Number of Factors Cited for Net Earnings Decline at Churchill Downs Inc.

Edited press release
Churchill Downs Inc. reported Tuesday that net earnings for the second quarter were $24.2 million or $1.80 per share diluted, compared to $27.7 million or $2.06 per share diluted for the same period in 2004.

The change year-over-year reflects higher depreciation costs; an additional $2.5 million in interest expense; a higher tax rate due to increased legislative expenses; and nearly $1 million in development costs associated with the pending sale of the Hollywood Park assets.

On July 6, 2005, CDI announced that it had reached a definitive agreement to sell its Hollywood Park horse racing facility to Bay Meadows Land Company. Due to this pending transaction, results for Hollywood Park are treated as discontinued operations and detailed as such in the accompanying tables.

Net revenues from continuing operations for the second quarter reached $163.2 million, an increase of 16.4% compared with $140.2 million for the same period last year. Net earnings from continuing operations for the quarter were $22.7 million, a decline of less than 1% from $22.9 million for the same period a year ago. Diluted earnings per share from continuing operations totaled $1.69, compared with $1.70 for the second quarter of 2004.

Thomas H. Meeker, CDI's president and chief executive officer, said the company delivered solid results despite significant expenses during the quarter and weakness across the racing industry.

"The strength of the Kentucky Derby (gr. I), Kentucky Oaks (gr. I) and other marquee events helped offset some of the soft business levels affecting our facilities and racing in general. Factors such as rain, excessive heat and various equine-related illnesses contributed to smaller field sizes that, in turn, led to declines in wagering.

"Going forward, we expect to continue to encounter smaller field sizes and other problems affecting the industry. As this time, we anticipate business levels for the balance of the year to approximate those experienced in the latter half of 2004, after factoring in the impact of the Hollywood Park divestiture."

Meeker added, "Longer term, we are heartened by our progress on strategic initiatives and the potential growth channels they create for the company. For example, we made steady advances with regard to alternative gaming at Fair Grounds, in both the slots approval process and the rollout of new video poker machines. While the benefits of these efforts are not being fully realized in 2005, we now anticipate that they will materialize in 2006 and 2007."

"Finally, the Hollywood Park transaction represents a major strategic win for us. We were faced with an asset in a troublesome market at a huge competitive disadvantage without alternative gaming. We were able to negotiate a sale that provides a very attractive price and the opportunity to re-enter this market should the gaming landscape change. We are reviewing the best alternatives for the use of this capital, but at a minimum, we have created the opportunity to reduce our current debt by a range of $190 million to $200 million," concluded Meeker.