Churchill Downs Incorporated Reports 2015 Third-Quarter Results

LOUISVILLE, Ky., Oct. 28, 2015 (GLOBE NEWSWIRE) — Churchill Downs Incorporated (NASDAQ:CHDN) (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.

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 )

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 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.

 

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  

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 )

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  

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 )

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   $     $     $      

 

 

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 )
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  

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  

 

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  

 

CONTACT: Contact: Lauren DePaso
(502) 636-4506
Lauren.DePaso@kyderby.com