UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~September 30, 2017~~March 31, 2018



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

For the transition period from to

Commission file number 001-33998

(Exact name of registrant as specified in its charter)



Kentucky	61-0156015
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

600 North Hurstbourne Parkway, Suite 400 Louisville, Kentucky 40222	(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 filer	x	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	o
		Emerging growth company	o

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 ~~October 26, 2017~~April 18, 2018 was ~~15,425,618~~13,539,101 shares.

CHURCHILL DOWNS INCORPORATED

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended ~~September 30, 2017~~March 31, 2018



	Part I-FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	3
	Condensed Consolidated Balance Sheets at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017	4
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2123
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3733
Item 4.	Controls and Procedures	3834

	Part II-OTHER INFORMATION
Item 1.	Legal Proceedings	3935
Item 1A.	Risk Factors	4035
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4035
Item 3.	Defaults Upon Senior Securities	4035
Item 4.	Mine Safety Disclosures	4036
Item 5.	Other Information	4036
Item 6.	Exhibits	4036
	Signatures	4138
	Exhibit Index	4237


PART I.	FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March, 31
(in millions, except per common share data)	2017			2016			2017			2016			2018			2017
Net revenue:
Racing	$	38.8		$	38.5		$	228.0		$	220.8		$	23.7		$	23.9
Casinos	87.5			83.0			263.3			253.9
TwinSpires	65.9			55.1			198.4			173.1			63.2			52.0
Big Fish Games	117.9			122.3			342.5			369.6
Casino													98.1			87.5
Other Investments	4.7			4.5			14.0			12.9			4.3			4.1
Total net revenue	314.8			303.4			1,046.2			1,030.3			189.3			167.5
Operating expense:
Racing	40.8			41.5			153.7			149.4			35.9			36.4
Casinos	60.7			61.4			185.5			182.8
TwinSpires	42.8			36.8			130.6			112.8			44.0			36.4
Big Fish Games	95.2			94.5			271.5			309.5
Casino													64.8			62.7
Other Investments	4.3			3.9			13.1			11.9			4.6			3.9
Corporate	0.6			0.5			1.8			1.5			0.5			0.6
Selling, general and administrative expense	26.8			27.6			77.6			75.3			18.4			18.6
Research and development	9.7			8.8			29.9			29.3
Calder exit costs	0.2			0.5			0.8			2.4			—			0.4
Acquisition expense, net	0.7			1.1			1.7			4.9
Transaction expense, net													1.4			—
Total operating expense	281.8			276.6			866.2			879.8			169.6			159.0
Operating income	33.0			26.8			180.0			150.5			19.7			8.5
Other income (expense):
Interest expense	(12.6		)	(11.1		)	(36.0		)	(32.8		)
Interest expense, net													(9.6		)	(11.8		)
Equity in income of unconsolidated investments	8.9			4.9			22.7			13.5			6.5			6.1
Miscellaneous, net	(1.0		)	(0.2		)	(0.8		)	(0.3		)	0.1			—
Total other income (expense)	(4.7		)	(6.4		)	(14.1		)	(19.6		)
Income from operations before provision for income taxes	28.3			20.4			165.9			130.9
Total other expense													(3.0		)	(5.7		)
Income from continuing operations before provision for income taxes													16.7			2.8
Income tax provision	(11.6		)	(11.7		)	(63.6		)	(49.6		)	(2.6		)	(0.6		)
Income from continuing operations, net of tax													14.1			2.2
Income from discontinued operations, net of tax													167.9			5.1
Net income	$	16.7		$	8.7		$	102.3		$	81.3		$	182.0		$	7.3

Net income per common share data:
Basic net income	$	1.09		$	0.52		$	6.43		$	4.85
Diluted net income	$	1.08		$	0.52		$	6.32		$	4.79
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:
Basic	15.3			16.4			15.9			16.5			14.4			16.3
Diluted	15.5			16.9			16.2			17.0			14.5			16.8

Other comprehensive loss:
Other comprehensive income (loss):
Foreign currency translation, net of tax	0.5			—			0.1			0.2			—			(0.1		)
Change in pension benefits, net of tax	0.1			—			0.1			—
Other comprehensive gain	0.6			—			0.2			0.2
Other comprehensive income (loss)													—			(0.1		)
Comprehensive income	$	17.3		$	8.7		$	102.5		$	81.5		$	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)	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	57.8		$	48.7		$	202.7		$	51.7
Restricted cash	37.3			34.3			31.5			31.2
Accounts receivable, net of allowance for doubtful accounts of $3.9 at September 30, 2017 and $3.5 at December 31, 2016	74.0			81.4
Receivable from escrow	—			13.6
Accounts receivable, net							34.6			49.6
Income taxes receivable	—			7.6			—			35.6
Game software development, net	6.4			9.6
Other current assets	59.3			50.8			26.0			18.9
Current assets of discontinued operations held for sale							—			69.1
Total current assets	234.8			246.0			294.8			256.1
Property and equipment, net	619.4			574.4			634.9			608.0
Game software development, net	13.3			6.3
Investment in and advances to unconsolidated affiliates	173.9			139.1			173.4			171.3
Goodwill	848.3			832.2			317.6			317.6
Other intangible assets, net	425.4			445.7			167.8			169.4
Other assets	12.3			10.7			12.5			13.6
Long-term assets of discontinued operations held for sale							—			823.4
Total assets	$	2,327.4		$	2,254.4		$	1,601.0		$	2,359.4

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	61.6		$	53.2		$	59.8		$	54.1
Purses payable	19.2			12.5			8.4			12.5
Account wagering deposit liabilities	25.9			25.0			28.7			24.0
Accrued expense	111.2			100.1			75.6			75.8
Income taxes payable	16.9			—			21.4			—
Deferred revenue - Big Fish Games	85.6			81.3
Deferred revenue - all other	12.0			64.3
Big Fish Games deferred payment, current	28.3			27.8
Big Fish Games earnout liability, current	33.9			67.9
Current deferred revenue							91.5			70.9
Current maturities of long-term debt	17.7			14.2			4.0			4.0
Dividends payable	—			21.8			—			23.7
Current liabilities of discontinued operations held for sale							—			188.2
Total current liabilities	412.3			468.1			289.4			453.2
Long-term debt (net of current maturities and loan origination fees of $0.5 at both September 30, 2017 and December 31, 2016)	510.7			312.8
Notes payable (including premium of $2.1 at September 30, 2017 and $2.5 at December 31, 2016 and net of debt issuance costs of $6.5 at September 30, 2017 and $7.8 at December 31, 2016)	595.6			594.7
Deferred revenue - all other	23.1			24.4
Long-term debt, net of current maturities and loan origination fees							390.1			632.9
Notes payable, net of debt issuance costs							492.5			492.3
Non-current deferred revenue							25.0			29.3
Deferred income taxes	140.2			153.1			43.8			40.6
Other liabilities	19.2			16.3			16.6			16.0
Non-current liabilities of discontinued operations held for sale							—			54.8
Total liabilities	1,701.1			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 September 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 earnings	627.3			569.7			344.5			634.3
Accumulated other comprehensive loss	(1.0		)	(1.2		)	(0.9		)	(1.3		)
Total shareholders' equity	626.3			685.0			343.6			640.3
Total liabilities and shareholders' equity	$	2,327.4		$	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)


	Nine Months Ended September 30,						Three Months Ended March, 31
(in millions)	2017			2016			2018			2017
Cash flows from operating activities:
Net income	$	102.3		$	81.3		$	182.0		$	7.3
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	73.3			81.4			13.8			24.5
Game software development amortization	13.5			11.7			0.4			4.4
Acquisition expenses, net	1.7			4.9
Gain on sale of Big Fish Games							(219.5		)	—
Distributed earnings from equity investments	11.7			12.3			4.5			4.3
Earnings from equity investments, net	(22.7		)	(13.5		)	(6.5		)	(6.1		)
Stock-based compensation	17.5			14.3			6.1			4.9
Deferred income taxes	(13.0		)	0.5			2.1			—
Big Fish Games earnout payment	(2.5		)	(19.7		)	(2.4		)	(2.5		)
Big Fish Games deferred payment							(2.0		)	—
Other	1.0			1.6			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 liabilities	(0.8		)	11.7
Game software development	(17.1		)	(16.3		)	(0.3		)	(5.3		)
Income taxes	24.5			28.1			52.4			6.6
Deferred revenue	(27.4		)	(7.5		)	35.8			42.4
Other assets and liabilities	2.2			(1.8		)	(11.4		)	(15.7		)
Net cash provided by operating activities	164.2			189.0			55.9			65.3
Cash flows from investing activities:
Capital maintenance expenditures	(26.7		)	(24.2		)	(7.5		)	(10.2		)
Capital project expenditures	(62.4		)	(19.9		)	(26.5		)	(27.3		)
Acquisition of gaming licenses	(2.3		)	(2.5		)
Acquisition of a business	(23.1		)	—
Proceeds from sale of Big Fish Games							970.7			—
Receivable from escrow	13.6			—			—			10.1
Investment in unconsolidated affiliates	(24.0		)	—			—			(24.0		)
Other	0.3			0.4
Net cash used in investing activities	(124.6		)	(46.2		)
Net cash provided by (used in) investing activities							936.7			(51.4		)
Cash flows from financing activities:
Borrowings on bank line of credit	769.1			564.7			100.9			239.1
Repayments of bank line of credit	(567.7		)	(427.2		)	(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	(181.1		)	(20.0		)	(514.4		)	(8.6		)
Common stock issued	2.1			2.2			—			0.1
Loan origination fees and debit issuance costs	—			(1.4		)
Other	(0.6		)	2.7			(4.5		)	(1.4		)
Net cash used in financing activities	(31.7		)	(160.0		)	(843.8		)	(17.0		)
Net increase (decrease) in cash and cash equivalents	7.9			(17.2		)
Net increase (decrease) in cash, cash equivalents and restricted cash							148.8			(3.1		)
Effect of exchange rate changes on cash	1.2			(0.4		)	(0.1		)	—
Cash and cash equivalents, beginning of period	48.7			74.5
Cash and cash equivalents, end of period	$	57.8		$	56.9
Cash, cash equivalents and restricted cash, beginning of period							85.5			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)


	Nine Months Ended September 30,				Three Months Ended March, 31
(in millions)	2017		2016		2018		2017
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	25.4	$	21.8	$	4.6	$	2.6
Income taxes	48.0		21.6		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	18.5		18.8
Property and equipment additions included in accounts payable and accrued expenses	5.6		—		6.3		—

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 Sheet~~December 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 5754 live thoroughbred race days in the ~~third~~first quarter of ~~2017~~2018 and 6055 live thoroughbred race days in the ~~third~~first quarter of ~~2016. For the nine months ended September 30, 2017, we conducted 176 live thoroughbred racing days, which compares to 175 live thoroughbred racing days during the nine months ended September 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 Games~~Casino

Revenue from our ~~Big Fish Games, Inc. ("Big Fish Games") segment also~~casino properties has a seasonal component and is typically ~~lower~~higher 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 ~~Update~~Updated (“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 receivable	35.6		(4.1		)	31.5
Current assets of discontinued operations held for sale	69.1		0.7			69.8
Other assets	13.6		(1.1		)	12.5

LIABILITIES
Accrued expense	75.8		0.8			76.6
Current deferred revenue	70.9		(18.9		)	52.0
Current liabilities of discontinued operations held for sale	188.2		(38.8		)	149.4
Non-current deferred revenue	29.3		(4.5		)	24.8
Deferred income taxes	40.6		0.1			40.7
Non-current liabilities of discontinued operations held for sale	54.8		5.9			60.7

SHAREHOLDERS' EQUITY
Retained earnings	634.3		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 assets	12.5		14.5		(2.0		)

LIABILITIES
Accrued expense	75.6		74.8		0.8
Current deferred revenue	91.5		91.7		(0.2		)
Non-current deferred revenue	25.0		29.3		(4.3		)
Deferred income taxes	43.8		43.7		0.1

SHAREHOLDERS' EQUITY
Retained earnings	344.5		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 cash	6.2		(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 standard~~Accounting, 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 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~~3. SIGNIFICANT ACCOUNTING POLICIES

~~(Unaudited)~~

~~In January 2017,~~Except for the ~~FASB issued ASU No. 2017-01, Business Combinations: Clarifying the Definition~~accounting policies for revenue recognition, casino and pari-mutuel taxes, and restricted cash, all of which were updated as a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance will become effective in 2018. We will assess the impact of the new accounting guidance as necessary for future transactions.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash. The new standard requires that the statement of cash flows explain the change during the period of cash, cash equivalents, and amounts generally described as restricted cash. Entities will also be required to reconcile to the balance sheet and disclose the nature of the restrictions. The guidance will become effective in 2018. While we are continuing to assess all potential impacts of the standard, we believe the most significant impact relates to the presentationresult of our ~~statement of cash flows where we will be required~~recently adopted accounting pronouncements on January 1, 2018, as described in Note 2, there have been no changes 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 classifiedsignificant accounting policies described in the ~~statement of cash flows. The guidance will become effective in 2018. We are assessing~~Annual Report on Form 10-K for 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 expectyear ended December 31, 2017, 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; each of 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 under ASU No. 2014-09, we~~ have identified a few 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 for Big Fish Games when the credits have legally expired. Under the new standard, we will be required to recognize the expected breakage related to our outstanding premium game club credits as revenue in proportion to the pattern of game club credits redeemed by our customers. The second area relates to our accounting for loyalty points under our various rewards programs which are earned by our customers at our casinos. Our 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 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. In addition to the impact on loyalty points at our casinos, the new standard will impact all gaming transactions that contain multiple performance obligations, such as certain benefits provided under our rewards programs. Specifically, we will defer revenue based on standalone selling prices and recognize the revenue as each of those performance obligations are fulfilled. We are continuing to assess the significance of this impact on our operations.

