NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 — BASIS OF PRESENTATION AND SEASONALITY
Basis of Presentation
The Churchill Downs Incorporated (the "Company", "we", "us", "our") financial statements are presented in conformity with the requirements of this Quarterly Report on Form 10-Q and consequently do not include all of the disclosures normally required by U.S. generally accepted accounting principles ("GAAP") or those normally made in our Annual Report on Form 10-K. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements but does not include all disclosures required by GAAP.
The following information is unaudited. Tabular dollars are in millions, except as otherwise noted. All per share amounts assume dilution unless otherwise noted. This report should be read in conjunction with our Annual Report on Form 10-K for the year ended
December 31, 2015
.
In the opinion of management, all adjustments necessary for a fair statement of this information have been made, and all such adjustments are of a normal, recurring nature. For the nine months ended September 30, 2015, reclassifications of certain food & beverage operations between Fair Grounds and Fair Grounds Slots were made to conform to the current year presentation. Adjusted EBITDA, a measure of our operating segment results, for our joint venture, Miami Valley Gaming ("MVG"), and our equity investment, Saratoga Casino Holdings LLC ("SCH") was reclassified to exclude depreciation and amortization expense from our Casinos segment Adjusted EBITDA. There was no impact from these reclassifications on net income or cash flows.
Our critical accounting policies are revenue recognition, goodwill and indefinite-lived intangible assets, property and equipment and income taxes. Our significant accounting policies are more fully described in Note 1 to the Consolidated Financial Statements included in Item 8. "Financial Statements and Supplementary Data" of our Annual Report on Form 10-K.
Operating Segment Reclassifications
On January 1, 2016, we realigned our Churchill Downs Interactive Gaming ("I-Gaming") and Bluff Media ("Bluff") operations from our Other Investments segment to our TwinSpires segment to correspond with internal management reporting changes. Prior period segment financial information has been reclassified to conform to the 2016 presentation.
Game Technology and Rights
Software game development costs for Big Fish Games includes costs for internally developed and purchased third party software for free-to-play games and premium game software purchased from third parties.
Costs associated with internally developed free-to-play game software that allows the user to access content in an online mode only are capitalized according to the accounting guidance governing computer software developed or obtained for internal use. Any costs incurred during preliminary project stages are expensed; costs incurred during the application development stages are capitalized as software development and costs incurred during the post-implementation/operation stages are expensed. Once the software is placed in operation, we amortize the capitalized software cost as an operating expense over its estimated economic useful life, which is typically 18 months to three years.
Costs associated with internally developed free-to-play game software that allows the user to access content in both an online and offline mode are capitalized as software development once technological feasibility of the software has been established. Once the software is placed in operation, we amortize the capitalized software as an operating expense over its estimated economic useful life, which is typically 18 months. Generally, the software we develop reaches technological feasibility when a detailed program design of the software is available. Any costs prior to the establishment of technological feasibility are expensed when incurred as research and development costs. In addition, enhancements to existing games that increase the functionality of the game are capitalized as software development and amortized as an operating expense over the game’s estimated economic useful life which is typically 18 months.
Purchased third party free-to-play game software is capitalized as software development and amortized, once placed into service, over the game’s estimated economic useful life, which is typically 18 months.
Purchased third party software for premium games is capitalized as software development, and amortized, once placed into service, over the game’s estimated economic useful life, which is typically 12 months.
Internal use software costs for TwinSpires, I-Gaming and Big Fish Games software are capitalized in property and equipment, in accordance with accounting guidance governing computer software developed or obtained for internal use. Once the software is placed in operation, we amortize the capitalized software as depreciation and amortization over its estimated economic useful life, which is generally three years.
Research & development expenditures are expensed as incurred.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Seasonality
Racing
Due to the seasonal nature of our live racing business, revenue and operating results for any interim quarter are generally not indicative of the revenues and operating results for the year and may not be comparable with results for the corresponding period of the previous year. Historically, we have had fewer live racing days during the first quarter of each year, and the majority of our live racing revenue occurs during the second quarter, with the running of the Kentucky Derby and the Kentucky Oaks. We conducted
60
live thoroughbred racing days during the
third
quarters of
2016
and
2015
. For the nine months ended September 30, 2016, we conducted
175
live thoroughbred racing days, which compares to
183
live racing days during the nine months ended September 30, 2015.
Casinos
Casino revenue and earnings have historically been higher during the first quarter due to seasonal revenue from our predominately southern casino properties.
TwinSpires
Due to the seasonal nature of the racing business, revenue and operating results for any interim quarter are generally not indicative of the revenues and operating results for the year and may not be comparable with results for the corresponding period of the previous year. Historically, our revenue is higher in the second quarter with the running of the Kentucky Derby and the Kentucky Oaks.
Big Fish Games
Revenue from our Big Fish Games, Inc. ("Big Fish Games") segment also have a seasonal component and are typically lower during the summer months.
NOTE 2 — RECENT ACCOUNTING PRONOUNCEMENTS
In August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-15,
Statement of Cash Flows,
a consensus of the FASB’s Emerging Issues Task Force. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The guidance will become effective for annual periods ending after December 15, 2017. We are assessing the impact of the new accounting guidance and currently cannot estimate the financial statement impact of adoption.
In June 2016, the FASB issued ASU No. 2016-15,
Financial Instruments - Credit Losses,
which introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new model will apply to: (1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (2) loan commitments and certain other off-balance sheet credit exposures, (3) debt securities and other financial assets measured at fair value through other comprehensive income, and (4) beneficial interests in securitized financial assets. The guidance will become effective for annual periods ending after December 15, 2019. We do not expect the adoption of this standard to have a material impact on our financial statements.
