UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20182019
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-33998
Churchill Downs Incorporated
(Exact name of registrant as specified in its charter)
Kentucky61-0156015
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
  
600 North Hurstbourne Parkway, Suite 400 Louisville, Kentucky 40222(502) 636-4400
(Address of principal executive offices) (zip code)(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes x    No  ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).  Yes x No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerx Accelerated filero
Non-accelerated filero Smaller reporting companyo
   Emerging growth companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨  No  x

The number of shares outstanding of Registrant’s common stock at April 18, 201810, 2019 was 13,539,10140,199,527 shares.
 
 
 





CHURCHILL DOWNS INCORPORATED
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended March 31, 20182019
 
  
 
 
 
 
 
   
  
 


PART I.FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended March, 31Three Months Ended March 31,
(in millions, except per common share data)2018 20172019 2018
Net revenue:      
Racing$23.7
 $23.9
TwinSpires63.2
 52.0
Casino98.1
 87.5
Other Investments4.3
 4.1
Churchill Downs$21.0
 $2.0
Online Wagering63.1
 63.2
Gaming168.8
 111.5
All Other12.5
 12.6
Total net revenue189.3
 167.5
265.4
 189.3
Operating expense:      
Racing35.9
 36.4
TwinSpires44.0
 36.4
Casino64.8
 62.7
Other Investments4.6
 3.9
Corporate0.5
 0.6
Churchill Downs23.4
 9.9
Online Wagering45.1
 44.0
Gaming125.0
 79.6
All Other15.5
 16.3
Selling, general and administrative expense18.4
 18.6
24.9
 18.4
Calder exit costs
 0.4
Transaction expense, net1.4
 
3.5
 1.4
Total operating expense169.6
 159.0
237.4
 169.6
Operating income19.7
 8.5
28.0
 19.7
Other income (expense):      
Interest expense, net(9.6) (11.8)(13.7) (9.6)
Equity in income of unconsolidated investments6.5
 6.1
4.1
 6.5
Miscellaneous, net0.1
 

 0.1
Total other expense(3.0) (5.7)
Total other income (expense)(9.6) (3.0)
Income from continuing operations before provision for income taxes16.7
 2.8
18.4
 16.7
Income tax provision(2.6) (0.6)(6.5) (2.6)
Income from continuing operations, net of tax14.1
 2.2
11.9
 14.1
Income from discontinued operations, net of tax167.9
 5.1
(Loss) income from discontinued operations, net of tax(0.3) 167.9
Net income$182.0
 $7.3
$11.6
 $182.0
Net income per common share data - basic:   
   
Net income (loss) per common share data - basic:   
Continuing operations$0.98
 $0.13
$0.30
 $0.33
Discontinued operations$11.63
 $0.31
$(0.01) $3.87
Net income per common share data - basic:$12.61
 $0.44
Net income per common share data - diluted:   
Net income per common share data - basic$0.29
 $4.20
   
Net income (loss) per common share data - diluted:   
Continuing operations$0.97
 $0.13
$0.30
 $0.32
Discontinued operations$11.58
 $0.31
$(0.01) $3.86
Net income per common share data - diluted:$12.55
 $0.44
Net income per common share data - diluted$0.29
 $4.18
   
Weighted average shares outstanding:      
Basic14.4
 16.3
40.4
 43.3
Diluted14.5
 16.8
40.6
 43.5
   
Other comprehensive income (loss):      
Foreign currency translation, net of tax
 (0.1)$
 $0.6
Change in pension benefits, net of tax
 (0.2)
Other comprehensive income (loss)
 (0.1)
 0.4
Comprehensive income$182.0
 $7.2
$11.6
 $182.4
The accompanying notes are an integral part of the condensed consolidated financial statements.


CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in millions)March 31, 2018 December 31, 2017March 31, 2019 December 31, 2018
ASSETS      
Current assets:      
Cash and cash equivalents$202.7
 $51.7
$119.7
 $133.3
Restricted cash31.5
 31.2
37.7
 40.0
Accounts receivable, net34.6
 49.6
47.5
 28.8
Income taxes receivable
 35.6
16.7
 17.0
Other current assets26.0
 18.9
37.8
 22.4
Current assets of discontinued operations held for sale
 69.1
Total current assets294.8
 256.1
259.4
 241.5
Property and equipment, net634.9
 608.0
866.5
 757.5
Investment in and advances to unconsolidated affiliates173.4
 171.3
625.7
 108.1
Goodwill317.6
 317.6
363.8
 338.0
Other intangible assets, net167.8
 169.4
345.0
 264.0
Other assets12.5
 13.6
18.1
 16.1
Long-term assets of discontinued operations held for sale
 823.4
Total assets$1,601.0
 $2,359.4
$2,478.5
 $1,725.2
      
LIABILITIES AND SHAREHOLDERS' EQUITY      
Current liabilities:      
Accounts payable$59.8
 $54.1
$72.1
 $47.0
Purses payable8.4
 12.5
16.1
 15.8
Account wagering deposit liabilities28.7
 24.0
30.7
 29.6
Accrued expense75.6
 75.8
78.0
 89.8
Income taxes payable21.4
 
Current deferred revenue91.5
 70.9
96.8
 47.9
Current maturities of long-term debt4.0
 4.0
4.0
 4.0
Dividends payable
 23.7

 22.5
Current liabilities of discontinued operations held for sale
 188.2
Total current liabilities289.4
 453.2
297.7
 256.6
Long-term debt, net of current maturities and loan origination fees390.1
 632.9
386.5
 387.3
Notes payable, net of debt issuance costs492.5
 492.3
1,084.3
 493.0
Non-current deferred revenue25.0
 29.3
21.0
 21.1
Deferred income taxes43.8
 40.6
194.0
 78.2
Other liabilities16.6
 16.0
38.1
 15.7
Non-current liabilities of discontinued operations held for sale
 54.8
Total liabilities1,257.4
 1,719.1
2,021.6
 1,251.9
Commitments and contingencies
 

 

Shareholders' equity:      
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
Common stock, no par value; 150.0 shares authorized; 40.2 shares issued and outstanding at March 31, 2019 and 40.4 shares at December 31, 2018
 
Retained earnings344.5
 634.3
457.8
 474.2
Accumulated other comprehensive loss(0.9) (1.3)(0.9) (0.9)
Total shareholders' equity343.6
 640.3
456.9
 473.3
Total liabilities and shareholders' equity$1,601.0
 $2,359.4
$2,478.5
 $1,725.2
The accompanying notes are an integral part of the condensed consolidated financial statements.


CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
 Three Months Ended March 31, 2019
 Common Stock 
Retained
Earnings
 Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity
(in millions)Shares Amount   
Balance, December 31, 201840.4
 $
 $474.2
 $(0.9) $473.3
Net income    11.6
   11.6
Repurchase of common stock(0.3) (4.7) (27.9)   (32.6)
Issuance of restricted stock awards, net of forfeitures0.1
 
     
Stock-based compensation  4.7
     4.7
Adoption of ASC 842    (0.3)   (0.3)
Other    0.2
   0.2
Balance, March 31, 201940.2
 $
 $457.8
 $(0.9) $456.9


 Three Months Ended March 31, 2018
 Common Stock 
Retained
Earnings
 Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity
(in millions)Shares Amount   
Balance, December 31, 201746.2
 $7.3
 $634.3
 $(1.3) $640.3
Net income    182.0
   182.0
Issuance of common stock0.1
 
     
Repurchase of common stock(5.8) (13.5) (500.9)   (514.4)
Issuance of restricted stock awards, net of forfeitures0.1
 
     
Stock-based compensation  6.2
     6.2
Adoption of ASC 606    29.7
   29.7
Other      0.4
 0.4
Balance, March 31, 201840.6
 $
 $345.1
 $(0.9) $344.2

The accompanying notes are an integral part of the condensed consolidated financial statements.



CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March, 31Three Months Ended March 31,
(in millions)2018 20172019 2018
Cash flows from operating activities:      
Net income$182.0
 $7.3
$11.6
 $182.0
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization13.8
 24.5
20.8
 13.8
Game software development amortization0.4
 4.4
Gain on sale of Big Fish Games(219.5) 

 (219.5)
Distributed earnings from equity investments4.5
 4.3
Earnings from equity investments, net(6.5) (6.1)
Distributions from unconsolidated affiliates6.0
 4.5
Equity in income of unconsolidated affiliates(4.1) (6.5)
Stock-based compensation6.1
 4.9
4.7
 6.2
Deferred income taxes2.1
 
6.4
 2.1
Big Fish Games earnout payment(2.4) (2.5)
Big Fish Games deferred payment(2.0) 
Other0.9
 0.5
0.4
 (3.2)
Increase (decrease) in cash resulting from changes in operating assets and liabilities, net of business acquisitions and dispositions:   
Game software development(0.3) (5.3)
Changes in operating assets and liabilities, net of business acquisitions and dispositions:   
Income taxes52.4
 6.6
0.3
 52.4
Deferred revenue35.8
 42.4
46.2
 35.8
Other assets and liabilities(11.4) (15.7)(22.0) (11.7)
Net cash provided by operating activities55.9
 65.3
70.3
 55.9
Cash flows from investing activities:      
Capital maintenance expenditures(7.5) (10.2)(13.9) (7.5)
Capital project expenditures(26.5) (27.3)(14.2) (26.5)
Acquisition of businesses, net of cash acquired(171.3) 
Proceeds from sale of Big Fish Games970.7
 

 970.7
Receivable from escrow
 10.1
Investment in unconsolidated affiliates
 (24.0)
Net cash provided by (used in) investing activities936.7
 (51.4)
Investments in and advances to unconsolidated affiliates(409.8) 
Other(9.9) 
Net cash (used in) provided by investing activities(619.1) 936.7
Cash flows from financing activities:      
Borrowings on bank line of credit100.9
 239.1
Repayments of bank line of credit(343.9) (192.7)
Proceeds from borrowings under long-term debt obligations1,231.9

100.9
Repayments of borrowings under long-term debt obligations(632.9)
(343.9)
Big Fish Games earnout payment(31.8) (31.7)

(31.8)
Big Fish Games deferred payment(26.4) 


(26.4)
Payment of dividends(23.7) (21.8)(22.2)
(23.7)
Repurchase of common stock(514.4) (8.6)(34.1)
(514.4)
Common stock issued
 0.1
Debt issuance costs(7.5)

Other(4.5) (1.4)(2.3)
(4.5)
Net cash used in financing activities(843.8) (17.0)
Net increase (decrease) in cash, cash equivalents and restricted cash148.8
 (3.1)
Effect of exchange rate changes on cash(0.1) 
Net cash provided by (used in) financing activities532.9
 (843.8)
Net (decrease) increase in cash, cash equivalents and restricted cash(15.9) 148.8
Effect of exchange rate changes on cash flows
 (0.1)
Cash, cash equivalents and restricted cash, beginning of period85.5
 83.0
173.3
 85.5
Cash, cash equivalents and restricted cash, end of period$234.2
 $79.9
$157.4
 $234.2
The accompanying notes are an integral part of the condensed consolidated financial statements.


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


Three Months Ended March, 31Three Months Ended March 31,
(in millions)2018 20172019 2018
Supplemental disclosures of cash flow information:      
Cash paid during the period for:      
Interest$4.6
 $2.6
$18.8
 $4.6
Income taxes0.2
 0.3
0.5
 0.2
Schedule of non-cash investing and financing activities:      
Property and equipment additions included in accounts payable and accrued expenses6.3
 
3.7
 6.3
Deferred tax liability assumed from equity investment109.6


Repurchase of common stock included in accrued expenses1.0


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 ("GAAP") or those normally made in our Annual Report on Form 10-K. The December 31, 20172018 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP.
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, 2018.
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.
Segments
During the first quarter of 2019, we realigned our operating segments to reflect the internal management reporting used by our chief operating decision maker to evaluate results of operations and to assess performance and allocate resources. Our internal management reporting changed primarily due to the continued growth in our Churchill Downs Racetrack and Derby City Gaming business and our casino and associated racing businesses, which resulted in our chief operating decision maker's decision to realign our operating segments primarily based on the regulatory licenses governing each business. Since each of these individual businesses operates under single or interdependent licenses, each of these businesses represents an operating segment. As our TwinSpires business and online sports betting and iGaming businesses are managed together, these businesses represent an operating segment. For financial reporting purposes, we aggregate our operating segments that are similar into three reportable segments as follows:
Churchill Downs
The Churchill Downs segment includes live and historical pari-mutuel racing related revenue and expenses at Churchill Downs Racetrack and Derby City Gaming.
Churchill Downs Racetrack is the home of The Kentucky Derby andconducts live racing during the year. Derby City Gaming is a historical racing machine facility that operates under the Churchill Downs pari-mutuel racing license at its ancillary training facility in Louisville, Kentucky.
Churchill Downs Racetrack and Derby City Gaming earn commissions primarily from pari-mutuel wagering on live races at Churchill Downs and on historical races at Derby City Gaming; simulcast fees earned from other wagering sites; admissions, personal seat licenses, sponsorships, television rights, and other miscellaneous services (collectively "racing event-related services"), as well as food and beverage services.
Online Wagering
The Online Wagering segment includes the revenue and expenses for the TwinSpires business ("TwinSpires") and the online Sports Betting and iGaming business.
TwinSpires operates our online horseracing wagering business on TwinSpires.com, BetAmerica.com and other Company platforms; high dollar wagering by international customers ("Velocity"); and horseracing statistical data generated by our information business that provides data information and processing services to the equine industry ("Brisnet").
Our Sports Betting and iGaming business includes the online BetAmerica sports betting and casino gaming operations.
Gaming
The Gaming segment includes revenue and expenses for the casino properties and associated racetrack or Jai Alai facilities which support the casino license as applicable. The Gaming segment has approximately 11,000 slot machines and video lottery terminals ("VLTs") located in eight states.
The Gaming segment revenue and expenses includes the following properties:
Calder Casino and Racing ("Calder")
Fair Grounds Slots, Fair Grounds Race Course, and Video Services, LLC ("VSI") (collectively, "Fair Grounds and VSI")
Harlow’s Casino Resort and Spa ("Harlow's")
Lady Luck Casino Nemacolin management agreement ("Lady Luck Nemacolin")

