Churchill Downs Incorporated Reports 2013 Fourth-Quarter and Full Year Results

Churchill Downs Incorporated Reports 2013 Fourth-Quarter and Full Year Results  2013 FOURTH-QUARTER    *Record net revenues of $162.4 million, a 3% increase over fourth-quarter     2012   *Adjusted EBITDA declines 4% primarily due to greater Racing Operations     segment losses   *Opens joint venture Miami Valley Gaming & Racing in December, ahead of     schedule, under budget   *Completes $300 million 5.375% senior unsecured notes offering  2013 FULL YEAR    *Record net revenues of $779.3 million, a 7% increase over 2012   *Record Adjusted EBITDA of $176.2 million, up 11% over 2012   *Record Kentucky Oaks & Derby Week Adjusted EBITDA, a $5.8 million increase     over 2012   *Acquires Oxford Casino in Oxford, Maine in July  LOUISVILLE, Ky., Feb. 26, 2014 (GLOBE NEWSWIRE) -- Churchill Downs Incorporated (Nasdaq:CHDN) (CDI or Company) today, reported business results for the fourth-quarter and full year-ended Dec. 31, 2013.  MANAGEMENT COMMENTARY  "2013 was a good year, but we had planned to do even better," said CDI Chairman and CEO Robert L. Evans. "While total year net revenues were up 7% to a record $779.3 million, Adjusted EBITDA was up 11% to a record $176.2 million, and our common stock price increased 35% during the year, general economy softness, notably in job growth and personal disposable income growth, along with state-specific changes in legislation and regulation, and one-time expenses combined to negatively affect our performance, particularly in the fourth-quarter.  "Several 2013 developments should favorably affect our results in 2014. We acquired Oxford Casino in Oxford, Maine, last July and opened our joint venture project, Miami Valley Gaming & Racing (MVG), north of Cincinnati in December. Our $26.5 million investment in the new, 2,400-seat Grandstand Terrace and 15,224 square foot, 4K-resolution 'Big Board' video board at Churchill Downs Racetrack, combined with a new, 10-year media rights deal with NBC should be reflected in our 2014 Kentucky Oaks and Derby Week results.  "Finally, we completed a $300 million offering of 5.375% senior unsecured notes that mature in 2021, increasing our balance sheet capacity and flexibility to pursue additional growth opportunities in the future."  CONSOLIDATED RESULTS (in millions, except per share data):                          Fourth-Quarter             Full Year                         2013     2012     % Change 2013     2012     % Change GAAP Measures:                                                    Net revenues             $162.4 $158.3 3      $779.3 $731.3 7 (Loss) earnings from     (5.6)    2.4      U        55.0     58.2     (5) continuing operations Diluted (loss) earnings from continuing          ($0.32)  $ 0.14   U        $ 3.07   $ 3.33   (8) operations per share Net cash provided by                             144.9    144.4    — operating activities                                                                  Non-GAAP Measure:                                                 Adjusted EBITDA          $19.3  $20.2  (4)      $176.2 $158.3 11                                                                  U: > 100% unfavorable; F: > 100% favorable  During the fourth-quarter of 2013, CDI net revenues increased $4.1 million, or 3%, from the prior year, primarily due to the results of Oxford Casino (Oxford), which was acquired on July 17, 2013.Total Adjusted EBITDA declined $0.9 million from lower Calder Race Course Adjusted EBITDA of $3.0 million driven by lost hosting revenues and a 22% decline in the number of live races conducted, $1.0 million in spending related to the development of a new online gaming platform and declines in our Louisiana and Harlow's gaming properties.Partially offsetting these declines was the effect of $3.8 million in Adjusted EBITDA from the Oxford acquisition. Below the Adjusted EBITDA line, we reserved a $2.5 million account receivable associated with an earnest payment to acquire a New Jersey internet gaming license and incurred higher equity compensation of $2.8 million associated with the new long-term incentive plan. Furthermore, we incurred $2.4 million in pre-opening expenditures related to the opening of MVG.These items resulted in an $8.0 million reduction in earnings from continuing operations compared to the prior year.  During the year-ended December 31, 2013, CDI net revenues increased $48.0 million, or 7%, as incremental revenues of $77.7 million from the acquisitions of Oxford and Riverwalk and a strong Kentucky Derby and Kentucky Oaks week were partially offset by Florida racing declines.Total Adjusted EBITDA increased $17.9 million, or 11%, driven by a $16.2 million improvement in our Gaming Operations driven by acquisitions, a $5.8 million increase in Kentucky Oaks and Kentucky Derby week profitability, and an Online Business improvement of $4.5 million driven by handle growth.Partially offsetting these gains was a decline of $9.0 million in Florida racing profitability on lost hosting revenues and fewer race days. Below the Adjusted EBITDA line, share-based compensation increased by $7.5 million, we incurred $3.6 million of pre-opening expenses for MVG, reserved a $2.5 million account receivable associated with an earnest payment to acquire a New Jersey internet gaming license, and recognized $6.6 million less in insurance recoveries than 2012.Partially offsetting these declines was the recognition of $4.5 million in Illinois Horse Racing Equity Trust Fund proceeds during 2013. CDI earnings from continuing operations decreased $3.2 million, or 5%, from the prior year.  