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10-Q


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


September 30, 2019





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





001-33998


Churchill Downs Inc





Kentucky61-0156015(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)600 North Hurstbourne Parkway, Suite 400LouisvilleKentucky40222(Address of Principal Executive Offices)(Zip Code)


502 636-4400








Title of each classTrading Symbol(s)Name of each exchange on which registeredCommon Stock, No Par ValueCHDNThe Nasdaq Stock Market LLC


No


Yes





Large accelerated filer☒Accelerated filer☐Non-accelerated filer☐Smaller reporting company☐Emerging growth company☐





☐


39,831,864















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Part I-FINANCIAL INFORMATIONItem 1.Financial Statements (Unaudited)Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 20183Condensed Consolidated Balance Sheets at September 30, 2019 and December 31, 20184Condensed Consolidated Statements of Shareholders' Equity for the three and nine months ended September 30, 2019 and 20185Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 20187Notes to Condensed Consolidated Financial Statements9Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations33Item 3.Quantitative and Qualitative Disclosures About Market Risk48Item 4.Controls and Procedures48Part II-OTHER INFORMATIONItem 1.Legal Proceedings50Item 1A.Risk Factors52Item 2.Unregistered Sales of Equity Securities and Use of Proceeds52Item 3.Defaults Upon Senior Securities52Item 4.Mine Safety Disclosures52Item 5.Other Information52Item 6.Exhibits53Signatures54









FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20192


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Three Months Ended September 30,Nine Months Ended September 30,(in millions, except per common share data)2019201820192018Net revenue:Churchill Downs$31.4$10.8$234.6$167.7Online Wagering70.271.8228.9228.7Gaming178.3110.4524.7330.0All Other26.428.360.963.6Total net revenue306.3221.31,049.1790.0Operating expense:Churchill Downs30.819.5127.887.4Online Wagering52.249.1159.3152.6Gaming137.381.2395.5238.9All Other22.923.759.962.0Selling, general and administrative expense34.421.989.463.4Transaction expense, net0.95.45.08.9Total operating expense278.5200.8836.9613.2Operating income27.820.5212.2176.8Other income (expense):Interest expense, net(18.9)(9.9)(52.0)(29.2)Equity in income of unconsolidated affiliates14.19.127.724.4Gain on Ocean Downs/Saratoga transaction—54.9—54.9Miscellaneous, net0.20.10.60.5Total other income (expense)(4.6)54.2(23.7)50.6Income from continuing operations before provision for income taxes23.274.7188.5227.4Income tax provision(8.0)(16.7)(53.1)(52.1)Income from continuing operations, net of tax15.258.0135.4175.3(Loss) income from discontinued operations, net of tax(0.4)(1.7)(1.9)166.1Net income$14.8$56.3$133.5$341.4Net income (loss) per common share data - basic:Continuing operations$0.38$1.43$3.37$4.22Discontinued operations$(0.01)$(0.04)$(0.05)$4.00Net income per common share data - basic$0.37$1.39$3.32$8.22Net income (loss) per common share data - diluted:Continuing operations$0.37$1.42$3.33$4.19Discontinued operations$(0.01)$(0.04)$(0.05)$3.97Net income per common share data - diluted$0.36$1.38$3.28$8.16Weighted average shares outstanding:Basic40.040.740.241.6Diluted40.741.040.741.8Other comprehensive income:Foreign currency translation, net of tax$—$—$—$0.6Change in pension benefits, net of tax—0.2—(0.2)Other comprehensive income—0.2—0.4Comprehensive income$14.8$56.5$133.5$341.8









FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20193


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(in millions)September 30, 2019December 31, 2018ASSETSCurrent assets:Cash and cash equivalents$189.8$133.3Restricted cash44.040.0Accounts receivable, net35.428.8Income taxes receivable1.417.0Other current assets31.322.4Total current assets301.9241.5Property and equipment, net895.2757.5Investment in and advances to unconsolidated affiliates625.0108.1Goodwill363.8338.0Other intangible assets, net355.8264.0Other assets20.816.1Total assets$2,562.5$1,725.2LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Accounts payable$75.8$47.0Purses payable26.315.8Account wagering deposit liabilities31.129.6Accrued expense124.589.8Current deferred revenue14.147.9Current maturities of long-term debt4.04.0Dividends payable—22.5Total current liabilities275.8256.6Long-term debt, net of current maturities and loan origination fees384.8387.3Notes payable, net of debt issuance costs1,085.4493.0Non-current deferred revenue17.421.1Deferred income taxes209.878.2Other liabilities38.915.7Total liabilities2,012.11,251.9Commitments and contingenciesShareholders' 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 earnings551.3474.2Accumulated other comprehensive loss(0.9)(0.9)Total shareholders' equity550.4473.3Total liabilities and shareholders' equity$2,562.5$1,725.2









FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20194


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Common StockRetainedEarningsAccumulated Other Comprehensive LossTotal Shareholders' Equity(in millions)SharesAmountBalance, December 31, 201840.4$—$474.2$(0.9)$473.3Net income11.611.6Issuance of common stock0.1——Repurchase of common stock(0.3)(4.7)(20.3)(25.0)Taxes paid related to net share settlement of stock awards(0.1)—(7.6)(7.6)Issuance of restricted stock awards, net of forfeitures0.1——Stock-based compensation4.74.7Adoption of ASC 842(0.3)(0.3)Other0.20.2Balance, March 31, 201940.2—457.8(0.9)456.9Net income107.1107.1Repurchase of common stock(0.2)(4.4)(13.6)(18.0)Stock-based compensation7.47.4Other(0.1)(0.1)Balance, June 30, 201940.02.9551.3(0.9)553.3Net income14.814.8Issuance of common stock0.11.91.9Repurchase of common stock(0.2)(10.4)(14.6)(25.0)Taxes paid related to net share settlement of stock awards——(0.1)(0.1)Stock-based compensation5.55.5Other0.1(0.1)—Balance, September 30, 201939.9$—$551.3$(0.9)$550.4







FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20195


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Common StockRetainedEarningsAccumulated Other Comprehensive LossTotal Shareholders' Equity(in millions)SharesAmountBalance, December 31, 201746.2$7.3$634.3$(1.3)$640.3Net income182.0182.0Issuance of common stock0.1——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 forfeitures0.1——Stock-based compensation6.26.2Adoption of ASC 60629.729.7Other0.40.4Balance, March 31, 201840.6—345.1(0.9)344.2Net income103.1103.1Issuance of common stock0.1——Repurchase of common stock—(0.3)(0.3)Stock-based compensation6.46.4Other(0.1)(0.1)(0.2)Balance, June 30, 201840.76.0448.1(0.9)453.2Net income56.356.3Issuance of common stock—1.51.5Stock-based compensation3.93.9Other0.1(0.3)(0.2)Balance, September 30, 201840.7$11.5$504.1$(0.9)$514.7









FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20196


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Nine Months Ended September 30,(in millions)20192018Cash flows from operating activities:Net income$133.5$341.4Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization64.345.8Distributions from unconsolidated affiliates24.714.4Equity in income of unconsolidated affiliates(27.7)(24.4)Stock-based compensation17.616.5Deferred income taxes22.024.7Gain on sale of Big Fish Games—(219.5)Gain on Ocean Downs/Saratoga transaction—(54.9)Other2.0(1.8)Changes in operating assets and liabilities, net of business acquisitions and dispositions:Income taxes15.531.2Deferred revenue(36.0)(43.6)Other assets and liabilities44.35.6Net cash provided by operating activities260.2135.4Cash 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)13.1Investments in and advances to unconsolidated affiliates(410.1)—Distributions of capital from unconsolidated affiliates5.8—Acquisition of gaming licenses(22.1)—Proceeds from sale of Big Fish Games—970.7Other(1.1)(9.4)Net cash (used in) provided by investing activities(690.6)848.9Cash flows from financing activities:Proceeds from borrowings under long-term debt obligations1,236.0129.7Repayments 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 activities490.9(899.1)Net increase in cash, cash equivalents and restricted cash60.585.2Effect of exchange rate changes on cash flows—(0.6)Cash, cash equivalents and restricted cash, beginning of period173.385.5Cash, cash equivalents and restricted cash, end of period$233.8$170.1









FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20197


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Nine Months Ended September 30,(in millions)20192018Supplemental disclosures of cash flow information:Cash paid during the period for:Interest$40.3$26.1Income taxes16.148.0Schedule of non-cash investing and financing activities:Deferred tax liability assumed from equity investment$109.6$—Property and equipment additions included in accounts payable and accrued expenses10.211.4Repurchase of common stock included in accrued expenses3.7—Acquisition of Ocean Downs, net of cash acquired—115.2










FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20198


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)




DESCRIPTION OF BUSINESS















































11,000 200 eight








FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20199


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)


























61.3


50


























178.9 1.6


100,000








100 291.0


300.0


42


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201910


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)


406.6 61.3


410.1 3.5 109.6








990.0 970.7 5.2 14.1








three

























RECENT ACCOUNTING PRONOUNCEMENTS








FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201911


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)











(in millions)As Reported at December 31, 2018Adoption of ASC 842Balance at January 1, 2019ASSETSOther current assets$22.4$(0.3)$22.1Property and equipment, net757.525.3782.8LIABILITIESAccrued expense89.83.893.6Other liabilities15.721.537.2SHAREHOLDERS' EQUITYRetained earnings474.2(0.3)473.9











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, and is to be applied prospectively.  The new guidance will not result in a cumulative adjustment upon adoption and will only be applicable in the event a reporting unit's carrying amount exceeds its fair value when testing goodwill for impairment.  As a result, we do not expect our future adoption of such guidance to have a material impact on our results of operations, financial condition, or cash flows.






FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201912


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)


SIGNIFICANT ACCOUNTING POLICIES
















ACQUISITIONS





178.9 1.6 The following table summarizes the fair values of the assets acquired and liabilities assumed, net of cash acquired of $8.4 million, at the date of the acquisition.


(in millions)TotalCurrent assets$2.1Property and equipment78.5Goodwill25.8Intangible assets71.2Current liabilities(4.9)Non-current liabilities(0.6)$172.1





(in millions)Fair Value RecognizedWeighted-Average Useful LifeGaming rights$56.0N/ATrademark15.2N/ATotal intangible assets$71.2











FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201913


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)








25.8


105.3





Three Months Ended September 30,Nine Months EndedSeptember 30,(in millions)201820192018Net revenue$259.0$1,052.3$897.7





100,000





50 25 fifteen years


100 62.5 25 47.8 80.5 54.9


FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201914


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)





50


Three Months Ended September 30,Nine Months Ended September 30,(in millions)20182018Net revenue$239.9$845.7







DISCONTINUED OPERATIONS


990.0 970.7 5.2 14.1 The Company derecognized the following upon the Big Fish Transaction:


(in millions)Cash and cash equivalents$0.3Accounts receivable34.7Game software development, net6.7Other current assets17.0Property and equipment, net17.8Game software development, net13.8Goodwill530.7Other intangible assets, net238.4Other assets24.0Accounts payable(8.5)Accrued expense(22.6)Deferred revenue(44.2)Deferred income taxes(52.0)Other liabilities(4.9)Carrying value of Big Fish Games$751.2


219.5 970.7 751.2 51.2 168.3




FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201915


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)





Three Months Ended September 30,Nine Months Ended September 30,(in millions)2019201820192018Net revenue$—$—$—$13.2Operating expenses———8.4Selling, general and administrative expense0.80.72.85.6Research and development———0.9Total operating expense0.80.72.814.9Operating loss(0.8)(0.7)(2.8)(1.7)Other income (expense)Gain on sale of Big Fish Games———219.5Other expense———(0.1)Total other income———219.4(Loss) income from discontinued operations before provision for income taxes(0.8)(0.7)(2.8)217.7Income tax benefit (provision)0.4(1.0)0.9(51.6)(Loss) income from discontinued operations, net of tax$(0.4)$(1.7)$(1.9)$166.1





3.4





34.2 28.4




GOODWILL AND OTHER INTANGIBLE ASSETS


51.7 49.7 1.0 1.0





Churchill DownsOnline WageringGamingAll OtherTotalBalances as of December 31, 2018$49.7$148.2$139.1$1.0$338.0Additions——25.8—25.8Balances as of September 30, 2019$49.7$148.2$164.9$1.0$363.8


25.8







FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201916


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)





September 30, 2019December 31, 2018(in millions)Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying AmountDefinite-lived intangible assets$31.3$(13.7)$17.6$32.1$(14.1)$18.0Indefinite-lived intangible assets338.2246.0Total$355.8$264.0


56.0 15.2 8.0 10.0 3.0







INCOME TAXES


2.7


109.6







SHAREHOLDERS’ EQUITY


300.0 250.0 78.3


202,449 672,473 25.0 68.0 200.0 3.7 2.5


500.0 5,660,376 88.33 500.0






FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201917


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)