In March 2016, the FASB issued ASU No. 2016-09,
Improvements to Employee Share-Based Payment Accounting,
which simplifies various aspects related to share-based payments. Previously, tax benefits in excess of compensation cost ("windfalls") were recorded as an increase to shareholders' equity. Under the new ASU, windfalls are recorded as a component of income tax expense. ASU 2016-09 also requires that tax-related cash flows resulting from share-based payments be reported as a part of cash flows from operating activities. We early adopted this guidance, prospectively, as of January 1, 2016 and during the nine months ended September 30, 2016 recognized an income tax benefit of
$3.1 million
which was recorded as a component of income taxes in cash flows provided by operating activities in the Condensed Consolidated Statement of Cash Flows. Prior to adoption of this ASU, windfalls were presented as a component of cash flows from financing activities. Upon the adoption of this ASU, we elected to account for forfeitures when incurred under a modified retrospective approach which did not impact our financial statements. The adoption of this ASU did not have a material impact on diluted earnings per share.
In February 2016, the FASB issued ASU No. 2016-02,
Leases,
which requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets. ASU 2016-02 is effective for us in our first quarter of fiscal 2019 on a modified retrospective basis and earlier adoption is permitted. We are currently evaluating the impact of our pending adoption of ASU 2016-02 on our condensed consolidated financial statements and we currently expect that most of our operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon our adoption of ASU 2016-02.
In August 2014, the FASB issued ASU No. 2014-15,
Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern
, which explicitly requires management to assess an entity's ability to continue as a going concern, and to provide related
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
footnote disclosures in certain circumstances. Management will be required to assess, in each interim and annual period, if there is substantial doubt of an entity's ability to continue as a going concern as evidenced by relevant known or knowable conditions including an entity's ability to meet its future obligations. Management will be required to provide disclosures regardless of whether substantial doubt is alleviated by management's plans. The guidance will become effective for annual periods ending after December 15, 2016.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
, which provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The revised guidance will become effective for annual periods beginning after December 15, 2017 and will be applied retrospectively to each period presented or as a cumulative- effect adjustment as of the date of adoption. We are assessing the impact of the new accounting guidance and currently cannot estimate the financial statement impact of adoption.
NOTE 3 — CALDER EXIT COSTS
On July 1, 2014, we finalized an agreement with The Stronach Group ("TSG") that expires on December 31, 2020 under which we permit TSG to operate and manage the racetrack of Calder Race Course, Inc. ("Calder") and certain other racing and training facilities and to provide live horseracing under Calder’s racing permits. During the term of the agreement, TSG pays Calder a racing services fee and is responsible for the direct and indirect costs of maintaining the racing premises, including the training facilities and applicable barns, and TSG receives the associated revenue from the operation.
During 2015, we assessed potential alternative uses of the Calder property that were not associated with the TSG lease agreement. Based on our analysis, we razed the barns that were not associated with the TSG agreement and commenced the demolition of the grandstand and certain ancillary facilities. In the nine months ended September 30, 2016, we recognized Calder exit costs of
$2.4 million
for demolition costs related to the removal of the grandstand. We expect to obtain operational efficiencies as a result of the demolition including savings in property taxes, repair and maintenance, utilities, permitting and environmental maintenance expenditures.
NOTE 4 — INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
Maryland Joint Venture
In August 2016, we signed a limited liability company operating agreement to form a
50%
joint venture with SCH to purchase all of the equity interests of Ocean Enterprise 589 LLC, Ocean Downs LLC and Racing Services LLC (“Ocean Downs”). Ocean Downs, located near Ocean City, Maryland owns and operates video lottery terminals ("VLT") at the Casino at Ocean Downs and conducts harness racing at Ocean Downs Racetrack.
The new joint venture, Old Bay Gaming and Racing LLC (“Old Bay”), will manage both our and SCH’s interests in the operation of the gaming facility and racetrack. Old Bay has entered into a definitive purchase agreement through which it will acquire equity interests in entities holding the Maryland casino gaming and harness racing licenses and certain assets held by Ocean Downs. The expected completion of the purchase transaction is subject to regulatory approvals and other customary closing conditions.
Miami Valley Gaming Joint Venture
In March 2012, we entered into a
50%
joint venture with Delaware North Companies Gaming & Entertainment Inc. ("DNC") to develop a new harness racetrack and VLT gaming facility in Lebanon, Ohio. Through the joint venture agreement, we formed a new company, MVG, to manage both our and DNC’s interests in the development and operation of the racetrack and VLT gaming facility. On December 21, 2012, MVG completed the purchase of the harness racing licenses and certain assets held by Lebanon Trotting Club Inc. and Miami Valley Trotting Inc. ("MVG Sellers") for total consideration of
$60.0 million
, of which
$10.0 million
was funded at closing with the remainder funded through a
$50.0 million
note payable with a
six
year term effective upon the commencement of gaming operations. There is a potential contingent consideration payment of
$10.0 million
based on the financial performance of the facility during the
seven
-year period after casino operations commence.
On December 12, 2013, the facility opened in Lebanon, Ohio on a
120
-acre site. The facility includes a 5/8-mile harness racing track and a
186,000
-square-foot casino facility with approximately
1,680
VLTs.
Since both we and DNC have participating rights over MVG, and both must consent to MVG's operating, investing and financing decisions, we account for MVG using the equity method. Summarized financial information for MVG is comprised of the following:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
(in millions)
|
September 30, 2016
|
|
December 31, 2015
|
Assets
|
|
|
|
Current assets
|
$
|
15.0
|
|
|
$
|
24.5
|
|
Property and equipment, net
|
112.1
|
|
|
119.7
|
|
Other assets, net
|
107.3
|
|
|
106.6
|
|
Total assets
|
$
|
234.4
|
|
|
$
|
250.8
|
|
|
|
|
|
Liabilities and Members' Equity
|
|
|
|
Current liabilities
|
$
|
11.3
|
|
|
$
|
21.6
|
|
Current portion of long-term debt
|
8.3
|
|
|
8.3
|
|
Long-term debt, excluding current portion
|
15.7
|
|
|
20.5
|
|
Other liabilities
|
0.1
|
|
|
0.1
|
|
Members' equity
|
199.0
|
|
|
200.3
|
|
Total liabilities and members' equity
|
$
|
234.4
|
|
|
$
|
250.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Casino revenue
|
$
|
36.1
|
|
|
$
|
32.1
|
|
|
$
|
108.7
|
|
|
$
|
97.2
|
|
Non-casino revenue
|
1.2
|
|
|
1.5
|
|
|
5.2
|
|
|
5.3
|
|
Net revenue
|
37.3
|
|
|
33.6
|
|
|
113.9
|
|
|
102.5
|
|
Operating and SG&A expense
|
26.4
|
|
|
24.6
|
|
|
79.7
|
|
|
74.2
|
|
Depreciation & amortization expense
|
3.4
|
|
|
3.3
|
|
|
9.9
|
|
|
9.6
|
|
Operating income
|
7.5
|
|
|
5.7
|
|
|
24.3
|
|
|
18.7
|
|
Interest and other expense, net
|
(0.8
|
)
|
|
(1.0
|
)
|
|
(2.6
|
)
|
|
(3.2
|
)
|
Net income
|
$
|
6.7
|
|
|
$
|
4.7
|
|
|
$
|
21.7
|
|
|
$
|
15.5
|
|
The joint venture's long-term debt consists of a
$50.0 million
amortizing secured note payable from MVG to the MVG Sellers payable quarterly over
6
years through November 2019 at a
5.0%
interest rate. We received distributions from MVG totaling
$3.8 million
for the three months ended
September 30, 2016
and
$11.5 million
for the
nine
months ended
September 30, 2016
.
