8-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITY EXCHANGE ACT OF 1934
 
Date of Report (Date of earliest event reported): October 28, 2015

 
(Exact name of registrant as specified in its charter)
 
Kentucky
(State of incorporation)
001-33998
(Commission file number)
61-0156015
(IRS Employer Identification No.)
 
 
 
600 North Hurstbourne Parkway, Suite 400, Louisville, Kentucky 40222
 (Address of principal executive offices)
(Zip Code)
 
(502) 636-4400
(Registrant's telephone number, including area code)

Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
[  ]
Written communications pursuant to Rule 425 under the Securities Act (18 CFR 230.425)
 
[  ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
[  ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
[  ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 












 Item 2.02.  RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
 
A copy of the news release issued by Churchill Downs Incorporated (the “Company”) on October 28, 2015 announcing the results of operations and financial condition for the quarter ended September 30, 2015, is attached hereto as Exhibit 99.1 and incorporated by reference herein.


Item 9.01.  Financial Statements and Exhibits.
 
 
(d)
Exhibits

 
 
 
 
99.1
Press Release dated October 28, 2015 issued by Churchill Downs Incorporated
 
 
 
 
Exhibit No.
Description
 
 
 
 
Exhibit 99.1
Press Release dated October 28, 2015 issued by Churchill Downs Incorporated


  

SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto, duly authorized.
 

 
 
CHURCHILL DOWNS INCORPORATED
October 28, 2015
 
/s/ William E. Mudd___________________
 
 
By: William E. Mudd
 
 
Title: President and Chief Operating Officer
 
 
(Principal Financial and Accounting Officer)




Exhibit

FOR IMMEDIATE RELEASE
Contact: Lauren DePaso
(502) 636-4506
Lauren.DePaso@kyderby.com

CHURCHILL DOWNS INCORPORATED REPORTS
2015 THIRD-QUARTER RESULTS


LOUISVILLE, Ky. (October 28, 2015) - Churchill Downs Incorporated (CHDN: NASDAQ) (CDI or Company) today reported business results for the third quarter ended September 30, 2015.

Record net revenues of $279.8 million, up 61% over third-quarter 2014
Record Adjusted EBITDA of $70.6 million, more than double prior year third quarter
Record net cash flows from operating activities for the nine months ended September 30, 2015 of $223.2 million, up 95% over prior year
$1.15 per share dividend and $150 million stock repurchase plan approved by board of directors

MANAGEMENT COMMENTARY
“We delivered record revenues and record Adjusted EBITDA largely driven by the contribution from our Big Fish Games division,” says Bill Carstanjen, CDI’s Chief Executive Officer. “In addition, we were also encouraged by the growth in Adjusted EBITDA during the quarter for our TwinSpires and Racing segments.”

“In October our board approved an increase in the annual dividend along with a new $150 million share repurchase plan. While our primary focus remains on driving shareholder value through organic growth and other strategic acquisitions and investment opportunities, we are pleased that the company’s free cash flow generation and strong balance sheet allow us to create value for our shareholders through numerous ways.”

CONSOLIDATED RESULTS
Third Quarter
(in millions, except per share data):
2015
 
2014
 
% Change
 
 
 
 
 
 
Net revenues
$279.8
 
$173.5
 
61

Adjusted EBITDA-a)
$70.6
 
$32.5
 
F

Net earnings
4.2

 
3.5

 
19

Diluted net earnings per share
$0.24
 
$0.20
 
20

(a- Non-GAAP measure. See explanation of non-GAAP measures below.

During the third quarter of 2015, CDI net revenues increased $106.3 million, or 61%, from the prior year, primarily due to additional revenues from Big Fish Games, which the Company acquired in December 2014. In addition, TwinSpires revenues grew 9% on strong organic online wagering growth.

Total Adjusted EBITDA increased $38.1 million, more than doubling the third quarter of 2014, driven primarily by the addition of Big Fish Games’ Adjusted EBITDA of $33.3 million. TwinSpires Adjusted



EBITDA increased $2.7 million driven by handle growth that continued to outpace industry performance. Racing Adjusted EBITDA improved $1.5 million primarily due to the elimination of racing related expenses from the cessation of pari-mutuel operations at Calder during July 2014. Finally, Casino Adjusted EBITDA increased $0.1 million as softness at our Fair Grounds Slots property as a result of the New Orleans smoking ban and weaker results at our Harlow’s property were more than offset by growth at our other properties.

