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Segment Information | 9 Months Ended
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Sep. 30, 2016
Segment Reporting [Abstract] |
Segment Information | NOTE 12 — SEGMENT INFORMATION We manage our operations through six operating segments:
• | Racing, which includes Churchill Downs Racetrack ("Churchill Downs"), Arlington International Race Course ("Arlington"), Fair Grounds Race Course ("Fair Grounds") and Calder Race Course ("Calder");
• | Casinos, which includes Oxford Casino ("Oxford"), Riverwalk Casino ("Riverwalk"), Harlow's Casino ("Harlow’s"), Calder Casino, Fair Grounds Slots, Video Services, LLC ("VSI"), 50% of EBITDA from our joint venture, MVG, and 25% of EBITDA from our equity investment, SCH;
• | TwinSpires, which includes TwinSpires.com, Fair Grounds Account Wagering ("FAW"), Velocity, Bloodstock Research Information Services ("BRIS"), Bluff and I-Gaming;
• | Big Fish Games, which is a global producer and distributor of social casino, casual and mid-core free-to-play, and premium paid games for PC, Mac and mobile devices;
• | Other Investments, which includes United Tote and Capital View Casino & Resort Joint Venture ("Capital View"); and
• | Corporate, which includes miscellaneous and other revenue, compensation expense, professional fees and other general and administrative expense not allocated to our other operating segments.
Eliminations include the elimination of intersegment transactions. Our chief operating decision maker utilizes Adjusted EBITDA to evaluate segment performance, develop strategy and allocate resources. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, adjusted for the following: Adjusted EBITDA includes:
• | Changes in Big Fish Games deferred revenue;
• | 50% of EBITDA of our joint venture, MVG;
• | 25% of EBITDA from our SCH equity investment; and
• | Intercompany revenue and expense totals that are eliminated in the Condensed Consolidated Statements of Comprehensive Income.
Adjusted EBITDA excludes:
• | Big Fish Games adjustments which include:
◦ | Acquisition-related charges, including the change in fair value of the Big Fish Games earnout and deferred consideration liability recorded each reporting period
• | Stock-based compensation expense;
• | Calder exit costs; and
• | Other charges and recoveries.
As of January 1, 2016, we modified our definition of Adjusted EBITDA to exclude depreciation and amortization from our 50% joint venture, MVG and our 25% equity investment in SCH. The prior year amounts were reclassified to conform to this presentation. We also prospectively implemented a change in accounting estimate for corporate expense allocated to other operating segments to use an activity based allocation rather than a revenue based allocation. We utilize the Adjusted EBITDA metric because we believe the inclusion or exclusion of certain recurring items is necessary to