Our Condensed Consolidated Statements of Comprehensive Income include our 50% share of MVG's results as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Equity in income of unconsolidated investments
|
$
|
3.4
|
|
|
$
|
2.3
|
|
|
$
|
10.9
|
|
|
$
|
7.7
|
|
NOTE 5 — GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSETS IMPAIRMENT TEST
We performed our annual goodwill and indefinite-lived intangible impairment analysis for 2016 in accordance with ASU No. 2011-08,
Intangibles-Goodwill and Other: Testing Goodwill for Impairment
and ASU No. 2012-02
, Intangibles-Goodwill and Other: Testing Indefinite-Lived Intangible Assets for Impairment
as of March 31, 2016, and no adjustment to the carrying value of goodwill or indefinite-lived intangible assets was required. We assessed goodwill and indefinite-lived intangible assets by performing step one fair value calculations on a quantitative basis for each reporting unit and indefinite-lived intangible asset. We concluded that the fair values of our reporting units and indefinite-lived intangible assets exceeded their carrying value and therefore step two of the assessment was not required.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Goodwill is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Racing
|
|
Casinos
|
|
TwinSpires
|
|
Big Fish Games
|
|
Total
|
Balances as of December 31, 2015
|
$
|
51.7
|
|
|
$
|
117.6
|
|
|
$
|
132.1
|
|
|
$
|
540.3
|
|
|
$
|
841.7
|
|
Adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balances as of September 30, 2016
|
$
|
51.7
|
|
|
$
|
117.6
|
|
|
$
|
132.1
|
|
|
$
|
540.3
|
|
|
$
|
841.7
|
|
The carrying amount of goodwill of our reporting segments has been retrospectively adjusted to conform to the 2016 presentation as discussed in Note 1.
Other intangible assets are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
(in millions)
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Definite-lived intangible assets
|
$
|
218.7
|
|
|
$
|
(118.6
|
)
|
|
$
|
100.1
|
|
|
$
|
224.8
|
|
|
$
|
(86.9
|
)
|
|
$
|
137.9
|
|
Indefinite-lived intangible assets
|
|
|
|
|
358.3
|
|
|
|
|
|
|
358.3
|
|
Total
|
|
|
|
|
|
|
$
|
458.4
|
|
|
|
|
|
|
$
|
496.2
|
|
In 2016, we reduced our customer relationships intangible assets and accumulated amortization for TwinSpires by
$4.6 million
and Big Fish Games by
$1.7 million
as these amounts were fully amortized. Additionally, we submitted a payment of
$2.3 million
for annual license fees for Calder Casino and reduced our slot license intangible asset and accumulated amortization by
$2.3 million
as the previous amount was fully depreciated. Finally, we submitted a payment of
$0.2 million
to the State of Maine for table game fees that are being amortized over a 20-year license period.
NOTE 6 — INCOME AND OTHER TAXES
Income Taxes
The income tax provision for the nine months ended
September 30, 2016
reflects a
$3.1 million
benefit resulting from the early adoption of ASU 2016-09 as described in Note 2. As a result, tax deductions from vesting restricted stock units in excess of the book deductions are being recognized as a discrete item during the nine months ended
September 30, 2016
.
Certain tax authorities may periodically audit us, and we may occasionally be assessed interest and penalties by tax jurisdictions. We recognize accrued interest from uncertain income tax benefits in our income tax provision, while penalties are accrued in selling, general and administrative expense. During the
nine
months ended
September 30, 2016
, we did not record any interest expense related to uncertain income tax benefits. As of
September 30, 2016
, we had gross uncertain tax benefits of
$2.9 million
. If these benefits had been recognized, there would have been a
$2.3 million
decrease to annual income tax expense.
Other Taxes
During the three months ended September 30, 2016, we accrued a liability and recognized a
$2.6 million
selling, general and administrative expense related to potential liability for the untimely submission of informational tax returns related to the years 2012 to 2015 for certain casino customers. We have not received any notification of a potential penalty nor remitted any payment, but believe an expense is probable.
On July 18, 2016, we were notified of an Internal Revenue Service ("IRS") matter under review in which we are potentially liable for non-filing of federal withholding tax information for certain TwinSpires customers, subsequent to the acquisition of YouBet in 2010. The potential civil penalty plus interest approximates
$1.6 million
. We believe that we have a strong case for the abatement of the potential penalty, and since it is not deemed probable that this amount will be paid, an accrual was not recorded at September 30, 2016.
