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): August 9,
2006
(Exact
name of registrant as specified in its charter)
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Kentucky
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0-1469
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61-0156015
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(State
or other jurisdiction of incorporation or organization)
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(Commission
File Number)
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(IRS
Employer
Identification
No.)
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700
Central Avenue, Louisville, Kentucky 40208
(Address
of principal executive offices)
(Zip
Code)
(502)
636-4400
(Registrant's
telephone number, including area code)
Not
Applicable
(Former
name or former address, if changed since last report)
Check
the
appropriate box below if the Form 8-K is intended to simultaneously satisfy
the
filing obligation of the registrant under any of the following
provisions:
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[
]
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
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|
[
]
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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))
|
|
[
]
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR
240.13e-4(c))
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CHURCHILL
DOWNS INCORPORATED
INDEX
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Item
7.01
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Regulation
FD Disclosure
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Attached
and incorporated herein by reference as Exhibit 99.1 is a copy of
the
earnings release conference call transcript, dated August 9, 2006,
reporting the Registrant's financial results for the second quarter
of
2006.
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Item
9.01
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Financial
Statements and Exhibits
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(c) Exhibits
Exhibit
99.1 Earnings release conference call transcript dated August 9,
2006.
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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.
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CHURCHILL
DOWNS INCORPORATED
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August
15, 2006
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/s/Michael E. Miller |
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Michael
E. Miller
Executive
Vice President Finance and Chief Financial
Officer
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CHURCHILL
DOWNS, INC.
Moderator:
Julie Koenig-Loignon
08-09-06/8:00
a.m. CT
Confirmation
# 4261782
CHURCHILL
DOWNS, INC.
Moderator:
Julie Koenig-Loignon
August
9, 2006
8:00
a.m. CT
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Operator:
|
Good
day everyone and welcome to the Churchill Downs Incorporated
second-quarter earnings conference call. Today’s call is being
recorded.
At
this time for opening remarks and introductions, I would like to
turn the
call over to the Vice President of Communications, Ms. Julie Koenig.
Please go ahead, ma’am.
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Julie
Koenig-Loignon:
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Thank
you and good morning. Welcome to this Churchill Downs Incorporated
conference call to review the Company’s results for the second quarter and
first six months of 2006.
The
results were released yesterday afternoon in a news release that
has been
covered by the financial media. A copy of this release announcing
results
and any other financial and statistical information about the period
to be
presented in this conference call, including any information required
by
Regulation G, is available at the section of the Company’s Web site
entitled “Company News” located at www.ChurchillDownsIncorporated.com. Let
me also note that a news release was issued advising of the accessibility
of this conference call on a listen-only basis via phone and over
the
Internet.
As
we begin, let me express that some statements made during this
call will
be forward-looking statements, as defined in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are statements
that include projections, expectations or beliefs about future
events or
results or otherwise are not statements of historical fact. The
actual
performance of the Company may differ materially from what is projected
in
such forward-looking statements. Investors should refer to statements
in
reports filed by the company with the Securities and Exchange Commission
for a discussion of additional information concerning factors that
could
cause our actual results of operations to differ materially from
the
forward-looking statements made in this call. The information being
provided today is of this date only and Churchill Downs Incorporated
expressly disclaims any obligation to release publicly any updates
or
revisions to these forward-looking statements to reflect any changes
in
expectations.
I
will now turn the call over to Tom Meeker, president and chief
executive
officer.
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Tom
Meeker:
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Thanks
for joining us this morning to discuss the financial performance
of the
Company during the second quarter and the first six months of this
year.
During
this morning’s call, as I normally do, I’ll make a few comments about the
financial performance of the Company and then turn the call over
to Mike
Miller. In light of my departure on Monday as the CEO of the Company,
my
comments will be brief. And any prospective comments relative to
the
direction of the Company on any matters in the future should and
will be
made by Bob Evans in the weeks to come. And upon the completion
of Mike’s
comments we’ll take questions.