Net earnings and diluted net earnings per share grew 19% and 20%, respectively, to $4.2 million and $0.24 per diluted share compared to the prior year driven by our improvement in Adjusted EBITDA. Our net earnings, which reflect the strong Adjusted EBITDA growth, were partially offset by expenses related to the 2014 acquisition of Big Fish Games and a non-cash impairment charge of $12.7 million related to planned demolition of the Calder grandstand. The Big Fish expenses include $13.0 million of depreciation and amortization, $2.8 million in non-cash fair value adjustments of the earn-out and deferred founder’s consideration and $10.9 million in deferred revenue adjustments related to business combination accounting rules and adjustments for bookings that exceeded revenues during the quarter.

BIG FISH GAMES RESULTS
Third Quarter
(in millions):
2015
 
2014 (1)
 
% Change
 
 
 
 
 
 
Bookings
 
 
 
 
 
Casino
$47.4
 
$43.9
 
8

Free-to-Play Casual
40.3

 
9.2

 
F

Premium
26.7

 
32.2

 
(17
)
Total Bookings
$114.4
 
$85.3
 
34

 
 
 


 
 
Net revenues
$103.5
 

$—

 
F

Adjusted EBITDA
33.3

 

 
F

 
 
 
 
 
 
(1) Big Fish Games bookings for period ended September 30, 2014 not included in the consolidated financial results for CDI. Included for comparative purposes only.

The chart above includes third-quarter bookings for 2015 as well as pre-acquisition results for third-quarter 2014. Bookings are a non-GAAP financial measure equal to the revenue recognized plus the change in deferred revenue for the period.

During the third quarter, Big Fish Games contributed revenues of $103.5 million and Adjusted EBITDA of $33.3 million. Comparing results to Big Fish Games before CDI’s acquisition, total bookings for the quarter increased $29.1 million, or 34%, driven by growth in both the Casino and Free-to-Play Casual segments. Casino bookings grew by $3.5 million, driven by a 9% increase in average bookings per paying user compared to the third quarter of 2014, offset partially by a 1% decline in average paying users. Free-to-Play Casual bookings’ growth of $31.1 million was driven by a 158% increase in quarterly average paying users and a 71% increase in average bookings per paying user. Our growth in Free-to-Play Casual bookings was driven by the continued success of Gummy Drop!, as well as the successful launch of Dungeon Boss in part due to being selected as an Editor’s Choice game on both the Apple iTunes and Google Play stores. Premium bookings declined $5.5 million, or 17%, primarily driven by customers continuing to shift from paid PC games to free-to-play mobile games. In addition, the strengthening U.S. dollar (USD) as compared to other currencies where our Premium segment operates resulted in conversion to lower USD bookings of approximately $1.0 million.

2



Big Fish Games Adjusted EBITDA results exceeded those of both the first and second quarters of 2015, due, in part, to Free-to-Play product revenues more greatly exceeding user acquisition spending and a maturing social casino market.

CASINO RESULTS
Third Quarter
(in millions):
2015
 
2014
 
% Change
 
 
 
 
 
 
Net revenues
$82.7
 
$81.6
 
1

Adjusted EBITDA
25.0

 
24.9

 


During the third quarter of 2015, Casino revenues improved $1.1 million, or 1%, from the prior year. VSI revenues grew $1.0 million from the addition of new and upgraded video poker machines throughout our Louisiana properties. Oxford revenues increased $0.5 million driven by total gaming market growth and an increase in our market share. In addition, Calder Casino revenues grew $0.5 million resulting from an incremental focus on free play marketing offerings to our higher-tier players. Partially offsetting the overall growth was a decline in revenues of $0.7 million at Fair Grounds Slots as this facility continued to be negatively impacted by a smoking ban in Orleans Parish which was enacted during the second quarter of 2015.

Casino Adjusted EBITDA remained relatively unchanged compared to the prior year. Adjusted EBITDA growth at Oxford, Calder, Miami Valley Gaming and VSI was muted by a $0.7 million decline at Fair Grounds Slots impacted by the smoking ban. Additionally, our Mississippi properties declined $0.4 million as aggressive local competition negatively impacted our Harlow’s operation.

TWINSPIRES RESULTS
Third Quarter
(in millions):
2015
 
2014
 
% Change
 
 
 
 
 
 
Net revenues
$50.3
 
$46.3
 
9

Adjusted EBITDA
13.8

 
11.1

 
24

Total handle
245.5

 
224.4

 
9


During the third quarter of 2015, TwinSpires revenues improved $4.1 million, or 9% on a 23% increase in unique players and a 67% increase in new player registrations. Wagering volume, or handle, increased 9.4% and out-paced the industry growth rate by 5.7 percentage points in the quarter.

TwinSpires Adjusted EBITDA increased $2.7 million on revenue growth and resulting efficiencies more than offsetting higher pari-mutuel tax rates in certain states and a one-time tax reduction of $1.1 million during the comparable quarter in 2014.

