Despite 'Trying' Year, Churchill Has Positive Results; Fair Grounds Decision Due Soon
by Ron Mitchell
Date Posted: 3/14/2006 7:07:25 PM
Last Updated: 3/14/2006 8:43:23 PM

Despite a very trying year in which its company-owned tracks were negatively impacted by two hurricanes, one tornado, and two disease outbreaks, Churchill Downs Inc. on Tuesday reported positive financial results for 2005

The Louisville, Ky.-based track-operating company reported earnings for 2005 - which included the company's third-quarter gain on the sale of the assets of Hollywood Park - totaled $78.9 million, compared to net earnings of $8.9 million during 2004. Net earnings per diluted share for 2005 totaled $5.86, which included net earnings per diluted share from continuing operations of $0.96 and net earnings per diluted share from discontinued operations of $4.90. In 2004, net earnings per diluted share equaled $0.67, which was comprised of net earnings per diluted share from continuing operations of $0.73 and a net loss per diluted share from discontinued operations of $0.06.

Net revenues from continuing operations, which included a full-year of revenues from the company's Louisiana operations, totaled $408.8 million in 2005, a 13.2% increase over net revenues from continuing operations of $361.2 million generated during 2004. Net revenues from continuing operations during the fourth quarter of 2005 totaled $81.7 million, a 4.9% decrease from the net revenues of $85.9 million generated by the company's continuing operations during the fourth quarter of 2004.

Considering the disruption to business at Calder Racecourse in Florida and Fair Grounds in New Orleans from hurricanes, a tornado that heavily damaged Ellis Park in Kentucky, and the outbreaks of equine herpesvirus-1 and strangles at some Churchill tracks, the 2005 numbers pleased company executives.

"We are very pleased," chief financial officer Mike Miller said. "We had a very trying year, and the industry had a trying year. In the face of two hurricanes, one tornado, strangles, and herpesvirus, we are very pleased to have ended up where we did. We are very pleased with our accomplishments in 2005."

In addition, in 2005 Churchill also shed itself of Hollywood Park in California in a $254.6 million deal that allowed the company to nearly erase its indebtedness and "enabled us to...exit a difficult business environment while retaining the right to reinvest in Hollywood Park should state government authorize alternative gaming at California tracks," according to a statement from CDI president and CEO Tom Meeker that accompanied the earnings release.

Miller said a decision on whether Churchill will attempt to resume live racing at Fair Grounds in 2006-2007 will be made before the April 15 deadline to file racing dates in Louisiana. While about $5 million has been spent on repairs to the track as Fair Grounds readies to host the annual New Orleans Jazz Fest, Miller said the future of live racing rests on three variables: insurance, status of its employee pool, and the local marketplace.

The CFO said Churchill had obtained insurance coverage for Fair Grounds and all its company-owned tracks, but noted that it "was very expensive." He said Fair Grounds employs about 200 during its meet, personnel "we don't have today and which we don't know where they will come from or where they will live." The third variable, Miller said, was "what does the market look like for our product; is there business there for us."

Miller said company executives are optimistic about the future of live racing and pari-mutuel wagering in New Orleans, based on the strong business at the track-owned off-track betting facilities where simulcasting and video poker are offered.

Miller also did not rule out the possibility of seeking to race the Fair Grounds meet at Louisiana Downs again, as was done in the fall of 2005. "We have no arrangement with them, so it would be premature to say whether we are going to do that," Miller said.

"We begin 2006 with a strong balance sheet, access to capital, and the ability to execute on strategic opportunities as they develop," Meeker said in his statement. "We are actively pursuing alternative gaming legislation in the states where we operate and are working towards a voter referendum to allow slots at our Florida track. We will continue to identify opportunities to leverage our strong brand while pursuing new distribution channels for our racing products in domestic and international markets. We will work to rationalize the current economics of our sport to ensure horse racing continues to adapt and evolve within a competitive and ever-changing business environment."

During the fourth quarter of 2005, Churchill Downs reported a net loss per diluted share of $0.23, which was comprised of a net loss per diluted share of $0.30 from continuing operations and net earnings per diluted share of $0.07 from discontinued operations. During the fourth quarter of 2004, the company had a net loss per diluted shared of $0.25, which was comprised of a net loss per diluted share of $0.35 from continuing operations and net earnings per diluted share of $0.10 from discontinued operations.

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