UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 2017
OR
oTRANSITION 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
logocdia01.jpg
(Exact name of registrant as specified in its charter)
Kentucky61-0156015
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
  
600 North Hurstbourne Parkway, Suite 400 Louisville, Kentucky 40222(502) 636-4400
(Address of principal executive offices) (zip code)(Registrant’s telephone number, including area code)
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 x    No  ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).  Yes x 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 filerx Accelerated filero
Non-accelerated filero Smaller reporting companyo
   Emerging growth companyo
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  x
The number of shares outstanding of Registrant’s common stock at AprilJuly 19, 2017 was 16,484,63215,408,244 shares.
 
 
 


CHURCHILL DOWNS INCORPORATED
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended March 31,June 30, 2017
 
 
Part I-FINANCIAL INFORMATION
 
Item 1.
Financial Statements (Unaudited)
 
 
Condensed Consolidated Statements of Comprehensive Income for the three and six months ended March 31,June 30, 2017 and 2016 (Unaudited)
3
 
Condensed Consolidated Balance Sheets March 31,at June 30, 2017 and December 31, 2016 (Unaudited)
4
 
Condensed Consolidated Statements of Cash Flows for the threesix months ended March 31,June 30, 2017 and 2016 (Unaudited)
5
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
7
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
1921
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
3236
Item 4.
Controls and Procedures
3236
   
 
Part II-OTHER INFORMATION
 
Item 1.
Legal Proceedings
3337
Item 1A.
Risk Factors
3337
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
3337
Item 3.
Defaults Upon Senior Securities
3337
Item 4.
Mine Safety Disclosures
3337
Item 5.
Other Information
3337
Item 6.
Exhibits
3337
 
Signatures
3438
 
Exhibit Index
3539

PART I.FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
 CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended March 31,Three Months Ended June 30, Six Months Ended June 30,
(in millions, except per common share data)2017 20162017 2016 2017 2016
Net revenue:          
Racing$23.9
 $26.2
$165.3
 $156.1
 $189.2
 $182.3
Casinos87.5
 86.5
88.3
 84.4
 175.8
 170.9
TwinSpires52.0
 49.6
80.5
 68.4
 132.5
 118.0
Big Fish Games112.0
 122.1
112.6
 125.2
 224.6
 247.3
Other Investments4.1
 4.0
5.2
 4.4
 9.3
 8.4
Total net revenue279.5
 288.4
451.9

438.5
 731.4
 726.9
Operating expense:          
Racing36.4
 35.6
76.5
 72.3
 112.9
 107.9
Casinos62.7
 61.0
62.1
 60.4
 124.8
 121.4
TwinSpires36.4
 34.6
51.4
 41.4
 87.8
 76.0
Big Fish Games86.9
 109.4
89.4
 105.6
 176.3
 215.0
Other Investments3.9
 3.9
4.9
 4.1
 8.8
 8.0
Corporate0.7
 0.6
0.5
 0.4
 1.2
 1.0
Selling, general and administrative expense24.1
 23.1
26.7
 24.6
 50.8
 47.7
Research and development10.3
 10.8
9.9
 9.7
 20.2
 20.5
Calder exit costs0.4
 0.4
0.2
 1.5
 0.6
 1.9
Acquisition expenses, net0.2
 2.7
0.8
 1.1
 1.0
 3.8
Total operating expense262.0
 282.1
322.4
 321.1
 584.4
 603.2
Operating income17.5
 6.3
129.5
 117.4
 147.0
 123.7
Other income (expense):          
Interest expense(11.8) (10.6)(11.6) (11.1) (23.4) (21.7)
Equity in income of unconsolidated investments6.1
 3.8
7.7
 4.8
 13.8
 8.6
Miscellaneous, net—
 (0.5)0.2
 0.4
 0.2
 (0.1)
Total other expense(5.7) (7.3)(3.7) (5.9) (9.4) (13.2)
Income (loss) from operations before provision for income taxes11.8
 (1.0)
Income tax (provision) benefit(4.5) 3.8
Income from operations before provision for income taxes125.8
 111.5
 137.6
 110.5
Income tax provision(47.5) (41.7) (52.0) (37.9)
Net income$7.3
 $2.8
$78.3
 $69.8
 $85.6
 $72.6
          
Net income per common share data:          
Basic net income$0.44
 $0.17
$4.86
 $4.16
 $5.27
 $4.32
Diluted net income$0.44
 $0.16
$4.81
 $4.11
 $5.18
 $4.27
Weighted average shares outstanding:          
Basic16.3
 16.5
16.1
 16.5
 16.2
 16.5
Diluted16.8
 17.0
16.3
 17.0
 16.5
 17.0
          
Other comprehensive loss:          
Foreign currency translation, net of tax(0.1) —
(0.3) 0.2
 (0.4) 0.2
Other comprehensive loss(0.1) —
Other comprehensive (loss) gain(0.3) 0.2
 (0.4) 0.2
Comprehensive income$7.2
 $2.8
$78.0
 $70.0
 $85.2
 $72.8
The accompanying notes are an integral part of the condensed consolidated financial statements.

CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in millions)March 31, 2017 December 31, 2016June 30, 2017 December 31, 2016
ASSETS      
Current assets:      
Cash and cash equivalents$54.9
 $48.7
$41.8
 $48.7
Restricted cash25.0
 34.3
31.6
 34.3
Accounts receivable, net of allowance for doubtful accounts of $3.8 at March 31, 2017 and $3.5 at December 31, 201662.3
 81.4
Accounts receivable, net of allowance for doubtful accounts of $3.8 at June 30, 2017 and $3.5 at December 31, 201670.6
 81.4
Receivable from escrow3.5
 13.6
—
 13.6
Income taxes receivable1.0
 7.6
—
 7.6
Game software development, net8.9
 9.6
10.6
 9.6
Other current assets57.7
 50.8
54.2
 50.8
Total current assets213.3
 246.0
208.8
 246.0
Property and equipment, net590.7
 574.4
602.8
 574.4
Game software development, net8.1
 6.3
8.7
 6.3
Investment in and advances to unconsolidated affiliates164.7
 139.1
168.0
 139.1
Goodwill832.2
 832.2
847.2
 832.2
Other intangible assets, net435.4
 445.7
434.2
 445.7
Other assets11.7
 10.7
12.3
 10.7
Total assets$2,256.1
 $2,254.4
$2,282.0
 $2,254.4
      
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities:      
Accounts payable$56.1
 $53.2
$87.3
 $53.2
Purses payable9.5
 12.5
23.2
 12.5
Account wagering deposit liabilities21.5
 25.0
25.0
 25.0
Accrued expense92.4
 100.1
93.9
 100.1
Income taxes payable42.3
 —
Deferred revenue - Big Fish Games80.2
 81.3
79.6
 81.3
Deferred revenue - all other85.2
 64.3
11.5
 64.3
Big Fish Games deferred payment, current28.0
 27.8
28.1
 27.8
Big Fish Games earnout liability, current33.7
 67.9
33.8
 67.9
Current maturities of long-term debt15.3
 14.2
16.5
 14.2
Dividends payable—
 21.8
—
 21.8
Total current liabilities421.9
 468.1
441.2
 468.1
Long-term debt (net of current maturities and loan origination fees of $0.5 at both March 31, 2017 and December 31, 2016)358.0
 312.8
Notes payable (including premium of $2.4 at March 31, 2017 and $2.5 at December 31, 2016 and net of debt issuance costs of $7.4 at March 31, 2017 and $7.8 at December 31, 2016)595.0
 594.7
Long-term debt (net of current maturities and loan origination fees of $0.5 at both June 30, 2017 and December 31, 2016)459.9
 312.8
Notes payable (including premium of $2.2 at June 30, 2017 and $2.5 at December 31, 2016 and net of debt issuance costs of $6.9 at June 30, 2017 and $7.8 at December 31, 2016)595.3
 594.7
Deferred revenue - all other24.5
 24.4
20.7
 24.4
Deferred income taxes150.3
 153.1
145.3
 153.1
Other liabilities17.5
 16.3
18.3
 16.3
Total liabilities1,567.2
 1,569.4
1,680.7
 1,569.4
Commitments and contingencies
 

 
Shareholders' equity:      
Preferred stock, no par value; 0.3 shares authorized; no shares issued—
 —
—
 —
Common stock, no par value; 50.0 shares authorized; 16.5 shares issued at March 31, 2017 and at December 31, 2016113.2
 116.5
Common stock, no par value; 50.0 shares authorized; 15.4 shares issued at June 30, 2017 and 16.5 shares issued at December 31, 2016—
 116.5
Retained earnings577.0
 569.7
602.8
 569.7
Accumulated other comprehensive loss(1.3) (1.2)(1.5) (1.2)
Total shareholders' equity688.9
 685.0
601.3
 685.0
Total liabilities and shareholders' equity$2,256.1
 $2,254.4
$2,282.0
 $2,254.4
The accompanying notes are an integral part of the condensed consolidated financial statements.

CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,Six Months Ended June 30,
(in millions)2017 20162017 2016
Cash flows from operating activities:      
Net income$7.3
 $2.8
$85.6
 $72.6
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization24.5
 27.0
49.3
 53.9
Game software development amortization4.4
 3.7
8.7
 7.5
Acquisition expenses, net0.2
 2.7
1.0
 3.8
Distributed earnings from equity investments4.3
 4.0
8.7
 8.2
Earnings from equity investments, net(6.1) (3.8)(13.8) (8.6)
Stock-based compensation4.9
 4.1
11.7
 9.4
Big Fish Games earnout payment(2.5) (19.7)(2.5) (19.7)
Other0.3
 0.7
0.7
 1.1
Increase (decrease) in cash resulting from changes in operating assets and liabilities, net of business acquisitions and dispositions:      
Other current assets and liabilities(5.2) 0.3
25.1
 20.2
Game software development(5.3) (4.2)(11.3) (10.1)
Income taxes6.6
 (5.7)50.0
 35.8
Deferred revenue42.4
 53.9
(34.9) (4.2)
Other assets and liabilities(1.2) 0.8
(7.2) (3.1)
Net cash provided by operating activities74.6
 66.6
171.1
 166.8
Cash flows from investing activities:      
Capital maintenance expenditures(10.2) (7.9)(17.9) (16.3)
Capital project expenditures(27.3) (8.5)(46.1) (18.2)
Acquisition of a business(23.1) —
Receivable from escrow10.1
 —
13.6
 —
Investment in unconsolidated affiliates(24.0) —
(24.0) —
Proceeds from sale of equity investment—
 1.4
Other0.2
 (1.1)
Net cash used in investing activities(51.4) (15.0)(97.3) (35.6)
Cash flows from financing activities:      
Borrowings on bank line of credit239.1
 292.1
543.6
 442.1
Repayments of bank line of credit(192.7) (87.0)(394.2) (298.8)
Big Fish Games earnout payment(31.7) (261.9)(31.7) (261.9)
Payment of dividends(21.8) (19.1)(21.8) (19.1)
Repurchase of common stock(8.6) (0.8)(181.0) (17.6)
Common stock issued0.1
 —
Loan origination fees and debt issuance costs—
 (1.4)
Other(1.4) 3.0
3.8
 4.4
Net cash used in financing activities(17.0) (75.1)(81.3) (150.9)
Net increase (decrease) in cash and cash equivalents6.2
 (23.5)
Net decrease in cash and cash equivalents(7.5) (19.7)
Effect of exchange rate changes on cash—
 0.1
0.6
 0.3
Cash and cash equivalents, beginning of period48.7
 74.5
48.7
 74.5
Cash and cash equivalents, end of period$54.9
 $51.1
$41.8
 $55.1
The accompanying notes are an integral part of the condensed consolidated financial statements.

CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)

Three Months Ended March 31,Six Months Ended June 30,
(in millions)2017 20162017 2016
Supplemental disclosures of cash flow information:      
Cash paid during the period for:      
Interest$2.6
 $1.1
$21.4
 $19.6
Income taxes$0.3
 $2.2
$9.0
 $2.2
Schedule of non-cash investing and financing activities:      
Issuance of common stock in connection with the Company's restricted stock plans$18.2
 $16.6
$18.4
 $18.5
Repurchase of common stock in payment of income taxes on stock-based compensation$—
 $4.0
Repurchase of common stock included in accrued expenses$—
 $2.2
The accompanying notes are an integral part of the condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



1. DESCRIPTION OF BUSINESS
Basis of Presentation
The Churchill Downs Incorporated (the "Company", "we", "us", "our") financial statements are presented in conformity with the requirements of this Quarterly Report on Form 10-Q and consequently do not include all of the disclosures normally required by U.S. generally accepted accounting principles ("U.S. GAAP") or those normally made in our Annual Report on Form 10-K. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP.
The following information is unaudited. Tabular dollars are in millions, except as otherwise noted. All per share amounts assume dilution unless otherwise noted. This report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016.
In the opinion of management, all adjustments necessary for a fair statement of this information have been made, and all such adjustments are of a normal, recurring nature.
Our critical accounting policies are revenue recognition, goodwill and indefinite intangible assets, property and equipment and income taxes. Our significant accounting policies are more fully described in Note 2 to the Consolidated Financial Statements included in Item 8. "Financial Statements and Supplementary Data" of our Annual Report on Form 10-K for the year ended December 31, 2016.
Seasonality
Racing
Due to the seasonal nature of our live racing business, revenue and operating results for any interim quarter are generally not indicative of the revenues and operating results for the year and may not be comparable with results for the corresponding period of the previous year. Historically, we have had fewer live racing days during the first quarter of each year, and the majority of our live racing revenue occurs during the second quarter, with the running of the Kentucky Derby and the Kentucky Oaks. We conducted 5564 live thoroughbred race days in the firstsecond quarter of 2017 and 5461 live thoroughbred race days in the firstsecond quarter of 2016. For the six months ended June 30, 2017, we conducted 119 live thoroughbred racing days, which compares to 115 live thoroughbred racing days during the six months ended June 30, 2016.
Casinos
Revenue from our casino properties havehas a seasonal component and areis typically higher during the first and second quarters.
TwinSpires
Due to the seasonal nature of the racing business, revenue and operating results for any interim quarter are generally not indicative of the revenues and operating results for the year and may not be comparable with results for the corresponding period of the previous year. Historically, our revenue is higher in the second quarter with the running of the Kentucky Derby and the Kentucky Oaks.
Big Fish Games
Revenue from our Big Fish Games, Inc. ("Big Fish Games") segment also havehas a seasonal component and areis typically lower during the summer months.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In JanuaryMay 2017, the Financial Accounting Standards Board (“FASB”("FASB") issued Accounting Standards Update (“ASU”("ASU") No. 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting. This new standard provides clarity about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting for stock compensation expense. The guidance will become effective in 2018. We are assessing the impact of the new accounting guidance and currently cannot estimate the financial statement impact of adoption.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. This new guidance simplifies the accounting for goodwill impairments by removing step two from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess. The new guidance is effective in 2020 with early adoption permitted for any goodwill impairment test performed between January 1, 2017 and January 1, 2020. We are assessing the impact of the new accounting guidance and currently cannot estimate the financial statement impact of adoption.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


In January 2017, the FASB issued ASU No. 2017-01, Business Combinations: Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance will become effective in 2018. We will assess the impact of the new accounting guidance as necessary for future transactions.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash. The new standard requires that the statement of cash flows explain the change during the period of cash, cash equivalents, and amounts generally described