provide a more accurate measure of our core operating results and enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner. Adjusted EBITDA should not be considered as an alternative to operating income as an indicator of performance, as an alternative to cash flows from operating activities as a measure of liquidity, or as an alternative to any other measure provided in accordance with U.S. generally accepted accounting principles. Our calculation of Adjusted EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited. The tables below present net revenue from external customers and intercompany revenue from each of our operating segments, Adjusted EBITDA by segment and reconciles Adjusted EBITDA to Comprehensive Income:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in millions) | 2016 |  | 2015 |  | 2016 |  | 2015
Net revenue from external customers: |  |  |  |  |  |  |
Racing: |  |  |  |  |  |  |
Churchill Downs | $ | 8.7 |  |  | $ | 7.9 |  |  | $ | 140.1 |  |  | $ | 136.7 |
Arlington | 24.0 |  |  | 25.0 |  |  | 49.8 |  |  | 48.9 |
Fair Grounds | 5.1 |  |  | 5.3 |  |  | 28.9 |  |  | 30.4 |
Calder | 0.7 |  |  | 0.6 |  |  | 2.0 |  |  | 2.0 |
Total Racing | 38.5 |  |  | 38.8 |  |  | 220.8 |  |  | 218.0 |
Casinos: |  |  |  |  |  |  |
Oxford Casino | 24.4 |  |  | 22.3 |  |  | 65.4 |  |  | 60.8 |
Riverwalk Casino | 10.6 |  |  | 12.0 |  |  | 35.7 |  |  | 37.7 |
Harlow’s Casino | 11.7 |  |  | 11.8 |  |  | 36.6 |  |  | 37.5 |
Calder Casino | 19.0 |  |  | 18.5 |  |  | 59.8 |  |  | 58.7 |
Fair Grounds Slots | 8.5 |  |  | 8.8 |  |  | 27.9 |  |  | 29.9 |
VSI | 8.6 |  |  | 9.0 |  |  | 27.9 |  |  | 27.6 |
Saratoga | 0.2 |  |  | 0.3 |  |  | 0.6 |  |  | 0.3 |
Total Casinos | 83.0 |  |  | 82.7 |  |  | 253.9 |  |  | 252.5 |
TwinSpires | 54.7 |  |  | 50.4 |  |  | 172.3 |  |  | 156.5 |
Big Fish Games: |  |  |  |  |  |  |
Social casino | 44.3 |  |  | 47.4 |  |  | 138.3 |  |  | 145.4 |
Casual and mid-core free-to-play | 56.1 |  |  | 32.6 |  |  | 162.5 |  |  | 86.5 |
Premium | 23.7 |  |  | 27.3 |  |  | 75.0 |  |  | 85.6 |
Fair value adjustments | (1.8 | ) |  | (3.7 | ) |  | (6.2 | ) |  | (17.5 | )
Total Big Fish Games | 122.3 |  |  | 103.6 |  |  | 369.6 |  |  | 300.0 |
Other Investments | 4.5 |  |  | 4.0 |  |  | 12.9 |  |  | 12.1 |
Corporate | 0.4 |  |  | 0.3 |  |  | 0.8 |  |  | 0.8 |
Net revenue from external customers | $ | 303.4 |  |  | $ | 279.8 |  |  | $ | 1,030.3 |  |  | $ | 939.9 |
| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in millions) | 2016 |  | 2015 |  | 2016 |  | 2015
Intercompany net revenue: |  |  |  |  |  |  |
Racing: |  |  |  |  |  |  |
Churchill Downs | $ | 0.9 |  |  | $ | 0.7 |  |  | $ | 8.2 |  |  | $ | 6.3 |
Arlington | 1.9 |  |  | 1.7 |  |  | 4.5 |  |  | 4.1 |
Fair Grounds | — |  |  | — |  |  | 1.0 |  |  | 0.9 |
Total Racing | 2.8 |  |  | 2.4 |  |  | 13.7 |  |  | 11.3 |
TwinSpires | 0.4 |  |  | 0.3 |  |  | 1.0 |  |  | 0.8 |
Other Investments | 0.7 |  |  | 0.8 |  |  | 3.0 |  |  | 2.7 |
