Exhibit 99.1
CHURCHILL DOWNS INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial information and related notes are based upon and should be read in conjunction with the historical consolidated financial statements and related notes of Churchill Downs Incorporated (the "Company") included in the Company’s Form 10-Q for the period ended September 30, 2017 and Form 10-K for the year ended December 31, 2016.
On November 29, 2017, the Company announced that it had entered into a definitive agreement (the "Purchase Agreement") to sell its mobile gaming subsidiary, Big Fish Games, Inc. ("Big Fish") to Aristocrat Technologies, Inc. ("Aristocrat"), an indirect, wholly owned subsidiary of Aristocrat Leisure Limited, an Australian corporation, in an all-cash deal for US$990 million to be paid at closing (subject to adjustment at closing for working capital and indebtedness and certain other adjustments as set forth in the Purchase Agreement) (the "Transaction").
The unaudited pro forma condensed consolidated statements of income for the nine months ended September 30, 2017, and the years ended December 31, 2016, 2015 and 2014 give effect to the Transaction as if it were consummated on January 1, 2014.
The unaudited pro forma condensed consolidated balance sheet presents the financial position of the Company as if the Transaction was consummated on September 30, 2017.
The unaudited pro forma condensed consolidated financial information has been prepared based upon currently available information and assumptions that are deemed appropriate by the Company’s management. The pro forma information is for informational purposes only and is not intended to be indicative of what actual results would have been, nor does such data purport to represent the consolidated financial results of the Company for future periods. The pro forma adjustments are described in the accompanying notes to the unaudited pro forma condensed consolidated financial information.
The unaudited pro forma condensed consolidated financial information of the Company are prepared in accordance with Article 11 of Regulation S-X.
CHURCHILL DOWNS INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017
(Unaudited)
|
| | | | | | | | | | | |
| (in millions, except per common share data) | As Reported
(a) | | Pro Forma Adjustments | | Pro Forma |
| Net revenue: | | | | | |
| Racing | $ | 228.0 |
| | $ | — |
| | $ | 228.0 |
|
| Casinos | 263.3 |
| | — |
| | 263.3 |
|
| TwinSpires | 198.4 |
| | — |
| | 198.4 |
|
| Big Fish Games | 342.5 |
| | (342.5 | ) | (b) | — |
|
| Other Investments | 14.0 |
| | — |
| | 14.0 |
|
| Total net revenue | 1,046.2 |
| | (342.5 | ) | | 703.7 |
|
| Operating expense: | | | | | |
| Racing | 153.7 |
| | — |
| | 153.7 |
|
| Casinos | 185.5 |
| | — |
| | 185.5 |
|
| TwinSpires | 130.6 |
| | — |
| | 130.6 |
|
| Big Fish Games | 271.5 |
| | (271.5 | ) | (b) | — |
|
| Other Investments | 13.1 |
| | — |
| | 13.1 |
|
| Corporate | 1.8 |
| | (0.3 | ) | (b) | 1.5 |
|
| Selling, general and administrative expense | 77.6 |
| | (18.4 | ) | (b) | 59.2 |
|
| Research and development | 29.9 |
| | (29.9 | ) | (b) | — |
|
| Calder exit costs | 0.8 |
| | — |
| | 0.8 |
|
| Acquisition expense, net | 1.7 |
| | (0.6 | ) | (b) | 1.1 |
|
| Total operating expense | 866.2 |
| | (320.7 | ) | | 545.5 |
|
| Operating income | 180.0 |
| | (21.8 | ) | | 158.2 |
|
| Other income (expense): | | | | | |
| Interest expense | (36.0 | ) | | — |
| | (36.0 | ) |
| Equity in income of unconsolidated investments | 22.7 |
| | — |
| | 22.7 |
|
| Miscellaneous, net | (0.8 | ) | | 1.6 |
| (b) | 0.8 |
|
| Total other income (expense) | (14.1 | ) | | 1.6 |
| | (12.5 | ) |
| Income from operations before provision for income taxes | 165.9 |
| | (20.2 | ) | | 145.7 |
|
| Income tax provision | (63.6 | ) | | 7.5 |
| (c) | (56.1 | ) |
| Net income | $ | 102.3 |
| | $ | (12.7 | ) | | $ | 89.6 |
|
| | | | | | |
| Net income per common share data: | | | | | |
| Basic net income | $ | 6.43 |
| | | | $ | 5.63 |
|
| Diluted net income | $ | 6.32 |
| | | | $ | 5.54 |
|
| | | | | | |
| Weighted average shares outstanding: | | | | | |
| Basic | 15.9 |
| | | | 15.9 |
|
| Diluted | 16.2 |
| | | | 16.2 |
|
See accompanying notes to unaudited pro forma condensed consolidated financial information.