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


as restricted cash. Entities will also be required to reconcile to the balance sheet and disclose the nature of the restrictions. The guidance will become effective in 2018. While we are continuing to assess all potential impacts of the standard, we believe the most significant impact relates to the presentation of our statement of cash flows where we will be required to reconcile to total cash, cash equivalents, and restricted cash. Currently, our statement of cash flows reconciles to total cash and cash equivalents.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The guidance will become effective in 2018. We are assessing the impact of the new accounting guidance and currently cannot estimate the financial statement impact of adoption.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses, which introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new model will apply to: (1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (2) loan commitments and certain other off-balance sheet credit exposures, (3) debt securities and other financial assets measured at fair value through other comprehensive income, and (4) beneficial interests in securitized financial assets. The guidance will become effective in 2020. We are assessing the impact of the new accounting guidance and currently cannot estimate the financial statement impact of adoption.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets. ASU 2016-02 iswill be effective in our first quarter of fiscal 2019 on a modified retrospective basis and earlier adoption is permitted. We are currently evaluating the impact of our pending adoption of ASU 2016-02, on our Condensed Consolidated Financial Statements, and we currently expect that most of our operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon our adoption of ASU 2016-02.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The revised guidance will become effective in 2018 and will be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. During 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net); ASU No. 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing;Licensing, and ASU No. 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients; which clarified the guidance on certain items such as reporting revenue gross versus net and presentation of sales tax, among other things. While we are continuing to assess all potential impacts of the new standard, we believe the mosthave identified two areas of impact at this time. The first area is significant impact primarilyand relates to our accounting for breakage revenue for our outstanding premium game club credits for Big Fish Games. Currently, we record breakage revenue for our outstanding premium game credits when the credits have legally expired. Under the new standard, we will be required to recognize the expected breakage related to our outstanding premium game club credits as revenue in proportion to the pattern of game club credits redeemed by our customers. WeThe second area is not significant and likely will not be material. This area relates to our accounting for loyalty points under our various rewards programs which are earned by our customers at our casinos. These accumulated loyalty points are redeemable for free complimentaries, including gaming play and food and beverage. The estimated liability for unredeemed points is currently accrued based on expected redemption rates and the estimated costs of the services or merchandise to be provided. Under the new standard, we will need to defer the standalone selling price of the complimentaries until the future revenue transaction occurs. Although the exact amount of the increase to our point liabilities has not yet been determined, we do not anticipate it will have a significant impact on our earnings. Due to the change in our accounting related to breakage revenue, we anticipate this standard may have a material impact on our Condensed Consolidated Financial Statements.consolidated financial statements. At this time, we expect to adopt this new standard using the modified retrospective method on January 1, 2018.
3. ACQUISITIONS
On April 24, 2017, we completed the acquisition of BAM Software and Services, LLC ("BetAmerica"), which has not had a material impact on our results of operations, financial condition or cash flows. The results of operations and financial condition of BetAmerica have been included in our Condensed Consolidated Financial Statements from the acquisition date. The pro forma

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


financial information assuming the acquisition had occurred as of the beginning of the calendar year prior to the year of acquisition, as well as the revenues and earnings generated during the year of acquisition, were not material for disclosure purposes.
4. RECEIVABLE FROM ESCROW
On November 8, 2016, we established a $14.0 million qualified intermediary trust with a portion of the proceeds from the sale of excess land at Calder Race Course ("Calder") to bethat was used to purchase previously identified real property within six months postpost- closing. As of March 31,During the six months ended June 30, 2017, we hadutilized the entire escrow amount, resulting in a receivable from escrow of $3.5zero balance at June 30, 2017, compared to our $13.6 million from the qualified intermediary trust which is included in our accompanying Condensed Consolidated Balance Sheets, compared to $13.6 million at December 31, 2016.
4.5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
Miami Valley Gaming
We acquired a 50% joint venture in Miami Valley Gaming ("MVG"), which has a harness racetrack and video lottery terminal ("VLT") gaming facility in Lebanon, Ohio, with Delaware North Companies Gaming & Entertainment Inc. ("DNC") in 2012. Total consideration was $60.0 million, of which $10.0 million was funded at closing with the remainder funded through a $50.0 million note payable with a six year term effective upon the commencement of gaming operations.
Since both we and DNC have participating rights over MVG, and both must consent to MVG's operating, investing and financing decisions, we account for MVG using the equity method of accounting.
The joint venture's long-term debt consists of a $50.0 million secured note payable quarterly over 6 years through November 2019 at a 5.0% interest rate for which it has funded $27.1 million in principal repayments. We received distributions from MVG totaling $4.0 million for each of the three months ended March 31, 2017 and March 31, 2016.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Summarized below is financial information for our equity investment:
 Three Months Ended March 31,
(in millions)2017 2016
Casino revenue$39.3
 $36.0
Non-casino revenue2.1
 2.0
Net revenue41.4
 38.0
Operating and SG&A expense28.6
 26.8
Depreciation & amortization3.1
 3.2
Operating income9.7
 8.0
Interest and other expense, net(0.7) (0.9)
Net income$9.0
 $7.1
(in millions)March 31, 2017 December 31, 2016
Assets   
Current assets$18.6
 $18.7
Property and equipment, net107.3
 109.8
Other assets, net105.0
 105.0
Total assets$230.9
 $233.5
    
Liabilities and Members' Equity   
Current liabilities$10.6
 $12.5
Current portion of long-term debt8.3
 8.3
Long-term debt, excluding current portion12.3
 14.0
Other liabilities0.1
 0.1
Members' equity199.6
 198.6
Total liabilities and members' equity$230.9
 $233.5
Our Condensed Consolidated Statements of Comprehensive Income include our 50% share of MVG's results as follows:
 Three Months Ended March 31,
(in millions)2017 2016
Equity in income of unconsolidated investments$4.5
 $3.6
Saratoga
On October 2, 2015, we completed the acquisition of a 25% equity investment in Saratoga Casino Holdings LLC ("SCH") which owns Saratoga Casino and Raceway ("Saratoga's New York facility") in Saratoga Springs, New York, for $24.5 million from Saratoga Harness Racing, Inc. ("SHRI"). Saratoga's New York facility has a casino with approximately 1,700 VLTs, a 1/2-mile harness racetrack with a racing simulcast center, a 117-room hotel, dining facilities and a 3,000 square-foot multi-functional event space. Saratoga's New York facility has a 50% interest in a joint venture with DNC to manage the Gideon Putnam Hotel and Resort. We signed a five-year management agreement with SCH to manage Saratoga's New York facility for which we receive management fee revenue.
On November 21, 2016, we completed the acquisition of a 25% equity investment in Saratoga Casino Black Hawk in Black Hawk, Colorado ("Saratoga's Colorado facility") for $6.5 million from SHRI. Saratoga's Colorado facility has a casino with approximately 500 slot machines, seven table games, three lounges and two dining facilities.
Ocean Downs
In August 2016, we signed a limited liability company operating agreement with SCH,Saratoga Casino Holdings LLC ("SCH"), with each entity having a 50% interest, and formed Old Bay Gaming and Racing LLC ("Old Bay"). The Old Bay agreement provides both the Company and SCH equal participating rights, and both entities must consent to Old Bay's operating, investing and financing decisions.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


On January 3, 2017, Old Bay acquired all of the equity interests of Ocean Enterprise 589 LLC, Ocean Downs LLC and Racing Services LLC (collectively, "Ocean Downs"). The Company's portion of the initial equity investment in Ocean Downs was $24.0 million. Ocean Downs, located near Ocean City, Maryland, owns and operates VLTsvideo lottery terminals ("VLT") at the Casino at Oceans Downs and conducts harness racing at Ocean Downs Racetrack. The Company's 25% interest in SCH provides an additional 12.5% interest, resulting in an effective 62.5% interest in Ocean Downs. Since both the Company and SCH have participating rights and both must consent to Old Bay's operating, investing and financing decisions, the Company accounts for Ocean Downs using the equity method of accounting.
Miami Valley Gaming
We have a 50% joint venture in Miami Valley Gaming ("MVG"), which has a harness racetrack and VLT gaming facility in Lebanon, Ohio, with Delaware North Companies Gaming & Entertainment Inc.
Summarized below is financial information for our MVG equity investment:
 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2017 2016 2017 2016
Casino revenue$40.2
 $36.6
 $79.5
 $72.6
Non-casino revenue1.8
 2.0
 3.9
 4.0
Net revenue42.0
 38.6
 83.4
 76.6
Operating and SG&A expense29.0
 26.5
 57.6
 53.3
Depreciation & amortization3.2
 3.3
 6.3
 6.5
Operating income9.8
 8.8
 19.5
 16.8
Interest and other expense, net(0.6) (0.9) (1.3) (1.8)
Net income$9.2
 $7.9
 $18.2
 $15.0

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


(in millions)June 30, 2017 December 31, 2016
Assets   
Current assets$18.1
 $18.7
Property and equipment, net105.4
 109.8
Other assets, net105.0
 105.0
Total assets$228.5
 $233.5
    
Liabilities and Members' Equity   
Current liabilities$8.6
 $12.5
Current portion of long-term debt8.3
 8.3
Long-term debt, excluding current portion10.6
 14.0
Other liabilities0.1
 0.1
Members' equity200.9
 198.6
Total liabilities and members' equity$228.5
 $233.5
Our Condensed Consolidated Statements of Comprehensive Income include our 50% share of MVG's results as follows:
 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2017 2016 2017 2016
Equity in income of unconsolidated investments$4.6
 $3.9
 $9.1
 $7.5
5.6. GOODWILL AND OTHER INTANGIBLE ASSETS
We performed our annual goodwill and indefinite-lived intangible impairment analysis for 2017 in accordance with ASU No. 2011-08, Intangibles-Goodwill and Other: Testing Goodwill for Impairment, and ASU No. 2012-02, Intangibles-Goodwill and Other: Testing Indefinite-Lived Intangible Assets for Impairment, as of March 31, 2017 and again as of April 1, 2017, and no adjustment to the carrying value of goodwill or indefinite-lived intangible assets was required. We assessed goodwill and indefinite-lived intangible assets by performing step one fair value calculations on a quantitative basis for each reporting unit and indefinite-lived intangible asset. We concluded that the fair values of our reporting units and indefinite-lived intangible assets exceeded their carrying value and therefore step two of the assessment was not required.
During the three months ended March 31, 2017, the Company changed its annual goodwill and indefinite-lived impairment testing date from March 31 to April 1 of each year. As a result, the annual impairment tests were performed as of March 31, 2017 and will be performed again as of April 1, 2017. The change was made to better align with our forecasting process and to provide the Company with additional time to complete its annual goodwill and indefinite-lived intangible impairment testing in advance of its quarterly reporting. The Company believes this change in measurement date, which represents a change in method of applying an accounting principle, is preferable under the circumstances. We believe the resulting change in accounting principle related to changing the annual impairment testing date will not delay, accelerate, or avoid an impairment charge.
Goodwill is comprised of the following:
(in millions)Racing Casinos TwinSpires Big Fish Games TotalRacing Casinos TwinSpires Big Fish Games Total
Balances as of December 31, 2016$51.7
 $117.6
 $132.1
 $530.8
 $832.2
$51.7
 $117.6
 $132.1
 $530.8
 $832.2
Adjustments—
 —
 —
 —
 —
Balances as of March 31, 2017$51.7
 $117.6
 $132.1
 $530.8
 $832.2
Additions—
 —
 15.0
 —
 15.0
Balances as of June 30, 2017$51.7
 $117.6
 $147.1
 $530.8
 $847.2
In 2017, we established goodwill of $15.0 million related to the BetAmerica acquisition.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Other intangible assets are comprised of the following:
March 31, 2017 December 31, 2016June 30, 2017 December 31, 2016
(in millions)Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying AmountGross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Definite-lived intangible assets$187.4
 $(110.3) $77.1
 $187.4
 $(100.0) $87.4
$179.2
 $(103.3) $75.9
 $187.4
 $(100.0) $87.4
Indefinite-lived intangible assets    358.3
     358.3
    358.3
     358.3
Total

 

 $435.4
     $445.7


 

 $434.2
     $445.7
In 2017, we reduced our customer relationships intangible asset and accumulated amortization for TwinSpires by $15.1 million and we reduced our slot license intangible asset and accumulated amortization by $2.3 million, as these amounts were fully amortized. Finally, we established definite-lived intangible assets of $9.2 million related to the BetAmerica acquisition.
6.7. INCOME TAXES
The Company’s income tax rate for the three and six months ended March 31,June 30, 2017 was higher than the U. SU.S. federal statutory rate of 35.0% primarily due to state income taxes and certain expenses that are not deductible for the purposes of income taxes. These unfavorabletaxes, partially offset by benefits from tax consequencescredits, the manufacturing deduction and tax deductions from vesting of restricted stock units in excess of the book deductions.
The Company's income tax rate for the three months ended June 30, 2016 was higher than the U.S. federal statutory rate of 35.0% primarily due to state income taxes and certain expenses that are not deductible for the purposes of income taxes, partially mitigatedoffset by benefits from tax credits and the manufacturing deduction.
The Company’s income tax rate for the threesix months ended March 31,June 30, 2016 was lower than the U. S federal statutory rate of 35.0% primarily due to a $3.1 million tax benefit resulting from tax deductions from vesting restricted stock units in excess of the book deductions that were recognized upon our adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. This benefit was partially offset by state income taxes and certain expenses that are not deductible for the purposes of income taxes.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


7.8. FAIR VALUE OF ASSETS AND LIABILITIES
We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The following tables present our assets and liabilities measured at fair value on a recurring basis:
March 31, 2017June 30, 2017
(in millions)Level 1 Level 3Level 1 Level 3
Cash equivalents and restricted cash$25.0
 $—
$30.8
 $—
Big Fish Games deferred payments—
 28.0
—
 28.1
Big Fish Games earnout liability—
 33.7
—
 33.8
Total$25.0

$61.7
$30.8

$61.9
 December 31, 2016
(in millions)Level 1 Level 3
Cash equivalents and restricted cash$34.1
 $—
Big Fish Games deferred payments—
 27.8
Big Fish Games earnout liability—
 67.9
Total$34.1
 $95.7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



The following table presents the change in fair value of our Level 3:3 liabilities:
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(in millions)Big Fish Games Deferred Payments Big Fish Games Earnout Liability TotalBig Fish Games Deferred Payments Big Fish Games Earnout Liability Total
Balances as of December 31, 2016$27.8
 $67.9
 $95.7
$27.8
 $67.9
 $95.7
Payments—
 (34.2) (34.2)—
 (34.2) (34.2)
Change in fair value0.2
 —
 0.2
0.3
 0.1
 0.4
Balances as of March 31, 2017$28.0
 $33.7
 $61.7
Balances as of June 30, 2017$28.1
 $33.8
 $61.9
Our cash equivalents and restricted cash, which are held in interest-bearing accounts, qualify for Level 1 in the fair value hierarchy which includes unadjusted quoted market prices in active markets for identical assets.
We estimated the fair value of the Big Fish Games deferred payment and earnout liability as of March 31,June 30, 2017 using a discounted cash flows analysis over the period in which the obligation is expected to be settled, and applied a discount rate of 2.7% based on our cost of debt. The cost of debt was based on the observed market yields of our $600.0 million, 5.375% Senior Unsecured Notes ("Senior Unsecured Notes"), a Level 3 fair value measurement, and was adjusted for the difference in seniority and term of the deferred payments and earnout liability. The increase in fair values of the Big Fish Games deferred payments and earnout liability of $0.2$0.4 million during the threesix months ended March 31,June 30, 2017 was recorded as acquisition-related charges in the Condensed Consolidated Statements of Comprehensive Income. During 2015, Big Fish Games achieved its earnout milestones and we have made earnout payments of $34.2 million in March 2017 and $281.6 million in March 2016.
We currently have no other assets or liabilities subject to fair value measurement on a recurring basis. Our $600.0 million Senior Unsecured Notes are disclosed at fair value which is based on unadjusted quoted prices for similar liabilities in markets that are not active. The Level 3 fair value of the Senior Unsecured Notes was $622.5 million at both March 31,June 30, 2017 and December 31, 2016.
The following methods and assumptions were used in estimating our fair value disclosures for financial instruments:
Cash Equivalents—The carrying amount reported in the balance sheet for cash equivalents approximates our fair value due to the short-term maturity of these instruments.
Long-Term Debt: Senior Secured Credit Facility—The carrying amounts of the borrowings under the Senior Secured Credit Facility approximate fair value, based upon current interest rates and represent a Level 2 fair value measurement.
We did not measure any assets at fair value on a non-recurring basis for 2017 or 2016.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


