NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS
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 ("U.S. 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 U.S. GAAP.
The following information is unaudited. 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, 2016
.
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.
Our critical accounting policies are revenue recognition, goodwill and indefinite intangible assets, property and equipment, and income taxes. Our significant accounting policies are more fully described in Note 2 to the Consolidated Financial Statements included in Item 8. "Financial Statements and Supplementary Data" of our Annual Report on Form 10-K for the year ended
December 31, 2016
.
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
57
live thoroughbred race days in the third quarter of 2017 and
60
live thoroughbred race days in the third quarter of 2016. For the nine months ended September 30, 2017, we conducted 176 live thoroughbred racing days, which compares to 175 live thoroughbred racing days during the nine months ended September 30, 2016.
Casinos
Revenue from our casino properties has a seasonal component and is typically higher during the first and second quarters.
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 has a seasonal component and is typically lower during the summer months.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting. This new standard provides clarity about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting for stock compensation expense. The guidance will become effective in 2018. We are assessing the impact of the new accounting guidance and currently cannot estimate the financial statement impact of adoption.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. This new guidance simplifies the accounting for goodwill impairments by removing step two from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess. The new guidance is effective in 2020 with early adoption permitted for any goodwill impairment test performed between January 1, 2017 and January 1, 2020. We are currently evaluating the timing of adoption and impact of the new accounting guidance on our financial statements and related disclosures.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations: Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance will become effective in 2018. We will assess the impact of the new accounting guidance as necessary for future transactions.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash. The new standard requires that the statement of cash flows explain the change during the period of cash, cash equivalents, and amounts generally described as restricted cash. Entities will also be required to reconcile to the balance sheet and disclose the nature of the restrictions. The guidance will become effective in 2018. While we are continuing to assess all potential impacts of the standard, we believe the most significant impact relates to the presentation of our statement of cash flows where we will be required to reconcile to total cash, cash equivalents, and restricted cash. Currently, our statement of cash flows reconciles to total cash and cash equivalents.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. 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 in 2018. 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. 2016-13, 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 in 2020. We are assessing the impact of the new accounting guidance and currently cannot estimate the financial statement impact of adoption.
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 will be effective 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, 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 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 in 2018 and will be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. During 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net); ASU No. 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, and ASU No. 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients; each of which clarified the guidance on certain items such as reporting revenue gross versus net and presentation of sales tax, among other things.
While we are continuing to assess all potential impacts of the new standard under ASU No. 2014-09, we have identified a few areas of impact at this time. The first area is significant and relates to our accounting for breakage revenue for our outstanding premium game club credits for Big Fish Games. Currently, we record breakage revenue for our outstanding premium game credits for Big Fish Games when the credits have legally expired. Under the new standard, we will be required to recognize the expected breakage related to our outstanding premium game club credits as revenue in proportion to the pattern of game club credits redeemed by our customers. The second area relates to our accounting for loyalty points under our various rewards programs which are earned by our customers at our casinos. Our accumulated loyalty points are redeemable for free complimentaries, including gaming play and food and beverage. The estimated liability for unredeemed points is currently accrued based on expected redemption rates and the estimated costs of the services or merchandise to be provided. Under the new standard, we will defer the standalone selling price of the complimentaries until the future revenue transaction occurs. Although the exact amount of the increase to our point liabilities has not yet been determined, we do not anticipate it will have a significant impact on our earnings. In addition to the impact on loyalty points at our casinos, the new standard will impact all gaming transactions that contain multiple performance obligations, such as certain benefits provided under our rewards programs. Specifically, we will defer revenue based on standalone selling prices and recognize the revenue as each of those performance obligations are fulfilled. We are continuing to assess the significance of this impact on our operations.
Due to the change in our accounting related to breakage revenue for Big Fish Games, we anticipate the standard under ASU No. 2014-09 may have a material impact on our consolidated financial statements. At this time, we expect to adopt this new standard using the modified retrospective method on January 1, 2018.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. ACQUISITIONS
On April 24, 2017, we completed the acquisition of certain assets of BAM Software and Services, LLC ("BetAmerica"), which has not had a material impact on our results of operations, financial condition or cash flows. The results of operations and financial condition of BetAmerica have been included in our Condensed Consolidated Financial Statements from the acquisition date. The pro forma financial information assuming the acquisition had occurred as of the beginning of the calendar year prior to the year of acquisition, as well as the revenues and earnings generated during the year of acquisition, were not material for disclosure purposes.