CHURCHILL DOWNS INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2016
(Unaudited)
|
| | | | | | | | | | | |
| (in millions, except per common share data) | As Reported
(a) | | Pro Forma Adjustments | | Pro Forma |
| Net revenue: | | | | | |
| Racing | $ | 251.1 |
| | $ | — |
| | $ | 251.1 |
|
| Casinos | 332.8 |
| | — |
| | 332.8 |
|
| TwinSpires | 220.6 |
| | — |
| | 220.6 |
|
| Big Fish Games | 486.2 |
| | (486.2 | ) | (b) | — |
|
| Other Investments | 16.9 |
| | — |
| | 16.9 |
|
| Corporate | 1.0 |
| | — |
| | 1.0 |
|
| Total net revenue | 1,308.6 |
| | (486.2 | ) | | 822.4 |
|
| Operating expense: | | | | | |
| Racing | 187.7 |
| | — |
| | 187.7 |
|
| Casinos | 241.3 |
| | — |
| | 241.3 |
|
| TwinSpires | 146.7 |
| | — |
| | 146.7 |
|
| Big Fish Games | 398.9 |
| | (398.9 | ) | (b) | — |
|
| Other Investments | 16.5 |
| | — |
| | 16.5 |
|
| Corporate | 1.9 |
| | (0.3 | ) | (b) | 1.6 |
|
| Selling, general and administrative expense | 100.2 |
| | (20.8 | ) | (b) | 79.4 |
|
| Research and development | 39.0 |
| | (39.0 | ) | (b) | — |
|
| Gain on Calder land sale | (23.7 | ) | | — |
| | (23.7 | ) |
| Calder exit costs | 2.5 |
| | — |
| | 2.5 |
|
| Acquisition expense, net | 3.4 |
| | (5.8 | ) | (b) | (2.4 | ) |
| Total operating expense | 1,114.4 |
| | (464.8 | ) | | 649.6 |
|
| Operating income | 194.2 |
| | (21.4 | ) | | 172.8 |
|
| Other income (expense): | | | | | |
| Interest expense | (43.7 | ) | | — |
| | (43.7 | ) |
| Equity in income of unconsolidated investments | 17.4 |
| | — |
| | 17.4 |
|
| Miscellaneous, net | 0.2 |
| | 0.9 |
| (b) | 1.1 |
|
| Total other income (expense) | (26.1 | ) | | 0.9 |
| | (25.2 | ) |
| Income from operations before provision for income taxes | 168.1 |
| | (20.5 | ) | | 147.6 |
|
| Income tax provision | (60.0 | ) | | 7.5 |
| (c) | (52.5 | ) |
| Net income | $ | 108.1 |
| | $ | (13.0 | ) | | $ | 95.1 |
|
| | | | | | |
| Net income per common share data: | | | | | |
| Basic net income | $ | 6.52 |
| | | | $ | 5.73 |
|
| Diluted net income | $ | 6.42 |
| | | | $ | 5.66 |
|
| | | | | | |
| Weighted average shares outstanding: | | | | | |
| Basic | 16.4 |
| | | | 16.4 |
|
| Diluted | 16.8 |
| | | | 16.8 |
|
See accompanying notes to unaudited pro forma condensed consolidated financial information.
CHURCHILL DOWNS INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2015
(Unaudited)
|
| | | | | | | | | | | |
| (in millions, except per common share data) | As Reported
(a) | | Pro Forma Adjustments | | Pro Forma |
| Net revenue: | | | | | |
| Racing | $ | 248.0 |
| | $ | — |
| | $ | 248.0 |
|
| Casinos | 332.9 |
| | — |
| | 332.9 |
|
| TwinSpires | 200.2 |
| | — |
| | 200.2 |
|
| Big Fish Games | 413.7 |
| | (413.7 | ) | (b) | — |
|
| Other Investments | 16.6 |
| | — |
| | 16.6 |
|
| Corporate | 0.9 |
| | — |
| | 0.9 |
|
| Total net revenue | 1,212.3 |
| | (413.7 | ) | | 798.6 |
|
| Operating expense: | | | | | |
| Racing | 189.9 |
| | — |
| | 189.9 |
|
| Casinos | 241.1 |
| | — |
| | 241.1 |
|
| TwinSpires | 135.4 |
| | — |
| | 135.4 |
|
| Big Fish Games | 340.1 |
| | (340.1 | ) | (b) | — |
|
| Other Investments | 16.3 |
| | — |
| | 16.3 |
|
| Corporate | 0.1 |
| | — |
| | 0.1 |
|
| Selling, general and administrative expense | 90.8 |
| | (15.2 | ) | (b) | 75.6 |
|
| Research and development | 39.4 |
| | (39.4 | ) | (b) | — |