NOTE 7 — FAIR VALUE OF ASSETS AND LIABILITIES
We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The following tables present our assets and liabilities measured at fair value on a recurring basis:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
(in millions)
|
Level 1
|
|
Level 3
|
Cash equivalents and restricted cash
|
$
|
32.3
|
|
|
$
|
—
|
|
Big Fish Games deferred payments
|
—
|
|
|
56.1
|
|
Big Fish Games earnout liability
|
—
|
|
|
67.2
|
|
Bluff contingent consideration liability
|
—
|
|
|
2.3
|
|
Total
|
$
|
32.3
|
|
|
$
|
125.6
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Level 1
|
|
Level 3
|
Cash equivalents and restricted cash
|
$
|
30.1
|
|
|
$
|
—
|
|
Big Fish Games deferred payments
|
—
|
|
|
54.8
|
|
Big Fish Games earnout liability
|
—
|
|
|
345.2
|
|
Bluff contingent consideration liability
|
—
|
|
|
2.3
|
|
Total
|
$
|
30.1
|
|
|
$
|
402.3
|
|
The following table presents the change in fair value of our Level 3:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
(in millions)
|
Big Fish Games Deferred Payments
|
|
Big Fish Games Earnout Liability
|
|
Bluff Contingent Consideration
|
|
Total
|
Balances as of December 31, 2015
|
$
|
54.8
|
|
|
$
|
345.2
|
|
|
$
|
2.3
|
|
|
$
|
402.3
|
|
Payments
|
—
|
|
|
(281.6
|
)
|
|
—
|
|
|
(281.6
|
)
|
Change in fair value
|
1.3
|
|
|
3.6
|
|
|
|
|
4.9
|
|
Balances as of September 30, 2016
|
$
|
56.1
|
|
|
$
|
67.2
|
|
|
$
|
2.3
|
|
|
$
|
125.6
|
|
Our cash equivalents and restricted cash, which are held in interest-bearing accounts, qualify for Level 1 in the fair value hierarchy which includes unadjusted quoted market prices in active markets for identical assets.
We estimated the fair value of the Big Fish Games deferred payment and earnout liability as of
September 30, 2016
using a discounted cash flows analysis over the period in which the obligation is expected to be settled, and applied a discount rate of
2.7%
based on our cost of debt. The cost of debt was based on the observed market yields of our $
600.0 million
,
5.375%
Senior Unsecured Notes ("Senior Unsecured Notes"), a Level 3 fair value measurement, and was adjusted for the difference in seniority and term of the deferred payments and earnout liability. The increase in fair values of the Big Fish Games deferred payments and earnout liability of
$4.9 million
during the
nine
months ended
September 30, 2016
was recorded as acquisition-related charges in the Condensed Consolidated Statements of Comprehensive Income. During 2015, Big Fish Games achieved its earnout milestones and in March 2016, we made our first earnout payment totaling
$281.6 million
. Changes to our cost of debt could lead to a different fair value estimate for the deferred payments and earnout liability. A one-percentage point change in the discount rate would increase or decrease the fair value of the Big Fish Games deferred payment and earnout liability by
$1.2 million
.
Our accrued liability for a contingent consideration recorded in conjunction with the Bluff Media ("Bluff") acquisition was based on significant inputs not observed in the market and represent a Level 3 fair value measurement. The estimate of the contingent consideration liability uses an income approach and is based on the probability of achieving enabling legislation which permits Internet poker gaming and the probability-weighted discounted cash flows. Any change in the fair value of the Bluff contingent consideration subsequent to the acquisition date will be recognized in our Condensed Consolidated Statements of Comprehensive Income.
We currently have no other assets or liabilities subject to fair value measurement on a recurring basis. Our
$600.0 million
Senior Unsecured Notes are disclosed at fair value which is based on unadjusted quoted prices for similar liabilities in markets that are not active. The Level 3 fair value of the Senior Unsecured Notes was
$621.0 million
at
September 30, 2016
and
$604.1 million
at
December 31, 2015
.
The following methods and assumptions were used in estimating our fair value disclosures for financial instruments:
Cash Equivalents—The carrying amount reported in the balance sheet for cash equivalents approximates our fair value due to the short-term maturity of these instruments.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Long-Term Debt: Senior Secured Credit Facility—The carrying amounts of the borrowings under the Senior Secured Credit Facility approximate fair value, based upon current interest rates and represent a Level 2 fair value measurement.
We did not measure any assets at fair value on a non-recurring basis for 2016 and 2015.
NOTE 8 — SHAREHOLDERS' EQUITY
In February 2016, our Board of Directors approved a continuation of the current stock repurchase program for a total of
$150.0 million
with no expiration. This repurchase authority includes, and is not in addition to, any unspent amounts remaining under the prior authorization. In the first nine months of 2016, we repurchased
121,858
shares of our common stock in conjunction with our stock repurchase program at a total cost of
$15.0 million
. We have approximately
$135.0 million
of repurchase authority remaining under this program at September 30, 2016.
NOTE 9 — STOCK-BASED COMPENSATION PLANS
2016 Equity Awards
On September 22, 2015, the Board of Directors approved the adoption of the Executive Long-Term Incentive Compensation Plan, pursuant to which certain named executive officers ("NEOs") and other key executives may earn variable equity payouts based upon us achieving certain key performance metrics.
On February 23, 2016, NEOs received
24,677
restricted stock units ("RSU") vesting equally over
3
service periods ending December 31, 2016, December 31, 2017 and December 31, 2018, and
29,633
performance share units ("PSU") with vesting contingent on financial performance measures at the end of a
34
-month performance period ending December 31, 2018. The performance criteria for the PSUs consists of the following financial measures during the performance period: (i) cumulative Adjusted EBITDA, as defined in
Note 12 - Segment Information
; (ii) cumulative free cash flow; and (iii) our relative total shareholder return ("TSR"). Our TSR will be ranked versus the companies in the Russell 2000 index and will be calculated based on our relative placement against the Russell 2000 index. Measurement against these criteria will be determined against a payout curve which provides a maximum number of performance share units of
250%
of the original award. The total compensation cost we will recognize under the PSUs will be based upon the results of the two financial measures. We also awarded
67,468
of restricted stock shares to other employees, the majority of which vest equally over
3
service periods ending in the first quarter of 2019.
In 2016, we recognized compensation expense of
$5.1 million
for 2016 awards and
$9.2 million
for awards granted prior to 2016. At September 30, 2016, compensation expense that has not been amortized attributable to unvested 2016 RSU and PSU awards was
$5.2 million
and
$5.8 million
for 2016 other awards.