RACING RESULTS
Third Quarter
(in millions):
2015
 
2014
 
% Change
 
 
 
 
 
 
Net revenues
$38.9
 
$41.1
 
(5
)
Adjusted EBITDA
0.3

 
(1.2
)
 
F

Total handle
238.0

 
283.5

 
(16
)


3


During the third quarter of 2015, revenues generated by our Racing segment decreased $2.2 million, primarily as a result of declines at our Arlington International racetrack. Arlington’s revenue decline was primarily the result of four fewer live race days, smaller field sizes, and fewer races per day driven by the depletion of purse monies related to final payments from the Illinois Horse Racing Equity Trust funds in the prior year meet.

Racing Adjusted EBITDA increased $1.5 million, driven by a $1.0 million improvement at Calder due to the elimination of racing-related expenses from the cessation of pari-mutuel operations during July 2014. In addition, Fair Grounds improved $0.6 million during the quarter due to operational expense reductions.

ANNUAL DIVIDEND
In October 2015, the board of directors approved an annual cash dividend of $1.15 per outstanding share, a 15 percent increase over prior year, on CDI’s common stock, payable January 6, 2016, to shareholders of record on December 4, 2015. This year’s dividend announcement represents the fifth consecutive year of increased dividends.

SHARE REPURCHASE
In October 2015, the board of directors also authorized the repurchase of up to $150 million of the Company’s stock in a share repurchase program. This amount includes and is not in addition to any unspent amounts remaining under the prior authorization which would have expired at the end of 2015. 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. The repurchase program has no time limit and may be suspended for periods or discontinued at any time.

BUSINESS RESULTS CONFERENCE CALL
A conference call regarding this news release is scheduled for Thursday, October 29, 2015, at 9 a.m. ET. Investors and other interested parties may listen to the teleconference by accessing the online, real-time webcast and broadcast of the call at www.churchilldownsincorporated.com, or by dialing (877) 372-0878 and entering the pass code 66486697 at least 10 minutes before the appointed time. International callers should dial (253) 237-1169. The online replay will be available at approximately noon EDT and continue for two weeks. A copy of the Company’s news release announcing quarterly results and relevant financial and statistical information about the period will be accessible at www.churchilldownsincorporated.com.

NON-GAAP MEASURES
In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), the Company has provided a non-GAAP measurement, which presents a financial measure of earnings before interest, taxes, depreciation and amortization and certain other items as described in the Company’s Annual Report on Form 10K (“Adjusted EBITDA”). Churchill Downs Incorporated uses Adjusted EBITDA as a key performance measure of results of operations for purposes of evaluating performance internally. The Company believes the use of this measure enables management and investors to evaluate and compare, from period to period, the Company’s operating performance in a meaningful and consistent manner. This non-GAAP measurement is not intended to replace the presentation of the Company’s financial results in accordance with GAAP.

ABOUT CHURCHILL DOWNS INCORPORATED
Churchill Downs Incorporated (CDI) (NASDAQ: CHDN), headquartered in Louisville, Ky., owns the world-renowned Churchill Downs Racetrack, home of the Kentucky Derby and Kentucky Oaks, as well as casino operations in Miami Gardens, Fla.; racetrack, casino and video poker operations in New Orleans, La.; racetrack operations in Arlington Heights, Ill.; a casino resort in Greenville, Miss.; a casino hotel in Vicksburg, Miss.; a casino in Oxford, Maine; and a 50 percent owned joint venture, Miami Valley Gaming

4


and Racing LLC, in Lebanon, Ohio. CDI also owns Big Fish Games, Inc., one of the world’s largest producers and distributors of casual games; the country's premier online wagering company, TwinSpires.com; the totalisator company, United Tote; and a collection of racing-related telecommunications and data companies. Additional information about CDI can be found online at www.churchilldownsincorporated.com.

Information set forth in this discussion and analysis contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 (the “Act”) provides certain “safe harbor” provisions for forward-looking statements. All forward-looking statements made in this press release are made pursuant to the Act.

