Good day, ladies and gentlemen, and welcome to the Churchill Downs Incorporated Fourth Quarter Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today’s conference, Ms. Courtney Norris, Director of Corporate Communications.

Good morning, and welcome to this Churchill Downs Incorporated conference call to review the Company’s results for the fourth quarter and year ended December 31, 2012. 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 period to be presented in this conference call, including any information required by Regulation G, is available at the section of the Company’s website titled 'News', located at churchilldownsincorporated.com as well as in the website's Inventors section. Let me also note that a news release was issued advising of the accessibility 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 the Company with the Securities and Exchange Commission for a discussion of additional information concerning factors that could cause our actual results of operations to differ materially from the forward-looking statements made in this call. The information being provided today is 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 and expectations. At this point, I would typically turn the call over to CDI’s Chairman and CEO, Mr. Bob Evans. However, he is unable to join us today. We have with us Mr. Bill Carstanjen, CDI’s President and Chief Operating Officer, as well as Mr. Bill Mudd, CDI’s Chief Financial Officer, who will be available to answer questions at the end. I will now turn it over to Mr. Mudd, who will take you through the numbers.

Thanks, Courtney, and good morning, everyone. After I make a few comments about our fourth quarter and total year results, as Courtney mentioned, Bill Carstanjen and I will be happy to answer any questions you may have. Overall, it was a very good year with net revenues up 5%, and a pretty good fourth quarter with net revenues up 6%. For the year, our Racing Operations revenues increased 1% to $302 million. Racing Operations handle was flat with 2011 while the U.S. industry handle posted a 1% increase, according to figures published by Equibase.com. This is a first total year increase in U.S. wagering on thoroughbred racing since 2006. For the fourth quarter, our Racing Operations revenues decreased 7%, driven primarily due to the revenues recognized in the prior year from hosting the Breeders' Cup at our Churchill Downs facility. I am certain you will ask how the Derby is shaping up. Well, here's where we stand. We're 65 days out from this year's Derby. With the caveat total admissions revenue, it also depend on cash gate sales on the day of the event which are very much driven by weather, and then our pari-mutuel revenues are also, by the still to be determined build-size and competitiveness of the Oaks and Derby races, and the other races on the Oaks and Derby Day cards. Those caveats at this point, 65 days out, are premium admissions revenue. That is, boxes, seats, tables in our premium areas are very strong compared to last year. Sales of our personal seat licenses are significantly better than last year, sponsorship sales are on track to outpace last year, and handle in the first of the three Oaks and Derby future wager pools was the second highest single pool total in its 15 year history, missing…

[Operator Instructions] Our first question comes from the line of Amit Kapoor with Gabelli & Company.

Bill, can you provide some color on the -- and thank you for breaking out the expenses this quarter at Luckity - can you provide some color on the ramp-up at Luckity including feedback that you’re receiving from customers around the website ease of navigation, ease of use? And then separately, I have a second question regarding any comments you guys might have on the online gaming legalization dynamics in New Jersey and Nevada, would appreciate that. Thank you.

Thanks. I'm going to give those questions to Bill Carstanjen, our President and COO. Bill?

First, with respect to Luckity, a lot of the ramp-up costs were in the fourth quarter of 2012. So we got the product launched. We haven’t started marketing really heavily yet because our focus to-date really has been on the quality of the product and spending our time with the customers that we have acquired to understand what they like about it and what we ought to improve. Fundamentally, to backup for a second, why did we do this? We’ve seen a phenomenon that’s going on with social gaming in the country and we’ve studied pretty closely what we’ve seen in Europe with the explosion of online gaming. So, we wanted to take the skills and the capabilities that we have built in TwinSpires and move into a new area, and use those skills to reach a different customer set. So, there has been some - there's been a lot of learnings and there have been some hiccups too, and before we really launch and earn as any kind of marketing, what we found is we really need to fill the gap between when the customer plays the game and when the customer gets the result, and then actually also the quality of the game. We have to make them more interactive, more appealing. So, it’s fair to say that there are a lot of encouraging signs that we are seeing so far. We really with very little marketing have not had trouble acquiring customers, but really the focus needs to be on keeping those customers, getting redeposits, keeping them engaged when they are on the site, and when we have those tasks achieved, then we will go further in the market with serious earnest. Amit, does that…?

And could you also comment on the online gaming landscape as it is evolving at the state level, please?

