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TheStreet Open House

Churchill Downs Incorporated Reports 2012 Fourth-Quarter And Year-End Results

Online Business EBITDA increased 7 percent, or $2.5 million, to $40.3 million over the previous year reflecting a 10.9 percent increase in our pari-mutuel handle driven by organic growth in customers and average daily wagering.  Partially offsetting this increase were expenditures related to the launch of Luckity.com, in addition to certain non-recurring employee costs. 

Corporate EBITDA decreased by $5.8 million due to higher long-term compensation expenses related to the 2012 financial performance of the Company, in addition to the impact of a non-recurring gain of $2.7 million related to a financial note conversion during 2011.

BUSINESS RESULTS CONFERENCE CALL

A conference call regarding this news release is scheduled for Thursday, Feb. 28, 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 www.churchilldownsincorporated.com or www.earnings.com , or by dialing (877) 372-0878 and entering the pass code 75239964 at least 10 minutes before the appointed time. International callers should dial (253) 237-1169. The online replay will be available at approximately noon EDT and continue for two weeks. A copy of the Company's news release announcing quarterly results and relevant financial and statistical information about the period will be accessible at www.churchilldownsincorporated.com .

In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), the Company has provided a non-GAAP measurement, which presents a financial measure of earnings before interest, taxes, depreciation and amortization ("EBITDA"). Churchill Downs Incorporated uses EBITDA as a key performance measure of results of operations for purposes of evaluating performance internally. The Company believes the use of this measure enables management and investors to evaluate and compare, from period to period, the Company's operating performance in a meaningful and consistent manner. This non-GAAP measurement is not intended to replace the presentation of the Company's financial results in accordance with GAAP.

ABOUT CHURCHILL DOWNS INCORPORATED

Churchill Downs Incorporated (CDI) (Nasdaq:CHDN), headquartered in Louisville, Ky., owns and operates the world-renowned Churchill Downs Racetrack, home of the Kentucky Derby and Kentucky Oaks, as well as racetrack and casino operations and a poker room in Miami Gardens, Fla.; racetrack, casino and video poker operations in New Orleans, La.; racetrack operations in Arlington Heights, Ill.; a casino resort in Greenville, Miss.; as well as a casino hotel in Vicksburg, Miss.; CDI also owns the country's premier online wagering company, TwinSpires.com; the totalisator company, United Tote; Luckity.com, offering fun games online for a chance to win cash prizes; Bluff Media, an Atlanta-based multimedia poker company; and a collection of racing-related telecommunications and data companies. Information about CDI can be found online at www.churchilldownsincorporated.com .

Information set forth in this news release contains various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 (the "Act") provides certain "safe harbor" provisions for forward-looking statements. All forward-looking statements made in this news release are made pursuant to the Act.

The reader is cautioned that such forward-looking statements are based on information available at the time and/or management's good faith belief with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Forward-looking statements speak only as of the date the statement was made. We assume no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. Forward-looking statements are typically identified by the use of terms such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "might," "plan," "predict," "project," "should," "will," and similar words, although some forward-looking statements are expressed differently. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from expectations include: the effect of global economic conditions, including any disruptions in the credit markets; a decrease in consumers' discretionary income; the effect (including possible increases in the cost of doing business) resulting from future war and terrorist activities or political uncertainties; the overall economic environment; the impact of increasing insurance costs; the impact of interest rate fluctuations; the financial performance of our racing operations; the impact of gaming competition (including lotteries, online gaming and riverboat, cruise ship and land-based casinos) and other sports and entertainment options in the markets in which we operate; our ability to maintain racing and gaming licenses to conduct our businesses; the impact of live racing day competition with other Florida, Illinois and Louisiana racetracks within those respective markets; the impact of higher purses and other incentives in states that compete with our racetracks; costs associated with our efforts in support of alternative gaming initiatives; costs associated with customer relationship management initiatives; a substantial change in law or regulations affecting pari-mutuel and gaming activities; a substantial change in allocation of live racing days; changes in Kentucky, Florida, Illinois or Louisiana law or regulations that impact revenues or costs of racing operations in those states; the presence of wagering and gaming operations at other states' racetracks and casinos near our operations; our continued ability to effectively compete for the country's horses and trainers necessary to achieve full field horse races; our continued ability to grow our share of the interstate simulcast market and obtain the consents of horsemen's groups to interstate simulcasting; our ability to enter into agreements with other industry constituents for the purchase and sale of racing content for wagering purposes; our ability to execute our acquisition strategy and to complete or successfully operate planned expansion projects; our ability to successfully complete any divestiture transaction; market reaction to our expansion projects; the inability of our totalisator company, United Tote, to maintain its processes accurately or keep its technology current; our accountability for environmental contamination; the inability of our Online Business to prevent security breaches within its online technologies; the loss of key personnel; the impact of natural and other disasters on our operations and our ability to obtain insurance recoveries in respect of such losses (including losses related to business interruption); our ability to integrate any businesses we acquire into our existing operations, including our ability to maintain revenues at historic levels and achieve anticipated cost savings; the impact of wagering laws, including changes in laws or enforcement of those laws by regulatory agencies; the outcome of pending or threatened litigation; changes in our relationships with horsemen's groups and their memberships; our ability to reach agreement with horsemen's groups on future purse and other agreements (including, without limiting, agreements on sharing of revenues from gaming and advance deposit wagering); the effect of claims of third parties to intellectual property rights; and the volatility of our stock price.