~~Due to the change in our accounting related to breakage revenue for Big Fish Games, we anticipate the standard under ASU No. 2014-09 may have~~had a material impact on our condensed consolidated financial ~~statements. At this time,~~statements 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 ~~expect~~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 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 ~~adopt this new standard using~~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 ~~modified retrospective method~~established commission rate we are entitled to retain. The transaction price for export revenue is variable based on ~~January 1, 2018.~~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)

3.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 situations where the timing of revenue recognition differs from the timing 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 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 receivable	34.7
Game software development, net	6.7
Other current assets	17.0
Property and equipment, net	17.8
Game software development, net	13.8
Goodwill	530.7
Other intangible assets, net	238.4
Other assets	24.0
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 after 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 expenses	8.4			87.0
Selling, general and administrative expense	4.3			5.5
Research and development	0.9			10.3
Transaction expense, net	—			0.2
Total operating expense	13.6			103.0
Operating (loss) income	(0.4		)	9.0
Other income (expense)
Gain on sale of Big Fish Games	219.5			—
Other expense	(0.1		)	—
Total other income	219.4			—
Income from discontinued operations before provision for income taxes	219.0			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 Big Fish Games, which included the impact of the accelerated vesting dates of restricted stock awards held by Big Fish Games' employees in conjunction with the Big Fish Transaction.

Earnout Liabilities

As of December 31, 2017, we had $34.2 million of deferred earnout consideration and $28.4 million of deferred payments due to the founder of Big Fish Games, both of which were paid on January 3, 2018.

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 of~~Company has not included other disclosures regarding BetAmerica ~~have been included in our Condensed Consolidated Financial Statements from~~because the acquisition date. The pro forma 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. We utilized the entire escrow amount, resulting in a zero balance at September 30, 2017, comparedacquired business is immaterial to our ~~$13.6 million from the qualified intermediary trust at December 31, 2016.~~business.

~~5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES~~

~~Ocean Downs~~

~~In August 2016, we signed a limited liability company operating agreement with~~ Saratoga Casino Holdings LLC ("SCH"), with each entity having a 50% interest, and formed Old Bay Gaming and Racing LLC ("Old Bay"). The Old Bay agreement provides both the Company and SCH equal participating rights, and both entities must consent to Old Bay's operating, investing and financing decisions.

On January 3, 2017, Old Bay acquired all of the equity interests of Ocean Enterprise 589 LLC, Ocean Downs LLC and Racing Services LLC (collectively, "Ocean Downs"). The Company's portion of the initial equity investment in Ocean Downs was $24.0 million. Ocean Downs, located near Ocean City, Maryland, owns and operates video lottery terminals ("VLT") at the Casino at Oceans Downs and conducts harness racing at Ocean Downs Racetrack. The Company's 25% interest in SCH provides an additional 12.5% interest, resulting in an effective 62.5% interest in Ocean Downs. Since both the Company and SCH have participating rights and both must consent to Old Bay's operating, investing and financing decisions, the Company accounts for Ocean Downs using the equity method of accounting.

~~Miami Valley Gaming~~

~~We have a 50% joint venture in Miami Valley Gaming ("MVG"), which has a harness racetrack and VLT gaming facility in Lebanon, Ohio, with Delaware North Companies Gaming & Entertainment Inc.~~

~~Summarized below is financial information for our MVG equity investment:~~

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2017 2016 2017 2016
Casino revenue $ 38.4
$ 36.1
$ 117.9
$ 108.7
Non-casino revenue 1.2
1.2
5.1
5.2
Net revenue 39.6
37.3
123.0
113.9
Operating and SG&A expense 28.1
26.4
85.7
79.7
Depreciation & amortization 3.2
3.4
9.5
9.9
Operating income 8.3
7.5
27.8
24.3
Interest and other expense, net (0.6 ) (0.8 ) (1.9 ) (2.6 )
Net income $ 7.7
$ 6.7
$ 25.9
$ 21.7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

(in millions) September 30, 2017 December 31, 2016
Assets
Current assets $ 16.5
$ 18.7
Property and equipment, net 104.6
109.8
Other assets, net 107.7
105.0
Total assets $ 228.8
$ 233.5

Liabilities and Members' Equity
Current liabilities $ 9.0
$ 12.5
Current portion of long-term debt 8.3
8.3
Long-term debt, excluding current portion 8.9
14.0
Other liabilities 0.1
0.1
Members' equity 202.5
198.6
Total liabilities and members' equity $ 228.8
$ 233.5
The Company's equity investments include the following:

~~Our Condensed Consolidated Statements~~50% joint venture ownership in Miami Valley Gaming ("MVG") in Lebanon, Ohio;

25% equity investment in Saratoga Casino Holdings LLC ("SCH"), which owns Saratoga Casino and Raceway in Saratoga Springs, New York and Saratoga Casino Black Hawk in Black Hawk, Colorado; and

50% equity investment in Ocean Downs LLC and Services Racing LLC ("Ocean Downs") located near Ocean City, Maryland. SCH owns the remaining 50% of ~~Comprehensive Income include~~Ocean Downs, providing the Company an effective 62.5% interest.

Summarized below are the financial results for our ~~50% share of MVG's results as follows:~~unconsolidated affiliates:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
(in millions)	2017		2016		2017		2016		2018			2017
Equity in income of unconsolidated investments	$	3.8	$	3.4	$	12.9	$	10.9
Net revenue									$	77.0		$	72.2

Operating and SG&A expense									53.6			49.8
Depreciation and amortization									6.6			5.7
Total operating expense									60.2			55.5
Operating income									16.8			16.7
Interest and other expense, net									(2.9		)	(3.5		)
Net income									$	13.9		$	13.2



(in millions)	March 31, 2018		December 31, 2017
Assets
Current assets	$	74.5	$	64.5
Property and equipment, net	233.9		234.6
Other assets, net	237.1		236.5
Total assets	$	545.5	$	535.6

Liabilities and Members' Equity
Current liabilities	$	101.2	$	100.3
Long-term debt	114.7		110.1
Other liabilities	—		0.1
Members' equity	329.6		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 —
—
16.1
—
16.1
Balances as of September 30, 2017 $ 51.7
$ 117.6
$ 148.2
$ 530.8
$ 848.3

~~In 2017, we established goodwill of $16.1 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:

September 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 $ 180.4
$ (113.3 ) $ 67.1
$ 187.4
$ (100.0 ) $ 87.4
Indefinite-lived intangible assets 358.3
358.3
Total

$ 425.4
$ 445.7

In 2017, we reduced our customer relationships intangible asset and accumulated amortization for TwinSpires by $15.1 million as the amounts were fully amortized. Finally, we established definite-lived intangible assets of $8.1 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 nine~~ months ended ~~September 30, 2017~~March 31, 2018 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 September 30, 2016 was higher than the U.S. federal statutory rate of 35.0% primarily due to state income taxes, certain expenses that are not deductible for the purposes of income taxes and a decrease to the manufacturing deduction, partially offset by benefits from tax credits. The Company’s income tax rate for the nine months ended September 30, 2016 was higherlower than the U. S federal statutory rate of ~~35.0%~~21.0% 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~~ 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~~recognized. This benefit was partially offset by state income taxes and certain expenses that are not deductible for the purposes of ~~ASU 2016-09, Improvements~~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 ~~Employee Share-Based Payment Accounting.~~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:

September 30, 2017
(in millions) Level 1 Level 3
Cash equivalents and restricted cash $ 36.0
$ —
Big Fish Games deferred payments —
28.3
Big Fish Games earnout liability —
33.9
Total $ 36.0

$ 62.2

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 value 0.5
0.2
0.7
Balances as of September 30, 2017 $ 28.3
$ 33.9
$ 62.2



	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 September 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 $0.7 million during the nine months ended September 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 ~~$620.3~~$470.6 million at ~~September 30, 2017~~March 31, 2018 and ~~$622.5~~$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—The~~equivalents: the carrying amount reported in the balance sheet for cash equivalents approximates our fair value due to the short-term maturity of these instruments.

~~Long-Term Debt: Fourth Amended and Restated Credit Agreement ("Senior Secured Credit Facility")—The~~Long-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 ~~Facility~~Agreement") approximate fair value, based upon current interest rates, ~~and represent~~representing a Level 2 fair value measurement.

We did not measure any assets at fair value on a non-recurring basis for ~~2017~~2018 or ~~2016.~~2017.

9.11. SHAREHOLDERS’ EQUITY

On ~~April 25,~~November 29, 2017, the Board of Directors of the Company ~~approved~~authorized a ~~new common stock~~$500.0 million share repurchase program ~~of up to $250.0 million. The new program replaced the prior $150.0 million program that was authorized~~ in February 2016 and had unused authorization of $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. Share repurchases result in the shares being retired, and the cost~~"modified Dutch auction" tender offer utilizing a portion of the ~~shares acquired are treated as a reduction~~proceeds from ~~common stock~~the Big Fish Transaction. The Company completed the tender offer on February 12, 2018, and ~~retained earnings. 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 1,000,000~~repurchased 1,886,792 shares of the Company's common stock ~~for $158.78~~at a purchase price of $265 per share ~~in a privately negotiated transaction. The~~with an aggregate ~~purchase price was $158.8 million.~~cost of $500.0 million, excluding fees and expenses related to the tender offer.

~~For the nine months ended September 30, 2017, including the repurchase of 1,000,000 shares from TDG, we~~

12. STOCK-BASED COMPENSATION PLANS

We have ~~repurchased 1,077,029 shares of our common stock~~stock-based employee compensation plans with awards outstanding under the ~~April 2017 stock repurchase program at a~~Churchill Downs Incorporated 2007 Omnibus Stock Incentive Plan, the Churchill Downs Incorporated 2016 Omnibus Stock Incentive Plan ("the 2016 Plan"), and the Executive Long-Term Incentive Compensation Plan, which was adopted pursuant to the 2016 Plan. Our total ~~cost of $171.7 million. We had approximately $78.3 million of repurchase authority remaining under this program at September 30, 2017.~~stock-based

~~During the nine months ended September 30, 2017, we also repurchased 53,721 shares of our common stock in conjunction with the February 2016 stock repurchase program at a total cost of $7.8 million.~~

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 or~~compensation expense, which includes expenses related to restricted stock ~~units to directors~~awards ("RSAs"), restricted stock unit awards ("RSUs"), performance share unit awards ("PSUs"), and ~~key employees, including~~stock options associated with our ~~officers who are from time to time responsible~~employee stock purchase plan was $2.8 million for the ~~management, growth~~three 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 adjusted~~service 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 expense~~A summary of ~~$5.8 million for~~ the ~~three months ended September 30, 2017~~RSAs, RSUs, and $17.5 million for the nine months ended September 30, 2017. We recognized stock-based compensation expense of $4.8 million for the three months ended September 30, 2016 and $14.3 million for the nine months ended September 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.

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 September 30, Nine Months Ended September 30,
(in millions, except per share data) 2017 2016 2017 2016
Numerator for basic income per common share:
Net income $ 16.7
$ 8.7
$ 102.3
$ 81.3
Net income allocated to participating securities —
(0.1 ) (0.1 ) (1.4 )
Numerator for basic income per common share $ 16.7
$ 8.6
$ 102.2
$ 79.9

Numerator for diluted income per common share $ 16.7
$ 8.7
$ 102.3
$ 81.3

Denominator for basic and diluted net income per common share:
Basic-weighted average shares 15.3
16.4
15.9
16.5
Plus dilutive effect of stock awards 0.2
0.2
0.2
0.2
Plus dilutive effect of participating securities —
0.3
0.1
0.3
Diluted-adjusted weighted average shares 15.5
16.9
16.2
17.0

Income per common share:
Basic $ 1.09
$ 0.52
$ 6.43
$ 4.85
Diluted $ 1.08
$ 0.52
$ 6.32
$ 4.79



	Three Months Ended March, 31
(in millions, except per share data)	2018		2017
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 operations	167.9		5.1
Numerator for basic net income per common share	$	182.0	$	7.2

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 net income per common share:
Basic	14.4		16.3
Plus dilutive effect of stock awards	0.1		0.2
Plus dilutive effect of participating securities	—		0.3
Diluted	14.5		16.8

Net income per common share data:
Basic
Continuing operations	$	0.98	$	0.13
Discontinued operations	$	11.63	$	0.31
Net income per common share - basic	$	12.61	$	0.44

Diluted
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 ~~six~~five 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~~adjusted EBITDA. Our chief operating decision maker utilizes ~~Adjusted~~adjusted EBITDA to evaluate segment performance, develop strategy and allocate resources. Adjusted EBITDA includes the following adjustments:

Adjusted EBITDA includes our portion of the EBITDA from our equity investments.