Needless
to say, I’m very pleased with the Company’s performance during the quarter
and for the first six months of the year. Absent the challenges
that we
faced in 2005, the team has been able to concentrate its efforts
on
strengthening the operational performance of the individual operating
units, focusing on key valuation drivers and, most important, positioning
the Company to exploit opportunities in the domestic and international
racing world.
Every
key metric moved in a positive direction. Revenues grew 7.2 percent;
EBITDA grew 33 percent net earnings from continuing operations
grew 47
percent; and earnings per share from continuing operations, excluding
the
insurance recoveries, grew 22 percent during the quarter. As Mike
will
discuss in detail, the strong financial performance was due to
several
factors, including a strong Derby Week at Churchill Downs Racetrack,
the
strong video poker and pari-mutuel business performance in Louisiana,
and
the addition of five race days during the quarter.
I’m
very proud of what our team has been able to accomplish during
this year.
The Company is much stronger today than at any other point in the
22 years
since I’ve been with the Company. Most important, we’ve stabilized cash
flows and have minimal debt on the balance sheet. The Company is
poised to
capitalize on any opportunity that is or may become on the
horizon.
I’m
also very pleased with the board selection of Bob Evans as my successor.
I’ve had an opportunity to spend many hours with Bob and have become
very
impressed with his skills. And those skills will be very important
to the
future growth of the Company.
With
those comments, I’ll turn the call over to Mike Miller.
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Mike
Miller:
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Thank
you, Tom and good morning everyone.
As
Tom stated, I will review the results for the second quarter as
well as
make a few comments on the condition of our balance sheet, and
then we’ll
respond to your questions.
First
with respect to operations, we had a very good quarter, measured
both by
revenue and EBITDA growth, as Tom has pointed out. As seen from
a review
of the segment information, our revenues from continuing operations
increased by $11 million or almost 10 percent over the prior year,
and the
corresponding amounts for EBITDA were $15.6 million and 34 percent,
respectively.
Every
segment of our operations enjoyed revenue growth except Hoosier
Park,
which experienced a modest decline of less than $500,000.
In
Kentucky growth was primarily due to a terrific Derby Week, which
produced
record wagering. Derby Week continued to benefit from our terrific
new
facility, which opened to rave reviews and has equaled or exceeded
the
cash flow impact predicted when this project was conceived.
Likewise,
our CDSN (Churchill Downs Simulcast Network) revenue was up significantly,
primarily due to the strength of the Derby signal again.
At
Arlington Park we enjoyed five more days of racing this year compared
to
2005.
And
the OTB business in Louisiana, both from video poker and pari-mutuel
operations, has continued to be strong since the reopening post-Katrina.
We are currently busy completing the rebuild of Fair Grounds Race
Course
in time for opening this Thanksgiving Day and are optimistic that
the race
meet should produce significantly better than historical cash
flows.
EBITDA
performance requires some additional explanation. In Kentucky,
at Calder
and at Hoosier Park, the EBITDA growth followed the current revenue
patterns. At Arlington Park, in spite of the revenue performance
brought
about by the additional race days, the meet thus far has not met
expectations. In addition, we incurred some unexpected expenses
for
insurance and other items that contributed to the disappointing
EBITDA
performance. Track leadership is focused on the various issues
and is
formulating plans to address all facets of the operation.
In
Louisiana, EBITDA was significantly impacted by the $9.6 million
brought
on by insurance recoveries. But even when not considering that
impact,
performance was significantly better than the prior year.
At
the corporate line, the decrease is truly a function of our method
of
allocating costs to the operating units. In actuality, the units
absorbed
approximately $1.5 million more in the current year than the prior
year
and still produced the great results that you see.
Below
the operating income line on the full income statement you can
see that we
are beginning to enjoy the benefits of having investable cash,
which is a
new position for us. Presently our intention is to remain liquid
and
accumulate cash in anticipation of future investment and growth
opportunities.
Our
net earnings from continuing operations also benefited from a slightly
lower effective tax rate, given a significantly smaller amount
of
non-deductible legislative costs in 2006 as compared to 2005.