STOCK-BASED COMPENSATION PLANS


5.5 3.9 17.6 13.1








Grant YearAward TypeNumber of Shares/Units AwardedVesting Terms2019RSA64Vest equally over three service periods ending in 2020, 2021, and 20222019RSU55Vest equally over three service periods ending in 2019, 2020, and 20212019PSU53Three year performance and service period ending in 20212019RSU10One year service period ending in 2020







DEBT





600.0 5.50
 st  st 8.9


100 40 105.5









FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201918


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)


REVENUE FROM CONTRACTS WITH CUSTOMERS





156.2 0.9 44.5 34.3











35.1 69.9 1.1 49.6 1.2 51.3






















INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES





42 406.6 3.5 300.0 61.3 36 2.7


109.6




FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201919


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)





841.4 860.1 13.7 9.5 35.3 4.5 3.7 840.9








Three Months Ended September 30,Nine Months Ended September 30,(in millions)2019201820192018Net revenue$160.8$105.2$416.6$322.1Operating and SG&A expense113.776.4293.8240.5Depreciation and amortization3.65.99.119.0Total operating expense117.382.3302.9259.5Operating income43.522.9113.762.6Interest and other, net(17.6)(1.0)(59.9)(5.6)Net income$25.9$21.9$53.8$57.0





(in millions)September 30, 2019December 31, 2018AssetsCurrent assets$59.2$24.0Property and equipment, net244.095.7Other assets, net236.2106.7Total assets$539.4$226.4Liabilities and Members' EquityCurrent liabilities$75.1$21.2Long-term debt740.5—Other liabilities25.5—Members' (deficit) equity(301.7)205.2Total liabilities and members' (deficit) equity$539.4$226.4





FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201920


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)




LEASES


2 10 1 5 25.7





(in millions)Three Months Ended September 30, 2019Nine Months Ended September 30, 2019Short-term lease cost (a) (b)$2.7$11.4Operating lease cost (b)1.84.9Total lease cost$4.5$16.3











(in millions, except lease term and discount rate)Three Months Ended September 30, 2019Nine Months Ended September 30, 2019Supplemental Cash Flow InformationCash paid for amounts included in the measurement of lease liabilities$1.5$3.8ROUAs obtained in exchange for lease obligations1.53.0





Lease Term and Discount RateSeptember 30, 2019Weighted average remaining lease term6.7 yearsWeighted average discount rate3.9%





(in millions)Years Ended December 31,Totals2019 (excludes nine months ended September 30, 2019)$1.420205.520215.020224.020233.4Thereafter11.6Total future minimum lease payments30.9Less:  Imputed interest3.7Present value of lease liabilities$27.2Reported lease liabilities as of September 30, 2019Accrued expense (current maturities of leases)$4.7Other liabilities (non-current maturities of leases)22.5Present value of lease liabilities$27.2




FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201921


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)





(in millions)Years Ended December 31,2019$5.020204.520213.820223.120233.0Thereafter11.2Total$30.6







FAIR VALUE OF ASSETS AND LIABILITIES














4.75





September 30, 2019(in millions)Carrying AmountFair ValueLevel 1Level 2Level 3Financial assets:Restricted cash$44.0$44.0$44.0$—$—Financial liabilities:Term Loan B388.8393.0—393.0—2027 Senior Notes591.8635.2—635.2—2028 Senior Notes493.6511.3—511.3—December 31, 2018(in millions)Carrying AmountFair ValueLevel 1Level 2Level 3Financial assets:Restricted cash$40.0$40.0$40.0$—$—Financial liabilities:Term Loan B391.3396.0—396.0—2028 Senior Notes493.0452.4—452.4—









FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201922


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)


CONTINGENCIES

















2.8









FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201923


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)