Adjusted EBITDA excludes:

~~Acquisition~~Transaction expense, net which includes:

~~Acquisition-related~~Acquisition and disposition related charges, including fair value adjustments related to earnouts and deferred payments; and

~~Transaction~~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.~~

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 ~~Adjusted~~adjusted EBITDA metric because we believe the inclusion or exclusion of certain non-recurring items is necessary to provide a more accurate measure of our core operating results and enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner. Adjusted EBITDA should not be considered as an alternative to operating income as an indicator of performance, as an alternative to cash flows from operating activities as a measure of liquidity, or as an alternative to any other measure provided in accordance with ~~U.S.~~ GAAP. Our calculation of ~~Adjusted~~adjusted EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited. For segment reporting, ~~Adjusted~~adjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the accompanying ~~Consolidated Statements~~condensed 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, ~~Adjusted~~adjusted EBITDA by segment and reconciles ~~Comprehensive Income~~comprehensive income to ~~Adjusted~~adjusted EBITDA:

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March, 31
(in millions)	2017		2016		2017		2016		2018		2017
Net revenue from external customers:
Racing:
Churchill Downs	$	8.1	$	8.7	$	147.1	$	140.1	$	2.0	$	2.3
Arlington	25.0		24.0		51.5		49.8		8.3		8.5
Fair Grounds	5.0		5.1		27.5		28.9		12.8		12.5
Calder	0.7		0.7		1.9		2.0		0.6		0.6
Total Racing	38.8		38.5		228.0		220.8		23.7		23.9
Casinos:
TwinSpires									63.2		52.0
Casino:
Oxford Casino	25.2		24.4		69.2		65.4		24.2		20.9
Riverwalk Casino	12.2		10.6		35.7		35.7		14.4		11.5
Harlow’s Casino	12.3		11.7		38.3		36.6		13.3		13.5
Calder Casino	19.4		19.0		62.6		59.8		24.3		21.4
Fair Grounds Slots	8.7		8.5		27.7		27.9		10.6		10.2
VSI	9.3		8.6		28.8		27.9		11.0		9.7
Saratoga	0.4		0.2		1.0		0.6		0.3		0.3
Total Casinos	87.5		83.0		263.3		253.9
TwinSpires	65.9		55.1		198.4		173.1
Big Fish Games:
Social casino	53.4		44.3		149.1		138.3
Casual and mid-core free-to-play	46.1		56.1		135.3		162.5
Premium	18.4		21.9		58.1		68.8
Total Big Fish Games	117.9		122.3		342.5		369.6
Total Casino									98.1		87.5
Other Investments	4.7		4.5		14.0		12.9		4.3		4.1
Net revenue from external customers	$	314.8	$	303.4	$	1,046.2	$	1,030.3	$	189.3	$	167.5


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March, 31
(in millions)	2017			2016			2017			2016			2018			2017
Intercompany net revenue:
Racing:
Churchill Downs	$	0.9		$	0.9		$	9.6		$	8.2		$	0.3		$	0.3
Arlington	2.2			1.9			5.1			4.5			1.2			1.0
Fair Grounds	—			—			1.0			1.0			1.0			0.9
Total Racing	3.1			2.8			15.7			13.7			2.5			2.2
TwinSpires	0.2			0.4			0.8			1.0			0.4			0.3
Other Investments	1.0			0.7			3.7			3.0			1.2			1.4
Eliminations	(4.3		)	(3.9		)	(20.2		)	(17.7		)	(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 September 30, 2017																		Three Months Ended March 31, 2018
(in millions)	Racing			Casinos			TwinSpires			Big Fish Games			Other Investments			Corporate			Racing			TwinSpires			Casino			Other Investments			Corporate
Net revenue	$	41.9		$	87.5		$	66.1		$	117.9		$	5.7		$	—		$	26.2		$	63.6		$	98.1		$	5.5		$	—

Taxes & purses	(11.2		)	(28.9		)	(4.5		)	—			—			—			(10.3		)	(3.4		)	(32.4		)	—			—
Platform & development fees	—			—			—			(42.1		)	—			—
Marketing & advertising	(1.0		)	(3.1		)	(1.1		)	(31.8		)	—			—			(0.8		)	(0.8		)	(3.2		)	—			—
Salaries & benefits	(10.3		)	(13.5		)	(2.3		)	(6.8		)	(2.9		)	—			(8.6		)	(2.1		)	(13.5		)	(3.2		)	—
Content expense	(3.8		)	—			(30.9		)	—			—			—			(3.1		)	(32.2		)	—			—			—
SG&A expense	(3.9		)	(5.5		)	(3.2		)	(5.3		)	(0.8		)	(2.2		)	(4.0		)	(2.8		)	(5.4		)	(0.7		)	(2.4		)
Research & development	—			—			—			(9.7		)	—			—
Other operating expense	(10.1		)	(9.8		)	(5.3		)	(4.0		)	(1.1		)	0.1			(8.8		)	(5.8		)	(10.1		)	(1.3		)	(0.2		)
Other income (expense)	0.1			12.8			—			(1.2		)	0.2			—

Other income																			—			—			10.8			—			0.1
Adjusted EBITDA	$	1.7		$	39.5		$	18.8		$	17.0		$	1.1		$	(2.1	)	$	(9.4	)	$	16.5		$	44.3		$	0.3		$	(2.5	)


	Three Months Ended September 30, 2016																		Three Months Ended March 31, 2017
(in millions)	Racing			Casinos			TwinSpires			Big Fish Games			Other Investments			Corporate			Racing			TwinSpires			Casino			Other Investments			Corporate ^(a)
Net revenue	$	41.3		$	83.0		$	55.5		$	122.3		$	5.2		$	—		$	26.1		$	52.3		$	87.5		$	5.5		$	—

Taxes & purses	(11.2		)	(28.1		)	(4.0		)	—			—			—			(10.2		)	(3.0		)	(29.1		)	—			—
Platform & development fees	—			—			—			(45.2		)	—			—
Marketing & advertising	(1.1		)	(3.0		)	(1.0		)	(26.3		)	—			—			(0.7		)	(1.0		)	(3.0		)	—			—
Salaries & benefits	(10.3		)	(13.4		)	(2.3		)	(6.2		)	(2.7		)	—			(8.6		)	(2.2		)	(13.1		)	(2.9		)	—
Content expense	(3.9		)	—			(26.0		)	—			—			—			(3.2		)	(25.4		)	—			—			—
SG&A expense	(4.0		)	(5.4		)	(3.0		)	(4.4		)	(0.9		)	(2.2		)	(3.8		)	(2.7		)	(5.2		)	(0.8		)	(2.9		)
Research & development	—			—			—			(8.8		)	—			—
Other operating expense	(10.5		)	(10.0		)	(4.5		)	(3.9		)	(0.9		)	(0.2		)	(9.3		)	(4.8		)	(11.4		)	(1.3		)	(0.2		)
Other income (expense)	0.1			7.3			—			(0.3		)	0.1			—

Other income																			—			—			9.6			0.1			—
Adjusted EBITDA	$	0.4		$	30.4		$	14.7		$	27.2		$	0.8		$	(2.4	)	$	(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)

Nine Months Ended September 30, 2017
(in millions) Racing Casinos TwinSpires Big Fish
Games Other Investments Corporate
Net revenue $ 243.7
$ 263.3
$ 199.2
$ 342.5
$ 17.7
$ —

Taxes & purses (54.3 ) (87.7 ) (11.6 ) —
—
—
Platform & development fees —
—
—
(124.0 ) —
—
Marketing & advertising (3.9 ) (9.1 ) (6.7 ) (84.3 ) —
—
Salaries & benefits (32.4 ) (40.0 ) (7.1 ) (20.7 ) (9.1 ) —
Content expense (11.7 ) —
(96.5 ) —
—
—
SG&A expense (11.9 ) (16.3 ) (8.9 ) (15.1 ) (2.3 ) (6.2 )
Research & development —
—
—
(29.9 ) —
—
Other operating expense (39.4 ) (31.0 ) (17.1 ) (11.3 ) (3.6 ) (0.4 )
Other income (expense) 0.6
33.1
—
(1.6 ) 0.3
—

Adjusted EBITDA $ 90.7
$ 112.3
$ 51.3
$ 55.6
$ 3.0
$ (6.6 )



	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 income	182.0			7.3
Income from discontinued operations, net of tax	(167.9		)	(5.1		)
Income from continuing operations, net of tax	14.1			2.2

Additions:
Depreciation and amortization	13.8			14.2
Interest expense	9.6			11.8
Income tax provision	2.6			0.6
EBITDA	40.1			28.8

Adjustments to EBITDA:
Selling, general and administrative:
Stock-based compensation expense	2.8			3.4
Other charges	—			0.2
Pre-opening expense	0.6			—
Other income, expense:
Interest, depreciation and amortization expense related to equity investments	4.3			3.5
Transaction expense, net	1.4			—
Calder exit costs	—			0.4
Total adjustments to EBITDA	9.1			7.5
Adjusted EBITDA	$	49.2		$	36.3

Adjusted EBITDA by segment:
Racing	$	(9.4	)	$	(9.7	)
TwinSpires	16.5			13.2
Casino	44.3			35.3
Other Investments	0.3			0.6
Corporate(a)	(2.5		)	(3.1		)
Adjusted EBITDA	$	49.2		$	36.3

Nine Months Ended September 30, 2016
(in millions) Racing Casinos TwinSpires Big Fish
Games Other Investments Corporate
Net revenue $ 234.5
$ 253.9
$ 174.1
$ 369.6
$ 15.9
$ —

Taxes & purses (52.7 ) (84.6 ) (8.8 ) —
—
—
Platform & development fees —
—
—
(135.2 ) —
—
Marketing & advertising (3.8 ) (9.5 ) (5.2 ) (106.2 ) —
—
Salaries & benefits (31.4 ) (38.2 ) (6.9 ) (18.4 ) (8.2 ) —
Content expense (12.0 ) —
(83.4 ) —
—
—
SG&A expense (11.9 ) (15.8 ) (8.6 ) (13.6 ) (2.5 ) (6.2 )
Research & development —
—
—
(29.3 ) —
—
Other operating expense (38.8 ) (29.4 ) (15.6 ) (11.8 ) (2.6 ) (0.5 )
Other income (expense) 0.4
21.6
—
(1.2 ) 0.3
—

Adjusted EBITDA $ 84.3
$ 98.0
$ 45.6
$ 53.9
$ 2.9
$ (6.7 )

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2017 2016 2017 2016
Reconciliation of Comprehensive Income to Adjusted EBITDA:

Comprehensive income $ 17.3
$ 8.7
$ 102.5
$ 81.5
Foreign currency translation, net of tax (0.5 ) —
(0.1 ) (0.2 )
Change in pension benefits, net of tax (0.1 ) —
(0.1 ) —
Net income 16.7
8.7
102.3
81.3
Additions:
Depreciation and amortization 24.0
27.5
73.3
81.4
Interest expense 12.6
11.1
36.0
32.8
Income tax provision 11.6
11.7
63.6
49.6
EBITDA 64.9
59.0
275.2
245.1

Adjustments to EBITDA:
Operating income:
Stock-based compensation expense 5.8
4.9
17.5
14.3
Other charges 0.4
3.1
0.5
3.4
Other income, expense:
Interest, depreciation and amortization expense related to equity investments 4.0
2.5
10.6
7.5
Other charges and recoveries, net —
—
—
0.4
Acquisition expense, net 0.7
1.1
1.7
4.9
Calder exit costs 0.2
0.5
0.8
2.4
Total adjustments to EBITDA 11.1
12.1
31.1
32.9
Adjusted EBITDA $ 76.0
$ 71.1
$ 306.3
$ 278.0