You should read this discussion in conjunction with the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. 

CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for three months ended December 31,
(in thousands, except per common share data)
       
  2012 2011 % Change
Net revenues:      
Racing  $ 48,547  $ 52,062 (7)
Gaming 62,912 52,161 21
Online 40,949 40,072 2
Other 6,086 4,970 22
  158,494 149,265 6
Operating expenses:      
Racing 54,980 56,614 (3)
Gaming 46,564 39,185 19
Online 28,210 27,443 3
Other 6,873 5,636 22
Selling, general and administrative expenses 19,323 14,048 38
Insurance (recoveries) losses, net (492) 38 F
Operating income 3,036 6,301 (52)
Other income (expense):      
Interest income 6 228 (97)
Interest expense (1,453) (1,427) (2)
Equity in losses of unconsolidated investments (446) (690) 35
Miscellaneous, net 180 94 91
  (1,713) (1,795) 5
Earnings from continuing operations before provision for income taxes 1,323 4,506 (71)
Income tax benefit (provision) 1,051 (235) F
Earnings from continuing operations 2,374 4,271 (44)
Discontinued operations, net of income taxes:      
Loss from operations (62) (100)
Gain on sale of assets 3,404 (100)
Net earnings and comprehensive income  $ 2,374  $ 7,613 (69)
Net earnings per common share data:      
Basic      
Earnings from continuing operations  $ 0.14  $ 0.25 (44)
Discontinued operations 0.20 (100)
Net earnings  $ 0.14  $ 0.45 (69)
Diluted      
Earnings from continuing operations $ 0.14  $ 0.25 (44)
Discontinued operations 0.19 (100)
Net earnings  $ 0.14  $ 0.44 (68)
Weighted average shares outstanding:      
Basic 17,172 17,042  
Diluted 17,590 17,200  
       
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the years ended December 31,
(in thousands, except per common share data)
       
  2012 2011 % Change
Net revenues:      
Racing  $ 302,088  $ 298,920 1
Gaming 223,112 212,629 5
Online 183,279 165,416 11
Other 23,904 19,889 20
  732,383 696,854 5
Operating expenses:      
Racing 255,405 259,369 (2)
Gaming 163,686 157,875 4
Online 123,476 113,243 9
Other 26,241 20,828 26
Selling, general and administrative expenses 73,829 65,501 13
Insurance recoveries, net of losses (7,006) (972) F
Operating income 96,752 81,010 19
Other income (expense):      
Interest income 90 468 (81)
Interest expense (4,531) (8,924) (49)
Equity in losses of unconsolidated investments (1,701) (1,113) 53
Miscellaneous, net 819 23,643 (97)
  (5,323) 14,074 U
Earnings from continuing operations before provision for income taxes 91,429 95,084 (4)
Income tax provision (33,152) (34,289) (3)
Earnings from continuing operations 58,277 60,795 (4)
Discontinued operations, net of income taxes:      
Loss from operations (1) (1)
Gain on sale of assets 3,561 (100)
Net earnings and comprehensive income  $ 58,276  $ 64,355 (9)
Net earnings per common share data:      
Basic      
Earnings from continuing operations  $ 3.39  $ 3.59 (6)
Discontinued operations 0.21 (100)
Net earnings  $ 3.39  $ 3.80 (11)
Diluted      
Earnings from continuing operations  $ 3.34  $ 3.55 (6)
Discontinued operations 0.21 (100)
Net earnings  $ 3.34  $ 3.76 (11)
Weighted average shares outstanding:      
Basic 17,047 16,638  
Diluted 17,475 17,125  
       