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Ocean Downs Casino and Racetrack ("Ocean Downs")
Oxford Casino and Hotel ("Oxford")
Presque Isle Downs and Casino ("Presque Isle")
Riverwalk Casino Hotel ("Riverwalk")
The Gaming segment also includes net income for our ownership portion of the Company’s equity investments in the following:
61.3% equity investment in Midwest Gaming Holdings, LLC ("Midwest Gaming"), the parent company of Rivers Casino Des Plaines in Des Plaines, Illinois ("Rivers Des Plaines")
50% equity investment in Miami Valley Gaming and Racing ("MVG")
The Gaming segment generates revenue and expenses from slot machines, table games, VLTs, video poker, retail sports betting, ancillary food and beverage services, hotel services, commission on pari-mutuel wagering, racing event-related services, and / or other miscellaneous operations.
We have aggregated the following businesses as well as certain corporate operations, and other immaterial joint ventures in "All Other" to reconcile to consolidated results:
Arlington International Racecourse ("Arlington")
United Tote
We conduct our business through these reportable segments and report net revenue and operating expense associated with these reportable segments in the accompanying condensed consolidated statements of comprehensive income. The prior year results were reclassified to conform to this presentation.
Effective January 1, 2019, the Company does not allocate corporate and other related expenses to the reportable segments in the accompanying condensed consolidated statements of comprehensive income. The prior year results in the accompanying consolidated statements of comprehensive income were reclassified to conform to this presentation.
Acquisitions of Presque Isle and Lady Luck Nemacolin
On January 11, 2019, we completed the previously announced acquisition of Presque Isle located in Erie, Pennsylvania from Eldorado Resorts, Inc. ("ERI") for cash consideration of $178.9 million, subject to certain working capital and other purchase price adjustments (the "Presque Isle Transaction").
On March 8, 2019, the Company completed the previously announced acquisition of Lady Luck Nemacolin in Farmington, Pennsylvania, by which we assumed management and acquired certain assets related to the management of Lady Luck Nemacolin from ERI for cash consideration of $100,000 (the "Lady Luck Nemacolin Transaction").
Acquisition of Certain Ownership Interests of Midwest Gaming Holdings, LLC
On October 31, 2018, the Company announced that it had entered into a definitive purchase agreement pursuant to which the Company acquired certain ownership interests of Midwest Gaming, the parent company of Rivers Des Plaines in Des Plaines, Illinois, for cash (the "Sale Transaction").
The Sale Transaction was comprised of (i) the Company’s purchase of 100% of the ownership stake in Midwest Gaming held by affiliates and co-investors of Clairvest Group Inc. ("Clairvest") for approximately $291.0 million and (ii) the Company’s offer to purchase, on the same terms, additional units of Midwest Gaming held by High Plaines Gaming, LLC ("High Plaines"), an affiliate of Rush Street Gaming, LLC, and Casino Investors, LLC ("Casino Investors") (collectively, the "Sellers"). On March 5, 2019, the Company completed the Sale Transaction.
Following the closing of the Sale Transaction, the parties entered into a recapitalization transaction pursuant to which Midwest Gaming used approximately $300.0 million in proceeds from new credit facilities to redeem, on a pro rata basis, additional Midwest Gaming units held by High Plaines and Casino Investors (the "Recapitalization" and together with the Sale Transaction, the "Transactions").
Based on the results of the purchase of the Clairvest ownership stake and the purchase, on the same terms, of additional units held by High Plaines and Casino Investors, the Company acquired, at the closing of the Sale Transaction, approximately 42% of Midwest Gaming for aggregate cash consideration of approximately $406.6 million. As a result of the Recapitalization on March 6, 2019, the Company's ownership of Midwest Gaming increased to 61.3%.
The total aggregate cash consideration paid at closing of the Sale Transaction was $409.8 million, which included $3.2 million for certain transaction costs of the Sellers. We recognized a $109.6 million deferred tax liability and a corresponding increase in our investment in unconsolidated affiliates related to an entity we acquired in conjunction with our acquisition of the Clairvest ownership.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Refer to Note 12, Investments in and Advances to Unconsolidated Affiliates, for further information on the Transactions.
Sale of Big Fish Games, Inc.
On November 29, 2017, the Company entered into a definitive Stock Purchase Agreement (the “Stock"Stock Purchase Agreement”Agreement") to sell its mobile gaming subsidiary, Big Fish Games, Inc. ("Big Fish Games"), a Washington corporation, (“Big Fish Games”), to Aristocrat Technologies, Inc. (the "Purchaser"), a Nevada corporation, (the “Purchaser”), an indirect, wholly owned subsidiary of Aristocrat Leisure Limited, an Australian corporation (the “Big"Big Fish Transaction”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.
Stock Split
On October 31, 2018, the Company announced a three-for-one split (the "Stock Split") of the Company's common stock for shareholders of record as of January 11, 2019. The following information is unaudited.additional shares resulting from the Stock Split were distributed on January 25, 2019. Our common stock began trading at the split-adjusted price on January 28, 2019. All per share and 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, 2017.
In the opinion of management, all adjustments necessary for a fair statement of this informationCompany’s condensed consolidated financial statements and related notes have been made, and all such adjustments areretroactively adjusted to reflect the effects of a normal, recurring nature.the Stock Split.
Seasonality
RacingChurchill Downs
Due to the seasonal nature of our live racing business at Churchill Downs, 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 54 live thoroughbred race days in the first quarter of 2018 and 55 live thoroughbred race days in the first quarter of 2017.quarter.
TwinSpiresOnline Wagering
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.
CasinoGaming
Revenue from the properties in our casino propertiesGaming segment has a seasonal component and is typically higher during the first and second quarters.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncement - Adopted on January 1, 20182019
In May 2014,February 2016, the Financial Accounting Standards Board (“FASB”("FASB") issued Accounting Standards Updated (“ASU”Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (“ASC 606”2016-02, Leases, and subsequently has issued additional guidance (collectively, "ASC 842"), which requires companies to generally recognize operating and financing lease liabilities and corresponding right-of-use assets ("ROUAs") which provides a five-step analysis of transactions to determine when and how revenue is recognized.on the balance sheet. We adopted ASC 606842 on January 1, 20182019 using the modified retrospectivetransition method. As part of the transition to ASC 842, we elected the package of practical expedients that allowed us to not reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. We recognized the cumulative effect of initially applying the new revenue standardASC 842 as an adjustment to the opening balance of retained earnings.sheet adjustment at January 1, 2019. The comparative information has not been retrospectively adjusted and continues to be reported under the accounting standards in effect for those periods.
The adoption of ASC 842 had no impact on our accompanying condensed consolidated statements of comprehensive income or statements of cash flows. Due to the adoption of ASC 842, we recognized operating lease ROUAs and lease liabilities for our operating leases with lease terms greater than one year. We do not have any material finance leases or any material operating leases where we are the lessor. We expect the adoption of the new revenue standardASC 842 will not have a materialmaterially impact on our net incomeresults of operations, financial condition, or cash flows on an ongoing basis in future periods.basis.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




The cumulative effects of the changes made to our accompanying condensed consolidated balance sheetsheets as of January 1, 20182019 for the adoption of ASC 606842 were as follows:
(in millions)As Reported at December 31, 2018 Adoption of ASC 842 Balance at January 1, 2019
ASSETS     
Other current assets$22.4
 $(0.3) $22.1
Property and equipment, net757.5
 25.3
 782.8
      
LIABILITIES     
Accrued expense89.8
 3.8
 93.6
Other liabilities15.7
 21.5
 37.2
      
SHAREHOLDERS' EQUITY     
Retained earnings474.2
 (0.3) 473.9
(in millions)As Reported at December 31, 2017 Adoption of ASC 606 Balance at January 1, 2018
ASSETS     
Accounts receivable, net of allowance for doubtful accounts$49.6
 $(21.8) $27.8
Income taxes receivable35.6
 (4.1) 31.5
Current assets of discontinued operations held for sale69.1
 0.7
 69.8
Other assets13.6
 (1.1) 12.5
      
LIABILITIES     
Accrued expense75.8
 0.8
 76.6
Current deferred revenue70.9
 (18.9) 52.0
Current liabilities of discontinued operations held for sale188.2
 (38.8) 149.4
Non-current deferred revenue29.3
 (4.5) 24.8
Deferred income taxes40.6
 0.1
 40.7
Non-current liabilities of discontinued operations held for sale54.8
 5.9
 60.7
      
SHAREHOLDERS' EQUITY     
Retained earnings634.3
 29.1
 663.4
There were two primary changes to our condensed consolidated balance sheet resulting from the adoption of ASC 606. The most significant change was in current and non-current liabilities of discontinued operations held for sale and retained earnings related to breakage revenue for outstanding Big Fish Game Club credits. The other primary change was in accounts receivable, net of allowance for doubtful accounts, current deferred revenue, and non-current deferred revenue related to the timing of when we have a right to consideration under our contracts.
In accordance with ASC 606 requirements, the disclosure of the impact of adoption on our condensed consolidated balance sheet was as follows:
 At March 31, 2018
(in millions)As Reported Balances without Adoption of ASC 606 Effect of Change Increase/(Decrease)
ASSETS     
Accounts receivable, net of allowance for doubtful accounts$34.6
 $37.7
 $(3.1)
Other assets12.5
 14.5
 (2.0)
      
LIABILITIES     
Accrued expense75.6
 74.8
 0.8
Current deferred revenue91.5
 91.7
 (0.2)
Non-current deferred revenue25.0
 29.3
 (4.3)
Deferred income taxes43.8
 43.7
 0.1
      
SHAREHOLDERS' EQUITY     
Retained earnings344.5
 346.0
 (1.5)
Adoption of ASC 606 had no impact on cash provided by or used in operating, financing, or investing activities on our condensed consolidated statement of cash flow for the three months ended March 31, 2018. As part of the transition to ASC 606 on January 1, 2018, there have been certain modifications between the classification of net revenue and operating expenses in the TwinSpires segment in the current period. The impact of adopting ASC 606 on our condensed consolidated statement of comprehensive income for the three months ended March 31, 2018 was not material.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash (“ASU 2016-18”). The new standard requires that the statement of cash flows explain the change during the period of cash, cash equivalents, and amounts

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


generally described as restricted cash. Entities are also required to reconcile the cash, cash equivalents, and restricted cash in the statement of cash flows to the balance sheet and disclose the nature of the restrictions on restricted cash. We adopted ASU 2016-18 on January 1, 2018 using the retrospective method. As a result, we began including amounts generally described as restricted cash with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. We adjusted our condensed consolidated statement of cash flows from amounts previously reported due to the adoption of ASU 2016-18. The effects of adopting ASU 2016-18 on our condensed consolidated statement of cash flows were as follows:
 Three Months Ended March 31, 2017
(in millions)As Reported Adoption of ASU 2016-18 As Adjusted
      
Net cash provided by operating activities$74.6
 $(9.3) $65.3
      
Cash, cash equivalents and restricted cash, beginning of period$48.7
 $34.3
 $83.0
Net increase (decrease) in cash, cash equivalents and restricted cash6.2
 (9.3) (3.1)
Cash, cash equivalents and restricted cash, end of period$54.9
 $25.0
 $79.9
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. The new guidance reduces diversity in practice in how certain transactions are classified in the statement of cash flows. We adopted the new guidance on January 1, 2018 and it did not have a material impact on our consolidated results of operations, financial condition, or cash flows. We will utilize the cumulative earnings approach under the ASU to present distributions received from equity method investees which is consistent with our previous existing policy.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 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, 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 20192020 or thereafter
In February 2016,August 2018, the FASB issued ASU No. 2016-02, Leases,2018-15, Intangibles-Goodwill and Other: Internal-Use Software, which requires companiesaligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred 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.develop or obtain internal-use software. The new guidance is intendedalso requires an entity to more closely align hedge accounting with entities' risk management strategies, simplifyexpense the applicationcapitalized implementation costs of hedge accounting, and increase transparency as toa hosting arrangement over the scope and resultsterm of hedging programs.the hosting arrangement. The new standardguidance is effective in 20192020 with early adoption permitted in any interimand may be applied prospectively or annual period prior to 2019.retrospectively. We are currently evaluatingassessing the timing of our adoption and impact of the new accounting guidance on ourand currently cannot estimate the financial statements and related disclosures.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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, 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, and is to be applied prospectively. We are currently evaluatingassessing the timing of our adoption and impact of the new accounting guidance on ourand currently cannot estimate the financial statements and related disclosures.statement impact of adoption.
3. SIGNIFICANT ACCOUNTING POLICIES
Except for the accounting policiespolicy for revenue recognition, casino and pari-mutuel taxes, and restricted cash, all ofleases, which werewas updated as a result of our recently adopted accounting pronouncementsadoption of ASC 842 on January 1, 2018,2019, as described in Note 2, Recent Accounting Pronouncements, there have been no changes to our significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2017,2018, that have had a material impact on our condensed consolidated financial statements and related notes.
Revenue RecognitionLeases
RacingWe determine if an arrangement is a lease at inception. Operating leases are included in property and equipment, net; accrued expense; and other liabilities on our condensed consolidated balance sheets.
Racing revenue is generated by pari-mutuel wagering transactions with customers on liveOperating lease ROUAs and simulcast racing content as well as simulcast host fees earned from other wagering sites. Additionally, we generate revenue through sponsorships, admissions (including luxury suites), personal seat licenses (“PSLs”), television rights, concessions, programs and parking.
Our Racing revenue and incomelease liabilities 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 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 fixedrecognized based on the established commissionpresent value of the future minimum lease payments over the lease term at commencement date. As our leases do not provide an implicit rate, we are entitled to retain. The transaction price for export revenue is variableuse our incremental borrowing rate based on the simulcast host fee we charge our customers for exporting our signal. Our export revenue contracts generally have a duration of one year or less. These arrangements are licenses of intellectual property containing a usage based royalty. As a result, we have elected to use the practical expedient to omit disclosure related to remaining performance obligations for our export revenue contracts. We recognize on-track revenue, export revenue, and import revenue once the live race event is made official by the relevant racing regulatory body.
We evaluate our on-track revenue, export revenue, and import revenue contracts in order to determine whether we are acting as the principal or as the agent when providing services, which we considerinformation available at commencement date in determining if revenue should be reported grossthe present value of future lease payments. The operating lease ROUAs also include any lease payments made prior to commencement and exclude lease incentives and initial direct costs incurred. Our lease terms include all non-cancelable periods and may include options to extend or net. An entityterminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a principal if it controlsstraight-line basis over 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 generallylease term.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




include performance obligations relatedAs an accounting policy, we generally do not separate lease and non-lease components for our lease contracts. We do not apply the ROUA and leases liability recognition requirements to admissionsshort-term leases.
4. ACQUISITIONS
Presque Isle
On January 11, 2019, the Company completed the Presque Isle Transaction, which had a cash purchase price of $178.9 million, subject to certain working capital and advertising rights at our racetracks. Television rights contracts contain a performance obligation relatedother purchase price adjustments, which preliminarily totaled $0.8 million. The fair values of the Presque Isle Transaction were based upon preliminary valuations. Estimates and assumptions used in such valuations are subject to change, which could be significant, within the measurement period up to one year from the acquisition date. The primary areas of the preliminary valuations that are not yet finalized relate to the amounts for income taxes, intangible assets, working capital adjustments, and the final amount of residual goodwill. The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition date during the measurement period. The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed, net of cash acquired of $8.4 million, at the date of the acquisition.
(in millions)Total
Current assets$2.5
Property and equipment78.5
Goodwill25.8
Intangible assets71.2
Current liabilities(6.1)
Non-current liabilities(0.6)
 $171.3

The preliminary fair value of the intangible assets consists of the following:
(in millions)Fair Value Recognized Weighted-Average Useful Life
Gaming rights$56.0
 N/A
Trademark15.2
 N/A
Total intangible assets$71.2
  