|
| Calder exit costs | 13.9 |
| | — |
| | 13.9 |
|
| Acquisition expense, net | 21.7 |
| | (21.7 | ) | (b) | — |
|
| Total operating expense | 1,088.7 |
| | (416.4 | ) | | 672.3 |
|
| Operating income | 123.6 |
| | 2.7 |
| | 126.3 |
|
| Other income (expense): | | | | | |
| Interest expense | (28.6 | ) | | — |
| | (28.6 | ) |
| Equity in income of unconsolidated investments | 11.2 |
| | — |
| | 11.2 |
|
| Miscellaneous, net | 5.9 |
| | 0.6 |
| (b) | 6.5 |
|
| Total other income (expense) | (11.5 | ) | | 0.6 |
| | (10.9 | ) |
| Income from operations before provision for income taxes | 112.1 |
| | 3.3 |
| | 115.4 |
|
| Income tax provision | (46.9 | ) | | (1.2 | ) | (c) | (48.1 | ) |
| Net income | $ | 65.2 |
| | $ | 2.1 |
| | $ | 67.3 |
|
| | | | | | |
| Net income per common share data: | | | | | |
| Basic net income | $ | 3.75 |
| | | | $ | 3.87 |
|
| Diluted net income | $ | 3.71 |
| | | | $ | 3.83 |
|
| | | | | | |
| Weighted average shares outstanding: | | | | | |
| Basic | 17.2 |
| | | | 17.2 |
|
| Diluted | 17.6 |
| | | | 17.6 |
|
See accompanying notes to unaudited pro forma condensed consolidated financial information.
CHURCHILL DOWNS INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2014
(Unaudited)
|
| | | | | | | | | | | |
| (in millions, except per common share data) | As Reported
(a) | | Pro Forma Adjustments | | Pro Forma |
| Net revenue: | | | | | |
| Racing | $ | 261.4 |
| | $ | — |
| | $ | 261.4 |
|
| Casinos | 328.3 |
| | — |
| | 328.3 |
|
| TwinSpires | 191.0 |
| | — |
| | 191.0 |
|
| Big Fish Games | 13.9 |
| | (13.9 | ) | (b) | — |
|
| Other Investments | 16.5 |
| | — |
| | 16.5 |
|
| Corporate | 1.1 |
| | — |
| | 1.1 |
|
| Total net revenue | 812.2 |
| | (13.9 | ) | | 798.3 |
|
| Operating expense: | | | | | |
| Racing | 216.3 |
| | — |
| | 216.3 |
|
| Casinos | 243.3 |
| | — |
| | 243.3 |
|
| TwinSpires | 138.2 |
| | — |
| | 138.2 |
|
| Big Fish Games | 16.0 |
| | (16.0 | ) | (b) | — |
|
| Other Investments | 17.6 |
| | — |
| | 17.6 |
|
| Corporate | 1.9 |
| | — |
| | 1.9 |
|
| Selling, general and administrative expense | 76.0 |
| | (0.7 | ) | (b) | 75.3 |
|
| Research and development | — |
| | — |
| | — |
|
| Calder exit costs | 2.3 |
| | — |
| | 2.3 |
|
| Acquisition expense, net | 10.2 |
| | (10.2 | ) | (b) | — |
|
| Total operating expense | 721.8 |
| | (26.9 | ) | | 694.9 |
|
| Operating income | 90.4 |
| | 13.0 |
| | 103.4 |
|
| Other income (expense): | | | | | |
| Interest expense | (20.8 | ) | | — |
| | (20.8 | ) |
| Equity in income of unconsolidated investments | 6.3 |
| | — |
| | 6.3 |
|
| Miscellaneous, net | 0.6 |
| | — |
| | 0.6 |
|
| Total other income (expense) | (13.9 | ) | | — |
| | (13.9 | ) |
| Income from operations before provision for income taxes | 76.5 |
| | 13.0 |
| | 89.5 |
|
| Income tax provision | (30.1 | ) | | (4.8 | ) | (c) | (34.9 | ) |
| Net income | $ | 46.4 |
| | $ | 8.2 |
| | $ | 54.6 |
|
| | | | | | |
| Net income per common share data: | | | | | |
| Basic net income | $ | 2.67 |
| | | | $ | 3.14 |
|
| Diluted net income | $ | 2.64 |
| | | | $ | 3.10 |
|
| | | | | | |
| Weighted average shares outstanding: | | | | | |
| Basic | 17.3 |
| | | | 17.3 |
|
| Diluted | 17.6 |
| | | | 17.6 |
|
See accompanying notes to unaudited pro forma condensed consolidated financial information.
