Churchill Downs Inc. Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K was filed on December 9, 2013, by Churchill Downs Inc. (Churchill Downs). The filing addresses retrospective revisions to the consolidated financial statements previously submitted in the Annual Report on Form 10-K for the year ended December 31, 2012. The revisions reflect a change in the key performance measure used to evaluate the Company's operating segments.
Key Financial Metrics
The filing text does not provide specific numerical values for revenue, profit, cash flow, margins, debt, or liquidity. The document focuses exclusively on the methodology change regarding segment reporting rather than reporting new financial results for the period.
Material Changes Versus Prior Period
The primary material change is the adoption of Adjusted EBITDA as the key performance measure for evaluating operating segments, effective with the filing of the Quarterly Report on Form 10-Q for the period ended June 30, 2013. Consequently, financial information for 2012, 2011, and 2010 has been retrospectively revised to align with this new metric. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, insurance recoveries net of losses, Horse Racing Equity Trust Fund proceeds, share-based compensation expenses, pre-opening expenses, asset impairments, and other charges or recoveries.
Segments and Management Commentary
The Company operates in four segments:
- Racing Operations: Includes Churchill Downs, Arlington International, Calder, Fair Grounds, and associated off-track betting facilities.
- Gaming: Includes video poker and gaming at Calder Casino, Fair Grounds Slots, Harlow's, Riverwalk, Oxford Casino, and Video Services, LLC.
- Online Business: Includes TwinSpires, Advance Deposit Wagering, Bloodstock Research Information Services, Velocity, Luckity, and an equity investment in HRTV, LLC.
- Other Investments: Includes United Tote Company, United Tote Canada, Miami Valley Gaming & Racing, LLC, Bluff Media, and other minor investments.
Management states that Adjusted EBITDA provides a more accurate measure of core operating results by excluding certain recurring and non-recurring items, enabling meaningful period-to-period comparisons. The filing includes revised Management's Discussion and Analysis (Exhibit 99.1) and revised financial statements (Exhibit 99.2).
Risks and Contingencies
The filing includes a standard forward-looking statements disclaimer. Key risks identified include:
- Global economic conditions and disruptions in credit markets.
- Decreases in consumers' discretionary income.
- Competition from lotteries, online gaming, and other casinos.
- Regulatory changes affecting pari-mutuel and gaming activities.
- Ability to maintain racing and gaming licenses.
- Security breaches in online technologies.
- Volatility of stock price and litigation outcomes.
Investor Verification Checklist
- Review Exhibit 99.1 (Revised MD&A) and Exhibit 99.2 (Revised Financial Statements) attached to this filing for the specific numerical impact of the Adjusted EBITDA change on 2010-2012 results.
- Compare the new Adjusted EBITDA metric against the previously reported operating income to understand the magnitude of excluded items.
- Verify the Company's ability to maintain racing and gaming licenses in Kentucky, Florida, Illinois, and Louisiana.
- Monitor the competitive landscape regarding online gaming and interstate simulcast market share.