Adjusted EBITDA by segment:
Racing $ 1.7
$ 0.4
$ 90.7
$ 84.3
Casinos 39.5
30.4
112.3
98.0
TwinSpires 18.8
14.7
51.3
45.6
Big Fish Games 17.0
27.2
55.6
53.9
Other Investments 1.1
0.8
3.0
2.9
Corporate (2.1 ) (2.4 ) (6.6 ) (6.7 )
Adjusted EBITDA $ 76.0
$ 71.1
$ 306.3
$ 278.0
(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 September 30, Nine Months Ended September 30,
(in millions) 2017 2016 2017 2016
Casinos $ 8.7
$ 4.8
$ 22.5
$ 13.6
Other Investments 0.2
0.1
0.2
(0.1 )
$ 8.9
$ 4.9
$ 22.7
$ 13.5



	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)	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Total assets:
Racing	$	463.7	$	454.6	$	484.8	$	483.0
Casinos	675.1		628.7
TwinSpires	213.0		209.9		215.2		215.9
Big Fish Games	902.8		893.8
Casino					678.6		679.6
Other Investments	11.9		11.1		23.0		15.2
Corporate	60.9		56.3		199.4		73.2
Big Fish Games					—		892.5
	$	2,327.4	$	2,254.4	$	1,601.0	$	2,359.4

The table below presents total capital expenditures for each of our operating segments:


	Nine Months Ended September 30,				Three Months Ended March, 31
(in millions)	2017		2016		2018		2017
Capital expenditures:
Racing	$	47.8	$	23.4	$	23.0	$	23.6
Casinos	26.0		9.7
TwinSpires	7.3		5.4		2.3		3.2
Big Fish Games	5.6		3.6
Casino					3.4		8.1
Other Investments	1.3		0.8		4.6		0.4
Corporate	1.1		1.2		0.7		0.2
Big Fish Games					—		2.0
	$	89.1	$	44.1	$	34.0	$	37.5

~~14.~~16. SUBSEQUENT EVENT

~~On October 24, 2017,~~As of the ~~Company's Board~~date of ~~Directors declared an annual cash dividend of $1.52 per share, to be paid on January 5, 2018, to all shareholders of record on December 1, 2017.~~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 or 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; inadvertent 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 Big Fish Games; inability to maintain relationships with third party mobile platforms related to 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 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 ~~9,910~~10,000 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 EBITDA~~The 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 included~~consistent with the discontinued operations presentation in ~~our Corporate segment was deemed by management to be more closely aligned with our TwinSpires segment. The~~the 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:

~~Acquisition~~Transaction 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 Statements~~condensed consolidated statements of ~~Comprehensive Income.~~comprehensive income. Refer to the ~~Reconciliation~~reconciliation of ~~Comprehensive Income~~comprehensive income to ~~Adjusted~~adjusted EBITDA included in this section for additional information.

Our Operations

We manage our operations through ~~six~~five operating segments: Racing, ~~Casinos,~~ TwinSpires, Casino, Other Investments and Corporate. Big Fish Games ~~Other Investments~~is 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 5754 live thoroughbred race days in the ~~third~~first quarter of ~~2017~~2018 and 6055 live thoroughbred race days in the ~~third~~first quarter of ~~2016. For the nine months ended September 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 176 live thoroughbred racing days,~~completed the acquisition of certain assets of BAM Software and Services, LLC ("BetAmerica"), which ~~compares to 175 live thoroughbred racing days during the nine months ended September 30, 2016.~~is included in our TwinSpires segment.

~~Casinos~~Casino Segment

We are also a provider of brick-and-mortar real-money casino gaming with approximately ~~9,910~~10,000 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 ~~two~~three hotels ~~(Riverwalk~~(Oxford, Riverwalk and Harlow’s). ~~We expect the Oxford hotel to open in mid-November 2017.~~ We also own Video Services, LLC ("VSI") associated with our Fair Grounds property. In addition, we have a 50% equity investment in 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, Bluff Media and Bloodstock Research Information Services. On April 24, 2017, we completed the acquisition of certain assets 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 Games~~TwinSpires 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 ~~2017~~our 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," for a discussion of regulatory and legislative issues.

~~Federal~~Racing Regulations

Illinois

In ~~September 2017,~~February 2018, legislation was filed that extends the ~~U.S. Treasury Department and the Internal Revenue Service ("IRS") announced modernized regulations regarding withholding and reporting~~authorization of pari-mutuel proceeds. Specifically, under the new regulations, when determining an amount to be reported or withheld for taxes, the IRS will consider a bettor’s entire investment in a single pari-mutuel pool instead of only the amount wagered on a winning result. The regulations will go into full effect no later than November 14, 2017. Advanceadvance deposit wagering operators, tote companies and racetracks will have 45 days to implement the new regulations after the effective date, with early implementation permitted. We believe the new regulations will have a positive impact on our business.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. As of August 1, 2017, we purchased or acquired the right to lease all of our VLTs and have realized an effective 10% gaming tax reduction from August 1, 2017 forward under this new law.

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 ~~for~~by the amount of money returned to players that exceeds the amount bet through ~~VLT's~~VLTs 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 ~~the~~this 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 was signed by the Governor and we believe it will have a positive material impact on our business.

~~Specific State TwinSpires Regulations and Potential Legislative Changes~~

~~Pennsylvania~~

On October 30, 2017, the Governor signed legislation (gaming bill HB 271) that will expand gaming in the state. Under the terms of the legislation, previous statutory language which provided each Pennsylvania racetrack a local monopoly over all telephone or Internet wagers on horse racing from Pennsylvania residents located within a 35 mile radius of such racetrack was removed. The legislation also lowered the initial license fee for ADW operators from $500,000 to $50,000 and lowered the annual ongoing license fee from $100,000 to $10,000.

The legislation also authorized interactive gaming. Under the terms of the legislation, Category 1, 2 and 3 casino licensees qualify for an interactive gaming license. Three categories of interactive gaming licenses are available: poker, slot and table games. Each casino licensee has the opportunity to receive any or all of the three categories of licenses for an initial period of five years. If a casino licensee applies for an interactive gaming license within the first ninety days, the casino must apply for all three categories of licenses for a total fee of $10 million. If a casino applies during the ninety to one hundred and twenty day time period, the casino may apply for one or more categories of licenses for a fee of $4 million each. If at the end of the one hundred and twenty day period, there are remaining interactive gaming licenses, a qualified gaming entity licensed in any jurisdiction may apply for one or more of the available licenses. A tax rate of 52% of gross interactive gaming revenue (“GIGR”) on slots and 14% of GIGR on poker and table games is established. There is an additional 2% tax of daily GIGR for local revenue share payments.

~~We believe this legislation may have a positive impact on business operations.~~

Consolidated Financial Results

The following table reflects our net revenue, operating income, net income, Adjusted EBITDA, and certain other financial information:


	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended March, 31
(in millions)	2017			2016			Change		2017			2016			Change		2018			2017			Change
Net revenue	$	314.8		$	303.4		$	11.4	$	1,046.2		$	1,030.3		$	15.9	$	189.3		$	167.5		$	21.8
Operating income	33.0			26.8			6.2		180.0			150.5			29.5		19.7			8.5			11.2
Operating income margin	10		%	9		%			17		%	15		%			10		%	5		%
Net income	$	16.7		$	8.7		$	8.0	$	102.3		$	81.3		$	21.0	$	182.0		$	7.3		$	174.7
Adjusted EBITDA	76.0			71.1			4.9		306.3			278.0			28.3		49.2			36.3			12.9

Three Months Ended ~~September 30, 2017,~~March 31, 2018, Compared to Three Months Ended ~~September 30, 2016~~March 31, 2017

Our net revenue increased ~~$11.4~~$21.8 million driven by ~~a $10.8~~an $11.2 million increase from TwinSpires due to a ~~23.9% increase in active players and 20.6%~~20.2% increase in handle and a ~~$4.5~~$10.6 million increase from ~~Casinos~~Casino primarily from successful marketing and promotional activities, and a $0.5 million combined increase from Racing and Other Investments. Partially offsetting the increases was a $4.4 million decrease from Big Fish Games primarily due to a decline in casual and mid-core free-to-play games.activities.

Our operating income increased ~~$6.2~~$11.2 million driven by ~~a $5.2~~an $8.5 million increase from ~~Casinos~~Casino primarily driven by the increase in net revenue from successful marketing and promotional activities and a ~~$4.8~~$3.6 million increase from TwinSpires due to the increase in ~~active players and increase in handle, a $1.0 million increase in Racing driven by the successful Arlington meet and a $0.3 million increase from other sources.~~handle. Partially offsetting these increases was a ~~$5.1~~$0.9 million decrease from ~~Big Fish Games primarily driven by a decline in net revenue and increase in user acquisition expense.~~other sources.

Our net income increased ~~$8.0~~$174.7 million driven by ~~a $6.2~~an $11.2 million increase in operating income, a ~~$4.0~~$168.3 million ~~increase in income from our equity investments,~~after tax gain on the Big Fish Transaction, and a ~~$0.1~~$0.7 million increase from all other sources. ~~Partially offsetting~~Offsetting these increases ~~were~~was a ~~$1.5~~$5.5 million decrease in Big Fish net income.

Our Adjusted EBITDA increased $12.9 million driven by a $9.0 million increase ~~in interest expense associated with higher outstanding debt balances~~from Casino primarily due to organic growth from successful marketing and promotional activities at certain properties and our unconsolidated investments, a ~~$0.8 million increase in other expense related to unfavorable foreign exchange rates at Big Fish Games.~~


��	~~Our Adjusted EBITDA increased $4.9 million driven by a $9.1 million increase from Casinos primarily due to our unconsolidated investments and organic growth at certain properties, a $4.1~~$3.3 million increase at TwinSpires driven by the ~~increase in active players and~~ increase in handle, ~~a $1.3 million increase in Racing driven by favorable insurance reserve~~

~~adjustments at Fairgrounds and successful Arlington meet,~~ and a $0.6 million increase from other sources. ~~Partially offsetting these increases was a $10.2 million decrease from Big Fish Games resulting from an increase in user acquisition expense and an increase in operating expenses.~~

~~Nine Months Ended September 30, 2017, Compared to Nine Months Ended September 30, 2016~~

Our net revenue increased $15.9 million driven by a $25.3 million increase from TwinSpires due to a 34.5% increase in active players and 16.4% increase in handle, a $9.4 million increase from Casinos due to successful marketing and promotional activities, a $7.2 million increase in Racing primarily due to a strong Kentucky Derby and Oaks week performance, and a $1.1 million increase from Other Investments. Partially offsetting these increases was a $27.1 million decrease from Big Fish Games primarily due to the decline in casual and mid-core free-to-play games.

Our operating income increased $29.5 million driven by a $10.9 million increase from Big Fish Games primarily from a decrease in user acquisition expense, a $7.5 million increase in TwinSpires driven by the increase in active players and increase in handle, a $6.7 million increase from Casinos due to organic growth at certain properties, a $3.2 million decrease in acquisition expense driven by non-cash fair value adjustments related to the liabilities for the Big Fish Games earnout and deferred payments to the founders, a $2.9 million increase in Racing due to a strong Kentucky Derby and Oaks week performance, and a $1.6 million decrease in Calder exit costs. Partially offsetting these expenses were a $2.3 million increase in selling, general and administrative expense primarily driven by stock-based compensation, a $0.6 million increase in research and development expense and a $0.4 million increase from other sources.

Our net income increased $21.0 million driven by a $29.5 million increase in operating income and a $9.2 million increase in income from our equity investments. Partially offsetting these increases were a $14.0 million increase in our income tax provision primarily from higher income from our segments and unconsolidated investments, a $3.2 million increase in interest expense associated with higher outstanding debt balances and $0.5 million of other expense related to unfavorable foreign exchange rates at Big Fish Games.

