Churchill Downs Inc. 10-Q Summary: Quarter Ended March 31, 1998
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 1998, for Churchill Downs Incorporated. The Company operates pari-mutuel wagering facilities in Kentucky (Churchill Downs) and Indiana (Hoosier Park), along with simulcast wagering locations. The business is highly seasonal, with the majority of annual net earnings typically realized in the second quarter during the Kentucky Derby and Kentucky Oaks. No live racing was conducted during the first quarter of 1998 or 1997.
Key Financial Metrics
| Metric | Q1 1998 | Q1 1997 |
|---|---|---|
| Net Revenues | $15,385,151 | $13,278,864 |
| Operating Loss | $(2,769,731) | $(3,135,423) |
| Net Loss | $(1,569,031) | $(1,848,686) |
| Loss Per Share (Basic/Diluted) | $(0.21) | $(0.25) |
| Cash from Operating Activities | $7,301,935 | $2,505,710 |
| Cash and Cash Equivalents (End of Period) | $11,803,389 | $7,084,056 |
| Working Capital Deficiency | $(9,213,810) | $(12,718,810) |
| Long-Term Debt | $2,633,164 | $2,752,969 |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 16% ($2.1 million) driven by a 6% increase in interstate simulcast receiving revenues and a 75% increase in riverboat admission revenue from Indiana operations.
- Expense Increases: Operating expenses rose 10% ($1.5 million). Purses increased 21% ($0.9 million), largely due to riverboat-related purse requirements. Insurance, taxes, and license fees increased 49% due to higher property and use taxes.
- Improved Cash Flow: Net cash provided by operating activities surged 191% to $7.3 million, primarily due to the timing of income tax payments and an increase in deferred revenue from advance billings for the upcoming Kentucky Derby.
- Balance Sheet: Accounts payable increased $4.2 million due to accrued purses payable during live race meets. Deferred revenue increased $6.4 million due to season box and membership sales.
Outlook, Risks, and Unusual Items
- Acquisition: On March 28, 1998, the Company agreed to acquire Racing Corporation of America (RCA), owner of Ellis Park Race Course, for $22.0 million (cash and stock). The deal closed April 21, 1998. Management does not anticipate a material effect on 1998 earnings.
- Competition Risks: The Company faces significant competition from riverboat casinos in Indiana and Kentucky. A new casino in Harrison County, Indiana, is expected to open in Fall 1998, which studies project could materially adversely impact wagering in the Louisville market. Additionally, five riverboats have opened near the Company's Merrillville, Indiana facility.
- Strategic Initiatives: The Company is pursuing legislation to allow video lottery terminals at its racetracks to compete with riverboat gaming. It also hosts the Breeders' Cup Day in November 1998, expected to have a positive impact on results.
- Liquidity: The Company increased its unsecured bank line of credit from $20 million to $50 million in March 1998. No borrowings were outstanding on the line at quarter-end.
Investor Verification Checklist
- Verify the impact of the new Harrison County, Indiana riverboat casino opening in Fall 1998 on Q3 and Q4 wagering handle.
- Confirm the status of legislation regarding video lottery terminals in Kentucky and Indiana.
- Monitor the integration of Ellis Park Race Course (RCA) and its contribution to Q2 1998 consolidated results.
- Review the allocation of live racing days by the Kentucky and Indiana Racing Commissions for the remainder of 1998.
- Assess the Company's ability to maintain the increased interstate simulcast market share amidst growing competition.