8.9. SHAREHOLDERS’ EQUITY
In February 2016, ourOn April 25, 2017, the Board of Directors authorizedof the Company approved a new common stock repurchase program of up to $250.0 million. The new program replaced the prior $150.0 million program that was authorized in February 2016 and had unused authorization of our common stock$114.6 million. The new authorized amount included and was not in a stock repurchase program.addition to any unspent amount remaining under the prior authorization. Repurchases may be made at management’s discretion from time to time on the open market (either with or without a 10b5-1 plan) or through privately negotiated transactions. The repurchase program has no time limit and may be suspended for periods or discontinued at any time.
On June 9, 2017, we entered into an agreement with an affiliate of The Duchossois Group, Inc. ("TDG"), a related party, to repurchase 1,000,000 shares of the Company's common stock for $158.78 per share in a privately negotiated transaction. The aggregate purchase price was $158.8 million.
For the six months ended June 30, 2017, including the repurchase of 1,000,000 shares from TDG, we repurchased 1,077,029 shares of our common stock under the April 2017 stock repurchase program at a total cost of $171.7 million. The shares were retired, and the cost of the shares acquired were treated as a deduction from common stock and retained earnings. We had approximately $78.3 million of repurchase authority remaining under this program at June 30, 2017.
During the threesix months ended March 31,June 30, 2017, we also repurchased 53,721 shares of our common stock in conjunction with ourthe February 2016 stock repurchase program at a total cost of $7.8 million. We had approximately $114.6 million of repurchase authority remaining under this program at March 31, 2017.

Refer to Note 13, Subsequent Events, for information on a new common stock repurchase program.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9.

10. STOCK-BASED COMPENSATION PLANS
The 2016 Incentive Plan and the 2007 Incentive Plan (collectively "the 2016 and 2007 Plans") permit the award of restricted shares or restricted stock units to directors and key employees, including our officers who are from time to time responsible for the management, growth and protection of our business. Restricted shares granted under the 2016 and 2007 Plans generally vest either in full upon three years from the date of grant, on a pro-rata basis over a three year term or upon retirement at or after age 60. The fair value of restricted shares that vest solely based on continued service under the 2016 and 2007 Plans is determined by the product of the number of shares granted and the grant date market price of our common stock.
On September 22, 2015, the Board of Directors approved the adoption of the Executive Long-Term Incentive Compensation Plan (the "ELTI Plan"), pursuant to which certain named executive officers ("NEOs") and other key executives ("Grantees") may earn variable equity payouts based upon us achieving certain key performance metrics over a specified period. The ELTI Plan was adopted pursuant to 2016 and 2007 Plans, which were previously approved by our shareholders.
2017 Awards
On February 17, 2017, certain NEOs and Grantees received the following:
25,119 restricted stock units ("RSU") to NEOs vesting equally over three service periods ending December 31, 2017, December 31, 2018 and December 31, 2019;
28,467 performance share units ("PSU") to NEOs with vesting contingent on financial performance measures at the end of a 34-month performance period ending December 31, 2019; and
61,530 restricted stock shares to Grantees vesting equally over three service periods ending February 17, 2018, February 17, 2019 and February 17, 2020.
The performance criteria for the 2017 PSU awards are a cumulative Adjusted EBITDA target that was set at the beginning of the plan performance period for the entire three year period, and a cash flow metric that is the aggregate of the cash flow targets for the three individual years that is set annually at the beginning of each year. The cash flow metric is defined as cash flow from operating activities plus distributions of capital from equity investments less capital maintenance expenditures. The Compensation Committee can make adjustments as it may deem appropriate to these metrics. Measurement against these criteria will be determined against a payout curve which provides up to 200% of performance share units based on the original award.
The performance criteria also includes a relative total shareholder return ("TSR") component. Our TSR will be ranked versus the companies in the Russell 2000 index and will be calculated based on our relative placement within the Russell 2000 index. The PSU awards may be adjusted based on the Company’s TSR, by increasing the PSU awards by 25% if the Company’s TSR is in the top quartile, decreasing the PSU awards by 25% if the Company’s TSR is in the bottom quartile, and providing no change to the PSU awards if the Company’s TSR is in the middle two quartiles.
The total compensation cost we will recognize under the PSUs will be determined using the Monte Carlo valuation methodology and will be based upon an equal performance weighting for the two financial measures and then adjusted based on the Company’s TSR performance within the Russell 2000 index. The maximum number of PSUs that can be earned for a performance period is 250% of the original award.
In 2017, weWe recognized stock-based compensation expense of $1.7$6.7 million for awards granted inthe three months ended June 30, 2017 and $3.2$11.7 million for awards granted prior tothe six months ended June 30, 2017. In 2016, weWe recognized stock-based compensation expense of $1.1$5.3 million for awards granted inthe three months ended June 30, 2016 and $3.0$9.4 million for awards granted prior tothe six months ended June 30, 2016. At March 31, 2017, compensation expense that had not been amortized attributable to unvested 2017 RSU and PSU awards was $8.0 million and $8.6 million for all other 2017 awards.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


10.11. CONTINGENCIES
We are involved in litigation arising in the ordinary course of conducting business. We carry insurance for workers' compensation claims from our employees and general liability for claims from independent contractors, customers and guests. We are self-insured up to an aggregate stop loss for our general liability and workers' compensation coverages.
We review all litigation on an ongoing basis when making accrual and disclosure decisions. For certain legal proceedings, we cannot reasonably estimate losses or a range of loss, if any, particularly for proceedings that are in the early stages of development or where the plaintiffs seek indeterminate damages. Various factors, including, but not limited to, the outcome of potentially lengthy discovery and the resolution of important factual questions, may need to be determined before probability can be established or before a loss or range of loss can be reasonably estimated. In accordance with current accounting standards for loss contingencies and based upon information currently known to us, we establish reserves for litigation when it is probable that a loss associated with a claim or proceeding has been incurred and the amount of the loss or range of loss can be reasonably estimated.  When no amount within the range of loss is a better estimate than any other amount, we accrue the minimum amount of the estimable loss. To the extent that such litigation against us may have an exposure to a loss in excess of the amount we have accrued, we believe

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


that such excess would not be material to our consolidated financial condition, results of operations, or cash flows.  Legal fees are expensed as incurred.
If the loss contingency in question is not both probable and reasonably estimable, we do not establish an accrual and the matter will continue to be monitored for any developments that would make the loss contingency both probable and reasonably estimable. In the event that a legal proceeding results in a substantial judgment against, or settlement by us, there can be no assurance that any resulting liability or financial commitment would not have a material adverse impact on our business.
11.12. NET INCOME PER COMMON SHARE COMPUTATIONS
The following is a reconciliation of the numerator and denominator of the net income per common share computations:
Three Months Ended March 31,Three Months Ended June 30, Six Months Ended June 30,
(in millions, except per share data)2017 20162017 2016 2017 2016
Numerator for basic income per common share:          
Net income$7.3
 $2.8
$78.3
 $69.8
 $85.6
 $72.6
Net income allocated to participating securities(0.1) (0.1)—
 (1.3) (0.1) (1.3)
Numerator for basic income per common share$7.2
 $2.7
$78.3
 $68.5
 $85.5
 $71.3
          
Numerator for diluted income per common share$7.3
 $2.8
$78.3
 $69.8
 $85.6
 $72.6
          
Denominator for basic and diluted net income per common share:          
Basic16.3
 16.5
16.1
 16.5
 16.2
 16.5
Plus dilutive effect of stock options and restricted stock0.2
 0.2
Plus dilutive effect of stock awards0.2
 0.2
 0.2
 0.2
Plus dilutive effect of participating securities0.3
 0.3
—
 0.3
 0.1
 0.3
Diluted16.8
 17.0
16.3
 17.0
 16.5
 17.0
          
Income per common share:          
Basic$0.44
 $0.17
$4.86
 $4.16
 $5.27
 $4.32
Diluted$0.44
 $0.16
$4.81
 $4.11
 $5.18
 $4.27
12.13. SEGMENT INFORMATION
We manage our operations through six operating segments:
Racing, which includes Churchill Downs Racetrack ("Churchill Downs"), Arlington International Race Course ("Arlington"), Fair Grounds Race Course ("Fair Grounds") and Calder;
Casinos, which includes Oxford Casino ("Oxford"), Riverwalk Casino ("Riverwalk"), Harlow's Casino ("Harlow’s"), Calder Casino, Fair Grounds Slots, Video Services, LLC ("VSI"), 50% of EBITDA from our joint venture, MVG, 50% equity investment in Ocean Downs and 25% of EBITDA from our equity investment, SCH, which includes investments in Saratoga's New York facility, Saratoga's Colorado facilitySaratoga Casino Hotel, Saratoga Casino Black Hawk and Ocean Downs;

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


TwinSpires, which includes TwinSpires.com, Fair Grounds Account Wagering, ("FAW"), Velocity, BetAmerica, Bloodstock Research Information Services, ("BRIS"), Bluff Media and I-Gaming;Churchill Downs Interactive Gaming;
Big Fish Games, which is a global producer and distributor of social casino, casual and mid-core free-to-play, and premium paid games for PC, Mac and mobile devices;
Other Investments, which includes United Tote and Capital View Casino & Resort Joint Venture ("Capital View");other minor investments; and
Corporate, which includes miscellaneous and other revenue, compensation expense, professional fees and other general and administrative expense not allocated to our other operating segments.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Eliminations include the elimination of intersegment transactions. Our chief operating decision maker utilizes Adjusted EBITDA to evaluate segment performance, develop strategy and allocate resources. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, adjusted for the following:
Adjusted EBITDA includes our portion of the EBITDA from our equity investments.
Adjusted EBITDA excludes:
Acquisition expense, net which includes:
Acquisition-related charges, including fair value adjustments related to earnouts and deferred payments; and
Transaction expense, including legal, accounting, and other deal-related expense;
��Stock-based compensation expense;
Stock-based compensation expense;
Gain on Calder land sale;
Calder exit costs; and
Other charges and recoveries.
During the fourth quarter of 2016, we updated our definition of Adjusted EBITDA to exclude changes in Big Fish Games deferred revenue and to exclude depreciation and amortization from our equity investments.revenue. Effective January 1, 2017, certain revenue previously included in our Corporate segment was deemed by management to be more closely aligned with our TwinSpires segment. The prior year amounts were reclassified to conform to this presentation.
We utilize the Adjusted EBITDA metric because we believe the inclusion or exclusion of certain non-recurring items is necessary to provide a more accurate measure of our core operating results and enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner. Adjusted EBITDA should not be considered as an alternative to operating income as an indicator of performance, as an alternative to cash flows from operating activities as a measure of liquidity, or as an alternative to any other measure provided in accordance with U.S. generally accepted accounting principles.GAAP. Our calculation of Adjusted EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited. For segment reporting, Adjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the accompanying Consolidated Statements of Comprehensive Income.
The tables below present net revenue from external customers and intercompany revenue from each of our operating segments, Adjusted EBITDA by segment and reconciles Comprehensive Income to Adjusted EBITDA:

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Three Months Ended March 31,Three Months Ended June 30, Six Months Ended June 30,
(in millions)2017 20162017 2016 2017 2016
Net revenue from external customers:          
Racing:          
Churchill Downs$2.3
 $2.3
$136.7
 $129.1
 $139.0
 $131.4
Arlington8.5
 9.0
18.0
 16.8
 26.5
 25.8
Fair Grounds12.5
 14.3
10.0
 9.5
 22.5
 23.8
Calder0.6
 0.6
0.6
 0.7
 1.2
 1.3
Total Racing23.9
 26.2
165.3
 156.1
 189.2
 182.3
Casinos:          
Oxford Casino20.9
 19.9
23.1
 21.1
 44.0
 41.0
Riverwalk Casino11.5
 12.7
12.0
 12.4
 23.5
 25.1
Harlow’s Casino13.5
 13.0
12.5
 11.9
 26.0
 24.9
Calder Casino21.4
 20.3
21.8
 20.5
 43.2
 40.8
Fair Grounds Slots10.2
 10.6
8.8
 8.8
 19.0
 19.4
VSI9.7
 9.8
9.8
 9.5
 19.5
 19.3
Saratoga0.3
 0.2
0.3
 0.2
 0.6
 0.4
Total Casinos87.5
 86.5
88.3
 84.4
 175.8
 170.9
TwinSpires52.0
 49.6
80.5
 68.4
 132.5
 118.0
Big Fish Games:          
Social casino46.2
 47.5
49.5
 46.5
 95.7
 94.0
Casual and mid-core free-to-play45.3
 50.4
43.9
 56.0
 89.2
 106.4
Premium20.5
 24.2
19.2
 22.7
 39.7
 46.9
Total Big Fish Games112.0
 122.1
112.6
 125.2
 224.6
 247.3
Other Investments4.1
 4.0
5.2
 4.4
 9.3
 8.4
Net revenue from external customers$279.5
 $288.4
$451.9
 $438.5
 $731.4
 $726.9

Three Months Ended March 31,Three Months Ended June 30, Six Months Ended June 30,
(in millions)2017 20162017 2016 2017 2016
Intercompany net revenue:          
Racing:          
Churchill Downs$0.3
 $0.3
$8.4
 $7.0
 $8.7
 $7.3
Arlington1.0
 1.0
1.9
 1.6
 2.9
 2.6
Fair Grounds0.9
 1.0
0.1
 —
 1.0
 1.0
Total Racing2.2
 2.3
10.4
 8.6
 12.6
 10.9
TwinSpires0.3
 0.3
0.3
 0.3
 0.6
 0.6
Other Investments1.4
 0.9
1.3
 1.4
 2.7
 2.3
Eliminations(3.9) (3.5)(12.0) (10.3) (15.9) (13.8)
Intercompany net revenue$—
 $—
$—
 $—
 $—
 $—

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Adjusted EBITDA by segment is comprised of the following:
Three Months Ended March 31, 2017Three Months Ended June 30, 2017
(in millions)Racing Casinos TwinSpires Big Fish
Games		 Other Investments CorporateRacing Casinos TwinSpires Big Fish
Games		 Other Investments Corporate
Net revenue$26.1
 $87.5
 $52.3
 $112.0
 $5.5
 $—
$175.7
 $88.3
 $80.8
 $112.6
 $6.5
 $—
                      
