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 June 30, 2017March 31, 2018
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 July 19, 2017April 18, 2018 was 15,408,24413,539,101 shares.
 
 
 



CHURCHILL DOWNS INCORPORATED
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended June 30, 2017March 31, 2018
 
  
 
 
 
 
 
   
  
 
 

PART I.FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March, 31
(in millions, except per common share data)2017 2016 2017 20162018 2017
Net revenue:          
Racing$165.3
 $156.1
 $189.2
 $182.3
$23.7
 $23.9
Casinos88.3
 84.4
 175.8
 170.9
TwinSpires80.5
 68.4
 132.5
 118.0
63.2
 52.0
Big Fish Games112.6
 125.2
 224.6
 247.3
Casino98.1
 87.5
Other Investments5.2
 4.4
 9.3
 8.4
4.3
 4.1
Total net revenue451.9

438.5
 731.4
 726.9
189.3
 167.5
Operating expense:          
Racing76.5
 72.3
 112.9
 107.9
35.9
 36.4
Casinos62.1
 60.4
 124.8
 121.4
TwinSpires51.4
 41.4
 87.8
 76.0
44.0
 36.4
Big Fish Games89.4
 105.6
 176.3
 215.0
Casino64.8
 62.7
Other Investments4.9
 4.1
 8.8
 8.0
4.6
 3.9
Corporate0.5
 0.4
 1.2
 1.0
0.5
 0.6
Selling, general and administrative expense26.7
 24.6
 50.8
 47.7
18.4
 18.6
Research and development9.9
 9.7
 20.2
 20.5
Calder exit costs0.2
 1.5
 0.6
 1.9

 0.4
Acquisition expenses, net0.8
 1.1
 1.0
 3.8
Transaction expense, net1.4
 
Total operating expense322.4
 321.1
 584.4
 603.2
169.6
 159.0
Operating income129.5
 117.4
 147.0
 123.7
19.7
 8.5
Other income (expense):          
Interest expense(11.6) (11.1) (23.4) (21.7)
Interest expense, net(9.6) (11.8)
Equity in income of unconsolidated investments7.7
 4.8
 13.8
 8.6
6.5
 6.1
Miscellaneous, net0.2
 0.4
 0.2
 (0.1)0.1
 
Total other expense(3.7) (5.9) (9.4) (13.2)(3.0) (5.7)
Income from operations before provision for income taxes125.8
 111.5
 137.6
 110.5
Income from continuing operations before provision for income taxes16.7
 2.8
Income tax provision(47.5) (41.7) (52.0) (37.9)(2.6) (0.6)
Income from continuing operations, net of tax14.1
 2.2
Income from discontinued operations, net of tax167.9
 5.1
Net income$78.3
 $69.8
 $85.6
 $72.6
$182.0
 $7.3
       
Net income per common share data:       
Basic net income$4.86
 $4.16
 $5.27
 $4.32
Diluted net income$4.81
 $4.11
 $5.18
 $4.27
Net income per common share data - basic:   
Continuing operations$0.98
 $0.13
Discontinued operations$11.63
 $0.31
Net income per common share data - basic:$12.61
 $0.44
Net income per common share data - diluted:   
Continuing operations$0.97
 $0.13
Discontinued operations$11.58
 $0.31
Net income per common share data - diluted:$12.55
 $0.44
Weighted average shares outstanding:          
Basic16.1
 16.5
 16.2
 16.5
14.4
 16.3
Diluted16.3
 17.0
 16.5
 17.0
14.5
 16.8
       
Other comprehensive loss:       
Other comprehensive income (loss):   
Foreign currency translation, net of tax(0.3) 0.2
 (0.4) 0.2

 (0.1)
Other comprehensive (loss) gain(0.3) 0.2
 (0.4) 0.2
Other comprehensive income (loss)
 (0.1)
Comprehensive income$78.0
 $70.0
 $85.2
 $72.8
$182.0
 $7.2
The accompanying notes are an integral part of the condensed consolidated financial statements.

CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in millions)June 30, 2017 December 31, 2016March 31, 2018 December 31, 2017
ASSETS      
Current assets:      
Cash and cash equivalents$41.8
 $48.7
$202.7
 $51.7
Restricted cash31.6
 34.3
31.5
 31.2
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 escrow
 13.6
Accounts receivable, net34.6
 49.6
Income taxes receivable
 7.6

 35.6
Game software development, net10.6
 9.6
Other current assets54.2
 50.8
26.0
 18.9
Current assets of discontinued operations held for sale
 69.1
Total current assets208.8
 246.0
294.8
 256.1
Property and equipment, net602.8
 574.4
634.9
 608.0
Game software development, net8.7
 6.3
Investment in and advances to unconsolidated affiliates168.0
 139.1
173.4
 171.3
Goodwill847.2
 832.2
317.6
 317.6
Other intangible assets, net434.2
 445.7
167.8
 169.4
Other assets12.3
 10.7
12.5
 13.6
Long-term assets of discontinued operations held for sale
 823.4
Total assets$2,282.0
 $2,254.4
$1,601.0
 $2,359.4
      
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities:      
Accounts payable$87.3
 $53.2
$59.8
 $54.1
Purses payable23.2
 12.5
8.4
 12.5
Account wagering deposit liabilities25.0
 25.0
28.7
 24.0
Accrued expense93.9
 100.1
75.6
 75.8
Income taxes payable42.3
 
21.4
 
Deferred revenue - Big Fish Games79.6
 81.3
Deferred revenue - all other11.5
 64.3
Big Fish Games deferred payment, current28.1
 27.8
Big Fish Games earnout liability, current33.8
 67.9
Current deferred revenue91.5
 70.9
Current maturities of long-term debt16.5
 14.2
4.0
 4.0
Dividends payable
 21.8

 23.7
Current liabilities of discontinued operations held for sale
 188.2
Total current liabilities441.2
 468.1
289.4
 453.2
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 other20.7
 24.4
Long-term debt, net of current maturities and loan origination fees390.1
 632.9
Notes payable, net of debt issuance costs492.5
 492.3
Non-current deferred revenue25.0
 29.3
Deferred income taxes145.3
 153.1
43.8
 40.6
Other liabilities18.3
 16.3
16.6
 16.0
Non-current liabilities of discontinued operations held for sale
 54.8
Total liabilities1,680.7
 1,569.4
1,257.4
 1,719.1
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; 15.4 shares issued at June 30, 2017 and 16.5 shares issued at December 31, 2016
 116.5
Preferred stock, no par value; 0.3 shares authorized; no shares issued or outstanding
 
Common stock, no par value; 50.0 shares authorized; 13.5 shares issued and outstanding at March 31, 2018 and 15.4 shares at December 31, 2017
 7.3
Retained earnings602.8
 569.7
344.5
 634.3
Accumulated other comprehensive loss(1.5) (1.2)(0.9) (1.3)
Total shareholders' equity601.3
 685.0
343.6
 640.3
Total liabilities and shareholders' equity$2,282.0
 $2,254.4
$1,601.0
 $2,359.4
The accompanying notes are an integral part of the condensed consolidated financial statements.

CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,Three Months Ended March, 31
(in millions)2017 20162018 2017
Cash flows from operating activities:      
Net income$85.6
 $72.6
$182.0
 $7.3
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization49.3
 53.9
13.8
 24.5
Game software development amortization8.7
 7.5
0.4
 4.4
Acquisition expenses, net1.0
 3.8
Gain on sale of Big Fish Games(219.5) 
Distributed earnings from equity investments8.7
 8.2
4.5
 4.3
Earnings from equity investments, net(13.8) (8.6)(6.5) (6.1)
Stock-based compensation11.7
 9.4
6.1
 4.9
Deferred income taxes2.1
 
Big Fish Games earnout payment(2.5) (19.7)(2.4) (2.5)
Big Fish Games deferred payment(2.0) 
Other0.7
 1.1
0.9
 0.5
Increase (decrease) in cash resulting from changes in operating assets and liabilities, net of business acquisitions and dispositions:      
Other current assets and liabilities25.1
 20.2
Game software development(11.3) (10.1)(0.3) (5.3)
Income taxes50.0
 35.8
52.4
 6.6
Deferred revenue(34.9) (4.2)35.8
 42.4
Other assets and liabilities(7.2) (3.1)(11.4) (15.7)
Net cash provided by operating activities171.1
 166.8
55.9
 65.3
Cash flows from investing activities:      
Capital maintenance expenditures(17.9) (16.3)(7.5) (10.2)
Capital project expenditures(46.1) (18.2)(26.5) (27.3)
Acquisition of a business(23.1) 
Proceeds from sale of Big Fish Games970.7
 
Receivable from escrow13.6
 

 10.1
Investment in unconsolidated affiliates(24.0) 

 (24.0)
Other0.2
 (1.1)
Net cash used in investing activities(97.3) (35.6)
Net cash provided by (used in) investing activities936.7
 (51.4)
Cash flows from financing activities:      
Borrowings on bank line of credit543.6
 442.1
100.9
 239.1
Repayments of bank line of credit(394.2) (298.8)(343.9) (192.7)
Big Fish Games earnout payment(31.7) (261.9)(31.8) (31.7)
Big Fish Games deferred payment(26.4) 
Payment of dividends(21.8) (19.1)(23.7) (21.8)
Repurchase of common stock(181.0) (17.6)(514.4) (8.6)
Common stock issued
 0.1
Other3.8
 4.4
(4.5) (1.4)
Net cash used in financing activities(81.3) (150.9)(843.8) (17.0)
Net decrease in cash and cash equivalents(7.5) (19.7)
Net increase (decrease) in cash, cash equivalents and restricted cash148.8
 (3.1)
Effect of exchange rate changes on cash0.6
 0.3
(0.1) 
Cash and cash equivalents, beginning of period48.7
 74.5
Cash and cash equivalents, end of period$41.8
 $55.1
Cash, cash equivalents and restricted cash, beginning of period85.5
 83.0
Cash, cash equivalents and restricted cash, end of period$234.2
 $79.9
The accompanying notes are an integral part of the condensed consolidated financial statements.

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

Six Months Ended June 30,Three Months Ended March, 31
(in millions)2017 20162018 2017
Supplemental disclosures of cash flow information:      
Cash paid during the period for:      
Interest$21.4
 $19.6
$4.6
 $2.6
Income taxes$9.0
 $2.2
0.2
 0.3
Schedule of non-cash investing and financing activities:      
Issuance of common stock in connection with the Company's restricted stock plans$18.4
 $18.5
Repurchase of common stock included in accrued expenses$
 $2.2
Property and equipment additions included in accounts payable and accrued expenses6.3
 
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 SheetDecember 31, 2017 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP.
On November 29, 2017, the Company entered into a definitive Stock Purchase Agreement (the “Stock Purchase Agreement”) to sell its mobile gaming subsidiary, Big Fish Games, Inc., a Washington corporation (“Big Fish Games”), to Aristocrat Technologies, Inc., a Nevada corporation (the “Purchaser”), an indirect, wholly owned subsidiary of Aristocrat Leisure Limited, an Australian corporation (the “Big Fish Transaction”). On January 9, 2018, pursuant to the Stock Purchase Agreement, the Company completed the Big Fish Transaction. The Purchaser paid an aggregate consideration of $990.0 million in cash in connection with the Big Fish Transaction, subject to customary adjustments for working capital and indebtedness and certain other adjustments as set forth in the Stock Purchase Agreement.
The Big Fish Games segment and related Big Fish Transaction meet the criteria for held for sale and discontinued operation presentation. Accordingly, the condensed consolidated statements of comprehensive income, condensed consolidated balance sheets, and the notes to financial statements reflect the Big Fish Games segment as discontinued operations for all periods presented. Unless otherwise specified, disclosures in these condensed consolidated financial statements reflect continuing operations only. The condensed consolidated statements of cash flows include both continuing and discontinued operations. Refer to Note 5, Discontinued Operations, for further information on the discontinued operations relating to the Big Fish Transaction.
The following information is unaudited. 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, 2016.2017.
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 6454 live thoroughbred race days in the secondfirst quarter of 20172018 and 6155 live thoroughbred race days in the secondfirst 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 has a seasonal component and is typically higher during the first and second quarters.2017.
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 GamesCasino
Revenue from our Big Fish Games, Inc. ("Big Fish Games") segment alsocasino properties has a seasonal component and is typically lowerhigher during the summer months.first and second quarters.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncement - Adopted on January 1, 2018
In May 2017,2014, the Financial Accounting Standards Board ("FASB"(“FASB”) issued Accounting Standards UpdateUpdated (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASC 606”) which provides a five-step analysis of transactions to determine when and how revenue is recognized. We adopted ASC 606 on January 1, 2018 using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been retrospectively adjusted and continues to be reported under the accounting standards in effect for those periods. We expect the adoption of the new revenue standard will not have a material impact on our net income on an ongoing basis in future periods.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The cumulative effects of the changes made to our condensed consolidated balance sheet as of January 1, 2018 for the adoption of ASC 606 were as follows:
(in millions)As Reported at December 31, 2017 Adoption of ASC 606 Balance at January 1, 2018
ASSETS     
Accounts receivable, net of allowance for doubtful accounts$49.6
 $(21.8) $27.8
Income taxes receivable35.6
 (4.1) 31.5
Current assets of discontinued operations held for sale69.1
 0.7
 69.8
Other assets13.6
 (1.1) 12.5
      