GAMING RESULTS (in millions):                 Fourth-Quarter           Full Year                2013    2012    % Change 2013     2012     % Change                                                       Net revenues    $78.7 $62.9 25       $297.5 $223.1 33 Adjusted EBITDA 18.5    16.8    10       80.4     64.2     25  During the fourth-quarter of 2013, CDI Gaming revenues increased $15.8 million, or 25%, from the prior year, primarily due to the results of Oxford and Riverwalk which generated a combined increase of $19.1 million. Inclement weather, prior year stimulus post-hurricane Isaac, and continued economic softness pressured revenues at the Company's Louisiana and Harlow's Casino Resort and Spa (Harlow's) properties.Gaming Adjusted EBITDA increased $1.7 million, or 10%, primarily due to incremental operating income from the Riverwalk and Oxford acquisitions.  During the year-ended December 31, 2013, CDI Gaming revenues increased $74.4 million, or 33%, primarily due to the additions of Oxford and Riverwalk, whose revenues increased $77.7 million compared to the prior period.Harlow's revenues declined $4.2 million due to continuing regional weakness and disruptions from renovations to the casino floor.Partially offsetting this decline, Calder Casino revenues increased $1.1 million due to strategic marketing efforts and the closure of Florida internet cafes.Gaming Adjusted EBITDA increased $16.2 million, or 25%, due to the acquisitions of Riverwalk and Oxford, partially offset by revenue declines at Harlow's and our Louisiana properties, and the effect of a $0.8 million recovery at Calder Casino in 2012.  ONLINE BUSINESS RESULTS (in millions):                 Fourth-Quarter           Full Year                2013    2012    % Change 2013     2012     % Change                                                       Net revenues    $40.6 $40.9 (1)      $184.5 $183.3 1 Adjusted EBITDA 10.7    9.3     15       49.1     44.6     10 Total Handle    188.5   193.4   (3)      868.7    859.8    1  During the fourth-quarter of 2013, CDI Online Business revenues decreased $0.3 million, or 1%, from the prior year.The Company ceased accepting wagers from Texas residents on September 25, 2013, following an unsuccessful challenge to state law which is currently under appeal. TwinSpires's handle improved 3.7% from the prior year, when excluding Texas from both periods. Despite the cessation of Texas operations, Online Business Adjusted EBITDA increased $1.4 million, or 15%, from a reduction in content expenses due to the favorable settlement of litigation and improvement in the Company's high volume wagering operation, Velocity.  During the year-ended December 31, 2013, CDI Online Business revenues increased $1.2 million, or 1% over the prior year. In addition to the partial year cessation of Texas operations, the Company resumed accepting wagers from Illinois residents on June 7, 2013, which it had previously ceased on January 18, 2013, due to the temporary expiration of Illinois enabling legislation.TwinSpires handle increased 1.0% during the year, consistent with revenue growth.Wagers on TwinSpires grew 6.2%, when excluding Texas and Illinois from both periods, whereas total industry wagering on thoroughbred racing was flat to 2012 according to Equibase.com. Online Business Adjusted EBITDA increased $4.5million, or 10%, reflecting a 1% increase in pari-mutuel handle, an increase in Velocity wagering and the favorable settlement of litigation.Partially offsetting these improvements were the challenges in Texas and Illinois which generated a decline in Adjusted EBITDA of $2.7 million during the year.  RACING OPERATIONS RESULTS (in millions):                 Fourth-Quarter           Full Year                2013    2012    % Change 2013     2012     % Change                                                       Net revenues    $38.4 $48.5 (21)     $274.3 $302.1 (9) Adjusted EBITDA (8.1)   (4.1)   (98)     50.3     54.4     (8) Total Handle    331     414     (20)     1,806    2,026    (11)  During the fourth-quarter of 2013, CDI Racing Operations revenues decreased $10.1 million, or 21%, primarily due to the reduction of Florida hosting revenues and 22% fewer live races at Calder.Racing Operations Adjusted EBITDA decreased $4.0 million primarily from the impact of Calder racing challenges.  During the year-ended December 31, 2013, Racing Operations revenues decreased $27.8 million, or 9%, from the prior year.Strong Kentucky Oaks and Derby week results and the revenues from a new 12-day September meet at Churchill Downs Racetrack were more than offset by weakness at the Company's other racetracks, particularly Calder.Racing Operations Adjusted EBITDA declined $4.1 million, or 8%, as a $5.8 million increase generated by Kentucky Oaks and Derby week was more than offset by a $9.0 million decrease at Calder due to the reduction of Florida hosting revenue and 19 fewer live race days.  BUSINESS RESULTS CONFERENCE CALL   A conference call regarding this news release is scheduled for Thursday, Feb. 27, 2014, at 9 a.m. ET. Investors and other interested parties may listen to the teleconference by accessing the online, real-time webcast and broadcast of the call at www.churchilldownsincorporated.com, or by dialing (877) 372-0878 and entering the pass code 2042254 at least 10 minutes before the appointed time. International callers should dial (253) 237-1169. The online replay will be available at approximately noon EDT and continue for two weeks. A copy of the Company's news release announcing quarterly results and relevant financial and statistical information about the period will be accessible at www.churchilldownsincorporated.com.  