4. RECEIVABLE FROM ESCROW
On November 8, 2016, we established a
$14.0 million
qualified intermediary trust with a portion of the proceeds from the sale of excess land at Calder Race Course ("Calder") that was used to purchase previously identified real property within six months post- closing. We utilized the entire escrow amount, resulting in a
zero
balance at September 30, 2017, compared to our
$13.6 million
from the qualified intermediary trust at December 31, 2016.
5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
Ocean Downs
In August 2016, we signed a limited liability company operating agreement with
Saratoga Casino Holdings LLC ("SCH"), with each entity having a
50%
interest, and formed Old Bay Gaming and Racing LLC ("Old Bay"). The Old Bay agreement provides both the Company and SCH equal participating rights, and both entities must consent to Old Bay's operating, investing and financing decisions.
On January 3, 2017, Old Bay acquired all of the equity interests of Ocean Enterprise 589 LLC, Ocean Downs LLC and Racing Services LLC (collectively, "Ocean Downs"). The Company's portion of the initial equity investment in Ocean Downs was
$24.0 million
. Ocean Downs, located near Ocean City, Maryland, owns and operates video lottery terminals ("VLT") at the Casino at Oceans Downs and conducts harness racing at Ocean Downs Racetrack. The Company's
25%
interest in SCH provides an additional
12.5%
interest, resulting in an effective
62.5%
interest in Ocean Downs. Since both the Company and SCH have participating rights and both must consent to Old Bay's operating, investing and financing decisions, the Company accounts for Ocean Downs using the equity method of accounting.
Miami Valley Gaming
We have a
50%
joint venture in Miami Valley Gaming ("MVG"), which has a harness racetrack and VLT gaming facility in Lebanon, Ohio, with Delaware North Companies Gaming & Entertainment Inc.
Summarized below is financial information for our MVG equity investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Casino revenue
|
$
|
38.4
|
|
|
$
|
36.1
|
|
|
$
|
117.9
|
|
|
$
|
108.7
|
|
Non-casino revenue
|
1.2
|
|
|
1.2
|
|
|
5.1
|
|
|
5.2
|
|
Net revenue
|
39.6
|
|
|
37.3
|
|
|
123.0
|
|
|
113.9
|
|
Operating and SG&A expense
|
28.1
|
|
|
26.4
|
|
|
85.7
|
|
|
79.7
|
|
Depreciation & amortization
|
3.2
|
|
|
3.4
|
|
|
9.5
|
|
|
9.9
|
|
Operating income
|
8.3
|
|
|
7.5
|
|
|
27.8
|
|
|
24.3
|
|
Interest and other expense, net
|
(0.6
|
)
|
|
(0.8
|
)
|
|
(1.9
|
)
|
|
(2.6
|
)
|
Net income
|
$
|
7.7
|
|
|
$
|
6.7
|
|
|
$
|
25.9
|
|
|
$
|
21.7
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
(in millions)
|
September 30, 2017
|
|
December 31, 2016
|
Assets
|
|
|
|
Current assets
|
$
|
16.5
|
|
|
$
|
18.7
|
|
Property and equipment, net
|
104.6
|
|
|
109.8
|
|
Other assets, net
|
107.7
|
|
|
105.0
|
|
Total assets
|
$
|
228.8
|
|
|
$
|
233.5
|
|
|
|
|
|
Liabilities and Members' Equity
|
|
|
|
Current liabilities
|
$
|
9.0
|
|
|
$
|
12.5
|
|
Current portion of long-term debt
|
8.3
|
|
|
8.3
|
|
Long-term debt, excluding current portion
|
8.9
|
|
|
14.0
|
|
Other liabilities
|
0.1
|
|
|
0.1
|
|
Members' equity
|
202.5
|
|
|
198.6
|
|
Total liabilities and members' equity
|
$
|
228.8
|
|
|
$
|
233.5
|
|
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)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Equity in income of unconsolidated investments
|
$
|
3.8
|
|
|
$
|
3.4
|
|
|
$
|
12.9
|
|
|
$
|
10.9
|
|
6. GOODWILL AND OTHER INTANGIBLE ASSETS
We performed our annual goodwill and indefinite-lived intangible impairment analysis for 2017 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, 2017 and again as of April 1, 2017, 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.
During 2017, the Company changed its annual goodwill and indefinite-lived impairment testing date from March 31 to April 1 of each year. As a result, the annual impairment tests were performed as of March 31, 2017 and April 1, 2017. The change was made to better align with our forecasting process and to provide the Company with additional time to complete its annual goodwill and indefinite-lived intangible impairment testing in advance of its quarterly reporting. The Company believes this change in measurement date, which represents a change in method of applying an accounting principle, is preferable under the circumstances. We believe the resulting change in accounting principle related to changing the annual impairment testing date will not delay, accelerate, or avoid an impairment charge.