LIABILITIES     
Accrued expense75.8
 0.8
 76.6
Current deferred revenue70.9
 (18.9) 52.0
Current liabilities of discontinued operations held for sale188.2
 (38.8) 149.4
Non-current deferred revenue29.3
 (4.5) 24.8
Deferred income taxes40.6
 0.1
 40.7
Non-current liabilities of discontinued operations held for sale54.8
 5.9
 60.7
      
SHAREHOLDERS' EQUITY     
Retained earnings634.3
 29.1
 663.4
There were two primary changes to our condensed consolidated balance sheet resulting from the adoption of ASC 606. The most significant change was in current and non-current liabilities of discontinued operations held for sale and retained earnings related to breakage revenue for outstanding Big Fish Game Club credits. The other primary change was in accounts receivable, net of allowance for doubtful accounts, current deferred revenue, and non-current deferred revenue related to the timing of when we have a right to consideration under our contracts.
In accordance with ASC 606 requirements, the disclosure of the impact of adoption on our condensed consolidated balance sheet was as follows:
 At March 31, 2018
(in millions)As Reported Balances without Adoption of ASC 606 Effect of Change Increase/(Decrease)
ASSETS     
Accounts receivable, net of allowance for doubtful accounts$34.6
 $37.7
 $(3.1)
Other assets12.5
 14.5
 (2.0)
      
LIABILITIES     
Accrued expense75.6
 74.8
 0.8
Current deferred revenue91.5
 91.7
 (0.2)
Non-current deferred revenue25.0
 29.3
 (4.3)
Deferred income taxes43.8
 43.7
 0.1
      
SHAREHOLDERS' EQUITY     
Retained earnings344.5
 346.0
 (1.5)
Adoption of ASC 606 had no impact on cash provided by or used in operating, financing, or investing activities on our condensed consolidated statement of cash flow for the three months ended March 31, 2018. As part of the transition to ASC 606 on January 1, 2018, there have been certain modifications between the classification of net revenue and operating expenses in the TwinSpires segment in the current period. The impact of adopting ASC 606 on our condensed consolidated statement of comprehensive income for the three months ended March 31, 2018 was not material.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash (“ASU 2016-18”). The new standard requires that the statement of cash flows explain the change during the period of cash, cash equivalents, and amounts

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


generally described as restricted cash. Entities are also required to reconcile the cash, cash equivalents, and restricted cash in the statement of cash flows to the balance sheet and disclose the nature of the restrictions on restricted cash. We adopted ASU 2016-18 on January 1, 2018 using the retrospective method. As a result, we began including amounts generally described as restricted cash with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. We adjusted our condensed consolidated statement of cash flows from amounts previously reported due to the adoption of ASU 2016-18. The effects of adopting ASU 2016-18 on our condensed consolidated statement of cash flows were as follows:
 Three Months Ended March 31, 2017
(in millions)As Reported Adoption of ASU 2016-18 As Adjusted
      
Net cash provided by operating activities$74.6
 $(9.3) $65.3
      
Cash, cash equivalents and restricted cash, beginning of period$48.7
 $34.3
 $83.0
Net increase (decrease) in cash, cash equivalents and restricted cash6.2
 (9.3) (3.1)
Cash, cash equivalents and restricted cash, end of period$54.9
 $25.0
 $79.9
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 reduces diversity in practice in how certain transactions are classified in the statement of cash flows. We adopted the new guidance on January 1, 2018 and it did not have a material impact on our consolidated results of operations, financial condition, or cash flows. We will utilize the cumulative earnings approach under the ASU to present distributions received from equity method investees which is consistent with our previous existing policy.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU"ASU 2018-02"), which allows an entity to make an election to reclassify amounts from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Tax Act"). We early adopted ASU 2018-02 on January 1, 2018 at the beginning of the period of adoption and elected to reclassify the income tax effects of the Tax Act from accumulated other comprehensive income to retained earnings. The adoption of ASU 2018-02 did not have a material impact on our consolidated results of operations, financial condition, or cash flows.
In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting. This new standardAccounting, which 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 became effective in 2018 and is to be applied prospectively. We adopted the new guidance on January 1, 2018 and it did not have a material impact on our consolidated results of operations, financial condition, or cash flows.
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 became effective in 2018 and is to be applied prospectively. We adopted the new guidance on January 1, 2018 and it did not have a material impact on our consolidated results of operations, financial condition, or cash flows.
Recent Accounting Pronouncements - effective in 2019 or thereafter
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. As currently issued, ASU 2016-02 will be effective in 2019 with earlier adoption permitted, and is to be applied at the beginning of the earliest comparative period in the financial statements using a modified retrospective approach. We are currently evaluating the impact of our pending adoption of this new standard, 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 August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, which makes more financial and nonfinancial hedging strategies eligible for hedge accounting. The new guidance is intended to more closely align hedge accounting with entities' risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. The new standard is effective in 2019 with early adoption permitted in any interim or annual period prior to 2019. We are currently evaluating the timing of our adoption and impact of the new accounting guidance on our financial statements and related disclosures.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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 2018.2020, and is to be applied through a modified retrospective approach during the year of adoption. 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, 2020.2020, and is to be applied prospectively. We are assessingcurrently evaluating the timing of our adoption and impact of the new accounting guidance on our financial statements and currently cannot estimaterelated disclosures.
3. SIGNIFICANT ACCOUNTING POLICIES
Except for the accounting policies for revenue recognition, casino and pari-mutuel taxes, and restricted cash, all of which were updated as a result of our recently adopted accounting pronouncements on January 1, 2018, as described in Note 2, there have been no changes to our significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2017, that have had a material impact on our condensed consolidated financial statement impactstatements and related notes.
Revenue Recognition
Racing
Racing revenue is generated by pari-mutuel wagering transactions with customers on live and simulcast racing content as well as simulcast host fees earned from other wagering sites. Additionally, we generate revenue through sponsorships, admissions (including luxury suites), personal seat licenses (“PSLs”), television rights, concessions, programs and parking.
Our Racing revenue and income are influenced by our racing calendar. Therefore, revenue and operating results for any interim quarter are not generally indicative of adoption.the revenue and operating results for the year and may not be comparable with results for the corresponding period of the previous year. We historically 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 Oaks and Kentucky Derby.
For live races we present at our racetracks, we recognize revenue on wagers we accept from customers at our racetrack (“on-track revenue”) and revenue we earn from exporting our live racing signals to other race tracks, off-track betting facilities ("OTBs"), and advance deposit wagering providers (“export revenue”). For simulcast races we display at our racetracks, OTBs, and TwinSpires, we recognize revenue we earn from providing a wagering service to our customers on these imported live races (“import revenue”). Each wagering contract for on-track revenue and import revenue contains a single performance obligation and our export revenue contracts contain a series of distinct services that form a single performance obligation. The transaction price for on-track revenue and import revenue is fixed based on the established commission rate we are entitled to retain. The transaction price for export revenue is variable based on the simulcast host fee we charge our customers for exporting our signal. Our export revenue contracts generally have a duration of one year or less. These arrangements are licenses of intellectual property containing a usage based royalty. As a result, we have elected to use the practical expedient to omit disclosure related to remaining performance obligations for our export revenue contracts. We recognize on-track revenue, export revenue, and import revenue once the live race event is made official by the relevant racing regulatory body.
We evaluate our on-track revenue, export revenue, and import revenue contracts in order to determine whether we are acting as the principal or as the agent when providing services, which we consider in determining if revenue should be reported gross or net. An entity is a principal if it controls the specified service before that service is transferred to a customer.
The revenue we recognize for on-track revenue and import revenue is the commission we are entitled to retain for providing a wagering service to our customers. For these arrangements, we are the principal as we control the wagering service; therefore, any charges, including simulcast fees, we incur for delivering the wagering service are presented as operating expenses.
For export revenue, our customer is the third party wagering site such as a race track, OTB, or advance deposit wagering provider. Therefore, the revenue we recognize for export revenue is the simulcast host fee we earn for exporting our racing signal to the third party wagering site.
Our admission contracts are either for a single live racing event day or multiple days. Our PSLs, sponsorships, and television rights contracts generally relate to multiple live racing event days. Multiple day admission, PSLs, sponsorships, and television rights contracts contain a distinct series of services that form single performance obligations. Sponsorships contracts generally

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


include performance obligations related to admissions and advertising rights at our racetracks. Television rights contracts contain a performance obligation related to the rights to distribute certain live racing events on media platforms. The transaction prices for our admissions, PSLs, sponsorships, and television rights contracts are fixed. We allocate the transaction price to our sponsorship contract performance obligations based on the estimated relative standalone selling price of each distinct service.
The revenue we recognize for admissions to a live racing event day is recognized once the related event is complete. For admissions, PSLs, sponsorships, and television rights contracts that relate to multiple live racing event days, we recognize revenue over time using an output method of each completed live racing event day as our measure of progress. Each completed live racing event day corresponds with the transfer of the relevant service to a customer and therefore is considered a faithful depiction of our efforts to satisfy the promises in these contracts. This output method results in measuring the value transferred to date to the customer relative to the remaining services promised under the contracts. Certain premium live racing event days such as the Kentucky Derby and Oaks result in a higher value of revenue allocated relative to other live racing event days due to, among other things, the quality of thoroughbreds racing, higher levels of on-track attendance, national broadcast audience, local and national media coverage, and overall entertainment value of the event.
Timing of revenue recognition may differ from the timing of invoicing to customers for our long-term contracts in our Racing segment. We generally invoice customers prior to delivery of services for our admissions, PSLs, sponsorships, and television rights contracts. Accordingly, we recognize a receivable and a contract liability at the time we have an unconditional right to receive payment. When cash is received in advance of delivering services under our contracts, we defer revenue and recognize it in accordance with our policies for that type of contract. In January 2017,situations where the FASB issued ASU No. 2017-01, Business Combinations: Clarifyingtiming of revenue recognition differs from the Definitiontiming of invoicing, we have determined our contracts do not include a significant financing component. The primary purpose of our invoicing terms is to allow our customers to secure the right to the specific services provided under our contracts, not to receive financing from our customers.
Concessions, programs, and parking revenue is recognized once the good or service is delivered.
TwinSpires
TwinSpires revenue is generated through pari-mutuel wagering transactions with customers on simulcast racing content through advance deposit wagering. Advance deposit wagering consists of patrons wagering through an advance deposit account.
Our TwinSpires revenue and income are influenced by racing calendars similar to our Racing segment. Therefore, revenue and operating results for any interim quarter are not generally indicative of the revenue and operating results for the year and may not be comparable with results for the corresponding period of the previous year.
We recognize import revenue in our TwinSpires segment consistent with our policy described in Racing.
We may provide cash incentives in conjunction with wagering transactions we accept from customers. These cash incentives represent consideration payable to a customer and therefore are treated as a reduction of the transaction price for the wagering transaction.
Casino
Casino revenue primarily consists of gaming wager transactions. Other operating revenue, such as food and beverage or hotel revenue, is recognized once delivery of the product or service has occurred.
The transaction price for gaming wager transactions is the difference between gaming wins and losses. The majority of our casinos offer loyalty programs that enable customers to earn loyalty points based on their gaming play. Gaming wager transactions involve two performance obligations for those customers earning loyalty points under the Company’s loyalty programs and a single performance obligation for customers who do not participate in the program. Loyalty points are primarily redeemable for free gaming activities and food and beverage. For purposes of allocating the transaction price in a wagering transaction between the wagering performance obligation and the obligation associated with the loyalty points earned, the Company allocates an amount to the loyalty point contract liability based on the stand-alone selling price of the points earned, which is determined by the value of a Business,loyalty point that can be redeemed for gaming activities or food and beverage. An amount is allocated to the gaming wager performance obligation using the residual approach as the stand-alone price for wagers is highly variable and no set established price exists for such wagers. The allocated revenue for gaming wagers is recognized when the wagers occur as all such wagers settle immediately. The loyalty point contract liability amount is deferred and recognized as revenue when the customer redeems the points for a gaming wagering transaction or food and beverage and such goods or services are delivered to the customer.
Casino and Pari-mutuel Taxes
We recognize casino and pari-mutuel tax expense based on the statutory requirements of the state and local jurisdictions in which we conduct business. All of our casino taxes and the majority of our pari-mutuel taxes are gross receipts taxes levied on the gaming entity. We recognize these taxes as Racing, TwinSpires and Casino operating expenses in our consolidated statements of comprehensive income. In certain jurisdictions governing our Racing and TwinSpires pari-mutuel contracts with customers, there

