Churchill Downs Inc. reported a gain in earnings for 2002 but indicated it's looking to sell Ellis Park, the western Kentucky racetrack it purchased in 1998 as part of a $22 million package. The company's financial statement for 2002 was released Feb. 11.
"Our decision to pursue the divestiture of Ellis Park racetrack is strategically prudent in light of the Arlington Park merger, which diminished the value to us of the Henderson, Ky., facility," Churchill Downs Inc. president Tom Meeker said in a statement. "If a sale occurs, we plan to use any net proceeds to reduce our debt."
The Johnston family, which owns Balmoral Park and Maywood Park in Illinois, said in published reports it planned to make a bid for Ellis Park in the next few weeks. Churchill officials, in keeping with policy, said they would not comment on rumors or speculation.
Earnings for the fourth quarter and year that ended Dec. 31, 2002, were consistent with the guidance previously provided by the company before a special, non-cash impairment charge of $4.5 million associated with Ellis Park.
Net revenues for the year were $439.2 million, up 2.8% from $427 million in 2001. Net earnings, including the special charge of $0.21 per diluted share related to Ellis Park, totaled $1.57 per fully diluted share, compared with $1.67 per diluted share in 2001. The company had previously provided guidance for full-year earnings in the range of $1.77 to $1.80 per diluted share, exclusive of the Ellis Park charge.
For the fourth quarter of 2002, Churchill Downs Inc. reported net revenues of $110 million, down 0.7% from the $110.8 million reported during the same period in 2001. Net earnings, including the charge related to Ellis Park, were $2 million, or $0.15 per diluted share, versus $0.31 per diluted share in the fourth quarter of 2001.
"We overcame considerable challenges in 2002, including significantly higher insurance costs and a soft economy, and were able to generate record net revenues," Meeker said. "We believe that our performance throughout the year provided sound support for our fundamental growth strategy, underscored the well-established resiliency of demand for our racing content, and validated the actions we took to reduce expenses. We also continued to enhance the value of our brand as a result of a solid commitment throughout our organization.
"In looking at 2003, we of course continue to face an uncertain economy and additionally, have two specific challenges that will impact our bottom line. First, the Indiana Horse Racing Commission's decision to split the riverboat subsidy evenly between Hoosier Park and Indiana Downs will eliminate approximately $3 million this year from pre-tax earnings. Second, our schedule for 2003 includes fewer live racing days.
"Notwithstanding these factors, we expect the full benefit of cost reductions effected in 2002 and some incremental revenues at Arlington Park will enable us to reduce our first-quarter loss in 2003 to approximately $0.90 per diluted share compared to $0.92 per diluted share in the same period of 2002. Once again, a first-quarter loss is expected because of the nominal days of live racing we conduct in the first three months of each year.
"For 2003 as a whole, we will be working hard to offset the challenges mentioned above and believe that the continued growth in simulcasting and ongoing, rigorous containment of costs will allow us to achieve a gain in earnings of approximately $1.80 per share diluted compared to $1.78 per share diluted in 2002, before the special charge."
Meeker said capital expenditures for routine items should be unchanged in 2003 at about $12 million, but about $40 million more would be invested in the "master plan" for Churchill Downs racetrack in Louisville. Cash flow from operations for 2002 totaled $32.6 million; capital expenditures for 2003 would be financed with funds provided from operations and existing borrowing capacity, he said.