CHURCHILL DOWNS INCORPORATED 
SUPPLEMENTAL INFORMATION BY OPERATING UNIT
for the three months ended December 31, 
(in thousands, except per common share data)
       
  2012 2011 % Change
       
Net revenues from external customers:      
Churchill Downs  $ 14,958  $ 17,328 (14)
Arlington Park 6,275 7,421 (15)
Calder 17,192 16,962 1
Fair Grounds 10,122 10,351 (2)
Total Racing Operations 48,547 52,062 (7)
Calder Casino 18,956 20,245 (6)
Fair Grounds Slots 11,155 10,043 11
VSI 8,967 8,486 6
Harlow's Casino 13,504 13,387 1
Riverwalk Casino 10,330 100
Total Gaming 62,912 52,161 21
Online Business 40,949 40,072 2
Other Investments 5,860 4,906 19
Corporate 226 64 F
Net revenues from external customers  $ 158,494  $ 149,265 6
       
Intercompany net revenues:      
Churchill Downs  $ 1,173  $ 1,095 7
Arlington Park 902 565 60
Calder 433 1,178 (63)
Fair Grounds 437 365 20
Total Racing Operations 2,945 3,203 (8)
Online Business 167 185 (10)
Other Investments 820 618 33
Eliminations (3,932) (4,006) (2)
Net revenues $ — $ —
       
Reconciliation of Segment EBITDA to net earnings:      
Racing Operations $ (4,301) $ (2,831) (52)
Gaming 15,951 13,529 18
Online Business 8,334 9,069 (8)
Other Investments (252) (175) (44)
Corporate (2,177) (36) U
Total EBITDA 17,555 19,556 (10)
Depreciation and amortization (14,785) (13,851) 7
Interest income (expense), net (1,447) (1,199) (21)
Income tax benefit (provision) 1,051 (235) F
Earnings from continuing operations 2,374 4,271 (44)
Discontinued operations, net of income taxes 3,342 (100)
Net earnings and comprehensive income  $ 2,374  $ 7,613 (69)
       
CHURCHILL DOWNS INCORPORATED 
SUPPLEMENTAL INFORMATION BY OPERATING UNIT
for the years ended December 31, 
(in thousands, except per common share data)
       
  2012 2011 % Change
       
Net revenues from external customers:      
Churchill Downs  $ 124,255  $ 121,886 2
Arlington Park 69,077 69,694 (1)
Calder 64,566 62,715 3
Fair Grounds 44,190 44,625 (1)
Total Racing Operations 302,088 298,920 1
Calder Casino 77,864 82,819 (6)
Fair Grounds Slots 42,881 41,553 3
VSI 35,433 35,052 1
Harlow's Casino 56,604 53,205 6
Riverwalk Casino 10,330 100
Total Gaming 223,112 212,629 5
Online Business 183,279 165,416 11
Other Investments 22,872 19,563 17
Corporate 1,032 326 F
Net revenues from external customers  $ 732,383  $ 696,854 5
       
Intercompany net revenues:      
Churchill Downs  $ 5,592  $ 5,088 10
Arlington Park 4,712 3,725 26
Calder 1,583 2,307 (31)
Fair Grounds 1,270 1,164 9
Total Racing Operations 13,157 12,284 7
Online Business 836 786 6
Other Investments 3,466 2,015 72
Eliminations (17,459) (15,085) 16
Net revenues $ — $ —
       
Reconciliation of Segment EBITDA to net earnings:      
Racing Operations  $ 50,793  $ 64,285 (21)
Gaming 67,807 57,008 19
Online Business 40,280 37,740 7
Other Investments (265) 1,042 U
Corporate (7,145) (1,365) U
Total EBITDA 151,470 158,710 (5)
Depreciation and amortization (55,600) (55,170) 1
Interest income (expense), net (4,441) (8,456) (47)
Income tax benefit (provision) (33,152) (34,289) (3)
Earnings from continuing operations 58,277 60,795 (4)
Discontinued operations, net of income taxes (1) 3,560 (100)
Net earnings and comprehensive income  $ 58,276  $ 64,355 (9)
         
CHURCHILL DOWNS INCORPORATED 
SUPPLEMENTAL INFORMATION BY OPERATING UNIT
for the three months and years ended December 31,
(in thousands)
         
  Three Months Ended December 31, Change
  2012 2011 $ %
Racing Operations $ (2,426) $ (2,377) $ (49) 2
Gaming (2,667) (2,137) (530) 25
Online Business (1,787) (1,652) (135) 8
Other Investments (274) 91 (365) U
Corporate Income 7,154 6,075 1,079 18
Total management fees $ — $ — $ —  
         