Current assets and current liabilities were valued at the existing carrying values as these items are short term in nature and represent management's estimated fair value of the respective items at January 11, 2019.
The property and equipment acquired primarily relates to land, buildings, equipment, and furniture and fixtures. The fair value of the land was determined using the market approach and the fair values of the remaining property and equipment were primarily determined using the cost replacement method which is based on replacement or reproduction costs of the assets.
The fair value of the Presque Isle gaming rights was determined using the Greenfield Method, which is an income approach methodology that calculates the present value of the overall business enterprise based on a projected cash flow stream. This method assumes that the gaming rights intangible asset provides the opportunity to distribute certain live racing events on media platforms.develop a casino in a specified region, and that the present value of the projected cash flows are a result of the realization of advantages contained in these rights. Under this methodology, the acquirer is expected to absorb all start-up costs, as well as incur all expenses pertaining to the acquisition and/or the creation of all tangible and intangible assets. The transaction prices for our admissions, PSLs, sponsorships,estimated future revenue and televisionoperating expenses and start-up costs of Presque Isle were the primary inputs in the valuation. The gaming rights contracts are fixed. We allocate the transaction price to our sponsorship contract performance obligationsintangible asset was assigned an indefinite useful life based on the estimated relative standalone selling priceCompany's expected use of each distinct service.the asset and determination that no legal, regulatory, contractual, competitive, economic, or other factors limit the useful life of the gaming rights. The renewal of the gaming rights in Pennsylvania is subject to various legal requirements. However, the Company's historical experience has not indicated, nor does the Company expect, any limitations regarding its ability to continue to renew its gaming rights in Pennsylvania.
The revenue we recognize for admissions to a live racing event day is recognized oncetrademark intangible asset was valued using 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 outputrelief-from-royalty method of each completed live racing event day as our measure of progress. Each completed live racing event day corresponds with the transfer ofincome approach, which estimates 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 entertainmentfair value of the event.
Timing of revenue recognition may differ fromintangible asset by discounting 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 indicativefair value of the revenue and operating results forhypothetical royalty payments a market participant would be willing to pay to enjoy the year and may not be comparable with results for the corresponding periodbenefits 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.
asset. 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 allocatestrademark was assigned an amount to the loyalty point contract liabilityindefinite useful life based on the stand-alone selling priceCompany’s intention to keep the Presque Isle name for an indefinite period 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, theretime.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




are specific pari-mutuel taxesGoodwill of $25.8 million was recognized due to the expected contribution of Presque Isle to the Company's overall business strategy. The goodwill was assigned to the Gaming segment and is deductible for tax purposes.
For the period from the Presque Isle Transaction on January 11, 2019 through March 31, 2019, net revenue was $29.7 million, and net income was not material for the period.
The following unaudited pro forma consolidated financial information for the Company has been prepared assuming the Company's acquisition of Presque Isle occurred as of January 1, 2018. The unaudited pro forma financial information is not necessarily indicative of either future results of operations or results of operations that are assessed on winning wagers frommight have been achieved had the acquisition been consummated as of January 1, 2018. The unaudited pro forma net income giving effect to the Presque Isle Transaction was not materially different than our customers,historical net income.
 Three Months Ended March 31,
(in millions)2019 2018
Net revenue$268.6
 $222.5

Lady Luck Nemacolin
On March 8, 2019, we completed the Lady Luck Nemacolin Transaction, by which we collectassumed management and remitacquired certain assets related to the government. These taxes are presented onmanagement of Lady Luck Nemacolin from ERI for cash consideration of $100,000. The Lady Luck Nemacolin Transaction did not meet the definition of a business and therefore was accounted for as an asset acquisition. The net basis.
Restricted Cash and Account Wagering Deposit Liabilities
Amounts includedassets acquired in restricted cash represent amounts due to horsemen for purses, stakes and awards that are paid in accordanceconjunction 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 RacingLady Luck Nemacolin Transaction were not material.
Contract AssetsOcean Downs
On July 16, 2018, the Company announced its entry into a tax-efficient partial liquidation agreement (the "Liquidation Agreement") for the remaining 50% ownership of the Casino at Ocean Downs and Contract LiabilitiesOcean Downs Racetrack located in Berlin, Maryland ("Ocean Downs") owned by Saratoga Casino Holdings LLC ("SCH") in exchange for the Company's 25% equity interest in SCH, which is the parent company of Saratoga Casino Hotel in Saratoga Springs, New York ("Saratoga New York") and Saratoga Casino Black Hawk in Black Hawk, Colorado ("Saratoga Colorado") (collectively, the "Ocean Downs/Saratoga Transaction"). As part of the Ocean Downs/Saratoga Transaction, Saratoga Harness Racing, Inc. ("SHRI") has agreed to grant the Company and its affiliates exclusive rights to operate online sports betting and iGaming on behalf of SHRI in New York and Colorado for a period of fifteen years from the date of the Liquidation Agreement, should such states permit SHRI to engage in sports betting and iGaming, subject to payment of commercially reasonable royalties to SHRI.
AsOn August 31, 2018, the Company completed the Ocean Downs/Saratoga Transaction, which resulted in the Company owning 100% of the equity interests of Ocean Downs. We therefore consolidated Ocean Downs as of the transaction date. Upon the closing of the Ocean Downs/Saratoga Transaction, the Company no longer has an equity interest or management involvement in Saratoga New York or Saratoga Colorado. Prior to the Ocean Downs/Saratoga Transaction, the Company held an effective 62.5% ownership interest in Ocean Downs, and a 25% ownership interest in Saratoga New York and Saratoga Colorado, all of which were accounted for under the equity method. The consideration transferred to SCH to acquire the remaining interest in Ocean Downs was the Company's equity investments in Saratoga New York and Saratoga Colorado, which had an aggregate fair value of $47.8 million at the acquisition date. Under the acquisition method, the fair values of the consideration transferred and the Company's equity method investment in Ocean Downs, which had a fair value of $80.5 million at the acquisition date, were allocated to the assets acquired and liabilities assumed in the Ocean Downs/Saratoga Transaction. The Company's carrying values in these equity method investments were significantly less than the fair values, resulting in a pre-tax gain of $54.9 million, which is included in the accompanying consolidated statements of comprehensive income. The fair value of the Company's equity method investments in Ocean Downs, Saratoga New York, and Saratoga Colorado was determined under the market and income valuation approaches using inputs primarily related to discounted projected cash flows and price multiples of publicly traded comparable companies.
The following unaudited pro forma consolidated financial information for the Company has been prepared assuming the Company's acquisition of the remaining 50% interest in Ocean Downs occurred as of January 1, 2018 and March 31, 2018, contract assets were2018. The unaudited pro forma financial information is not material.
Asnecessarily indicative of either future results of operations or results of operations that might have been achieved had the acquisition been consummated 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 in2018. The unaudited pro forma net income giving effect to the accompanying condensed consolidated balance sheets. Contract liabilities primarily relate toOcean Downs/Saratoga Transaction was not materially different than 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.historical net income.
Disaggregation of Revenue
 Three Months Ended March 31,
(in millions)2018
Net revenue$206.2
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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


5. DISCONTINUED OPERATIONS
On January 9, 2018, the Company completed the Big Fish Transaction, which had a purchase price of $990.0 million. The Company received cash proceeds of $970.7 million, which was net of $5.2 million of working capital adjustments and $14.1 million of transaction costs. The Company derecognized the following upon the Big Fish Transaction:
(in millions) 
Cash and cash equivalents$0.3
Accounts receivable34.7
Game software development, net6.7
Other current assets17.0
Property and equipment, net17.8
Game software development, net13.8
Goodwill530.7
Other intangible assets, net238.4
Other assets24.0
Accounts payable(8.5)
Accrued expense(22.6)
Deferred revenue(44.2)
Deferred income taxes(52.0)
Other liabilities(4.9)
Carrying value of Big Fish Games$751.2
(in millions) 
Cash and cash equivalents$0.3
Accounts receivable34.7
Game software development, net6.7
Other current assets17.0
Property and equipment, net17.8
Game software development, net13.8
Goodwill530.7
Other intangible assets, net238.4
Other assets24.0
Accounts payable(8.5)
Accrued expense(22.6)
Deferred revenue(44.2)
Deferred income taxes(52.0)
Other liabilities(4.9)
Carrying value of disposal group$751.2

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



The Company recognized a gain of $219.5 million upon the sale recorded in income from discontinued operations on the condensed consolidated statementsstatement 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 groupBig Fish Games of $751.2 million. The income tax provision on the gain was $51.2 million, resulting in an after tax gain of $168.3 million.
The following table presents the financial results of Big Fish Games included in “income"(loss) income from discontinued operations, net of tax”:tax" in the accompanying condensed consolidated statements of comprehensive income:
 Three Months Ended March 31,
(in millions)2019 2018
Net revenue$
 $13.2
    
Operating expenses
 8.4
Selling, general and administrative expense0.4
 4.3
Research and development
 0.9
Total operating expense0.4
 13.6
Operating loss(0.4) (0.4)
Other income (expense)   
Gain on sale of Big Fish Games
 219.5
Other expense
 (0.1)
Total other income (expense)
 219.4
(Loss) income from discontinued operations before provision for income taxes(0.4) 219.0
Income tax benefit (provision)0.1
 (51.1)
(Loss) income from discontinued operations, net of tax$(0.3) $167.9


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 Three Months Ended March 31,
(in millions)2018 2017
Net revenue$13.2
 $112.0
    
Operating expenses8.4
 87.0
Selling, general and administrative expense4.3
 5.5
Research and development0.9
 10.3
Transaction expense, net
 0.2
Total operating expense13.6
 103.0
Operating (loss) income(0.4) 9.0
Other income (expense)   
Gain on sale of Big Fish Games219.5
 
Other expense(0.1) 
Total other income219.4
 
Income from discontinued operations before provision for income taxes219.0
 9.0
Income tax provision(51.1) (3.9)
Income from discontinued operations, net of tax$167.9
 $5.1

Stock-Based Compensation
For the three months ended March 31, 2018, the Company recognized $3.3$3.4 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 Company has not included other disclosures regarding BetAmerica because the acquired business is immaterial to our business.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


7. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
The Company's equity investments include the following:
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 Ocean Downs, providing the Company an effective 62.5% interest.
Summarized below are the financial results for our unconsolidated affiliates:
 Three Months Ended March 31,
(in millions)2018 2017
Net revenue$77.0
 $72.2
    
Operating and SG&A expense53.6
 49.8
Depreciation and amortization6.6
 5.7
Total operating expense60.2
 55.5
Operating income16.8
 16.7
Interest and other expense, net(2.9) (3.5)
Net income$13.9
 $13.2
(in millions)March 31, 2018 December 31, 2017
Assets   
Current assets$74.5
 $64.5
Property and equipment, net233.9
 234.6
Other assets, net237.1
 236.5
Total assets$545.5
 $535.6
    
Liabilities and Members' Equity   
Current liabilities$101.2
 $100.3
Long-term debt114.7
 110.1
Other liabilities
 0.1
Members' equity329.6
 325.1
Total liabilities and members' equity$545.5
 $535.6
8. GOODWILL AND OTHER INTANGIBLE ASSETS
In the first quarter of 2019, we realigned our segments as described in Note 1, Description of Business. This change resulted in the allocation of the previous Racing segment goodwill balance of $51.7 million as follows: $49.7 million to the Churchill Downs segment, $1.0 million to the Gaming segment, and $1.0 million to All Other, based on the relative fair value approach. The Company evaluated whether an interim goodwill impairment test should be performed as a result of our segment changes. Based on this evaluation, the Company determined this event did not indicate it was more likely than not that a goodwill impairment exists.
Goodwill, by segment, is comprised of the following:
 Churchill Downs Online Wagering Gaming All Other Total
Balances as of December 31, 2018$49.7
 $148.2
 $139.1
 $1.0
 $338.0
Additions
 
 25.8
 
 25.8
Balances as of March 31, 2019$49.7
 $148.2
 $164.9
 $1.0
 $363.8

(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)


During the first quarter of 2019, we established goodwill of $25.8 million related to the Presque Isle Transaction.
Other intangible assets are comprised of the following:
 March 31, 2019 December 31, 2018
(in millions)Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Definite-lived intangible assets$32.1
 $(15.3) $16.8
 $32.1
 $(14.1) $18.0
Indefinite-lived intangible assets    328.2
     246.0
Total

 

 $345.0
     $264.0

 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
During the first quarter of 2019, we established indefinite-lived assets of $56.0 million for gaming rights and $15.2 million for trademarks related to the Presque Isle Transaction. We also established indefinite-lived assets of $8.0 million for online gaming rights in Pennsylvania during first quarter of 2019 related to our Online Wagering operations, as well as indefinite-lived assets of $3.0 million for gaming rights related to our Gaming segment.
9.7. INCOME TAXES
The Company’s effective income tax rate for the three months ended March 31, 2019 was higher than the U.S. federal statutory rate of 21.0% primarily due to a $2.8 million non-cash tax impact from the re-measurement of our net deferred tax liabilities based on an increase in income attributable to states with higher tax rates compared to the prior year quarter, as well as state income taxes and certain expenses that are not deductible for income tax purposes. These increases were partially offset by tax benefits resulting from tax deductions from vesting of restricted stock units in excess of book deductions.
The Company's effective income tax rate for the three months ended March 31, 2018 was lower than the U. SU.S. federal statutory rate of 21.0% primarily due to a $1.2 million tax benefit resulting from tax deductions from vesting restricted stock units in excess of the book deductions that were recognized. This benefit was partially offset by state income taxes and certain expenses that are not deductible for the purposes of income taxes.
We also recognized a $109.6 million deferred tax liability and a corresponding increase in our investment in unconsolidated affiliates related to an entity we acquired in conjunction with our acquisition of the Clairvest ownership. Refer to Note 12, Investments in and Advances to Unconsolidated Affiliates, for further information.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


8. SHAREHOLDERS’ EQUITY
On October 30, 2018, the Board of Directors of the Company approved a new common stock repurchase program of up to $300.0 million. The Company’s income tax rate fornew program replaced the prior $250.0 million program that was authorized in April 2017 and had unused authorization of $78.3 million. The new authorized amount includes and is not in addition to any unspent amount remaining under the prior authorization. Repurchases may be made at management’s discretion from time to time on the open market (either with or without a 10b5-1 plan) or through privately negotiated transactions. The repurchase program has no time limit and may be suspended or discontinued at any time.
For the three months ended March 31, 2017 was lower than2019, we repurchased 282,416 shares of our common stock under the U. S federal statutory rateOctober 2018 stock repurchase program at an aggregate purchase price of 35.0% primarily due to state income tax benefits associated with a revaluation of deferred tax assets due to changes in apportionment and state tax rates.
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$25.0 million, based on the lowest leveltrade date. We had approximately $243.0 million 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:
 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 currently have no other assets or liabilities subject to fair value measurement on a recurring basis. Our 4.75% Senior 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 fair value of the Senior Notes was $470.6 millionrepurchase authority remaining under this program at March 31, 2018 and $496.82019, based on trade date. As of March 31, 2019, we accrued $1.0 million for cash settlement for repurchases of our common stock compared to $2.5 million at December 31, 2017.2018.
The following methods and assumptions were used in estimatingFor the three months ended March 31, 2019, we repurchased 79,233 shares of our fair value disclosures for financial instruments:
Cash equivalents: the carrying amount reported in the balance sheet for cash equivalents approximates our fair value duecommon stock related to the short-term maturityemployee vestings of these instruments.
Long-term debt: the carrying amountsstock-based compensation at a total cost 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 Agreement") approximate fair value, based upon current interest rates, representing a Level 2 fair value measurement.
We did not measure any assets at fair value on a non-recurring basis for 2018 or 2017.
11. SHAREHOLDERS’ EQUITY$7.6 million.
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 (the "Tender Offer") utilizing a portion of the proceeds from the Big Fish Transaction. The Company completed the tender offerTender Offer on February 12, 2018, and repurchased 1,886,7925,660,376 shares of the Company's common stock at a purchase price of $265$88.33 per share with an aggregate cost of $500.0 million, excluding fees and expenses related to the tender offer.Tender Offer.
12.9. STOCK-BASED COMPENSATION PLANS
We have stock-based employee compensation plans with awards outstanding under the Churchill Downs Incorporated 2007 Omnibus Stock Incentive Plan, the Churchill Downs Incorporated 2016 Omnibus Stock Incentive Plan ("the 2016(the "2016 Plan"), and the Executive Long-Term Incentive Compensation Plan, which was adopted pursuant to the 2016 Plan. Our total stock-based