Goodwill is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Racing
|
|
Casinos
|
|
TwinSpires
|
|
Big Fish Games
|
|
Total
|
Balances as of December 31, 2016
|
$
|
51.7
|
|
|
$
|
117.6
|
|
|
$
|
132.1
|
|
|
$
|
530.8
|
|
|
$
|
832.2
|
|
Additions
|
—
|
|
|
—
|
|
|
16.1
|
|
|
—
|
|
|
16.1
|
|
Balances as of September 30, 2017
|
$
|
51.7
|
|
|
$
|
117.6
|
|
|
$
|
148.2
|
|
|
$
|
530.8
|
|
|
$
|
848.3
|
|
In 2017, we established goodwill of
$16.1 million
related to the BetAmerica acquisition.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other intangible assets are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
(in millions)
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Definite-lived intangible assets
|
$
|
180.4
|
|
|
$
|
(113.3
|
)
|
|
$
|
67.1
|
|
|
$
|
187.4
|
|
|
$
|
(100.0
|
)
|
|
$
|
87.4
|
|
Indefinite-lived intangible assets
|
|
|
|
|
358.3
|
|
|
|
|
|
|
358.3
|
|
Total
|
|
|
|
|
|
|
$
|
425.4
|
|
|
|
|
|
|
$
|
445.7
|
|
In 2017, we reduced our customer relationships intangible asset and accumulated amortization for TwinSpires by
$15.1 million
as the amounts were fully amortized. Finally, we established definite-lived intangible assets of
$8.1 million
related to the BetAmerica acquisition.
7. INCOME TAXES
The Company’s income tax rate for the three and nine months ended September 30, 2017 was higher than the U.S. federal statutory rate of
35.0%
primarily due to state income taxes and certain expenses that are not deductible for the purposes of income taxes, partially offset by benefits from tax credits, the manufacturing deduction, and tax deductions from vesting of restricted stock units in excess of the book deductions.
The Company's income tax rate for the three months ended September 30, 2016 was higher than the U.S. federal statutory rate of
35.0%
primarily due to state income taxes, certain expenses that are not deductible for the purposes of income taxes and a decrease to the manufacturing deduction, partially offset by benefits from tax credits. The Company’s income tax rate for the nine months ended September 30, 2016 was higher than the U. S federal statutory rate of
35.0%
primarily due to state income taxes and certain expenses that are not deductible for the purposes of income taxes, partially offset by benefits from tax credits, the manufacturing deduction, and a
$3.1 million
tax benefit resulting from tax deductions from vesting restricted stock units in excess of the book deductions that were recognized upon our adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting.
8. 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:
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
(in millions)
|
Level 1
|
|
Level 3
|
Cash equivalents and restricted cash
|
$
|
36.0
|
|
|
$
|
—
|
|
Big Fish Games deferred payments
|
—
|
|
|
28.3
|
|
Big Fish Games earnout liability
|
—
|
|
|
33.9
|
|
Total
|
$
|
36.0
|
|
|
$
|
62.2
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
(in millions)
|
Level 1
|
|
Level 3
|
Cash equivalents and restricted cash
|
$
|
34.1
|
|
|
$
|
—
|
|
Big Fish Games deferred payments
|
—
|
|
|
27.8
|
|
Big Fish Games earnout liability
|
—
|
|
|
67.9
|
|
Total
|
$
|
34.1
|
|
|
$
|
95.7
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the change in fair value of our Level 3 liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|
(in millions)
|
Big Fish Games Deferred Payments
|
|
Big Fish Games Earnout Liability
|
|
Total
|
Balances as of December 31, 2016
|
$
|
27.8
|
|
|
$
|
67.9
|
|
|
$
|
95.7
|
|
Payments
|
—
|
|
|
(34.2
|
)
|
|
(34.2
|
)
|
Change in fair value
|
0.5
|
|
|
0.2
|
|
|
0.7
|
|
Balances as of September 30, 2017
|
$
|
28.3
|
|
|
$
|
33.9
|
|
|
$
|
62.2
|
|
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, 2017
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
$0.7 million
during the
nine
months ended
September 30, 2017
was recorded as acquisition-related charges in the Condensed Consolidated Statements of Comprehensive Income. During 2015, Big Fish Games achieved its earnout milestones, and we have made earnout payments of
$34.2 million
in March 2017 and
$281.6 million
in March 2016.