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


are specific pari-mutuel taxes that are assessed on winning wagers from our customers, which we collect and remit to the government. These taxes are presented on a net basis.
Restricted Cash and Account Wagering Deposit Liabilities
Amounts included in restricted cash represent amounts due to horsemen for purses, stakes and awards that are paid in accordance with the terms of our contractual agreements or statutory requirements. Restricted cash also includes deposits collected from our TwinSpires segment customers for account wagering that are paid when customers withdraw cash from their account.
4. REVENUE FROM CONTRACTS WITH CUSTOMERS
Performance Obligations
As of March 31, 2018, our Racing segment had remaining performance obligations with an aggregate transaction price of $218.4 million. The revenue we expect to recognize on these remaining performance obligations is $52.4 million in 2018, $37.7 million in 2019, $31.5 million in 2020, and the remainder thereafter.
As of March 31, 2018, our remaining performance obligations in segments other than Racing were not material.
Contract Assets and Contract Liabilities
As of January 1, 2018 and March 31, 2018, contract assets were not material.
As of January 1, 2018 and March 31, 2018, contract liabilities were $78.7 million and $118.6 million, respectively, which are included in current deferred revenue, non-current deferred revenue, and accrued expense in the accompanying condensed consolidated balance sheets. Contract liabilities primarily relate to our Racing segment and the increase was primarily due to advance cash payments received for unfulfilled performance obligations. We recognized $2.2 million of revenue during the three months ended March 31, 2018, which was included in the contract liabilities balances at the beginning of the reporting period.
Disaggregation of Revenue
To determine how we disaggregate our revenue from contracts with customers, we consider the information regularly reviewed by our chief operating decision maker for evaluating the financial performance of operating segments, disclosures presented in our earnings releases, and other similar information that is used by the Company and users of our financial statements to evaluate our financial performance. We believe that the disaggregation of our revenue included in Note 15, Segment Information, coupled with the disclosures included in Note 3, Significant Accounting Policies, reflects these considerations and depicts how the nature, timing, and uncertainty of revenue and cash flows are affected by economic factors.
5. DISCONTINUED OPERATIONS
On January 9, 2018, the Company completed the Big Fish Transaction which had a purchase price of $990.0 million.  The Company received cash proceeds of $970.7 million which was net of $5.2 million of working capital adjustments and $14.1 million of transaction costs. The Company derecognized the following upon the Big Fish Transaction:
(in millions) 
Cash and cash equivalents$0.3
Accounts receivable34.7
Game software development, net6.7
Other current assets17.0
Property and equipment, net17.8
Game software development, net13.8
Goodwill530.7
Other intangible assets, net238.4
Other assets24.0
Accounts payable(8.5)
Accrued expense(22.6)
Deferred revenue(44.2)
Deferred income taxes(52.0)
Other liabilities(4.9)
Carrying value of disposal group$751.2

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The Company recognized a gain of $219.5 million upon the sale recorded in income from discontinued operations on the condensed consolidated statements of comprehensive income for the three months ended March 31, 2018. The gain consisted of cash proceeds of $970.7 million offset by the carrying value of the disposal group of $751.2 million. The income tax provision on the gain was $51.2 million, resulting in an effortafter tax gain of $168.3 million.
The following table presents the financial results of Big Fish Games included in “income from discontinued operations, net of tax”:
 Three Months Ended March 31,
(in millions)2018 2017
Net revenue$13.2
 $112.0
    
Operating expenses8.4
 87.0
Selling, general and administrative expense4.3
 5.5
Research and development0.9
 10.3
Transaction expense, net
 0.2
Total operating expense13.6
 103.0
Operating (loss) income(0.4) 9.0
Other income (expense)   
Gain on sale of Big Fish Games219.5
 
Other expense(0.1) 
Total other income219.4
 
Income from discontinued operations before provision for income taxes219.0
 9.0
Income tax provision(51.1) (3.9)
Income from discontinued operations, net of tax$167.9
 $5.1
Stock-Based Compensation
For the three months ended March 31, 2018, the Company recognized $3.3 million of stock-based compensation expense related 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 assessBig Fish Games, which included the impact of the new accounting guidance as necessary for future transactions.accelerated vesting dates of restricted stock awards held by Big Fish Games' employees in conjunction with the Big Fish Transaction.
In November 2016, the FASB issued ASU No. 2016-18, StatementEarnout Liabilities
As of Cash Flows: Restricted Cash. The new standard requires that the statementDecember 31, 2017, we had $34.2 million of cash flows explain the change during the perioddeferred earnout consideration and $28.4 million of cash, cash equivalents, and amounts generally described as restricted cash. Entities will also be required to reconciledeferred payments due to the balance sheet and disclose the naturefounder 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 will 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, 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, 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 have identified two areas of impact at this time. The first area is significant and 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 patternGames, both of game club credits redeemed by our customers. The 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 consolidated financial statements. At this time, we expect to adopt this new standard using the modified retrospective methodwere paid on January 1,3, 2018.
3.6. ACQUISITIONS
On February 28, 2018, the Company entered into two separate definitive asset purchase agreements with Eldorado Resorts, Inc. to acquire substantially all of the assets and properties used in connection with the operation of Presque Isle Downs & Casino ("Presque Isle") in Erie, Pennsylvania, and Lady Luck Casino (“Lady Luck Vicksburg”) in Vicksburg, Mississippi for total aggregate consideration of approximately $229.5 million, to be paid in cash. The transactions are dependent on usual and customary closing conditions, including the Company securing gaming licenses from the Pennsylvania Gaming Control Board and the Mississippi Gaming Commission as well as a racing license from the Pennsylvania State Horse Racing Commission.
On April 24, 2017, we completed the acquisition of certain assets 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 ofCompany has not included other disclosures regarding BetAmerica have been included inbecause the acquired business is immaterial to our Condensed Consolidated Financial Statements from the acquisition date. The pro formabusiness.

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") that was used to purchase previously identified real property within six months post- closing. During the six months ended June 30, 2017, we utilized the entire escrow amount, resulting in a zero balance at June 30, 2017, compared to our $13.6 million from the qualified intermediary trust at December 31, 2016.
5.7. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
Ocean DownsThe Company's equity investments include the following:
In August 2016, we signed a limited liability company operating agreement with50% joint venture ownership in Miami Valley Gaming ("MVG") in Lebanon, Ohio;
25% equity investment in Saratoga Casino Holdings LLC ("SCH"), with each entity having a 50% interest,which owns Saratoga Casino and formed Old Bay GamingRaceway in Saratoga Springs, New York and Racing LLC ("Old Bay"). The Old Bay agreement provides both the CompanySaratoga Casino Black Hawk in Black Hawk, Colorado; and SCH equal participating rights, and both entities must consent to Old Bay's operating, investing and financing decisions.
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 initial50% equity investment in Ocean Downs was $24.0 million. LLC and Services Racing LLC ("Ocean Downs,Downs") located near Ocean City, Maryland,Maryland. SCH owns and operates video lottery terminals ("VLT") at the Casino at Oceans Downs and conducts harness racing atremaining 50% of Ocean Downs, Racetrack. The Company's 25% interest in SCH provides an additional 12.5% interest, resulting inproviding the Company 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.interest.
Summarized below isare the financial informationresults for our MVG equity investment:unconsolidated affiliates:
 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)


 Three Months Ended March 31,
(in millions)2018 2017
Net revenue$77.0
 $72.2
    
Operating and SG&A expense53.6
 49.8
Depreciation and amortization6.6
 5.7
Total operating expense60.2
 55.5
Operating income16.8
 16.7
Interest and other expense, net(2.9) (3.5)
Net income$13.9
 $13.2
(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 2016March 31, 2018 December 31, 2017
Equity in income of unconsolidated investments$4.6
 $3.9
 $9.1
 $7.5
Assets   
Current assets$74.5
 $64.5
Property and equipment, net233.9
 234.6
Other assets, net237.1
 236.5
Total assets$545.5
 $535.6
   
Liabilities and Members' Equity   
Current liabilities$101.2
 $100.3
Long-term debt114.7
 110.1
Other liabilities
 0.1
Members' equity329.6
 325.1
Total liabilities and members' equity$545.5
 $535.6
6.8. 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 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 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 Total
Balances as of December 31, 2016$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.
(in millions)Racing TwinSpires Casino Total
Balances as of December 31, 2017$51.7
 $148.2
 $117.7
 $317.6
Additions
 
 
 
Balances as of March 31, 2018$51.7
 $148.2
 $117.7
 $317.6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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

 

 $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.
 March 31, 2018 December 31, 2017
(in millions)Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Definite-lived intangible assets$39.8
 $(22.2) $17.6
 $39.8
 $(20.6) $19.2
Indefinite-lived intangible assets    150.2
     150.2
Total

 

 $167.8
     $169.4
7.9. INCOME TAXES
The Company’s income tax rate for the three and six months ended June 30, 2017 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 offset by benefits from tax credits, 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 offset by benefits from tax credits and the manufacturing deduction. The Company’s income tax rate for the six months ended June 30, 2016March 31, 2018 was lower than the U. S federal statutory rate of 35.0%21.0% primarily due to a $3.1$1.2 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.recognized. This benefit was partially offset by state income taxes and certain expenses that are not deductible for the purposes of income taxes.
The Company’s income tax rate for the three months ended March 31, 2017 was lower than the U. S federal statutory rate of 35.0% primarily due to state income tax benefits associated with a revaluation of deferred tax assets due to changes in apportionment and state tax rates.
8.10. 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:
 June 30, 2017
(in millions)Level 1 Level 3
Cash equivalents and restricted cash$30.8
 $
Big Fish Games deferred payments
 28.1
Big Fish Games earnout liability
 33.8
Total$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 liabilities:
 Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(in millions)Big Fish Games Deferred Payments Big Fish Games Earnout Liability Total
Balances as of December 31, 2016$27.8
 $67.9
 $95.7
Payments
 (34.2) (34.2)
Change in fair value0.3
 0.1
 0.4
Balances as of June 30, 2017$28.1
 $33.8
 $61.9
 Level 1
(in millions)March 31, 2018 December 31, 2017
Cash equivalents and restricted cash$31.5
 $31.2
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 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 $0.4 million during the six months ended 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 4.75% Senior Unsecured Notes due 2028 (the "Senior 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$470.6 million at both June 30, 2017March 31, 2018 and $496.8 million at December 31, 2016.2017.
The following methods and assumptions were used in estimating our fair value disclosures for financial instruments:
Cash Equivalents—Theequivalents: 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—TheLong-term debt: the carrying amounts of the borrowings under the $700.0 million revolving credit facility and $400.0 million Senior Secured Term Loan B due 2024 (the "2017 Credit FacilityAgreement") approximate fair value, based upon current interest rates, and representrepresenting a Level 2 fair value measurement.
We did not measure any assets at fair value on a non-recurring basis for 20172018 or 2016.2017.
9.11. SHAREHOLDERS’ EQUITY
On April 25,November 29, 2017, the Board of Directors of the Company approvedauthorized a new common stock$500.0 million share repurchase program in a "modified Dutch auction" tender offer utilizing a portion of up to $250.0 million.the proceeds from the Big Fish Transaction. The new program replacedCompany completed the prior $150.0 million program that was authorized intender offer on February 201612, 2018, and had unused authorization of $114.6 million. The new authorized amount included and was 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 has no time limit and may be suspended 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 1,000,000repurchased 1,886,792 shares of the Company's common stock for $158.78at a purchase price of $265 per share in a privately negotiated transaction. Thewith an aggregate purchase price was $158.8 million.cost of $500.0 million, excluding fees and expenses related to the tender offer.
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
12. STOCK-BASED COMPENSATION PLANS
We have stock-based employee compensation plans with awards outstanding under the April 2017 stock repurchase program at a total cost of $171.7 million. The shares were retired,Churchill Downs Incorporated 2007 Omnibus Stock Incentive Plan, the Churchill Downs Incorporated 2016 Omnibus Stock Incentive Plan ("the 2016 Plan"), and the cost ofExecutive Long-Term Incentive Compensation Plan, which was adopted pursuant to 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 six months ended June 30, 2017, we also repurchased 53,721 shares of our common stock in conjunction with the February 2016 stock repurchase program at aPlan. Our total cost of $7.8 million.stock-based

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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 orcompensation expense, which includes expenses related to restricted stock units to directorsawards ("RSAs"), restricted stock unit awards ("RSUs"), performance share unit awards ("PSUs"), and key employees, includingstock options associated with our officers who are from time to time responsibleemployee stock purchase plan was $2.8 million for the management, growththree months ended March 31, 2018 and protection of our business. Restricted shares$3.4 million for the three months ended March 31, 2017.
During the three months ended March 31, 2018, the Company awarded RSAs to employees and RSUs and PSUs to certain named executive officers. The vesting criteria for the PSU awards granted under the 2016 and 2007 Plans generally vest either in full upon three years from the date of grant,2018 were based 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 keyperiod with two 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 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,conditions 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 appropriatemarket condition related 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.
consistent with prior year grants. The total compensation cost we will recognize under the PSUs will be determined using the Monte Carlo valuation methodology, which factors in the value of the TSR market condition when determining the grant date fair value of the PSU. Compensation cost for each PSU is recognized during the performance and will be based upon an equal performance weighting for the two financial measures and then adjustedservice period 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%probable achievement of the original award.two performance criteria. The PSUs are converted into shares of our common stock at the time the PSU award value is finalized.
We recognized stock-based compensation expenseA summary of $6.7 million for the three months ended June 30, 2017RSAs, RSUs, and $11.7 million for the six months ended June 30, 2017. We recognized stock-based compensation expense of $5.3 million for the three months ended June 30, 2016 and $9.4 million for the six months ended June 30, 2016.PSUs granted during 2018 is presented below:
Grant Year Award Type 
Number of Shares/Units Awarded
(in thousands)
 Vesting Terms
2018 RSA 18 Vest equally over three service periods ending in February of 2019, 2020, and 2021
2018 RSU 16 Vest equally over three service periods ending December 31 of 2018, 2019, and 2020
2018 PSU 16 Three year performance and service period ending December 31, 2020
11.13. 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.
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.
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.