In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), the Company has provided a non-GAAP measurement, which presents a financial measure of earnings before interest, taxes, depreciation and amortization and certain other items as described in the Company's Annual Report on Form 10K ("Adjusted EBITDA"). Churchill Downs Incorporated uses Adjusted EBITDA as a key performance measure of results of operations for purposes of evaluating performance internally. The Company believes the use of this measure enables management and investors to evaluate and compare, from period to period, the Company's operating performance in a meaningful and consistent manner. This non-GAAP measurement is not intended to replace the presentation of the Company's financial results in accordance with GAAP.  ABOUT CHURCHILL DOWNS INCORPORATED  Churchill Downs Incorporated (CDI) (Nasdaq:CHDN), headquartered in Louisville, Ky., owns and operates the world-renowned Churchill Downs Racetrack, home of the Kentucky Derby and Kentucky Oaks, as well as racetrack and casino operations and a poker room in Miami Gardens, Fla.; racetrack, casino and video poker operations in New Orleans, La.; racetrack operations in Arlington Heights, Ill.; a casino resort in Greenville, Miss.; a casino hotel in Vicksburg, Miss.; a casino in Oxford, Maine; and a 50 percent owned joint venture, Miami Valley Gaming and Racing, in Lebanon, Ohio. CDI also owns the country's premier online wagering company, TwinSpires.com; the totalisator company, United Tote; Luckity.com, offering real-money Bingo online for a chance to win cash prizes; Bluff Media, an Atlanta-based multimedia poker company; and a collection of racing-related telecommunications and data companies. Additional information about CDI can be found online at www.churchilldownsincorporated.com.  Information set forth in this news release 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 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," "hope," "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 effect of global economic conditions, including any disruptions in the credit markets; a decrease in consumers' discretionary income; the effect (including possible increases in the cost of doing business) resulting from future war and terrorist activities or political uncertainties; the overall economic environment; the impact of increasing insurance costs; the impact of interest rate fluctuations; the effect of any change in our accounting policies or practices; the financial performance of our racing operations; the impact of gaming competition (including lotteries, online gaming and riverboat, cruise ship and land-based casinos) and other sports and entertainment options in the markets in which we operate; our ability to maintain racing and gaming licenses to conduct our businesses; the impact of live racing day competition with other Florida, Illinois and Louisiana racetracks within those respective markets; the impact of higher purses and other incentives in states that compete with our racetracks; costs associated with our efforts in support of alternative gaming initiatives; costs associated with customer relationship management initiatives; a substantial change in law or regulations affecting pari-mutuel and gaming activities; a substantial change in allocation of live racing days; changes in Kentucky, Florida, Illinois or Louisiana law or regulations that impact revenues or costs of racing operations in those states; the presence of wagering and gaming operations at other states' racetracks and casinos near our operations; our continued ability to effectively compete for the country's horses and trainers necessary to achieve full field horse races; our continued ability to grow our share of the interstate simulcast market and obtain the consents of horsemen's groups to interstate simulcasting; our ability to enter into agreements with other industry constituents for the purchase and sale of racing content for wagering purposes; our ability to execute our acquisition strategy and to complete or successfully operate planned expansion projects; our ability to successfully complete any divestiture transaction; market reaction to our expansion projects; the inability of our totalisator company, United Tote, to maintain its processes accurately, keep its technology current or maintain its significant customers; our accountability for environmental contamination; the ability of our online business to prevent security breaches within its online technologies; the loss of key personnel; the impact of natural and other disasters on our operations and our ability to obtain insurance recoveries in respect of such losses (including losses related to business interruption); our ability to integrate any businesses we acquire into our existing operations, including our ability to maintain revenues at historic levels and achieve anticipated cost savings; the impact of wagering laws, including changes in laws or enforcement of those laws by regulatory agencies; the outcome of pending or threatened litigation; changes in our relationships with horsemen's groups and their memberships; our ability to reach agreement with horsemen's groups on future purse and other agreements (including, without limiting, agreements on sharing of revenues from gaming and advance deposit wagering); the effect of claims of third parties to intellectual property rights; and the volatility of our stock price. You should read this discussion in conjunction with the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.  