The reader is cautioned that such forward-looking statements are based on information available at the time and/or management’s good faith belief with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Forward-looking statements speak only as of the date the statement was made. We assume no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. Forward-looking statements are typically identified by the use of terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “should,” “will,” and similar words, although some forward-looking statements are expressed differently.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from expectations include: the effect of global economic conditions, including any disruptions in the credit markets; a decrease in consumers’ discretionary income; the effect (including possible increases in the cost of doing business) resulting from future war and terrorist activities or political uncertainties; the impact of increasing insurance costs; the impact of interest rate fluctuations; maintaining favorable relationships we have with third-party mobile platforms, the inability to secure new content from third-party developers on favorable terms, keeping our games free from programming errors or flaws, the effect if smart phone and tablet usage does not continue to increase; the financial performance of our racing operations; the impact of casino competition (including lotteries, online gaming and riverboat, cruise ship and land-based casinos) and other sports and entertainment options in the markets in which we operate; our ability to maintain racing and gaming licenses to conduct our businesses; the impact of live racing day competition with other Kentucky, Illinois, Louisiana and Ohio racetracks within those respective markets; the impact of higher purses and other incentives in states that compete with our racetracks; costs associated with our efforts in support of alternative gaming initiatives; costs associated with customer relationship management initiatives; a substantial change in law or regulations affecting pari-mutuel or casino activities; a substantial change in allocation of live racing days; changes in Kentucky, Illinois, Louisiana or Ohio law or regulations that impact revenues or costs of racing in those states; the presence of wagering and casino operations at other states’ racetracks and casinos near our operations; our continued ability to effectively compete for the country’s horses and trainers necessary to achieve full field horse races; our continued ability to grow our share of the interstate simulcast market and obtain the consents of horsemen’s groups to interstate simulcasting; our ability to enter into agreements with other industry constituents for the purchase and sale of racing content for wagering purposes; our ability to execute our acquisition strategy and to complete or successfully operate acquisitions and planned expansion projects including the effect of required payments in the event we are unable to complete acquisitions; our ability to successfully complete any divestiture transaction; market reaction to our expansion projects; the inability of our totalisator company, United Tote, to maintain its processes accurately, keep its technology current or maintain its significant customers; our accountability for environmental contamination; the ability of Big Fish Games or TwinSpires to prevent security breaches within their online technologies; the loss of key personnel; the impact of natural and other disasters on our operations and our ability to obtain insurance recoveries in respect of such losses (including losses related to business interruption); our ability to integrate any businesses we acquire into our existing operations, including our ability to maintain revenues at historic or anticipated levels and achieve anticipated cost savings; the impact of wagering laws, including changes in laws or enforcement of those laws by regulatory agencies; the outcome of pending or threatened litigation; changes in our relationships with horsemen’s groups and their memberships; our ability to reach agreement with horsemen’s groups on future purse and other agreements (including, without limitation, agreements on sharing of revenues from casinos and advance deposit wagering); the effect of claims of third parties to intellectual property rights; and the volatility of our stock price.

You should read this discussion in conjunction with the Condensed Consolidated Financial Statements included in the Company’s Quarterly Reports on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2014 for further information, including Part I - Item 1A, "Risk Factors" of our Form 10-K for a discussion regarding some of the reasons that actual results may be materially different from those we anticipate.

5


CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(Unaudited) (in thousands, except per common share data)
 
Three Months Ended
 
 
 
September 30,
 
 
 
2015
 
2014
 
% Change
Net revenues:
 
 
 
 
 
Big Fish Games
$
103,540

 
$

 
F
Casinos
82,679

 
81,623

 
1
TwinSpires
50,346

 
46,266

 
9
Racing
38,867

 
41,055

 
(5)
Other
4,333

 
4,539

 
(5)
 
279,765

 
173,483

 
61
Operating expenses:
 
 
 
 
 
Big Fish Games
80,005

 

 
U
Casinos
60,821

 
60,436

 
1
TwinSpires
33,475

 
31,872

 
5
Racing
40,918

 
46,492

 
(12)
Other
4,924

 
5,837

 
(16)
Selling, general and administrative expenses
24,643

 
18,175

 
36
Calder exit costs
12,737

 
2,298

 
U
Research and development
9,950

 

 
U
Acquisition related charges
2,810

 

 
U
Operating income
9,482

 
8,373

 
13
Other income (expense):
 
 
 
 
 
Interest income
8

 
6

 
33
Interest expense
(6,740
)
 
(5,173
)
 
30
Equity in gains of unconsolidated investments
2,389

 
1,057

 
F
Miscellaneous, net
(186
)
 
114

 
U
 
(4,529
)
 
(3,996
)
 
13
Earnings from continuing operations before provision for income taxes
4,953

 
4,377

 
13
Income tax provision
(750
)
 
(846
)
 
(11)
Net earnings
$
4,203

 
$
3,531

 
19
 
 
 
 
 

Net earnings per common share data:
 
 
 
 

Basic
 
 
 
 

Net earnings
$
0.24

 
$
0.21

 
14
Diluted
 
 
 
 

Net earnings
$
0.24

 
$
0.20

 
20
 
 
 
 
 

Weighted average shares outstanding:
 
 
 
 

Basic
17,347

 
17,020

 

Diluted
17,769

 
17,303

 

 
 