Yes, the online gaming landscape is evolving very, very quickly and probably much more quickly than any of the experts might have expected, say, a year ago. With the dearth of improved federal progress, what you are seeing are states exploring revisions on a state by state basis, and you've seen the passage of the law in New Jersey and also in Nevada, and there are a number of other states, like Illinois and like California, a very serious large state that are also seriously considering state-driven online gaming legislation. So, that general field of activity is something we are spending a huge amount of time and attention on, and I think like a lot of companies in our position, we're trying to figure out how we would play and how these states will end up playing with each other in terms of sharing liquidity for games like poker, et cetera.

Is there - the Churchill Downs, do you guys internally think about this as a more, it will evolve at the state level and eventually somewhat at the federal level, will there be enough momentum to take action at the federal level or is this going to be a state by state task, so to speak?

I mean, I'd be the first to say that, I don't know if there is anybody out there that's smart enough to know the answer to that question, but I wouldn't say that we think we're smart enough to know the answer to that question. So, the way we approach that general topic is to be prepared as possible for any eventuality. So, I know for a number of years, there was a speculation that it would go federal. Now, the time has turned and the only activity that you really see is state by state. So, our focus right now is preparing state by state action plans. Obviously, there'd be some states we could participate in and obviously there's some states where it seems like it would be much more of a stretch for us to find a way to participate. But right now, we're focused on addressing any state by state opportunities, but that doesn't mean that we stop preparing federally. We still have the same resources deployed federally, we still have the same action plan up on the shelf that we would use in the event that the feds do take action.

Our next question comes from the line of Steve Altebrando with Sidoti & Company.

With current deferred revenue up about 30%, how much of it is timing, how much of that is strength in ticket sales?

Yes, if you look at the balance sheet, deferred revenue is up about $10 million. I think if you look at the cash flow statement, about $5 million of that converted to cash last year. Obviously, the bulk of that is related to Derby and that's really the primary driver of our deferred revenue accounting. There's a combination to discuss. The personal seat licenses are ahead of last year, stronger than last year. A good part of that's timing and a good part of that is new items like The Mansion that were added to that account and things like increased sponsorships, things like that. So, it's a combination of both.

And you mentioned I think premium tickets compared to last year, being strong compared to last year. Is that mostly The Mansion expansion or would you also say that that commentary holds for kind of same ticket basis?

Yes, so there are basically three parts to that. One is volume. We typically sell out our premium ticketing areas. So the only new real change is volume are new areas we get to sell, like The Mansion or [indiscernible] for example. So, it includes volume from those two activities, but the other component of that is price. So you know, to the extent that you have higher prices thing or personal seat license pricing, that is part of the driver as well.

And how is pricing looking?

It’s looking good.

Okay. The Riverwalk margins are I guess a little lighter than I would have suspected. I know it’s a seasonally weak period and a short period of time. Is there any one-time items and maybe some integration costs that played in there?

Well, the $2.8 million is after management fees. So, if you look at it for the management fees to be allocated that, it was about $3.2 million. We did pick it up towards the end of October. I don’t think the calendar was particularly, if I remember correctly, particularly good for us. What I would say is, it’s kind of hard to do a complete year-over-year comparison, but we are very happy with the fourth quarter growth rate, when you look at it versus the total quarter of last year. Both net revenues and EBITDA exceeded what they have done in the prior year. So, yes, it’s actually doing a little bit better than what we had forecasted previously.

Okay. Then turning to Ohio, some of the newer properties have been a little slow out of gate, a little disappointing. I'm wondering if you guys have gone back and maybe revisited your model, maybe taking another look at the scope of the project and just generally how you feel about capturing return on that project?

Yes, obviously we keep a very close eye on what the competition is doing since they opened, and one of the things that is pretty interesting, if you look at Ohio versus some of the other Midwestern club, other Midwestern casinos, table games are running about double, as a percentage of total gaming, double what they would normally run. You're seeing the demand on our table games, the slots are a little bit less, and the hypothesis that us and everyone else is Internet cafes really affecting the demand on the slot customers. So, yes, we went back and clearly if we looked at our demand study provided by a third party and just within what the impact is going to be, and we have made the announcements or changes, yet we're certainly looking at the total value and spending on our development positively. Just to include, opening with the lower number of machines, I think what we said is if we are allowed up to 2500, we'd never actually announced what we opened with, but I think it’s safe to assume that we would open with something less.

Our next question comes from the line of Jeffrey Thomison with Hilliard Lyons.

Thanks and good morning. Sorry guys, I had to join in on your call a bit late today, and you may have already addressed this, but just wanted if you could recap for me, these are fourth quarter questions by the way, the margin impact with gaming and online, I see gaming revenue up 21%, EBITDA up 18%, perhaps that’s related to your comment just a second ago about Riverwalk, but maybe there is some other things too. And then on the Online Business, with your revenue up 2% and EBITDA down 8%, I missed the reason for that.