We currently have no other assets or liabilities subject to fair value measurement on a recurring basis. Our 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 $620.3 million at
September 30, 2017
and
$622.5 million
at
December 31, 2016
.
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.
Long-Term Debt: Fourth Amended and Restated Credit Agreement ("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 2017 or 2016.
9. SHAREHOLDERS’ EQUITY
On April 25, 2017, the Board of Directors of the Company approved a new common stock repurchase program of up to
$250.0 million
. The new program replaced the prior
$150.0 million
program that was authorized in February 2016 and had unused authorization of
$114.6 million
. The new authorized amount included and was not in addition to any unspent amount remaining under the prior authorization. Repurchases may be made at management’s discretion from time to time on the open market (either with or without a 10b5-1 plan) or through privately negotiated transactions. Share repurchases result in the shares being retired, and the cost of the shares acquired are treated as a reduction from common stock and retained earnings. The repurchase program has no time limit and may be suspended or discontinued at any time.
On June 9, 2017, we entered into an agreement with an affiliate of The Duchossois Group, Inc. ("TDG"), a related party, to repurchase
1,000,000
shares of the Company's common stock for
$158.78
per share in a privately negotiated transaction. The aggregate purchase price was
$158.8 million
.
For the nine months ended September 30, 2017, including the repurchase of
1,000,000
shares from TDG, we have repurchased
1,077,029
shares of our common stock under the April 2017 stock repurchase program at a total cost of
$171.7 million
. We had approximately
$78.3 million
of repurchase authority remaining under this program at September 30, 2017.
During the nine months ended September 30, 2017, we also repurchased
53,721
shares of our common stock in conjunction with the February 2016 stock repurchase program at a total cost of
$7.8 million
.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. STOCK-BASED COMPENSATION PLANS
The 2016 Incentive Plan and the 2007 Incentive Plan (collectively "the 2016 and 2007 Plans") permit the award of restricted shares or restricted stock units to directors and key employees, including our officers who are from time to time responsible for the management, growth and protection of our business. Restricted shares granted under the 2016 and 2007 Plans generally vest either in full upon three years from the date of grant, on a pro-rata basis over a three year term or upon retirement at or after age 60. The fair value of restricted shares that vest solely based on continued service under the 2016 and 2007 Plans is determined by the product of the number of shares granted and the grant date market price of our common stock.
On September 22, 2015, the Board of Directors approved the adoption of the Executive Long-Term Incentive Compensation Plan (the "ELTI Plan"), pursuant to which certain named executive officers ("NEOs") and other key executives ("Grantees") may earn variable equity payouts based upon us achieving certain key performance metrics over a specified period. The ELTI Plan was adopted pursuant to 2016 and 2007 Plans, which were previously approved by our shareholders.
2017 Awards
On February 17, 2017, certain NEOs and Grantees received the following:
|
|
•
|
25,119
restricted stock units to NEOs vesting equally over
three
service periods ending December 31, 2017, December 31, 2018 and December 31, 2019;
|
|
|
•
|
28,467
performance share units ("PSU") to NEOs with vesting contingent on financial performance measures at the end of a
34
-month performance period ending December 31, 2019; and
|
|
|
•
|
61,530
restricted stock shares to Grantees vesting equally over
three
service periods ending February 17, 2018, February 17, 2019 and February 17, 2020.
|
The performance criteria for the 2017 PSU awards are a cumulative Adjusted EBITDA target that was set at the beginning of the plan performance period for the entire
three
year period, and a cash flow metric that is the aggregate of the cash flow targets for the
three
individual years that is set annually at the beginning of each year. The cash flow metric is defined as cash flow from operating activities plus distributions of capital from equity investments less capital maintenance expenditures. The Compensation Committee can make adjustments as it may deem appropriate to these metrics. Measurement against these criteria will be determined against a payout curve which provides up to
200%
of performance share units based on the original award.
The performance criteria also includes a relative total shareholder return ("TSR") component. Our TSR will be ranked versus the companies in the Russell 2000 index and will be calculated based on our relative placement within the Russell 2000 index. The PSU awards may be adjusted based on the Company’s TSR, by increasing the PSU awards by
25%
if the Company’s TSR is in the top quartile, decreasing the PSU awards by
25%
if the Company’s TSR is in the bottom quartile, and providing no change to the PSU awards if the Company’s TSR is in the middle two quartiles.