 
 
 

Other comprehensive earnings:
 
 
 
 

Foreign currency translation, net of tax effect
58

 

 
F
Other comprehensive earnings
58

 

 
F
Comprehensive earnings
$
4,261

 
$
3,531

 
21


6


CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(Unaudited)
(in thousands, except per common share data)
 
Nine Months Ended
 
 
 
September 30,
 
 
 
2015
 
2014
 
% Change
Net revenues:
 
 
 
 
 
Big Fish Games
$
299,969

 
$

 
F
Casinos
251,864

 
249,788

 
1
TwinSpires
156,409

 
149,426

 
5
Racing
218,741

 
231,069

 
(5)
Other
12,931

 
13,813

 
(6)
 
939,914


644,096

 
46
Operating expenses:
 
 
 
 
 
Big Fish Games
245,610

 

 
U
Casinos
182,664

 
184,487

 
(1)
TwinSpires
102,863

 
102,260

 
1
Racing
152,525

 
175,195

 
(13)
Other
15,830

 
17,885

 
(11)
Selling, general and administrative expenses
68,250

 
58,306

 
17
Calder exit costs
13,490

 
2,298

 
U
Research and development
30,029

 

 
U
Acquisition related charges
17,410

 

 
U
Insurance recoveries, net of losses

 
(431
)
 
(100)
Operating income
111,243

 
104,096

 
7
Other income (expense):
 
 
 
 
 
Interest income
232

 
15

 
F
Interest expense
(21,336
)
 
(15,107
)
 
41
Equity in gains of unconsolidated investments
8,244

 
5,853

 
41
Gain on sale of equity investment
5,817

 

 
F
Miscellaneous, net
(346
)
 
482

 
U
 
(7,389
)
 
(8,757
)
 
(16)
Earnings from continuing operations before provision for income taxes
103,854

 
95,339

 
9
Income tax provision
(46,165
)
 
(35,175
)
 
31
Net earnings
57,689

 
60,164

 
(4)
 
 
 
 
 

Net earnings per common share data:
 
 
 
 

Basic
 
 
 
 

Net earnings
$
3.28

 
$
3.44

 
(5)
Diluted
 
 
 
 

Net earnings
$
3.26

 
$
3.40

 
(4)
 
 
 
 
 

Weighted average shares outstanding:
 
 
 
 

Basic
17,316

 
17,322

 

Diluted
17,715

 
17,670

 

 
 
 
 
 

Other comprehensive loss:
 
 
 
 

Foreign currency translation, net of tax effect
(357
)
 

 
U
Other comprehensive loss
(357
)
 

 
U
Comprehensive earnings
$
57,332

 
$
60,164

 
(5)

7


CHURCHILL DOWNS INCORPORATED
SUPPLEMENTAL INFORMATION BY OPERATING UNIT
for the three months ended September 30,
(Unaudited) (in thousands, except per common share data)
 
2015
 
2014
 
% Change
Net revenues from external customers:
 
 
 
 
 
Big Fish Games
$
103,540

 
$

 
F
Casinos:
 
 
 
 

Calder Casino
18,561

 
18,104

 
3
Fair Grounds Slots
8,789

 
9,453

 
(7)
VSI
9,011

 
8,008

 
13
Harlow's Casino
11,741

 
12,197

 
(4)
Oxford Casino
22,338

 
21,887

 
2
Riverwalk Casino
12,003

 
11,974

 
Saratoga
236

 

 
F
Total Casinos
82,679

 
81,623

 
1
TwinSpires
50,346

 
46,266

 
9
Racing:
 
 
 
 

Churchill Downs
7,863

 
8,021

 
(2)
Arlington
24,978

 
26,974

 
(7)
Calder
638

 
786

 
(19)
Fair Grounds
5,388

 
5,274

 
2
Total Racing
38,867

 
41,055

 
(5)
Other Investments
4,093

 
4,249

 
(4)
Corporate
240

 
290

 
(17)
Net revenues from external customers
$
279,765

 
$
173,483

 
61
Intercompany net revenues:
 
 
 
 
 
TwinSpires
$
234

 
$
240

 
(3)
Racing:
 
 
 
 

Churchill Downs
685

 
678

 
1
Arlington
1,665

 
2,001

 
(17)
Fair Grounds
11

 
15

 
(27)
Total Racing
2,361

 
2,694

 
(12)
Other Investments
792

 
829

 
(4)
Eliminations
(3,387
)
 
(3,763
)
 
(10)
Net revenues
$

 
$

 

Reconciliation of Adjusted EBITDA to net earnings:
 
 
 
 
 