Eliminations | (3.9 | ) |  | (3.5 | ) |  | (17.7 | ) |  | (14.8 | )
Intercompany net revenue | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Adjusted EBITDA by segment is comprised of the following:
| Three Months Ended September 30, 2016
(in millions) | Racing |  | Casinos |  | TwinSpires |  | Big Fish Games |  | Other Investments |  | Corporate
Net revenue | $ | 41.3 |  |  | $ | 83.0 |  |  | $ | 55.1 |  |  | $ | 122.3 |  |  | $ | 5.2 |  |  | $ | 0.4 |
Taxes & purses | (11.2 | ) |  | (28.1 | ) |  | (4.0 | ) |  | — |  |  | — |  |  | — |
Platform & development fees | — |  |  | — |  |  | — |  |  | (45.2 | ) |  | — |  |  | — |
Marketing & advertising | (1.1 | ) |  | (3.0 | ) |  | (1.0 | ) |  | (26.3 | ) |  | — |  |  | — |
Salaries & benefits | (10.3 | ) |  | (13.4 | ) |  | (2.3 | ) |  | (6.2 | ) |  | (2.7 | ) |  | — |
Content expense | (3.9 | ) |  | — |  |  | (26.0 | ) |  | — |  |  | — |  |  | — |
SG&A expense | (4.0 | ) |  | (5.4 | ) |  | (3.0 | ) |  | (4.4 | ) |  | (0.9 | ) |  | (2.2 | )
Research & development | — |  |  | — |  |  | — |  |  | (8.8 | ) |  | — |  |  | — |
Other operating expense | (10.5 | ) |  | (10.0 | ) |  | (4.5 | ) |  | (3.9 | ) |  | (0.9 | ) |  | (0.2 | )
Other income (expense) | 0.1 |  |  | 7.3 |  |  | — |  |  | (0.3 | ) |  | 0.1 |  |  | — |
Change in deferred revenue(1) | n/a |  |  | n/a |  |  | n/a |  |  | (3.8 | ) |  | n/a |  |  | n/a |
Total segment Adjusted EBITDA | $ | 0.4 |  |  | $ | 30.4 |  |  | $ | 14.3 |  |  | $ | 23.4 |  |  | $ | 0.8 |  |  | $ | (2.0 | )
| Three Months Ended September 30, 2015
(in millions) | Racing |  | Casinos |  | TwinSpires |  | Big Fish Games |  | Other Investments |  | Corporate
Net revenue | $ | 41.2 |  |  | $ | 82.7 |  |  | $ | 50.7 |  |  | $ | 103.6 |  |  | $ | 4.8 |  |  | $ | 0.3 |
Taxes & purses | (11.2 | ) |  | (27.5 | ) |  | (3.6 | ) |  | — |  |  | — |  |  | — |
Platform & development fees | — |  |  | — |  |  | — |  |  | (36.1 | ) |  | — |  |  | — |
Marketing & advertising | (1.1 | ) |  | (3.2 | ) |  | (0.7 | ) |  | (21.9 | ) |  | — |  |  | — |
Salaries & benefits | (9.5 | ) |  | (12.8 | ) |  | (2.6 | ) |  | (5.4 | ) |  | (2.8 | ) |  | — |
Content expense | (3.6 | ) |  | — |  |  | (23.6 | ) |  | — |  |  | — |  |  | — |
SG&A expense | (4.3 | ) |  | (6.9 | ) |  | (3.1 | ) |  | (3.8 | ) |  | (0.7 | ) |  | (1.7 | )
Research & development | — |  |  | — |  |  | — |  |  | (9.9 | ) |  | — |  |  | — |
Other operating expense | (11.4 | ) |  | (10.0 | ) |  | (4.2 | ) |  | (3.9 | ) |  | (0.8 | ) |  | (0.2 | )
Other income (expense) | 0.2 |  |  | 4.4 |  |  | 0.2 |  |  | (0.3 | ) |  | — |  |  | — |
Change in deferred revenue(1) | n/a |  |  | n/a |  |  | n/a |  |  | 10.9 |  |  | n/a |  |  | n/a |
Total segment Adjusted EBITDA | $ | 0.3 |  |  | $ | 26.7 |  |  | $ | 13.1 |  |  | $ | 33.2 |  |  | $ | 0.5 |  |  | $ | (1.6 | )
(1) Change in deferred revenue is included in Adjusted EBITDA only for Big Fish Games.