12.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


14. 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 June 30, Six Months Ended June 30,Three Months Ended March, 31
(in millions, except per share data)2017 2016 2017 20162018 2017
Numerator for basic income per common share:       
Net income$78.3
 $69.8
 $85.6
 $72.6
Net income allocated to participating securities
 (1.3) (0.1) (1.3)
Numerator for basic income per common share$78.3
 $68.5
 $85.5
 $71.3
Numerator for basic net income per common share:   
Net income from continuing operations$14.1
 $2.2
Net income from continuing operations allocated to participating securities
 (0.1)
Net income from discontinued operations167.9
 5.1
Numerator for basic net income per common share$182.0
 $7.2
          
Numerator for diluted income per common share$78.3
 $69.8
 $85.6
 $72.6
Numerator for diluted net income from continuing operations per common share$14.1
 $2.2
Numerator for diluted net income per common share:$182.0
 $7.3
          
Denominator for basic and diluted net income per common share:       
Denominator for net income per common share:   
Basic16.1
 16.5
 16.2
 16.5
14.4
 16.3
Plus dilutive effect of stock awards0.2
 0.2
 0.2
 0.2
0.1
 0.2
Plus dilutive effect of participating securities
 0.3
 0.1
 0.3

 0.3
Diluted16.3
 17.0
 16.5
 17.0
14.5
 16.8
          
Income per common share:       
Net income per common share data:   
Basic$4.86
 $4.16
 $5.27
 $4.32
   
Continuing operations$0.98
 $0.13
Discontinued operations$11.63
 $0.31
Net income per common share - basic$12.61
 $0.44
   
Diluted$4.81
 $4.11
 $5.18
 $4.27
   
Continuing operations$0.97
 $0.13
Discontinued operations$11.58
 $0.31
Net income per common share - diluted$12.55
 $0.44
13.15. SEGMENT INFORMATION
We manage our operations through sixfive operating segments:
Racing, which includes Churchill Downs Racetrack ("Churchill Downs"), Arlington International Race Course ("Arlington"), Fair Grounds Race Course ("Fair Grounds") and Calder;Calder Race Course ("Calder");
Casinos,TwinSpires, which includes TwinSpires.com, Fair Grounds Account Wagering, Velocity, BetAmerica and Bloodstock Research Information Services;
Casino, 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,equity investment in MVG, 50% equity investment in Ocean Downs and 25% of EBITDA from our equity investment in SCH, which includes investments in Saratoga Casino Hotel, Saratoga Casino Black Hawk and Ocean Downs;
TwinSpires, which includes TwinSpires.com, Fair Grounds Account Wagering, Velocity, BetAmerica, Bloodstock Research Information Services, Bluff Media and 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 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.
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. On January 9, 2018, we closed the Big Fish Transaction, at which time Big Fish Games ceased to be an operating segment. Due to the Big Fish Transaction, the Company has presented Big Fish Games as held for sale and discontinued operations in the accompanying condensed consolidated financial statements and these notes. The Company has not allocated corporate and other certain expenses to Big Fish Games consistent with the discontinued operations presentation in the accompanying condensed consolidated statements of comprehensive income. Accordingly, the prior year amounts were reclassified to conform to this presentation.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Eliminations include the elimination of intersegment transactions. We utilize non-GAAP measures, including EBITDA (earnings before interest, taxes, depreciation and amortization) and adjusted EBITDA. Our chief operating decision maker utilizes Adjustedadjusted EBITDA to evaluate segment performance, develop strategy and allocate resources. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, adjusted forincludes the following:following adjustments:
Adjusted EBITDA includes our portion of the EBITDA from our equity investments.
Adjusted EBITDA excludes:
AcquisitionTransaction expense, net which includes:
Acquisition-relatedAcquisition and disposition related charges, including fair value adjustments related to earnouts and deferred payments; and
TransactionOther transaction expense, including legal, accounting, and other deal-related expense;
Stock-based compensation expense;
Asset impairments;
Gain on Calder land sale;
Calder exit costs;
Loss on extinguishment of debt; and
Other charges, recoveries and recoveries.
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.expenses
We utilize the Adjustedadjusted 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. GAAP. Our calculation of Adjustedadjusted EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited. For segment reporting, Adjustedadjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the accompanying Consolidated Statementscondensed consolidated statements of Comprehensive Income.comprehensive income.
The tables below present net revenue from external customers and intercompany revenue from each of our operating segments, Adjustedadjusted EBITDA by segment and reconciles Comprehensive Incomecomprehensive income to Adjustedadjusted EBITDA:

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March, 31
(in millions)2017 2016 2017 20162018 2017
Net revenue from external customers:          
Racing:          
Churchill Downs$136.7
 $129.1
 $139.0
 $131.4
$2.0
 $2.3
Arlington18.0
 16.8
 26.5
 25.8
8.3
 8.5
Fair Grounds10.0
 9.5
 22.5
 23.8
12.8
 12.5
Calder0.6
 0.7
 1.2
 1.3
0.6
 0.6
Total Racing165.3
 156.1
 189.2
 182.3
23.7
 23.9
Casinos:       
TwinSpires63.2
 52.0
Casino:   
Oxford Casino23.1
 21.1
 44.0
 41.0
24.2
 20.9
Riverwalk Casino12.0
 12.4
 23.5
 25.1
14.4
 11.5
Harlow’s Casino12.5
 11.9
 26.0
 24.9
13.3
 13.5
Calder Casino21.8
 20.5
 43.2
 40.8
24.3
 21.4
Fair Grounds Slots8.8
 8.8
 19.0
 19.4
10.6
 10.2
VSI9.8
 9.5
 19.5
 19.3
11.0
 9.7
Saratoga0.3
 0.2
 0.6
 0.4
0.3
 0.3
Total Casinos88.3
 84.4
 175.8
 170.9
TwinSpires80.5
 68.4
 132.5
 118.0
Big Fish Games:       
Social casino49.5
 46.5
 95.7
 94.0
Casual and mid-core free-to-play43.9
 56.0
 89.2
 106.4
Premium19.2
 22.7
 39.7
 46.9
Total Big Fish Games112.6
 125.2
 224.6
 247.3
Total Casino98.1
 87.5
Other Investments5.2
 4.4
 9.3
 8.4
4.3
 4.1
Net revenue from external customers$451.9
 $438.5
 $731.4
 $726.9
$189.3
 $167.5
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March, 31
(in millions)2017 2016 2017 20162018 2017
Intercompany net revenue:          
Racing:          
Churchill Downs$8.4
 $7.0
 $8.7
 $7.3
$0.3
 $0.3
Arlington1.9
 1.6
 2.9
 2.6
1.2
 1.0
Fair Grounds0.1
 
 1.0
 1.0
1.0
 0.9
Total Racing10.4
 8.6
 12.6
 10.9
2.5
 2.2
TwinSpires0.3
 0.3
 0.6
 0.6
0.4
 0.3
Other Investments1.3
 1.4
 2.7
 2.3
1.2
 1.4
Eliminations(12.0) (10.3) (15.9) (13.8)(4.1) (3.9)
Intercompany net revenue$
 $
 $
 $
$
 $

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Adjusted EBITDA by segment is comprised of the following:
Three Months Ended June 30, 2017Three Months Ended March 31, 2018
(in millions)Racing Casinos TwinSpires Big Fish
Games
 Other Investments CorporateRacing TwinSpires Casino Other Investments Corporate
Net revenue$175.7
 $88.3
 $80.8
 $112.6
 $6.5
 $
$26.2
 $63.6
 $98.1
 $5.5
 $
                    
Taxes & purses(32.9) (29.7) (4.1) 
 
 
(10.3) (3.4) (32.4) 
 
Platform & development fees
 
 
 (40.4) 
 
Marketing & advertising(2.2) (3.0) (4.6) (28.0) 
 
(0.8) (0.8) (3.2) 
 
Salaries & benefits(13.5) (13.4) (2.6) (6.9) (3.3) 
(8.6) (2.1) (13.5) (3.2) 
Content expense(4.7) 
 (40.2) 
 
 
(3.1) (32.2) 
 
 
SG&A expense(4.2) (5.6) (3.0) (5.1) (0.7) (1.8)(4.0) (2.8) (5.4) (0.7) (2.4)
Research & development
 
 
 (9.9) 
 
Other operating expense(20.0) (9.8) (7.0) (3.6) (1.2) (0.3)(8.8) (5.8) (10.1) (1.3) (0.2)
Other income (expense)0.5
 10.7
 
 (0.4) 
 
           
Other income
 
 10.8
 
 0.1
Adjusted EBITDA$98.7
 $37.5
 $19.3
 $18.3
 $1.3
 $(2.1)$(9.4) $16.5
 $44.3
 $0.3
 $(2.5)

Three Months Ended June 30, 2016Three Months Ended March 31, 2017
(in millions)Racing Casinos TwinSpires Big Fish
Games
 Other Investments CorporateRacing TwinSpires Casino Other Investments 
Corporate (a)
Net revenue$164.7
 $84.4
 $68.7
 $125.2
 $5.8
 $
$26.1
 $52.3
 $87.5
 $5.5
 $
                    
Taxes & purses(30.3) (28.1) (2.0) 
 
 
(10.2) (3.0) (29.1) 
 
Platform & development fees
 
 
 (45.9) 
 
Marketing & advertising(1.9) (3.1) (3.2) (37.1) 
 
(0.7) (1.0) (3.0) 
 
Salaries & benefits(12.7) (12.7) (2.3) (6.1) (2.8) 
(8.6) (2.2) (13.1) (2.9) 
Content expense(4.8) 
 (33.5) 
 
 
(3.2) (25.4) 
 
 
SG&A expense(4.0) (5.3) (2.8) (4.3) (0.9) (2.2)(3.8) (2.7) (5.2) (0.8) (2.9)
Research & development
 
 
 (9.7) 
 
Other operating expense(19.9) (9.7) (6.1) (4.0) (1.0) 
(9.3) (4.8) (11.4) (1.3) (0.2)
Other income (expense)0.2
 7.8
 
 (0.3) 0.2
 (0.1)
           
Other income
 
 9.6
 0.1
 
Adjusted EBITDA$91.3

$33.3
 $18.8
 $17.8
 $1.3

$(2.3)$(9.7) $13.2

$35.3
 $0.6

$(3.1)
(a) The Corporate segment includes corporate and other certain expenses of $0.7 million for the three months ended March 31, 2017 that have not been allocated to Big Fish Games as a result of the Big Fish Transaction. The Big Fish Games segment is reported as held for sale and discontinued operations in the accompanying condensed consolidated financial statements and these notes.





