Segment Information

6 Months Ended

Jun. 30, 2011

Segment Information

Segment Information

NOTE 11 — SEGMENT INFORMATION

The Company operates in the following four segments: (1) Racing Operations, which includes Churchill Downs, Calder, Arlington Park and its eleven OTBs and Fair Grounds and the pari-mutuel activity generated at its eleven OTBs; (2) Online Business, which includes TwinSpires, our ADW business, Fair Grounds Account Wagering and Bloodstock Research Information Systems as well as the Company's equity investment in HRTV, LLC; (3) Gaming, which includes video poker and gaming operations at Fair Grounds Slots, Calder Casino, Harlow's, a casino and hotel acquired on December 16, 2010 and VSI, an owner and operator of more than 700 video poker machines in Louisiana; and (4) Other Investments, which includes United Tote, a manufacturer and operator of pari-mutuel wagering systems acquired by the Company on June 2, 2010, CDSP and the Company's other minor investments. Eliminations include the elimination of intersegment transactions.

The accounting policies of the segments are the same as those described in the "Summary of Significant Accounting Policies" in Note 1 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010. The Company uses EBITDA (defined as earnings before interest, taxes, depreciation and amortization) as a key performance measure of the results of operations for purposes of evaluating performance internally. Management believes that 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. EBITDA is a supplemental measure of the Company's performance that is not required by, or presented in accordance with, GAAP. EBITDA should not be considered an alternative to net earnings or any other performance measures derived in accordance with GAAP or as an alternative to net cash provided by operating activities or any other measures of the Company's cash flow or liquidity.

The table below presents information about reported segments for the three and six months ended June 30, 2011 and 2010 (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Net revenues from external customers:
Churchill Downs	$	95,839		$	92,019		$	98,161		$	94,604
Arlington Park		22,050			23,950			31,398			33,786
Calder		19,412			20,647			22,080			23,619
Fair Grounds		10,904			10,824			28,194			28,444
Total Racing Operations		148,205			147,440			179,833			180,453
Calder Casino		21,711			18,219			42,323			31,759
Fair Grounds Slots		9,458			9,092			21,630			20,650
VSI		8,789			8,537			18,216			17,187
Harlow's Casino		9,501			—			26,377			—
Total Gaming		49,459			35,848			108,546			69,596
Online Business		46,526			29,847			83,329			48,142
Other Investments		5,358			2,264			9,323			2,364
Corporate		138			(4	)		209			3
Net revenues	$	249,686		$	215,395		$	381,240		$	300,558
Intercompany net revenues:
Churchill Downs	$	3,464		$	2,428		$	3,612		$	2,536
Arlington Park		1,159			919			1,692			1,343
Calder		486			351			547			375
Fair Grounds		—			8			778			547
Total Racing Operations		5,109			3,706			6,629			4,801
Online Business		219			217			415			381
Other Investments		1,153			642			1,752			1,015
Eliminations		(6,481	)		(4,565	)		(8,796	)		(6,197	)
Net revenues	$	—		$	—		$	—		$	—
Reconciliation of Segment EBITDA to net earnings:
Racing	$	58,447		$	49,428		$	45,809		$	36,565
Gaming		12,798			6,706			30,331			11,645
Online		11,308			4,654			18,853			8,649
Other Investments		1,045			907			953			1,125
Corporate		1,385			(1,311	)		211			(2,623	)
Total EBITDA		84,983			60,384			96,157			55,361
Depreciation and amortization		(13,890	)		(11,990	)		(27,876	)		(22,015	)
Interest (expense) income, net		(3,405	)		(1,403	)		(5,797	)		(2,550	)
Income tax expense		(27,698	)		(18,722	)		(25,680	)		(10,671	)
Earnings from continuing operations		39,990			28,269			36,804			20,125
Discontinued operations, net of income taxes		157			(664	)		158			(1,188	)
Net earnings	$	40,147		$	27,605		$	36,962		$	18,937

As further discussed in Note 1, during the year ended December 31, 2010, the Company revised its Consolidated Statements of Net Earnings to appropriately reflect the classification of pari-mutuel and gaming taxes, in addition to free play that is administered at its gaming facilities. For the three and six months ended June 30, 2010, the net impact of the revision on the Company's net revenues from external customers is presented below. The revision, which the Company determined is not material, had no impact on intercompany net revenues or segment EBITDA.

	Three Months Ended June 30, 2010
	Previously Reported			Revised			Effect of Change
Net revenues from external customers:
Churchill Downs	$	89,390		$	92,019		$	2,629
Arlington Park		23,050			23,950			900
Calder		18,294			20,647			2,353
Fair Grounds		9,898			10,824			926
Total Racing Operations		140,632			147,440			6,808
Calder Casino		12,779			18,219			5,440
Fair Grounds Slots		8,625			9,092			467
VSI		6,782			8,537			1,755
Total Gaming		28,186			35,848			7,662
Online Business		29,393			29,847			454
Other Investments		2,305			2,264			(41	)
Corporate		(4	)		(4	)		—
Net revenues from external customers	$	200,512		$	215,395		$	14,883
	Six Months Ended June 30, 2010
	Previously Reported			Revised			Effect of Change
Net revenues from external customers:
Churchill Downs	$	91,530		$	94,604		$	3,074
Arlington Park		32,088			33,786			1,698
Calder		21,244			23,619			2,375
Fair Grounds		26,425			28,444			2,019
Total Racing Operations		171,287			180,453			9,166
Calder Casino		21,745			31,759			10,014
Fair Grounds Slots		19,116			20,650			1,534
VSI		13,657			17,187			3,530
Total Gaming		54,518			69,596			15,078
Online Business		47,350			48,142			792
Other Investments		2,404			2,364			(40	)
Corporate		3			3			—
Net revenues from external customers	$	275,562		$	300,558		$	24,996

The table below presents information about equity in earnings (losses) of unconsolidated investments included in the Company's reported segments for the three and six months ended June 30, 2011 and 2010 (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,
	2011		2010			2011			2010
Online Business	$	393	$	(254	)	$	(53	)	$	198
Other Investments		67		(36	)		97			(45	)
	$	460	$	(290	)	$	44		$	153

The table below presents total asset information for reported segments (in thousands):

	June 30, 2011			December 31, 2010
Total assets:
Racing Operations	$	947,516		$	951,062
Gaming		250,088			254,237
Online Business		184,696			189,962
Other Investments		184,999			191,160
		1,567,299			1,586,421
Eliminations		(568,796	)		(568,702	)
	$	998,503		$	1,017,719

The table below presents total goodwill information for reported segments (in thousands):

	June 30, 2011		December 31, 2010
Goodwill:
Racing Operations	$	50,401	$	50,401
Gaming		34,730		35,082
Online Business		127,363		127,787
Other Investments		1,258		1,258
	$	213,752	$	214,528

The table below presents total capital expenditure information for reported segments (in thousands):

	Six Months Ended June 30,
	2011		2010
Capital expenditures, net:
Racing Operations	$	3,681	$	32,026
Gaming		4,736		15,810
Online Business		842		2,550
Other Investments		1,608		1,762
	$	10,867	$	52,148