| Nine Months Ended September 30, 2016
(in millions) | Racing |  | Casinos |  | TwinSpires |  | Big Fish Games |  | Other Investments |  | Corporate
Net revenue | $ | 234.5 |  |  | $ | 253.9 |  |  | $ | 173.3 |  |  | $ | 369.6 |  |  | $ | 15.9 |  |  | $ | 0.8 |
Taxes & purses | (52.7 | ) |  | (84.6 | ) |  | (8.8 | ) |  | — |  |  | — |  |  | — |
Platform & development fees | — |  |  | — |  |  | — |  |  | (135.2 | ) |  | — |  |  | — |
Marketing & advertising | (3.8 | ) |  | (9.5 | ) |  | (5.2 | ) |  | (106.2 | ) |  | — |  |  | — |
Salaries & benefits | (31.4 | ) |  | (38.2 | ) |  | (6.9 | ) |  | (18.4 | ) |  | (8.2 | ) |  | — |
Content expense | (12.0 | ) |  | — |  |  | (83.4 | ) |  | — |  |  | — |  |  | — |
SG&A expense | (11.9 | ) |  | (15.8 | ) |  | (8.6 | ) |  | (13.6 | ) |  | (2.5 | ) |  | (6.2 | )
Research & development | — |  |  | — |  |  | — |  |  | (29.3 | ) |  | — |  |  | — |
Other operating expense | (38.8 | ) |  | (29.4 | ) |  | (15.6 | ) |  | (11.8 | ) |  | (2.6 | ) |  | (0.5 | )
Other income (expense) | 0.4 |  |  | 21.6 |  |  | — |  |  | (1.2 | ) |  | 0.3 |  |  | — |
Change in deferred revenue(1) | n/a |  |  | n/a |  |  | n/a |  |  | 5.0 |  |  | n/a |  |  | n/a |
Total segment Adjusted EBITDA | $ | 84.3 |  |  | $ | 98.0 |  |  | $ | 44.8 |  |  | $ | 58.9 |  |  | $ | 2.9 |  |  | $ | (5.9 | )
| Nine Months Ended September 30, 2015
(in millions) | Racing |  | Casinos |  | TwinSpires |  | Big Fish Games |  | Other Investments |  | Corporate
Net revenue | $ | 229.3 |  |  | $ | 252.5 |  |  | $ | 157.3 |  |  | $ | 300.0 |  |  | $ | 14.8 |  |  | $ | 0.8 |
Taxes & purses | (52.3 | ) |  | (83.4 | ) |  | (8.2 | ) |  | — |  |  | — |  |  | — |
Platform & development fees | — |  |  | — |  |  | — |  |  | (103.0 | ) |  | — |  |  | — |
Marketing & advertising | (5.4 | ) |  | (9.4 | ) |  | (3.7 | ) |  | (76.7 | ) |  | — |  |  | — |
Salaries & benefits | (30.3 | ) |  | (38.2 | ) |  | (7.5 | ) |  | (16.5 | ) |  | (8.3 | ) |  | — |
Content expense | (11.3 | ) |  | — |  |  | (75.9 | ) |  | — |  |  | — |  |  | — |
SG&A expense | (13.0 | ) |  | (17.9 | ) |  | (8.6 | ) |  | (12.6 | ) |  | (1.8 | ) |  | (4.5 | )
Research & development | — |  |  | — |  |  | — |  |  | (30.0 | ) |  | — |  |  | — |
Other operating expense | (41.2 | ) |  | (31.3 | ) |  | (14.1 | ) |  | (10.9 | ) |  | (2.4 | ) |  | (1.5 | )
Other income (expense) | 0.5 |  |  | 14.3 |  |  | — |  |  | (0.8 | ) |  | 0.1 |  |  | — |
Change in deferred revenue(1) | n/a |  |  | n/a |  |  | n/a |  |  | 32.0 |  |  | n/a |  |  | n/a |
Total segment Adjusted EBITDA | $ | 76.3 |  |  | $ | 86.6 |  |  | $ | 39.3 |  |  | $ | 81.5 |  |  | $ | 2.4 |  |  | $ | (5.2 | )
(1) Change in deferred revenue is included in Adjusted EBITDA only for Big Fish Games.
| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in millions) | 2016 |  | 2015 |  | 2016 |  | 2015
Reconciliation of segment Adjusted EBITDA to comprehensive income: |  |  |  |  |  |  |
Racing | $ | 0.4 |  |  | $ | 0.3 |  |  | $ | 84.3 |  |  | $ | 76.3 |
Casinos | 30.4 |  |  | 26.7 |  |  | 98.0 |  |  | 86.6 |
TwinSpires | 14.3 |  |  | 13.1 |  |  | 44.8 |  |  | 39.3 |
Big Fish Games | 23.4 |  |  | 33.2 |  |  | 58.9 |  |  | 81.5 |
Other Investments | 0.8 |  |  | 0.5 |  |  | 2.9 |  |  | 2.4 |
Corporate | (2.0 | ) |  | (1.6 | ) |  | (5.9 | ) |  | (5.2 | )
Total segment Adjusted EBITDA | 67.3 |  |  | 72.2 |  |  | 283.0 |  |  | 280.9 |
Change in Big Fish Games deferred revenue | 3.8 |  |  | (10.9 | ) |  | (5.0 | ) |  | (32.0 | )
Selling, general and administrative: |  |  |  |  |  |  |
Stock-based compensation expense | (4.9 | ) |  | (4.5 | ) |  | (14.3 | ) |  | (10.6 | )
Other charges | (3.1 | ) |  | — |  |  | (3.4 | ) |  | — |
Other income, expense: |  |  |  |  |  |  |
Equity investments - interest, depreciation and amortization expense | (2.5 | ) |  | (2.2 | ) |  | (7.5 | ) |  | (6.4 | )
Other (charges) and recoveries, net | — |  |  | (0.1 | ) |  | (0.4 | ) |  | 6.0 |
Big Fish Games acquisition expense | (1.1 | ) |  | (2.8 | ) |  | (4.9 | ) |  | (17.4 | )
Calder exit costs | (0.5 | ) |  | (12.7 | ) |  | (2.4 | ) |  | (13.5 | )
Depreciation and amortization | (27.5 | ) |  | (27.4 | ) |  | (81.4 | ) |  | (82.1 | )
Interest (expense) income, net | (11.1 | ) |  | (6.7 | ) |  | (32.8 | ) |  | (21.1 | )
Income before income tax provision | 20.4 |  |  | 4.9 |  |  | 130.9 |  |  | 103.8 |
Income tax provision | (11.7 | ) |  | (0.7 | ) |  | (49.6 | ) |  | (46.1 | )
Net income | 8.7 |  |  | 4.2 |  |  | 81.3 |  |  | 57.7 |
Foreign currency translation, net of tax | — |  |  | — |  |  | 0.2 |  |  | (0.4 | )
Comprehensive income | $ | 8.7 |  |  | $ | 4.2 |  |  | $ | 81.5 |  |  | $ | 57.3 |
The table below presents information about equity in income (losses) of unconsolidated investments included in our reported segments:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
(in millions) | 2016 |  | 2015 |  | 2016 |  | 2015
Casinos | $ | 4.8 |  |  | $ | 2.3 |  |  | $ | 13.6 |  |  | $ | 7.7 |
Other Investments | 0.1 |  |  | — |  |  | (0.1 | ) |  | 0.5 |
| $ | 4.9 |  |  | $ | 2.3 |  |  | $ | 13.5 |  |  | $ | 8.2 |
The table below presents total asset information for each of our operating segments:
(in millions) | September 30, 2016 |  | December 31, 2015
Total assets: |  |  |
Racing | $ | 424.4 |  |  | $ | 437.1 |
Casinos | 621.8 |  |  | 631.3 |
TwinSpires | 208.1 |  |  | 202.4 |
Big Fish Games | 923.0 |  |  | 947.1 |
Other Investments | 10.9 |  |  | 12.2 |
Corporate | 36.5 |  |  | 47.3 |
| $ | 2,224.7 |  |  | $ | 2,277.4 |
The table below presents capital expenditures for each of our operating segments:
| Nine Months Ended September 30,
(in millions) | 2016 |  | 2015
Capital expenditures: |  |  |
Racing | $ | 23.4 |  |  | $ | 8.3 |
Casinos | 9.7 |  |  | 15.4 |
TwinSpires | 5.4 |  |  | 3.1 |
Big Fish Games | 3.6 |  |  | 3.0 |
Other Investments | 0.8 |  |  | 0.4 |
Corporate | 1.2 |  |  | 0.6 |
| $ | 44.1 |  |  | $ | 30.8 |

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- Definition The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 34 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8981-108599 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 41 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e9038-108599 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 33 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8971-108599 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 12 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8595-108599 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8380-108599 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 32 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8933-108599 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 26 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8844-108599 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 35 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8984-108599 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 40 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e9031-108599 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 42 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e9054-108599 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8538-108599 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 29 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8864-108599 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 31 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8924-108599 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=68060357&loc=d3e8906-108599 + Details
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