NOTE 10 — CONTINGENCIES
We are involved in litigation arising in the ordinary course of conducting business. We carry insurance for workers' compensation claims from our employees and general liability for claims from independent contractors, customers and guests. We are self-insured up to an aggregate stop loss for our general liability and workers' compensation coverages.
We review all litigation on an ongoing basis when making accrual and disclosure decisions. For certain legal proceedings, we cannot reasonably estimate losses or a range of loss, if any, particularly for proceedings that are in the early stages of development or where the plaintiffs seek indeterminate damages. Various factors, including, but not limited to, the outcome of potentially lengthy discovery and the resolution of important factual questions, may need to be determined before probability can be established or before a loss or range of loss can be reasonably estimated. In accordance with current accounting standards for loss contingencies and based upon information currently known to us, we establish reserves for litigation when it is probable that a loss associated with a claim or proceeding has been incurred and the amount of the loss or range of loss can be reasonably estimated. When no amount within the range of loss is a better estimate than any other amount, we accrue the minimum amount of the estimable loss. To the extent that such litigation against us may have an exposure to a loss in excess of the amount we have accrued, we believe that such excess would not be material to our consolidated financial condition, results of operations, or cash flows. Legal fees are expensed as incurred.
If the loss contingency in question is not both probable and reasonably estimable, we do not establish an accrual and the matter will continue to be monitored for any developments that would make the loss contingency both probable and reasonably estimable. In the event that a legal proceeding results in a substantial judgment against, or settlement by us, there can be no assurance that any resulting liability or financial commitment would not have a material adverse impact on our business.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11 — NET INCOME PER COMMON SHARE COMPUTATIONS
The following is a reconciliation of the numerator and denominator of the net income per common share computations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in millions, except per share data)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Numerator for basic income per common share:
|
|
|
|
|
|
|
|
Net income
|
$
|
8.7
|
|
|
$
|
4.2
|
|
|
$
|
81.3
|
|
|
$
|
57.7
|
|
Net income allocated to participating securities
|
(0.1
|
)
|
|
—
|
|
|
(1.4
|
)
|
|
(0.9
|
)
|
Numerator for basic income per common share
|
$
|
8.6
|
|
|
$
|
4.2
|
|
|
$
|
79.9
|
|
|
$
|
56.8
|
|
|
|
|
|
|
|
|
|
Numerator for diluted income per common share
|
$
|
8.7
|
|
|
$
|
4.2
|
|
|
$
|
81.3
|
|
|
$
|
57.7
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted net income per common share:
|
|
|
|
|
|
|
|
Basic
|
16.4
|
|
|
17.3
|
|
|
16.5
|
|
|
17.3
|
|
Plus dilutive effect of stock options and restricted stock
|
0.2
|
|
|
0.2
|
|
|
0.2
|
|
|
0.1
|
|
Plus dilutive effect of participating securities
|
0.3
|
|
|
0.3
|
|
|
0.3
|
|
|
0.3
|
|
Diluted
|
16.9
|
|
|
17.8
|
|
|
17.0
|
|
|
17.7
|
|
|
|
|
|
|
|
|
|
Income per common share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.52
|
|
|
$
|
0.24
|
|
|
$
|
4.85
|
|
|
$
|
3.28
|
|
Diluted
|
$
|
0.52
|
|
|
$
|
0.24
|
|
|
$
|
4.79
|
|
|
$
|
3.26
|
|
NOTE 12 — SEGMENT INFORMATION
We manage our operations through
six
operating segments:
|
|
•
|
Racing, which includes Churchill Downs Racetrack ("Churchill Downs"), Arlington International Race Course ("Arlington"), Fair Grounds Race Course ("Fair Grounds") and Calder Race Course ("Calder");
|
|
|
•
|
Casinos, which includes Oxford Casino ("Oxford"), Riverwalk Casino ("Riverwalk"), Harlow's Casino ("Harlow’s"), Calder Casino, Fair Grounds Slots, Video Services, LLC ("VSI"), 50% of EBITDA from our joint venture, MVG, and 25% of EBITDA from our equity investment, SCH;
|
|
|
•
|
TwinSpires, which includes TwinSpires.com, Fair Grounds Account Wagering ("FAW"), Velocity, Bloodstock Research Information Services ("BRIS"), Bluff and I-Gaming;
|
|
|
•
|
Big Fish Games, which is a global producer and distributor of social casino, casual and mid-core free-to-play, and premium paid games for PC, Mac and mobile devices;
|
|
|
•
|
Other Investments, which includes United Tote and Capital View Casino & Resort Joint Venture ("Capital View"); and
|
|
|
•
|
Corporate, which includes miscellaneous and other revenue, compensation expense, professional fees and other general and administrative expense not allocated to our other operating segments.
|
Eliminations include the elimination of intersegment transactions. Our chief operating decision maker utilizes Adjusted EBITDA to evaluate segment performance, develop strategy and allocate resources. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, adjusted for the following:
Adjusted EBITDA includes:
|
|
•
|
Changes in Big Fish Games deferred revenue;
|
|
|
•
|
50% of EBITDA of our joint venture, MVG;
|
|
|
•
|
25% of EBITDA from our SCH equity investment; and
|
|
|
•
|
Intercompany revenue and expense totals that are eliminated in the Condensed Consolidated Statements of Comprehensive Income.
|
Adjusted EBITDA excludes:
|
|
•
|
Big Fish Games adjustments which include:
|
|
|
◦
|
Acquisition-related charges, including the change in fair value of the Big Fish Games earnout and deferred consideration liability recorded each reporting period
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
•
|
Stock-based compensation expense;
|
|
|
•
|
Other charges and recoveries.
|
As of January 1, 2016, we modified our definition of Adjusted EBITDA to exclude depreciation and amortization from our 50% joint venture, MVG and our 25% equity investment in SCH. The prior year amounts were reclassified to conform to this presentation. We also prospectively implemented a change in accounting estimate for corporate expense allocated to other operating segments to use an activity based allocation rather than a revenue based allocation.