The total compensation cost we will recognize under the PSUs will be determined using the Monte Carlo valuation methodology and will be based upon an equal performance weighting for the two financial measures and then adjusted based on the Company’s TSR performance within the Russell 2000 index. The maximum number of PSUs that can be earned for a performance period is
250%
of the original award.
We recognized stock-based compensation expense of
$5.8 million
for the three months ended September 30, 2017 and
$17.5 million
for the nine months ended September 30, 2017. We recognized stock-based compensation expense of
$4.8 million
for the three months ended September 30, 2016 and
$14.3 million
for the nine months ended September 30, 2016.
11. 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
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
12. 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)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Numerator for basic income per common share:
|
|
|
|
|
|
|
|
Net income
|
$
|
16.7
|
|
|
$
|
8.7
|
|
|
$
|
102.3
|
|
|
$
|
81.3
|
|
Net income allocated to participating securities
|
—
|
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|
(1.4
|
)
|
Numerator for basic income per common share
|
$
|
16.7
|
|
|
$
|
8.6
|
|
|
$
|
102.2
|
|
|
$
|
79.9
|
|
|
|
|
|
|
|
|
|
Numerator for diluted income per common share
|
$
|
16.7
|
|
|
$
|
8.7
|
|
|
$
|
102.3
|
|
|
$
|
81.3
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted net income per common share:
|
|
|
|
|
|
|
|
Basic-weighted average shares
|
15.3
|
|
|
16.4
|
|
|
15.9
|
|
|
16.5
|
|
Plus dilutive effect of stock awards
|
0.2
|
|
|
0.2
|
|
|
0.2
|
|
|
0.2
|
|
Plus dilutive effect of participating securities
|
—
|
|
|
0.3
|
|
|
0.1
|
|
|
0.3
|
|
Diluted-adjusted weighted average shares
|
15.5
|
|
|
16.9
|
|
|
16.2
|
|
|
17.0
|
|
|
|
|
|
|
|
|
|
Income per common share:
|
|
|
|
|
|
|
|
Basic
|
$
|
1.09
|
|
|
$
|
0.52
|
|
|
$
|
6.43
|
|
|
$
|
4.85
|
|
Diluted
|
$
|
1.08
|
|
|
$
|
0.52
|
|
|
$
|
6.32
|
|
|
$
|
4.79
|
|
13. 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;
|
|
|
•
|
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, 50% equity investment in Ocean Downs and 25% of EBITDA from our equity investment, SCH, which includes investments in Saratoga Casino Hotel, Saratoga Casino Black Hawk and Ocean Downs;
|
|
|
•
|
TwinSpires, which includes TwinSpires.com, Fair Grounds Account Wagering, Velocity, BetAmerica, Bloodstock Research Information Services, Bluff Media and Churchill Downs Interactive 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 other minor investments; 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.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Eliminations include the elimination of intersegment transactions. We utilize non-GAAP measures, including EBITDA (earnings before interest, taxes, depreciation and amortization) and Adjusted EBITDA. Our chief operating decision maker utilizes Adjusted EBITDA to evaluate segment performance, develop strategy and allocate resources. Adjusted EBITDA includes the following adjustments:
Adjusted EBITDA includes our portion of the EBITDA from our equity investments.
Adjusted EBITDA excludes:
|
|
•
|
Acquisition expense, net which includes:
|
|
|
•
|
Acquisition-related charges, including fair value adjustments related to earnouts and deferred payments; and
|
|
|
•
|
Transaction expense, including legal, accounting, and other deal-related expense;
|
|
|
•
|
Stock-based compensation expense;
|
|
|
•
|
Gain on Calder land sale;
|
|
|
•
|
Other charges and recoveries.
|
During the fourth quarter of 2016, we updated our definition of Adjusted EBITDA to exclude changes in Big Fish Games deferred revenue. Effective January 1, 2017, certain revenue previously included in our Corporate segment was deemed by management to be more closely aligned with our TwinSpires segment. The prior year amounts were reclassified to conform to this presentation.
We utilize the Adjusted EBITDA metric because we believe the inclusion or exclusion of certain non-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. GAAP. Our calculation of Adjusted EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited. For segment reporting, Adjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the accompanying Consolidated Statements of Comprehensive Income.