Big Fish Games
$
33,295

 
$

 
F
Casinos
25,037

 
24,937

 
TwinSpires
13,759

 
11,098

 
24
Racing
283

 
(1,229
)
 
F
Other Investments
(78
)
 
(899
)
 
91
Corporate
(1,685
)
 
(1,398
)
 
(21)
Total segment Adjusted EBITDA
70,611

 
32,509

 
F
Big Fish Games acquisition charges
(2,810
)
 

 
U
Big Fish Games changes in deferred revenue
(10,907
)
 

 
U
Share-based compensation
(4,485
)
 
(2,213
)
 
U
Calder exit costs
(12,737
)
 
(2,298
)
 
U
MVG interest expense, net
(535
)
 
(819
)
 
35
Other charges and recoveries, net

 
(355
)
 
100
Depreciation and amortization
(27,452
)
 
(17,280
)
 
(59)
Interest (expense) income, net
(6,732
)
 
(5,167
)
 
(30)
Income tax provision
(750
)
 
(846
)
 
11
Net earnings
4,203

 
3,531

 
19
Foreign currency translation, net of tax effect
58

 

 
F
Comprehensive earnings
$
4,261

 
$
3,531

 
21

8


CHURCHILL DOWNS INCORPORATED
SUPPLEMENTAL INFORMATION BY OPERATING UNIT
for the nine months ended September 30, 2015
(Unaudited) (in thousands, except per common share data)
 
2015
 
2014
 
% Change
Net revenues from external customers:
 
 
 
 
 
Big Fish Games
$
299,969

 
$

 
F
Casinos:
 
 
 
 
 
Calder Casino
58,726

 
58,560

 
Fair Grounds Slots
29,324

 
30,823

 
(5)
VSI
27,584

 
25,241

 
9
Harlow's Casino
37,471

 
38,425

 
(2)
Oxford Casino
60,799

 
58,808

 
3
Riverwalk Casino
37,724

 
37,931

 
(1)
Saratoga
236

 

 
F
Total Casinos
251,864


249,788

 
1
TwinSpires
156,409

 
149,426

 
5
Racing:
 
 
 
 
 
Churchill Downs
136,663

 
128,511

 
6
Arlington
48,909

 
54,289

 
(10)
Calder
2,029

 
18,524

 
(89)
Fair Grounds
31,140

 
29,745

 
5
Total Racing
218,741


231,069

 
(5)
Other Investments
12,200

 
12,864

 
(5)
Corporate
731

 
949

 
(23)
Net revenues from external customers
$
939,914

 
$
644,096

 
46
Intercompany net revenues:
 
 
 
 
 
TwinSpires
$
781

 
$
714

 
9
Racing:
 
 
 
 
 
Churchill Downs
6,302

 
5,851

 
8
Arlington
4,109

 
4,795

 
(14)
Calder

 
707

 
(100)
Fair Grounds
869

 
744

 
17
Total Racing
11,280

 
12,097

 
(7)
Other Investments
2,680

 
2,937

 
(9)
Eliminations
(14,741
)
 
(15,748
)
 
(6)
Net revenues
$

 
$

 
 
Reconciliation of Adjusted EBITDA to net earnings:
 
 
 
 
 
Big Fish Games
$
81,559

 
$

 
F
Casinos
81,779

 
78,362

 
4
TwinSpires
41,666

 
35,135

 
19
Racing
76,281

 
66,600

 
15
Other Investments
35

 
(2,475
)
 
F
Corporate
(5,239
)
 
(3,645
)
 
(44)
Total segment Adjusted EBITDA
276,081

 
173,977

 
59
Insurance recoveries, net of losses

 
431

 
(100)
Big Fish Games acquisition charges
(17,410
)
 

 
U
Big Fish Games changes in deferred revenue
(32,003
)
 

 
U
Share-based compensation
(10,580
)
 
(10,567
)
 
Calder exit costs
(13,490
)
 
(2,298
)
 
U
MVG interest expense, net
(1,625
)
 
(1,956
)
 
17
Other charges and recoveries, net
6,114

 
(832
)
 
F
Depreciation and amortization
(82,129
)
 
(48,324
)
 
(70)
Interest (expense) income, net
(21,104
)
 
(15,092
)
 
(40)
Income tax provision
(46,165
)
 
(35,175
)
 
(31)
Net earnings
57,689


60,164

 
(4)
Foreign currency translation, net of tax effect
(357
)
 

 
U
Comprehensive earnings
$
57,332

 
$
60,164

 
(5)

9


CHURCHILL DOWNS INCORPORATED
SUPPLEMENTAL INFORMATION BY OPERATING UNIT
for the three and nine months ended September 30,
(unaudited) (in thousands)

 
 