We utilize the Adjusted EBITDA metric because we believe the inclusion or exclusion of certain recurring items is necessary to provide a more accurate measure of our core operating results and enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner. Adjusted EBITDA should not be considered as an alternative to operating income as an indicator of performance, as an alternative to cash flows from operating activities as a measure of liquidity, or as an alternative to any other measure provided in accordance with U.S. generally accepted accounting principles. Our calculation of Adjusted EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited.
The tables below present net revenue from external customers and intercompany revenue from each of our operating segments, Adjusted EBITDA by segment and reconciles Adjusted EBITDA to Comprehensive Income:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net revenue from external customers:
|
|
|
|
|
|
|
|
Racing:
|
|
|
|
|
|
|
|
Churchill Downs
|
$
|
8.7
|
|
|
$
|
7.9
|
|
|
$
|
140.1
|
|
|
$
|
136.7
|
|
Arlington
|
24.0
|
|
|
25.0
|
|
|
49.8
|
|
|
48.9
|
|
Fair Grounds
|
5.1
|
|
|
5.3
|
|
|
28.9
|
|
|
30.4
|
|
Calder
|
0.7
|
|
|
0.6
|
|
|
2.0
|
|
|
2.0
|
|
Total Racing
|
38.5
|
|
|
38.8
|
|
|
220.8
|
|
|
218.0
|
|
Casinos:
|
|
|
|
|
|
|
|
Oxford Casino
|
24.4
|
|
|
22.3
|
|
|
65.4
|
|
|
60.8
|
|
Riverwalk Casino
|
10.6
|
|
|
12.0
|
|
|
35.7
|
|
|
37.7
|
|
Harlow’s Casino
|
11.7
|
|
|
11.8
|
|
|
36.6
|
|
|
37.5
|
|
Calder Casino
|
19.0
|
|
|
18.5
|
|
|
59.8
|
|
|
58.7
|
|
Fair Grounds Slots
|
8.5
|
|
|
8.8
|
|
|
27.9
|
|
|
29.9
|
|
VSI
|
8.6
|
|
|
9.0
|
|
|
27.9
|
|
|
27.6
|
|
Saratoga
|
0.2
|
|
|
0.3
|
|
|
0.6
|
|
|
0.3
|
|
Total Casinos
|
83.0
|
|
|
82.7
|
|
|
253.9
|
|
|
252.5
|
|
TwinSpires
|
54.7
|
|
|
50.4
|
|
|
172.3
|
|
|
156.5
|
|
Big Fish Games:
|
|
|
|
|
|
|
|
Social casino
|
44.3
|
|
|
47.4
|
|
|
138.3
|
|
|
145.4
|
|
Casual and mid-core free-to-play
|
56.1
|
|
|
32.6
|
|
|
162.5
|
|
|
86.5
|
|
Premium
|
23.7
|
|
|
27.3
|
|
|
75.0
|
|
|
85.6
|
|
Fair value adjustments
|
(1.8
|
)
|
|
(3.7
|
)
|
|
(6.2
|
)
|
|
(17.5
|
)
|
Total Big Fish Games
|
122.3
|
|
|
103.6
|
|
|
369.6
|
|
|
300.0
|
|
Other Investments
|
4.5
|
|
|
4.0
|
|
|
12.9
|
|
|
12.1
|
|
Corporate
|
0.4
|
|
|
0.3
|
|
|
0.8
|
|
|
0.8
|
|
Net revenue from external customers
|
$
|
303.4
|
|
|
$
|
279.8
|
|
|
$
|
1,030.3
|
|
|
$
|
939.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Intercompany net revenue:
|
|
|
|
|
|
|
|
Racing:
|
|
|
|
|
|
|
|
Churchill Downs
|
$
|
0.9
|
|
|
$
|
0.7
|
|
|
$
|
8.2
|
|
|
$
|
6.3
|
|
Arlington
|
1.9
|
|
|
1.7
|
|
|
4.5
|
|
|
4.1
|
|
Fair Grounds
|
—
|
|
|
—
|
|
|
1.0
|
|
|
0.9
|
|
Total Racing
|
2.8
|
|
|
2.4
|
|
|
13.7
|
|
|
11.3
|
|
TwinSpires
|
0.4
|
|
|
0.3
|
|
|
1.0
|
|
|
0.8
|
|
Other Investments
|
0.7
|
|
|
0.8
|
|
|
3.0
|
|
|
2.7
|
|
Eliminations
|
(3.9
|
)
|
|
(3.5
|
)
|
|
(17.7
|
)
|
|
(14.8
|
)
|
Intercompany net revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Adjusted EBITDA by segment is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
(in millions)
|
Racing
|
|
Casinos
|
|
TwinSpires
|
|
Big Fish
Games
|
|
Other Investments
|
|
Corporate
|
Net revenue
|
$
|
41.3
|
|
|
$
|
83.0
|
|
|
$
|
55.1
|
|
|
$
|
122.3
|
|
|
$
|
5.2
|
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes & purses
|
(11.2
|
)
|
|
(28.1
|
)
|
|
(4.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Platform & development fees
|
—
|
|
|
—
|
|
|
—
|
|
|
(45.2
|
)
|
|
—
|
|
|
—
|
|
Marketing & advertising
|
(1.1
|
)
|
|
(3.0
|
)
|
|
(1.0
|
)
|
|
(26.3
|
)
|
|
—
|
|
|
—
|
|
Salaries & benefits
|
(10.3
|
)
|
|
(13.4
|
)
|
|
(2.3
|
)
|
|
(6.2
|
)
|
|
(2.7
|
)
|
|
—
|
|
Content expense
|
(3.9
|
)
|
|
—
|
|
|
(26.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
SG&A expense
|
(4.0
|
)
|
|
(5.4
|
)
|
|
(3.0
|
)
|
|
(4.4
|
)
|
|
(0.9
|
)
|
|
(2.2
|
)
|
Research & development
|
—
|
|
|
—
|
|
|
—
|
|
|
(8.8
|
)
|
|
—
|
|
|
—
|
|
Other operating expense
|
(10.5
|
)
|
|
(10.0
|
)
|
|
(4.5
|
)
|
|
(3.9
|
)
|
|
(0.9
|
)
|