The tables below present net revenue from external customers and intercompany revenue from each of our operating segments, Adjusted EBITDA by segment and reconciles Comprehensive Income to Adjusted EBITDA:
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net revenue from external customers:
|
|
|
|
|
|
|
|
Racing:
|
|
|
|
|
|
|
|
Churchill Downs
|
$
|
8.1
|
|
|
$
|
8.7
|
|
|
$
|
147.1
|
|
|
$
|
140.1
|
|
Arlington
|
25.0
|
|
|
24.0
|
|
|
51.5
|
|
|
49.8
|
|
Fair Grounds
|
5.0
|
|
|
5.1
|
|
|
27.5
|
|
|
28.9
|
|
Calder
|
0.7
|
|
|
0.7
|
|
|
1.9
|
|
|
2.0
|
|
Total Racing
|
38.8
|
|
|
38.5
|
|
|
228.0
|
|
|
220.8
|
|
Casinos:
|
|
|
|
|
|
|
|
Oxford Casino
|
25.2
|
|
|
24.4
|
|
|
69.2
|
|
|
65.4
|
|
Riverwalk Casino
|
12.2
|
|
|
10.6
|
|
|
35.7
|
|
|
35.7
|
|
Harlow’s Casino
|
12.3
|
|
|
11.7
|
|
|
38.3
|
|
|
36.6
|
|
Calder Casino
|
19.4
|
|
|
19.0
|
|
|
62.6
|
|
|
59.8
|
|
Fair Grounds Slots
|
8.7
|
|
|
8.5
|
|
|
27.7
|
|
|
27.9
|
|
VSI
|
9.3
|
|
|
8.6
|
|
|
28.8
|
|
|
27.9
|
|
Saratoga
|
0.4
|
|
|
0.2
|
|
|
1.0
|
|
|
0.6
|
|
Total Casinos
|
87.5
|
|
|
83.0
|
|
|
263.3
|
|
|
253.9
|
|
TwinSpires
|
65.9
|
|
|
55.1
|
|
|
198.4
|
|
|
173.1
|
|
Big Fish Games:
|
|
|
|
|
|
|
|
Social casino
|
53.4
|
|
|
44.3
|
|
|
149.1
|
|
|
138.3
|
|
Casual and mid-core free-to-play
|
46.1
|
|
|
56.1
|
|
|
135.3
|
|
|
162.5
|
|
Premium
|
18.4
|
|
|
21.9
|
|
|
58.1
|
|
|
68.8
|
|
Total Big Fish Games
|
117.9
|
|
|
122.3
|
|
|
342.5
|
|
|
369.6
|
|
Other Investments
|
4.7
|
|
|
4.5
|
|
|
14.0
|
|
|
12.9
|
|
Net revenue from external customers
|
$
|
314.8
|
|
|
$
|
303.4
|
|
|
$
|
1,046.2
|
|
|
$
|
1,030.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Intercompany net revenue:
|
|
|
|
|
|
|
|
Racing:
|
|
|
|
|
|
|
|
Churchill Downs
|
$
|
0.9
|
|
|
$
|
0.9
|
|
|
$
|
9.6
|
|
|
$
|
8.2
|
|
Arlington
|
2.2
|
|
|
1.9
|
|
|
5.1
|
|
|
4.5
|
|
Fair Grounds
|
—
|
|
|
—
|
|
|
1.0
|
|
|
1.0
|
|
Total Racing
|
3.1
|
|
|
2.8
|
|
|
15.7
|
|
|
13.7
|
|
TwinSpires
|
0.2
|
|
|
0.4
|
|
|
0.8
|
|
|
1.0
|
|
Other Investments
|
1.0
|
|
|
0.7
|
|
|
3.7
|
|
|
3.0
|
|
Eliminations
|
(4.3
|
)
|
|
(3.9
|
)
|
|
(20.2
|
)
|
|
(17.7
|
)
|
Intercompany net revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Adjusted EBITDA by segment is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2017
|
(in millions)
|
Racing
|
|
Casinos
|
|
TwinSpires
|
|
Big Fish
Games
|
|
Other Investments
|
|
Corporate
|
Net revenue
|
$
|
41.9
|
|
|
$
|
87.5
|
|
|
$
|
66.1
|
|
|
$
|
117.9
|
|
|
$
|
5.7
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes & purses
|
(11.2
|
)
|
|
(28.9
|
)
|
|
(4.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Platform & development fees
|
—
|
|
|
—
|
|
|
—
|
|
|
(42.1
|
)
|
|
—
|
|
|
—
|
|
Marketing & advertising
|
(1.0
|
)
|
|
(3.1
|
)
|
|
(1.1
|
)
|
|
(31.8
|
)
|
|
—
|
|
|
—
|
|
Salaries & benefits
|
(10.3
|
)
|
|
(13.5
|
)
|
|
(2.3
|
)
|
|
(6.8
|
)
|
|
(2.9
|
)
|
|
—
|
|
Content expense
|
(3.8
|
)
|
|
—
|
|
|
(30.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