CHURCHILL DOWNS INCORPORATED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for three months ended December 31, (in thousands, except per common share data)                                                 2013       2012      % Change Net revenues:                                                        Racing                                           $38,382  $48,547 (21) Gaming                                           78,665     62,912    25 Online                                           40,572     40,949    (1) Other                                            4,741      5,842     (19)                                                 162,360    158,250   3 Operating expenses:                                                  Racing                                           47,631     54,980    (13) Gaming                                           61,181     46,564    31 Online                                           27,642     28,210    (2) Other                                            8,614      6,621     30 Selling, general and administrative expenses     22,604     19,323    17 Insurance recoveries, net of losses              —          (492)     U Operating (loss) income                          (5,312)    3,044     U Other income (expense):                                              Interest income                                  7          6         17 Interest expense                                 (2,092)    (1,453)   (44) Equity in losses of unconsolidated investments   (2,460)    (446)     U Miscellaneous, net                               199        180       11                                                 (4,346)    (1,713)   U (Loss) earnings from continuing operations       (9,658)    1,331     U before income taxes Income tax benefit                               4,085      1,047     F (Loss) earnings from continuing operations       (5,573)    2,378     U Discontinued operations, net of income taxes:                        Loss from operations                             (49)       (4)       U Loss on sale of assets                           (83)       —         U Net (loss) earnings and comprehensive (loss)     $(5,705) $2,374  U income Net (loss) earnings per common share data:                           Basic                                                                (Loss) earnings from continuing operations       $(0.32)  $0.14   U Discontinued operations                          (0.01)     —         U Net (loss) earnings                              $(0.33)  $0.14   U Diluted                                                              (Loss) earnings from continuing operations       $(0.32)  $0.14   U Discontinued operations                          (0.01)     —         U Net (loss) earnings                              $(0.33)  $0.14   U Weighted average shares outstanding:                                 Basic                                            17,370     17,172     Diluted                                          17,370     17,590       CHURCHILL DOWNS INCORPORATED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for the years ended December31, (in thousands, except per common share data)                                                2013       2012       % Change Net revenues:                                                        Racing                                          $274,269 $302,088 (9) Gaming                                          297,473    223,112    33 Online                                          184,541    183,279    1 Other                                           23,042     22,817     1                                                779,325    731,296    7 Operating expenses:                                                  Racing                                          233,286    255,405    (9) Gaming                                          222,879    163,686    36 Online                                          123,449    123,476    — Other                                           26,540     25,356     5 Selling, general and administrative expenses    83,446     73,829     13 Insurance recoveries, net of losses             (375)      (7,006)    (95) Operating income                                90,100     96,550     (7) Other income (expense):                                              Interest income                                 112        90         24 Interest expense                                (6,231)    (4,531)    38 Equity in losses of unconsolidated investments  (4,142)    (1,701)    U Miscellaneous, net                              5,667      819        F                                                (4,594)    (5,323)    (14) Earnings from continuing operations before      85,506     91,227     (6) provision for income taxes Income tax provision                            (30,473)   (33,075)   (8) Earnings from continuing operations             55,033     58,152     (5) Discontinued operations, net of income taxes:                        (Loss) earnings from operations                 (50)       124        U Loss on sale of assets                          (83)       —          U Net earnings and comprehensive income           $54,900  $58,276  (6) Net earnings per common share data:                                  Basic                                                                Earnings from continuing operations             $3.13    $3.38    (7) Discontinued operations                         (0.01)     0.01       U Net earnings                                    $3.12    $3.39    (8) Diluted                                                              