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


compensation expense, which includes expenses related to restricted stock awards ("RSAs"), restricted stock unit awards ("RSUs"), performance share unit awards ("PSUs"), and stock options associated with our employee stock purchase plan was $4.7 million for the three months ended March 31, 2019 and $2.8 million for the three months ended March 31, 2018 and2018. Stock-based compensation expense for Big Fish Games included as a discontinued operation in the accompanying condensed consolidated statements of comprehensive income was $3.4 million for the three months ended March 31, 2017.2018.
During the three months ended March 31, 2018,2019, the Company awarded RSAs to employees and RSUs and PSUs to certain named executive officers. The vesting criteria for the PSU awards granted in 20182019 were based on a three year service period with two performance conditions and a market condition related to relative total shareholder return ("TSR") 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 service period based on the probable achievement of the two performance criteria. The PSUs are converted into shares of our common stock at the time the PSU award value is finalized.
A summary of the RSAs, RSUs, and PSUs granted during 20182019 is presented below:below (shares/units in thousands):
Grant Year Award Type Number of Shares/Units Awarded Vesting Terms
       
2019 RSA 64 Vest equally over three service periods ending in 2020, 2021, and 2022
2019 RSU 55 Vest equally over three service periods ending in 2019, 2020, and 2021
2019 PSU 53 Three year performance and service period ending in 2021

10. DEBT
2027 Senior Notes
On March 25, 2019, we completed an offering of $600.0 million in aggregate principal amount of 5.50% Senior Unsecured Notes that mature on April 1, 2027 (the "2027 Senior Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the 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 2027 Senior Notes were issued at par, with interest payable on April 1st and October 1st of each year, commencing on October 1, 2019. The Company used the net proceeds from the offering to repay our outstanding balance on our 2017 Senior Secured credit agreement (the "2017 Credit Agreement"). In connection with the offering, we capitalized $9.0 million of debt issuance costs which are being amortized as interest expense over the term of the 2027 Senior Notes.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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

The 2027 Senior Notes were issued pursuant to an indenture, dated March 25, 2019 (the "2027 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 2027 Senior Notes at any time prior to April 1, 2022, at a price equal to 100% of the principal amount of the 2027 Senior Notes redeemed plus an applicable make-whole premium. On or after such date, the Company may redeem some or all of the 2027 Senior Notes at redemption prices set forth in the 2027 Indenture. In addition, at any time prior to April 1, 2022, the Company may redeem up to 40% of the aggregate principal amount of the 2027 Senior Notes at a redemption price equal to 105.50% of the principal amount thereof with the net cash proceeds of one or more equity offerings provided that certain conditions are met. The terms of the 2027 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 other entities; and (viii) enter into transactions with affiliates.
In connection with the issuance of the 2027 Senior Notes, the Company and the Guarantors entered into a Registration Rights Agreement to register any 2027 Senior Notes under the Securities Act for resale that are not freely tradable 366 days from March 25, 2019.
11. REVENUE FROM CONTRACTS WITH CUSTOMERS
Performance Obligations
As of March 31, 2019, the Churchill Downs segment had remaining performance obligations, on contracts with a duration greater than one year, with an aggregate transaction price of $193.4 million. The revenue we expect to recognize on these remaining performance obligations is $54.4 million for the remainder of 2019, $38.0 million in 2020, $29.0 million in 2021, and the remainder thereafter.
As of March 31, 2019, our remaining performance obligations in segments other than Churchill Downs were not material.
Contract Assets and Contract Liabilities
As of March 31, 2019 and December 31, 2018, contract assets were not material.
As of March 31, 2019 and December 31, 2018, contract liabilities were $121.9 million and $69.9 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 the Churchill Downs segment and the increase during the first quarter of 2019 was primarily due to cash payments received for unfulfilled performance obligations. We recognized $2.7 million of revenue during the three months ended March 31, 2019 that was included in the contract liabilities balance at December 31, 2018.
Disaggregation of Revenue
In Note 17, Segment Information, the Company has included its disaggregated revenue disclosures as follows: 
For the Churchill Downs segment, revenue is disaggregated between Churchill Downs Racetrack and Derby City Gaming given that Churchill Downs Racetrack's revenues primarily revolve around live racing events while Derby City Gaming's revenues primarily revolve around historical racing events. Within the Churchill Downs segment, revenue is further disaggregated between live and simulcast racing, historical racing, racing event-related services, and other services.
For the Online Wagering segment, revenue is disaggregated between the TwinSpires business and online sports betting and iGaming business given that TwinSpires' revenue is primarily related to online pari-mutuel wagering on live race events while online sports betting and iGaming revenue relates to casino gaming service offerings.   Online sports betting and iGaming service offerings are currently nominal. Within the Online Wagering segment, revenue is further disaggregated between live and simulcast racing, gaming, and other services.
For the Gaming segment, revenue is disaggregated by location given the geographic economic factors that affect the revenue of Gaming service offerings. Within the Gaming segment, revenue is further disaggregated between live and simulcast racing, racing event-related services, gaming, and other services.
We believe that these disclosures depict how the amount, nature, timing, and uncertainty of cash flows are affected by economic factors.
12. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
Midwest Gaming
On March 5, 2019, the Company completed the Sale Transaction to acquire approximately 42% of Midwest Gaming for aggregate cash consideration of approximately $406.6 million. Following the closing of the Sale Transaction, the parties entered into a

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Recapitalization pursuant to which Midwest Gaming used approximately $300.0 million in proceeds from new credit facilities to redeem, on a pro rata basis, additional Midwest Gaming units held by High Plaines and Casino Investors. As a result of the Recapitalization, the Company's ownership of Midwest Gaming increased to 61.3%.
The total aggregate cash consideration paid at closing of the Sale Transaction was $409.8 million, which included $3.2 million for certain transaction costs of the Sellers. We recognized a $109.6 million deferred tax liability and a corresponding increase in our investment in unconsolidated affiliates related to an entity we acquired in conjunction with our acquisition of the Clairvest ownership.
High Plaines retained ownership of 36% and Casino Investors retained ownership of 2.7%. A new LLC agreement was entered into by all members as a result of the change in ownership structure. Under the new LLC agreement, both the Company and High Plaines have participating rights over Midwest Gaming, and both must consent to Midwest Gaming's operating, investing and financing decisions. As a result, we account for Midwest Gaming using the equity method.
Summarized Financial Results for our Unconsolidated Affiliates
Summarized below are the financial results for our unconsolidated affiliates. The three months ended March 31, 2019 summarized income statement information and March 31, 2019 summarized balance sheet information includes the following equity investments: MVG, Midwest Gaming from the transaction date of March 5, 2019, and two other immaterial joint ventures. The three months ended March 31, 2018 summarized income statement information includes the following equity investments: MVG, Saratoga New York, Saratoga Colorado, Ocean Downs, and two other immaterial joint ventures. December 31, 2018 summarized balance sheet information included MVG and two other immaterial joint ventures.

 Three Months Ended March 31,
(in millions)2019 2018
Net revenue$89.5
 $107.4
    
Operating and SG&A expense61.0
 84.1
Depreciation and amortization2.2
 6.6
Total operating expense63.2
 90.7
Operating income26.3
 16.7
Interest and other, net(17.0) (2.9)
Net income$9.3
 $13.8

(in millions)March 31, 2019 December 31, 2018
Assets   
Current assets$67.1
 $24.0
Property and equipment, net243.6
 95.7
Other assets, net235.4
 106.7
Total assets$546.1
 $226.4
    
Liabilities and Members' Equity   
Current liabilities$87.2
 $21.2
Long-term debt752.3
 
Other liabilities7.5
 
Members' equity(300.9) 205.2
Total liabilities and members' equity$546.1
 $226.4

13. LEASES
Our operating leases with terms greater than one year are primarily related to buildings and land. Our operating leases with terms less than one year are primarily related to equipment. Most of our building and land leases have terms of 2 to 10 years and include one or more options to renew, with renewal terms that can extend the lease term from 1 to 5 years or more. Certain of our lease agreements include lease payments based on a percentage of net gaming revenue and others include rental payment adjustments

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


periodically for inflation. As of March 31, 2019, operating lease ROUAs included in property and equipment, net were $25.3 million.
The components of total lease cost were as follows:
(in millions)Three Months Ended March 31, 2019
Short-term lease cost (a) (b)
$2.5
Operating lease cost (b)
1.5
Total lease cost$4.0
(a) Includes leases with terms of one month or less
(b) Includes variable lease costs, which were not material
Other information related to operating leases was as follows:
(in millions, except lease term and discount rate)Three Months Ended March 31, 2019
Supplemental cash flow information
Cash paid for amounts included in the measurement of lease liabilities$1.0


ROUAs obtained in exchange for lease obligations$0.8



Weighted average remaining lease term7.2 years



Weighted average discount rate4.0%

As of March 31, 2019, future minimum operating lease payments on non-cancelable leases were as follows (in millions):
Years Ended December 31, Totals
2019 (excludes three months ended March 31, 2019) $4.1
2020 4.9
2021 4.3
2022 3.3
2023 3.0
Thereafter 11.2
Total future minimum lease payments 30.8
Less: Imputed interest 4.0
Present value of lease liabilities $26.8
   
Reported lease liabilities as of March 31, 2019  
Accrued expense (current maturities of leases) $4.3
Other liabilities (non-current maturities of leases) 22.5
Present value of lease liabilities $26.8


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


As required by ASC 842, the future minimum operating lease payments on non-cancelable leases as of December 31, 2018 under the accounting standards in effect as of that period were as follows (in millions):
Years Ended December 31,
  
2019$5.0
20204.5
20213.8
20223.1
20233.0
Thereafter11.2
Total$30.6

14. 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 methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate.
Restricted Cash
Our restricted cash accounts that 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.
Debt
The fair value of the Company’s 4.75% Senior Notes due 2028 (the "2028 Senior Notes") and 2027 Senior Notes are estimated based on unadjusted quoted prices for identical or similar liabilities in markets that are not active and as such are Level 2 measurements. The fair value of the Company's Senior Secured Term Loan B due 2024 (the "Term Loan B") approximates its gross carrying value as it is variable rate debt and as such is a Level 2 measurement.
The carrying amounts and estimated fair values by input level of the Company's financial instruments are as follows:
 March 31, 2019
(in millions)Carrying Amount Fair Value Level 1 Level 2 Level 3
Financial assets:         
Restricted cash37.7
 $37.7
 $37.7
 $
 $
Financial liabilities:         
Term Loan B390.5
 395.0
 
 395.0
 
2027 Senior Notes591.0
 607.7
 
 607.7
 
2028 Senior Notes493.3
 476.9
 
 476.9
 
          
 December 31, 2018
(in millions)Carrying Amount Fair Value Level 1 Level 2 Level 3
Financial assets:         
Restricted cash40.0
 $40.0
 $40.0
 $
 $
Financial liabilities:         
Term Loan B391.3
 396.0
 
 396.0
 
2028 Senior Notes493.0
 452.4
 
 452.4
 

15. 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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


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 that such excess would not be material to our consolidated financial condition, results of operations, or cash flows. Legal fees are expensed as incurred.
We review all litigation on an ongoing basis when making accrual and disclosure decisions. For certain legal proceedings, we cannot reasonably estimate losses or a range of loss, if any, particularly for proceedings that are in the early stages of development or where the plaintiffs seek indeterminate damages. Various factors, including, but not limited to, the outcome of potentially lengthy discovery and the resolution of important factual questions, may need to be determined before probability can be established or before a loss or range of loss can be reasonably estimated.
If the loss contingency in question is not both probable and reasonably estimable, we do not establish an accrual and the matter will continue to be monitored for any developments that would make the loss contingency both probable and reasonably estimable. In the event that a legal proceeding results in a substantial judgment against, or settlement by us, there can be no assurance that any resulting liability or financial commitment would not have a material adverse impact on our business.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


14.16. NET INCOME PER COMMON SHARE COMPUTATIONS
The following is a reconciliation of the numerator and denominator of the net income per common share computations:
 Three Months Ended March 31,
(in millions, except per share data)2019 2018
Numerator for basic net income per common share:   
Net income from continuing operations$11.9
 $14.1
Net (loss) income from discontinued operations(0.3) 167.9
Numerator for basic net income per common share$11.6
 $182.0
    
Numerator for diluted net income from continuing operations per common share$11.9
 $14.1
Numerator for diluted net income per common share:$11.6
 $182.0
    
Denominator for net income per common share:   
Basic40.4
 43.3
Plus dilutive effect of stock awards0.2
 0.2
Diluted40.6
 43.5
    
Net income (loss) per common share data:   
Basic   
Continuing operations$0.30
 $0.33
Discontinued operations$(0.01) $3.87
Net income per common share - basic$0.29
 $4.20
    
Diluted   
Continuing operations$0.30
 $0.32
Discontinued operations$(0.01) $3.86
Net income per common share - diluted$0.29
 $4.18
 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 operations167.9
 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:   
Basic14.4
 16.3
Plus dilutive effect of stock awards0.1
 0.2
Plus dilutive effect of participating securities
 0.3
Diluted14.5
 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

15.17. SEGMENT INFORMATION
We manage our operations through five operatingthree reportable segments:
Racing, which includes Churchill Downs, Racetrack ("Churchill Downs"), Arlington International Race Course ("Arlington"), Fair Grounds Race Course ("Fair Grounds")Online Wagering and Calder Race Course ("Calder");
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% equity investment in MVG, 50% equity investment in Ocean Downs and 25% equity investment in SCH, which includes investments in Saratoga Casino Hotel, Saratoga Casino Black Hawk and Ocean Downs;
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 allocatedGaming. Refer to Note 1, Description of Business, for further information on the changes we made to our other operating segments.
Big Fish Games is a global producer and distributorsegments during the first quarter 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.2019. Accordingly, the prior year amounts werein this Form 10-Q have been 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 adjustedAdjusted EBITDA. Our chief operating decision maker utilizes adjustedAdjusted EBITDA to evaluate segment performance, develop strategy and allocate resources. Adjusted EBITDA includes the following adjustments:

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Adjusted EBITDA includes our portion of the EBITDA from our equity investments.
Adjusted EBITDA excludes:
Transaction expense, net which includes:
Acquisition and disposition related charges, including fair value adjustments related to earnouts and deferred payments;
Calder Racing exit costs; and
Other transaction expense, including legal, accounting, and other deal-related expense;
Stock-based compensation expense;
Recapitalization costs related to the Midwest Gaming transaction;
Asset impairments;
Gain on Calder land sale;
Calder exit costs;Ocean Downs/Saratoga Transaction;
Loss on extinguishment of debt;
Pre-opening expense; and
Other charges, recoveries and expenses
We utilize the adjustedAdjusted EBITDA metric because we believe the inclusion or exclusion of certain non-recurring items is necessary to provide a more accurate measure of our core operating results and enablesenable 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 GAAP. Our calculation of adjustedAdjusted EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited. For segment reporting, adjustedAdjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the accompanying condensed consolidated statements of comprehensive income.
Effective January 1, 2019, the Company does not allocate corporate and other related expenses to the operating segments in the accompanying condensed consolidated statements of comprehensive income. Accordingly, the prior year amounts in the accompanying consolidated statements of comprehensive income were reclassified to conform to this presentation.
The tables below present net revenue from external customers and intercompany revenue from each of our operating segments, adjustednet revenue from external customers for each group of similar services, Adjusted EBITDA by segment, and reconcilesa reconciliation of comprehensive income to adjustedAdjusted EBITDA:


