Churchill Revenue Up; Economy Impacts Simulcasting Handle

Churchill Downs reported Tuesday that first quarter revenues rose 22 percent to $31.7 million, compared with $25.9 million for the same period last year. The company reported a net loss of $11.0 million, or 84 cents per share on 13.0 million average shares outstanding, compared with a net loss of $8.8 million, or 89 cents per share on 9.9 million average shares outstanding, in the first quarter of 2000.

(The increased number of average shares outstanding for the first quarter was due principally to the September 2000 merger with Arlington International Racecourse, now doing business as Arlington Park, which included issuing 3.15 million common shares to Richard Duchossois and his family).

Noting that Churchill historically reports a first-quarter loss because of the seasonal nature of its business, Churchill president and chief executive officer Thomas H. Meeker said the loss was lower than the 86 cents per share expected by stock analysts. Only 19 days of live racing were conducted during the first quarter--two days of Thoroughbred racing at Calder Race Course near Miami and 19 days of Standardbred racing at Hoosier Park at Anderson, Ind.

"As expected, the addition of Arlington Park to our operations for the first time during this period contributed to a larger loss, which was offset by the increase in average shares outstanding compared to a year ago," Meeker said. "The increase in net revenues for the quarter also was primarily due to the inclusion of Arlington Park, which has been conducting simulcast wagering at its off-track betting facilities."

When Arlington is excluded, however, first quarter net revenue decreased by 2.3% primarily because the handle decreased on incoming signals at Churchill's simulcast facilities.

"We attribute this decline to the impact of a national economic slowdown, which we had expected would curtail discretionary spending by consumers, and we likely will continue to face this factor over the remainder of the year," Meeker said.

In anticipation of a slowing economy, Meeker said Churchill has already implemented a "company-wide cost-reduction program." The company has reduced operating expenses though its "Winning Colors" best practices program, and reduced the workforce slightly through attrition and restaffing.

Meeker said the second quarter will be significantly stronger because of a most successful Kentucky Derby weekend and because live racing is offered at five of the company's six racetracks.

Earnings for the second quarter are expected to range from $1.67 to $1.70 per diluted share. Although compared with $1.85 per diluted share in the year-earlier period, the per share results for the current quarter will be based on approximately 32% more outstanding shares. Also Churchill will have the benefit of live racing at Arlington Park for only two weeks of the period.

For the full year, Meeker said he expects Churchill will meet its earlier forecast for an approximate 20% increase in net earnings for the year, up from $19.2 million for 2000.

"We believe the year holds strong, fundamental potential for our company," Meeker said.

A big area of potential growth lies with the Churchill Downs Simulcasting Network. The company has refined its simulcast presentations and coordinated post times and stakes schedules to increase viewership at off-track betting outlets and boost the handle.

"For the first time our stakes won't be competing against one another," said John Long, Churchill's chief operating officer, during a teleconference today. "We have combined them in a way so every weekend there is something happening on the Churchill Downs network."

One way Churchill has repackaged its stakes is by offering a Pick 3 for the featured races at three different tracks on a given day. Churchill introduced this Pick 3 last year and will be expanding the concept, according to Long.

"The business of simulcasting is more sophisticated than it was several years ago," he said. "The belief that more signals is better is not the case anymore. It is about shelf presence and market share. We have just scratched the surface."