Earnings from continuing operations             $3.07    $3.33    (8) Discontinued operations                         (0.01)     0.01       U Net earnings                                    $3.06    $3.34    (8) Weighted average shares outstanding:                                 Basic                                           17,294     17,047      Diluted                                         17,938     17,475       CHURCHILL DOWNS INCORPORATED SUPPLEMENTAL INFORMATION BY OPERATING UNIT for the three months ended December 31, (in thousands, except per common share data)                                                   2013      2012      % Change Net revenues from external customers:                                Churchill Downs                                   $ 14,311  $ 14,958  (4) Arlington Park                                    6,763     6,275     8 Calder                                            8,356     17,192    (51) Fair Grounds                                      8,952     10,122    (12) Total Racing Operations                           38,382    48,547    (21) Calder Casino                                     18,842    18,956    (1) Fair Grounds Slots                                10,033    11,155    (10) VSI                                               8,482     8,967     (5) Harlow's Casino                                   11,907    13,504    (12) Oxford Casino                                     16,620    —         F Riverwalk Casino                                  12,781    10,330    24 Total Gaming                                      78,665    62,912    25 Online Business                                   40,572    40,949    (1) Other Investments                                 4,492     5,615     (20) Corporate                                         249       227       10 Net revenues from external customers              $ 162,360 $ 158,250 3                                                                     Intercompany net revenues:                                           Churchill Downs                                   $ 1,201   $ 1,173   2 Arlington Park                                    285       902       (68) Calder                                            346       433       (20) Fair Grounds                                      296       437       (32) Total Racing Operations                           2,128     2,945     (28) Online Business                                   196       167       17 Other Investments                                 1,221     820       49 Eliminations                                      (3,545)   (3,932)   (10) Net revenues                                      $ —       $ —       —                                                                     Reconciliation of Segment Adjusted EBITDA to net                     earnings: Racing Operations                                 $ (8,078) $ (4,062) (99) Gaming                                            18,487    16,794    10 Online Business                                   10,698    9,267     15 Other Investments                                 (533)     (150)     U Corporate                                         (1,225)   (1,652)   26 Total Segment Adjusted EBITDA                     19,349    20,197    (4) Insurance recoveries, net of losses               —         492       (100) Share based compensation expense                  (5,915)   (3,126)   89 Pre-opening costs                                 (2,409)   —         U MVG interest expense, net                         (170)     —         U Other charges and recoveries, net                 (2,500)   —         U Depreciation and amortization                     (15,928)  (14,785)  8 Interest income (expense), net                    (2,085)   (1,447)   (44) Income tax benefit                                4,085     1,047     F (Loss) earnings from continuing operations        (5,573)   2,378     U Discontinued operations, net of income taxes      (132)     (4)       U Net (loss) earnings and comprehensive (loss)      $(5,705)  $ 2,374   U income                                                                      CHURCHILL DOWNS INCORPORATED SUPPLEMENTAL INFORMATION BY OPERATING UNIT for the years ended December 31, (in thousands, except per common share data)                                                                                                                    2013       2012       % Change Net revenues from external customers:                                Churchill Downs                                 $132,845 $124,255 7 Arlington Park                                  64,483     69,077     (7) Calder                                          36,264     64,566     (44) Fair Grounds                                    40,677     44,190     (8) Total Racing Operations                         274,269    302,088    (9) Calder Casino                                   78,951     77,864     1 Fair Grounds Slots                              42,156     42,881     (2) VSI                                             35,931     35,433     1 Harlow's Casino                                 52,440     56,604     (7) Oxford Casino                                   34,350     —          F Riverwalk Casino                                53,645     10,330     F Total Gaming                                    297,473    223,112    33 Online Business                                 184,541    183,279    1 Other Investments                               21,899     21,785     1 Corporate                                       1,143      1,032      11 Net