Looking
forward to the balance of the year, we anticipate closing the Ellis
Park
transaction in September and expect that the impact of this disposition
on
a full-year basis, not necessarily for 2006, to be accretive to
continuing
operations. We will still carry the Ellis Park signal into the
future,
such that our simulcast product will not be impacted. And, in addition,
we
brought a well- respected player into Kentucky racing, which we
feel is in
the long-term best interests of both our horsemen and our industry.
All in
all, we consider this transaction to be a win-win for all
concerned.
As
previously stated, we will continue to critically examine all operations
to ensure they are both performing to our standard and continue
to fit
into our strategic direction.
We
currently anticipate capital expenditures for the year, other than
those
reimbursed by insurance, to approximate $16 million to $17 million
and
included in that number is approximately $2.5 million for new video
poker
machines in Louisiana. So, we are thus continuing our mode of maintenance
capital expenditure policy at all locations other than in Louisiana,
where
we will continue to take advantage of opportunities both with video
poker
and ultimately with slots.
We
also expect to complete the restoration of all storm-damaged facilities
by
the end of the year and hope to conclude negotiations with our
insurance
carriers in the next few months.
Finally,
as stated in the press release, we estimate earnings from continuing
operations to equal or exceed the current average analyst estimate,
primarily on the strength of our performance in Kentucky and
Louisiana.
Turning
now to the balance sheet, at June 30 there are only a few items
to
highlight. Cash balances continue to grow as we continue to earn
free cash
flow and receive insurance proceeds.
Our
other working capital counts continue to be influenced by the timing
of
pari-mutuel related settlements, income tax payments, and accruals
and
dividend payments, as they have historically.
Our
deferred revenue generally decreases significantly during the second
quarter due to the recognition of all Derby-related revenues.
Net
additions to plant and equipment are significantly impacted this
year by
restoration activities and related insurance reimbursements.
In
general, we do not anticipate a significant change in these amounts,
since
the capital expenditures approximate depreciation other than through
development activities.
At
June 30 there were no amounts outstanding under our $200-million
bank
revolver, other than that borrowed on a temporary basis on a working
capital line. In the equity section, amounts associated with accounting
for under compensation from previous equity grants are now included
as an
offset to common stock effective as of the beginning of this
year.
That
concludes my remarks and I will now turn it back over to the operator
for
your questions.
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Operator:
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And
at this time if you would like to ask a question, please do so
by pressing
the star key followed by the digit one on your telephone keypad.
If you
are using a speakerphone, please make sure your mute function is
turned
off to allow your signal to reach our equipment. Once again for
any
questions or comments, it’s star one on your telephone
keypad.
And
we’ll first move to Ryan Worst with Brean Murray.
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Ryan
Worst:
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Hi.
Good morning, guys.
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Tom
Meeker:
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Good
morning.
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Mike
Miller:
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Hi,
Ryan.
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Ryan
Worst:
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Just
a couple questions. Mike, I guess the insurance proceeds, the vast
majority of that, was for Louisiana operations?
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Mike
Miller:
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Yes.
Yes. I don’t have the exact numbers, Ryan, but far and away most of the
dollars are related to Louisiana.
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Ryan
Worst:
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OK.
And the increase in corporate expense of $1.5 million that was
allocated
to the tracks, what was that due to?
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Mike
Miller:
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Primarily
due to changes that were brought about by the amendments to the
contract
for the CEO last December, which resulted in the acceleration of
some
restricted stock expense and so forth.
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Ryan
Worst:
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What
about stock expense - stock compensation expense? Is that also
driving
that number?
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Mike
Miller:
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There’s
a little bit of that. We have more amortization of restricted stock
grants
from 2004 and 2005 obviously than we did in the last
year.
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Ryan
Worst:
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OK
and then do you have a number on how much that was in the
quarter?
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Mike
Miller:
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I
do not.
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Ryan
Worst:
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OK
and then could you talk a little bit about your insurance claims
and how
much was paid so far and how much you think you could
recover?
