|||||
Miscellaneous,
net
|
3
|
3
|
-
|
-
|
-
|
3
|
100
|
%
|
|||||||||||
Other
income (expense)
|
(8,783
|
)
|
(5,662
|
)
|
(5,286
|
)
|
(3,121
|
)
|
(55
|
)%
|
(376
|
)
|
(7
|
)%
|
|||||
(Loss)
earnings before provision for income taxes
|
(4,855
|
)
|
429
|
707
|
(5,284
|
)
|
(1,232
|
)%
|
(278
|
)
|
(39
|
)%
|
|||||||
Benefit
(provision) for income taxes
|
1,057
|
(1,283
|
)
|
(636
|
)
|
2,340
|
182
|
%
|
(647
|
)
|
(102
|
)%
|
|||||||
(Loss)
earnings from operations
|
(3,798
|
)
|
(854
|
)
|
71
|
(2,944
|
)
|
(345
|
)%
|
(925
|
)
|
(1,303
|
)%
|
||||||
Gain
on sale of assets, net of income taxes
|
69,896
|
-
|
-
|
69,896
|
100
|
%
|
-
|
-
|
|||||||||||
Net
earnings (loss)
|
$ |
66,098
|
$ |
(854
|
)
|
$ |
71
|
$ |
66,952
|
7,840
|
%
|
$ |
(925
|
)
|
(1,303
|
)%
|
· |
Net
revenues, operating expenses and selling, general and administrative
expenses are lower as a result of the sale of the assets of Hollywood
Park
during the third quarter of 2005.
|
· |
We
used proceeds from the sale of the assets of Hollywood Park to pay
off the
debt balances under the revolving loan facility and the variable
rate
senior notes. As such, all interest expenses related to these facilities
has been allocated to discontinued operations for the twelve months
ended
December 31, 2005 and 2004. Interest expense increased as a result
of
additional borrowings for the acquisition of the Louisiana Operations,
as
well as a higher interest rate
environment.
|
· |
During
the year ended December 31, 2005, we recognized a gain of $69.9 million,
net of income taxes, on the sale of the assets of Hollywood
Park.
|
(In thousands) |
Year
ended December 31,
|
05
vs. 04 Change
|
|||||
2005
|
2004
|
$
|
%
|
||||
Total
assets
|
$514,542
|
$642,277
|
$(127,735)
|
(20)%
|
|||
Total
liabilities
|
$198,311
|
$403,849
|
$(205,538)
|
(51)%
|
|||
Total
shareholders' equity
|
$316,231
|
$238,428
|
$77,803
|
33%
|
· |
Total
assets decreased during 2005 primarily due to the sale of the assets
of
Hollywood Park, which was partially offset by increased plant and
equipment, primarily attributable to additions related to the Master
Plan
at Churchill Downs.
|
· |
Total
liabilities decreased during 2005 primarily as a result of the pay-off
of
long-term debt in conjunction with the sale of the assets of Hollywood
Park.
|
(In thousands) |
Year
ended December 31,
|
05 vs. 04 Change | 05 vs. 04 Change | |||||||||||
2005
|
2004
|
2003
|
$
|
% |
$
|
% | ||||||||
Operating
activities
|
$(1,325
|
)
|
$48,386
|
$47,040
|
$(49,711
|
)
|
(103
|
)%
|
$1,346
|
3
|
%
|
|||
Investing
activities
|
$205,023
|
$(135,781
|
)
|
$(41,749
|
)
|
$340,804
|
251
|
%
|
$(94,032
|
)
|
(225
|
)%
|
||
Financing
activities
|
$(208,655
|
)
|
$98,649
|
$(3,513
|
)
|
$(307,304
|
)
|
(312
|
)%
|
$102,162
|
2,908
|
%
|
· |
Cash
flows from operating activities during 2005 decreased significantly
compared to 2004 primarily as a result of the sale of the assets
of
Hollywood Park.
|
· |
Cash
flows provided by operating activities during the year ended December
31,
2004 increased primarily due to advance payments made relative to
the PSL
program and luxury suite sales, which was mostly offset by a decrease
in
earnings.
|
· |
Cash
flows from investing activities increased during the year ended December
31, 2005 compared to the same period of 2004 primarily as a result
of
proceeds received on the sale of the assets of Hollywood
Park.
|
· |
Cash
flows from investing activities decreased during the year ended December
31, 2004 primarily as a result of capital expenditures related to
the
Master Plan, as well as the acquisition of the Louisiana Operations
during
the fourth quarter of 2004.
|
· |
Cash
flows from financing activities during 2005 decreased primarily as
a
result of the pay-off of long-term debt in conjunction with the sale
of
the assets of Hollywood Park.
|
· |
During
2004, we increased our borrowings on our revolving line of credit
to fund
the acquisition of the Louisiana Operations, as well as to fund our
Master
Plan.