Our Adjusted EBITDA increased $28.3 million driven by a $14.3 million increase in Casinos due to our unconsolidated investments and organic growth at certain properties, a $6.4 million increase from Racing driven by a strong Kentucky Derby and Oaks week performance, a $5.7 million increase from TwinSpires due to an increase in active players and increase in handle, a $1.7 million increase from Big Fish Games primarily due to a decrease in user acquisition expense, and $0.2 million 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 September 30,									Nine Months Ended September 30,									Three Months Ended March, 31
(in millions)	2017			2016			Change			2017			2016			Change			2018			2017			Change
Racing:
Churchill Downs	$	9.0		$	9.6		$	(0.6	)	$	156.7		$	148.3		$	8.4		$	2.3		$	2.6		$	(0.3	)
Arlington	27.2			25.9			1.3			56.6			54.3			2.3			9.5			9.5			—
Fair Grounds	5.0			5.1			(0.1		)	28.5			29.9			(1.4		)	13.8			13.4			0.4
Calder	0.7			0.7			—			1.9			2.0			(0.1		)	0.6			0.6			—
Total Racing	41.9			41.3			0.6			243.7			234.5			9.2			26.2			26.1			0.1
Casinos:
TwinSpires																			63.6			52.3			11.3
Casino:
Oxford Casino	25.2			24.4			0.8			69.2			65.4			3.8			24.2			20.9			3.3
Riverwalk Casino	12.2			10.6			1.6			35.7			35.7			—			14.4			11.5			2.9
Harlow's Casino	12.3			11.7			0.6			38.3			36.6			1.7			13.3			13.5			(0.2		)
Calder Casino	19.4			19.0			0.4			62.6			59.8			2.8			24.3			21.4			2.9
Fair Grounds Slots	8.7			8.5			0.2			27.7			27.9			(0.2		)	10.6			10.2			0.4
VSI	9.3			8.6			0.7			28.8			27.9			0.9			11.0			9.7			1.3
Saratoga	0.4			0.2			0.2			1.0			0.6			0.4			0.3			0.3			—
Total Casino	87.5			83.0			4.5			263.3			253.9			9.4			98.1			87.5			10.6
TwinSpires	66.1			55.5			10.6			199.2			174.1			25.1
Big Fish Games:
Social casino	53.4			44.3			9.1			149.1			138.3			10.8
Casual and mid-core free-to-play	46.1			56.1			(10.0		)	135.3			162.5			(27.2		)
Premium	18.4			21.9			(3.5		)	58.1			68.8			(10.7		)
Total Big Fish Games	117.9			122.3			(4.4		)	342.5			369.6			(27.1		)
Other Investments	5.7			5.2			0.5			17.7			15.9			1.8			5.5			5.5			—
Eliminations	(4.3		)	(3.9		)	(0.4		)	(20.2		)	(17.7		)	(2.5		)	(4.1		)	(3.9		)	(0.2		)
Net Revenue	$	314.8		$	303.4		$	11.4		$	1,046.2		$	1,030.3		$	15.9		$	189.3		$	167.5		$	21.8

Three Months Ended ~~September 30, 2017,~~March 31, 2018, Compared to Three Months Ended ~~September 30, 2016~~March 31, 2017

~~Racing~~TwinSpires revenue increased ~~$0.6~~$11.3 million primarily due to a 20.2% handle growth, which outpaced the U.S. thoroughbred industry performance by 14.0 percentage points.

Casino revenue increased $10.6 million driven by a $1.3 million increase at Arlington primarily from an increase in handle and admissions. Partially offsetting this increase was a $0.7 million decrease primarily due to one less live thoroughbred race day at Churchill Downs during the third quarter of 2017 compared to 2016.

~~Casino revenue increased $4.5 million driven by a $1.6 million increase at Riverwalk, a $0.8~~$3.3 million increase at Oxford, a ~~$0.7~~$2.9 million increase at ~~VSI, and~~Calder, a ~~$0.6~~$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, as well as a $0.8 million increase from our other Casino properties combined.~~

TwinSpires revenue increased $10.6 million primarily due to a 23.9% increase in active players and handle growth of 20.6%, which outpaced the U.S. thoroughbred industry performance by 16.9 percentage points.

Big Fish Games revenue decreased $4.4 million primarily driven by a $10.0 million decrease in casual and mid-core free-to-play revenue due to the significant decrease in user acquisition spending on casual free-to-play games beginning in July 2016 and a $3.5 million decrease in premium game revenue. Partially offsetting these decreases was a $9.1 million increase in social casino driven by strong growth in ~~Big Fish Casino~~ ~~and~~ ~~Jackpot Magic Slots~~.

~~Nine Months Ended September 30, 2017, Compared to Nine Months Ended September 30, 2016~~

Racing revenue increased $9.2 million driven by an $8.4 million increase at Churchill Downs primarily from a successful Kentucky Derby and Oaks week performance and a $2.3 million increase at Arlington driven by an increase in handle and admissions. Partially offsetting these increases were a $1.4 million decrease in Fair Grounds revenue primarily driven from the impact of a contagious equine disease outbreak which quarantined horses causing limited field sizes in the first quarter of 2017 and a $0.1 million decrease from other sources.

Casino revenue increased $9.4 million driven by a $3.8 million increase in Oxford, a $2.8 million increase at Calder, a $1.7 million increase at Harlow's, a $0.9 million increase at VSI, and a $0.2 million increase from other sources, all of which resulted from successful marketing and promotional activities.

~~TwinSpires revenue increased $25.1 million primarily due to a 34.5% increase in active players and handle growth of 16.4%.~~

Big Fish Games revenue decreased $27.1 million primarily driven by a $27.2 million decrease in casual and mid-core free-to-play revenue due to the significant decrease in user acquisition spending on casual free-to-play games beginning in July 2016 and a $10.7 million decrease in premium games revenue. Partially offsetting these decreases was a $10.8 million increase in social casino revenue driven by strong growth in ~~Big Fish Casino~~ ~~and~~ ~~Jackpot Magic Slots~~.

~~Other Investments revenue increased $1.8 million due to increased 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


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March, 31
(in millions)	2017			2016			2017			2016			2018			2017
Racing:
Churchill Downs
Race Days	10			11			48			47			—			—
Total handle	$	46.6		$	54.6		$	499.3		$	469.7		$	7.2		$	9.0
Net pari-mutuel revenue	$	5.1		$	6.0		$	52.3		$	50.0		$	1.6		$	1.8
Commission %	10.9		%	11.0		%	10.5		%	10.6		%	22.2		%	20.0		%
Arlington
Race Days	47			49			71			74			—			—
Total handle	$	171.5		$	167.0		$	348.9		$	339.8		$	56.1		$	58.0
Net pari-mutuel revenue	$	19.9		$	18.9		$	44.7		$	43.2		$	9.1		$	9.1
Commission %	11.6		%	11.3		%	12.8		%	12.7		%	16.2		%	15.7		%
Fair Grounds
Race Days	—			—			57			54			54			55
Total handle	$	21.8		$	22.0		$	192.7		$	208.5		$	146.5		$	136.7
Net pari-mutuel revenue	$	4.3		$	4.4		$	20.6		$	21.6		$	11.4		$	11.0
Commission %	19.7		%	20.0		%	10.7		%	10.4		%	7.8		%	8.0		%
Total Racing
Race Days	57			60			176			175			54			55
Total handle	$	239.9		$	243.6		$	1,040.9		$	1,018.0		$	209.8		$	203.7
Net pari-mutuel revenue	$	29.3		$	29.3		$	117.6		$	114.8		$	22.1		$	21.9
Commission %	12.2		%	12.0		%	11.3		%	11.3		%	10.5		%	10.8		%
TwinSpires ⁽¹⁾
Total handle	$	338.6		$	280.5		$	994.4		$	854.2		$	304.1		$	252.9
Net pari-mutuel revenue	$	61.2		$	50.9		$	182.3		$	158.1		$	56.3		$	47.0
Commission %	18.1		%	18.1		%	18.3		%	18.5		%	18.5		%	18.6		%
Eliminations ⁽²⁾
Total handle	$	(18.8	)	$	(18.5	)	$	(122.3	)	$	(104.2	)	$	(18.2	)	$	(15.0	)
Net pari-mutuel revenue	$	(3.2	)	$	(2.9	)	$	(14.1	)	$	(13.4	)	$	(2.4	)	$	(0.8	)
Total
Handle	$	559.7		$	505.6		$	1,913.0		$	1,768.0		$	495.7		$	441.6
Net pari-mutuel revenue	$	87.3		$	77.3		$	285.8		$	259.5		$	76.0		$	68.1
Commission %	15.6		%	15.3		%	14.9		%	14.7		%	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.


(2)	Eliminations include the elimination of intersegment transactions.

~~Casinos~~Casino Activity

Certain key operating statistics specific to the gaming industry are included in our statistical data for our ~~Casinos~~Casino 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 September 30, Nine Months Ended September 30,
(in millions) 2017 2016 2017 2016
Oxford Casino
Slot handle $ 231.8
$ 228.3
$ 627.2
$ 599.9
Net slot revenue 19.3
19.2
52.7
50.5
Net gaming revenue 23.9
23.1
65.8
62.1
Riverwalk Casino
Slot handle $ 162.2
$ 110.7
$ 451.6
$ 371.8
Net slot revenue 10.4
8.8
30.4
30.0
Net gaming revenue 11.6
10.0
34.0
33.7
Harlow’s Casino
Slot handle $ 134.6
$ 134.5
$ 423.0
$ 401.8
Net slot revenue 10.6
10.0
33.1
31.7
Net gaming revenue 11.7
11.0
36.3
34.5
Calder Casino
Slot handle $ 279.5
$ 257.3
$ 868.4
$ 780.4
Net slot revenue 18.5
18.3
60.1
57.4
Net gaming revenue 18.5
18.3
60.0
57.4
Fair Grounds Slots and Video Poker
Slot handle $ 97.1
$ 94.8
$ 312.0
$ 304.2
Net slot revenue 8.5
8.2
26.9
27.0
Net gaming revenue 17.8
16.9
55.6
54.9

Total net gaming revenue $ 83.5
$ 79.3
$ 251.7
$ 242.6

~~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 September 30, Nine Months Ended September 30,
(in millions) 2017 2016 2017 2016
Bookings
Social casino $ 53.4
$ 44.2
$ 149.3
$ 137.9
Casual and mid-core free-to-play 51.2
51.8
136.9
164.4
Premium 19.3
22.5
60.6
72.3
Total bookings $ 123.9
$ 118.5
$ 346.8
$ 374.6



	Three Months Ended March, 31
(in millions)	2018		2017
Oxford Casino
Slot handle	$	222.1	$	186.2
Net slot revenue	18.0		15.7
Net gaming revenue	22.7		19.8
Riverwalk Casino
Slot handle	$	178.6	$	131.0
Net slot revenue	12.2		9.8
Net gaming revenue	13.7		11.0
Harlow’s Casino
Slot handle	$	148.8	$	147.6
Net slot revenue	11.9		11.8
Net gaming revenue	12.7		12.9
Calder Casino
Slot handle	$	343.4	$	257.5
Net slot revenue	23.3		20.6
Net gaming revenue	23.3		20.5
Fair Grounds Slots and Video Poker
Slot handle	$	116.5	$	116.7
Net slot revenue	10.3		10.0
Net gaming revenue	21.2		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 September 30,									Nine Months Ended September 30,									Three Months Ended March, 31
(in millions)	2017			2016			Change			2017			2016			Change			2018			2017			Change
Taxes and purses	$	44.6		$	43.3		$	1.3		$	153.6		$	146.1		$	7.5
Platform & development fees	42.1			45.2			(3.1		)	124.0			135.2			(11.2		)
Taxes & purses																			$	46.1		$	42.3		$	3.8
Content expense																			32.0			25.8			6.2
Salaries & benefits																			27.4			26.8			0.6
Selling, general and administrative expense																			18.4			18.6			(0.2		)
Depreciation and amortization																			13.8			14.2			(0.4		)
Marketing & advertising	37.0			31.4			5.6			103.7			124.4			(20.7		)	4.7			4.6			0.1
Salaries & benefits	35.8			34.9			0.9			109.3			103.1			6.2
Content expense	30.7			26.4			4.3			90.1			79.2			10.9
Selling, general and administrative expense	26.8			27.6			(0.8		)	77.6			75.3			2.3
Depreciation & amortization	24.0			27.5			(3.5		)	73.3			81.4			(8.1		)
Research & development	9.7			8.8			0.9			29.9			29.3			0.6
Acquisition expense, net	0.7			1.1			(0.4		)	1.7			4.9			(3.2		)
Transaction expense, net																			1.4			—			1.4
Calder exit costs	0.2			0.5			(0.3		)	0.8			2.4			(1.6		)	—			0.4			(0.4		)
Other operating expense	30.2			29.9			0.3			102.2			98.5			3.7			25.8			26.3			(0.5		)
Total expense	$	281.8		$	276.6		$	5.2		$	866.2		$	879.8		$	(13.6	)	$	169.6		$	159.0		$	10.6
Percent of net revenue	90		%	91		%				83		%	85		%				90		%	95		%

Three Months Ended ~~September 30, 2017,~~March 31, 2018, Compared to Three Months Ended ~~September 30, 2016~~March 31, 2017

Significant items affecting comparability of consolidated operating expense include:

Taxes and purses increased ~~$1.3~~$3.8 million driven by a ~~$0.7~~$3.5 million increase ~~in taxes for~~generated by our ~~Casinos~~casinos associated with an increase in slot handle and a ~~$0.5~~$0.3 million increase in ~~pari-mutuel taxes~~other expenses.

Content expense increased $6.2 million driven by the 21.6% increase in net revenue for TwinSpires primarily due to the increase in ~~handle and a $0.1 increase from other sources.~~

~~Platform and development fees at Big Fish Games decreased $3.1 million driven by the decrease in revenues.~~

~~Marketing and advertising expense increased $5.6 million driven primarily by the increase in Big Fish Games user acquisition expense.~~handle.

Salaries and benefits expense increased ~~$0.9~~$0.6 million driven by additional personnel costs and related benefits.