  Year Ended December 31, Change
  2012 2011 $ %
Racing Operations $ (11,969) $ (11,197) $ (772) 7
Gaming (8,471) (7,677) (794) 10
Online Business (6,946) (6,001) (945) 16
Other Investments (932) (860) (72) 8
Corporate Income 28,318 25,735 2,583 10
Total management fees $ — $ — $ —  
     
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
(in thousands)
  2012 2011
Cash flows from operating activities:    
Net earnings and comprehensive income  $ 58,276  $ 64,355
Adjustments to reconcile net earnings to net cash provided by operating activities:    
Depreciation and amortization 55,600 55,170
Asset impairment loss 25 511
Gain on sale of business (271)
(Gain) loss on asset disposition (128) 52
Equity in losses of unconsolidated investments 1,701 1,113
Unrealized gain on derivative instruments (3,096)
Share-based compensation 7,613 5,531
Deferred tax provision 9,659 14,097
Other 910 2,489
Increase (decrease) in cash resulting from changes in operating assets and liabilities, net of business acquisitions and dispositions:    
Restricted cash 9,178 18,342
Accounts receivable (5,396) (407)
Other current assets (3,075) 3,235
Income taxes 764 7,995
Accounts payable 3,459 14,447
Purses payable (10,148) 7,301
Accrued expenses 9,923 2,441
Deferred revenue 8,804 3,633
Deferred riverboat subsidy (40,492)
Other assets and liabilities (2,758) 16,549
Net cash provided by operating activities 144,407 172,995
Cash flows from investing activities:    
Additions to property and equipment (41,298) (22,667)
Acquisition of businesses, net of cash acquired (142,915)
Acquisition of gaming license (2,250) (2,250)
Investment in joint venture (19,850)
Purchases of minority investments (2,153) (1,189)
Proceeds on sale of property and equipment 833 55
Proceeds from insurance recoveries 10,505 183
Change in deposit wagering asset (2,860) (1,010)
Net cash used in investing activities (199,988) (26,878)
Cash flows from financing activities:    
Borrowings on bank line of credit 554,248 320,181
Repayments of bank line of credit (472,083) (457,736)
Change in bank overdraft 555 (188)
Payments of dividends (22,461) (8,165)
Repurchase of common stock (5,094) (1,308)
Common stock issued 6,377 725
Windfall (shortfall) tax benefit from share-based compensation 1,407 151
Loan origination fees (67) (155)
Change in deposit wagering liability 2,551 802
Net cash provided by (used in) financing activities 65,433 (145,693)
Net increase in cash and cash equivalents 9,852 424
Cash and cash equivalents, beginning of year 27,325 26,901
Cash and cash equivalents, end of year  $ 37,177  $ 27,325
     
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31,
(in thousands)
     
  2012 2011
ASSETS    
Current assets:    
Cash and cash equivalents  $ 37,177  $ 27,325
Restricted cash 38,241 44,559
Accounts receivable, net 47,152 49,773
Deferred income taxes 8,227 8,727
Income taxes receivable 2,915 3,679
Other current assets 13,352 10,399
Total current assets 147,064 144,462
Property and equipment, net 542,882 477,356
Goodwill 250,414 213,712
Other intangible assets, net 143,141 103,827
Other assets 30,836 8,665
Total assets  $1,114,337  $ 948,022
LIABILITIES AND SHAREHOLDERS' EQUITY    
Current liabilities:    
Accounts payable  $ 62,278  $ 56,514
Bank overdraft 6,027 5,473
Purses payable 19,084 20,066
Accrued expenses 65,537 47,816
Dividends payable 10,110
Current maturities of long-term debt 209,728
Deferred revenue 43,916 33,472
Total current liabilities 406,570 173,451
Long-term debt, net of current maturities 127,563
Other liabilities 21,030 29,542
Deferred revenue 17,794 17,884
Deferred income taxes 24,648 15,552
Total liabilities 470,042 363,992
Commitments and contingencies    
Shareholders' equity:    
Preferred stock, no par value; 250 shares authorized; no shares issued
Common stock, no par value; 50,000 shares authorized; 17,448 shares issued at December 31, 2012 and 17,178 shares issued at December 31, 2011 274,709 260,199
Retained earnings 369,586 323,831
Total shareholders' equity 644,295 584,030
Total liabilities and shareholders' equity  $1,114,337  $ 948,022
CONTACT: Courtney Yopp Norris
         (502) 636-4564
         Courtney.Norris@kyderby.com

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