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




 Three Months Ended March 31,
(in millions)2019 2018
Net revenue from external customers:   
Churchill Downs:   
Churchill Downs Racetrack$2.3
 $2.0
Derby City Gaming18.7
 
Total Churchill Downs21.0
 2.0
Online Wagering:   
TwinSpires63.0
 63.2
Online Sports Betting and iGaming0.1
 
Total Online Wagering63.1
 63.2
Gaming:   
Oxford23.9
 24.2
Calder25.4
 24.9
Riverwalk16.3
 14.4
Harlow’s15.3
 13.3
Fair Grounds and VSI37.5
 34.4
Ocean Downs18.4
 
Presque Isle29.7
 
Lady Luck Nemacolin2.3
 
Saratoga
 0.3
Total Gaming168.8
 111.5
All Other12.5
 12.6
Net revenue from external customers$265.4
 $189.3
 Three Months Ended March, 31
(in millions)2018 2017
Net revenue from external customers:   
Racing:   
Churchill Downs$2.0
 $2.3
Arlington8.3
 8.5
Fair Grounds12.8
 12.5
Calder0.6
 0.6
Total Racing23.7
 23.9
TwinSpires63.2
 52.0
Casino:   
Oxford Casino24.2
 20.9
Riverwalk Casino14.4
 11.5
Harlow’s Casino13.3
 13.5
Calder Casino24.3
 21.4
Fair Grounds Slots10.6
 10.2
VSI11.0
 9.7
Saratoga0.3
 0.3
Total Casino98.1
 87.5
Other Investments4.3
 4.1
Net revenue from external customers$189.3
 $167.5

 Three Months Ended March 31,
(in millions)2019 2018
Intercompany net revenue:   
Churchill Downs$0.4
 $0.3
Online Wagering0.3
 0.4
Gaming1.3
 1.0
All Other2.2
 2.4
Eliminations(4.2) (4.1)
Intercompany net revenue$
 $
 Three Months Ended March, 31
(in millions)2018 2017
Intercompany net revenue:   
Racing:   
Churchill Downs$0.3
 $0.3
Arlington1.2
 1.0
Fair Grounds1.0
 0.9
Total Racing2.5
 2.2
TwinSpires0.4
 0.3
Other Investments1.2
 1.4
Eliminations(4.1) (3.9)
Intercompany net revenue$
 $



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




 Three Months Ended March 31, 2019
(in millions)Churchill Downs Online Wagering Gaming Total Segments All Other Total
Net revenue from external customers           
Pari-mutuel:           
Live and simulcast racing$1.4
 $60.5
 $12.2
 $74.1
 $7.5
 $81.6
Historical racing17.7
 
 
 17.7
 
 17.7
Racing event-related services
 
 1.5
 1.5
 
 1.5
Gaming
 0.1
 146.6
 146.7
 
 146.7
Other1.9
 2.5
 8.5
 12.9
 5.0
 17.9
Total$21.0
 $63.1
 $168.8
 $252.9
 $12.5
 $265.4
 Three Months Ended March 31, 2018
(in millions)Churchill Downs Online Wagering Gaming Total Segments All Other Total
Net revenue from external customers           
Pari-mutuel:           
Live and simulcast racing$1.3
 $61.0
 $10.6
 $72.9
 $7.9
 $80.8
Historical racing
 
 
 
 
 
Racing event-related services
 
 1.4
 1.4
 
 1.4
Gaming
 
 93.9
 93.9
 
 93.9
Other0.7
 2.2
 5.6
 8.5
 4.7
 13.2
Total$2.0
 $63.2
 $111.5
 $176.7
 $12.6
 $189.3


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Adjusted EBITDA by segment is comprised of the following:
Three Months Ended March 31, 2018Three Months Ended March 31, 2019
(in millions)Racing TwinSpires Casino Other Investments CorporateChurchill Downs Online Wagering Gaming
Net revenue$26.2
 $63.6
 $98.1
 $5.5
 $
$21.4
 $63.4
 $170.1
              
Taxes & purses(10.3) (3.4) (32.4) 
 
(6.2) (3.3) (65.0)
Marketing & advertising(0.8) (0.8) (3.2) 
 
(1.1) (1.0) (5.1)
Salaries & benefits(8.6) (2.1) (13.5) (3.2) 
(5.2) (2.5) (24.5)
Content expense(3.1) (32.2) 
 
 
(0.5) (32.1) (1.2)
SG&A expense(4.0) (2.8) (5.4) (0.7) (2.4)(1.7) (1.8) (6.4)
Other operating expense(8.8) (5.8) (10.1) (1.3) (0.2)(5.3) (5.8) (19.0)
Other income
 
 10.8
 
 0.1

 
 15.9
Adjusted EBITDA$(9.4) $16.5
 $44.3
 $0.3
 $(2.5)
Adjusted EBITDA by segment$1.4
 $16.9
 $64.8
 Three Months Ended March 31, 2017
(in millions)Racing TwinSpires Casino Other Investments 
Corporate (a)
Net revenue$26.1
 $52.3
 $87.5
 $5.5
 $
          
Taxes & purses(10.2) (3.0) (29.1) 
 
Marketing & advertising(0.7) (1.0) (3.0) 
 
Salaries & benefits(8.6) (2.2) (13.1) (2.9) 
Content expense(3.2) (25.4) 
 
 
SG&A expense(3.8) (2.7) (5.2) (0.8) (2.9)
Other operating expense(9.3) (4.8) (11.4) (1.3) (0.2)
Other income
 
 9.6
 0.1
 
Adjusted EBITDA$(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.

 Three Months Ended March 31, 2018
(in millions)Churchill Downs Online Wagering Gaming
Net revenue$2.3
 $63.6
 $112.5
      
Taxes & purses(0.7) (3.4) (38.0)
Marketing & advertising(0.3) (0.8) (3.6)
Salaries & benefits(3.1) (2.1) (16.9)
Content expense(0.4) (32.2) (0.9)
SG&A expense(1.0) (1.4) (3.8)
Other operating expense(2.8) (5.8) (13.7)
Other income
 
 10.8
Adjusted EBITDA by segment$(6.0) $17.9

$46.4
 

 






NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




 Three Months Ended March 31,
(in millions)2019 2018
Reconciliation of Comprehensive Income to Adjusted EBITDA:   
    
Comprehensive income$11.6
 $182.4
Foreign currency translation, net of tax
 (0.6)
Change in pension benefits, net of tax
 0.2
Net income11.6
 182.0
Loss (income) from discontinued operations, net of tax0.3
 (167.9)
Income from continuing operations, net of tax11.9

14.1
    
Additions:   
Depreciation and amortization20.8
 13.8
Interest expense13.7
 9.6
Income tax provision6.5
 2.6
EBITDA$52.9
 $40.1
    
Adjustments to EBITDA:   
Selling, general and administrative:   
Stock-based compensation expense$4.7
 $2.8
Other charges0.5
 
Pre-opening expense1.3
 0.6
Other income, expense:   
Interest, depreciation and amortization expense related to equity investments3.5
 4.3
Recapitalization costs related to Midwest Gaming8.2
 
Transaction expense, net3.5
 1.4
Total adjustments to EBITDA21.7
 9.1
Adjusted EBITDA$74.6
 $49.2
    
Adjusted EBITDA by segment:   
Churchill Downs$1.4
 $(6.0)
Online Wagering16.9
 17.9
Gaming64.8
 46.4
Total segment Adjusted EBITDA83.1
 58.3
All Other(8.5) (9.1)
Total Adjusted EBITDA$74.6
 $49.2
 Three Months Ended March, 31
(in millions)2018 2017
Reconciliation of Comprehensive Income to Adjusted EBITDA:   
    
Comprehensive income$182.0
 $7.2
Foreign currency translation, net of tax
 0.1
Net income182.0
 7.3
Income from discontinued operations, net of tax(167.9) (5.1)
Income from continuing operations, net of tax14.1

2.2
    
Additions:   
Depreciation and amortization13.8
 14.2
Interest expense9.6
 11.8
Income tax provision2.6
 0.6
EBITDA40.1
 28.8
    
Adjustments to EBITDA:   
Selling, general and administrative:   
Stock-based compensation expense2.8
 3.4
Other charges
 0.2
Pre-opening expense0.6
 
Other income, expense:   
Interest, depreciation and amortization expense related to equity investments4.3
 3.5
Transaction expense, net1.4
 
Calder exit costs
 0.4
Total adjustments to EBITDA9.1
 7.5
Adjusted EBITDA$49.2
 $36.3
    
Adjusted EBITDA by segment:   
Racing$(9.4) $(9.7)
TwinSpires16.5
 13.2
Casino44.3
 35.3
Other Investments0.3
 0.6
Corporate(a)(2.5) (3.1)
Adjusted EBITDA$49.2
 $36.3
(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 of unconsolidated investments included in our reported segments:
 Three Months Ended March 31,
(in millions)2019 2018
Gaming$4.1
 $6.5
 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)March 31, 2019 December 31, 2018
Total assets:   
Churchill Downs$367.7
 $359.6
Online Wagering237.4
 222.8
Gaming1,603.8
 877.1
Total segment assets2,208.9
 1,459.5
All Other269.6
 265.7
Total assets$2,478.5
 $1,725.2
(in millions)March 31, 2018 December 31, 2017
Total assets:   
Racing$484.8
 $483.0
TwinSpires215.2
 215.9
Casino678.6
 679.6
Other Investments23.0
 15.2
Corporate199.4
 73.2
Big Fish Games
 892.5
 $1,601.0
 $2,359.4

The table below presents total capital expenditures for each of our operating segments:
 Three Months Ended March 31,
(in millions)2019 2018
Capital expenditures:   
Churchill Downs$9.6
 $26.2
Online Wagering11.5
 2.3
Gaming2.5
 4.0
Total segment capital expenditures23.6
 32.5
All Other4.5
 1.5
Total capital expenditures$28.1
 $34.0
 Three Months Ended March, 31
(in millions)2018 2017
Capital expenditures:   
Racing$23.0
 $23.6
TwinSpires2.3
 3.2
Casino3.4
 8.1
Other Investments4.6
 0.4
Corporate0.7
 0.2
Big Fish Games
 2.0
 $34.0
 $37.5

16.18. SUBSEQUENT EVENT
As of the date of this filing, there were no subsequent events.


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information set forth in this discussion and analysis contains various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 (the "Act") provides certain "safe harbor" provisions for forward-looking statements. All forward-looking statements made in this Quarterly Report on Form 10-Q are made pursuant to the Act. The reader is cautioned that such forward-looking statements are based on information available at the time and/or management’s good faith belief with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Forward-looking statements speak only as of the date the statement was made. We assume no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. Forward-looking statements are typically identified by the use of terms such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "might," "plan," "predict," "project," "seek," "should," "will,""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,operations; online security risk, including cyber-security breaches; inability to recover under our insurance policies for damages sustained at our properties in the impactevent of naturalinclement weather and other disasters on our operationscasualty events; increases in insurance costs and our abilityinability to obtain similar insurance recoveriescoverage in respect of such losses;the future; 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 forrisk associated with fraudulent credit card and debit 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; theour inability of ourto utilize and provide totalisator company, United Tote, to maintain its processes accurately, keep its technology current or maintain its significant customers;services; weather conditions affecting our ability to conduct live racing; increased competition in the horseracing business; changes in the regulatory environment of our racing operations; seasonal fluctuationschanges in regulatory environment of our online horseracing business; increase in competition in our horseracing business dueonline horseracing; uncertainty and changes in the legal landscape relating to geographic concentrationour online wagering business; legalization of online sports betting and iGaming in the United States and our operations;ability to predict and capitalize on any such legalization; inability to expand our sports betting operations and effectively compete; failure to comply with laws requiring us to block access to certain individuals could result in penalties or impairment with respect to our mobile and online wagering products; 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; and 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.costs.
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, 2017,2018, 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, gamingonline and onlinegaming entertainment company anchored by our iconic flagship event - The Kentucky Derby. We are a leader in brick-and-mortar casino gaming with approximately 10,000 gaming positions in eight states,own and we areoperate the largest legal online account wagering platform for horseracing in the U.S., through our TwinSpires business. We are also a leader in brick-and-mortar casino gaming with approximately 11,000 slot machines and video lottery terminals ("VLTs") and approximately 200 table games in eight states. In August 2018, we launched our BetAmerica Sportsbook at our two Mississippi casino properties and have announced our plans to enter additional U.S. sports betting and iGaming markets. Derby City Gaming, the first historical machine ("HRM") facility in Louisville, Kentucky, was opened in September 2018 with 900 HRM machines. We were organized as a Kentucky corporation in 1928, and our principal executive offices are located in Louisville, Kentucky.
Segments
During the first quarter of 2019, we realigned our operating segments to reflect the internal management reporting used by our chief operating decision maker to evaluate results of operations and to assess performance and allocate resources. Refer to Note 1, Description of Business, to our condensed consolidated financial statements for further information. For financial reporting purposes, we aggregate our operating segments into three reportable segments as follows:
Churchill Downs
The Churchill Downs segment includes live and historical pari-mutuel racing related revenue and expenses at Churchill Downs Racetrack and Derby City Gaming.
Churchill Downs Racetrack is the home of The Kentucky Derby andconducts live racing during the year. Derby City Gaming is a historical racing machine facility that operates under the Churchill Downs pari-mutuel racing license at its ancillary training facility in Louisville, Kentucky.
Churchill Downs Racetrack and Derby City Gaming earn commissions primarily from pari-mutuel wagering on live races at Churchill Downs and on historical races at Derby City Gaming; simulcast fees earned form other wagering sites; admissions, personal seat licenses, sponsorships, television rights, and other miscellaneous services (collectively "racing event-related services"), as well as food and beverage services.
Online Wagering
The Online Wagering segment includes the revenue and expenses for the TwinSpires business ("TwinSpires") and the online Sports Betting and iGaming business.
TwinSpires operates our online horseracing wagering business on TwinSpires.com, BetAmerica.com and other Company platforms; high dollar wagering by international customers ("Velocity"); and horseracing statistical data generated by our information business that provides data information and processing services to the equine industry ("Brisnet").
Our Sports Betting and iGaming business includes the online BetAmerica sports betting and casino gaming operations.
Gaming
The Gaming segment includes revenue and expenses for the casino properties and associated racetrack or Jai Alai facilities which support the casino license. The Gaming segment has approximately 11,000 slot machines and VLTs located in eight states.
The Gaming segment revenue and Adjusted EBITDA includes the following properties:
Calder Casino and Racing ("Calder")
Fair Grounds Slots, Fair Grounds Race Course, and Video Services, LLC ("VSI") (collectively, "Fair Grounds and VSI")
Harlow’s Casino Resort and Spa ("Harlow's")
Lady Luck Nemacolin management agreement ("Lady Luck Nemacolin")
Ocean Downs Casino and Racetrack ("Ocean Downs")
Oxford Casino and Hotel ("Oxford")
Presque Isle Downs and Casino ("Presque Isle")
Riverwalk Casino Hotel ("Riverwalk")
The Gaming segment Adjusted EBITDA also includes the Adjusted EBITDA related to the Company’s equity investments in the following:
61.3% equity investment in Midwest Gaming Holdings, LLC ("Midwest Gaming"), the parent company of Rivers Casino Des Plaines in Des Plaines, Illinois ("Rivers Des Plaines")
50% equity investment in Miami Valley Gaming and Racing ("MVG")