NET INCOME PER COMMON SHARE COMPUTATIONS





Three Months Ended September 30,Nine Months Ended September 30,(in millions, except per share data)2019201820192018Numerator for basic net income per common share:Net income from continuing operations$15.2$58.0$135.4$175.3Net (loss) income from discontinued operations(0.4)(1.7)(1.9)166.1Numerator for basic net income per common share$14.8$56.3$133.5$341.4Numerator for diluted net income from continuing operations per common share$15.2$58.0$135.4$175.3Numerator for diluted net income per common share:$14.8$56.3$133.5$341.4Denominator for net income per common share:Basic40.040.740.241.6Plus dilutive effect of stock awards0.70.30.50.2Diluted40.741.040.741.8Net income (loss) per common share data:BasicContinuing operations$0.38$1.43$3.37$4.22Discontinued operations$(0.01)$(0.04)$(0.05)$4.00Net income per common share - basic$0.37$1.39$3.32$8.22DilutedContinuing operations$0.37$1.42$3.33$4.19Discontinued operations$(0.01)$(0.04)$(0.05)$3.97Net income per common share - diluted$0.36$1.38$3.28$8.16







SEGMENT INFORMATION


three




















FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201924


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)









































The tables below present net revenue from external customers and intercompany revenue from each of our segments, net revenue from external customers for each group of similar services, Adjusted EBITDA by segment, and a reconciliation of comprehensive income to Adjusted EBITDA:








FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201925


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)


Three Months Ended September 30,Nine Months Ended September 30,(in millions)2019201820192018Net revenue from external customers:Churchill Downs:Churchill Downs Racetrack$8.9$8.5$172.2$165.4Derby City Gaming22.52.362.42.3Total Churchill Downs31.410.8234.6167.7Online Wagering:TwinSpires70.371.8228.8228.7Online Sports Betting and iGaming(0.1)—0.1—Total Online Wagering70.271.8228.9228.7Gaming:Presque Isle38.1—104.9—Fair Grounds and VSI25.024.593.488.4Oxford27.228.977.479.3Calder24.424.075.474.9Ocean Downs26.78.167.08.1Riverwalk13.612.844.140.8Harlow’s13.312.141.937.9Lady Luck Nemacolin10.0—20.6—Saratoga———0.6Total Gaming178.3110.4524.7330.0All Other26.428.360.963.6Net revenue from external customers$306.3$221.3$1,049.1$790.0





Three Months Ended September 30,Nine Months Ended September 30,(in millions)2019201820192018Intercompany net revenue:Churchill Downs$1.3$1.0$12.6$10.7Online Wagering0.20.30.91.1Gaming0.30.11.81.2All Other3.43.29.09.2Eliminations(5.2)(4.6)(24.3)(22.2)Intercompany net revenue$—$—$—$—








FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201926


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)


Three Months Ended September 30, 2019(in millions)Churchill DownsOnline WageringGamingTotal SegmentsAll OtherTotalNet revenue from external customersPari-mutuel:Live and simulcast racing$5.4$67.1$6.2$78.7$15.0$93.7Historical racing21.3——21.3—21.3Racing event-related services1.6—0.82.43.15.5Gaming(a)——153.2153.2—153.2Other(a)3.13.118.124.38.332.6Total$31.4$70.2$178.3$279.9$26.4$306.3





Three Months Ended September 30, 2018(in millions)Churchill DownsOnline WageringGamingTotal SegmentsAll OtherTotalNet revenue from external customersPari-mutuel:Live and simulcast racing$4.8$68.8$4.3$77.9$16.6$94.5Historical racing2.2——2.2—2.2Racing event-related services2.0—0.82.83.56.3Gaming(a)——92.892.8—92.8Other(a)1.83.012.517.38.225.5Total$10.8$71.8$110.4$193.0$28.3$221.3


8.9 6.6








FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201927


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)


Nine Months Ended September 30, 2019(in millions)Churchill DownsOnline WageringGamingTotal SegmentsAll OtherTotalNet revenue from external customersPari-mutuel:Live and simulcast racing$48.1$218.7$23.9$290.7$34.7$325.4Historical racing58.7——58.7—58.7Racing event-related services115.0—3.1118.15.3123.4Gaming(b)—0.1442.4442.5—442.5Other(b)12.810.155.378.220.999.1Total$234.6$228.9$524.7$988.2$60.9$1,049.1





Nine Months Ended September 30, 2018(in millions)Churchill DownsOnline WageringGamingTotal SegmentsAll OtherTotalNet revenue from external customersPari-mutuel:Live and simulcast racing$45.6$219.5$19.3$284.4$38.1$322.5Historical racing2.2——2.2—2.2Racing event-related services111.6—2.9114.55.7120.2Gaming(b)——267.8267.8—267.8Other(b)8.39.240.057.519.877.3Total$167.7$228.7$330.0$726.4$63.6$790.0


(b) Food and beverage, hotel, and other services furnished to customers for free as an inducement to gamble or through the redemption of our customers' loyalty points are recorded at their estimated standalone selling prices in Other revenue with a corresponding offset recorded as a reduction in Gaming revenue.  These amounts were $24.7 million for the nine months ended September 30, 2019 and $19.5 million for the nine months ended September 30, 2018.







FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201928


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)





Three Months Ended September 30, 2019(in millions)Churchill DownsOnline WageringGamingNet revenue$32.7$70.4$178.6Taxes & purses(10.2)(4.4)(71.2)Marketing & advertising(1.1)(3.6)(5.5)Salaries & benefits(6.8)(3.0)(26.6)Content expense(0.5)(36.5)(1.6)SG&A expense(2.1)(1.8)(7.9)Other operating expense(6.9)(6.1)(21.2)Other income0.1—27.1Adjusted EBITDA$5.2$15.0$71.7





Three Months Ended September 30, 2018(in millions)Churchill DownsOnline WageringGamingNet revenue$11.8$72.1$110.5Taxes & purses(3.6)(4.2)(37.9)Marketing & advertising(0.6)(0.6)(3.6)Salaries & benefits(4.5)(2.1)(16.8)Content expense(0.5)(37.3)(0.9)SG&A expense(0.8)(1.4)(4.5)Other operating expense(4.6)(5.7)(14.8)Other income——12.7Adjusted EBITDA$(2.8)$20.8$44.7








FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201929


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)


Nine Months Ended September 30, 2019(in millions)Churchill DownsOnline WageringGamingNet revenue$247.2$229.8$526.5Taxes & purses(52.1)(12.0)(204.7)Marketing & advertising(5.8)(9.1)(15.7)Salaries & benefits(24.5)(8.2)(76.5)Content expense(1.8)(120.4)(4.5)SG&A expense(5.8)(5.5)(21.2)Other operating expense(28.8)(20.5)(62.0)Other income0.1—70.7Adjusted EBITDA$128.5$54.1$212.6





Nine Months Ended September 30, 2018(in millions)Churchill DownsOnline WageringGamingNet revenue$178.4$229.8$331.2Taxes & purses(31.6)(12.2)(111.4)Marketing & advertising(4.1)(4.5)(10.7)Salaries & benefits(17.3)(6.6)(49.3)Content expense(1.8)(119.3)(2.9)SG&A expense(3.0)(4.4)(12.3)Other operating expense(21.6)(19.7)(44.2)Other income0.1—36.4Adjusted EBITDA$99.1$63.1$136.8





FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201930


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)


Three Months Ended September 30,Nine Months Ended September 30,(in millions)2019201820192018Reconciliation of Comprehensive Income to Adjusted EBITDA:Comprehensive income$14.8$56.5$133.5$341.8Foreign currency translation, net of tax———(0.6)Change in pension benefits, net of tax—(0.2)—0.2Net income14.856.3133.5341.4Loss (income) from discontinued operations, net of tax0.41.71.9(166.1)Income from continuing operations, net of tax15.258.0135.4175.3Additions:Depreciation and amortization22.016.764.345.8Interest expense18.99.952.029.2Income tax provision8.016.753.152.1EBITDA$64.1$101.3$304.8$302.4Adjustments to EBITDA:Selling, general and administrative:Stock-based compensation expense$5.5$3.9$17.6$13.1Legal reserves3.3—3.6—Pre-opening expense and other expense1.22.83.64.1Transaction expense, net0.95.45.08.9Gain on Ocean Downs/Saratoga transaction—(54.9)—(54.9)Other income, expense:Interest, depreciation and amortization expense related to equity investments9.73.622.912.2Changes in fair value of Midwest Gaming's interest rate swaps3.2—15.4—Midwest Gaming's recapitalization and transactions costs——4.7—Other0.1———Total adjustments to EBITDA23.9(39.2)72.8(16.6)Adjusted EBITDA$88.0$62.1$377.6$285.8Adjusted EBITDA by segment:Churchill Downs$5.2$(2.8)$128.5$99.1Online Wagering15.020.854.163.1Gaming71.744.7212.6136.8Total segment Adjusted EBITDA91.962.7395.2299.0All Other(3.9)(0.6)(17.6)(13.2)Total Adjusted EBITDA$88.0$62.1$377.6$285.8