SG&A expense
|
(3.9
|
)
|
|
(5.5
|
)
|
|
(3.2
|
)
|
|
(5.3
|
)
|
|
(0.8
|
)
|
|
(2.2
|
)
|
Research & development
|
—
|
|
|
—
|
|
|
—
|
|
|
(9.7
|
)
|
|
—
|
|
|
—
|
|
Other operating expense
|
(10.1
|
)
|
|
(9.8
|
)
|
|
(5.3
|
)
|
|
(4.0
|
)
|
|
(1.1
|
)
|
|
0.1
|
|
Other income (expense)
|
0.1
|
|
|
12.8
|
|
|
—
|
|
|
(1.2
|
)
|
|
0.2
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
1.7
|
|
|
$
|
39.5
|
|
|
$
|
18.8
|
|
|
$
|
17.0
|
|
|
$
|
1.1
|
|
|
$
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
(in millions)
|
Racing
|
|
Casinos
|
|
TwinSpires
|
|
Big Fish
Games
|
|
Other Investments
|
|
Corporate
|
Net revenue
|
$
|
41.3
|
|
|
$
|
83.0
|
|
|
$
|
55.5
|
|
|
$
|
122.3
|
|
|
$
|
5.2
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
0.4
|
|
|
$
|
30.4
|
|
|
$
|
14.7
|
|
|
$
|
27.2
|
|
|
$
|
0.8
|
|
|
$
|
(2.4
|
)
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
(in millions)
|
Racing
|
|
Casinos
|
|
TwinSpires
|
|
Big Fish
Games
|
|
Other Investments
|
|
Corporate
|
Net revenue
|
$
|
243.7
|
|
|
$
|
263.3
|
|
|
$
|
199.2
|
|
|
$
|
342.5
|
|
|
$
|
17.7
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes & purses
|
(54.3
|
)
|
|
(87.7
|
)
|
|
(11.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Platform & development fees
|
—
|
|
|
—
|
|
|
—
|
|
|
(124.0
|
)
|
|
—
|
|
|
—
|
|
Marketing & advertising
|
(3.9
|
)
|
|
(9.1
|
)
|
|
(6.7
|
)
|
|
(84.3
|
)
|
|
—
|
|
|
—
|
|
Salaries & benefits
|
(32.4
|
)
|
|
(40.0
|
)
|
|
(7.1
|
)
|
|
(20.7
|
)
|
|
(9.1
|
)
|
|
—
|
|
Content expense
|
(11.7
|
)
|
|
—
|
|
|
(96.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
SG&A expense
|
(11.9
|
)
|
|
(16.3
|
)
|
|
(8.9
|
)
|
|
(15.1
|
)
|
|
(2.3
|
)
|
|
(6.2
|
)
|
Research & development
|
—
|
|
|
—
|
|
|
—
|
|
|
(29.9
|
)
|
|
—
|
|
|
—
|
|
Other operating expense
|
(39.4
|
)
|
|
(31.0
|
)
|
|
(17.1
|
)
|
|
(11.3
|
)
|
|
(3.6
|
)
|
|
(0.4
|
)
|
Other income (expense)
|
0.6
|
|
|
33.1
|
|
|
—
|
|
|
(1.6
|
)
|
|
0.3
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
90.7
|
|
|
$
|
112.3
|
|
|
$
|
51.3
|
|
|
$
|
55.6
|
|
|
$
|
3.0
|
|
|
$
|
(6.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
(in millions)
|
Racing
|
|
Casinos
|
|
TwinSpires
|
|
Big Fish
Games
|
|
Other Investments
|
|
Corporate
|
Net revenue
|
$
|
234.5
|
|
|
$
|
253.9
|
|
|
$
|
174.1
|
|
|
$
|
369.6
|
|
|
$
|
15.9
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
84.3
|
|
|
$
|
98.0
|
|
|
$
|
45.6
|
|
|
$
|
53.9
|
|
|
$
|
2.9
|
|
|
$
|
(6.7
|
)
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
(in millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Reconciliation of Comprehensive Income to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
$
|
17.3
|
|
|
$
|
8.7
|
|
|
$
|
102.5
|
|
|
$
|
81.5
|
|
Foreign currency translation, net of tax
|
(0.5
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
(0.2
|
)
|
Change in pension benefits, net of tax
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