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


 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)
 Three Months Ended March, 31
(in millions)2018 2017
Reconciliation of Comprehensive Income to Adjusted EBITDA:   
    
Comprehensive income$182.0
 $7.2
Foreign currency translation, net of tax
 0.1
Net income182.0
 7.3
Income from discontinued operations, net of tax(167.9) (5.1)
Income from continuing operations, net of tax14.1

2.2
    
Additions:   
Depreciation and amortization13.8
 14.2
Interest expense9.6
 11.8
Income tax provision2.6
 0.6
EBITDA40.1
 28.8
    
Adjustments to EBITDA:   
Selling, general and administrative:   
Stock-based compensation expense2.8
 3.4
Other charges
 0.2
Pre-opening expense0.6
 
Other income, expense:   
Interest, depreciation and amortization expense related to equity investments4.3
 3.5
Transaction expense, net1.4
 
Calder exit costs
 0.4
Total adjustments to EBITDA9.1
 7.5
Adjusted EBITDA$49.2
 $36.3
    
Adjusted EBITDA by segment:   
Racing$(9.4) $(9.7)
TwinSpires16.5
 13.2
Casino44.3
 35.3
Other Investments0.3
 0.6
Corporate(a)(2.5) (3.1)
Adjusted EBITDA$49.2
 $36.3

 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
(a) The Corporate segment includes corporate and other certain expenses of $0.7 million for the three months ended March 31, 2017 that have not been allocated to Big Fish Games as a result of the Big Fish Transaction. The Big Fish Games segment is reported as held for sale and discontinued operations in the accompanying condensed consolidated financial statements and these notes.
The table below presents information about equity in income (losses) of unconsolidated investments included in our reported segments:
 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2017 2016 2017 2016
Casinos$7.7
 $4.7
 $13.8
 $8.8
Other Investments
 0.1
 
 (0.2)
 $7.7
 $4.8
 $13.8
 $8.6
 Three Months Ended March, 31
(in millions)2018 2017
Casino$6.5
 $6.1

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


The table below presents total asset information for each of our operating segments:
(in millions)June 30, 2017 December 31, 2016March 31, 2018 December 31, 2017
Total assets:      
Racing$453.2
 $454.6
$484.8
 $483.0
Casinos659.8
 628.7
TwinSpires207.5
 209.9
215.2
 215.9
Big Fish Games890.9
 893.8
Casino678.6
 679.6
Other Investments10.1
 11.1
23.0
 15.2
Corporate60.5
 56.3
199.4
 73.2
Big Fish Games
 892.5
$2,282.0
 $2,254.4
$1,601.0
 $2,359.4
The table below presents total capital expenditures for each of our operating segments:
Six Months Ended June 30,Three Months Ended March, 31
(in millions)2017 20162018 2017
Capital expenditures:      
Racing$38.4
 $20.7
$23.0
 $23.6
Casinos15.6
 6.8
TwinSpires5.2
 3.7
2.3
 3.2
Big Fish Games3.5
 2.2
Casino3.4
 8.1
Other Investments0.7
 0.5
4.6
 0.4
Corporate0.6
 0.6
0.7
 0.2
Big Fish Games
 2.0
$64.0
 $34.5
$34.0
 $37.5
14.16. SUBSEQUENT EVENT
As of the date of this filing, there were no 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" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 (the "Act") provides certain "safe harbor" provisions for forward-looking statements. All forward-looking statements made in this 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," "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 economic conditions on our consumers' confidence and discretionary spending or our access to credit; additional or increased taxes and fees; public perceptions of integrity or other lack of confidence in the integrity of 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; the number of people attending and wagering on live horse races; inability to respond to rapid technological changes in a timely manner; adverseinadvertent 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 personal 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; and failure 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" 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.wagering.
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, 2016,2017, 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 10,09010,000 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.
On January 9, 2018, the Company completed the Big Fish Transaction. As described in further detail in Item 1. Financial Statements, the Company has presented Big Fish Games as held for sale and discontinued operations in the accompanying condensed consolidated financial statements and related notes.
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.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 EBITDAThe Company has not allocated corporate and other certain expenses to exclude changes in Big Fish Games deferred revenue. Effective January 1, 2017, certain revenue previously includedconsistent with the discontinued operations presentation in our Corporate segment was deemed by management to be more closely aligned with our TwinSpires segment. Thethe accompanying condensed consolidated statements of comprehensive income. Accordingly, 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:
AcquisitionTransaction 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;
Acquisition and disposition related charges, including fair value adjustments related to earnouts and deferred payments; and
Other transaction expense, including legal, accounting and other deal-related expense;
Stock-based compensation expense;
Asset impairments;
Gain on Calder land sale;
Calder exit costs;
Loss on extinguishment of debt; and
Other charges, recoveries and recoveries.expenses
For segment reporting, Adjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the accompanying Condensed Consolidated Statementscondensed consolidated statements of Comprehensive Income.comprehensive income. Refer to the Reconciliationreconciliation of Comprehensive Incomecomprehensive income to Adjustedadjusted EBITDA included in this section for additional information.
Our Operations
We manage our operations through sixfive operating segments: Racing, Casinos, TwinSpires, Casino, Other Investments and Corporate. Big Fish Games Other Investmentsis a global producer and Corporate.distributor of social casino, casual and mid-core free-to-play, and premium paid games for PC, Mac and mobile devices. On January 9, 2018, we closed the Big Fish Transaction, at which time Big Fish Games ceased to be an operating segment.
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 6454 live thoroughbred race days in the secondfirst quarter of 20172018 and 6155 live thoroughbred race days in the secondfirst quarter of 2016. For the six months ended June 30,2017.

TwinSpires Segment
Our TwinSpires segment includes TwinSpires.com, Fair Grounds Account Wagering ("FAW"), Velocity, and Bloodstock Research Information Services. On April 24, 2017, we conducted 119 live thoroughbred racing days,completed the acquisition of certain assets of BAM Software and Services, LLC ("BetAmerica"), which compares to 115 live thoroughbred racing days during the six months ended June 30, 2016.is included in our TwinSpires segment.
CasinosCasino Segment
We are also a provider of brick-and-mortar real-money casino gaming with approximately 10,09010,000 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, in addition to twothree hotels (Riverwalk(Oxford, 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,Miami Valley Gaming ("MVG"), a 25% equity investment in Saratoga 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 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.
In September 2017, we announced a partnership with Keeneland Association, Inc. to propose the construction of two new racing facilities to be located in Corbin, Kentucky and Oak Grove, Kentucky. The proposed facilities will feature live horse racing and historical racing machines.
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 GamesTwinSpires 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. The following update on 2017our regulatory and legislative activities should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016,2017, including Part I - Item 1, "Business" of our Form 10-K"Business," for a discussion of regulatory and legislative issues.
Racing Regulations
Illinois
In February 2018, legislation was filed that extends the authorization of advance deposit wagering though December 31, 2022.
Specific State Casino Regulations and Potential Legislative Changes
Maryland
In April 2017, Maryland's Governor signed a law allowing casinos in Allegany and Worcester counties 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. We believe the legislation will have a positive impact on our business.
Under pre-April 2017 Maryland 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. In April 2017, legislation was signed into law to lower the minimum threshold to qualify for matching state funds to $0.3 million. We believe the legislation will have a positive impact on our business.
Also in April 2017, legislation was signed into law to allow a VLT licensee to reduce the following day's proceeds forby the amount of money returned to players that exceeds the amount bet through VLT'sVLTs or table games on a given day, thereby reducing the taxes owed by the VLT licensee. In April 2018, legislation was signed into law which provides a video lottery operation licensee may carry over the losses for up to seven days. The legislation has had, and we believe will continue to have, a positive impact on our business.
In April 2018, legislation was signed into law which provides for up to $1.2 million annually to be distributed through 2024 to Ocean Downs from the Purse Dedication Account for losses associated with maintaining a minimum 40 days of live racing each year. We believe thethis 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 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 June 30, Six Months Ended June 30,Three Months Ended March, 31
(in millions)2017 2016 Change 2017 2016 Change2018 2017 Change
Net revenue$451.9
 $438.5
 $13.4
 $731.4
 $726.9
 $4.5
$189.3
 $167.5
 $21.8
Operating income129.5
 117.4
 12.1
 147.0
 123.7
 23.3
19.7
 8.5
 11.2
Operating income margin29% 27%   20% 17%  10% 5%  
Net income$78.3
 $69.8
 $8.5
 $85.6
 $72.6
 $13.0
$182.0
 $7.3
 $174.7
Adjusted EBITDA173.0
 160.2
 12.8
 230.3
 206.9
 23.4
49.2
 36.3
 12.9
Three Months Ended June 30, 2017,March 31, 2018, Compared to Three Months Ended June 30, 2016March 31, 2017
Our net revenue increased $13.4$21.8 million driven by a $12.1an $11.2 million increase from TwinSpires due to a 34.0% increase in active players and a 19.6%20.2% increase in handle and a $9.2 million increase in Racing primarily due to a strong Kentucky Derby and Oaks week performance, a $3.9$10.6 million increase from CasinosCasino primarily from organic growth at certain properties,successful marketing and a $0.8promotional activities.
Our operating income increased $11.2 million driven by an $8.5 million increase from Other Investments.Casino primarily driven by the increase in net revenue from successful marketing and promotional activities and a $3.6 million increase from TwinSpires due to the increase in handle. Partially offsetting these increases was a $12.6$0.9 million decrease from other sources.
Our net income increased $174.7 million driven by an $11.2 million increase in operating income, a $168.3 million after tax gain on the Big Fish Transaction, and a $0.7 million increase from all other sources. Offsetting these increases was a $5.5 million decrease in Big Fish Games driven by our casual and mid-core free-to-play games.
Our operating income increased $12.1 million driven by a $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 from a decrease in user acquisition expenses, a $2.2 million increase in Casinos due to organic growth at certain properties, a $2.1 million increase from TwinSpires due to an increase in active players and increase in handle, and a $1.3 million decrease in Calder exit costs. Partially offsetting the increases was a $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.income.
Our Adjusted EBITDA increased $12.8$12.9 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$9.0 million increase from TwinSpires due to an increase in active players and increase in handle, a $0.5 million increase at Big Fish GamesCasino primarily due to decreased user acquisition expense which was partially offset by lower revenue,organic growth from successful marketing 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 revenue increased $4.5 million driven by a $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 growthpromotional activities at certain properties and our unconsolidated investments, 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$3.3 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$0.6 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 $5.2 million increase in income from our equity investments, and a $0.3 million increase in other income. Partially offsetting these increases

were a $14.1 million increase in our income tax provision primarily from higher income from our segments and unconsolidated investments and a $1.7 million increase in interest expense associated with higher outstanding debt balances.
Our Adjusted EBITDA increased $23.4 million driven by a $11.9 million increase at Big Fish Games primarily due to decreased user acquisition expense which was partially offset by lower revenue, a $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 due to an increase in active players and increase in handle. These increases were partially offset by a $0.4 million decrease from 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 June 30, Six Months Ended June 30,Three Months Ended March, 31
(in millions)2017 2016 Change 2017 2016 Change2018 2017 Change
Racing:    

           
Churchill Downs$145.1
 $136.1
 $9.0
 $147.7
 $138.7
 $9.0
$2.3
 $2.6
 $(0.3)
Arlington19.9
 18.4
 1.5
 29.4
 28.4
 1.0
9.5
 9.5
 
Fair Grounds10.1
 9.5
 0.6
 23.5
 24.8
 (1.3)13.8
 13.4
 0.4
Calder0.6
 0.7
 (0.1) 1.2
 1.3
 (0.1)0.6
 0.6
 
Total Racing175.7
 164.7
 11.0
 201.8
 193.2
 8.6
26.2
 26.1
 0.1
Casinos:    

      
TwinSpires63.6
 52.3
 11.3
Casino:    

Oxford Casino23.1
 21.1
 2.0
 44.0
 41.0
 3.0
24.2
 20.9
 3.3
Riverwalk Casino12.0
 12.4
 (0.4) 23.5
 25.1
 (1.6)14.4
 11.5
 2.9
Harlow's Casino12.5
 11.9
 0.6
 26.0
 24.9
 1.1
13.3
 13.5
 (0.2)
Calder Casino21.8
 20.5
 1.3
 43.2
 40.8
 2.4
24.3
 21.4
 2.9
Fair Grounds Slots8.8
 8.8
 
 19.0
 19.4
 (0.4)10.6
 10.2
 0.4
VSI9.8
 9.5
 0.3
 19.5
 19.3
 0.2
11.0
 9.7
 1.3
Saratoga0.3
 0.2
 0.1
 0.6
 0.4
 0.2
0.3
 0.3
 
Total Casino88.3
 84.4
 3.9
 175.8
 170.9
 4.9
98.1
 87.5
 10.6
TwinSpires80.8
 68.7
 12.1
 133.1
 118.6
 14.5
Big Fish Games:    

      
Social casino49.5
 46.5
 3.0
 95.7
 94.0
 1.7
Casual and mid-core free-to-play43.9
 56.0
 (12.1) 89.2
 106.4
 (17.2)
Premium19.2
 22.7
 (3.5) 39.7
 46.9
 (7.2)
Total Big Fish Games112.6
 125.2
 (12.6) 224.6
 247.3
 (22.7)
Other Investments6.5
 5.8
 0.7
 12.0
 10.7
 1.3
5.5
 5.5
 
Eliminations(12.0) (10.3) (1.7) (15.9) (13.8) (2.1)(4.1) (3.9) (0.2)
Net Revenue$451.9
 $438.5
 $13.4
 $731.4
 $726.9
 $4.5
$189.3
 $167.5
 $21.8
Three Months Ended June 30, 2017,March 31, 2018, Compared to Three Months Ended June 30, 2016
Racing revenue increased $11.0 million due to a $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.31, 2017
TwinSpires revenue increased $12.1$11.3 million primarily driven by an increase of 34.0% in active players anddue to a 20.2% handle growth, of 19.6%, which outpaced the U.S. thoroughbred industry performance by 18.414.0 percentage points.

