SEC Filing | Churchill Downs, Inc.

View:

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-33998

Churchill Downs Incorporated

(Exact name of registrant as specified in its charter)

Kentucky

61-0156015

(State or other jurisdiction of incorporation or organization)

(I.R.S. 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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, No Par Value	CHDN	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of registrant’s common stock at October 16, 2019 was 39,831,864 shares.

CHURCHILL DOWNS INCORPORATED

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended September 30, 2019


	Part I-FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018	3
	Condensed Consolidated Balance Sheets at September 30, 2019 and December 31, 2018	4
	Condensed Consolidated Statements of Shareholders' Equity for the three and nine months ended September 30, 2019 and 2018	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	48

	Part II-OTHER INFORMATION
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	52
Item 6.	Exhibits	53
	Signatures	54

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions, except per common share data)	2019		2018		2019		2018
Net revenue:
Churchill Downs	$	31.4	$	10.8	$	234.6	$	167.7
Online Wagering	70.2		71.8		228.9		228.7
Gaming	178.3		110.4		524.7		330.0
All Other	26.4		28.3		60.9		63.6
Total net revenue	306.3		221.3		1,049.1		790.0
Operating expense:
Churchill Downs	30.8		19.5		127.8		87.4
Online Wagering	52.2		49.1		159.3		152.6
Gaming	137.3		81.2		395.5		238.9
All Other	22.9		23.7		59.9		62.0
Selling, general and administrative expense	34.4		21.9		89.4		63.4
Transaction expense, net	0.9		5.4		5.0		8.9
Total operating expense	278.5		200.8		836.9		613.2
Operating income	27.8		20.5		212.2		176.8
Other income (expense):
Interest expense, net	(18.9)		(9.9)		(52.0)		(29.2)
Equity in income of unconsolidated affiliates	14.1		9.1		27.7		24.4
Gain on Ocean Downs/Saratoga transaction	—		54.9		—		54.9
Miscellaneous, net	0.2		0.1		0.6		0.5
Total other income (expense)	(4.6)		54.2		(23.7)		50.6
Income from continuing operations before provision for income taxes	23.2		74.7		188.5		227.4
Income tax provision	(8.0)		(16.7)		(53.1)		(52.1)
Income from continuing operations, net of tax	15.2		58.0		135.4		175.3
(Loss) income from discontinued operations, net of tax	(0.4)		(1.7)		(1.9)		166.1
Net income	$	14.8	$	56.3	$	133.5	$	341.4

Net income (loss) per common share data - basic:
Continuing operations	$	0.38	$	1.43	$	3.37	$	4.22
Discontinued operations	$	(0.01)	$	(0.04)	$	(0.05)	$	4.00
Net income per common share data - basic	$	0.37	$	1.39	$	3.32	$	8.22

Net income (loss) per common share data - diluted:
Continuing operations	$	0.37	$	1.42	$	3.33	$	4.19
Discontinued operations	$	(0.01)	$	(0.04)	$	(0.05)	$	3.97
Net income per common share data - diluted	$	0.36	$	1.38	$	3.28	$	8.16

Weighted average shares outstanding:
Basic	40.0		40.7		40.2		41.6
Diluted	40.7		41.0		40.7		41.8

Other comprehensive income:
Foreign currency translation, net of tax	$	—	$	—	$	—	$	0.6
Change in pension benefits, net of tax	—		0.2		—		(0.2)
Other comprehensive income	—		0.2		—		0.4
Comprehensive income	$	14.8	$	56.5	$	133.5	$	341.8

The accompanying notes are an integral part of the condensed consolidated financial statements.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(in millions)	September 30, 2019		December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	189.8	$	133.3
Restricted cash	44.0		40.0
Accounts receivable, net	35.4		28.8
Income taxes receivable	1.4		17.0
Other current assets	31.3		22.4
Total current assets	301.9		241.5
Property and equipment, net	895.2		757.5
Investment in and advances to unconsolidated affiliates	625.0		108.1
Goodwill	363.8		338.0
Other intangible assets, net	355.8		264.0
Other assets	20.8		16.1
Total assets	$	2,562.5	$	1,725.2

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	75.8	$	47.0
Purses payable	26.3		15.8
Account wagering deposit liabilities	31.1		29.6
Accrued expense	124.5		89.8
Current deferred revenue	14.1		47.9
Current maturities of long-term debt	4.0		4.0
Dividends payable	—		22.5
Total current liabilities	275.8		256.6
Long-term debt, net of current maturities and loan origination fees	384.8		387.3
Notes payable, net of debt issuance costs	1,085.4		493.0
Non-current deferred revenue	17.4		21.1
Deferred income taxes	209.8		78.2
Other liabilities	38.9		15.7
Total liabilities	2,012.1		1,251.9
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 0.3 shares authorized; no shares issued or outstanding	—		—
Common stock, no par value; 150.0 shares authorized; 39.9 shares issued and outstanding at September 30, 2019 and 40.4 shares at December 31, 2018	—		—
Retained earnings	551.3		474.2
Accumulated other comprehensive loss	(0.9)		(0.9)
Total shareholders' equity	550.4		473.3
Total liabilities and shareholders' equity	$	2,562.5	$	1,725.2

The accompanying notes are an integral part of the condensed consolidated financial statements.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)