CHURCHILL DOWNS INCORPORATED
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2017
(Unaudited)
|
| | | | | | | | | | | |
| (in millions) | As Reported (a) | | Pro Forma Adjustments | | Pro Forma |
| ASSETS | | | | | |
| Current assets: | | | | | |
| Cash and cash equivalents | $ | 57.8 |
| | $ | 974.3 |
| (d) (e) | $ | 1,032.1 |
|
| Restricted cash | 37.3 |
| | — |
| | 37.3 |
|
| Accounts receivable, net | 74.0 |
| | (39.6 | ) | (e) | 34.4 |
|
| Game software development, net | 6.4 |
| | (6.4 | ) | (e) | — |
|
| Other current assets | 59.3 |
| | (39.6 | ) | (e) | 19.7 |
|
| Total current assets | 234.8 |
| | 888.7 |
| | 1,123.5 |
|
| Property and equipment, net | 619.4 |
| | (13.6 | ) | (e) | 605.8 |
|
| Game software development, net | 13.3 |
| | (13.3 | ) | (e) | — |
|
| Investment in and advances to unconsolidated affiliates | 173.9 |
| | — |
| | 173.9 |
|
| Goodwill | 848.3 |
| | (530.7 | ) | (e) | 317.6 |
|
| Other intangible assets, net | 425.4 |
| | (246.4 | ) | (e) | 179.0 |
|
| Other Assets | 12.3 |
| | (0.5 | ) | (e) | 11.8 |
|
| Total assets | $ | 2,327.4 |
| | $ | 84.2 |
| | $ | 2,411.6 |
|
| | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | |
| Current liabilities: | | | | | |
| Accounts payable | $ | 61.6 |
| | $ | (5.6 | ) | (e) | $ | 56.0 |
|
| Purses payable | 19.2 |
| | — |
| | 19.2 |
|
| Account wagering deposit liabilities | 25.9 |
| | — |
| | 25.9 |
|
| Accrued expense | 111.2 |
| | (28.7 | ) | (e) | 82.5 |
|
| Income taxes payable | 16.9 |
| | 96.0 |
| (f) | 112.9 |
|
| Deferred revenue - Big Fish Games | 85.6 |
| | (85.6 | ) | (e) | — |
|
| Deferred revenue - all other | 12.0 |
| | — |
| | 12.0 |
|
| Big Fish Games deferred payment, current | 28.3 |
| | (28.3 | ) | (e) | — |
|
| Big Fish Games earnout liability, current | 33.9 |
| | (33.9 | ) | (e) | — |
|
| Current maturities of long-term debt | 17.7 |
| | — |
| | 17.7 |
|
| Total current liabilities | 412.3 |
| | (86.1 | ) | | 326.2 |
|
| Long-term debt | 510.8 |
| | — |
| | 510.8 |
|
| Notes payable | 595.5 |
| | — |
| | 595.5 |
|
| Deferred revenue - all other | 23.1 |
| | — |
| | 23.1 |
|
| Deferred income taxes | 140.2 |
| | (83.6 | ) | (e) | 56.6 |
|
| Other liabilities | 19.2 |
| | (3.3 | ) | (e) | 15.9 |
|
| Total liabilities | 1,701.1 |
| | (173.0 | ) | | 1,528.1 |
|
| Commitments and contingencies | | | | | |
| Shareholders' equity | 626.3 |
| | 257.2 |
| (f) | 883.5 |
|
| Total liabilities and shareholders' equity | $ | 2,327.4 |
| | $ | 84.2 |
| | $ | 2,411.6 |
|
See accompanying notes to unaudited pro forma condensed consolidated financial information.
CHURCHILL DOWNS INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following is a summary of the pro forma adjustments reflected in the unaudited pro forma condensed consolidated financial information:
| |
| (a) | As reported financial information for the Company has been derived from historical financial statements previously filed with the Securities and Exchange Commission. |
| |
| (b) | Represents the elimination of the revenue, operating expenses, other income (expenses) and foreign currency translation, net of tax, of the Big Fish business. |
| |
| (c) | The income tax impact has been calculated using a federal and state statutory tax rate of 37%. |
| |
| (d) | Cash and cash equivalents are adjusted to give effect to the Transaction as follows: |
|
| | | |
| Gross Proceeds | $ | 990.0 |
|
| Estimated closing costs | 15.5 |
|
| Net proceeds | 974.5 |
|
| Less: | |
| Big Fish cash and cash equivalents | (0.2 | ) |
| | $ | 974.3 |
|
| |
| (e) | Represents the elimination of the assets and liabilities related to the Big Fish business. |
| |
| (f) | Represents the estimated pro forma gain on the sale of the Big Fish business assuming net proceeds of $974.5 million, net of estimated taxes payable of $96.0 million assuming a federal and state statutory tax rate of 37%. Note that this estimate may not be indicative of the actual gain on the Transaction upon closing as there could be material changes to the financial position of Big Fish, related working capital upon closing, and applicable statutory tax rates. |