|
(0.2
|
)
|
Other income (expense)
|
0.1
|
|
|
7.3
|
|
|
—
|
|
|
(0.3
|
)
|
|
0.1
|
|
|
—
|
|
Change in deferred revenue
(1)
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
(3.8
|
)
|
|
n/a
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment Adjusted EBITDA
|
$
|
0.4
|
|
|
$
|
30.4
|
|
|
$
|
14.3
|
|
|
$
|
23.4
|
|
|
$
|
0.8
|
|
|
$
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2015
|
(in millions)
|
Racing
|
|
Casinos
|
|
TwinSpires
|
|
Big Fish
Games
|
|
Other Investments
|
|
Corporate
|
Net revenue
|
$
|
41.2
|
|
|
$
|
82.7
|
|
|
$
|
50.7
|
|
|
$
|
103.6
|
|
|
$
|
4.8
|
|
|
$
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes & purses
|
(11.2
|
)
|
|
(27.5
|
)
|
|
(3.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Platform & development fees
|
—
|
|
|
—
|
|
|
—
|
|
|
(36.1
|
)
|
|
—
|
|
|
—
|
|
Marketing & advertising
|
(1.1
|
)
|
|
(3.2
|
)
|
|
(0.7
|
)
|
|
(21.9
|
)
|
|
—
|
|
|
—
|
|
Salaries & benefits
|
(9.5
|
)
|
|
(12.8
|
)
|
|
(2.6
|
)
|
|
(5.4
|
)
|
|
(2.8
|
)
|
|
—
|
|
Content expense
|
(3.6
|
)
|
|
—
|
|
|
(23.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
SG&A expense
|
(4.3
|
)
|
|
(6.9
|
)
|
|
(3.1
|
)
|
|
(3.8
|
)
|
|
(0.7
|
)
|
|
(1.7
|
)
|
Research & development
|
—
|
|
|
—
|
|
|
—
|
|
|
(9.9
|
)
|
|
—
|
|
|
—
|
|
Other operating expense
|
(11.4
|
)
|
|
(10.0
|
)
|
|
(4.2
|
)
|
|
(3.9
|
)
|
|
(0.8
|
)
|
|
(0.2
|
)
|
Other income (expense)
|
0.2
|
|
|
4.4
|
|
|
0.2
|
|
|
(0.3
|
)
|
|
—
|
|
|
—
|
|
Change in deferred revenue
(1)
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
10.9
|
|
|
n/a
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment Adjusted EBITDA
|
$
|
0.3
|
|
|
$
|
26.7
|
|
|
$
|
13.1
|
|
|
$
|
33.2
|
|
|
$
|
0.5
|
|
|
$
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Change in deferred revenue is included in Adjusted EBITDA only for Big Fish Games.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
(in millions)
|
Racing
|
|
Casinos
|
|
TwinSpires
|
|
Big Fish
Games
|
|
Other Investments
|
|
Corporate
|
Net revenue
|
$
|
234.5
|
|
|
$
|
253.9
|
|
|
$
|
173.3
|
|
|
$
|
369.6
|
|
|
$
|
15.9
|
|
|
$
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes & purses
|
(52.7
|
)
|
|
(84.6
|
)
|
|
(8.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Platform & development fees
|
—
|
|
|
—
|
|
|
—
|
|
|
(135.2
|
)
|
|
—
|
|
|
—
|
|
Marketing & advertising
|
(3.8
|
)
|
|
(9.5
|
)
|
|
(5.2
|
)
|
|
(106.2
|
)
|
|
—
|
|
|
—
|
|
Salaries & benefits
|
(31.4
|
)
|
|
(38.2
|
)
|
|
(6.9
|
)
|
|
(18.4
|
)
|
|
(8.2
|
)
|
|
—
|
|
Content expense
|
(12.0
|
)
|
|
—
|
|
|
(83.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
SG&A expense
|
(11.9
|
)
|
|
(15.8
|
)
|
|
(8.6
|
)
|
|
(13.6
|
)
|
|
(2.5
|
)
|
|
(6.2
|
)
|
Research & development
|
—
|
|
|
—
|
|
|
—
|
|
|
(29.3
|
)
|
|
—
|
|
|
—
|
|
Other operating expense
|
(38.8
|
)
|
|
(29.4
|
)
|
|
(15.6
|
)
|
|
(11.8
|
)
|
|
(2.6
|
)
|
|
(0.5
|
)
|
Other income (expense)
|
0.4
|
|
|
21.6
|
|
|
—
|
|
|
(1.2
|
)
|
|
0.3
|
|
|
—
|
|
Change in deferred revenue
(1)
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
5.0
|
|
|
n/a
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment Adjusted EBITDA
|
$
|
84.3
|
|
|
$
|
98.0
|
|
|
$
|
44.8
|
|
|
$
|
58.9
|
|
|
$
|
2.9
|
|
|
$
|
(5.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2015
|
(in millions)
|
Racing
|
|
Casinos
|
|
TwinSpires
|
|
Big Fish
Games
|
|
Other Investments
|
|
Corporate
|
Net revenue
|
$
|
229.3
|
|
|
$
|
252.5
|
|
|
$
|
157.3
|
|
|
$
|
300.0
|
|
|
$
|
14.8
|
|
|
$
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes & purses
|
(52.3
|
)
|
|
(83.4
|
)
|
|
(8.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Platform & development fees
|
—
|
|
|
—
|
|
|
—
|
|
|
(103.0
|
)
|
|
—
|
|
|
—
|
|
Marketing & advertising
|
(5.4
|
)
|
|
(9.4
|
)
|
|
(3.7
|
)
|
|
(76.7
|
)
|
|
—
|
|
|
—
|
|
Salaries & benefits
|
(30.3
|
)
|
|
(38.2
|
)
|
|
(7.5
|
)
|
|
(16.5
|
)
|
|
(8.3
|
)
|
|
—
|
|
Content expense
|
(11.3
|
)
|
|
—
|
|
|
(75.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