Three Months Ended September 30,
 
Change
 
 
2015
 
2014
 
$
 
%
Intercompany management fee (expense) income:
 
 
 
 
 
 
 
 
Big Fish Games
 
$
(750
)
 
$

 
$
(750
)
 
U
Casinos
 
(2,655
)
 
(2,319
)
 
(336
)
 
(14)
TwinSpires
 
(1,628
)
 
(1,340
)
 
(288
)
 
(21)
Racing
 
(1,749
)
 
(1,505
)
 
(244
)
 
(16)
Other Investments
 
(147
)
 
(134
)
 
(13
)
 
(10)
Corporate income
 
6,929

 
5,298

 
1,631

 
31
Total management fees
 
$

 
$

 
$

 
 




 
 
Nine Months Ended September 30,
 
Change
 
 
2015
 
2014
 
$
 
%
Intercompany management fee (expense) income:
 
 
 
 
 
 
 
 
Big Fish Games
 
$
(2,250
)
 
$

 
$
(2,250
)
 
U
Casinos
 
(5,987
)
 
(5,850
)
 
(137
)
 
(2)
TwinSpires
 
(3,726
)
 
(3,573
)
 
(153
)
 
(4)
Racing
 
(5,442
)
 
(5,683
)
 
241

 
4
Other Investments
 
(335
)
 
(347
)
 
12

 
3
Corporate income
 
17,740

 
15,453

 
2,287

 
15
Total management fees
 
$

 
$

 
$

 
 



10


CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
(unaudited) (in thousands)
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net earnings
$
57,689

 
$
60,164

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
82,129

 
48,324

Game technology and rights amortization
5,846

 

Acquisition related charges
17,410

 

Asset impairment loss
12,948

 

Loss (gain) on asset disposals
368

 
(405
)
Gain on sale of equity investment
(5,817
)
 

Equity in gains of unconsolidated investments
(8,244
)
 
(5,853
)
Dividend from investment in unconsolidated affiliate
11,000

 

Share-based compensation
10,580

 
10,567

Other
1,207

 
458

Increase (decrease) in cash resulting from changes in operating assets and liabilities, net of business acquisition:
 
 
 
Restricted cash
(1,863
)
 
8,525

Accounts receivable
(9,555
)
 
(1,455
)
Other current assets
(11,696
)
 
(3,346
)
Game technology and rights
(16,247
)
 

Accounts payable
8,611

 
2,872

Purses payable
7,080

 
(6,336
)
Accrued expenses
4,733

 
2,707

Deferred revenue
13,329

 
(24,797
)
Income taxes receivable and payable
38,067

 
20,482

Other assets and liabilities
5,621

 
2,338

Net cash provided by operating activities
223,196

 
114,245

Cash flows from investing activities:
 
 
 
Additions to property and equipment
(30,838
)
 
(48,854
)
Deferred payments to Big Fish Games former equity holders
(959
)
 

Acquisition of gaming license
(2,250
)
 
(2,250
)
Investment in joint ventures
(350
)
 
(9,375
)
Proceeds from sale of equity investment
6,000

 

Purchases of minority investments
(81
)
 
(273
)
Proceeds on sale of property and equipment
124

 
925

Net cash used in investing activities
(28,354
)
 
(59,827
)
(continued on next page)

11


CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
(unaudited) (in thousands)
 
2015
 
2014
Cash flows from financing activities:
 
 
 
Borrowings on bank line of credit
382,412

 
317,379

Repayments on bank line of credit
(565,631
)
 
(303,179
)
Tax refund payments to Big Fish Games equity holders
(11,773
)
 

Change in bank overdraft
3,838

 
1,580

Payment of dividends
(17,419
)
 
(15,186
)
Repurchase of common stock

 
(61,561
)
Repurchase of common stock from share-based compensation
(7,183
)
 
(9,298
)
Common stock issued
1,213

 
7,475

Windfall tax benefit from share-based compensation
4,218

 
6,904

Loan origination fees
(31
)
 
(170
)
Debt issuance costs

 
(1,029
)
Net cash used in financing activities
(210,356
)
 
(57,085
)
Net decrease in cash and cash equivalents
(15,514
)
 
(2,667
)
Effect of exchange rate changes on cash
(1,310
)
 

Cash and cash equivalents, beginning of year
67,936

 
44,708

Cash and cash equivalents, end of year
$
51,112

 
$
42,041


12


CHURCHILL DOWNS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(unaudited) (in thousands)
 