Taxes & purses(10.2) (29.1) (3.0) —
 —
 —
(32.9) (29.7) (4.1) —
 —
 —
Platform & development fees—
 —
 —
 (41.5) —
 —
—
 —
 —
 (40.4) —
 —
Marketing & advertising(0.7) (3.0) (1.0) (24.5) —
 —
(2.2) (3.0) (4.6) (28.0) —
 —
Salaries & benefits(8.6) (13.1) (2.2) (7.0) (2.9) —
(13.5) (13.4) (2.6) (6.9) (3.3) —
Content expense(3.2) —
 (25.4) —
 —
 —
(4.7) —
 (40.2) —
 —
 —
SG&A expense(3.8) (5.2) (2.7) (4.7) (0.8) (2.2)(4.2) (5.6) (3.0) (5.1) (0.7) (1.8)
Research & development—
 —
 —
 (10.3) —
 —
—
 —
 —
 (9.9) —
 —
Other operating expense(9.3) (11.4) (4.8) (3.7) (1.3) (0.2)(20.0) (9.8) (7.0) (3.6) (1.2) (0.3)
Other income (expense)—
 9.6
 —
 —
 0.1
 —
0.5
 10.7
 —
 (0.4) —
 —
                      
Adjusted EBITDA$(9.7) $35.3
 $13.2
 $20.3
 $0.6
 $(2.4)$98.7
 $37.5
 $19.3
 $18.3
 $1.3
 $(2.1)

Three Months Ended March 31, 2016Three Months Ended June 30, 2016
(in millions)Racing Casinos TwinSpires Big Fish
Games		 Other Investments CorporateRacing Casinos TwinSpires Big Fish
Games		 Other Investments Corporate
Net revenue$28.5
 $86.5
 $49.9
 $122.1
 $4.9
 $—
$164.7
 $84.4
 $68.7
 $125.2
 $5.8
 $—
                      
Taxes & purses(11.2) (28.4) (2.8) —
 —
 —
(30.3) (28.1) (2.0) —
 —
 —
Platform & development fees—
 —
 —
 (44.1) —
 —
—
 —
 —
 (45.9) —
 —
Marketing & advertising(0.8) (3.4) (1.0) (42.8) —
 —
(1.9) (3.1) (3.2) (37.1) —
 —
Salaries & benefits(8.4) (12.1) (2.3) (6.1) (2.7) —
(12.7) (12.7) (2.3) (6.1) (2.8) —
Content expense(3.3) —
 (23.9) —
 —
 —
(4.8) —
 (33.5) —
 —
 —
SG&A expense(3.9) (5.1) (2.8) (4.9) (0.7) (1.8)(4.0) (5.3) (2.8) (4.3) (0.9) (2.2)
Research & development—
 —
 —
 (10.8) —
 —
—
 —
 —
 (9.7) —
 —
Other operating expense(8.4) (9.7) (5.0) (3.9) (0.7) (0.3)(19.9) (9.7) (6.1) (4.0) (1.0) —
Other income (expense)0.1
 6.5
 —
 (0.6) —
 0.1
0.2
 7.8
 —
 (0.3) 0.2
 (0.1)
                      
Adjusted EBITDA$(7.4)
$34.3
 $12.1
 $8.9
 $0.8

$(2.0)$91.3

$33.3
 $18.8
 $17.8
 $1.3

$(2.3)



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 Three Months Ended March 31,
(in millions)2017 2016
Reconciliation of Comprehensive Income to Adjusted EBITDA:   
    
Comprehensive income$7.2
 $2.8
Foreign currency translation, net of tax0.1
 —
Net income7.3
 2.8
Additions:   
Depreciation and amortization24.5
 27.0
Interest expense11.8
 10.6
Income tax provision (benefit)4.5
 (3.8)
EBITDA48.1
 36.6
    
Adjustments to EBITDA:   
Selling, general and administrative:   
Stock-based compensation expense4.9
 4.1
Other charges0.2
 —
Other income, expense:   
Interest, depreciation and amortization expense related to equity investments3.5
 2.5
Other charges and recoveries, net—
 0.4
Acquisition expense, net0.2
 2.7
Calder exit costs0.4
 0.4
Total adjustments to EBITDA9.2
 10.1
Adjusted EBITDA$57.3
 $46.7
    
Adjusted EBITDA by segment:   
Racing$(9.7) $(7.4)
Casinos35.3
 34.3
TwinSpires13.2
 12.1
Big Fish Games20.3
 8.9
Other Investments0.6
 0.8
Corporate(2.4) (2.0)
Adjusted EBITDA$57.3
 $46.7
 Six Months Ended June 30, 2017
(in millions)Racing Casinos TwinSpires Big Fish
Games		 Other Investments Corporate
Net revenue$201.8
 $175.8
 $133.1
 $224.6
 $12.0
 $—
            
Taxes & purses(43.1) (58.8) (7.1) —
 —
 —
Platform & development fees—
 —
 —
 (81.9) —
 —
Marketing & advertising(2.9) (6.0) (5.6) (52.5) —
 —
Salaries & benefits(22.1) (26.5) (4.8) (13.9) (6.2) —
Content expense(7.9) —
 (65.6) —
 —
 —
SG&A expense(8.0) (10.8) (5.7) (9.8) (1.5) (4.0)
Research & development—
 —
 —
 (20.2) 
 —
Other operating expense(29.3) (21.2) (11.8) (7.3) (2.5) (0.5)
Other income (expense)0.5
 20.3
 —
 (0.4) 0.1
 —
            
Total segment Adjusted EBITDA$89.0
 $72.8
 $32.5
 $38.6
 $1.9
 $(4.5)

 Six Months Ended June 30, 2016
(in millions)Racing Casinos TwinSpires Big Fish
Games		 Other Investments Corporate
Net revenue$193.2
 $170.9
 $118.6
 $247.3
 $10.7
 $—
            
Taxes & purses(41.5) (56.5) (4.8) —
 —
 —
Platform & development fees—
 —
 —
 (90.0) —
 —
Marketing & advertising(2.7) (6.5) (4.2) (79.9) —
 —
Salaries & benefits(21.1) (24.8) (4.6) (12.2) (5.5) —
Content expense(8.1) —
 (57.4) —
 —
 —
SG&A expense(7.9) (10.4) (5.6) (9.2) (1.6) (4.0)
Research & development—
 —
 —
 (20.5) —
 —
Other operating expense(28.3) (19.4) (11.1) (7.9) (1.7) (0.3)
Other income (expense)0.3
 14.3
 —
 (0.9) 0.2
 —
            
Total segment Adjusted EBITDA$83.9
 $67.6
 $30.9
 $26.7
 $2.1
 $(4.3)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2017 2016 2017 2016
Reconciliation of Comprehensive Income to Adjusted EBITDA:       
        
Comprehensive income$78.0
 $70.0
 $85.2
 $72.8
Foreign currency translation, net of tax0.3
 (0.2) 0.4
 (0.2)
Net income78.3
 69.8
 85.6
 72.6
Additions:       
Depreciation and amortization24.8
 26.9
 49.3
 53.9
Interest expense11.6
 11.1
 23.4
 21.7
Income tax provision47.5
 41.7
 52.0
 37.9
EBITDA162.2
 149.5
 210.3
 186.1
        
Adjustments to EBITDA:       
Selling, general and administrative:       
Stock-based compensation expense6.7
 5.3
 11.7
 9.4
Other charges—
 0.3
 0.1
 0.3
Other income, expense:       
Interest, depreciation and amortization expense related to equity investments3.1
 2.5
 6.6
 5.0
Other charges and recoveries, net—
 —
 —
 0.4
Acquisition expense, net0.8
 1.1
 1.0
 3.8
Calder exit costs0.2
 1.5
 0.6
 1.9
Total adjustments to EBITDA10.8
 10.7
 20.0
 20.8
Adjusted EBITDA$173.0
 $160.2
 $230.3
 $206.9
        
Adjusted EBITDA by segment:       
Racing$98.7
 $91.3
 $89.0
 $83.9
Casinos37.5
 33.3
 72.8
 67.6
TwinSpires19.3
 18.8
 32.5
 30.9
Big Fish Games18.3
 17.8
 38.6
 26.7
Other Investments1.3
 1.3
 1.9
 2.1
Corporate(2.1) (2.3) (4.5) (4.3)
Adjusted EBITDA$173.0
 $160.2
 $230.3
 $206.9
The table below presents information about equity in income (losses) of unconsolidated investments included in our reported segments:
Three Months Ended March 31,Three Months Ended June 30, Six Months Ended June 30,
(in millions)2017 20162017 2016 2017 2016
Casinos$6.1
 $4.1
$7.7
 $4.7
 $13.8
 $8.8
Other Investments—
 (0.3)—
 0.1
 —
 (0.2)
$6.1
 $3.8
$7.7
 $4.8
 $13.8
 $8.6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The table below presents total asset information for each of our operating segments:
(in millions)March 31, 2017 December 31, 2016June 30, 2017 December 31, 2016
Total assets:      
Racing$437.1
 $454.6
$453.2
 $454.6
Casinos655.4
 628.7
659.8
 628.7
TwinSpires205.5
 209.9
207.5
 209.9
Big Fish Games900.0
 893.8
890.9
 893.8
Other Investments10.1
 11.1
10.1
 11.1
Corporate48.0
 56.3
60.5
 56.3
$2,256.1
 $2,254.4
$2,282.0
 $2,254.4
The table below presents total capital expenditures for each of our operating segments:
Three Months Ended March 31,Six Months Ended June 30,
(in millions)2017 20162017 2016
Capital expenditures:      
Racing$23.6
 $9.4
$38.4
 $20.7
Casinos8.1
 3.3
15.6
 6.8
TwinSpires3.2
 1.9
5.2
 3.7
Big Fish Games2.0
 1.2
3.5
 2.2
Other Investments0.4
 0.2
0.7
 0.5
Corporate0.2
 0.4
0.6
 0.6
$37.5
 $16.4
$64.0
 $34.5
13.14. SUBSEQUENT EVENT
At its regular scheduled meeting held April 25, 2017, the Board of DirectorsAs of the Company approved a new common stock repurchase programdate of up to $250.0 million. The new program replaces the prior $150.0 million program that was authorized in February 2016 and had unused authorization of $114.6 million. The new authorized amount includes and is not in addition to any unspent amount remaining under the prior authorization. Repurchases may be made at management’s discretion from time to time on the open market (either with or without a 10b5-1 plan) or through privately negotiated transactions. The repurchase program hasthis filing, there were no time limit and may be suspended or discontinued at any time.subsequent events.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information set forth in this discussion and analysis contains various “forward-looking statements”"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”"Act") provides certain “safe harbor”"safe harbor" provisions for forward-looking statements. All forward-looking statements made in this Quarterly Report on Form 10-Q 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,”"anticipate," "believe," "could," "estimate," "expect," "intend," "may," "might," "plan," "predict," "project," "seek," "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 following: the effect of global economic conditions a decrease in consumers’on our consumers' confidence and discretionary income;spending or our access to credit; additional or increased taxes and fees; public perceptions of integrity or other lack of confidence in our business; loss of key or highly skilled personnel; restrictions in our debt facilities limiting our flexibility to operate our business; general risks related to real estate ownership, including fluctuations in market values and environmental regulations; catastrophic events and system failures disrupting our operations, including the impact of natural and other disasters on our operations and our ability to obtain insurance recoveries in respect of such losses; inability to identify and complete acquisition, expansion or divestiture projects on time, on budget or as planned; difficulty in integrating recent or future acquisitions into our operations; legalization of online real money gaming in the United States, and our ability to capitalize on and predict such legalization; inability to respond to rapid technological changes in a timely manner; adverse infringement of the intellectual property of others; inability to protect our own intellectual property rights; security breaches and other security risks related to our technology, personal information, source code and other proprietary information, including failure to comply with regulations and other legal obligations relating to receiving, processing, storing and using personpersonal information; payment-related risks, such as chargebacks for fraudulent credit card use; compliance with the Foreign Corrupt Practices Act or applicable money-laundering regulations; work stoppages and labor issues; difficulty in attracting a sufficient number of horses and trainers for full field horseraces; inability to negotiate agreements with industry constituents, including horsemen and other racetracks; personal injury litigation related to injuries occurring at our racetracks; the inability of our totalisator company, United Tote, to maintain its processes accurately, keep its technology current or maintain its significant customers; weather conditions affecting our ability to conduct live racing; increased competition in the horseracing business; changes in the regulatory environment of our racing operations; declining popularity in horseracing; seasonal fluctuations in our horseracing business due to geographic concentration of our operations; increased competition in our casino business; changes in regulatory environment of our casino business; development and expansion of casinos is costly and susceptible to delays, cost overruns and other uncertainties; concentration and evolution of slot machine manufacturing and other technology conditions that could impose additional costs; impact of further legislation prohibiting tobacco smoking; geographic concentration of our casino business; changes in regulatory environment for our advanced deposit wagering business; increase in competition in the advanced deposit wagering business; inability to retain current customers or attract new customers to our advanced deposit wagering business; uncertainty and changes in the legal landscape relating to our advanced deposit wagering business; failingfailure to comply with laws requiring us to block access to certain individuals could result in penalties or impairment in our ability to offer advanced deposit wagering; operating in an evolving and highly competitive market related to our Big Fish Games; inability to maintain relationships with third party mobile platforms related to our Big Fish Games; failure to develop and publish mobile games that achieve market acceptance; inability to secure new or ongoing content from third party development partners on favorable terms; programming errors or flaws or other technical difficulties, diminishing our customers’ experience; “cheating”"cheating" programs, scam offers, black-markets and other actions by third parties that seek to exploit our games and players may affect our reputation and harm our operating results; slower than expected growth in use of smartphone and tablet devices to facilitate game platforms; and financial volatility quarter-to-quarter relating to our Big Fish Games.
The following information is unaudited. Tabular dollars are in millions, except per share amounts. All per share amounts assume dilution unless otherwise noted. This report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016, 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.