~~Content~~Transaction expense, net increased ~~$4.3~~$1.4 million driven by the ~~23.9% increase in active players~~announced acquisitions of Presque Isle and ~~20.6% handle growth at TwinSpires.~~

Selling, general and administrative expense decreased $0.8 million primarily related to a $2.5 million 2016 expense associated with potential federal tax penalties from untimely submission of informational returns which did not recur in 2017. Partially offsetting this decrease were a $0.9 million increase stock-based compensation expense and a $0.8 million increase from other sources.

~~Depreciation and amortization expense decreased $3.5 million driven primarily by a decrease at Big Fish Games associated with fully amortized intangible assets.~~

~~Research and development expense increased $0.9 million driven by an increase in headcount to support the portfolio of games offered by Big Fish Games.~~

~~Nine Months Ended September 30, 2017, Compared to Nine Months Ended September 30, 2016~~

~~Significant items affecting comparability of consolidated operating expense include:~~

Taxes and purses increased $7.5 million due to a $2.8 million increase in pari-mutuel taxes at TwinSpires due to the 34.5% increase in active players, 16.4% handle growth and a $1.7 million increase due to the 2016 Pennsylvania tax refund which did not recur, a $2.7 million increase in taxes for our Casinos from our slot handle growth, and a $2.0 million increase in purses primarily driven by Churchill Downs and Arlington.

~~Platform and development fees at Big Fish Games decreased $11.2 million driven by a decrease in revenues.~~

Marketing and advertising expense decreased $20.7 million driven primarily by a $21.8 million decrease in Big Fish Games user acquisition expense and a $0.4 million decrease from other sources. These decreases were partially offset by a $1.5 million increase in TwinSpires marketing for Kentucky Derby and Oaks week.

~~Salaries and benefits expense increased $6.2 million primarily driven by $3.7 million increase in additional personnel cost and a $2.5 million increase in health insurance expense across all segments.~~

~~Content expense increased $10.9 million driven by the 34.5% increase in active players and 16.4% in handle growth.~~

Selling, general and administrative expense increased $2.3 million driven primarily by a $3.2 million increase in stock-based compensation expense, a $1.5 million increase in bonus incentives and a $0.1 million increase from other sources. These increases were partially offset by a $2.5 million 2016 expense associated with potential federal tax penalties from untimely submission of informational returns which did not recur in 2017.

~~Depreciation and amortization expense decreased $8.1 million driven primarily by a decrease at Big Fish Games associated with fully amortized intangible assets.~~

~~Research and development expense increased $0.6 million driven by an increase in headcount to support the portfolio of games offered by Big Fish Games.~~

Acquisition expense, net decreased $3.2 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 $1.6 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 $3.7 million primarily driven by a $1.7 million increase in TwinSpires third party processing fees due to increase in revenues, a $1.4 million increase in insurance and property taxes, and a $0.6 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 September 30,									Nine Months Ended September 30,									Three Months Ended March, 31
(in millions)	2017			2016			Change			2017			2016			Change			2018			2017			Change
Racing	$	(1.5	)	$	(1.5	)	$	—		$	(4.3	)	$	(4.3	)	$	—		$	(1.5	)	$	(1.4	)	$	(0.1	)
Casinos	(1.8		)	(1.8		)	—			(5.3		)	(5.0		)	(0.3		)
TwinSpires	(1.4		)	(1.3		)	(0.1		)	(3.9		)	(3.9		)	—			(1.4		)	(1.2		)	(0.2		)
Big Fish Games	(0.7		)	(0.8		)	0.1			(2.1		)	(2.1		)	—
Casino																			(2.0		)	(1.7		)	(0.3		)
Other Investments	(0.3		)	(0.4		)	0.1			(1.0		)	(1.1		)	0.1			(0.3		)	(0.3		)	—
Corporate allocated expense	5.7			5.8			(0.1		)	16.6			16.4			0.2			5.2			4.6			0.6
Total Corporate allocated expense	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—

Adjusted EBITDA

We believe that the use of ~~Adjusted~~adjusted EBITDA as a key performance measure of the results of operations enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner. Adjusted EBITDA is a supplemental measure of our performance that is not required by or presented in accordance with ~~U.S.~~ GAAP. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (as determined in accordance with ~~U.S.~~ GAAP) as a measure of our operating results.

~~During the fourth quarter of 2016, we updated our definition of Adjusted EBITDA~~The 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 included~~consistent 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 September 30,									Nine Months Ended September 30,								Three Months Ended March, 31
(in millions)	2017			2016			Change			2017			2016			Change		2018			2017			Change
Racing	$	1.7		$	0.4		$	1.3		$	90.7		$	84.3		$	6.4	$	(9.4	)	$	(9.7	)	$	0.3
Casinos	39.5			30.4			9.1			112.3			98.0			14.3
TwinSpires	18.8			14.7			4.1			51.3			45.6			5.7		16.5			13.2			3.3
Big Fish Games	17.0			27.2			(10.2		)	55.6			53.9			1.7
Casino																		44.3			35.3			9.0
Other Investments	1.1			0.8			0.3			3.0			2.9			0.1		0.3			0.6			(0.3		)
Corporate	(2.1		)	(2.4		)	0.3			(6.6		)	(6.7		)	0.1
Corporate^(a)																		(2.5		)	(3.1		)	0.6
Adjusted EBITDA	$	76.0		$	71.1		$	4.9		$	306.3		$	278.0		$	28.3	$	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 ~~September 30, 2017,~~March 31, 2018, Compared to Three Months Ended ~~September 30, 2016~~March 31, 2017

~~Racing Adjusted~~TwinSpires adjusted EBITDA increased ~~$1.3~~$3.3 million driven by the 20.2% handle growth.

Casino adjusted EBITDA increased $9.0 million driven by a $7.8 million increase from our wholly-owned Casino properties, including a $3.4 million increase at our Mississippi properties, a $2.1 million increase at Calder, a $1.3 million increase at Oxford, and a $1.0 million increase at Fair Grounds primarily due to insurance reserve premium adjustments compared to the prior year quarter and a $0.9 million increase at Arlington due to an increase in handle and admissions. Partially offsetting these increases was a $0.6 million decrease at Churchill Downs due to one less live thoroughbred racing day in the third quarter of 2017 compared to the prior year quarter.

~~Casinos Adjusted EBITDA increased $9.1 million driven by a $5.5 million increase from strong performance of the Company's equity investments, including~~ our ~~new equity investment in Ocean Downs in January 2017, a $1.7 million increase at Riverwalk, a $0.5 million increase at Harlow's and a combined $1.4 million increase from all of our other Casino~~Louisiana properties, all of which were due to successful marketing and promotional activities. Our unconsolidated investments also contributed $1.2 million of the increase, primarily due to strong performance from Ocean Downs and MVG.

~~TwinSpires Adjusted~~Corporate adjusted EBITDA increased ~~$4.1~~$0.6 million driven by the ~~23.9% increase in active players~~allocation of certain corporate and ~~handle growth of 20.6%.~~

Big Fish Games Adjusted EBITDA decreased $10.2 million driven by a $5.5 million increase in user acquisition expense, a $2.4 million increase in salaries & benefits, selling, general & administrative costs and research & development costs, a $1.3 million decrease in revenue net of platform and development fees, and a $1.0 million increase in other ~~expense primarily related~~expenses to ~~unfavorable foreign exchange rates.~~

~~Nine Months Ended September 30, 2017, Compared to Nine Months Ended September 30, 2016~~

Racing Adjusted EBITDA increased $6.4 million due to a $5.7 million increase at Churchill Downs primarily from a successful Kentucky Derby and Oaks week performance and a $1.8 million increase at Arlington driven by increased handle and admissions. Partially offsetting these increases were a $0.7 million decrease at Fair Grounds primarily from a contagious equine disease which quarantined horses causing limited fields and remediation expenses and a $0.4 million decrease from other sources.

Casinos Adjusted EBITDA increased $14.3 million driven by a $12.0 million increase from strong performances of the Company's equity investments, including our new equity investment in Ocean Downs in January 2017, a $1.0 million increase at Oxford, a $0.8 million increase at Harlow's, and a $0.5 million combined increase from our other Casino properties, all of which resulted from successful marketing and promotional activities.

~~TwinSpires Adjusted EBITDA increased $5.7 million driven by the 34.5% increase in active players and handle growth of 16.4%.~~

Big Fish Games Adjusted EBITDA increased $1.7 million driven by a $21.9 million decrease in user acquisition spending and an $11.2 million decrease in platform and development fees. These increases were partially offset by the $27.1 million decrease in revenues, a $2.3 million increase in salaries and benefits primarily driven by increased headcount and associated benefits, a $1.6 million increase in selling, general and administrative expense primarily driven by increased bonus incentive expense, and a $0.4 million increase in other expense.

preopening costs.

Reconciliation of Comprehensive Income to Adjusted EBITDA


	Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended March, 31
(in millions)	2017			2016		Change			2017			2016			Change			2018			2017			Change
Comprehensive income	$	17.3		$	8.7	$	8.6		$	102.5		$	81.5		$	21.0		$	182.0		$	7.2		$	174.8
Foreign currency translation, net of tax	(0.5		)	—		(0.5		)	(0.1		)	(0.2		)	0.1			—			0.1			(0.1		)
Net change in pension benefits, net of tax	(0.1		)	—		(0.1		)	(0.1		)	—			(0.1		)
Net income	16.7			8.7		8.0			102.3			81.3			21.0			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 tax																		14.1			2.2			11.9

Additions:
Depreciation and amortization	24.0			27.5		(3.5		)	73.3			81.4			(8.1		)	13.8			14.2			(0.4		)
Interest expense	12.6			11.1		1.5			36.0			32.8			3.2			9.6			11.8			(2.2		)
Income tax provision	11.6			11.7		(0.1		)	63.6			49.6			14.0			2.6			0.6			2.0
EBITDA	$	64.9		$	59.0	$	5.9		$	275.2		$	245.1		$	30.1		$	40.1		$	28.8		$	11.3

Adjustments to EBITDA:
Selling, general and administrative:
Stock-based compensation expense	$	5.8		$	4.9	$	0.9		$	17.5		$	14.3		$	3.2		$	2.8		$	3.4		$	(0.6	)
Other charges	0.4			3.1		(2.7		)	0.5			3.4			(2.9		)	—			0.2			(0.2		)
Pre-opening expense																		0.6			—			0.6
Other income (expense):
Interest, depreciation and amortization expense related to equity investments	4.0			2.5		1.5			10.6			7.5			3.1			4.3			3.5			0.8
Other charges and recoveries, net	—			—		—			—			0.4			(0.4		)
Acquisition expenses, net	0.7			1.1		(0.4		)	1.7			4.9			(3.2		)
Transaction expense, net																		1.4			—			1.4
Calder exit costs	0.2			0.5		(0.3		)	0.8			2.4			(1.6		)	—			0.4			(0.4		)
Total adjustments to EBITDA	11.1			12.1		(1.0		)	31.1			32.9			(1.8		)	9.1			7.5			1.6
Adjusted EBITDA	$	76.0		$	71.1	$	4.9		$	306.3		$	278.0		$	28.3		$	49.2		$	36.3		$	12.9

~~Three Months Ended September 30, 2017, Compared to Three Months Ended September 30, 2016~~

~~Depreciation and amortization expense decreased $3.5 million primarily driven by a decrease at Big Fish Games associated with fully amortized intangible assets.~~

Interest expense increased $1.5 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").

~~Stock-based compensation expense increased $0.9 million driven by an increase in awards for Big Fish Games employees and other key resources.~~

Other selling, general and administrative charges decreased $2.7 million due to a $2.5 million 2016 expense associated with potential federal tax penalties from untimely submission of informational returns which did not recur in 2017 and a $0.2 million decrease from other sources.

~~Interest, depreciation and amortization expense related to our equity investments increased $1.5 million driven by our equity investments in SCH and Ocean Downs.~~

~~Nine Months Ended September 30, 2017, Compared to Nine Months Ended September 30, 2016~~

~~Depreciation and amortization expense decreased $8.1 million primarily driven by a decrease at Big Fish Games associated with fully amortized intangible assets.~~

~~Interest expense increased $3.2 million primarily as a result of higher long-term debt balances outstanding and borrowings under our Senior Secured Credit Facility.~~

~~Income tax provision increased $14.0 million driven by an increase in pretax income.~~

Stock-based compensation expense increased $3.2 million due to an increase in performance based awards compared to target and an increase in awards for Big Fish Games employees and other key resources.

Other selling, general and administrative charges decreased $2.9 million due to a $2.5 million 2016 expense associated with potential federal tax penalties from untimely submission of informational returns which did not recur in 2017 and a $0.4 million decrease from other sources.