The Gaming segment generates revenue and expenses from slot machines, table games, VLTs, video poker, retail sports betting, ancillary food and beverage services, hotel services, commission on pari-mutuel wagering, racing event-related services, and / or other miscellaneous operations.
We have aggregated the following businesses as well as certain corporate operations, and other immaterial joint ventures in "All Other" to reconcile to consolidated results:
Arlington International Race Course ("Arlington")
United Tote
We conduct our business through these reportable segments and report net revenue and operating expense associated with these reportable segments in the accompanying condensed consolidated statements of comprehensive income. The prior year results were reclassified to conform to this presentation.
Effective January 1, 2019, the Company does not allocate corporate and other related expenses to the operating segments in the accompanying condensed consolidated statements of comprehensive income. The prior year results in the accompanying consolidated statements of comprehensive income were reclassified to conform to this presentation.
Acquisitions of Presque Isle and Lady Luck Nemacolin
On January 11, 2019, we completed the previously announced acquisition of Presque Isle located in Erie, Pennsylvania, from Eldorado Resorts, Inc. ("ERI") for cash consideration of $178.9 million, subject to certain working capital and other purchase price adjustments ("Presque Isle Transaction").
On March 8, 2019, the Company completed the previously announced acquisition of Lady Luck Nemacolin in Farmington, Pennsylvania and acquired certain assets related to the management of Lady Luck Nemacolin from ERI for cash consideration of $100,000 (the "Lady Luck Nemacolin Transaction").
Acquisition of Certain Ownership Interests of Midwest Gaming Holdings, LLC
On October 31, 2018, the Company announced that it had entered into a definitive purchase agreement pursuant to which the Company acquired certain ownership interests of Midwest Gaming, the parent company of Rivers Des Plaines in Des Plaines, Illinois, for cash (the "Sale Transaction").
The Sale Transaction was comprised of (i) the Company’s purchase of 100% of the ownership stake in Midwest Gaming held by affiliates and co-investors of Clairvest Group Inc. ("Clairvest") for approximately $291.0 million and (ii) the Company’s offer to purchase, on the same terms, additional units of Midwest Gaming held by High Plaines Gaming, LLC ("High Plaines"), an affiliate of Rush Street Gaming, LLC, and Casino Investors, LLC ("Casino Investors") (collectively, the "Sellers"). On March 5, 2019, the Company completed the Sale Transaction.
Following the closing of the Sale Transaction, the parties entered into a recapitalization transaction pursuant to which Midwest Gaming used approximately $300.0 million in proceeds from new credit facilities to redeem, on a pro rata basis, additional Midwest Gaming units held by High Plaines and Casino Investors (the "Recapitalization" and together with the Sale Transaction, the "Transactions").
Based on the results of the purchase of the Clairvest ownership stake and the purchase, on the same terms, of additional units held by High Plaines and Casino Investors, the Company acquired, at the closing of the Sale Transaction, approximately 42% of Midwest Gaming for aggregate cash consideration of $406.6 million. As a result of the Recapitalization on March 6, 2019, the Company's ownership of Midwest Gaming increased to 61.3%.
The total aggregate cash consideration paid at closing of the Sale Transaction was $409.8 million, which included $3.2 million for certain transaction costs of the Sellers. We recognized a $109.6 million deferred tax liability and a corresponding increase in our investment in unconsolidated affiliates related to an entity we acquired in conjunction with our acquisition of the Clairvest ownership.
Refer to Note 12, Investments in and Advances to Unconsolidated Affiliates, to our condensed consolidated financial statements for further information on the Transactions.
Sale of Big Fish Games, Inc.
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. ("Big Fish Games"), a Washington corporation, to Aristocrat Technologies, Inc. (the "Purchaser"), a Nevada corporation, 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. As describedThe Purchaser paid an aggregate consideration of $990.0 million in further detailcash in Item 1. Financial Statements,connection with the Company has presentedBig 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 discontinued operation presentation. Accordingly, the condensed consolidated statements of comprehensive income and the notes to financial statements reflect the Big Fish Games segment as helddiscontinued operations for saleall 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 of our condensed consolidated financial statements, Discontinued Operations, for further information on the discontinued operations relating to the Big Fish Transaction.
Stock Split
On October 31, 2018, the Company announced a three-for-one split (the "Stock Split") of the Company's common stock for shareholders of record as of January 11, 2019. The additional shares resulting from the Stock Split were distributed on January 25, 2019. Our common stock began trading at the split-adjusted price on January 28, 2019. All share and per-share amounts in the accompanyingCompany’s condensed consolidated financial statements and related notes.notes have been retroactively adjusted to reflect the effects of the Stock Split.
Key Indicators to Evaluate Business Results and Financial Condition
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 ("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, GAAP. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (as determined in accordance with GAAP) as a measure of our operating results.
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.
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:
Transaction expense, net which includes:
Acquisition and disposition related charges, including fair value adjustments related to earnouts and deferred payments;
Calder Racing exit costs; and
Other transaction expense, including legal, accounting and other deal-related expense;
Stock-based compensation expense;
Recapitalization costs related to Midwest Gaming;
Asset impairments;
Gain on Calder land sale;
Calder exit costs;Ocean Downs/Saratoga Transaction;
Loss on extinguishment of debt;
Pre-opening expense; and
Other charges, recoveries and expenses
For segment reporting, Adjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the accompanying condensed consolidated statements of comprehensive income. Refer to the reconciliation of comprehensive income to adjustedAdjusted EBITDA included in this section for additional information.
Our Operations
We manage our operations through five operating segments: Racing, TwinSpires, Casino, Other Investments and Corporate. 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.
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 54 live thoroughbred race days in the first quarter of 2018 and 55 live thoroughbred race days in the first quarter of 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 completed the acquisition of certain assets of BAM Software and Services, LLC ("BetAmerica"), which is included in our TwinSpires segment.
Casino Segment
We are also a provider of brick-and-mortar real-money casino gaming with approximately 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 three hotels (Oxford, Riverwalk and Harlow’s). We also own Video Services, LLC ("VSI") associated with our Fair Grounds property. In addition, we have a 50% equity investment in 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.
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,Churchill Downs, Online Wagering, Gaming and TwinSpiresother investments 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 our regulatoryThere have been no material changes with respect to Government Regulations and legislative activities should be readPotential Legislative Changes disclosed in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2017, including Part I - Item 1, "Business," for a discussion of regulatory and legislative issues.2018.
Racing Regulations
Illinois
In February 2018, legislation was filed that extends the authorization of advance deposit wagering though December 31, 2022.
Specific State Casino Regulations and Potential Legislative Changes
Maryland
In April 2017, legislation was signed into law to allow a VLT licensee to reduce the following day's proceeds by the amount of money returned to players that exceeds the amount bet through 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 this legislation will have a positive impact on our business.


Consolidated Financial Results
The following table reflects our net revenue, operating income, net income, Adjusted EBITDA, and certain other financial information:
Three Months Ended March, 31Three Months Ended March 31,
(in millions)2018 2017 Change2019 2018 Change
Net revenue$189.3
 $167.5
 $21.8
$265.4
 $189.3
 $76.1
Operating income19.7
 8.5
 11.2
28.0
 19.7
 8.3
Operating income margin10% 5%  11% 10%  
Net income from continuing operations$11.9
 $14.1
 $(2.2)
Net income$182.0
 $7.3
 $174.7
11.6
 182.0
 (170.4)
Adjusted EBITDA49.2
 36.3
 12.9
74.6
 49.2
 25.4
Three Months Ended March 31, 2018,2019, Compared to Three Months Ended March 31, 20172018
Our net revenue increased $21.8$76.1 million driven by an $11.2a $57.6 million increase from TwinSpiresthe Gaming segment primarily due to the Presque Isle Transaction and the Lady Luck Nemacolin Transaction during the first quarter of 2019 and the consolidation of Ocean Downs as a 20.2% increase in handleresult of the Ocean Downs/Saratoga Transaction effective August 31, 2018, as well as growth at our other casino properties, and a $10.6$19.1 million increase from CasinoChurchill Downs primarily due to the opening of Derby City Gaming in September 2018. Partially offsetting these increases was a $0.6 million decrease from successful marketing and promotional activities.other sources.
Our operating income increased $11.2$8.3 million driven by an $8.5a $11.9 million increase from CasinoGaming primarily driven by the increase in net revenue, from successful marketing and promotional activities and a $3.6$5.5 million increase from TwinSpiresChurchill Downs primarily due to the opening of Derby City Gaming in September 2018 and a $0.7 million increase from All Other primarily due to United Tote. Partially offsetting these increases were a $6.5 million increase in handle.selling, general and administrative expenses driven by the Gaming segment acquisitions, the Ocean Downs/Saratoga Transaction, and the Derby City Gaming opening, as well as an increase in stock-based compensation, a $2.1 million increase in transaction expense, net due to the Presque Isle Transaction and Lady Luck Nemacolin Transaction, and a $1.2 decrease from the Online Wagering segment primarily due to an increase in costs associated with the online sports betting and iGaming operations.
Our net income from continuing operations decreased $2.2 million for the three months ended March 31, 2019 compared to 2018. The following items impacted comparability of the Company's first quarter net income from continuing operations: (1) $6.6 million after-tax impact of our equity portion of Midwest Gaming's non-cash recapitalization costs relating to our acquisition of certain ownerships interests of Midwest Gaming; (2) $2.8 million non-cash tax impact related to the re-measurement of our net deferred tax liabilities based on an increase in revenue related to states with higher tax rates compared to the prior year quarter; and (3) a $2.5 million after-tax increase in expenses primarily related to higher transaction expenses and pre-opening expenses. Excluding these items, net income from continuing operations increased $9.7 million primarily due to a $12.5 million after-tax increase driven by the results of our operations and equity income from our unconsolidated affiliates, partially offset by a $2.8 million after-tax increase in interest expense associated with higher outstanding debt balances.
Our net income decreased $170.4 million due to a $2.2 million decrease in net income from continuing operations discussed above and a $168.2 million decrease in net income from discontinued operations driven by the $168.3 million after-tax gain on the sale of Big Fish Games in January 2018.
Our Adjusted EBITDA increased $25.4 million driven by a $18.4 million increase from the Gaming segment primarily due to the Presque Isle Transaction, our 61.3% equity investment in Midwest Gaming on March 5, 2019, and the Ocean Downs/Saratoga Transaction, as well as strong performances of our wholly-owned Gaming properties and our equity investment in MVG, a $7.4 million increase from the Churchill Downs segment primarily due to the opening of Derby City Gaming in September 2018, and a $0.6 increase from All Other. Partially offsetting these increases was a $0.9$1.0 million decrease from other sources.
Our net income increased $174.7 million driven by an $11.2 million increase in operating income, a $168.3 million after tax gain on the Big Fish Transaction, and a $0.7 million increase from all other sources. Offsetting these increases was a $5.5 million decrease in Big Fish net income.
Our Adjusted EBITDA increased $12.9 million driven by a $9.0 million increase from Casino primarilyOnline Wagering segment due to organic growth from successful marketingcosts associated with online sports betting and promotional activities at certain properties and our unconsolidated investments, a $3.3 million increase at TwinSpires driven by the increase in handle, and a $0.6 million increase from other sources.iGaming.

Financial Results by Segment
Net Revenue by Segment
The following table presents net revenue for our operating segments, including intercompany revenue:
 Three Months Ended March, 31
(in millions)2018 2017 Change
Racing:     
Churchill Downs$2.3
 $2.6
 $(0.3)
Arlington9.5
 9.5
 
Fair Grounds13.8
 13.4
 0.4
Calder0.6
 0.6
 
Total Racing26.2
 26.1
 0.1
TwinSpires63.6
 52.3
 11.3
Casino:    

Oxford Casino24.2
 20.9
 3.3
Riverwalk Casino14.4
 11.5
 2.9
Harlow's Casino13.3
 13.5
 (0.2)
Calder Casino24.3
 21.4
 2.9
Fair Grounds Slots10.6
 10.2
 0.4
VSI11.0
 9.7
 1.3
Saratoga0.3
 0.3
 
Total Casino98.1
 87.5
 10.6
Other Investments5.5
 5.5
 
Eliminations(4.1) (3.9) (0.2)
Net Revenue$189.3
 $167.5
 $21.8
 Three Months Ended March 31,
(in millions)2019 2018 Change
Churchill Downs:     
Churchill Downs Racetrack$2.7
 $2.3
 $0.4
Derby City Gaming18.7
 
 18.7
Total Churchill Downs21.4
 2.3
 19.1
Online Wagering:     
TwinSpires63.3
 63.6
 (0.3)
Online Sports Betting and iGaming0.1
 
 0.1
Total Online Wagering63.4
 63.6
 (0.2)
Gaming:    

Fair Grounds and VSI38.8
 35.4
 3.4
Presque Isle29.7
 
 29.7
Calder25.4
 24.9
 0.5
Oxford23.9
 24.2
 (0.3)
Ocean Downs18.4
 
 18.4
Riverwalk16.3
 14.4
 1.9
Harlow's15.3
 13.3
 2.0
Lady Luck Nemacolin2.3
 
 2.3
Saratoga
 0.3
 (0.3)
Total Gaming170.1
 112.5
 57.6
All Other14.7
 15.0
 (0.3)
Eliminations(4.2) (4.1) (0.1)
Net Revenue$265.4
 $189.3
 $76.1
Three Months Ended March 31, 2018,2019, Compared to Three Months Ended March 31, 20172018
TwinSpiresChurchill Downs revenue increased $11.3$19.1 million primarily due to an $18.7 million increase from the opening of Derby City Gaming in September 2018 and a 20.2% handle growth,$0.4 million increase at Churchill Downs Racetrack.
Online Wagering revenue decreased $0.2 million. Active players grew 2.4% while net revenue per active player declined 3.3%. Handle grew 0.1% during the first quarter 2019 compared to the prior year, which outpaced the U.S. thoroughbred industry performance by 14.03.5 percentage points. Industry handle was down due to the shift in racing dates at Oaklawn from the first quarter of 2019 to the second quarter of 2019, the impact of inclement weather and Santa Anita race date cancellations in the first quarter 2019.
CasinoGaming revenue increased $10.6$57.6 million driven by a $3.3$29.7 million increase due to the Presque Isle Transaction in January 2019, an $18.4 million increase due to the consolidation of Ocean Downs as a result of the acquisition of the remaining 37.5% of Ocean Downs in August 2018, a $3.9 million increase from our Mississippi properties primarily due to the opening of our retail BetAmerica Sportsbook at both properties in August 2018, a $3.4 million increase at Oxford, a $2.9 million increase at Calder, a $2.7 million increase at our Mississippi properties,Fair Grounds and a $1.7 million increase at our Louisiana properties, all of which resulted fromVSI primarily due to two additional off-track betting and video poker facilities opening during 2018, successful marketing and promotional activities.