Our Business
Executive Overview
We are an industry-leading racing, gaming and online entertainment company anchored by our iconic flagship event - The Kentucky Derby. We are a leader in brick-and-mortar casino gaming with approximately 10,07010,090 gaming positions in eight states, and we are the largest, legal online account wagering platform for horseracing in the U.S. We are also one of the world's largest producers and distributors of mobile games. We were organized as a Kentucky corporation in 1928, and our principal executive offices are located in Louisville, Kentucky.
Our management monitors a variety of key indicators to evaluate our business results and financial condition. These indicators include changes in net revenue, operating expense, operating income, earnings per share, outstanding debt balance, operating cash flow and capital spend.
Our condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("U.S. GAAP"). We also use non-GAAP measures, including EBITDA (earnings before interest, taxes, depreciation and amortization) and Adjusted EBITDA. We believe that the use of Adjusted EBITDA as a key performance measure of results of operations enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner. Our chief operating decision maker utilizes Adjusted EBITDA to evaluate segment performance, develop strategy and allocate resources. Adjusted EBITDA is a supplemental measure of our performance that is not required by, or presented in accordance with, U.SU.S. GAAP. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (as determined in accordance with U.S. GAAP) as a measure of our operating results.
During the fourth quarter of 2016, we updated our definition of Adjusted EBITDA to exclude changes in Big Fish Games deferred revenue. Effective January 1, 2017, certain revenue previously included in our Corporate segment was deemed by management to be more closely aligned with our TwinSpires segment. The prior year amounts were reclassified to conform to this presentation.
Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, adjusted for the following:
Adjusted EBITDA includes our portion of the EBITDA from our equity investments.
Adjusted EBITDA excludes:
Acquisition expense, net which includes:
–◦Acquisition-related charges, including fair value adjustments related to earnouts and deferred payments; and
–◦Transaction expense, including legal, accounting and other deal-related expense;
Stock-based compensation expense;
Gain on Calder land sale;
Calder exit costs; and
Other charges and recoveriesrecoveries.
For segment reporting, Adjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the accompanying Condensed Consolidated Statements of Comprehensive Income. Refer to the Reconciliation of Comprehensive Income to Adjusted EBITDA included in this section for additional information.
Our Operations
We manage our operations through six operating segments: Racing, Casinos, TwinSpires, Big Fish Games, Other Investments and Corporate.
Racing Segment
Our Racing segment includes our four racetracks: Churchill Downs Racetrack ("Churchill Downs"), Arlington International Race Course ("Arlington"), Fair Grounds Race Course ("Fair Grounds") and Calder Race Course ("Calder"). We conduct live horseracing at Churchill Downs, Arlington and Fair Grounds. On July 1, 2014, we entered into a racing services agreement with The Stronach Group ("TSG") to allow Gulfstream Park to manage and operate Calder through December 31, 2020. We conducted 5564 live thoroughbred race days in the firstsecond quarter of 2017 and 5461 live thoroughbred race days in the firstsecond quarter of 2016. For the six months ended June 30, 2017, we conducted 119 live thoroughbred racing days, which compares to 115 live thoroughbred racing days during the six months ended June 30, 2016.
Casinos Segment
We are also a provider of brick-and-mortar real-money casino gaming with approximately 10,07010,090 gaming positions located in eight states. We own five casinos: Oxford Casino ("Oxford"), Riverwalk Casino ("Riverwalk"), Harlow's Casino ("Harlow’s"),

Calder Casino, and Fair Grounds Slots, and Video Services, LLC ("VSI"), in addition to two hotels (Riverwalk and Harlow’s). We also own Video Services, LLC ("VSI") associated with our Fair Grounds property. In addition, we have a 50% equity investment in MVG, a 25% equity investment in SCHSaratoga Casino Holdings LLC ("SCH") and an effective 62.5% equity investment

in Ocean Downs. Our casino revenue is primarily generated from slot machines, video poker and table games while ancillary revenue includes hotel and food and beverage sales.
TwinSpires Segment
Our TwinSpires segment includes TwinSpires.com, Fair Grounds Account Wagering ("FAW"), Velocity, Churchill Downs Interactive Gaming ("I-Gaming"), Bluff Media ("Bluff") and Bloodstock Research Information Services ("BRIS"). On April 24, 2017, we completed the acquisition of BAM Software and Services, LLC ("BetAmerica"), which is included in our TwinSpires segment.
Big Fish Games Segment
Big Fish Games, Inc. ("Big Fish Games") is a global producer and distributor of social casino, casual and mid-core free-to-play, and premium paid games for PC, Mac and mobile devices.
Other Investments Segment
Our Other Investments Segment includes United Tote Capital View Casino & Resort Joint Venture ("Capital View") and our other minor investments.
In June 2017, we announced Churchill Downs is investing approximately $60.0 million to construct an 85,000 square-foot, state-of-the-art historical racing machine facility in Louisville, Kentucky.
Corporate Segment
Our Corporate segment includes miscellaneous and other revenue, compensation expense, professional fees and other general and administrative expense not allocated to our other operating segments.
Government Regulations and Potential Legislative Changes
We are subject to various federal, state and international laws and regulations that affect our businesses. The ownership, operation and management of our racing operations, our casino operations, TwinSpires and Big Fish Games are subject to regulation under the laws and regulations of each of the jurisdictions in which we operate. The ownership, operation and management of our segments are also subject to legislative actions at both the federal and state level. ThisThe following update on 2017 regulatory and legislative activities should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016, including Part I –- Item 1, "Business" of our Form 10-K for a discussion of regulatory and legislative issues.
Specific State Casino Regulations and Potential Legislative Changes
Florida
Potential Seminole Compact and Potential Decoupling in Florida
In December 2015, Florida’s Governor signed a twenty-year Seminole Compact with the Seminole Tribe preserving the Tribe's geographic exclusivity and right to exclusively operate blackjack, craps and roulette games and providing the state with an expected $3.0 billion in additional state revenue over a seven-year period beginning in 2017. The Seminole Compact addresses other issues such as the potential for pari-mutuel operations to add blackjack in a limited fashion as well as the potential for expanded licenses in Palm Beach and Miami-Dade counties. The Seminole Compact must be approved by the Florida Legislature. In February 2016, legislation authorizing the Seminole Compact was introduced for consideration, but it has not been ratified.
In April 2017, legislation passed the Florida Senate that would allow pari-mutuel racetracks in Miami-Dade and Broward counties to decouple their pari-mutuel and gaming operations. The bill authorizes up to eight additional casino licenses in counties that have approved slot machine gaming through a local referendum and also provides for two additional gaming licenses in Miami-Dade and Broward. The legislation provides for a 10% reduced tax rate on slot machine revenues and permits 24 hour operation for casinos. Under the terms of the proposed bill, the Compact negotiated in 2015 between the Governor and the Seminole Tribe would be ratified. The House stripped the Senate bill and passed their own version of legislation. Under the terms of the House proposal, the Tribe would be allowed to retain slot machines and blackjack tables for a period of 20 years but would not be authorized to offer additional games. The pari-mutuel industry would be prohibited from decoupling or offering additional gaming options for 20 years. The issue is still pending before the legislature.
At this time it is not possible to determine what impact legislation with respect to authorizing the Seminole Compact or decoupling would have on our business.
Maryland
In April 2017, Maryland's Governor signed a law allowing casinos in Allegany orand Worcester Countycounties to qualify for a 10% gaming tax reduction on slot machine revenue effective July 1, 2017. In order to qualify for the gaming tax reduction, casinos must purchase or acquire the right to lease all of their video lottery terminals ("VLT") prior to January 1, 2019. If casinos do not purchase or assume the right to lease prior to January 1, 2019, then they will be required to assume ownership or lease the terminals by March 31, 2020 without receiving the full tax reduction. The bill awaits the Governor’s signature. We believe the legislation will have a positive impact on our business.
Currently underUnder pre-April 2017 Maryland statute,law, Ocean Downs would be required to spend $1.5 million on racing-related capital maintenance and expenditures in order to qualify for a matching grant from the state. Legislation passed inIn April 2017, which lowerslegislation was signed into law to lower the

minimum threshold to qualify for matching state funds to $300,000. The bill awaits the Governor’s signature. If$0.3 million. We believe the legislation is enacted, it couldwill have a positive material impact on our business.
Legislation passed the legislatureAlso in April 2017, that allowslegislation was signed into law to allow a VLT licensee to reduce the following day's proceeds for the amount of money returned to players that exceeds the amount bet through VLT's or table games on a given day, thereby reducing the taxes owed by the VLT licensee. We believe the legislation will have a positive impact on our business.
Maine
In June 2017, Maine’s Governor signed legislation which restored a tip credit provision into the minimum wage law. The provision was previously removed after Maine voters approved a November 2016 ballot question which not only raised the minimum wage from $7.50 to $9.00 an hour in 2017 and to $12 an hour by 2020, but eliminated the tip credit which would have required employers to pay all workers the same wage. The newly reenacted provision allows employers to pay tipped employees a lower hourly wage than what is paid to minimum wage employees. We believe the legislation will have a positive impact on our business.

New York
In June 2017, the New York legislature passed a bill that will allow Saratoga Casino Hotel to be eligible to use up to 4% of net winnings for capital improvement projects at the facility. The money must be used solely for capital projects that will improve the facility and attract customers. The capital projects must be approved by the lottery and the gaming commission. The bill awaits the Governor’s signature. If the legislation is pending before the Governor.enacted, it could have a positive material impact on our business.
Consolidated Financial Results
The following table reflects our net revenue, operating income, net income, Adjusted EBITDA, and certain other financial information:
Three Months Ended March 31,Three Months Ended June 30, Six Months Ended June 30,
(in millions)2017 2016 Change2017 2016 Change 2017 2016 Change
Net revenue$279.5
 $288.4
 $(8.9)$451.9
 $438.5
 $13.4
 $731.4
 $726.9
 $4.5
Operating income17.5
 6.3
 11.2
129.5
 117.4
 12.1
 147.0
 123.7
 23.3
Operating income margin6% 2%  29% 27%   20% 17%  
Net income7.3
 2.8
 4.5
$78.3
 $69.8
 $8.5
 $85.6
 $72.6
 $13.0
Adjusted EBITDA57.3
 46.7
 10.6
173.0
 160.2
 12.8
 230.3
 206.9
 23.4
Three Months Ended March 31,June 30, 2017, Compared to Three Months Ended March 31,June 30, 2016
Our net revenue decreased $8.9increased $13.4 million driven by a $10.1 million decrease from Big Fish Games primarily from declines in all game categories and a $2.4 million decrease in Racing primarily due to Fair Grounds impact of a contagious equine disease outbreak which quarantined horses causing limited field sizes, as well as the shift of the Louisiana Derby timing from March in 2016 to April in 2017. Partially offsetting these declines were an increase in revenue related to a $2.4$12.1 million increase infrom TwinSpires due to a 19.7%34.0% increase in active players and a 6.8%19.6% increase in handle, a $1.0$9.2 million increase in Racing primarily due to a strong Kentucky Derby and Oaks week performance, a $3.9 million increase from Casinos revenue generated primarily from organic growth at certain properties, which was partially offset by lower revenue at Riverwalk due to increased competition and a $0.2$0.8 million increase from Other Investments. Partially offsetting these increases was a $12.6 million decrease in other revenue.Big Fish Games driven by our casual and mid-core free-to-play games.
Our operating income increased $11.2$12.1 million driven by a $12.4$5.0 million increase in Racing due to a strong Kentucky Derby and Oaks week performance, a $3.6 million increase in Big Fish Games primarily due tofrom a decrease in user acquisition expense,expenses, a $2.5 million reduction in acquisition-related charges and a $0.6$2.2 million increase in Casinos due to organic growth at certain properties, a $2.1 million increase from TwinSpires relateddue to an increase in active players and increase in handle, growth.and a $1.3 million decrease in Calder exit costs. Partially offsetting thesethe increases were reductions in operating income related towas a $3.1 million reduction in Racing primarily due to lower handle and increased operating expenses at Fair Grounds related to a contagious equine disease outbreak and timing of the Louisiana Derby, a $1.0$2.1 million increase in selling, general and administrative expense primarily driven by stock-based compensation.
Our net income increased $8.5 million driven by a $12.1 million increase in operating income and a $2.9 million increase in income from our equity investments. Partially offsetting these increases were a $5.8 million increase in our income tax provision primarily from higher income from our segments and unconsolidated investments, a $0.5 million increase in interest expense associated with higher outstanding debt balances, and a $0.2 million increase in other expenses.
Our Adjusted EBITDA increased $12.8 million driven by a $7.4 million increase in Racing due to a strong Kentucky Derby and Oaks week performance, a $4.2 million increase in Casinos due to our unconsolidated investments and organic growth at certain properties, a $0.5 million increase from TwinSpires due to an increase in active players and increase in handle, a $0.5 million increase at Big Fish Games primarily due to decreased user acquisition expense which was partially offset by lower revenue, and a $0.2 million increase from other sources.
Six Months Ended June 30, 2017, Compared to Six Months Ended June 30, 2016
Our net incomerevenue increased $4.5 million driven by an $11.2a $14.5 million increase from TwinSpires due to a 33.8% increase in active players and a 14.3% increase in handle, a $6.9 million increase in Racing primarily due to a strong Kentucky Derby and Oaks week performance, a $4.9 million increase from Casinos primarily from organic growth at certain properties, and a $0.9 million increase from Other Investments. Partially offsetting these increases was a $22.7 million decrease in Big Fish Games driven by our casual and mid-core free-to-play and premium games.
Our operating income increased $23.3 million driven by a $16.0 million increase in Big Fish Games primarily from a decrease in user acquisition expenses, a $2.8 million decrease in acquisition expenses primarily related to the Big Fish Games acquisition, a $2.7 million increase at TwinSpires driven by the increase in active players and increase in handle, a $1.9 million increase in Racing due to a strong Kentucky Derby and Oaks week performance, a $1.5 million increase in Casinos due to organic growth at certain properties, a $1.3 million decrease in Calder exit costs, and a $0.2 million increase from other sources. Partially offsetting the increases was a $3.1 million increase in selling, general and administrative expense primarily driven by stock-based compensation.
Our net income increased $13.0 million driven by the $23.3 million increase in operating income, a $2.3$5.2 million increase in income from our equity investments, and a $0.5$0.3 million increase in miscellaneousother income. Partially offsetting these increases

were an $8.3a $14.1 million increase in our income tax provision primarily from higher income from our segments and unconsolidated investments and a $1.2$1.7 million increase in net interest expense associated with higher outstanding debt balances.
Our Adjusted EBITDA increased $10.6$23.4 million driven by an $11.4a $11.9 million increase inat Big Fish Games primarily due to decreased user acquisition expense which was partially offset by lower revenue, a $1.1$5.2 million increase in Casinos due to our unconsolidated investments and organic growth at certain properties, a $5.1 million increase in Racing driven by a strong Kentucky Derby and Oaks week performance, and a $1.6 million increase from TwinSpires driven bydue to an increase in active players and handle growth, and a $1.0 million increase in Casinos primarily as a result of our Ocean Downs investment in January 2017. Partially offsetting thesehandle. These increases were partially offset by a $2.3$0.4 million decline in Racing due to the lower handle and costs associated with a contagious equine disease outbreak and timing of the Louisiana Derby and a $0.6 million declinedecrease from Other Investments and Corporate.other sources.

