Churchill Downs Inc. 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2001, and the nine months ended on that date. Churchill Downs Inc. operates pari-mutuel wagering on live Thoroughbred, Quarter Horse, and Standardbred horse racing, along with simulcast signals. Key assets include Churchill Downs (home of the Kentucky Derby), Hollywood Park, Arlington Park, Calder Race Course, Ellis Park, and Hoosier Park. The company notes that results are seasonal, with a disproportionate share of earnings typically generated in the second and third quarters.
Key Financial Metrics
| Metric | Nine Months Ended Sep 30, 2001 | Nine Months Ended Sep 30, 2000 | Three Months Ended Sep 30, 2001 | Three Months Ended Sep 30, 2000 |
|---|---|---|---|---|
| Net Revenues | $316.2 million | $261.9 million | $121.2 million | $103.8 million |
| Operating Income | $39.7 million | $39.8 million | $14.8 million | $15.8 million |
| Net Earnings | $18.0 million | $16.9 million | $7.1 million | $7.3 million |
| Diluted EPS | $1.37 | $1.66 | $0.54 | $0.68 |
| Cash from Operations | $44.2 million | $20.8 million | N/A | N/A |
| Long-Term Debt (Outstanding) | $131.7 million | $154.6 million | N/A | N/A |
| Cash and Equivalents | $15.8 million | $11.4 million | N/A | N/A |
Note: Figures are in thousands unless otherwise noted. Debt figures reflect the revolving line of credit balance.
Material Changes vs. Prior Period
- Revenue Growth: Nine-month revenues increased 21% ($54.3 million) primarily due to the full inclusion of Arlington Park following its September 2000 merger. Churchill Downs revenues rose due to higher ticket prices for the Kentucky Derby and Oaks, while Hoosier Park saw growth from additional live racing days.
- Operating Expenses: Expenses increased 25% ($50.6 million), driven largely by Arlington Park's inclusion. Hollywood Park saw a decrease in revenues and expenses attributed to West Coast energy issues and an economic slowdown.
- Interest Expense: Decreased by $1.5 million year-over-year due to the use of cash flow to pay down the line of credit and improved leverage ratios lowering interest rates.
- Balance Sheet: Long-term debt decreased by $21.6 million compared to year-end 2000. Accounts payable increased $9.9 million due to timing of purse payments and simulcast payables.
Outlook, Risks, and Unusual Items
- Pending Transaction: The company agreed to sell a 15% interest in Hoosier Park, LP to Centaur Racing, LLC for $4.5 million. Closing is expected in Q4 2001, leaving Churchill Downs with a 62% interest.
- Accounting Changes: The company adopted FAS 133 (Derivatives) in 2001, recording a $0.6 million deferred net loss in accumulated other comprehensive income. Future adoption of FAS 142 (Goodwill) in 2002 will eliminate goodwill amortization.
- Risks: Management highlights risks including the impact of the September 11 terrorist attacks, global economic conditions, gaming competition (lotteries/casinos), regulatory changes, and litigation regarding the Rosemont, Illinois riverboat casino.
- Liquidity: The company maintains a $250 million revolving credit facility with $131.7 million outstanding. Management believes cash flows and borrowings are sufficient to fund operations and capital improvements.
Investor Verification Checklist
- Arlington Park Integration: Verify the sustainability of revenue growth from Arlington Park now that the full-year impact is realized.
- Hollywood Park Performance: Monitor the impact of West Coast economic conditions and energy issues on Hollywood Park's handle and attendance.
- Debt Management: Confirm the company's ability to maintain leverage ratios to keep interest rates on the $250 million credit facility favorable.
- Hoosier Park Sale: Track the regulatory approval status of the 15% stake sale to Centaur Racing and the potential for additional sales.
- Seasonality: Acknowledge that Q3 results are heavily influenced by the Kentucky Derby and Oaks, making them non-representative of the full year.