|
Less
Than
1
Year
|
1-3
Years
|
4-5
Years
|
After
5
Years
|
Total |
||||||||||||
Long-term
debt
|
$
|
-
|
$
|
-
|
$
|
15,602
|
$
|
18,191
|
$
|
33,793
|
||||||
Interest
expense
|
1,530
|
3,060
|
2,855
|
2,568
|
10,013
|
|||||||||||
Operating
leases
|
3,353
|
4,286
|
3,182
|
654
|
11,475
|
|||||||||||
Total
|
$
|
4,883
|
$
|
7,346
|
$
|
21,639
|
$
|
21,413
|
$
|
55,281
|
2005
|
2004
|
||||||
ASSETS
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
22,737
|
$
|
24,950
|
|||
Restricted
cash
|
4,946
|
7,267
|
|||||
Accounts
receivable, net of allowance for doubtful accounts of $786 in 2005
and
$881 in 2004
|
42,823
|
45,568
|
|||||
Deferred
income taxes
|
3,949
|
3,940
|
|||||
Other
current assets
|
8,879
|
3,809
|
|||||
Assets
held for sale
|
-
|
142,445
|
|||||
Total
current assets
|
83,334
|
227,979
|
|||||
Other
assets
|
13,020
|
16,883
|
|||||
Plant
and equipment, net
|
346,530
|
324,738
|
|||||
Goodwill
|
53,528
|
53,528
|
|||||
Other
intangible assets, net
|
18,130
|
19,149
|
|||||
Total
assets
|
$
|
514,542
|
$
|
642,277
|
|||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
$
|
27,957
|
$
|
22,827
|
|||
Purses
payable
|
14,564
|
16,629
|
|||||
Accrued
expenses
|
44,003
|
31,911
|
|||||
Dividends
payable
|
6,520
|
6,430
|
|||||
Deferred
revenue
|
26,219
|
25,880
|
|||||
Liabilities
associated with assets held for sale
|
-
|
9,221
|
|||||
Total
current liabilities
|
119,263
|
112,898
|
|||||
Long-term
debt
|
33,793
|
242,770
|
|||||
Other
liabilities
|
20,971
|
20,424
|
|||||
Deferred
revenue
|
18,614
|
19,071
|
|||||
Deferred
income taxes
|
5,670
|
8,686
|
|||||
Total
liabilities
|
198,311
|
403,849
|
|||||
Commitments
and contingencies
|
|||||||
Shareholders'
equity:
|
|||||||
Preferred
stock, no par value; 250 shares authorized; no shares
issued
|
-
|
-
|
|||||
Common
stock, no par value; 50,000 shares; issued: 13,132 shares and 12,904
shares in 2005 and 2004, respectively
|
121,270
|
114,930
|
|||||
Retained
earnings
|
198,001
|
125,613
|
|||||
Unearned
compensation
|
(3,040
|
)
|
(1,935
|
)
|
|||
Accumulated
other comprehensive loss
|
-
|
(180
|
)
|
||||
Total
shareholders' equity
|
316,231
|
238,428
|
|||||
Total
liabilities and shareholders' equity
|
$
|
514,542
|
$
|
642,277
|
2005
|
2004
|
2003
|
||||||||
Net
revenues:
|
||||||||||
Net
pari-mutuel wagering
|
$
|
297,509
|
$
|
274,374
|
$
|
271,313
|
||||
Non-wagering
|
111,292
|
86,813
|
77,192
|
|||||||
408,801
|
361,187
|
348,505
|
||||||||
Operating
expenses:
|
||||||||||
Purses
|
127,139
|
114,164
|
113,484
|
|||||||
Other
direct expenses
|
215,090
|
180,255
|
167,587
|
|||||||
342,229
|
294,419
|
281,071
|
||||||||
Gross
profit
|
66,572
|
66,768
|
67,434
|
|||||||
Selling,
general and administrative expenses
|
45,685
|
35,983
|
30,368
|
|||||||
Asset
impairment loss
|
-
|
6,202
|
-
|
|||||||
Operating
income
|
20,887
|
24,583
|
37,066
|
|||||||
Other
income (expense):
|
||||||||||
Interest
income
|
622
|
413
|
1,297
|
|||||||
Interest
expense
|
(1,576
|
)
|
(1,003
|
)
|
(916
|
)
|
||||
Unrealized
gain (loss) on derivative instruments
|
818
|
(4,254
|
)
|
-
|
||||||
Miscellaneous,
net
|
1,910
|
2,737
|
1,028
|
|||||||
1,774
|
(2,107
|
)
|
1,409
|
|||||||
Earnings
from continuing operations before provision for income
taxes
|
22,661
|
22,476
|
38,475
|
|||||||
Provision
for income taxes
|
(9,851
|
)
|
(12,707
|
)
|
(15,167
|
)
|
||||
Net
earnings from continuing operations
|
12,810
|
9,769
|
23,308
|
|||||||
Discontinued
operations, net of income taxes:
|
||||||||||
(Loss)
earnings from operations
|
(3,798
|
)
|
(854
|
)
|
71
|
|||||
Gain
on sale of assets
|
69,896
|
-
|
-
|
|||||||
Net
earnings
|
78,908
|
8,915
|
23,379
|
|||||||
Other
comprehensive earnings (loss), net of tax:
|
||||||||||
Change
in fair value of cash flow hedges
|