Big Fish GamesCasino revenue decreased $12.6increased $10.6 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 and a $0.1 million decrease from other sources.
Casinos revenue increased $4.9 million driven by a $3.0$3.3 million increase at Oxford, a $2.4$2.9 million increase at Calder, and a $1.1$2.7 million increase at Harlow's,our Mississippi properties, and a $1.7 million increase at our Louisiana properties, all of which resulted from successful marketing and promotional activities. Partially offsetting these increases was a $1.6 million decline in Riverwalk revenue as a result of declines in the market.
TwinSpires revenue increased $14.5 million and was primarily due to a 33.8% increase in active players and handle growth of 14.3%.
Big Fish Games revenue decreased $22.7 million primarily driven by a $17.2 million decrease in casual and mid-core free-to-play revenue from multiple games and a $7.2 million decrease in premium games revenue. Partially offsetting these decreases was a $1.7 million increase in social casino revenue driven by an increase in bookings.
Other Investments revenue increased $1.3 million due to international equipment sales and higher totalisator fees from new 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 June 30, Six Months Ended June 30,Three Months Ended March, 31
(in millions)2017 2016 2017 20162018 2017
Racing:          
Churchill Downs          
Race Days38
 36
 38
 36

 
Total handle$443.7
 $405.8
 $452.7
 $415.1
$7.2
 $9.0
Net pari-mutuel revenue$45.4
 $42.2
 $47.2
 $44.0
$1.6
 $1.8
Commission %10.2% 10.4% 10.4% 10.6%22.2% 20.0%
Arlington          
Race Days24
 25
 24
 25

 
Total handle$119.4
 $110.4
 $177.4
 $172.8
$56.1
 $58.0
Net pari-mutuel revenue$15.7
 $14.7
 $24.8
 $24.3
$9.1
 $9.1
Commission %13.1% 13.3% 14.0% 14.1%16.2% 15.7%
Fair Grounds          
Race Days2
 
 57
 54
54
 55
Total handle$34.2
 $21.2
 $170.9
 $186.5
$146.5
 $136.7
Net pari-mutuel revenue$5.3
 $4.7
 $16.3
 $17.2
$11.4
 $11.0
Commission %15.5% 22.2% 9.5% 9.2%7.8% 8.0%
Total Racing          
Race Days64

61

119

115
54

55
Total handle$597.3
 $537.4
 $801.0
 $774.4
$209.8
 $203.7
Net pari-mutuel revenue$66.4
 $61.6
 $88.3
 $85.5
$22.1
 $21.9
Commission %11.1% 11.5% 11.0% 11.0%10.5% 10.8%
TwinSpires.com       
TwinSpires (1)
   
Total handle$402.9
 $337.0
 $655.8
 $573.7
$304.1
 $252.9
Net pari-mutuel revenue$74.1
 $62.3
 $121.1
 $107.2
$56.3
 $47.0
Commission %18.4% 18.5% 18.5% 18.7%18.5% 18.6%
Eliminations (2)
          
Total handle$(88.5) $(69.0) $(103.5) $(85.7)$(18.2) $(15.0)
Net pari-mutuel revenue$(10.1) $(8.3) $(10.9) $(10.5)$(2.4) $(0.8)
Total          
Handle$911.7
 $805.4
 $1,353.3
 $1,262.4
$495.7
 $441.6
Net pari-mutuel revenue$130.4
 $115.6
 $198.5
 $182.2
$76.0
 $68.1
Commission %14.3% 14.4% 14.7% 14.4%15.3% 15.4%
(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.TwinSpires.
(2)Eliminations include the elimination of intersegment transactions.


CasinosCasino Activity
Certain key operating statistics specific to the gaming industry are included in our statistical data for our CasinosCasino 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 June 30, Six Months Ended June 30,
(in millions)2017 2016 2017 2016
Oxford Casino       
Slot handle$209.2
 $197.4
 $395.4
 $371.6
Net slot revenue17.7
 16.3
 33.4
 31.3
Net gaming revenue22.1
 20.1
 41.9
 39.0
Riverwalk Casino       
Slot handle$158.4
 $127.6
 $289.4
 $261.1
Net slot revenue10.2
 10.3
 20.0
 21.2
Net gaming revenue11.4
 11.6
 22.4
 23.7
Harlow’s Casino       
Slot handle$140.8
 $130.2
 $288.4
 $267.3
Net slot revenue10.7
 10.3
 22.5
 21.7
Net gaming revenue11.7
 11.2
 24.6
 23.5
Calder Casino       
Slot handle$331.4
 $268.4
 $588.9
 $523.1
Net slot revenue21.0
 19.6
 41.6
 39.1
Net gaming revenue21.0
 19.6
 41.5
 39.1
Fair Grounds Slots and Video Poker       
Slot handle$98.2
 $95.9
 $214.9
 $209.4
Net slot revenue8.4
 8.5
 18.4
 18.8
Net gaming revenue18.2
 17.9
 37.8
 38.0
        
Total net gaming revenue$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, as well as in-game advertising revenue and licensing agreement revenue.
 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2017 2016 2017 2016
Bookings       
Social casino$49.5
 $46.3
 $95.9
 $93.7
Casual and mid-core free-to-play41.9
 57.5
 85.7
 112.5
Premium20.6
 24.0
 41.3
 49.8
Total bookings$112.0
 $127.8
 $222.9
 $256.0
 Three Months Ended March, 31
(in millions)2018 2017
Oxford Casino   
Slot handle$222.1
 $186.2
Net slot revenue18.0
 15.7
Net gaming revenue22.7
 19.8
Riverwalk Casino   
Slot handle$178.6
 $131.0
Net slot revenue12.2
 9.8
Net gaming revenue13.7
 11.0
Harlow’s Casino   
Slot handle$148.8
 $147.6
Net slot revenue11.9
 11.8
Net gaming revenue12.7
 12.9
Calder Casino   
Slot handle$343.4
 $257.5
Net slot revenue23.3
 20.6
Net gaming revenue23.3
 20.5
Fair Grounds Slots and Video Poker   
Slot handle$116.5
 $116.7
Net slot revenue10.3
 10.0
Net gaming revenue21.2
 19.6
    
Total net gaming revenue$93.6
 $83.8

Consolidated Operating Expense
The following table is a summary of our consolidated operating expense:
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March, 31
(in millions)2017 2016 Change 2017 2016 Change2018 2017 Change
Taxes and purses$66.7
 $60.4
 $6.3
 $109.0
 $102.8
 $6.2
Platform & development fees40.4
 45.9
 (5.5) 81.9
 90.0
 (8.1)
Taxes & purses$46.1
 $42.3
 $3.8
Content expense32.0
 25.8
 6.2
Salaries & benefits39.7
 36.6
 3.1
 73.5
 68.2
 5.3
27.4
 26.8
 0.6
Selling, general and administrative expense18.4
 18.6
 (0.2)
Depreciation and amortization13.8
 14.2
 (0.4)
Marketing & advertising37.6
 45.2
 (7.6) 66.7
 93.0
 (26.3)4.7
 4.6
 0.1
Content expense33.6
 28.6
 5.0
 59.4
 52.8
 6.6
Selling, general and administrative expense26.7
 24.6
 2.1
 50.8
��47.7
 3.1
Depreciation & amortization24.8
 26.9
 (2.1) 49.3
 53.9
 (4.6)
Research & development9.9
 9.7
 0.2
 20.2
 20.5
 (0.3)
Acquisition expense, net0.8
 1.1
 (0.3) 1.0
 3.8
 (2.8)
Transaction expense, net1.4
 
 1.4
Calder exit costs0.2
 1.5
 (1.3) 0.6
 1.9
 (1.3)
 0.4
 (0.4)
Other operating expense42.0
 40.6
 1.4
 72.0
 68.6
 3.4
25.8
 26.3
 (0.5)
Total expense$322.4
 $321.1
 $1.3
 $584.4
 $603.2
 $(18.8)$169.6
 $159.0
 $10.6
Percent of net revenue71% 73%   80% 83%  90% 95%  
Three Months Ended June 30, 2017,March 31, 2018, Compared to Three Months Ended June 30, 2016March 31, 2017
Significant items affecting comparability of consolidated operating expense include:
Taxes and purses increased $6.3$3.8 million primarily driven by a $2.1$3.5 million increase in pari-mutuel taxes for TwinSpires due to the $1.7 million 2016 Pennsylvania tax refund which did not recur and thegenerated by our casinos associated with an increase in slot 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 $5.5 million driven by the decrease in revenues.
Salaries and benefits expense increased $3.1 million primarily driven by a $1.8 million increase in additional personnel costs and a $1.3 million increase in health insurance expense across all of our segments.
Marketing and advertising expense decreased $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, partially offset by a $1.4 million increase in TwinSpires marketing for Kentucky Derby and Oaks, and a $0.1$0.3 million increase in other expenses.
Content expense increased $5.0 million primarily driven by a 34.0% increase in active players and 19.6% handle growth at TwinSpires.
Selling, general and administrative expense increased $2.1 million driven primarily by a $1.3 million increase in stock-based compensation expense and a $0.8 million increase in other expenses.
Depreciation and amortization expense decreased $2.1 million driven primarily by a decrease at Big Fish Games associated with fully amortized 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 millionthe 21.6% increase in taxesnet revenue for our CasinosTwinSpires 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 increase in other expenses.
Platform and development fees at Big Fish Games decreased $8.1 million driven by the decrease in revenues.handle.
Salaries and benefits expense increased $5.3$0.6 million primarily driven by a $2.9 million increase in additional personnel costs and a $2.4 million increase in health insurancerelated benefits.
Transaction expense, across all of our segments.
Marketing and advertising expense decreased $26.3 million driven primarily by a $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 expensenet 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$1.4 million driven by non-cash fair value adjustments related to the liabilities for the Big Fish Games earnoutannounced acquisitions of Presque Isle 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.
Other operating expense includes utilities, maintenance, food and beverage costs, property taxes and insurance and other operating expense. Other operating expense increased $3.4 million, primarily due to a $1.9 million increase in insurance and property taxes and a $1.5 million increase related to other expenses.Lady Luck Vicksburg.
Corporate Allocated Expense
The table below presents Corporate allocated expense included in the Adjusted EBITDA of each of the operating segments, excluding corporate stock-based compensation:
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March, 31
(in millions)2017 2016 Change 2017 2016 Change2018 2017 Change
Racing$(1.4) $(1.5) $0.1
 $(2.8) $(2.8) $
$(1.5) $(1.4) $(0.1)
Casinos(1.8) (1.7) (0.1) (3.5) (3.2) (0.3)
TwinSpires(1.3) (1.4) 0.1
 (2.5) (2.6) 0.1
(1.4) (1.2) (0.2)
Big Fish Games(0.7) (0.6) (0.1) (1.4) (1.3) (0.1)
Casino(2.0) (1.7) (0.3)
Other Investments(0.4) (0.4) 
 (0.7) (0.7) 
(0.3) (0.3) 
Corporate allocated expense5.6
 5.6
 
 10.9
 10.6
 0.3
5.2
 4.6
 0.6
Total Corporate allocated expense$
 $
 $
 $
 $
 $
$
 $
 $
Adjusted EBITDA
We believe that the use of Adjustedadjusted 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 EBITDAThe Company has not allocated corporate and other certain expenses to exclude changes in Big Fish Games deferred revenue. Effective January 1, 2017, certain revenue previously includedconsistent with the discontinued operations presentation in our Corporate segment was deemed by management to be more closely aligned with our TwinSpires segment.the accompanying Consolidated Statements of Comprehensive Income. Accordingly, the prior year amounts were reclassified to conform to this presentation.

Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March, 31
(in millions)2017 2016 Change 2017 2016 Change2018 2017 Change
Racing$98.7
 $91.3
 $7.4
 $89.0
 $83.9
 $5.1
$(9.4) $(9.7) $0.3
Casinos37.5
 33.3
 4.2
 72.8
 67.6
 5.2
TwinSpires19.3
 18.8
 0.5
 32.5
 30.9
 1.6
16.5
 13.2
 3.3
Big Fish Games18.3
 17.8
 0.5
 38.6
 26.7
 11.9
Casino44.3
 35.3
 9.0
Other Investments1.3
 1.3
 
 1.9
 2.1
 (0.2)0.3
 0.6
 (0.3)
Corporate(2.1) (2.3) 0.2
 (4.5) (4.3) (0.2)
Corporate(a)
(2.5) (3.1) 0.6
Adjusted EBITDA$173.0
 $160.2
 $12.8
 $230.3
 $206.9
 $23.4
$49.2
 $36.3
 $12.9
(a)The Corporate segment includes corporate and other certain expenses of $0.7 million for the three months ended March 31, 2017 that have not been allocated to Big Fish Games as a result of the Big Fish Transaction. The Big Fish Games segment is reported as held for sale and discontinued operations in the accompanying consolidated financial statements and related notes.
Three Months Ended June 30, 2017,March 31, 2018, Compared to Three Months Ended June 30, 2016March 31, 2017
Racing AdjustedTwinSpires adjusted EBITDA increased $7.4$3.3 million due to a $6.5 million increase at Churchill Downs primarily from a successful Kentucky Derby and Oaks week driven by increased ticket sales andthe 20.2% 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.growth.
Casinos AdjustedCasino adjusted EBITDA increased $4.2$9.0 million driven by a $3.7$7.8 million increase from strong performanceour wholly-owned Casino properties, including a $3.4 million increase at the Company's equity investments, including our new equity investment in Ocean Downs in January 2017, andMississippi properties, a $0.9$2.1 million increase at Calder, a $1.3 million increase at Oxford, and a $1.0 million increase at our Louisiana properties, all of which were due to successful marketing and promotional activities. Partially offsetting these increases was a $0.4Our unconsolidated investments also contributed $1.2 million decreaseof the increase, primarily due to strong performance from other sources.Ocean Downs and MVG.
TwinSpires AdjustedCorporate adjusted EBITDA increased $0.5$0.6 million driven by a $2.2 million favorable impactthe allocation of increased wagering, net of costs, associated with a 34.0% increase in active playerscertain corporate 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, Comparedother expenses 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 $0.3 million decrease from other sources.
Casinos Adjusted EBITDA increased $5.2 million driven by a $6.8 million increase from strong performance at the Company's equity investments, including our new equity investment in Ocean Downs in January 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 increases were a $1.7 million decrease at Riverwalk due to inclement weather and a loss of market share within an overall declining market and a $1.1 million decrease at Fair Grounds and VSI from inclement weather and strong competition from the Mississippi Gulf Coast gaming market.
TwinSpires Adjusted EBITDA increased $1.6 million driven by a $3.3 million favorable impact of increased wagering, net of costs, associated with a 33.8% increase in active players and handle growth of 14.3%, which was partially offset by the $1.7 million 2016 Pennsylvania tax refund which did not recur.
Big Fish Games Adjusted EBITDA increased $11.9 million driven by a $27.4 million decrease in user acquisition spending and an $8.1 million decrease in platform and development fees, which were partially offset by a $22.7 million decrease in revenues and a $0.9 million increase in all other operating expenses.

preopening costs.
Reconciliation of Comprehensive Income to Adjusted EBITDA
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March, 31
(in millions)2017 2016 Change 2017 2016 Change2018 2017 Change
Comprehensive income$78.0
 $70.0
 $8.0
 $85.2
 $72.8
 $12.4
$182.0
 $7.2
 $174.8
Foreign currency translation, net of tax0.3
 (0.2) 0.5
 0.4
 (0.2) 0.6

 0.1
 (0.1)
Net income78.3
 69.8
 8.5
 85.6
 72.6
 13.0
182.0
 7.3
 174.7
Income from discontinued operations, net of tax(167.9) (5.1) (162.8)
Income from continuing operations, net of tax14.1
 2.2
 11.9
     
Additions:                
Depreciation and amortization24.8
 26.9
 (2.1) 49.3
 53.9
 (4.6)13.8
 14.2
 (0.4)
Interest expense11.6
 11.1
 0.5
 23.4
 21.7
 1.7
9.6
 11.8
 (2.2)
Income tax provision47.5
 41.7
 5.8
 52.0
 37.9
 14.1
2.6
 0.6
 2.0
EBITDA$162.2
 $149.5
 $12.7
 $210.3
 $186.1
 $24.2
$40.1
 $28.8
 $11.3
                
Adjustments to EBITDA:                
Selling, general and administrative:                
Stock-based compensation expense$6.7
 $5.3
 $1.4
 $11.7
 $9.4
 $2.3
$2.8
 $3.4
 $(0.6)
Other charges
 0.3
 (0.3) 0.1
 0.3
 (0.2)
 0.2
 (0.2)
Pre-opening expense0.6
 
 0.6
Other income (expense):    

     

    

Interest, depreciation and amortization expense related to equity investments3.1
 2.5
 0.6
 6.6
 5.0
 1.6
4.3
 3.5
 0.8
Other charges and recoveries, net
 
 
 
 0.4
 (0.4)
Acquisition expenses, net0.8
 1.1
 (0.3) 1.0
 3.8
 (2.8)
Transaction expense, net1.4
 
 1.4
Calder exit costs0.2
 1.5
 (1.3) 0.6
 1.9
 (1.3)
 0.4
 (0.4)
Total adjustments to EBITDA10.8
 10.7
 0.1
 20.0
 20.8
 (0.8)9.1
 7.5
 1.6
Adjusted EBITDA$173.0
 $160.2
 $12.8
 $230.3
 $206.9
 $23.4
$49.2
 $36.3
 $12.9
Three Months Ended June 30, 2017, Compared to Three Months Ended June 30, 2016
Depreciation and amortization expense decreased $2.1 million driven primarily by a decrease 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 Big Fish Games associated with fully amortized intangible assets and a $0.3 million decrease in expense in our other segments.
Interest expense increased $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, equity investment in Ocean Downs and acquisition of BetAmerica.
Income tax provision increased $14.1 million driven by the increase in pretax income 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 $2.3 million due 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 $1.6 million driven by our equity investments in SCH, as well as our equity investment in Ocean Downs.
Acquisition expenses, net 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 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)June 30, 2017 December 31, 2016 ChangeMarch 31, 2018 December 31, 2017 Change
Total assets$2,282.0
 $2,254.4
 $27.6
$1,601.0
 $2,359.4
 $(758.4)
Total liabilities$1,680.7
 $1,569.4
 $111.3
$1,257.4
 $1,719.1
 $(461.7)
Total shareholders' equity$601.3
 $685.0
 $(83.7)$343.6
 $640.3
 $(296.7)
Significant items affecting the comparability of our condensed consolidated balance sheets include:
Total assets increased $27.6decreased $758.4 million driven by an $823.4 million decrease in long-term assets of discontinued operations held for sale and a $28.9$69.1 million decrease in current assets of discontinued operations held for sale due to the Big Fish Transaction, a $35.6 million decrease in income tax receivable due to our current year income tax provision, and a $15.0 million decrease in accounts receivable, net primarily due to adoption of ASC 606. Partially offsetting these decreases were a $151.0 million increase in investments in affiliates primarilycash and cash equivalents due to the acquired interestnet proceeds received from the Big Fish Transaction partially offset by repurchases of Ocean Downs,common stock, a $28.4$26.9 million increase in property and equipment, net due to our capital project and maintenance expenditures partially offset by depreciation expense, and a $15.0$6.8 million increase in goodwill due to the acquisition of BetAmerica. Partially offsetting these increases were a $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 $7.6 million decrease in income taxes receivable driven by our current year income tax provision, and a $1.2 million decrease in all other assets.
Total liabilities increased $111.3decreased $461.7 million driven by a $150.0$242.6 million increasedecrease in our totallong-term debt, balance as we primarily borrowed under our Senior Secured Credit Facility to fund repurchasesnet of common stock, a $42.3 million increase in income taxes payable due to our current year income tax provision,maturities and a $34.1 million increase in accounts payableloan origination fees primarily due to timingthe payoff of TwinSpires and Racing related payments. Partially offsetting these increases wereour 2014 revolving credit facility, a $52.8$188.2 million decrease in deferred revenue - all other due to revenue recognitioncurrent liabilities of discontinued operations held for the 2017 Kentucky Derbysale and Oaks, a $34.1$54.8 million decrease in non-current liabilities of discontinued operations held for sale due to the Big Fish Games earnout liability,Transaction, and a $21.8$23.7 million decrease in dividends payable due to the payment of our annual dividends,dividends. Partially offsetting these decreases were a $21.4 million increase in income tax payable due to our current year income tax provision, a $20.6 million increase in current deferred revenue primarily due to the adoption of ASC 606, and a $6.4$5.6 million decreaseincrease in all other liabilities.
Total shareholders’ equity decreased $83.7$296.7 million driven by a $179.5$514.4 million decrease fromin repurchases of common stock, and $1.5primarily as a result of the $500.0 million of other changesshare repurchase program in stockholders’ equity.a "modified Dutch auction" tender offer that was completed on February 12, 2018. Partially offsetting these decreasesthis decrease were an $85.6$182.0 million increase in current year net income, a $29.1 million increase as a result of the adoption of ASC 606, and an $11.7increase of $6.6 million increase from the amortization of stock-based compensation expense.related to other sources.
Liquidity and Capital Resources
The following table is a summary of our liquidity and cash flows:
(in millions)Six Months Ended June 30,Three Months Ended March, 31
Cash flows from:2017 2016 Change2018 2017 Change
Operating activities$171.1
 $166.8
 $4.3
$55.9
 $65.3
 $(9.4)
Investing activities$(97.3) $(35.6) $(61.7)$936.7
 $(51.4) $988.1
Financing activities$(81.3) $(150.9) $69.6
$(843.8) $(17.0) $(826.8)
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.

SixThree Months Ended June 30, 2017,March 31, 2018, Compared to the SixThree Months Ended June 30, 2016March 31, 2017
Cash provided by operating activities increased $4.3decreased $9.4 million driven by a $17.2$6.6 million decrease in Big Fish Games earnout payments in comparison to the prior year, a $14.2 million increase in our income taxes payable primarily related to timing of payments and refunds, and increases of $3.6 million in other operating items. Partially offsetting these increases was a $30.7 million reduction incurrent deferred revenue driven byprimarily as a result of the timing of payments related to the Kentucky Derby and Oaks events and lower Big Fish Games bookings.a $2.8 million decrease from other sources.
Cash used inprovided by investing activities increased $61.7$988.1 million driven by $27.9$970.7 million increase in higher capital project expenditures,proceeds related to the Big Fish Transaction, a $24.0 million equityincrease related to the January 2017 investment in Ocean Downs $23.1and a $3.5 million for the acquisition of BetAmerica, and $0.3 millionincrease in all other investing activities. Partially offsetting these increases was a $13.6$10.1 million decrease in receivable from escrow related to the Calder land sale from the fourth quarter of 2016.
Cash used in financing activities decreased $69.6increased $826.8 million primarily driven by a $230.2$505.8 million reduction in the Big Fish Games earnout payment and $8.9increase primarily related to share repurchases under our "modified Dutch auction" tender offer completed on February 12, 2018, a $289.4 million in other financing activities. Partially offsetting these reductions was a $6.1 million change

increase in net borrowings and repayments underrelated to our Senior Secured Credit Facilitycredit agreements, a $26.4 million increase as a result of the 2016 Big Fish Games deferred payment and a $163.4$5.2 million increase in stock repurchases.from other financing activities.
Credit Facilities and Indebtedness
The following table presents our debt outstanding net of loan origination and debt issuance costs and including premium:costs:
(in millions)June 30, 2017 December 31, 2016 Change
Senior Secured Credit Facility:
 
 
Senior Secured Credit Facility due 2021$302.0
 $135.0
 $167.0
Term Loan due 2021172.2
 179.3
 (7.1)
Swing line of credit2.7
 13.2
 (10.5)
Total Senior Secured Credit Facility476.9
 327.5
 149.4
5.375% Senior Unsecured Notes due 2021600.0
 600.0
 
Total debt1,076.9
 927.5
 149.4
Current maturities of long-term debt16.5
 14.2
 2.3
Total debt, net of current maturities1,060.4
 913.3
 147.1
Bond premium and issuance costs, net(5.2) (5.8) 0.6
Net debt, net of current maturities$1,055.2
 $907.5
 $147.7
(in millions)March 31, 2018 December 31, 2017 Change
2017 Credit Agreement:
 
 
Term Loan B due 2024$399.0
 $400.0
 $(1.0)
Revolving Credit Facility
 239.0
 (239.0)
Swing line of credit
 3.0
 (3.0)
Total 2017 Credit Agreement399.0
 642.0
 (243.0)
2028 Senior Notes500.0
 500.0
 