Financial Results by Segment
Net Revenue by Segment
The following table presents net revenue for our operating segments, including intercompany revenue:
Three Months Ended March 31,Three Months Ended June 30, Six Months Ended June 30,
(in millions)2017 2016 Change2017 2016 Change 2017 2016 Change
Racing:         

      
Churchill Downs$2.6
 $2.6
 $—
$145.1
 $136.1
 $9.0
 $147.7
 $138.7
 $9.0
Arlington9.5
 10.0
 (0.5)19.9
 18.4
 1.5
 29.4
 28.4
 1.0
Fair Grounds13.4
 15.3
 (1.9)10.1
 9.5
 0.6
 23.5
 24.8
 (1.3)
Calder0.6
 0.6
 —
0.6
 0.7
 (0.1) 1.2
 1.3
 (0.1)
Total Racing26.1
 28.5
 (2.4)175.7
 164.7
 11.0
 201.8
 193.2
 8.6
Casinos:         

      
Oxford Casino20.9
 19.9
 1.0
23.1
 21.1
 2.0
 44.0
 41.0
 3.0
Riverwalk Casino11.5
 12.7
 (1.2)12.0
 12.4
 (0.4) 23.5
 25.1
 (1.6)
Harlow's Casino13.5
 13.0
 0.5
12.5
 11.9
 0.6
 26.0
 24.9
 1.1
Calder Casino21.4
 20.3
 1.1
21.8
 20.5
 1.3
 43.2
 40.8
 2.4
Fair Grounds Slots10.2
 10.6
 (0.4)8.8
 8.8
 —
 19.0
 19.4
 (0.4)
VSI9.7
 9.8
 (0.1)9.8
 9.5
 0.3
 19.5
 19.3
 0.2
Saratoga0.3
 0.2
 0.1
0.3
 0.2
 0.1
 0.6
 0.4
 0.2
Total Casino87.5
 86.5
 1.0
88.3
 84.4
 3.9
 175.8
 170.9
 4.9
TwinSpires52.3
 49.9
 2.4
80.8
 68.7
 12.1
 133.1
 118.6
 14.5
Big Fish Games:         

      
Social casino46.2
 47.5
 (1.3)49.5
 46.5
 3.0
 95.7
 94.0
 1.7
Casual and mid-core free-to-play45.3
 50.4
 (5.1)43.9
 56.0
 (12.1) 89.2
 106.4
 (17.2)
Premium20.5
 24.2
 (3.7)19.2
 22.7
 (3.5) 39.7
 46.9
 (7.2)
Total Big Fish Games112.0
 122.1
 (10.1)112.6
 125.2
 (12.6) 224.6
 247.3
 (22.7)
Other Investments5.5
 4.9
 0.6
6.5
 5.8
 0.7
 12.0
 10.7
 1.3
Eliminations(3.9) (3.5) (0.4)(12.0) (10.3) (1.7) (15.9) (13.8) (2.1)
Net Revenue$279.5
 $288.4
 $(8.9)$451.9
 $438.5
 $13.4
 $731.4
 $726.9
 $4.5
Three Months Ended March 31,June 30, 2017, Compared to Three Months Ended March 31,June 30, 2016
Racing revenue decreased $2.4increased $11.0 million due to a $1.9$9.0 million increase at Churchill Downs primarily from a successful Kentucky Derby and Oaks week, a $1.5 million increase at Arlington driven by an increase in handle and admissions, and a $0.6 million increase at Fairgrounds due to a shift of the Louisiana Derby timing from March in 2016 to April in 2017. These increases were partially offset by a $0.1 million decrease from other sources.
Casino revenue increased $3.9 million due to a $2.0 million increase at Oxford, a $1.3 million increase at Calder and a $0.6 million increase at Harlow's, all of which resulted from successful promotional activities.
TwinSpires revenue increased $12.1 million primarily driven by an increase of 34.0% in active players and handle growth of 19.6%, which outpaced the U.S. thoroughbred industry performance by 18.4 percentage points.

Big Fish Games revenue decreased $12.6 million driven by a $12.1 million decrease in casual and mid-core free-to-play revenue from multiple games and a $3.5 million decrease in premium games revenue. Partially offsetting these decreases was a $3.0 million increase in social casino revenue growth primarily due to higher bookings.
Other Investments revenue increased $0.7 million due to incremental equipment sales and higher totalisator fees from new customers at United Tote.
Six Months Ended June 30, 2017, Compared to Six Months Ended June 30, 2016
Racing revenue increased $8.6 million driven by a $9.0 million increase at Churchill Downs primarily from a successful Kentucky Derby and Oaks week and a $1.0 million increase at Arlington driven by an increase in handle and admissions. Partially offsetting these increases were a $1.3 million decrease at Fair Grounds primarily from the impact of a contagious equine disease outbreak which quarantined horses causing limited field sizes as well as the shift of the Louisiana Derby timing from March in 2016 to April in 2017, and a $0.5$0.1 million decrease at Arlington primarily due to lower off-track betting facilities ("OTB") revenue due to a lack of in-state racing in the first quarter of 2017.from other sources.
CasinoCasinos revenue increased $1.0$4.9 million due todriven by a $3.0 million increase at Oxford, a $2.4 million increase at Calder, and a $1.1 million increase at Calder, a $1.0 million increase at Oxford and a $0.5 million increase at Harlow's, resultingall of which resulted from successful promotional activities. Partially offsetting these increases werewas a $1.2$1.6 million decreasedecline in Riverwalk revenue due to inclement weather and an overall declining market andas a $0.4 million decline from our other properties.result of declines in the market.
TwinSpires revenue increased $2.4$14.5 million and was primarily driven by andue to a 33.8% increase of 19.7% in active players and handle growth of 6.8%, which outpaced the U.S. thoroughbred industry performance by 7.8 percentage points.14.3%.
Big Fish Games revenue decreased $10.1$22.7 million primarily driven by decreases in all game categories, including a $5.1$17.2 million decrease in casual and mid-core free-to-play revenue from multiple games and a $3.7$7.2 million decrease in premium games revenue andrevenue. Partially offsetting these decreases was a $1.3$1.7 million decreaseincrease in social casino revenue growth primarily due to lowerdriven by an increase in bookings.
Other Investments revenue increased $0.6$1.3 million at United Tote due to incrementalinternational equipment sales and higher totalisator fees from new customers.customers at United Tote.

Additional Statistical Data by Segment
The following tables provide additional statistical data for our segments:
Racing and TwinSpires (1) 
Three Months Ended March 31,Three Months Ended June 30, Six Months Ended June 30,
(in millions)2017 20162017 2016 2017 2016
Racing:          
Churchill Downs          
Race Days—
 —
38
 36
 38
 36
Total handle$9.0
 $9.3
$443.7
 $405.8
 $452.7
 $415.1
Net pari-mutuel revenue$1.8
 $1.8
$45.4
 $42.2
 $47.2
 $44.0
Commission %20.0% 19.4%10.2% 10.4% 10.4% 10.6%
Arlington          
Race Days—
 —
24
 25
 24
 25
Total handle$58.0
 $62.4
$119.4
 $110.4
 $177.4
 $172.8
Net pari-mutuel revenue$9.1
 $9.6
$15.7
 $14.7
 $24.8
 $24.3
Commission %15.7% 15.4%13.1% 13.3% 14.0% 14.1%
Fair Grounds          
Race Days55
 54
2
 —
 57
 54
Total handle$136.7
 $165.3
$34.2
 $21.2
 $170.9
 $186.5
Net pari-mutuel revenue$11.0
 $12.5
$5.3
 $4.7
 $16.3
 $17.2
Commission %8.0% 7.6%15.5% 22.2% 9.5% 9.2%
Total Racing          
Race Days55

54
64

61

119

115
Total handle$203.7
 $237.0
$597.3
 $537.4
 $801.0
 $774.4
Net pari-mutuel revenue$21.9
 $23.9
$66.4
 $61.6
 $88.3
 $85.5
Commission %10.8% 10.1%11.1% 11.5% 11.0% 11.0%
TwinSpires.com          
Total handle$252.9
 $236.7
$402.9
 $337.0
 $655.8
 $573.7
Net pari-mutuel revenue$47.0
 $44.9
$74.1
 $62.3
 $121.1
 $107.2
Commission %18.6% 19.0%18.4% 18.5% 18.5% 18.7%
Eliminations (2)
          
Total handle$(15.0) $(16.7)$(88.5) $(69.0) $(103.5) $(85.7)
Net pari-mutuel revenue$(0.8) $(2.2)$(10.1) $(8.3) $(10.9) $(10.5)
Total          
Handle$441.6
 $457.0
$911.7
 $805.4
 $1,353.3
 $1,262.4
Net pari-mutuel revenue$68.1
 $66.6
$130.4
 $115.6
 $198.5
 $182.2
Commission %15.4% 14.6%14.3% 14.4% 14.7% 14.4%
(1)Total handle and net pari-mutuel revenue generated by Velocity are not included in total handle and net pari-mutuel revenue from TwinSpires.com.
(2)Eliminations include the elimination of intersegment transactions.


Casinos Activity
Certain key operating statistics specific to the gaming industry are included in our statistical data for our Casinos segment. Our slot facilities report slot handle as a volume measurement, defined as the gross amount wagered or cash and tickets placed into slot machines in the aggregate for the period cited. Net gaming revenue includes slot and table games revenue and is net of customer freeplay; however, it excludes other ancillary property revenue such as food and beverage, ATM, hotel and other miscellaneous revenue.
Three Months Ended March 31,Three Months Ended June 30, Six Months Ended June 30,
(in millions)2017 20162017 2016 2017 2016
Oxford Casino          
Slot handle$186.2
 $174.2
$209.2
 $197.4
 $395.4
 $371.6
Net slot revenue15.7
 15.0
17.7
 16.3
 33.4
 31.3
Net gaming revenue19.8
 18.9
22.1
 20.1
 41.9
 39.0
Riverwalk Casino          
Slot handle$131.0
 $133.5
$158.4
 $127.6
 $289.4
 $261.1
Net slot revenue9.8
 10.9
10.2
 10.3
 20.0
 21.2
Net gaming revenue11.0
 12.1
11.4
 11.6
 22.4
 23.7
Harlow’s Casino          
Slot handle$147.6
 $137.1
$140.8
 $130.2
 $288.4
 $267.3
Net slot revenue11.8
 11.4
10.7
 10.3
 22.5
 21.7
Net gaming revenue12.9
 12.3
11.7
 11.2
 24.6
 23.5
Calder Casino          
Slot handle$257.5
 $254.7
$331.4
 $268.4
 $588.9
 $523.1
Net slot revenue20.6
 19.5
21.0
 19.6
 41.6
 39.1
Net gaming revenue20.5
 19.5
21.0
 19.6
 41.5
 39.1
Fair Grounds Slots and Video Poker          
Slot handle$116.7
 $113.5
$98.2
 $95.9
 $214.9
 $209.4
Net slot revenue10.0
 10.3
8.4
 8.5
 18.4
 18.8
Net gaming revenue19.6
 20.1
18.2
 17.9
 37.8
 38.0
          
Total net gaming revenue$83.8
 $82.9
$84.4
 $80.4
 $168.2
 $163.3


Big Fish Games
Our key operating statistic specific to Big Fish Games is bookings. Bookings represent the amount of virtual currency, virtual goods or premium games that consumers have purchased through third party app stores or the Big Fish Games website.website, as well as in-game advertising revenue and licensing agreement revenue.
Three Months Ended March 31,Three Months Ended June 30, Six Months Ended June 30,
(in millions)2017 20162017 2016 2017 2016
Bookings          
Social casino$46.4
 $47.4
$49.5
 $46.3
 $95.9
 $93.7
Casual and mid-core free-to-play43.8
 55.0
41.9
 57.5
 85.7
 112.5
Premium20.7
 25.8
20.6
 24.0
 41.3
 49.8
Total bookings$110.9
 $128.2
$112.0
 $127.8
 $222.9
 $256.0

Consolidated Operating Expense
The following table is a summary of our consolidated operating expense:
Three Months Ended March 31,Three Months Ended June 30, Six Months Ended June 30,
(in millions)2017 2016 Change2017 2016 Change 2017 2016 Change
Taxes and purses$42.3
 $42.4
 $(0.1)$66.7
 $60.4
 $6.3
 $109.0
 $102.8
 $6.2
Platform & development fees41.5
 44.1
 (2.6)40.4
 45.9
 (5.5) 81.9
 90.0
 (8.1)
Salaries & benefits33.8
 31.6
 2.2
39.7
 36.6
 3.1
 73.5
 68.2
 5.3
Marketing & advertising29.1
 47.8
 (18.7)37.6
 45.2
 (7.6) 66.7
 93.0
 (26.3)
Content expense25.8
 24.2
 1.6
33.6
 28.6
 5.0
 59.4
 52.8
 6.6
Selling, general and administrative expense24.1
 23.1
 1.0
26.7
 24.6
 2.1
 50.8
��47.7
 3.1
Depreciation & amortization24.5
 27.0
 (2.5)24.8
 26.9
 (2.1) 49.3
 53.9
 (4.6)
Research & development10.3
 10.8
 (0.5)9.9
 9.7
 0.2
 20.2
 20.5
 (0.3)
Acquisition expense, net0.2
 2.7
 (2.5)0.8
 1.1
 (0.3) 1.0
 3.8
 (2.8)
Calder exit costs0.4
 0.4
 —
0.2
 1.5
 (1.3) 0.6
 1.9
 (1.3)
Other operating expense30.0
 28.0
 2.0
42.0
 40.6
 1.4
 72.0
 68.6
 3.4
Total expense$262.0
 $282.1
 $(20.1)$322.4
 $321.1
 $1.3
 $584.4
 $603.2
 $(18.8)
Percent of net revenue94% 98%  71% 73%   80% 83%  
Three Months Ended March 31,June 30, 2017, Compared to Three Months Ended March 31,June 30, 2016
Significant items affecting comparability of consolidated operating expense include:
Taxes and purses increased $6.3 million primarily driven by a $2.1 million increase in pari-mutuel taxes for TwinSpires due to the $1.7 million 2016 Pennsylvania tax refund which did not recur and the increase in handle, a $1.9 million increase in purses at Churchill Downs due to two additional live race days, a $1.4 million increase in taxes for our Casinos primarily driven by Oxford and Calder due to successful promotional activities, and a $0.9 million increase in other expenses.
Platform and development fees at Big Fish Games decreased $2.6$5.5 million driven by the decrease in Big Fish Games revenues.
Salaries and benefits expense increased $2.2$3.1 million primarily driven by a $1.7$1.8 million increase in additional personnel costs and a $0.5$1.3 million increase in health insurance expense across all of our segments.
Marketing and advertising expense decreased $18.7$7.6 million primarily driven by a $9.1 million decrease in Big Fish Games user acquisition expense primarily associated with casual and mid-core free-to-play games.games, partially offset by a $1.4 million increase in TwinSpires marketing for Kentucky Derby and Oaks, and a $0.1 million increase in other expenses.
Content expense increased $1.6$5.0 million primarily driven by a $2.0 million34.0% increase in third-party pari-mutuel content feesactive players and 19.6% handle growth at TwinSpires associated with an increase in handle, partially offset by a $0.4 million decrease in other expense.TwinSpires.
Selling, general and administrative expense increased $1.0$2.1 million driven primarily by a $0.8$1.3 million increase in stock-based compensation expense and a $0.2$0.8 million increase in other expenses.
Depreciation and amortization expense decreased $2.5$2.1 million driven primarily by a $1.9 million decrease at CalderBig Fish Games associated with fully depreciated assetsamortized intangible assets.
Calder exit costs decreased $1.3 million driven by lower costs associated with the grandstand demolition.
Other operating expense includes utilities, maintenance, food and beverage costs, property taxes and insurance and other operating expense. Other operating expense increased $1.4 million primarily due to an increase in property taxes and insurance.
Six Months Ended June 30, 2017 Compared to Six Months Ended June 30, 2016
Significant items affecting comparability of consolidated operating expense include:
Taxes and purses increased $6.2 million driven by a $2.0 million increase in taxes for our Casinos primarily at Oxford and Calder due to successful promotional activities, a $1.9 million increase in purses at Churchill Downs due to two

additional live race days, a $1.7 million increase in pari-mutuel taxes for TwinSpires due to the 2016 Pennsylvania tax refund which did not recur, and a $0.6 million decreaseincrease in our other segments.expenses.
ResearchPlatform and development expense decreased $0.5 million resulting from higher capitalized payroll related tofees at Big Fish Games software development expense.decreased $8.1 million driven by the decrease in revenues.
AcquisitionSalaries and benefits expense netincreased $5.3 million primarily driven by a $2.9 million increase in additional personnel costs and a $2.4 million increase in health insurance expense across all of our segments.
Marketing and advertising expense decreased $2.5$26.3 million asdriven primarily by a result of the$27.4 million decrease in Big Fish Games user acquisition expense primarily associated with casual and mid-core free-to-play games and a $0.2 million decrease in other expenses. These decreases were partially offset by a $1.3 million increase in TwinSpires marketing for Kentucky Derby and Oaks.
Content expense increased $6.6 million primarily driven by a 33.8% increase in active players and 14.3% handle growth at TwinSpires.
Selling, general and administrative expense increased $3.1 million driven primarily by a $2.3 million increase in stock-based compensation expense and a $0.8 million increase in legal and professional fees.
Depreciation and amortization expense decreased $4.6 million driven primarily by a $4.3 million decrease in Big Fish Games associated with fully amortized intangible assets and a $0.3 million decrease in other expenses.
Acquisition-related charges decreased $2.8 million driven by non-cash fair value adjustments related to the liabilities for the Big Fish Games earnout and deferred payments to the founders.founders which were partially paid during 2016 and 2017.
Other operating expense increased $2.0Calder exit costs decreased $1.3 million in 2017. driven by lower costs associated with the grandstand demolition.
Other operating expense includes utilities, maintenance, food and beverage costs, property taxes and insurance and other operating expense. InsuranceOther operating expense increased $3.4 million, primarily due to a $1.9 million increase in insurance and property taxes increased $1.7 million primarily driven by an insurance premium reserve adjustment and a $0.3$1.5 million increase inrelated to other expenses.

