CHDN

Churchill Downs, Incorporated (CHDN)

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Churchill Downs Incorporated (CHDN)

Q2 2008 Earnings Call Transcript

August 6, 2008 9:00 am ET

Executives

Kevin Flanery – SVP, National Public Affairs

Bob Evans – President and CEO

Bill Mudd – EVP and CFO

Analysts

Steve Altebrando – Sidoti & Co.

Presentation

Operator

Good day, ladies and gentlemen, and welcome the second quarter 2008 Churchill Downs earnings conference call. My name is George and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's conference. Mr. Kevin Flanery, Senior Vice President. Please proceed, sir.

Kevin Flanery

Thank you. Good morning and welcome to this Churchill Downs Incorporated conference call to review the company's results for the second quarter of 2008. The results were released yesterday afternoon in a news release that has been covered by the financial media. A copy of this release, announcing results and any other financial and statistical information about the periods to be presented in this conference call, including any information required by Regulation G, is available at the section of the company's website entitled ‘Company News,’ location at ChurchillDownsIncorporated.com. Let me also note that a news release was issued advising the acceptability of this conference call on a listen-only basis via phone and over the Internet.

As we begin, let me express that some statements made during this call will be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include projections, expectations, or beliefs about future events or results, or otherwise are not statements of historical fact. The actual performance of the company may differ materially from what is projected in such forward-looking statements. Investors should refer to statements included in reports filed by company with the Securities and Exchange Commission for a discussion of additional information concerning factors that could cause our actual results of operation to differ materially from the forward-looking statements made in this call. The information being provided today is as of this date only, and Churchill Downs Incorporated expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect any changes in expectations.

Members of our executive team are here and will be available to answer questions after some formal remarks. We'll begin now with our President and Chief Executive Officer, Bob Evans. Bob?

Bob Evans

Thanks, Kevin, and good morning, everyone. Thanks for joining us today for this discussion of our financial performance during the second quarter of 2008. I'd like to make a few comments about our results to start things off, then I’ll turn it over to our Chief Financial Officer, Bill Mudd, who will take you through the numbers in more detail.

But before getting to that, as we previously reported, Ken Dunn's last day with Calder Race Course was last Friday, August 1. Ken was our President at Calder. I want to thank Ken for his years of outstanding service to Calder and to Churchill Downs, and to horse racing, particularly in south Florida. All of us at Churchill Downs Incorporated wish Ken the very best in his future endeavors.

In these quarterly conference calls, I try to limit my comments to what I consider the five most important things I think you would want to know about our business. For those of you that have read our press release or our 10-Q filing you know that we have redefined our segment reporting starting this quarter. We hope this new format gives you greater insight into the company's performance, and Bill will spend a little bit more time on the new segment reporting in his comments.

So, what are the five most important things that I think you should know about our second quarter results? First, overall company performance is solid. Despite high gas prices, declining consumer confidence, and disputes with horsemen in Florida and Kentucky, revenue increased 6% in the second quarter. Reported EBITDA was up 4% and net earnings were essentially flat. Considering that the disputes with horsemen cost us about $4 million in EBITDA, I believe our core business is performing quite well in a difficult economic and industry environment.

After capital spending and after the payment of dividends, we have generated $62 million of cash flow so far this year in the first six months, $43 million more than during the first half of 2007. And we have used that cash to pay down the long-term debt that we had on the books to $10 million at the end of the second quarter.

Second thing I think you should know is that things are tough in the U.S. thoroughbred racing industry and certainly we haven't escaped that trend. EBITDA from our Racing Operations at Arlington, Fair Grounds, Calder, and Churchill were down $2.4 million from the second quarter of 2007. A portion of this decline is attributable to the various disputes with horsemen, which I will discuss shortly. The financial impact of those disputes, however, was offset by the Oaks and Derby at Churchill Downs, where EBITDA increased $3.3 million over 2007.

Note that in our first quarter conference call comments, we indicated that our preliminarily numbers for the Oaks and Derby showed a $3 million increase. Once we had final numbers, the increase was $3.3 million.

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