Three Months Ended September 30,Nine Months Ended September 30,(in millions)2019201820192018Gaming$14.1$9.1$27.7$24.4




FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201931


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Churchill Downs IncorporatedNotes to Condensed Consolidated Financial Statements(Unaudited)





(in millions)September 30, 2019December 31, 2018Total assets:Churchill Downs$364.5$359.6Online Wagering242.5222.8Gaming1,606.8877.1Total segment assets2,213.81,459.5All Other348.7265.7Total assets$2,562.5$1,725.2





Nine Months Ended September 30,(in millions)20192018Capital expenditures:Churchill Downs$24.7$100.6Online Wagering7.37.1Gaming30.713.2Total segment capital expenditures62.7120.9All Other28.34.6Total capital expenditures$91.0$125.5







SUBSEQUENT EVENT





46.0





36.0 10.0





At its regularly scheduled meeting held October 29, 2019, the Board of Directors of the Company declared an annual cash dividend of $0.581 per share, to be paid on January 3, 2020, to all shareholders of record on December 6, 2019.






FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201932


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FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201933


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178.9


100,000





42 406.6 300.0 61.3


109.6














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970.7 5.2 14.1















































FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201936


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FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201937


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Three Months Ended September 30,Nine Months Ended September 30,(in millions)20192018Change20192018ChangeNet revenue$306.3$221.3$85.0$1,049.1$790.0$259.1Operating income27.820.57.3212.2176.835.4Operating income margin9%9%20%22%Net income from continuing operations$15.2$58.0$(42.8)$135.4$175.3$(39.9)Net income14.856.3(41.5)133.5341.4(207.9)Adjusted EBITDA88.062.125.9377.6285.891.8






















FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201938


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FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201939


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Three Months Ended September 30,Nine Months Ended September 30,(in millions)20192018Change20192018ChangeChurchill Downs:Churchill Downs Racetrack$10.2$9.5$0.7$184.8$176.1$8.7Derby City Gaming22.52.320.262.42.360.1Total Churchill Downs32.711.820.9247.2178.468.8Online Wagering:TwinSpires70.572.1(1.6)229.7229.8(0.1)Online Sports Betting and iGaming(0.1)—(0.1)0.1—0.1Total Online Wagering70.472.1(1.7)229.8229.8—Gaming:Presque Isle38.3—38.3105.3—105.3Fair Grounds and VSI25.024.50.594.789.55.2Oxford27.228.9(1.7)77.479.3(1.9)Calder24.524.10.475.575.00.5Ocean Downs26.78.118.667.08.158.9Riverwalk13.612.80.844.140.83.3Harlow's13.312.11.241.937.94.0Lady Luck Nemacolin10.0—10.020.6—20.6Saratoga————0.6(0.6)Total Gaming178.6110.568.1526.5331.2195.3All Other29.831.5(1.7)69.972.8(2.9)Eliminations(5.2)(4.6)(0.6)(24.3)(22.2)(2.1)Net Revenue$306.3$221.3$85.0$1,049.1$790.0$259.1











FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201940


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Three Months Ended September 30,Nine Months Ended September 30,(in millions)20192018Change20192018ChangeTaxes and purses$91.3$51.9$39.4$282.6$170.4$112.2Salaries and benefits43.531.611.9127.893.933.9Content expense35.336.5(1.2)109.2110.2(1.0)Selling, general and administrative expense34.421.912.589.463.426.0Depreciation and amortization22.016.75.364.345.818.5Marketing and advertising10.76.04.731.620.910.7Transaction expense, net0.95.4(4.5)5.08.9(3.9)Other operating expense40.430.89.6127.099.727.3Total expense$278.5$200.8$77.7$836.9$613.2$223.7

















FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201941


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FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201942


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Three Months Ended September 30,Nine Months Ended September 30,(in millions)20192018Change20192018ChangeChurchill Downs$5.2$(2.8)$8.0$128.5$99.1$29.4Online Wagering15.020.8(5.8)54.163.1(9.0)Gaming71.744.727.0212.6136.875.8Total Segment Adjusted EBITDA91.962.729.2395.2299.096.2All Other(3.9)(0.6)(3.3)(17.6)(13.2)(4.4)Total Adjusted EBITDA$88.0$62.1$25.9$377.6$285.8$91.8


































FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201943


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Three Months Ended September 30,Nine Months Ended September 30,(in millions)20192018Change20192018ChangeComprehensive income$14.8$56.5$(41.7)$133.5$341.8$(208.3)Foreign currency translation, net of tax————(0.6)0.6Change in pension benefits, net of tax—(0.2)0.2—0.2(0.2)Net income14.856.3(41.5)133.5341.4(207.9)Loss (income) from discontinued operations, net of tax0.41.7(1.3)1.9(166.1)168.0Income from continuing operations, net of tax15.258.0(42.8)135.4175.3(39.9)Additions:Depreciation and amortization22.016.75.364.345.818.5Interest expense18.99.99.052.029.222.8Income tax provision8.016.7(8.7)53.152.11.0EBITDA$64.1$101.3$(37.2)$304.8$302.4$2.4Adjustments to EBITDA:Selling, general and administrative:Stock-based compensation expense$5.5$3.9$1.6$17.6$13.1$4.5Legal reserves3.3—3.33.6—3.6Pre-opening expense and other expense1.22.8(1.6)3.64.1(0.5)Transaction expense, net0.95.4(4.5)5.08.9(3.9)Gain on Ocean Downs/Saratoga transaction—(54.9)54.9—(54.9)54.9Other income (expense):Interest, depreciation and amortization expense related to equity investments9.73.66.122.912.210.7Changes in fair value of Midwest Gaming's interest rate swaps3.2—3.215.4—15.4Midwest Gaming's recapitalization and transactions costs———4.7—4.7Other0.1—0.1———Total adjustments to EBITDA23.9(39.2)63.172.8(16.6)89.4Adjusted EBITDA$88.0$62.1$25.9$377.6$285.8$91.8













(in millions)September 30, 2019December 31, 2018ChangeTotal assets$2,562.5$1,725.2$837.3Total liabilities$2,012.1$1,251.9$760.2Total shareholders' equity$550.4$473.3$77.1





FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201944


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(in millions)Nine Months Ended September 30,Cash flows from:20192018ChangeOperating activities$260.2$135.4$124.8Investing activities$(690.6)$848.9$(1,539.5)Financing activities$490.9$(899.1)$1,390.0





















FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201945


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(in millions)September 30, 2019December 31, 2018ChangeTerm Loan B due 2024$393.0$396.0$(3.0)2027 Senior Notes600.0—600.02028 Senior Notes500.0500.0—Total debt1,493.0896.0597.0Current maturities of long-term debt4.04.0—Total debt, net of current maturities1,489.0892.0597.0Issuance cost and fees(18.8)(11.7)(7.1)Total debt, net of current maturities$1,470.2$880.3$589.9














ActualRequirementInterest coverage ratio6.1 to 1.0> 2.5 to 1.0Consolidated total secured net leverage ratio0.6 to 1.0< 4.0 to 1.0











st  st




FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201946


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FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201947


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(in millions)October 1 to December 31, 20192020-20212022-2023ThereafterTotalTerm Loan B$1.0$8.0$8.0$376.0$393.0Interest on Term Loan B(1)4.131.931.215.382.52027 Senior Notes———600.0600.02028 Senior Notes———500.0500.0Interest on 2027 Senior Notes—66.066.0115.5247.5Interest on 2028 Senior Notes—47.547.5106.9201.9Operating leases1.410.57.411.630.9Total$6.5$163.9$160.1$1,725.3$2,055.8
















































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FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201951


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PeriodTotal Number of Shares PurchasedAverage Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in millions)(1)7/1/19-7/31/19249$117.73—$225.08/1/19-8/31/19124125.07—225.09/1/19-9/30/19202,662123.47202,449200.0Total203,035$123.46202,449

































FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201952


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NumberDescriptionBy Reference To31(a)Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*31(b)Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*32Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished pursuant to Rule 13a – 14(b))**101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document101.SCHInline XBRL Taxonomy Extension Schema Document101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document101.LABInline XBRL Taxonomy Extension Label Linkbase Document101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document104Cover Page Interactive Data File (embedded as Inline XBRL and contained in Exhibit 101)*filed herewith**furnished herewith









FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201953


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CHURCHILL DOWNS INCORPORATEDOctober 30, 2019/s/ William C. CarstanjenWilliam C. CarstanjenChief Executive Officer(Principal Executive Officer)October 30, 2019/s/ Marcia A. DallMarcia A. DallExecutive Vice President and Chief Financial Officer(Principal Financial and Accounting Officer)





FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 201954