	Common Stock					Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders' Equity
(in millions)	Shares	Amount
Balance, December 31, 2018	40.4	$	—	$	474.2	$	(0.9)	$	473.3
Net income				11.6				11.6
Issuance of common stock	0.1	—						—
Repurchase of common stock	(0.3)	(4.7)		(20.3)				(25.0)
Taxes paid related to net share settlement of stock awards	(0.1)	—		(7.6)				(7.6)
Issuance of restricted stock awards, net of forfeitures	0.1	—						—
Stock-based compensation		4.7						4.7
Adoption of ASC 842				(0.3)				(0.3)
Other				0.2				0.2
Balance, March 31, 2019	40.2	—		457.8		(0.9)		456.9
Net income				107.1				107.1
Repurchase of common stock	(0.2)	(4.4)		(13.6)				(18.0)
Stock-based compensation		7.4						7.4
Other		(0.1)						(0.1)
Balance, June 30, 2019	40.0	2.9		551.3		(0.9)		553.3
Net income				14.8				14.8
Issuance of common stock	0.1	1.9						1.9
Repurchase of common stock	(0.2)	(10.4)		(14.6)				(25.0)
Taxes paid related to net share settlement of stock awards	—	—		(0.1)				(0.1)
Stock-based compensation		5.5						5.5
Other		0.1		(0.1)				—
Balance, September 30, 2019	39.9	$	—	$	551.3	$	(0.9)	$	550.4

The accompanying notes are an integral part of the condensed consolidated financial statements.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)


	Common Stock					Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders' Equity
(in millions)	Shares	Amount
Balance, December 31, 2017	46.2	$	7.3	$	634.3	$	(1.3)	$	640.3
Net income				182.0				182.0
Issuance of common stock	0.1	—						—
Repurchase of common stock	(5.7)	(13.5)		(488.0)				(501.5)
Taxes paid related to net share settlement of stock awards	(0.1)	—		(12.9)				(12.9)
Issuance of restricted stock awards, net of forfeitures	0.1	—						—
Stock-based compensation		6.2						6.2
Adoption of ASC 606				29.7				29.7
Other						0.4		0.4
Balance, March 31, 2018	40.6	—		345.1		(0.9)		344.2
Net income				103.1				103.1
Issuance of common stock	0.1	—						—
Repurchase of common stock	—	(0.3)						(0.3)
Stock-based compensation		6.4						6.4
Other		(0.1)		(0.1)				(0.2)
Balance, June 30, 2018	40.7	6.0		448.1		(0.9)		453.2
Net income				56.3				56.3
Issuance of common stock	—	1.5						1.5
Stock-based compensation		3.9						3.9
Other		0.1		(0.3)				(0.2)
Balance, September 30, 2018	40.7	$	11.5	$	504.1	$	(0.9)	$	514.7

The accompanying notes are an integral part of the condensed consolidated financial statements.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
(in millions)	2019		2018
Cash flows from operating activities:
Net income	$	133.5	$	341.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	64.3		45.8
Distributions from unconsolidated affiliates	24.7		14.4
Equity in income of unconsolidated affiliates	(27.7)		(24.4)
Stock-based compensation	17.6		16.5
Deferred income taxes	22.0		24.7
Gain on sale of Big Fish Games	—		(219.5)
Gain on Ocean Downs/Saratoga transaction	—		(54.9)
Other	2.0		(1.8)
Changes in operating assets and liabilities, net of business acquisitions and dispositions:
Income taxes	15.5		31.2
Deferred revenue	(36.0)		(43.6)
Other assets and liabilities	44.3		5.6
Net cash provided by operating activities	260.2		135.4
Cash flows from investing activities:
Capital maintenance expenditures	(37.7)		(19.9)
Capital project expenditures	(53.3)		(105.6)
Acquisition of businesses, net of cash acquired	(172.1)		13.1
Investments in and advances to unconsolidated affiliates	(410.1)		—
Distributions of capital from unconsolidated affiliates	5.8		—
Acquisition of gaming licenses	(22.1)		—
Proceeds from sale of Big Fish Games	—		970.7
Other	(1.1)		(9.4)
Net cash (used in) provided by investing activities	(690.6)		848.9
Cash flows from financing activities:
Proceeds from borrowings under long-term debt obligations	1,236.0		129.7
Repayments of borrowings under long-term debt obligations	(639.0)		(374.7)
Repayment of Ocean Downs debt	—		(54.7)
Payment of dividends	(22.2)		(23.5)
Repurchase of common stock	(66.8)		(501.8)
Taxes paid related to net share settlement of stock awards	(7.7)		(12.9)
Debt issuance costs	(8.9)		—
Big Fish Games earnout payment	—		(31.8)
Big Fish Games deferred payment	—		(26.4)
Other	(0.5)		(3.0)
Net cash provided by (used in) financing activities	490.9		(899.1)
Net increase in cash, cash equivalents and restricted cash	60.5		85.2
Effect of exchange rate changes on cash flows	—		(0.6)
Cash, cash equivalents and restricted cash, beginning of period	173.3		85.5
Cash, cash equivalents and restricted cash, end of period	$	233.8	$	170.1

The accompanying notes are an integral part of the condensed consolidated financial statements.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)


	Nine Months Ended September 30,
(in millions)	2019		2018
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	40.3	$	26.1	<