And
then, Tom, it’s been great working with you for the last several years.
And I was just wondering if you could comment a little bit on your
consolidated plan with Magna Entertainment to, I guess, try to
get the
franchise for New York racing.
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Tom
Meeker:
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OK.
Mike, why don’t you start.
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Mike
Miller:
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First
let’s talk about insurance. And, Ryan, you need - and all people need
- to
refer to the 10-Q that was filed last night. There’s more information in
there about recoveries.
I
would just caution you that this is still a work in progress. And
we’ve
received a significant amount, about $19 million, through June
30 that
have resulted both in the restoration of a lot of the facilities
down
there as well as produced the $9.6 million that you see on the
profit-loss
statement.
But
we’re not complete. We’re very, very happy with where we are with our
negotiations and the rebuild. And we’re working with them hand-in-hand,
quite honestly, with everything we’ve spent to make sure it’s
reimbursable. But, once more, this is a work in progress. And I
don’t know
at this juncture - I don’t have an estimate of what the total recovery
might be.
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Tom
Meeker:
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Ryan,
with respect to the Magna relationship, that is consistent with
what we
have said all along, and that is - and Frank Stronach has said
this too in
various ways, somewhat different on occasion. But it’s in the general
interest of the industry to ensure that there is continuity and
longevity
in New York racing. And to the extent that we can play a role in
assisting
whoever might be the successful bidder in ensuring that there is
longevity
in New York, it will inure to the benefit not only the industry
but to
Churchill Downs and to Magna.
And
so, the relationship that we’ve structured now is that we will join
together and try to assist some bidding group with a successful
bid. And
beyond that I really can’t comment obviously.
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Ryan
Worst:
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Is
there any comment you can make as far as whether Churchill Downs
would be
willing to take a minority interest in that bidding
process?
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Tom
Meeker:
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The
various permutations of relationships that may occur are extremely
wide.
And I really am not in a position right now to tell you what we
might or
might not do.
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Ryan
Worst:
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OK,
Tom, that’s fair enough and then what about in terms of potentially
teaming up with Magna Entertainment in other areas of the business,
primarily getting together as far as account wagering and getting
kind of
a one stop shop where people could wager on any one single …
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Tom
Meeker:
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I
can’t …
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Ryan
Worst:
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…
and for on account wagering rather than going to all the different
sources
that need to - that they need to now as far as the customer is
going?
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Tom
Meeker:
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Right.
I can’t comment specifically on what we may or may not do with Magna,
although the facts are out there in the public domain about what
we have
done over the past several months with Magna, the most recent announcement
as well as the Racing
World announcement.
But
beyond Magna, as you look forward and you look at the industry
there is an
imperative out there that has to be addressed. And that imperative
relates
to the customer. We need to get a more customer-centric approach
to the
delivery of our account-wagering products in the United States
and then
ultimately in the international community. And when I say
customer-centric, we need to make sure that our fans have the opportunity
in a very easy way to access the content that they want and, more
important, to be able to - on a transactional basis to be able
to access a
single account to transact their business, albeit there may be
various
front ends out there that will be accepting bets through XpressBet,
TVG,
whatever. But the customer ought to be - like a Visa credit card
or a
MasterCard - ought to be in a position where he or she doesn’t have to
maintain four or five accounts to make wagers on our
products.
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Ryan
Worst:
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All
right. Thanks, Tom, and good luck.
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Tom
Meeker:
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OK.
Thank you.
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Operator:
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Once
again, that is star one if you would like to ask a question. We’ll now
move to Jen Ganzi, Gabelli & Company.
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Jen
Ganzi:
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Hi.
Good quarter, guys. I just have two quick questions. The first
is just I
was wondering if you can give me an update about what you’re doing about
racinos and just kind of the new management philosophy about pursuing
racino strategies going forward.