~~Interest, depreciation and amortization expense related to our equity investments increased $3.1 million driven by our equity investments in SCH and Ocean Downs.~~

Acquisition expenses, net decreased $3.2 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 $1.6 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)	September 30, 2017		December 31, 2016		Change			March 31, 2018		December 31, 2017		Change
Total assets	$	2,327.4	$	2,254.4	$	73.0		$	1,601.0	$	2,359.4	$	(758.4	)
Total liabilities	$	1,701.1	$	1,569.4	$	131.7		$	1,257.4	$	1,719.1	$	(461.7	)
Total shareholders' equity	$	626.3	$	685.0	$	(58.7	)	$	343.6	$	640.3	$	(296.7	)

Significant items affecting the comparability of our condensed consolidated balance sheets include:

Total assets ~~increased $73.0~~decreased $758.4 million driven by an $823.4 million decrease in long-term assets of discontinued operations held for sale and a ~~$45.0~~$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 cash and cash equivalents due to the net proceeds received from the Big Fish Transaction partially offset by repurchases of common stock, a $26.9 million increase in property and equipment, net due to our capital project and maintenance expenditures partially offset by depreciation expense, a $34.8 million increase in investments in affiliates primarily due to the acquired interest of Ocean Downs, a $16.1 million increase in goodwill due to the acquisition of BetAmerica, a $8.5 million increase in other current assets driven primarily by prepaid developer fees, and a ~~$2.5~~$6.8 million increase in all other assets. Partially offsetting these increases were a $20.3 million decrease in intangible assets due to amortization expense partially offset by intangible assets acquired in the acquisition of BetAmerica and a $13.6 million decrease in escrow receivable related to the Calder land sale from the fourth quarter of 2016 and the completion of certain purchases of property and equipment.

Total liabilities ~~increased $131.7~~decreased $461.7 million driven by a ~~$202.0~~$242.6 million ~~increase~~decrease in long-term debt, net of maturities and loan origination fees primarily due to the payoff of our ~~total debt balance as we primarily borrowed under~~2014 revolving credit facility, a $188.2 million decrease in current liabilities of discontinued operations held for sale and a $54.8 million decrease in non-current liabilities of discontinued operations held for sale due to the Big Fish Transaction, and a $23.7 million decrease in dividends payable due to the payment of our ~~Senior Secured Credit Facility to fund repurchases of common stock,~~annual dividends. Partially offsetting these decreases were a ~~$16.9~~$21.4 million increase in income ~~taxes~~tax payable due to our current year income tax provision, a ~~$11.1~~$20.6 million increase in ~~accrued expenses~~current deferred revenue primarily ~~from an increase in capital expenditures~~due to the adoption of ASC 606, and a ~~$9.8~~$5.6 million increase in all other liabilities. Partially offsetting these increases were a $52.3 million decrease in deferred revenue - all other due to revenue recognition for the 2017 Kentucky Derby and Oaks events, a $34.0 million decrease in the Big Fish Games earnout liability, and a $21.8 million decrease in dividends payable due to payment of annual dividends.

Total shareholders’ equity decreased ~~$58.7~~$296.7 million driven by ~~a $179.5~~$514.4 million ~~decrease from~~in repurchases of common ~~stock.~~stock, primarily as a result of the $500.0 million share repurchase program in a "modified Dutch auction" tender offer that was completed on February 12, 2018. Partially offsetting this decrease were ~~a $102.3~~$182.0 million ~~increase~~ in current year net income, a ~~$17.5~~$29.1 million increase ~~from~~as a result of the ~~amortization~~adoption of ~~stock-based compensation,~~ASC 606, and ~~a $1.0 million~~an increase of $6.6 million related to other ~~changes in shareholders' equity.~~sources.

Liquidity and Capital Resources

The following table is a summary of our liquidity and cash flows:


(in millions)	Nine Months Ended September 30,									Three Months Ended March, 31
Cash flows from:	2017			2016			Change			2018			2017			Change
Operating activities	$	164.2		$	189.0		$	(24.8	)	$	55.9		$	65.3		$	(9.4	)
Investing activities	$	(124.6	)	$	(46.2	)	$	(78.4	)	$	936.7		$	(51.4	)	$	988.1
Financing activities	$	(31.7	)	$	(160.0	)	$	128.3		$	(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.

~~Nine~~Three Months Ended ~~September 30, 2017,~~March 31, 2018, Compared to the ~~Nine~~Three Months Ended ~~September 30, 2016~~March 31, 2017

Cash provided by operating activities decreased ~~$24.8~~$9.4 million driven by a ~~$20.8~~$6.6 million ~~reduction~~decrease in current deferred revenue ~~driven by~~primarily as a result of the timing of payments related to the Kentucky Derby and Oaks events and ~~lower Big Fish Games year to date bookings,~~ a ~~$12.2 million increase in other current assets and liabilities due to increased prepaid developer fees as a result of new games for Big Fish Games, and a $9.0~~$2.8 million decrease from other sources. ~~Partially offsetting these decreases was a $17.2 million decrease in Big Fish Games earnout payments in comparison to the prior year.~~

Cash ~~used in~~provided by investing activities increased ~~$78.4~~$988.1 million driven by ~~$42.5~~$970.7 million increase in ~~higher capital project expenditures,~~proceeds related to the Big Fish Transaction, a $24.0 million ~~equity~~increase related to the January 2017 investment in Ocean Downs and a ~~$23.1~~$3.5 million increase ~~for the acquisition of BetAmerica, and a $2.4 million increase from~~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 $128.3~~increased $826.8 million primarily driven by a ~~$230.2~~$505.8 million ~~reduction in the Big Fish Games earnout payment and~~increase primarily related to share repurchases under our "modified Dutch auction" tender offer completed on February 12, 2018, a ~~$63.7~~$289.4 million

increase in net borrowings and repayments ~~under~~related to our ~~Senior Secured Credit Facility. Partially offsetting these decreases were~~credit agreements, a ~~$161.1~~$26.4 million increase ~~in stock repurchases~~as a result of the 2016 Big Fish Games deferred payment and a ~~$4.5~~$5.2 million increase infrom other financing ~~sources.~~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) September 30, 2017 December 31, 2016 Change
Senior Secured Credit Facility:

Senior Secured Credit Facility due 2021 $ 354.0
$ 135.0
$ 219.0
Term Loan due 2021 168.7
179.3
(10.6 )
Swing line of credit 6.2
13.2
(7.0 )
Total Senior Secured Credit Facility 528.9
327.5
201.4
5.375% Senior Unsecured Notes due 2021 600.0
600.0
—
Total debt 1,128.9
927.5
201.4
Current maturities of long-term debt 17.7
14.2
3.5
Total debt, net of current maturities 1,111.2
913.3
197.9
Bond premium and issuance costs, net (4.9 ) (5.8 ) 0.9
Net debt, net of current maturities $ 1,106.3
$ 907.5
$ 198.8



(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 Agreement	399.0			642.0			(243.0		)
2028 Senior Notes	500.0			500.0			—
Total debt	899.0			1,142.0			(243.0		)
Current maturities of long-term debt	4.0			4.0			—
Total debt, net of current maturities	895.0			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 amendment~~Agreement. 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 extending~~Company.

The Revolver bears interest at LIBOR plus a spread as determined by the ~~maturity of both the Senior Secured Credit Facility~~Company'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 bear~~B bears interest at ~~a LIBOR-based rate per annum~~LIBOR 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 September 30, 2017 and 2.7% at December 31, 2016.200 basis points.

The ~~Senior Secured~~2017 Credit ~~Facility~~Agreement contains certain customary affirmative and negative covenants, ~~for credit facilities of this type, including~~which include limitations on ~~us and our subsidiaries with respect to~~liens, investments, indebtedness, ~~restricted payments, liens, investments,~~dispositions, mergers and acquisitions, ~~disposition~~the making of ~~assets, sale-leaseback transactions~~restricted 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 Secured~~2017 Credit ~~Facility~~Agreement also contains financial covenants ~~that require us (i) to maintain an~~providing 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 September 30, 2017, we wereratio. The Company was in compliance with all applicable covenants ~~under~~in the ~~Senior Secured~~2017 Credit ~~Facility, and we have significant assets pledged as collateral under the Senior Secured Credit Facility.~~Agreement at March 31, 2018. At ~~September 30, 2017,~~March 31, 2018, the financial ratios under our ~~Senior Secured~~2017 Credit ~~Facility~~Agreement were as follows:



	Actual	Requirement
Interest Coverage Ratio	~~7.5~~5.7 to 11.0	> ~~3.0~~2.5 to 1.0
~~Total Leverage Ratio~~Consolidated total secured net leverage ratio	~~3.3~~1.0 to 11.0	< ~~4.5 to 1.0~~
~~Senior Secured Leverage Ratio~~	~~1.6 to 1~~	~~< 3.5~~4.0 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 ~~September 30,~~the Company's 2017 ~~we had $7.1~~Credit Agreement, the Company capitalized $1.6 million ~~in letter~~ of ~~credit commitments~~debt issuance costs associated with the Revolver which ~~reduced~~will be amortized as interest expense over the ~~total available capacity under~~next 5 years. The Company also capitalized $5.1 million of deferred financing costs associated with the ~~Senior Secured Credit Facility to $132.7 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 ~~December~~January 15, ~~2021~~2028 (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 ~~Initial~~2028 Senior ~~Unsecured~~ Notes were issued at par, with interest

payable on ~~June 15~~^thJanuary 15th and ~~December 15~~^thJuly 15th of each ~~year. We received net proceeds of $295.0 million, after deducting underwriting fees, and~~year, 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 ~~Initial~~2028 Senior ~~Unsecured~~ Notes.

The 2028 Senior Notes were issued pursuant to an indenture, dated December 27, 2017 (the "2028 Indenture"), among the Company, certain subsidiaries of the 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 the 2028 Senior Notes redeemed plus an applicable make-whole premium. On ~~December 16, 2015, we completed an additional offering~~or after such date the Company may redeem some or all of ~~$300.0 million~~the 2028 Senior Notes at redemption prices set forth in the 2028 Indenture. In addition, at any time prior to January 15, 2021, the Company may redeem up to 40% of the aggregate principal amount of ~~5.375%~~the 2028 Senior ~~Unsecured~~ Notes ~~that mature on December 15, 2021 (the "Tack-on Notes"). The Tack-on Notes were issued under the December 16, 2013 Indenture (the "Indenture") governing the $300.0 million Existing Notes and form~~at a ~~part~~redemption price equal to 104.75% of the ~~same series as~~principal amount thereof with the ~~Existing Notes for purposes~~net cash proceeds of one or more equity offerings provided that certain conditions are met. The terms of the ~~Indenture. The Tack-on Notes were issued at 101%~~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 pay dividends or make other payments; (vi) sell assets; (vii) merge or consolidate with ~~interest payable on June 15~~^thother entities; and ~~December 15~~^th ~~of each year. We received net proceeds of $299.0 million, after deducting underwriting fees~~(viii) and ~~used the net proceeds from the offering to repay outstanding revolver borrowings along~~enter into transactions with ~~accrued and unpaid interest outstanding under the Senior Secured Credit Facility.~~ affiliates.

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.~~

~~The aggregate principal amount of~~2028 Senior Notes, the ~~outstanding notes under this series is $600.0 million (collectively~~Company and the ~~"Senior Unsecured Notes").~~

~~Both series of the~~Guarantors entered into a Registration Rights Agreement to register any 2028 Senior ~~Unsecured~~ Notes ~~were issued in private offerings that were exempt from registration~~ under the Securities Act ~~of 1933, as amended, and~~for resale that are senior unsecured obligations. The total Senior Unsecured Notes are guaranteed by each of our domestic subsidiaries that guarantee our Senior Secured Credit Facility and will rank equally with our existing and future senior obligations. We may redeem all or part of the Senior Unsecured Notes at a redemption price of 104.0% which gradually reduces to par by 2019.not freely tradable 366 days from December 27, 2017.

Contractual Obligations

Our commitments to make future payments as of ~~September 30, 2017,~~March 31, 2018, are estimated as follows:

(in millions) October 1 to December 31, 2017 2018-2019 2020-2021 Thereafter Total
Big Fish Games earnout $ —
$ 34.2
$ —
$ —
$ 34.2
Big Fish Games deferred payment —
28.4
—
—
28.4
Senior Secured Credit Facility —
—
360.2
—
360.2
Interest on Senior Secured Credit Facility⁽¹⁾
2.8
22.5
12.8
—
38.1
Term Loan 3.5
42.5
122.7
—
168.7
Interest on Term Loan⁽¹⁾
1.3
9.4
3.9
—
14.6
Senior Unsecured Notes —
—
600.0
—
600.0
Interest on Senior Unsecured Notes 16.1
64.5
63.1
—
143.7
Operating leases 3.0
17.6
19.1
85.0
124.7
Total $ 26.7
$ 219.1
$ 1,181.8
$ 85.0
$ 1,512.6



(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 Notes	24.0		47.5		47.5		119.7		238.7
Operating leases	3.9		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 September 30, 2017.