Net income
|
16.7
|
|
|
8.7
|
|
|
102.3
|
|
|
81.3
|
|
Additions:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
24.0
|
|
|
27.5
|
|
|
73.3
|
|
|
81.4
|
|
Interest expense
|
12.6
|
|
|
11.1
|
|
|
36.0
|
|
|
32.8
|
|
Income tax provision
|
11.6
|
|
|
11.7
|
|
|
63.6
|
|
|
49.6
|
|
EBITDA
|
64.9
|
|
|
59.0
|
|
|
275.2
|
|
|
245.1
|
|
|
|
|
|
|
|
|
|
Adjustments to EBITDA:
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
5.8
|
|
|
4.9
|
|
|
17.5
|
|
|
14.3
|
|
Other charges
|
0.4
|
|
|
3.1
|
|
|
0.5
|
|
|
3.4
|
|
Other income, expense:
|
|
|
|
|
|
|
|
Interest, depreciation and amortization expense related to equity investments
|
4.0
|
|
|
2.5
|
|
|
10.6
|
|
|
7.5
|
|
Other charges and recoveries, net
|
—
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
Acquisition expense, net
|
0.7
|
|
|
1.1
|
|
|
1.7
|
|
|
4.9
|
|
Calder exit costs
|
0.2
|
|
|
0.5
|
|
|
0.8
|
|
|
2.4
|
|
Total adjustments to EBITDA
|
11.1
|
|
|
12.1
|
|
|
31.1
|
|
|
32.9
|
|
Adjusted EBITDA
|
$
|
76.0
|
|
|
$
|
71.1
|
|
|
$
|
306.3
|
|
|
$
|
278.0
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA by segment:
|
|
|
|
|
|
|
|
Racing
|
$
|
1.7
|
|
|
$
|
0.4
|
|
|
$
|
90.7
|
|
|
$
|
84.3
|
|
Casinos
|
39.5
|
|
|
30.4
|
|
|
112.3
|
|
|
98.0
|
|
TwinSpires
|
18.8
|
|
|
14.7
|
|
|
51.3
|
|
|
45.6
|
|
Big Fish Games
|
17.0
|
|
|
27.2
|
|
|
55.6
|
|
|
53.9
|
|
Other Investments
|
1.1
|
|
|
0.8
|
|
|
3.0
|
|
|
2.9
|
|
Corporate
|
(2.1
|
)
|
|
(2.4
|
)
|
|
(6.6
|
)
|
|
(6.7
|
)
|
Adjusted EBITDA
|
$
|
76.0
|
|
|
$
|
71.1
|
|
|
$
|
306.3
|
|
|
$
|
278.0
|
|
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)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Casinos
|
$
|
8.7
|
|
|
$
|
4.8
|
|
|
$
|
22.5
|
|
|
$
|
13.6
|
|
Other Investments
|
0.2
|
|
|
0.1
|
|
|
0.2
|
|
|
(0.1
|
)
|
|
$
|
8.9
|
|
|
$
|
4.9
|
|
|
$
|
22.7
|
|
|
$
|
13.5
|
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The table below presents total asset information for each of our operating segments:
|
|
|
|
|
|
|
|
|
(in millions)
|
September 30, 2017
|
|
December 31, 2016
|
Total assets:
|
|
|
|
Racing
|
$
|
463.7
|
|
|
$
|
454.6
|
|
Casinos
|
675.1
|
|
|
628.7
|
|
TwinSpires
|
213.0
|
|
|
209.9
|
|
Big Fish Games
|
902.8
|
|
|
893.8
|
|
Other Investments
|
11.9
|
|
|
11.1
|
|
Corporate
|
60.9
|
|
|
56.3
|
|
|
$
|
2,327.4
|
|
|
$
|
2,254.4
|
|
The table below presents total capital expenditures for each of our operating segments:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
(in millions)
|
2017
|
|
2016
|
Capital expenditures:
|
|
|
|
Racing
|
$
|
47.8
|
|
|
$
|
23.4
|
|
Casinos
|
26.0
|
|
|
9.7
|
|
TwinSpires
|
7.3
|
|
|
5.4
|
|
Big Fish Games
|
5.6
|
|
|
3.6
|
|
Other Investments
|
1.3
|
|
|
0.8
|
|
Corporate
|
1.1
|
|
|
1.2
|
|
|
$
|
89.1
|
|
|
$
|
44.1
|
|
14. SUBSEQUENT EVENT
On October 24, 2017, the Company's Board of Directors declared an annual cash dividend of
$1.52
per share, to be paid on
January 5, 2018
, to all shareholders of record on
December 1, 2017
.