Additional Statistical Data by Segment
The following tables provide additional statistical data for our segments:activities, and increased handle, and a $2.3 million increase due to the Lady Luck Nemacolin Transaction. Partially offsetting these expenses was a $0.1 million decrease from other sources.
Racing and TwinSpires
 Three Months Ended March, 31
(in millions)2018 2017
Racing:   
Churchill Downs   
Race Days
 
Total handle$7.2
 $9.0
Net pari-mutuel revenue$1.6
 $1.8
Commission %22.2% 20.0%
Arlington   
Race Days
 
Total handle$56.1
 $58.0
Net pari-mutuel revenue$9.1
 $9.1
Commission %16.2% 15.7%
Fair Grounds   
Race Days54
 55
Total handle$146.5
 $136.7
Net pari-mutuel revenue$11.4
 $11.0
Commission %7.8% 8.0%
Total Racing   
Race Days54

55
Total handle$209.8
 $203.7
Net pari-mutuel revenue$22.1
 $21.9
Commission %10.5% 10.8%
TwinSpires (1)
   
Total handle$304.1
 $252.9
Net pari-mutuel revenue$56.3
 $47.0
Commission %18.5% 18.6%
Eliminations (2)
   
Total handle$(18.2) $(15.0)
Net pari-mutuel revenue$(2.4) $(0.8)
Total   
Handle$495.7
 $441.6
Net pari-mutuel revenue$76.0
 $68.1
Commission %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.


Casino Activity
Certain key operating statistics specific to the gaming industry are included in our statistical data for our 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 March, 31
(in millions)2018 2017
Oxford Casino   
Slot handle$222.1
 $186.2
Net slot revenue18.0
 15.7
Net gaming revenue22.7
 19.8
Riverwalk Casino   
Slot handle$178.6
 $131.0
Net slot revenue12.2
 9.8
Net gaming revenue13.7
 11.0
Harlow’s Casino   
Slot handle$148.8
 $147.6
Net slot revenue11.9
 11.8
Net gaming revenue12.7
 12.9
Calder Casino   
Slot handle$343.4
 $257.5
Net slot revenue23.3
 20.6
Net gaming revenue23.3
 20.5
Fair Grounds Slots and Video Poker   
Slot handle$116.5
 $116.7
Net slot revenue10.3
 10.0
Net gaming revenue21.2
 19.6
    
Total net gaming revenue$93.6
 $83.8


Consolidated Operating Expense
The following table is a summary of our consolidated operating expense:
Three Months Ended March, 31Three Months Ended March 31,
(in millions)2018 2017 Change2019 2018 Change
Taxes & purses$46.1
 $42.3
 $3.8
Taxes and purses$78.2
 $46.1
 $32.1
Salaries and benefits36.8
 27.4
 9.4
Content expense32.0
 25.8
 6.2
32.1
 32.1
 
Salaries & benefits27.4
 26.8
 0.6
Selling, general and administrative expense18.4
 18.6
 (0.2)24.9
 18.4
 6.5
Depreciation and amortization13.8
 14.2
 (0.4)20.8
 13.8
 7.0
Marketing & advertising4.7
 4.6
 0.1
Marketing and advertising7.2
 4.7
 2.5
Transaction expense, net1.4
 
 1.4
3.5
 1.4
 2.1
Calder exit costs
 0.4
 (0.4)
Other operating expense25.8
 26.3
 (0.5)33.9
 25.7
 8.2
Total expense$169.6
 $159.0
 $10.6
$237.4
 $169.6
 $67.8
Percent of net revenue90% 95%  89% 90%  
Three Months Ended March 31, 2018,2019, Compared to Three Months Ended March 31, 20172018
Significant items affecting comparability of consolidated operating expense include:
Taxes and purses increased $3.8$32.1 million driven by a $3.5$25.7 million increase generated byfrom our casinosGaming segment primarily associated with an increase in slot handlethe Presque Isle Transaction and the Lady Luck Nemacolin Transaction and Ocean Downs/Saratoga Transaction effective August 31, 2018, and a $0.3$6.4 million increase in other expenses.
Content expense increased $6.2 million driven by the 21.6% increase in net revenue for TwinSpires primarily duerelated to the increaseopening of Derby City Gaming in handle.September 2018.
Salaries and benefits expense increased $0.6$9.4 million driven primarily by additional personnel costs and related benefits from the Presque Isle Transaction and the Lady Luck Nemacolin Transaction, the Ocean Downs/Saratoga Transaction effective August 31, 2018, and the opening of Derby City Gaming in September 2018.
Selling, general and administrative expense increased $6.5 million primarily from an increase in salaries and related benefits.
Depreciation and amortization expense increased $7.0 million primarily driven by the Presque Isle Transaction and the Lady Luck Nemacolin Transaction, the Ocean Downs/Saratoga Transaction effective August 31, 2018, the opening of Derby City Gaming in September 2018, and capital expenditures placed into service for Churchill Downs Racetrack.
Marketing and advertising expense increased $2.5 million primarily from the opening of Derby City Gaming in September 2018, the Presque Isle Transaction and Lady Luck Nemacolin Transaction, the Ocean Downs/Saratoga Transaction, and start-up related costs for our online sports betting and iGaming operations.
Transaction expense, net increased $1.4$2.1 million primarily due to the Presque Isle Transaction in January 2019.
Other operating expenses include maintenance, utilities, food and beverage costs, property taxes and insurance and other operating expenses. Other operating expense increased $8.2 million primarily driven by the announced acquisitions of Presque Isle Transaction and the Lady Luck Vicksburg.
Corporate Allocated Expense
The table below presents Corporate allocated expense includedNemacolin Transaction, the opening of Derby City Gaming in September 2018, the Adjusted EBITDA of each of the operating segments, excluding corporate stock-based compensation:
 Three Months Ended March, 31
(in millions)2018 2017 Change
Racing$(1.5) $(1.4) $(0.1)
TwinSpires(1.4) (1.2) (0.2)
Casino(2.0) (1.7) (0.3)
Other Investments(0.3) (0.3) 
Corporate allocated expense5.2
 4.6
 0.6
Total Corporate allocated expense$
 $
 $
Ocean Downs/Saratoga Transaction effective August 31, 2018, and platform expense.
Adjusted EBITDA
We believe that the use of adjustedAdjusted EBITDA as a key performance measure of the results of operations enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner. Adjusted EBITDA is a supplemental measure of our performance that is not required by or presented in accordance with GAAP. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (as determined in accordance with GAAP) as a measure of our operating results.
The Company has not allocated corporate and other certain expenses to Big Fish Games consistent with the discontinued operations presentation in the accompanying Consolidated Statements of Comprehensive Income. Accordingly, the prior year amounts were reclassified to conform to this presentation.

 Three Months Ended March, 31
(in millions)2018 2017 Change
Racing$(9.4) $(9.7) $0.3
TwinSpires16.5
 13.2
 3.3
Casino44.3
 35.3
 9.0
Other Investments0.3
 0.6
 (0.3)
Corporate(a) 
(2.5) (3.1) 0.6
Adjusted EBITDA$49.2
 $36.3
 $12.9
 Three Months Ended March 31,
(in millions)2019 2018 Change
Churchill Downs$1.4
 $(6.0) $7.4
Online Wagering16.9
 17.9
 (1.0)
Gaming64.8
 46.4
 18.4
Total Segment Adjusted EBITDA83.1
 58.3
 24.8
All Other(8.5) (9.1) 0.6
Total Adjusted EBITDA$74.6
 $49.2
 $25.4
(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 March 31, 2018,2019, Compared to Three Months Ended March 31, 20172018
TwinSpires adjustedChurchill Downs Adjusted EBITDA increased $3.3$7.4 million due to the opening of Derby City Gaming in September 2018.
Online Wagering Adjusted EBITDA decreased $1.0 million driven by our online sports betting and iGaming operations, which launched during the 20.2% handle growth.first quarter of 2019 in New Jersey.
Casino adjustedGaming Adjusted EBITDA increased $9.0$18.4 million driven by a $7.8$13.1 million increase from the equity investment in Midwest Gaming in March 2019, the Presque Isle Transaction in January 2019 and the Lady Luck Nemacolin Transaction in March 2019; a $2.4 million increase from our wholly-owned CasinoMississippi properties includingprimarily due to the opening of our retail BetAmerica Sportsbook at both properties in August 2018; a $3.4$1.8 million increase atfrom our Mississippi properties,Fair Grounds and VSI primarily due to two additional off-track betting and video poker facilities opening during 2018; a $2.1$1.0 million increase at Calder, a $1.3 million increase at Oxford,from Ocean Downs due to VLT performance; and a $1.0 million increase from our equity investment at our Louisiana properties, all of which wereMVG. Partially offsetting these increases was a $0.5 million decrease at Calder due to successful marketingfavorable insurance reserve adjustments in the prior year quarter that did not recur in 2019 and promotional activities. Our unconsolidated investments also contributed $1.2an increase in professional and legal fees and a $0.4 million of the increase,decrease at Oxford primarily due to strong performance from Ocean Downs and MVG.inclement weather.
Corporate adjusted EBITDA increased $0.6 million driven by the allocation of certain corporate and other expenses to preopening costs.
Reconciliation of Comprehensive Income to Adjusted EBITDA
Three Months Ended March, 31Three Months Ended March 31,
(in millions)2018 2017 Change2019 2018 Change
Comprehensive income$182.0
 $7.2
 $174.8
$11.6
 $182.4
 $(170.8)
Foreign currency translation, net of tax
 0.1
 (0.1)
 (0.6) 0.6
Change in pension benefits, net of tax
 0.2
 (0.2)
Net income182.0
 7.3
 174.7
11.6
 182.0
 (170.4)
Income from discontinued operations, net of tax(167.9) (5.1) (162.8)
Loss (income) from discontinued operations, net of tax0.3
 (167.9) 168.2
Income from continuing operations, net of tax14.1
 2.2
 11.9
11.9
 14.1
 (2.2)
          
Additions:          
Depreciation and amortization13.8
 14.2
 (0.4)20.8
 13.8
 7.0
Interest expense9.6
 11.8
 (2.2)13.7
 9.6
 4.1
Income tax provision2.6
 0.6
 2.0
6.5
 2.6
 3.9
EBITDA$40.1
 $28.8
 $11.3
$52.9
 $40.1
 $12.8
          
Adjustments to EBITDA:          
Selling, general and administrative:          
Stock-based compensation expense$2.8
 $3.4
 $(0.6)$4.7
 $2.8
 $1.9
Other charges
 0.2
 (0.2)0.5
 
 0.5
Pre-opening expense0.6
 
 0.6
1.3
 0.6
 0.7
Other income (expense):    

    

Interest, depreciation and amortization expense related to equity investments4.3
 3.5
 0.8
3.5
 4.3
 (0.8)
Recapitalization costs related to Midwest Gaming8.2
 
 8.2
Transaction expense, net1.4
 
 1.4
3.5
 1.4
 2.1
Calder exit costs
 0.4
 (0.4)
Total adjustments to EBITDA9.1
 7.5
 1.6
21.7

9.1
 12.6
Adjusted EBITDA$49.2
 $36.3
 $12.9
$74.6
 $49.2
 $25.4

Consolidated Balance Sheet
The following table is a summary of our overall financial position:
(in millions)March 31, 2018 December 31, 2017 ChangeMarch 31, 2019 December 31, 2018 Change
Total assets$1,601.0
 $2,359.4
 $(758.4)$2,478.5
 $1,725.2
 $753.3
Total liabilities$1,257.4
 $1,719.1
 $(461.7)$2,021.6
 $1,251.9
 $769.7
Total shareholders' equity$343.6
 $640.3
 $(296.7)$456.9
 $473.3
 $(16.4)
Significant items affecting the comparability of our condensed consolidated balance sheets include:
Total assets decreased $758.4increased $753.3 million driven by an $823.4a $517.6 million decreaseincrease in long-term assets of discontinued operations held for saleinvestments and a $69.1 million decrease in current assets of discontinued operations held for sale dueadvances to the Big Fish Transaction, a $35.6 million decrease in income tax receivableunconsolidated affiliates due to our current year income tax provision, andequity investment in Midwest Gaming, 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$109.0 million increase in property and equipment, net due to our capital projectthe Presque Isle Transaction and maintenance expenditures partially offset by depreciation expense,the implementation of ASC 842, an $81.0 million increase in other intangibles and a $6.8$25.8 million increase in goodwill both of which were due to the Presque Isle Transaction, an $18.7 million increase in accounts receivable, net primarily due to an increase in simulcast receivables, and a $1.2 million increase in all other assets.
Total liabilities decreased $461.7increased $769.7 million driven by a $242.6$591.3 million decreaseincrease in long-term debt,notes payable, net of maturitiesdebt issuance costs due to the issuance of the 2027 Senior Notes (as defined below), a $115.8 million increase in deferred income taxes due primarily to our equity investment in Midwest Gaming, a $48.9 million increase in deferred revenue due to advanced sales associated with the 2019 Kentucky Derby and loan origination feesOaks, a $22.4 million increase in other liabilities primarily due to the payoffadoption of our 2014 revolving credit facility, a $188.2 million decrease in current liabilities of discontinued operations held for saleASC 842, and a $54.8$13.8 million decreaseincrease in non-current liabilities of discontinued operations held for sale due to the Big Fish Transaction, andall other liabilities. Partially offsetting these increases was a $23.7$22.5 million decrease in dividends payable due to the payment of our annual dividends. Partially offsetting these decreases were a $21.4 million increasedividends in income tax payable due to our current year income tax provision, a $20.6 million increase in current deferred revenue primarily due to the adoption of ASC 606, and a $5.6 million increase in all other liabilities.January 2019.

Total shareholders’ equity decreased $296.7$16.4 million driven by $514.4$32.6 million in repurchases of common 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 $182.0 million inpartially offset by current year net income a $29.1of $11.6 million, increase as a result of the adoption of ASC 606, and an increase of $6.6$4.6 million related to other sources.
Liquidity and Capital Resources
The following table is a summary of our liquidity and cash flows:
(in millions)Three Months Ended March, 31Three Months Ended March 31,
Cash flows from:2018 2017 Change2019 2018 Change
Operating activities$55.9
 $65.3
 $(9.4)$70.3
 $55.9
 $14.4
Investing activities$936.7
 $(51.4) $988.1
$(619.1) $936.7
 $(1,555.8)
Financing activities$(843.8) $(17.0) $(826.8)$532.9
 $(843.8) $1,376.7
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.
Three Months Ended March 31, 2018,2019, Compared to the Three Months Ended March 31, 20172018
Cash provided by operating activities decreased $9.4increased $14.4 million driven by a $6.6$10.4 million decreaseincrease in current deferred revenue primarily as a result of the timing of payments related to the Kentucky Derby and Oaks events and a $2.8$4.0 million decreaseincrease from all other sources.operating activities.
Cash provided byused in investing activities increased $988.1$1,555.8 million driven by a $970.7 million increasedecrease in cash proceeds related to the Big Fish Transaction, a $24.0$409.8 million increase in investment in and advances to unconsolidated affiliates related to the January 2017our equity investment in Ocean DownsMidwest Gaming, a $171.3 million increase due to the Presque Isle Transaction, and a $3.5$4.0 million increase in cash used in all other investing activities. Partially offsetting these increases was a $10.1 million decrease in receivable from escrow related to the Calder land sale from the fourth quarter of 2016.
Cash used inprovided by financing activities increased $826.8$1,376.7 million primarily driven by a $505.8$600.0 million increase primarily related tofrom the issuance of our 2027 Senior Notes, a $480.3 million decrease in share repurchases, under our "modified Dutch auction" tender offer completed on February 12, 2018, a $289.4$242.0 million

increase in net borrowings and repayments relatedrelating to our credit agreements,2017 Credit Agreement (as defined below), a $26.4 million increase$58.2 decrease as a result of the 2016 Big Fish Games deferred payment and earnout payments, partially offset by a $5.2$3.8 million increasedecrease from all other financing activities.
Credit Facilities and Indebtedness
The following table presents our debt outstanding and debt issuance costs:
(in millions)March 31, 2018 December 31, 2017 ChangeMarch 31, 2019 December 31, 2018 Change
2017 Credit Agreement:
 
 
Term Loan B due 2024$399.0
 $400.0
 $(1.0)$395.0
 $396.0
 $(1.0)
Revolving Credit Facility
 239.0
 (239.0)
Swing line of credit
 3.0
 (3.0)
Total 2017 Credit Agreement399.0
 642.0
 (243.0)
2027 Senior Notes600.0
 
 600.0
2028 Senior Notes500.0
 500.0
 
500.0
 500.0
 
Total debt899.0
 1,142.0
 (243.0)1,495.0
 896.0
 599.0
Current maturities of long-term debt4.0
 4.0
 
4.0
 4.0
 
Total debt, net of current maturities895.0
 1,138.0
 (243.0)1,491.0
 892.0
 599.0
Issuance Cost and Fees(12.4) (12.8) 0.4
Issuance cost and fees(20.2) (11.7) (8.5)
Total debt, net of current maturities$882.6
 $1,125.2
 $(242.6)$1,470.8
 $880.3
 $590.5
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 Agreement. The 2017 Credit Agreement provides a $700.0 million revolving credit facility (the "Revolver") and a $400.0 million Senior Secured Term Loan B (collectively,(the "Term Loan B" and together with the Revolver, the "2017 Credit Agreement"). 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 of the assets of the Company.
The Revolver bears interest at LIBOR plus a spread as determined by the Company's consolidated total net leverage ratio and the Term Loan B bears interest at LIBOR plus 200 basis points.