Total debt899.0
 1,142.0
 (243.0)
Current maturities of long-term debt4.0
 4.0
 
Total debt, net of current maturities895.0
 1,138.0
 (243.0)
Issuance Cost and Fees(12.4) (12.8) 0.4
Total debt, net of current maturities$882.6
 $1,125.2
 $(242.6)
2017 Credit Agreement
On December 27, 2017, we entered into the 2017 Credit Agreement (as defined below) with a syndicate of lenders. The 2017 Credit Agreement replaced the 2014 Senior Secured Credit Facility
On February 17, 2016, we entered into an amendmentAgreement. The 2017 Credit Agreement provides a $700.0 million revolving credit facility (the "New"Revolver") and a $400.0 million Senior Secured Term Loan B (collectively, the "2017 Credit Agreement") which amends certain provisions. Included in the maximum borrowing of $700.0 million under the Revolver is a letter of credit sub facility not to exceed $50.0 million and a swing line commitment up to a maximum principal amount of $50.0 million. The 2017 Credit Amendment is secured by substantially all assets of the credit agreement including extendingCompany.
The Revolver bears interest at LIBOR plus a spread as determined by the maturity of both the Senior Secured Credit FacilityCompany's consolidated total net leverage ratio 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 bearB bears interest at a LIBOR-based rate per annumLIBOR 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 3.1% at June 30, 2017 and 2.7% at December 31, 2016.200 basis points.
The Senior Secured2017 Credit FacilityAgreement contains certain customary affirmative and negative covenants, for credit facilities of this type, includingwhich include limitations on us and our subsidiaries with respect toliens, investments, indebtedness, restricted payments, liens, investments,dispositions, mergers and acquisitions, dispositionthe making of assets, sale-leaseback transactionsrestricted payments, changes in the nature of business, changes in fiscal year, 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 Secured2017 Credit FacilityAgreement also contains financial covenants that require us (i) to maintain anproviding for the maintenance of a maximum consolidated secured net leverage ratio and maintenance of a minimum consolidated 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 June 30, 2017, we wereratio. The Company was in compliance with all applicable covenants underin the Senior Secured2017 Credit Facility, and we have significant assets pledged as collateral under the Senior Secured Credit Facility.Agreement at March 31, 2018. At June 30, 2017,March 31, 2018, the financial ratios under our Senior Secured2017 Credit FacilityAgreement were as follows:
 Actual Requirement
Interest Coverage Ratio7.75.7 to 11.0 > 3.02.5 to 1.0
Total Leverage RatioConsolidated total secured net leverage ratio3.21.0 to 11.0 < 4.5 to 1.0
Senior Secured Leverage Ratio1.5 to 1< 3.54.0 to 1.0
The Term Loan B requires quarterly payments of 0.25% of the original $400.0 million balance, or $1.0 million per quarter. The Term Loan B may be subject to additional mandatory prepayment from excess cash flow on an annual basis per the provisions of the 2017 Credit Agreement. The Company is required to pay a commitment fee on the unused portion of the Revolver determined by a pricing grid based on the consolidated total net leverage ratio of the Company. For the period ended March 31, 2018, the Company's commitment fee rate was 0.25%.
As a result of June 30,the Company's 2017 we had $7.1Credit Agreement, the Company capitalized $1.6 million in letter of credit commitmentsdebt issuance costs associated with the Revolver which reducedwill be amortized as interest expense over the total available capacity undernext 5 years. The Company also capitalized $5.1 million of deferred financing costs associated with the Senior Secured Credit Facility to $188.2 million.Term Loan B which will be amortized as interest expense over the next 7 years.
5.375%2028 Senior Unsecured Notes
On December 16, 2013,27, 2017, we completed an offering of $300.0$500.0 million in aggregate principal amount of 5.375%4.75% Senior Unsecured Notes that mature on DecemberJanuary 15, 20212028 (the "Initial"2028 Senior Unsecured Notes" or) in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the "Existing Notes"Securities Act of 1933, as amended (the "Securities Act")., and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The Initial2028 Senior Unsecured Notes were issued at par, with interest

payable on June 15thJanuary 15th and December 15thJuly 15th of each year. We received net proceeds of $295.0 million, after deducting underwriting fees, andyear, commencing on July 15, 2018. The Company used the net proceeds from the offering to repay a portion of our outstanding revolver borrowings, and accrued and unpaid interest outstanding.$600.0 million 5.375% Senior Unsecured Notes. In connection with the issuance,offering, we capitalized $6.3$7.7 million of debt issuance costs which are being amortized as interest expense over the remaining term of the Initial2028 Senior Unsecured Notes.
OnThe 2028 Senior Notes were issued pursuant to an indenture, dated December 16, 2015, we completed an additional offering27, 2017 (the "2028 Indenture"), among the Company, certain subsidiaries of $300.0 million in aggregatethe Company as guarantors (the "Guarantors"), and U.S. Bank National Association, as trustee. The Company may redeem some or all of the 2028 Senior Notes at any time prior to January 15, 2023, at a price equal to 100% of the principal amount of 5.375%the 2028 Senior Unsecured Notes that mature on Decemberredeemed plus an applicable make-whole premium. On or after such date the Company may redeem some or all of the 2028 Senior Notes at redemption prices set forth in the 2028 Indenture. In addition, at any time prior to January 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 partCompany may redeem up to 40% 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 $600.0 million (collectively the "Senior Unsecured Notes").
Both series of the2028 Senior Unsecured Notes were issued in private offerings that were exempt from registration under the Securities Act of 1933, as amended, and are senior unsecured obligations. The total Senior Unsecured Notes are guaranteed by each of our domestic subsidiaries that guarantee our Senior Secured Credit Facility and will rank equally with our existing and future senior obligations. We may redeem all or part of the Senior Unsecured Notes at a redemption price equal to 104.75% of 104.0% which gradually reducesthe principal amount thereof with the net cash proceeds of one or more equity offerings provided that certain conditions are met. The terms of the 2028 Indenture, among other things, limit the ability of the Company to: (i) incur additional debt and issue preferred stock; (ii) pay dividends or make other restricted payments; (iii) make certain investments; (iv) create liens; (v) allow restrictions on the ability of certain of our subsidiaries to par by 2019.pay dividends or make other payments; (vi) sell assets; (vii) merge or consolidate with other entities; and (viii) and enter into transactions with affiliates.
In connection with the issuance of the 2028 Senior Notes, the Company and the Guarantors entered into a Registration Rights Agreement to register any 2028 Senior Notes under the Securities Act for resale that are not freely tradable 366 days from December 27, 2017.
Contractual Obligations
Our commitments to make future payments as of June 30, 2017,March 31, 2018, are estimated as follows:
 (in millions)July 1 to December 31, 2017 2018-2019 2020-2021 Thereafter Total
Big Fish Games earnout$
 $34.2
 $
 $
 $34.2
Big Fish Games deferred payment
 28.7
 
 
 28.7
Senior Secured Credit Facility
 
 304.7
 
 304.7
Interest on Senior Secured Credit Facility(1)
4.7
 18.7
 10.6
 
 34.0
Term Loan7.1
 42.5
 122.7
 
 172.3
Interest on Term Loan(1)
2.7
 9.2
 3.9
 
 15.8
Senior Unsecured Notes
 
 600.0
 
 600.0
Interest on Senior Unsecured Notes16.1
 64.5
 63.1
 
 143.7
Operating leases6.0
 17.6
 19.1
 85.0
 127.7
Total$36.6
 $215.4
 $1,124.1
 $85.0
 $1,461.1
 (in millions)April 1 to December 31, 2018 2019-2020 2021-2022 Thereafter Total
Term Loan B$3.0
 $8.0
 $8.0
 $380.0
 $399.0
Interest on Term Loan B(1)
11.8
 30.9
 30.3
 29.5
 102.5
Senior Unsecured Notes
 
 
 500.0
 500.0
Interest on 2028 Senior Notes24.0
 47.5
 47.5
 119.7
 238.7
Operating leases3.9
 8.1
 5.3
 3.2
 20.5
Total$42.7
 $94.5
 $91.1
 $1,032.4
 $1,260.7

(1)    Interest includes the estimated contractual payments under our Senior Secured Credit Facility assuming no change in the     weighted average borrowing rate of 3.1% which was the rate in place as of 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 June 30, 2017, the fair value of the Big Fish Games earnout liability was $33.8 million and the fair value of the Big Fish Games deferred payment to the founder was $28.1 million, both of which we expect to pay in 2018.
(1)Interest includes the estimated contractual payments under our 2017 Credit Agreement assuming no change in the weighted average borrowing rate of 3.88% which was the rate in place as of March 31, 2018.
As of June 30, 2017,March 31, 2018, we had approximately $3.1$3.0 million of tax liabilities related to 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’sconsumers' 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, our 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 June 30, 2017,March 31, 2018, we had $476.9$399.0 million outstanding under our Senior Secured2017 Credit Facility,Agreement, 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 $3.0$7.6 million.

Foreign currency exchange risk
We operate internationally and are exposedOur exposure to foreign currency exchange risk. Whilerisk historically was related to Big Fish Games. As a result of 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,Big Fish Transaction, our foreign currency exposure is not material and thus we have not instituted a hedging program.material.
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 filedfile 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 June 30, 2017.March 31, 2018. 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
ThereThe following descriptions have been no material changes with respect to legal proceedings disclosed inupdated or added since the filing of our Annual Report on Form 10-K for the year ended December 31, 2016.2017, relating to the proceedings involving the Company. In addition to the matters described below, we are also involved in ordinary routine litigation matters which are incidental to our business.
Kater Class Action Suit
On April 17, 2015, a purported class action styled Cheryl Kater v. Churchill Downs Incorporated (the “Kater litigation”) was filed in the United States District Court, for the Western District of Washington alleging, among other claims, that the Company’s “Big Fish Casino” operated by the Company’s then-wholly owned mobile gaming subsidiary Big Fish Games violated Washington law, including the Washington Consumer Protection Act, by facilitating unlawful gambling through its virtual casino games (namely the slots, blackjack, poker, and roulette games offered through Big Fish Casino), and seeking among other things, return of monies lost, reasonable attorney’s fees and injunctive relief. On November 19, 2015, the District Court dismissed the case with prejudice and, on December 7, 2015, Plaintiff’s motion for reconsideration was denied. Plaintiff filed a notice of appeal on January 5, 2016 to the United States Court of Appeals for the Ninth Circuit.
As previously disclosed, on January 9, 2018, the Company sold Big Fish Games to the Purchaser pursuant to the Stock Purchase Agreement, dated as of November 29, 2017, by and among the Company, Big Fish and the Purchaser. Pursuant to the terms of the Stock Purchase Agreement, the Company agreed to indemnify the Purchaser for the losses and expenses associated with the Kater litigation for Big Fish Games, which is referred to in the Stock Purchase Agreement as the “Primary Specified Litigation.”
On February 6, 2018, oral arguments on Plaintiff’s appeal of the dismissal of the Kater litigation took place before the United States Court of Appeals for the Ninth Circuit. On March 28, 2018, the United States Court of Appeals for the Ninth Circuit reversed and remanded the District Court’s dismissal of the complaint against the Company. In accordance with the terms of the Stock Purchase Agreement, the Company is working closely with the Purchaser to vigorously defend this matter in both the District Court and in any further appellate proceedings, and the Company believes that there are meritorious legal and factual defenses against Plaintiff’s allegations and requests for relief.
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, 2016.2017.
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 June 30, 2017:March 31, 2018:
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
 

 
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) (2)
 
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in millions) (1) (2)
1/1/18-1/31/18 32,826

$244.40
 
 $578.3
2/1/18-2/28/18 1,905,361

264.50
 1,886,792
 78.3
3/1/18-3/31/18 


 
 78.3
Total 1,938,187
 $264.16
 1,886,792
 

(1)On April 25, 2017, the Board of Directors of the Company approved a new common stock repurchase program of up to $250.0 million. The repurchase program has no time limit and may be suspended or discontinued at any time.
(2)On November 29, 2017, the Board of Directors of the Company authorized a $500.0 million share repurchase program in a "modified Dutch auction" tender offer utilizing a portion of the proceeds from the Big Fish transaction. The Company completed the tender offer on February 12, 2018.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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 toReport on Form 10-Q for 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
July 26, 2017/s/ William C. Carstanjen
William C. Carstanjen
Chief Executive Officer
(Principal Executive Officer)
July 26, 2017/s/ Marcia A. Dall
Marcia A. Dall
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
quarter ended March 31, 2018.

EXHIBIT INDEX
Number Description By Reference To
     
10(a) Stock RepurchaseSeparation Agreement and Release, dated Juneas of January 9, 2017, between2018 by and among Churchill Downs Incorporated, Big Fish Games, Inc. and CDI Holdings, LLCPaul Thelen Exhibit 10.1 to Current Report on Form 8-K filed June 12, 2017January 9, 2018
     
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)  
     
   
     
   
     
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  
**furnished herewith



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.

39
CHURCHILL DOWNS INCORPORATED
April 25, 2018/s/ William C. Carstanjen
William C. Carstanjen
Chief Executive Officer
(Principal Executive Officer)
April 25, 2018/s/ Marcia A. Dall
Marcia A. Dall
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

38