On March 27, 2017, the Company amended the Agreement and Plan of Merger 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 September 30, 2017, the fair value of the Big Fish Games earnout liability was $33.9 million and the fair value of the Big Fish Games deferred payment to the founder was $28.3 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 ~~September 30, 2017,~~March 31, 2018, we had approximately $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 consumers' 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 ~~September 30, 2017,~~March 31, 2018, we had ~~$528.9~~$399.0 million outstanding under our ~~Senior Secured~~2017 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 ~~$3.3~~$7.6 million.

Foreign currency exchange risk

~~We operate internationally and are exposed~~Our exposure to foreign currency exchange ~~risk. While~~risk 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.


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 file 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 ~~September 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

The following descriptions have been updated or added since the filing of our ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K for the ~~quarter~~year ended ~~June 30,~~December 31, 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.

~~Louisiana Horsemens' Purses~~Kater Class Action Suit

On April ~~21, 2014, John L. Soileau and other individuals filed~~17, 2015, a ~~Petition for Declaratory Judgment, Permanent Injunction, and Damages-Class Action~~purported class action styled ~~John L. Soileau, et. al. versus~~Cheryl Kater v. Churchill Downs ~~Louisiana Horseracing, LLC, Churchill Downs Louisiana Video Poker Company, LLC~~ ~~(Suit No. 14-3873)~~Incorporated (the “Kater litigation”) was filed in the ~~Parish of Orleans Civil~~United States District Court, ~~State~~for the Western District of ~~Louisiana (the "District Court"). The petition defined~~Washington alleging, among other claims, that the ~~"alleged plaintiff class" as quarter-horse owners, trainers~~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 ~~jockeys that have won purses at the "Fair Grounds Race Course & Slots" facility in New Orleans, Louisiana since the first effective date~~roulette games offered through Big Fish Casino), and seeking among other things, return of ~~La. R.S. 27:438~~monies lost, reasonable attorney’s fees and specifically since 2008. The petition alleged that Churchill Downs Louisiana Horseracing, L.L.C. and Churchill Downs Louisiana Video Poker Company, L.L.C. ("Fair Grounds") have collected certain monies through video draw poker devices that constitute monies earned for purse supplements and all of those supplemental purse monies have been paid to thoroughbred horsemen during Fair Grounds’ live thoroughbred horse meets. La. R.S. 27:438 requires a portion of those supplemental purse monies to be paid to quarter-horse horsemen during Fair Grounds’ live quarter-horse meets. The petition requested thatinjunctive relief. On November 19, 2015, the District Court ~~declare that Fair Grounds violated La. R.S. 27:438, issue~~dismissed the case with prejudice and, on December 7, 2015, Plaintiff’s motion for reconsideration was denied. Plaintiff filed a ~~permanent and mandatory injunction ordering Fair Grounds to pay all future supplements due~~notice of appeal on January 5, 2016 to the plaintiff class pursuant to La. R.S. 27:438, and to pay the plaintiff class such sums as it finds to reasonably represent the value of the sums due to the plaintiff class. On August 14, 2014, the plaintiffs filed an amendment to their petition naming the Horsemen’s Benevolent and Protective Association 1993, Inc. ("HBPA") as an additional defendant and alleging that HBPA is also liable to plaintiffs for the disputed purse funds. On October 9, 2014, HBPA and Fair Grounds filed exceptions to the suit, including an exception of primary jurisdiction seeking referral to the Louisiana Racing Commission. By Judgment dated November 21, 2014, the District Court granted the exception of primary jurisdiction and referred the matter to the Louisiana Racing Commission. On January 26, 2015, the Louisiana Fourth CircuitUnited States Court of Appeals ~~denied~~for the ~~plaintiffs’ request for supervisory review~~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 ~~Judgment. On August 24, 2015,~~Stock Purchase Agreement, the ~~Louisiana Racing Commission ruled that~~Company agreed to indemnify the ~~plaintiffs did not have standing or a right of action~~Purchaser for the losses and expenses associated with the Kater litigation for Big Fish Games, which is referred to ~~pursue the case. On September 18, 2015, the plaintiffs filed a Petition for Appeal of Administrative Order Dismissing Case for No Right of Action~~ in the ~~District Court seeking a reversal~~Stock Purchase Agreement as the “Primary Specified Litigation.”

On February 6, 2018, oral arguments on Plaintiff’s appeal of the ~~Louisiana Racing Commission’s ruling.~~dismissal of the Kater litigation took place before the United States Court of Appeals for the Ninth Circuit. On ~~July 13, 2016,~~March 28, 2018, the ~~plaintiffs filed their brief~~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 ~~Fair Grounds filed its brief on August 12, 2016. A hearing was held at the District Court on September 15, 2016~~in any further appellate proceedings, and the District Court affirmed the Louisiana Racing Commission’s ruling. The plaintiffs filed an appeal with the Louisiana Fourth Circuit Court of Appeals on December 7, 2016. By Order dated August 23, 2017, the Louisiana Fourth Circuit Court of Appeals dismissed the plaintiffs’ appeal without prejudice because the District Court’s Judgment did not contain the necessary decretal language. To correct this deficiency, the District Court entered an Amended Judgment on September 19, 2017. The plaintiffs have advised they intend to appeal the Amended Judgment.

~~Pennsylvania Advance Deposit Wagering Suit~~

~~On September 3, 2016, the~~ Company ~~filed a lawsuit in the Commonwealth Court of Pennsylvania styled~~ ~~Churchill Downs Incorporated~~believes that there are meritorious legal and ~~Churchill Downs Technology Initiatives Company v. The Commonwealth of Pennsylvania, acting by~~factual defenses against Plaintiff’s allegations and through the Department of Revenue; Eileen H. McNulty, Secretary of Revenue of the Commonwealth of Pennsylvania, and her successors in office; Bruce Beemer, Attorney General of the Commonwealth of Pennsylvania, and his successors in office; The Pennsylvania State Horse Racing Commission; Corinne Sweeney; Thomas J. Ellis; C. Edward Rogers, Jr.; Russell B. Jones Jr.; Michele C. Ruddy, Salvatore M. De Bunda, and Russell C. Redding, in their Official Capacity as Commissioners of the Pennsylvania State Horse Racing Commission, and their successors in office (Docket No. 476 MD 2016) challenging the constitutionality of a Pennsylvania law granting each Pennsylvania racetrack a local monopoly over all wagers placed by telephone or through the Internet by Pennsylvania residents located within a 35-mile radius of the track, as well as requiring out-of-state advance deposit wagering companies to pay initial and annual license fees. On October 30, 2017, the Governor of Pennsylvania signed the gaming bill HB 271 into law, which, among other things, addressed the two issues raised in this lawsuit by removing the 35-mile radius restriction and reducing the annual license fees. The Company expects to file a discontinuance to voluntarily terminate the lawsuit.

~~The Kentucky Horse Racing Commission, et al. v. The Family Trust Foundation of Kentucky, Inc.~~

In 2010, all Kentucky racetracks and the Kentucky Horse Racing Commission (the “KHRC” and, together with the Kentucky racetracks, the “Joint Petitioners”) sought a declaration from the Franklin Circuit Court (the “Court”) that: (i) the KHRC’s historical racing regulations are valid under Kentucky law, and (ii) operating historical racing machines pursuant to a license issued by KHRC would not run afoul of any criminal gaming statutes. The Family Trust Foundation of Kentucky, Inc. intervened, and the Court subsequently granted summary judgment to the Joint Petitioners holding that the KHRC's historical racing regulations are valid under Kentucky law. Following an appeal to the Kentucky Court of Appeals, in February 2014 the Supreme Court of Kentucky affirmed the Court’s decision that the regulations are valid under Kentucky law, but remanded the case to the Court to determine

~~whether operation of historical racing machines that were licensed during the pendency of the litigation constitute pari-mutuel wagering. A trial date is set~~requests for January 8, 2018 to determine whether the games from one of the historical racing machine manufacturers (Encore) are pari-mutuel. Although the Court ordered, on August 24, 2017, that this pending litigation only directly involves the historical racing machine games presently in use, and any future historical racing machine games proposed by the Company would not be included in the pending case, the ruling could impact how we design our future games and could affect the underlying economics and technology of historical racing machines.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 ~~September 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⁾

7/1/17-7/31/17 235

$ 188.01
—
$ 78.3

8/1/17-8/31/17 47

192.25
—
78.3

9/1/17-9/30/17 212

196.62
—
78.3

Total 494
$ 192.11
—



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 on Form 10-Q for the quarter ended ~~September 30, 2017.~~

~~SIGNATURES~~

~~Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~



	~~CHURCHILL DOWNS INCORPORATED~~



~~November 1, 2017~~	~~/s/ William C. Carstanjen~~
	~~William C. Carstanjen~~
	~~Chief Executive Officer~~
	~~(Principal Executive Officer)~~



~~November 1, 2017~~	~~/s/ Marcia A. Dall~~
	~~Marcia A. Dall~~
	~~Executive Vice President and Chief Financial Officer~~
	~~(Principal Financial and Accounting Officer)~~

March 31, 2018.

EXHIBIT INDEX



Number	Description	By Reference To

10.1	Separation Agreement and Release, dated as of January 9, 2018 by and among Churchill Downs Incorporated, Big Fish Games, Inc. and Paul Thelen	Exhibit 10.1 to Current Report on Form 8-K filed January 9, 2018

31(a)	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

31(b)	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

32	Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished pursuant to Rule 13a – 14(b))**

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

	*filed herewith

	**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.



	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)



	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 value	0.5		0.2			0.7
Balances as of September 30, 2017	$	28.3	$	33.9		$	62.2



	Nine Months Ended September 30, 2017
(in millions)	Racing			Casinos			TwinSpires			Big Fish Games			Other Investments			Corporate
Net revenue	$	243.7		$	263.3		$	199.2		$	342.5		$	17.7		$	—

Taxes & purses	(54.3		)	(87.7		)	(11.6		)	—			—			—
Platform & development fees	—			—			—			(124.0		)	—			—
Marketing & advertising	(3.9		)	(9.1		)	(6.7		)	(84.3		)	—			—
Salaries & benefits	(32.4		)	(40.0		)	(7.1		)	(20.7		)	(9.1		)	—
Content expense	(11.7		)	—			(96.5		)	—			—			—
SG&A expense	(11.9		)	(16.3		)	(8.9		)	(15.1		)	(2.3		)	(6.2		)
Research & development	—			—			—			(29.9		)	—			—
Other operating expense	(39.4		)	(31.0		)	(17.1		)	(11.3		)	(3.6		)	(0.4		)
Other income (expense)	0.6			33.1			—			(1.6		)	0.3			—

Adjusted EBITDA	$	90.7		$	112.3		$	51.3		$	55.6		$	3.0		$	(6.6	)



	Nine Months Ended September 30, 2016
(in millions)	Racing			Casinos			TwinSpires			Big Fish Games			Other Investments			Corporate
Net revenue	$	234.5		$	253.9		$	174.1		$	369.6		$	15.9		$	—

Taxes & purses	(52.7		)	(84.6		)	(8.8		)	—			—			—
Platform & development fees	—			—			—			(135.2		)	—			—
Marketing & advertising	(3.8		)	(9.5		)	(5.2		)	(106.2		)	—			—
Salaries & benefits	(31.4		)	(38.2		)	(6.9		)	(18.4		)	(8.2		)	—
Content expense	(12.0		)	—			(83.4		)	—			—			—
SG&A expense	(11.9		)	(15.8		)	(8.6		)	(13.6		)	(2.5		)	(6.2		)
Research & development	—			—			—			(29.3		)	—			—
Other operating expense	(38.8		)	(29.4		)	(15.6		)	(11.8		)	(2.6		)	(0.5		)
Other income (expense)	0.4			21.6			—			(1.2		)	0.3			—

Adjusted EBITDA	$	84.3		$	98.0		$	45.6		$	53.9		$	2.9		$	(6.7	)



(in millions)	October 1 to December 31, 2017		2018-2019		2020-2021		Thereafter		Total
Big Fish Games earnout	$	—	$	34.2	$	—	$	—	$	34.2
Big Fish Games deferred payment	—		28.4		—		—		28.4
Senior Secured Credit Facility	—		—		360.2		—		360.2
Interest on Senior Secured Credit Facility⁽¹⁾	2.8		22.5		12.8		—		38.1
Term Loan	3.5		42.5		122.7		—		168.7
Interest on Term Loan⁽¹⁾	1.3		9.4		3.9		—		14.6
Senior Unsecured Notes	—		—		600.0		—		600.0
Interest on Senior Unsecured Notes	16.1		64.5		63.1		—		143.7
Operating leases	3.0		17.6		19.1		85.0		124.7
Total	$	26.7	$	219.1	$	1,181.8	$	85.0	$	1,512.6