September 30, 2015
 
December 31, 2014
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
51,112

 
$
67,936

Restricted cash
27,928

 
26,065

Accounts receivable, net
61,659

 
75,890

Deferred income taxes
18,989

 
18,519

Income taxes receivable

 
29,455

Game technology and rights, net
10,556

 
530

Other current assets
38,807

 
24,135

Total current assets
209,051

 
242,530

Property and equipment, net
571,457

 
595,315

Investment in and advances to unconsolidated affiliate
106,302

 
109,548

Goodwill
841,360

 
840,947

Other intangible assets, net
509,971

 
549,972

Other assets
22,174

 
24,192

Total assets
$
2,260,315

 
$
2,362,504

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
52,159

 
$
45,597

Bank overdraft
4,382

 
544

Purses payable
18,249

 
11,169

Account wagering deposit liabilities
20,291

 
18,137

Accrued expenses
99,894

 
93,286

Income taxes payable
8,938

 

Tax refund due to Big Fish Games former equity holders
6,342

 
18,087

Deferred revenue
9,719

 
51,833

Deferred revenue - Big Fish Games
73,750

 
41,747

Big Fish Games deferred payment, current
28,280

 
27,180

Big Fish Games earnout liability, current
276,570

 

Current maturities of long-term debt
15,000

 
11,250

Dividends payable

 
17,419

Total current liabilities
613,574

 
336,249

Long-term debt, net of current maturities
272,136

 
459,105

Notes payable
300,000

 
300,000

Big Fish Games deferred payment, net of current amount due
54,520

 
51,620

Big Fish Games earnout liability, net of current amount due
64,640

 
327,800

Other liabilities
23,779

 
21,718

Deferred revenue
15,684

 
16,489

Deferred income taxes
149,813

 
149,522

Total liabilities
1,494,146

 
1,662,503

Commitments and contingencies
 
 
 
Shareholders' equity:
 
 
 
Preferred stock, no par value; 250 shares authorized; no shares issued

 

Common stock, no par value; 50,000 shares authorized; 17,569 shares issued at September 30, 2015 and 17,472 shares issued at December 31, 2014
271,116

 
262,280

Accumulated other comprehensive loss
(482
)
 
(125
)
Retained earnings
495,535

 
437,846

Total shareholders' equity
766,169

 
700,001

Total liabilities and shareholders' equity
$
2,260,315

 
$
2,362,504


13


CHURCHILL DOWNS INCORPORATED
JOINT VENTURE FINANCIAL STATEMENTS
for the three and nine months ended September 30,
(Unaudited)


Summarized financial information for Miami Valley Gaming, LLC is comprised of the following (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
Casino revenue
$
32,199

 
$
32,479

 
(1)%
 
$
97,362

 
$
96,766

 
1%
Non-casino revenue
1,468

 
1,289

 
14%
 
5,304

 
4,833

 
10%
Net revenues
33,667

 
33,768

 
—%
 
102,666

 
101,599

 
1%
Operating and SG&A expenses
24,645

 
25,237

 
(2)%
 
74,331

 
74,225

 
—%
Adjusted EBITDA
9,022

 
8,531

 
6%
 
28,335

 
27,374

 
4%
Depreciation & amortization expenses
3,279

 
3,474

 
(6)%
 
9,577

 
10,315

 
(7)%
Pre-opening expenses

 

 
N/A
 

 
54

 
(100)%
Operating income
5,743

 
5,057

 
14%
 
18,758

 
17,005

 
10%
Interest (expense) income, net
(1,069
)
 
(1,380
)
 
(23)%
 
(3,250
)
 
(3,654
)
 
(11)%
Net income
$
4,674

 
$
3,677

 
27%
 
$
15,508

 
$
13,351

 
16%



Reconciliation of operating income to Churchill Downs' Adjusted EBITDA
Three Months Ended September 30,
 
Nine Months Ended September 30,
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
Operating income
$
5,743

 
$
5,057

 
14%
 
$
18,758

 
$
17,005

 
10%
Pre-opening expenses

 

 
N/A
 

 
54

 
(100)%
 
5,743

 
5,057

 
14%
 
18,758

 
17,059

 
10%
Churchill Downs' Adjusted EBITDA
$
2,872

 
$
2,529

 
14%
 
$
9,379

 
$
8,530

 
10%



 
September 30, 2015
 
December 31, 2014
Assets
 
 
 
Current assets
$
23,303

 
$
24,943

Property and equipment, net
122,371

 
130,868

Other assets, net
105,058

 
105,059

Total assets
$
250,732

 
$
260,870

 
 
 
 
Liabilities and Members' Equity
 
 
 
Current liabilities
$
17,636

 
$
16,775

Current portion of long-term debt
8,332

 
8,332

Long-term debt, excluding current portion
22,085

 
26,584

Other liabilities
75

 
83

Members' equity
202,604

 
209,096

Total liabilities and members' equity
$
250,732

 
$
260,870



14