revenues from external customers            $779,325 $731,296 7                                                                     Intercompany net revenues:                                           Churchill Downs                                 $6,686   $5,592   20 Arlington Park                                  3,395      4,712      (28) Calder                                          1,263      1,583      (20) Fair Grounds                                    1,151      1,270      (9) Total Racing Operations                         12,495     13,157     (5) Online Business                                 853        836        2 Other Investments                               4,409      3,466      27 Eliminations                                    (17,757)   (17,459)   2 Net revenues                                    $ —        $ —        —                                                                     Reconciliation of Segment Adjusted EBITDA to                         net earnings: Racing Operations                               $50,275  $54,357  (8) Gaming                                          80,429     64,231     25 Online Business                                 49,122     44,618     10 Other Investments                               1,011      (117)      F Corporate                                       (4,606)    (4,834)    (5) Total Segment Adjusted EBITDA                   176,231    158,255    11 Insurance Recoveries, Net of losses             375        7,006      (95) HRE Trust Fund proceeds                         4,541      —          F Share based compensation expense                (21,482)   (13,993)   54 Pre-opening costs                               (3,620)    —          U MVG interest expense, net                       (170)      —          U Other charges and recoveries, net               (2,500)    —          U Depreciation and amortization                   (61,750)   (55,600)   11 Interest income (expense), net                  (6,119)    (4,441)    38 Income tax benefit (provision)                  (30,473)   (33,075)   (8) Earnings from continuing operations             55,033     58,152     (5) Discontinued operations, net of income taxes    (133)      124        U Net earnings and comprehensive income           $54,900  $58,276  (6)                                                                         CHURCHILL DOWNS INCORPORATED SUPPLEMENTAL INFORMATION BY OPERATING UNIT for the three months and years ended December 31, (in thousands)                                                                                                                    Three Months Ended Change                                              December 31, Intercompany management fee (expense)        2013      2012      $        % income: Racing Operations                            $ (1,478) $ (1,745) $ 267    15 Gaming                                       (2,350)   (1,863)   (487)    (26) Online Business                              (1,254)   (1,264)   10       1 Other Investments                            (160)     (192)     32       17 Corporate Income                             5,242     5,064     178      4 Total management fees                       $ —       $ —       $ —                                                                                                                                                                                                 Year Ended         Change                                              December 31, Intercompany management fee (expense)        2013      2012      $        % income: Racing Operations                            $ (6,978) $ (8,063) $1,085 13 Gaming                                       (7,238)   (5,705)   (1,533)  (27) Online Business                              (4,428)   (4,679)   251      5 Other Investments                            (603)     (627)     24       4 Corporate Income                             19,247    19,074    173      1 Total management fees                       $ —       $ —       $ —                                                                            CHURCHILL DOWNS INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December31, (in thousands)                                                                                                                               2013      2012 Cash flows from operating activities:                                Net earnings and comprehensive income                      $54,900 $58,276 Adjustments to reconcile net earnings to net cash provided           by operating activities: Depreciation and amortization                              61,750    55,600 Asset impairment loss                                      —         25 Loss (gain) on sale of business                            131       — (Gain) loss on asset disposition                           (497)     (128) Equity in losses of unconsolidated investments             4,142     1,701 Share-based compensation                                   21,482    7,613 Deferred tax provision                                     5,284     9,659 Other                                                      689       910 Increase (decrease) in cash resulting from changes in operating assets and liabilities, net of business                    acquisitions and dispositions: Restricted cash                                            6,359     9,178 Accounts receivable                                        (495)     (5,396) Other current assets                                       1,372     (3,075) Income taxes                                               (11,023)  764 Accounts payable                                           (5,879)   3,459 Purses payable                                             (6,594)   (10,148) Accrued expenses                                           4,866     9,923 Deferred revenue                                           6,029     8,804 Other assets and liabilities                               2,399     (2,758) Net cash provided by operating activities                  144,915   144,407 Cash flows from investing activities:                                Additions to property and equipment                        (48,771)  (41,298) Acquisition of businesses, net of cash acquired            (154,872) (142,915) Acquisition of gaming license                              (2,650)   (2,250) Investment in joint venture                                (70,500)  (19,850) Purchases of minority investments                          (902)     (2,153) Proceeds from sale of assets                               15        833 Proceeds from insurance recoveries                         —         10,505 Change in deposit wagering asset                           (4,192)   (2,860) Net cash used in investing activities                      (281,872) (199,988) Cash flows from financing activities:                                Borrowings on bank line of credit                          740,131   554,248 Repayments of bank line of credit                          (880,667) (472,083) Proceeds from bond issuance                                300,000   — Change in bank overdraft                                   (5,053)   555 Payments of dividends                                      —         (22,461) Repurchase of common stock                                 (10,723)  (5,094) Common stock issued                                        1,135     6,377 Windfall tax benefit from share-based compensation         2,981     1,407 Loan origination fees                                      (2,258)   (67) Debt issuance costs                                        (5,250)   — Change in deposit wagering liability                       4,192     2,551 Net cash provided by (used in) financing activities        144,488   65,433 Net increase in cash and cash equivalents                  7,531     9,852 Cash and cash equivalents, beginning of year               37,177    27,325 Cash and cash equivalents, end of year                     $44,708 $37,177                                                                   CHURCHILL DOWNS INCORPORATED CONSOLIDATED BALANCE SHEETS December31, (in thousands)                                                                                                                      2013         2012 ASSETS                                                            Current assets:                                                   Cash and cash equivalents                            $44,708    $37,177 Restricted cash                                      36,074       38,241 Accounts receivable, net                             46,572       47,152 Deferred income taxes                                8,927        8,227 Income taxes receivable                              12,398       2,915 Other current assets                                 12,036       13,352 Total current assets                                 160,715      147,064 Property and equipment, net                          585,498      542,882 Investment in and advances to unconsolidated         86,151       19,240 affiliate Goodwill                                             300,616      250,414 Other intangible assets, net                         198,149      143,141 Other assets                                         21,132       11,596 Total assets                                         $1,352,261 $1,114,337 LIABILITIES AND SHAREHOLDERS' EQUITY                              Current liabilities:                                              Accounts payable                                     $43,123    $47,791 Bank overdraft                                       973          6,027 Account wagering deposit liabilities                 18,679       14,487 Purses payable                                       18,839       19,084 Accrued expenses                                     67,328       65,537 Dividends payable                                    15,186       — Current maturities of long-term debt                 —            209,728 Deferred revenue                                     49,078       43,916 Total current liabilities                            213,206      406,570 Long-term debt, net of current maturities            369,191      — Other liabilities                                    17,753       21,030 Deferred revenue                                     16,706       17,794 Deferred income taxes                                30,616       24,648 Total liabilities                                    647,472      470,042 Commitments and contingencies                                     Shareholders' equity:                                             Preferred stock, no par value; 250 shares            —            — authorized; no shares issued Common stock, no par value; 50,000 shares authorized; 17,948 shares issued at December 31,     295,955      274,709 2013 and17,448 shares issued at December 31, 2012 Retained earnings                                    408,834      369,586 Total shareholders' equity                           704,789      644,295 Total liabilities and shareholders' equity           $1,352,261 $1,114,337  CONTACT: Courtney Yopp Norris          (502) 636-4564          Courtney.Norris@kyderby.com