Corporate Allocated Expense
The table below presents Corporate allocated expense included in the Adjusted EBITDA of each of the operating segments, excluding corporate stock-based compensation:
Three Months Ended March 31,Three Months Ended June 30, Six Months Ended June 30,
(in millions)2017 2016 Change2017 2016 Change 2017 2016 Change
Racing$(1.4) $(1.3) $(0.1)$(1.4) $(1.5) $0.1
 $(2.8) $(2.8) $—
Casinos(1.7) (1.5) (0.2)(1.8) (1.7) (0.1) (3.5) (3.2) (0.3)
TwinSpires(1.2) (1.2) —
(1.3) (1.4) 0.1
 (2.5) (2.6) 0.1
Big Fish Games(0.7) (0.7) —
(0.7) (0.6) (0.1) (1.4) (1.3) (0.1)
Other Investments(0.3) (0.3) —
(0.4) (0.4) —
 (0.7) (0.7) —
Corporate allocated expense5.3
 5.0
 0.3
5.6
 5.6
 —
 10.9
 10.6
 0.3
Total Corporate allocated expense$—
 $—
 $—
$—
 $—
 $—
 $—
 $—
 $—
Adjusted EBITDA
We believe that the use of Adjusted EBITDA as a key performance measure of the results of operations enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner. Adjusted EBITDA is a supplemental measure of our performance that is not required by or presented in accordance with U.S. GAAP. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (as determined in accordance with U.S. GAAP) as a measure of our operating results.
During the fourth quarter of 2016, we updated our definition of Adjusted EBITDA to exclude changes in Big Fish Games deferred revenue. Effective January 1, 2017, certain revenue previously included in our Corporate segment was deemed by management to be more closely aligned with our TwinSpires segment. Accordingly, the prior year amounts were reclassified to conform to this presentation.

Three Months Ended March 31,Three Months Ended June 30, Six Months Ended June 30,
(in millions)2017 2016 Change2017 2016 Change 2017 2016 Change
Racing$(9.7) $(7.4) $(2.3)$98.7
 $91.3
 $7.4
 $89.0
 $83.9
 $5.1
Casinos35.3
 34.3
 1.0
37.5
 33.3
 4.2
 72.8
 67.6
 5.2
TwinSpires13.2
 12.1
 1.1
19.3
 18.8
 0.5
 32.5
 30.9
 1.6
Big Fish Games20.3
 8.9
 11.4
18.3
 17.8
 0.5
 38.6
 26.7
 11.9
Other Investments0.6
 0.8
 (0.2)1.3
 1.3
 —
 1.9
 2.1
 (0.2)
Corporate(2.4) (2.0) (0.4)(2.1) (2.3) 0.2
 (4.5) (4.3) (0.2)
Adjusted EBITDA$57.3
 $46.7
 $10.6
$173.0
 $160.2
 $12.8
 $230.3
 $206.9
 $23.4
Three Months Ended March 31,June 30, 2017, Compared to Three Months Ended March 31,June 30, 2016
Racing Adjusted EBITDA decreased $2.3increased $7.4 million due to a $1.5$6.5 million increase at Churchill Downs primarily from a successful Kentucky Derby and Oaks week driven by increased ticket sales and handle, and a $1.1 million increase at Arlington due to increased handle and admissions, partially offset by a $0.2 million decrease from other sources.
Casinos Adjusted EBITDA increased $4.2 million driven by a $3.7 million increase from strong performance at the Company's equity investments, including our new equity investment in Ocean Downs in January 2017, and a $0.9 million increase at Oxford due to successful promotional activities. Partially offsetting these increases was a $0.4 million decrease from other sources.
TwinSpires Adjusted EBITDA increased $0.5 million driven by a $2.2 million favorable impact of increased wagering, net of costs, associated with a 34.0% increase in active players and handle growth of 19.6%, partially offset by the $1.7 million 2016 Pennsylvania tax refund which did not recur.
Big Fish Games Adjusted EBITDA increased $0.5 million driven by a $9.1 million decrease in user acquisition spending and a $4.0 million decrease in operating expenses. These increases were partially offset by a $12.6 million decrease in revenues.
Six Months Ended June 30, 2017, Compared to Six Months Ended June 30, 2016
Racing Adjusted EBITDA increased $5.1 million due to a $6.2 million increase at Churchill Downs primarily from a successful Kentucky Derby and Oaks week driven by increased ticket sales and handle and $0.9 million increase at Arlington due to increased handle and admissions. Partially offsetting these increases were a $1.7 million decrease at Fair Grounds from a contagious equine disease which quarantined horses causing limited field sizes and remediation expenses and a $0.8$0.3 million decrease primarily from increased expenses.other sources.
Casinos Adjusted EBITDA increased $1.0$5.2 million driven by a $3.1$6.8 million increase from strong performance at the Company's equity investments, including our new equity investment in Ocean Downs in January 2017.2017, a $0.9 million increase at Oxford due to successful promotional activities, and a $0.3 million increase from other sources. Partially offsetting these improvements wasincreases were a $1.3$1.7 million declinedecrease at Riverwalk due to inclement weather and a loss of market share within an overall declining market and a $0.7$1.1 million decrease at Fair Grounds and VSI from inclement weather and strong competition from the Mississippi Gulf Coast gaming market, and a $0.1 million decrease from increased expenses.market.
TwinSpires Adjusted EBITDA increased $1.1$1.6 million driven by a $1.5$3.3 million favorable impact of increased wagering, net of content costs, associated with handle growth of 6.8% and a 19.7%33.8% increase in active players and $0.3 million increase from decreased expenses. These increases werehandle growth of 14.3%, which was partially offset by a $0.7the $1.7 million increase in net taxes and purses.2016 Pennsylvania tax refund which did not recur.
Big Fish Games Adjusted EBITDA increased $11.4$11.9 million driven by an $18.3a $27.4 million decrease in user acquisition spending and aan $8.1 million decrease of $3.2 million in other expenses,platform and development fees, which were partially offset by the $10.1a $22.7 million decrease in revenues.revenues and a $0.9 million increase in all other operating expenses.

Reconciliation of Comprehensive Income to Adjusted EBITDA
Three Months Ended March 31,Three Months Ended June 30, Six Months Ended June 30,
(in millions)2017 2016 Change2017 2016 Change 2017 2016 Change
Comprehensive income$7.2
 $2.8
 $4.4
$78.0
 $70.0
 $8.0
 $85.2
 $72.8
 $12.4
Foreign currency translation, net of tax0.1
 —
 0.1
0.3
 (0.2) 0.5
 0.4
 (0.2) 0.6
Net income7.3
 2.8
 4.5
78.3
 69.8
 8.5
 85.6
 72.6
 13.0
Additions:                
Depreciation and amortization24.5
 27.0
 (2.5)24.8
 26.9
 (2.1) 49.3
 53.9
 (4.6)
Interest expense11.8
 10.6
 1.2
11.6
 11.1
 0.5
 23.4
 21.7
 1.7
Income tax provision (benefit)4.5
 (3.8) 8.3
Income tax provision47.5
 41.7
 5.8
 52.0
 37.9
 14.1
EBITDA48.1
 36.6
 11.5
$162.2
 $149.5
 $12.7
 $210.3
 $186.1
 $24.2
                
Adjustments to EBITDA:                
Selling, general and administrative:                
Stock-based compensation expense4.9
 4.1
 0.8
$6.7
 $5.3
 $1.4
 $11.7
 $9.4
 $2.3
Other charges0.2
 —
 0.2
—
 0.3
 (0.3) 0.1
 0.3
 (0.2)
Other income (expense):    

    

     

Interest, depreciation and amortization expense related to equity investments3.5
 2.5
 1.0
3.1
 2.5
 0.6
 6.6
 5.0
 1.6
Other charges and recoveries, net—
 0.4
 (0.4)—
 —
 —
 —
 0.4
 (0.4)
Acquisition expenses, net0.2
 2.7
 (2.5)0.8
 1.1
 (0.3) 1.0
 3.8
 (2.8)
Calder exit costs0.4
 0.4
 —
0.2
 1.5
 (1.3) 0.6
 1.9
 (1.3)
Total adjustments to EBITDA9.2
 10.1
 (0.9)10.8
 10.7
 0.1
 20.0
 20.8
 (0.8)
Adjusted EBITDA$57.3
 $46.7
 $10.6
$173.0
 $160.2
 $12.8
 $230.3
 $206.9
 $23.4
Three Months Ended March 31,June 30, 2017, Compared to Three Months Ended March 31,June 30, 2016
Depreciation and amortization expense decreased $2.5$2.1 million driven primarily by a $1.9decrease at Big Fish Games associated with fully amortized intangible assets.
Interest expense increased $0.5 million primarily as a result of higher long-term debt balances outstanding and borrowings under our Fourth Amended and Restated Credit Agreement (the "Senior Secured Credit Facility") for payment of our share repurchases.
Income tax provision increased $5.8 million driven by the increase in pretax income.
Stock-based compensation expense increased $1.4 million due to an increase in performance based awards compared to target.
Interest, depreciation and amortization expense related to equity investments increased $0.6 million driven by our equity investments in SCH, as well as our equity investment in Ocean Downs.
Calder exit costs decreased $1.3 million driven by lower costs associated with the grandstand demolition.
Six Months Ended June 30, 2017, Compared to Six Months Ended June 30, 2016
Depreciation and amortization expense decreased $4.6 million driven primarily by a $4.3 million decrease at CalderBig Fish Games associated with fully depreciatedamortized intangible assets and a $0.6$0.3 million increasedecrease in expense in our other segments.
Interest expense net increased $1.2$1.7 million primarily as a result of higher long-term debt balances outstanding and borrowings under our Senior Secured Credit Facility for payment of our share repurchases, the Big Fish Games earnout liability, and equity investment in Ocean Downs.Downs and acquisition of BetAmerica.
Income tax provision (benefit) increased $8.3$14.1 million driven by the increase in pretax income certain non-deductible acquisition related charges and a $3.1 million prior year benefit from the adoption of a stock-based compensation accounting standard which did not recur.
Stock-based compensation expense increased $0.8$2.3 million driven bydue to an increase in performance based awards compared to target and an increase in retention awards for Big Fish employees and other key resources.

Interest, depreciation and amortization expense related to equity investments increased $1.0$1.6 million driven by our equity investments in Saratoga's New York and Colorado facilities,SCH, as well as our equity investment in Ocean Downs.
Other charges and recoveries, net decreased $0.4 million driven by 2016 development expenses within our Other Investments segment which did not recur.
Acquisition expenses, net decreased $2.5$2.8 million driven by non-cash fair value adjustments related to the liabilities for the Big Fish Games earnout and deferred payments to the founders which were partially paid during 2016 and 2017.
Calder exit costs decreased $1.3 million driven by lower costs associated with the grandstand demolition.

Consolidated Balance Sheet
The following table is a summary of our overall financial position:
(in millions)March 31, 2017 December 31, 2016 ChangeJune 30, 2017 December 31, 2016 Change
Total assets$2,256.1
 $2,254.4
 $1.7
$2,282.0
 $2,254.4
 $27.6
Total liabilities$1,567.2
 $1,569.4
 $(2.2)$1,680.7
 $1,569.4
 $111.3
Total shareholders' equity$688.9
 $685.0
 $3.9
$601.3
 $685.0
 $(83.7)
Significant items affecting the comparability of our condensed consolidated balance sheets include:
Total assets increased $1.7$27.6 million driven by a $25.6$28.9 million increase in investments in affiliates primarily due to the acquired interest of Ocean Downs, a $16.3$28.4 million increase in property and equipment, net due to our capital project and maintenance expenditures partially offset by depreciation expense, and a $6.9$15.0 million increase in other current assets driven by annual insurance premiums prepayments.goodwill due to the acquisition of BetAmerica. Partially offsetting these increases were a $19.1$13.6 million decrease in escrow receivable due to the completion of certain purchases of property and equipment, an $11.5 million decrease in intangible assets due to amortization expense partially offset by intangible assets acquired in the acquisition of BetAmerica, a $10.8 million decrease in accounts receivable, net primarily due to cash receipts related to the 2017 Kentucky Derby and Oaks events partially offset by receipts due from Big Fish Games third party platforms, a $10.3 million decrease in intangible assets due to amortization expense, a $10.1 million decrease in receivable from escrow for certain purchases of property and equipment, a $6.6$7.6 million decrease in income taxtaxes receivable primarily driven by our current quarteryear income tax provision, and a $1.0$1.2 million decrease in all other assets.
Total liabilities decreased $2.2increased $111.3 million driven by a $34.2$150.0 million increase in our total debt balance as we primarily borrowed under our Senior Secured Credit Facility to fund repurchases of common stock, a $42.3 million increase in income taxes payable due to our current year income tax provision, and a $34.1 million increase in accounts payable primarily due to timing of TwinSpires and Racing related payments. Partially offsetting these increases were a $52.8 million decrease in deferred revenue - all other due to revenue recognition for the 2017 Kentucky Derby and Oaks, a $34.1 million decrease in the Big Fish Games earnout liability, a $21.8 million decrease in dividends payable due to the payment of annual dividends, a $7.7 million decrease in accrued expenses primarily due to the payment of annual bonuses and a $4.9$6.4 million decrease in all other liabilities.
Total shareholders’ equity decreased $83.7 million driven by a $179.5 million decrease from repurchases of common stock and $1.5 million of other changes in stockholders’ equity. Partially offsetting these decreases were a $45.5 million increase in our total debt balance as we borrowed under our Senior Secured Credit Facility to fund the Big Fish Games earnout payment and Ocean Downs equity investment, and a $20.9 million increase in deferred revenue due to advance billings for the 2017 Kentucky Derby and Oaks events.
Total shareholders’ equity increased $3.9 million driven by a $7.3an $85.6 million increase in current year net income and a $4.9an $11.7 million increase from the amortization of stockstock-based compensation expense. Partially offsetting these increases were a $7.8 million decrease from repurchases of common stock and $0.5 million of other changes in shareholders' equity.
Liquidity and Capital Resources
The following table is a summary of our liquidity and cash flows:
(in millions)Three Months Ended March 31,Six Months Ended June 30,
Cash flows from:2017 2016 Change2017 2016 Change
Operating activities$74.6
 $66.6
 $8.0
$171.1
 $166.8
 $4.3
Investing activities$(51.4) $(15.0) $(36.4)$(97.3) $(35.6) $(61.7)
Financing activities$(17.0) $(75.1) $58.1
$(81.3) $(150.9) $69.6
Included in cash flows from investing activities are capital maintenance expenditures and capital project expenditures. Capital maintenance expenditures relate to the replacement of existing fixed assets with a useful life greater than one year that are obsolete, exhausted, or no longer cost effective to repair. Capital project expenditures represent fixed asset additions related to land or building improvements to new or existing assets or purchases of new (non-replacement) equipment or software related to specific projects deemed necessary expenditures.

