Churchill Downs Inc. Reports Operating Results (10-Q)
Churchill Downs Inc. has a market cap of $524.4 million; its shares were traded at around $38.33 with a P/E ratio of 35.5 and P/S ratio of 1.2. The dividend yield of Churchill Downs Inc. stocks is 1.3%.CHDN is in the portfolios of Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations: During November 2009, we announced that we had entered into a merger agreement with Youbet.com, Inc. (Youbet) under which we plan to acquire all of the outstanding common stock of Youbet in a transaction valued at approximately $137.0 million based on the closing price of our common stock on February 12, 2010 of $34.81. We expect to finance the cash portion of the merger with borrowings under its amended and restated credit facility. Under the terms of the merger agreement, Youbet stockholders will receive a fixed ratio of 0.0598 shares of the Companys common stock plus $0.97 in cash for each share of Youbet common stock, subject to possible future adjustment to the exchange ratio to increase the cash consideration and correspondingly decrease the stock consideration in order to ensure that the transaction does not require us to issue more than 19.6% of our outstanding common stock prior to the closing of the transaction. This transaction is expected to qualify as tax-deferred under Section 368 of the Internal Revenue Code. After completion of the transaction, which is currently expected to occur during the first half of 2010, and based on the closing price of our common stock on February 12, 2010, Youbet stockholders are expected to own approximately 16.4% of the outstanding common stock of the Company. The final transaction value will be calculated based on the price of the Companys stock as of the date of the closing of the merger. However, we cannot predict the actual timing of the completion of the transaction or whether the transaction or the merger will actually be completed.
On April 14, 2010, we defended our position of deferring income related to the sale of PSLs using a fast track mediation process offered by the IRS. During the fast track mediation process, we agreed to change our method of accounting for proceeds related to the sale of PSLs to the deferral method provided for in Revenue Procedure 2004-34, effective for the taxable year ended December 31, 2007. As a result, our taxable income for each of the years ended December 31, 2007 and 2008 will increase by $19.1 million and $0.4 million, respectively.
On January 29, 2008, Miami-Dade County voters approved a referendum permitting pari-mutuel facilities, including Calder, to operate up to 2,000 slot machines at each location. Under current state law, slot machines are subject to a 50% tax rate. The Florida legislature subsequently enacted legislation which provided for a reduction in the tax rate for racetracks operating slot facilities in Miami-Dade and Broward Counties from 50% to 35% as well as a reduction in the annual license fee from $3 million to $2 million over a two-year period and removes wagering limits for poker. There are other portions of Senate Bill 622 (SB 622) which purport to permit the operation of slot machines at quarter horse facilities in Miami-Dade County. This provision purports to permit Hialeah Race Course, located approximately 12 miles from Calder, to open as a quarter horse facility and operate slot machines after two consecutive years of quarter horse racing. Under SB 622, the Seminole tribe would gain the exclusive right to have blackjack and other table games at three Broward County casinos and two others in Imokalee and Tampa. All seven tribal casinos also would be able to keep operating Las Vegas-style slot machines. On April 15, 2010, the Florida Senate passed SB 622 and on April 19, 2010, the House of Representatives passed SB 622. On April 28, 2010 the Governor of Florida signed SB 622, which will become effective on July 1, 2010. In accordance with SB 622 legislation, the annual license fee will be reduced to $2.5 million on July 1, 2010 and $2.0 million on July 1, 2011.
During November 2008, the Illinois General Assembly passed Public Act 95-1008 to extend Public Act 94-804 for a period of three years beginning December 12, 2008. The riverboat casinos have paid all monies required under Public Act 95-1008 into a special protest fund account, which the trial court has retained via a preliminary injunction. The riverboat casinos moved to stay dissolution of the injunction pending their appeal of the trial courts dismissal order. The trial court denied the stay, as did the Appellate Court of Illinois on April 8, 2010. We expect that the funds soon will be moved to the HRE Trust Fund and distributed to the racetracks, including $11.6 million to Arlington Park. Of the total monies we expect to receive, we anticipate $4.8 million will be retained by Arlington Park and $6.8 million will be paid into Arlington Parks purse account. However, as with the funds distributed pursuant to Public Act 94-804, the injunction entered in the Federal Lawsuit will require the funds distributed pursuant to Public Act 95-1008 to be place into escrow.
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