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Tom
Meeker:
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Well,
we don’t make comments on strategies, but we’ve always taken the position,
and for years now, that we ought - we as racetracks ought to be
in a
position to offer a greater array of products, including slot products,
at
our facilities. And the events that have occurred in California,
Illinois
in all of our facilities, we continue to look towards allowing
- towards
passing of the legislation that would allow us to do slot machines.
So,
that’s about all I can say.
We
are …
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Jen
Ganzi:
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Can
you give us specific updates on the various jurisdictions you have
racetracks in?
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Tom
Meeker:
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Well,
yes, I think it’s pretty apparent in the public sector right now. Number
one, the events that occurred yesterday in Florida involving a
lawsuit
challenging the referendum that was passed down there a year-and-a-half
ago is something new on the horizon. We’re not in a position to comment on
that at this point, but that’s an issue.
There
is also an event that occurred up in Illinois where we were successful
in
passing legislation that allowed for a cross subsidy from the gaming
industry to the racing industry. That is also in court right now
being
challenged by various gaming operators.
In
Kentucky we continue to pursue slot legislation. We were unsuccessful
this
year, although I think we did accomplish several things that will
ultimately inure to the benefit of the company in that we, through
the
efforts of KEEP (Kentucky Equine Education Project) and other pari-mutuel
operators in the state, were able to provide a larger base of education
to
the populous in terms of what it would mean to us. And hopefully
as we
move down the road we’ll be successful in passing legislation
there.
In
Indiana we continue to move and promote slot legislation or various
forms
of slot legislation in Indiana. Where that might go no one really
- I
mean, I can’t tell you at this point.
So,
we continue to invest money, invest time, effort and human capital
in
promoting these activities in each of the jurisdictions in which
we do
business.
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Jen
Ganzi:
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OK.
Great. Thanks and I don’t know if I missed this, but did you give any
pricing details on the Ellis Park sale?
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Tom
Meeker:
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No.
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Mike
Miller:
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We
did not.
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Jen
Ganzi:
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OK.
Thanks.
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Operator:
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We’ll
now move to a follow-up from Ryan Worst with Brean
Murray.
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Ryan
Worst:
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Thanks.
Just in New Orleans, given the success of the Louisiana operations,
does
that change your plan for opening up and introducing slots at the
fairgrounds?
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Tom
Meeker:
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Well,
I think at our last call we indicated that we’ve slipped that at least a
year. The slot operation would be located in Orleans Parish. And
the
question there is when will Orleans Parish come back on the horizon.
Our
OTB operations are largely in the outlying areas, unaffected by
the flood
that occurred in Orleans Parish.
I
continue to be modestly impressed with what is going on down in
the City
of New Orleans. And hopefully - all business is sitting on the
sidelines
right now trying to see what is exactly going to happen. But I
think there
is a sense of optimism that is growing down there that will produce
some
positive results in terms of repopulating that community, which
will be an
important element in two areas for our company. Number one, it
will
provide the customer base for our OTB facility and number two,
it will
provide employees to service the needs of our customers at the
OTB.
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Ryan
Worst:
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And
the updating timing for the introduction of slots, was that early
2008?
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Tom
Meeker:
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It’d
be closer to - yes, early 2008. No, it’s going to be a moving figure for a
while now, but it - 2008 would be the earliest.
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Ryan
Worst:
|
OK.
Thanks.
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Operator:
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As
a final reminder, it is star one if you have any questions or comments.
And at this time, I show no further questions. I’ll turn it back over to
the speakers for any closing remarks.
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Tom
Meeker:
|
OK.
I want to thank each of you for joining us on this morning’s
call.
In
closing, I want to express my appreciation to the entire investor
community for the support that you’ve given to Churchill Downs during my
last 22 years with the Company. Without your support the success
that the
company has enjoyed would simply not have occurred. I’ll continue to work
with the management team over the months to come. And, as you,
I will look
forward to seeing some exciting things come from Bob and his management
team.
With
that, again, thank you. And I won’t be talking to you anymore.
Thanks.
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Operator:
|
And
that does conclude the conference call for today. Thank you for
your
participation, and have a great
day.
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END