ThreeSix Months Ended March 31,June 30, 2017, Compared to the ThreeSix Months Ended March 31,June 30, 2016
Cash provided by operating activities increased $8.0$4.3 million driven by a $17.2 million decrease in the Big Fish Games fair value of the earnout paymentpayments in comparison to the prior year, $1.9a $14.2 million less cash paid forincrease in our income taxes payable primarily related to timing of payments and $0.5refunds, and increases of $3.6 million ofin other operating cash flow.items. Partially offsetting these increases was an $11.6a $30.7 million reduction in deferred revenue driven by timing of payments related to the Kentucky Derby and Oaks events and lower Big Fish Games bookings.
Cash used in investing activities increased $36.4$61.7 million driven by a $24.0 million investment in Ocean Downs, $18.8$27.9 million in higher capital project expenditures, a $24.0 million equity investment in Ocean Downs, $23.1 million for the acquisition of BetAmerica, and $3.7$0.3 million in all other investing activities. Partially offsetting these increases was a $10.1$13.6 million decrease in receivable from escrow related to the Calder land sale from the fourth quarter of 2016.
Cash used in financing activities decreased $58.1$69.6 million primarily driven by a $230.2 million reduction in the Big Fish Games earnout payment associated with cash flows fromand $8.9 million in other financing activities in comparison to prior year.activities. Partially

offsetting this reduction werethese reductions was a $158.7$6.1 million change in net borrowings and repayments under our Senior Secured Credit Facility and a $7.8$163.4 million increase in stock repurchase activity, and a $5.6 million increase in other financing activity.repurchases.
Credit Facilities and Indebtedness
The following table presents our debt outstanding, net of loan origination and debt issuance costs and including premium:
(in millions)March 31, 2017 December 31, 2016 ChangeJune 30, 2017 December 31, 2016 Change
Senior Secured Credit Facility:
 
 

 
 
Senior Secured Credit Facility due 2021$192.0
 $135.0
 $57.0
$302.0
 $135.0
 $167.0
Term Loan due 2021175.7
 179.3
 (3.6)172.2
 179.3
 (7.1)
Swing line of credit6.1
 13.2
 (7.1)2.7
 13.2
 (10.5)
Total Senior Secured Credit Facility373.8
 327.5
 46.3
476.9
 327.5
 149.4
5.375% Senior Unsecured Notes due 2021600.0
 600.0
 —
600.0
 600.0
 —
Total debt973.8
 927.5
 46.3
1,076.9
 927.5
 149.4
Current maturities of long-term debt15.3
 14.2
 1.1
16.5
 14.2
 2.3
Total debt, net of current maturities$958.5
 $913.3
 $45.2
1,060.4
 913.3
 147.1
Bond premium and issuance costs, net(5.5) (5.8) 0.3
(5.2) (5.8) 0.6
Net debt, net of current maturities$953.0
 $907.5
 $45.5
$1,055.2
 $907.5
 $147.7
Senior Secured Credit Facility
On February 17, 2016, we entered into an amendment (the "New Agreement") which amends certain provisions of the credit agreement including extending the maturity of both the Fourth Amended and Restated Credit Agreement (the "SeniorSenior Secured Credit Facility")Facility and the Term Loan Facility ("Term Loan") through February 2021, coterminous with one another. The maximum aggregate commitment for the Senior Secured Credit Facility remains at $500.0 million and the unamortized Term Loan of $188.7 million was refinanced as part of this amendment.
Regarding the Term Loan, we are required to make quarterly principal payments based on the amortization schedule in the New Agreement. Payments are set to occur on the last day of each quarter through the maturity date with annual paydown requirements of 5%, 7.5%, 10%, 12.5%, 15% and a bullet payment due at maturity.  The amortization schedule calls for quarterly principal payments of $2.4 million that commenced on March 31, 2016 and increased in increments of $1.2 million on March 31 of each year to reach final year quarterly payment amounts of $7.1 million.  If no additional payments are made, the balance due at termination will be $94.4 million.
Generally, borrowings made pursuant to the Senior Secured Credit Facility bear interest at a LIBOR-based rate per annum plus an applicable percentage ranging from 1.125% to 2.5% depending on our total leverage ratio. In addition, under the Senior Secured Credit Facility, we agreed to pay a commitment fee at rates that range from 0.15% to 0.35% of the available aggregate commitment, depending on our total leverage ratio. The Term Loan is not subject to, nor included in the calculation of, the commitment fee. The weighted average interest rate on outstanding borrowings was 2.9%3.1% at March 31,June 30, 2017 and 2.7% at December 31, 2016.
The Senior Secured Credit Facility contains customary affirmative and negative covenants for credit facilities of this type, including limitations on us and our subsidiaries with respect to indebtedness, restricted payments, liens, investments, mergers and acquisitions, disposition of assets, sale-leaseback transactions and transactions with affiliates. The covenants permit us to use proceeds of the credit extended under the agreement for general corporate purposes, restricted payments and acquisition needs. The Senior Secured Credit Facility also contains financial covenants that require us (i) to maintain an interest coverage ratio (i.e., consolidated adjusted EBITDA to consolidated interest expense) that is greater than 3.0 to 1.0; (ii) not to permit the total leverage ratio (i.e., total

consolidated funded indebtedness to consolidated adjusted EBITDA) to be greater than 4.5 to 1.0, provided that if a certain minimum consolidated adjusted EBITDA is reached then the total leverage ratio will be increased to 5.0 to 1.0 for such periods that the minimum is maintained; and (iii) not to permit the senior secured leverage ratio (i.e. senior secured consolidated funded indebtedness to consolidated adjusted EBITDA) to be greater than 3.5 to 1.0. As of March 31,June 30, 2017, we were in compliance with all covenants under the Senior Secured Credit Facility, and we have significant assets pledged as collateral under the Senior Secured Credit Facility. At March 31,June 30, 2017, the financial ratios under our Senior Secured Credit Facility were as follows:
 Actual Requirement
Interest Coverage Ratio7.67.7 to 1 > 3.0 to 1.0
Total Leverage Ratio3.03.2 to 1 < 4.5 to 1.0
Senior Secured Leverage Ratio1.21.5 to 1 < 3.5 to 1.0

As of March 31,June 30, 2017, we had $7.1 million in letter of credit commitments which reduced the total available capacity under the Senior Secured Credit Facility to $294.8$188.2 million.
5.375% Senior Unsecured Notes
On December 16, 2013, we completed an offering of $300.0 million in aggregate principal amount of 5.375% Senior Unsecured Notes that mature on December 15, 2021 (the "Initial Senior Unsecured Notes" or the "Existing Notes"). The Initial Senior Unsecured Notes were issued at par, with interest payable on June 15th and December 15th of each year. We received net proceeds of $295.0 million, after deducting underwriting fees, and used the net proceeds from the offering to repay a portion of our outstanding revolver borrowings, and accrued and unpaid interest outstanding. In connection with the issuance, we capitalized $6.3 million of debt issuance costs which are being amortized as interest expense over the remaining term of the Initial Senior Unsecured Notes.
On December 16, 2015, we completed an additional offering of $300.0 million in aggregate principal amount of 5.375% Senior Unsecured Notes that mature on December 15, 2021 (the "Tack-on Notes"). The Tack-on Notes were issued under the December 16, 2013 Indenture (the "Indenture") governing the $300.0 million Existing Notes and form a part of the same series as the Existing Notes for purposes of the Indenture. The Tack-on Notes were issued at 101% with interest payable on June 15th and December 15th of each year. We received net proceeds of $299.0 million, after deducting underwriting fees and used the net proceeds from the offering to repay outstanding revolver borrowings along with accrued and unpaid interest outstanding under the Senior Secured Credit Facility. In connection with the issuance, we capitalized $4.7 million of debt issuance costs which are being amortized as interest expense over the remaining term of the Tack-on Notes.
Upon completion of this Tack-on Notes offering, the aggregate principal amount of the outstanding notes under this series is $600.0 million (collectively the "Senior Unsecured Notes"). The Tack-on Notes were offered with different CUSIP and ISIN numbers from the Existing Notes, and as a result thereof, did not trade fungibly until they were assigned the same CUSIP and ISIN numbers. On December 15, 2016 the Tack-on Notes were exchanged into the unrestricted CUSIP and ISIN numbers assigned to the Existing Notes.
Both series of the Senior Unsecured Notes were issued in private offerings that were exempt from registration under the Securities Act of 1933, as amended, and are senior unsecured obligations. The total Senior Unsecured Notes are guaranteed by each of our domestic subsidiaries that guarantee our Senior Secured Credit Facility and will rank equally with our existing and future senior obligations. We may redeem all or part of the Senior Unsecured Notes at a redemption price of 104.0% which gradually reduces to par by 2019.
Contractual Obligations
Our commitments to make future payments as of March 31,June 30, 2017, are estimated as follows:
(in millions)April 1 to December 31, 2017 2018-2019 2020-2021 Thereafter TotalJuly 1 to December 31, 2017 2018-2019 2020-2021 Thereafter Total
Big Fish Games earnout$—
 $34.2
 $—
 $—
 $34.2
$—
 $34.2
 $—
 $—
 $34.2
Big Fish Games deferred payment—
 28.7
 —
 —
 28.7
—
 28.7
 —
 —
 28.7
Senior Secured Credit Facility—
 —
 198.1
 —
 198.1
—
 —
 304.7
 —
 304.7
Interest on Senior Secured Credit Facility(1)
4.3
 11.4
 6.5
 —
 22.2
4.7
 18.7
 10.6
 —
 34.0
Term Loan10.6
 42.5
 122.7
 —
 175.8
7.1
 42.5
 122.7
 —
 172.3
Interest on Term Loan(1)
3.8
 8.6
 3.6
 —
 16.0
2.7
 9.2
 3.9
 —
 15.8
Senior Unsecured Notes—
 —
 600.0
 —
 600.0
—
 —
 600.0
 —
 600.0
Interest on Senior Unsecured Notes32.3
 64.5
 63.1
 —
 159.9
16.1
 64.5
 63.1
 —
 143.7
Operating leases9.0
 17.6
 19.1
 85.0
 130.7
6.0
 17.6
 19.1
 85.0
 127.7
Total$60.0
 $207.5
 $1,013.1
 $85.0
 $1,365.6
$36.6
 $215.4
 $1,124.1
 $85.0
 $1,461.1

(1)    Interest includes the estimated contractual payments under our Senior Secured Credit Facility assuming no change in the     weighted average borrowing rate of 2.9%3.1% which was the rate in place as of March 31,June 30, 2017.
On March 27, 2017, the Company amended the Merger Agreement associated with the Company's acquisition of Big Fish Games dated as of December 16, 2014, to extend the deferral of the earnout consideration payable and the Big Fish Games' founder deferred payment on December 15, 2017 to January 3, 2018.
As of March 31, 2017, we had approximately $3.1 million of unrecognized tax benefits. As of March 31,June 30, 2017, the fair value of the Big Fish Games earnout liability is $33.7was $33.8 million and the fair value of the Big Fish Games deferred payment to the founders is $28.0founder was $28.1 million, both of which we expect to pay in 2018.
As of June 30, 2017, we had approximately $3.1 million of unrecognized tax benefits.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks arising from adverse changes in:
general economic trends;
interest rate and credit risk; and
foreign currency exchange risk.
General economic trends
Our business is sensitive to consumer confidence and reductions in consumer’s discretionary spending, which may result from challenging economic conditions, unemployment levels and other changes in the economy. Demand for entertainment and leisure activities is sensitive to consumers’ disposable incomes, which can be adversely affected by economic conditions and unemployment levels. This could result in fewer patrons visiting our racetracks, gaming and wagering facilities, online wagering sites and our casual gaming site, downloading our online games and/or may impact our customers’ ability to wager with the same frequency and to maintain wagering levels.
Interest rate and credit risk
Our primary exposure to market risk relates to changes in interest rates. At March 31,June 30, 2017, we had $373.8$476.9 million outstanding under our Senior Secured Credit Facility, which bears interest at LIBOR based variable rates. We are exposed to market risk on variable rate debt due to potential adverse changes in these rates. Assuming the outstanding balance of the debt facility remains constant, a one-percentage point increase in the LIBOR rate would reduce net income and cash flows from operating activities by $2.3$3.0 million.
Foreign currency exchange risk
We operate internationally and are exposed to foreign currency exchange risk. While the substantial majority of our revenue has been and is expected to continue to be denominated in U.S. dollars, our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro. Due to the relative size of our international operations to date, our foreign currency exposure is not material and thus we have not instituted a hedging program.
ITEM 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports that we filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
As required by the Securities and Exchange Commission Rule 13a-15(e), we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31,June 30, 2017. Based upon the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures.


PART II.OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
There have been no material changes with respect to legal proceedings disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.
ITEM 1A.RISK FACTORS
There have been no material changes with respect to risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Common Stock
The following table provides information with respect to shares of common stock that we repurchased during the quarter ended March 31,June 30, 2017:
Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in millions) 
1/1/17-1/31/17 37,586

$145.48
 33,980
 $117.5
 
2/1/17-2/28/17 17,372

145.05
 17,066
 115.0
 
3/1/17-3/31/17 3,303

150.22
 2,675
 114.6
 
Total 58,261
 $145.62
 53,721
 $114.6
(1) 
Period Total Number of Shares Purchased Average Price Paid Per Share 
Total 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)
 
4/1/17-4/30/17 5,495

$157.08
 —
 $250.0
 
5/1/17-5/31/17 66,537

167.35
 66,537
 238.9
 
6/1/17-6/30/17 1,010,667

158.98
 1,010,492
 78.3
 
Total 1,082,699
 $159.48
 1,077,029
 

 
(1)Maximum dollar amountOn April 25, 2017, the Board of sharesDirectors of the Company approved a new common stock thatrepurchase program of up to $250.0 million. The repurchase program has no time limit and may yet be repurchased under our stock repurchase program.suspended or discontinued at any time.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.OTHER INFORMATION
None.
ITEM 6.EXHIBITS
The exhibits listed on the Exhibit Index following the signature page are filed as part of this Quarterly Report.

SIGNATURES

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
  
  
  
AprilJuly 26, 2017/s/ William C. Carstanjen
 William C. Carstanjen
 Chief Executive Officer
 (Principal Executive Officer)
  
  
  
AprilJuly 26, 2017/s/ Marcia A. Dall
 Marcia A. Dall
 Executive Vice President and Chief Financial Officer
 (Principal Financial and Accounting Officer)
 

EXHIBIT INDEX
Number Description By Reference To
     
2(a)10(a) First Amendment toStock Repurchase Agreement, dated June 9, 2017, between Churchill Downs Incorporated and Plan of MergerCDI Holdings, LLC Exhibit 2.110.1 to Current Report on Form 8-K filed March 27,June 12, 2017
10(b)Amended and Restated Stockholders Agreement, dated June 9, 2017, between Churchill Downs Incorporated and CDI Holdings, LLCExhibit 10.2 to Current Report on Form 8-K filed June 12, 2017
     
31(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*  
     
32 Certification 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.INS XBRL Instance Document  
     
101.SCH XBRL Taxonomy Extension Schema Document  
     
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document  
     
101.DEF XBRL Taxonomy Extension Definition Linkbase Document  
     
101.LAB XBRL Taxonomy Extension Label Linkbase Document  
     
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document  
     
  *filed herewith  



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