So, to start with Online, since that’s the easiest one to talk about first, in our Online segment, you have to understand, we are putting a lot of investments to a new product called Luckity.com. In the fourth quarter, we spent about $0.8 million of EBITDA, so expenses, net of any kind of revenues associated with launching that product. That’s clearly going to put a bit of pain on growing EBITDA at the same rate as revenues, because there really isn’t any revenue associated with it. Also from another expense perspective, our non-cash equity compensation increased $0.4 million. So, there is about $1.2 million of drag on that segment of our business with respect to EBITDA not growing as quick as our online. In gaming, we are about 18% up, 21% revenue. There is a lot of mix within the gaming business, depending on where tax rates are on each of the states, and if you look at the gaming business, Calder down $600,000, clearly didn’t help, not one of the higher margin rate businesses, but also there is an increase in management fees of about $500,000 -- $503,000, leaving us with [indiscernible].

And then just one more question on revenue at Arlington.

Yes, the other thing which I was just reminded by our sellers, that we spent some marketing dollars in the fourth quarter ramping up for our new amenities at Harlow's.

That was spent in the fourth quarter?

Correct.

But then Harlow’s is now fully refurbished and up and running?

Yes. It's always been running, but the new amenities were opened this January.

Great. Does that mean you have to do some extra spending on the upcoming - for the rest of the quarter to really get that excitement level going?

We are definitely going to look at spending some marketing dollars to grab a bigger diameter around the property. How material it will be is yet to be confirmed.

Okay. And then just the Arlington revenue number there, I know it is on an absolute basis, on a relative basis, it's not a big number but what did you say was the reason for the 15% decline there?

In the quarter, one of our biggest OTBs - first of all, the storm damage is clearly affecting our OTB business and also there is a new dynamic for people shifting their wagering online. So, that’s kind of a macro deal is what is going in the OTB bets. Remember Arlington did not run live in the fourth quarter. They only conducted a simulcast operations. So, beyond that, we did move out of one OTB in the center part of the city. We went to another location, we lost revenues, we lost more expenses, so net-net, it wasn’t big then. Often you get an improvement next time.

[Operator Instructions] We have a follow-up question from Steve Altebrando with Sidoti & Company.

I wanted to see if you had commented at all about the M&A environment, potential use of cash, given your balance sheet being so strong, and in terms of the credit facility, it seems like it's done and it's being redone a little probably later than usual, if there is a reason for that?

Yes, I'd be happy to, Steve. Debt markets as you know are pretty -- they are very hot right now. There is lots of money to lend, and so, we are not in any particular hurry. We would like to have seen the legislation allowing a casino at Arlington in the past but obviously give a lot of cash to build something like that. In the M&A world, I guess, I don’t completely understand your question, but I would say that there are good assets that come on and that is kind of few and far between. I would say that you’re seeing the multiples rise for good assets as deals like the Fairstar Pinnacle deal happened or the Penn REIT conversion. Most of those are driving multiples up in that space. But again, I think the M&A in this space is picking up, it is still kind of few and far between the good assets.

And then in terms of getting back to online gaming for a second, how do you feel you are positioned to fit, if we do see a rollout on a state by state basis, and then how advanced I guess would you consider your online strategy internally?

Well our opportunities are going to depend in part on what states go and then what are the relationships between the states. So, while we’re not able really to disclose in any kind of detail on a call like this right now what our specific strategies are, we certainly are aware of the dynamics of where we have casinos and where we don’t, and there are a lot of states we’d like to play in where we don’t have casinos, and that’s something that we worked hard to address and analyze. So, not at liberty to disclose in great detail our overall strategies for a state by state online gaming expansion but it is something that we have a team here that’s focused on quite a bit, and it is something that we certainly intend to do our best to pursue.

And then just lastly, this might be a little stale, but what’s the status of your Nevada online license? I believe you had applied but I’m not sure what the end result was?

We were in the process of applying for an affiliate license in the State of Nevada and that’s in process.

Is there a rough timeline that you’re aware of?

I’m looking at our General Counsel to make sure I can answer that question.

We should be sometime this year.

At this time, I’m showing no other questions. I’d like to turn it back to management for any closing statements.

Thank you for joining us today. We’ll talk to you guys again in late April. Hope to see you at the annual shareholder meet. Thanks.

Ladies and gentlemen, this does conclude your conference. You all may disconnect and have a good day.