The 2017 Credit Agreement contains certain customary affirmative and negative covenants, which include limitations on liens, investments, indebtedness, dispositions, mergers and acquisitions, the making of restricted payments, changes in the nature of business, changes in fiscal year, and transactions with affiliates. The 2017 Credit Agreement also contains financial covenants providing for the maintenance of a maximum consolidated secured net leverage ratio and maintenance of a minimum consolidated interest coverage ratio. The Company was in compliance with all applicable covenants in the 2017 Credit Agreement at March 31, 2018.2019. At March 31, 2018,2019, the financial ratios under our 2017 Credit Agreement were as follows:
 Actual Requirement
Interest Coverage Ratiocoverage ratio5.78.3 to 1.0 > 2.5 to 1.0
Consolidated total secured net leverage ratio1.00.6 to 1.0 < 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, 2018,2019, the Company's commitment fee rate was 0.25%0.20%.
As a result of the Company's 2017 Credit Agreement, the Company capitalized $1.6$2.0 million of debt issuance costs associated with the Revolver which will be amortized as interest expense over the next 5 years. The Company also capitalized $5.1$5.4 million of deferred financing costs associated with the Term Loan B which will be amortized as interest expense over the next 7 years.
2027 Senior Notes
On March 25, 2019, we completed an offering of $600.0 million in aggregate principal amount of 5.50% Senior Unsecured Notes that mature on April 1, 2027 (the "2027 Senior Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the 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 2027 Senior Notes were issued at par, with interest payable on April 1st and October 1st of each year, commencing on October 1, 2019. The Company used the net proceeds from the offering to repay our outstanding balance on the Revolver portion of our 2017 Credit Agreement. In connection with the offering, we capitalized $9.0 million of debt issuance costs which are being amortized as interest expense over the term of the 2027 Senior Notes.
The 2027 Senior Notes were issued pursuant to an indenture, dated March 25, 2019 (the "2027 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 2027 Senior Notes at any time prior to April 1, 2022, at a price equal to 100% of the principal amount of the 2027 Senior Notes redeemed plus an applicable make-whole premium. On or after such date, the Company may redeem some or all of the 2027 Senior Notes at redemption prices set forth in the 2027 Indenture. In addition, at any time prior to April 1, 2022, the Company may redeem up to 40% of the aggregate principal amount of the 2027 Senior Notes at a redemption price equal to 105.50% of the principal amount thereof with the net cash proceeds of one or more equity offerings provided that certain conditions are met. The terms of the 2027 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 other entities; and (viii) enter into transactions with affiliates.
In connection with the issuance of the 2027 Senior Notes, the Company and the Guarantors entered into a Registration Rights Agreement to register any 2027 Senior Notes under the Securities Act for resale that are not freely tradable 366 days from March 25, 2019.
2028 Senior Notes
On December 27, 2017, we completed an offering of $500.0 million in aggregate principal amount of 4.75% Senior Unsecured Notes that mature on January 15, 2028 (the "2028 Senior Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the 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 2028 Senior Notes were issued at par, with interest

payable on January 15th and July 15th of each year, commencing on July 15, 2018. The Company used the net proceeds from the offering to repay a portion of our $600.0 million 5.375% Senior Unsecured Notes. In connection with the offering, we capitalized $7.7 million of debt issuance costs which are being amortized as interest expense over the term of the 2028 Senior 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 or after such date the Company may redeem some or all of the 2028 Senior Notes at redemption prices set forth in the 2028 Indenture. In addition, at any time prior to January 15, 2021, the Company may redeem up to 40% of the aggregate principal amount of the 2028 Senior Notes at a redemption

price equal to 104.75% of the principal amount thereof with the net cash proceeds of one or more equity offerings provided that certain conditions are met. The terms of the 2028 Indenture, among other things, limit the ability of the Company to: (i) incur additional debt and issue preferred stock; (ii) pay dividends or make other restricted payments; (iii) make certain investments; (iv) create liens; (v) allow restrictions on the ability of certain of our subsidiaries to pay dividends or make other payments; (vi) sell assets; (vii) merge or consolidate with other entities; and (viii) and enter into transactions with affiliates.
In connection with the issuance of the 2028 Senior Notes, the Company and the Guarantors entered into a Registration Rights Agreement to register any 2028 Senior Notes under the Securities Act for resale that are not freely tradable 366 days from December 27, 2017.
Contractual Obligations
Our commitments to make future payments as of March 31, 2018,2019, are estimated as follows:
(in millions)April 1 to December 31, 2018 2019-2020 2021-2022 Thereafter TotalApril 1 to December 31, 2019 2020-2021 2022-2023 Thereafter Total
Term Loan B$3.0
 $8.0
 $8.0
 $380.0
 $399.0
$3.0
 $8.0
 $8.0
 $376.0
 $395.0
Interest on Term Loan B(1)
11.8
 30.9
 30.3
 29.5
 102.5
13.5
 35.5
 34.7
 17.0
 100.7
Senior Unsecured Notes
 
 
 500.0
 500.0
2027 Senior Notes
 
 
 600.0
 600.0
2028 Senior Notes
 
 
 500.0
 500.0
Interest on 2027 Senior Notes17.1
 66.0
 66.0
 115.5
 264.6
Interest on 2028 Senior Notes24.0
 47.5
 47.5
 119.7
 238.7
11.9
 47.5
 47.5
 106.9
 213.8
Operating leases3.9
 8.1
 5.3
 3.2
 20.5
4.1
 9.2
 6.3
 11.2
 30.8
Total$42.7
 $94.5
 $91.1
 $1,032.4
 $1,260.7
$49.6
 $166.2
 $162.5
 $1,726.6
 $2,104.9
(1)Interest includes the estimated contractual payments under our 2017 Credit Agreement assuming no change in the weighted average borrowing rate of 3.88%4.50% which was the rate in place as of March 31, 2018.2019.
As of March 31, 2018,2019, we had approximately $3.0$2.8 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; and
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/or may impact our customers’ ability to wager with the same frequency and to maintain wagering levels.
Interest rate and credit risk
Our primary exposure to market risk relates to changes in interest rates. At March 31, 2018,2019, we had $399.0$395.0 million outstanding under our 2017 Credit 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 LIBORour variable rate would reduce net income and cash flows from operating activities by $7.6$2.6 million.

Foreign currency exchange risk
Our exposure to foreign currency exchange risk historically was related to Big Fish Games. As a result of the 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 March 31, 2018.2019. 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 Annual Report on Form 10-K for the year ended December 31, 2017,2018, 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. Refer to Note 15, Contingencies, to our condensed consolidated financial statements, for further information.
Kater Class Action Suit
On April 17, 2015, a purported class action styled Cheryl Kater v. Churchill Downs Incorporated (the “Kater litigation”"Kater litigation") was filed in the United States District Court for the Western District of Washington (the "District Court") alleging, among other claims, that the Company’s “Big"Big Fish Casino”Casino" operated by the Company’s then-wholly owned mobile gaming subsidiary Big Fish Games violated Washington law, including the Washington Consumer Protection Act, by facilitating unlawful gambling through its virtual casino games (namely the slots, blackjack, poker, and roulette games offered through Big Fish Casino), and seeking among other things, return of monies lost, reasonable attorney’s fees, treble damages, and injunctive relief. On November 19, 2015, the District Court dismissed the case with prejudice and, on December 7, 2015, Plaintiff’s motion for reconsideration was denied. Plaintiff filed a notice of appeal on January 5, 2016 to the United States Court of Appeals for the Ninth Circuit.
As previously disclosed, on January 9, 2018, the Company sold Big Fish Games to the PurchaserAristocrat Technologies, Inc., a Nevada corporation (the "Purchaser"), an indirect, wholly owned subsidiary of Aristocrat Leisure Limited, an Australian corporation, pursuant to the Stock Purchase Agreement, dated as of November 29, 2017, by and among the Company, Big Fish Games and the Purchaser. Pursuant to the terms of the Stock Purchase Agreement, the Company agreed to indemnify the Purchaser for the losses and expenses associated with the Kater litigation for Big Fish Games, which is referred to in the Stock Purchase Agreement as the “Primary"Primary Specified Litigation."
On February 6, 2018, oral arguments on Plaintiff’s appeal of the dismissal of the Kater litigation took place before the United States Court of Appeals for the Ninth Circuit. On March 28, 2018, the United States Court of Appeals for the Ninth Circuit reversed and remanded the District Court’s dismissal of the complaint against the Company. On June 12, 2018, the United States Court of Appeals for the Ninth Circuit denied the Company’s Petition for Rehearing En Banc filed by the Company on May 11, 2018. On July 13, 2018, the parties filed a Joint Status Report and Discovery Plan in the District Court. On July 20, 2018, the Company filed a Motion to Compel Arbitration in the District Court, which was denied on November 2, 2018. The Company filed an Answer to Plaintiff's Complaint on November 16, 2018. On February 19, 2019, the Company filed a Motion for Joinder of Big Fish Games, Inc. as a Necessary Party. However, that motion was later voluntarily dismissed after the parties filed a Stipulated Motion permitting Plaintiff to file a First Amended Class Action Complaint, which was filed on March 20, 2019.
In accordance with the terms of the Stock Purchase Agreement, the Company is working closely with the Purchaser to vigorously defend this matter in both the District Court and in any further appellate proceedings, and the Company believes that there are meritorious legal and factual defenses against Plaintiff’s allegations and requests for relief.
James Rivera, et al. v. Calder Race Course, Inc., et al.
On March 1, 2013, James Rivera, individually and by and through his wife and their children (the "Plaintiffs"), filed a First Amended Complaint for Damages (as amended from time to time) styled James Rivera, et al. v. Calder Race Course, Inc., et al. in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida stemming from a spinal cord injury to Mr. Rivera when the horse he was exercising collapsed and died during a workout at Calder Racing on November 25, 2008. The Plaintiffs seek recovery of compensatory and punitive damages, interest and costs from Calder Racing in connection with the injuries suffered by Mr. Rivera, but no specific amount of damages. The case has been set for trial in September 2019. The Company is vigorously defending this matter and believes that there are meritorious legal and factual defenses against Plaintiff’s allegations and requests for relief.
Kentucky Downs, LLC, et al. v. Commonwealth of Kentucky, Public Protection Cabinet, Kentucky Horse Racing Commission, et al.
On January 4, 2019, Kentucky Downs, LLC and Kentucky Racing Acquisition, LLC (collectively, "Petitioners") filed a Petition for Review and Appeal of Approval of WKY Development, LLC License Application and Denial of Kentucky Downs, LLC License Application styled Kentucky Downs, LLC, et al. v. Commonwealth of Kentucky, Public Protection Cabinet, Kentucky Horse Racing Commission, et al. in the Franklin Circuit Court, Commonwealth of Kentucky.  Petitioners are appealing the vote of the Kentucky Horse Racing Commission, which awarded WKY Development, LLC, our joint venture with Keeneland, a license to conduct live racing and pari-mutuel wagering in Christian County, Kentucky and denied Petitioners’ application for a license to conduct live racing and pari-mutuel wagering in Christian County, Kentucky.  WKY Development, LLC is a joint venture owned 95% by the Company and 5% by Keeneland.  The Company is vigorously defending this matter and believes that there are

meritorious legal and factual defenses against Petitioners’ allegations and requests for relief. On March 29, 2019, WKY Development, LLC filed an Answer to the Petition for Review and Appeal.
Louisiana Environmental Protection Agency Non-Compliance Issue
On December 6, 2013, we received a notice from the EPA regarding alleged CAFO non-compliance at Fair Grounds. We continue to have discussions with the EPA to resolve the matter. We have established an accrual pursuant to GAAP for an immaterial amount for our expected future liability with respect to a potential penalty we may eventually be required to pay.
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, 2017.2018.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Common Stock
The following table provides information with respect to shares of common stock that we repurchased during the quarter ended March 31, 2018:2019:
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
 

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)
1/1/19-1/31/19 95,731

$87.23
 90,252
 $260.1
2/1/19-2/28/19 147,027

95.21
 73,273
 253.2
3/1/19-3/31/19 118,891

86.07
 118,891
 243.0
Total 361,649
 $90.09
 282,416
 

(1)On April 25, 2017,October 30, 2018, the Board of Directors of the Company approved a new common stock repurchase program of up to $300.0 million. The new program replaces the prior $250.0 million program that was authorized in April 2017 and had unused authorization of $78.3 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 March 31, 2018.

EXHIBIT INDEX
Number Description By Reference To
     
 Separation AgreementAmended and Release, dated asRestated Articles of January 9, 2018 by and amongIncorporation of Churchill Downs Incorporated, Big Fish Games, Inc.as amended and Paul Thelenrestated on January 25, 2019 Exhibit 10.13.2 to Current Report on Form 8-K (Commission file number 001-33998) filed January 9, 201817, 2019
     
 Indenture, dated as of March 25, 2019, by and among Churchill Downs Incorporated, the guarantors party thereto and U.S. Bank National AssociationExhibit 4.1 to Current Report on Form 8-K (Commission file number 001-33998) filed March 26, 2019
Registration Rights Agreement, dated as of March 25, 2019, by and among Churchill Downs Incorporated, the guarantors party thereto and J.P. Morgan Securities LLCExhibit 4.2 to Current Report on Form 8-K (Commission file number 001-33998) filed March 26, 2019
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*  
     
   
     
   
     
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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, 201824, 2019/s/ William C. Carstanjen
 William C. Carstanjen
 Chief Executive Officer
 (Principal Executive Officer)
  
  
  
April 25, 201824, 2019/s/ Marcia A. Dall
 Marcia A. Dall
 Executive Vice President and Chief Financial Officer
 (Principal Financial and Accounting Officer)
 


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