SG&A expense
|
(13.0
|
)
|
|
(17.9
|
)
|
|
(8.6
|
)
|
|
(12.6
|
)
|
|
(1.8
|
)
|
|
(4.5
|
)
|
Research & development
|
—
|
|
|
—
|
|
|
—
|
|
|
(30.0
|
)
|
|
—
|
|
|
—
|
|
Other operating expense
|
(41.2
|
)
|
|
(31.3
|
)
|
|
(14.1
|
)
|
|
(10.9
|
)
|
|
(2.4
|
)
|
|
(1.5
|
)
|
Other income (expense)
|
0.5
|
|
|
14.3
|
|
|
—
|
|
|
(0.8
|
)
|
|
0.1
|
|
|
—
|
|
Change in deferred revenue
(1)
|
n/a
|
|
|
n/a
|
|
|
n/a
|
|
|
32.0
|
|
|
n/a
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment Adjusted EBITDA
|
$
|
76.3
|
|
|
$
|
86.6
|
|
|
$
|
39.3
|
|
|
$
|
81.5
|
|
|
$
|
2.4
|
|
|
$
|
(5.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Change in deferred revenue is included in Adjusted EBITDA only for Big Fish Games.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Reconciliation of segment Adjusted EBITDA to comprehensive income:
|
|
|
|
|
|
|
|
Racing
|
$
|
0.4
|
|
|
$
|
0.3
|
|
|
$
|
84.3
|
|
|
$
|
76.3
|
|
Casinos
|
30.4
|
|
|
26.7
|
|
|
98.0
|
|
|
86.6
|
|
TwinSpires
|
14.3
|
|
|
13.1
|
|
|
44.8
|
|
|
39.3
|
|
Big Fish Games
|
23.4
|
|
|
33.2
|
|
|
58.9
|
|
|
81.5
|
|
Other Investments
|
0.8
|
|
|
0.5
|
|
|
2.9
|
|
|
2.4
|
|
Corporate
|
(2.0
|
)
|
|
(1.6
|
)
|
|
(5.9
|
)
|
|
(5.2
|
)
|
Total segment Adjusted EBITDA
|
67.3
|
|
|
72.2
|
|
|
283.0
|
|
|
280.9
|
|
Change in Big Fish Games deferred revenue
|
3.8
|
|
|
(10.9
|
)
|
|
(5.0
|
)
|
|
(32.0
|
)
|
Selling, general and administrative:
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
(4.9
|
)
|
|
(4.5
|
)
|
|
(14.3
|
)
|
|
(10.6
|
)
|
Other charges
|
(3.1
|
)
|
|
—
|
|
|
(3.4
|
)
|
|
—
|
|
Other income, expense:
|
|
|
|
|
|
|
|
Equity investments - interest, depreciation and amortization expense
|
(2.5
|
)
|
|
(2.2
|
)
|
|
(7.5
|
)
|
|
(6.4
|
)
|
Other (charges) and recoveries, net
|
—
|
|
|
(0.1
|
)
|
|
(0.4
|
)
|
|
6.0
|
|
Big Fish Games acquisition expense
|
(1.1
|
)
|
|
(2.8
|
)
|
|
(4.9
|
)
|
|
(17.4
|
)
|
Calder exit costs
|
(0.5
|
)
|
|
(12.7
|
)
|
|
(2.4
|
)
|
|
(13.5
|
)
|
Depreciation and amortization
|
(27.5
|
)
|
|
(27.4
|
)
|
|
(81.4
|
)
|
|
(82.1
|
)
|
Interest (expense) income, net
|
(11.1
|
)
|
|
(6.7
|
)
|
|
(32.8
|
)
|
|
(21.1
|
)
|
Income before income tax provision
|
20.4
|
|
|
4.9
|
|
|
130.9
|
|
|
103.8
|
|
Income tax provision
|
(11.7
|
)
|
|
(0.7
|
)
|
|
(49.6
|
)
|
|
(46.1
|
)
|
Net income
|
8.7
|
|
|
4.2
|
|
|
81.3
|
|
|
57.7
|
|
Foreign currency translation, net of tax
|
—
|
|
|
—
|
|
|
0.2
|
|
|
(0.4
|
)
|
Comprehensive income
|
$
|
8.7
|
|
|
$
|
4.2
|
|
|
$
|
81.5
|
|
|
$
|
57.3
|
|
The table below presents information about equity in income (losses) of unconsolidated investments included in our reported segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Casinos
|
$
|
4.8
|
|
|
$
|
2.3
|
|
|
$
|
13.6
|
|
|
$
|
7.7
|
|
Other Investments
|
0.1
|
|
|
—
|
|
|
(0.1
|
)
|
|
0.5
|
|
|
$
|
4.9
|
|
|
$
|
2.3
|
|
|
$
|
13.5
|
|
|
$
|
8.2
|
|
The table below presents total asset information for each of our operating segments:
|
|
|
|
|
|
|
|
|
(in millions)
|
September 30, 2016
|
|
December 31, 2015
|
Total assets:
|
|
|
|
Racing
|
$
|
424.4
|
|
|
$
|
437.1
|
|
Casinos
|
621.8
|
|
|
631.3
|
|
TwinSpires
|
208.1
|
|
|
202.4
|
|
Big Fish Games
|
923.0
|
|
|
947.1
|
|
Other Investments
|
10.9
|
|
|
12.2
|
|
Corporate
|
36.5
|
|
|
47.3
|
|
|
$
|
2,224.7
|
|
|
$
|
2,277.4
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The table below presents capital expenditures for each of our operating segments:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
(in millions)
|
2016
|
|
2015
|
Capital expenditures:
|
|
|
|
Racing
|
$
|
23.4
|
|
|
$
|
8.3
|
|
Casinos
|
9.7
|
|
|
15.4
|
|
TwinSpires
|
5.4
|
|
|
3.1
|
|
Big Fish Games
|
3.6
|
|
|
3.0
|
|
Other Investments
|
0.8
|
|
|
0.4
|
|
Corporate
|
1.2
|
|
|
0.6
|
|
|
$
|
44.1
|
|
|
$
|
30.8
|
|
NOTE 13 — SUBSEQUENT EVENT
Annual Dividend
On October 26, 2016, the Company's Board of Directors declared an annual cash dividend of
$1.32
per share, to be paid on January 6, 2017 to all shareholders of record on December 2, 2016.