What changed in this filing

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Item 1. Financial Statements

2020-07-29 compared with 2020-04-29 · 274 added, 145 removed, 626 unchanged (40% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in millions, except per common share data) 2020 2019 2020 2019

17 unchanged sentences

Equity in (loss) income of unconsolidated affiliates ( 11.1 ) 9.5 ( 14.4 ) 13.6

Miscellaneous, net 0.3 0.4 0.3 0.4

Total other expense ( 31.1 ) ( 9.5 ) ( 53.7 ) ( 19.1 )

19 unchanged sentences

The accompanying notes are an integral part of the condensed consolidated financial statements.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions) March 31, 2020 December 31, 2019

(in millions) June 30, 2020 December 31, 2019

Current assets:

7 unchanged sentences

Property and equipment, net

1,043.2 937.3

Investment in and advances to unconsolidated affiliates

9 unchanged sentences

Dividends payable

Current liabilities of discontinued operations 124.0 —

Total current liabilities 488.2 301.2

10 unchanged sentences

Preferred stock — —

Common stock 6.1 —

Retained earnings

6 unchanged sentences

The accompanying notes are an integral part of the condensed consolidated financial statements.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Three Months Ended March 31, 2020

Common Stock Retained

9 unchanged sentences

Balance, March 31, 2020 39.4 — 433.9 ( 0.9 ) 2.6 435.6

Three Months Ended March 31, 2019

Net loss ( 118.8 ) ( 118.8 )

Stock-based compensation 6.1 6.1

Other ( 0.2 ) ( 0.2 )

Balance, June 30, 2020 39.4 $ 6.1 $ 314.9 $ ( 0.9 ) $ 2.6 $ 322.7

Common Stock Retained

11 unchanged sentences

Balance, March 31, 2019 40.2 — 457.8 ( 0.9 ) — 456.9

Net income 107.1 107.1

Repurchase of common stock ( 0.2 ) ( 4.4 ) ( 13.6 ) ( 18.0 )

Stock-based compensation 7.4 7.4

Other ( 0.1 ) ( 0.1 )

Balance, June 30, 2019 40.0 $ 2.9 $ 551.3 $ ( 0.9 ) $ — $ 553.3

The accompanying notes are an integral part of the condensed consolidated financial statements.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

(in millions) 2020 2019

20 unchanged sentences

Investments in and advances to unconsolidated affiliates — ( 410.1 )

Distributions of capital from unconsolidated affiliates — 8.1

Acquisition of gaming licenses — ( 22.1 )

Other ( 0.5 ) 1.1

14 unchanged sentences

The accompanying notes are an integral part of the condensed consolidated financial statements.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Three Months Ended March 31,

Six Months Ended June 30,

(in millions) 2020 2019

6 unchanged sentences

Property and equipment additions included in accounts payable and accrued expenses

Repurchase of common stock included in accrued expenses — 1.0

The accompanying notes are an integral part of the condensed consolidated financial statements.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

13 unchanged sentences

We report net revenue and operating expense associated with these reportable segments in the accompanying condensed consolidated statements of comprehensive income.

Recent Developments Regarding COVID-19

In recent months, a new strain of coronavirus (COVID-19) has spread to many countries in the world, including the United States, and the outbreak has been declared a pandemic by the World Health Organization.

Secretary of Health and Human Services has also declared a public health emergency in the United States in response to the outbreak.

Impact of COVID-19 Pandemic

In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic.

Considerable uncertainty still surrounds the COVID-19 virus and its potential effects, and the extent of and effectiveness of responses taken on international, national and local levels.

Measures taken to limit the impact of COVID-19, including shelter-in-place orders, social distancing measures, travel bans and restrictions, and business and government shutdowns, have already resulted in significant negative economic impacts in the United States and in relation to our business.

The long-term impact of COVID-19 on the United States and world economies remains uncertain, the duration and scope of which cannot currently be predicted.

In response to the measures taken to limit the impact of COVID-19 described above, and for the protection of our employees, customers, and communities, we have temporarily closed or suspended operations at the following properties, effective as of the following dates:

Measures taken to limit the impact of COVID-19, including shelter-in-place orders, social distancing measures, travel bans and restrictions, and business and government shutdowns, have resulted and continue to result in significant negative economic impacts in the United States and in relation to our business.

The long-term impact of COVID-19 on the United States and world economies and continuing impact on our business remains uncertain, the duration and scope of which cannot currently be predicted.

In response to the measures taken to limit the impact of COVID-19 described above, and for the protection of our employees, customers, and communities, we temporarily suspended operations at our properties in March 2020.

In May 2020, we began to reopen our properties with patron capacity limitations and gaming restrictions.

We also implemented other initiatives to facilitate social distancing and enhanced cleaning, such as increased frequency of cleaning and sanitizing of all high-touch surfaces, mandatory temperature checks of all guests and team members upon entry and required training for all team members on safety protocols.

Certain amenities at our properties have continued to be suspended, including all of our food buffets and valet services, and certain restaurants and food outlets.

Below is a summary of the temporary closures or suspended operations and the current status of each property:

Churchill Downs

• Simulcast operations at Churchill Downs Racetrack on March 15, 2020.

• Derby City Gaming on March 15, 2020.

• Churchill Downs Racetrack conducted 27 spectator-free live racing days from May 16, 2020 through June 28, 2020.

Churchill Downs Racetrack suspended simulcast operations on March 15, 2020 and such operations currently remain closed.

• Derby City Gaming temporarily suspended operations on March 15, 2020 and reopened on June 8, 2020.

Derby City Gaming is currently restricted to 50 % of patron capacity and has implemented social distancing measures, which has limited its gaming capacity to approximately 66 %.

Wholly-Owned Properties

• Calder Casino and Racing ("Calder") on March 16, 2020.

• Fair Grounds Slots and Video Services, LLC ("VSI") on March 16, 2020.

• Fair Grounds Race Course conducted spectator-free live racing, including the Louisiana Derby, from March 13, 2020 through March 21, 2020 and canceled the remainder of racing dates.

• Harlow's Casino Resort and Spa ("Harlow's") on March 16, 2020.

• Ocean Downs Casino and Racetrack ("Ocean Downs") on March 15, 2020.

• Oxford Casino and Hotel ("Oxford") on March 16, 2020.

• Presque Isle Downs and Casino ("Presque Isle") on March 16, 2020.

• Riverwalk Casino Hotel ("Riverwalk") on March 16, 2020.

• Calder Casino and Racing ("Calder") temporarily suspended operations on March 16, 2020 and reopened on June 12, 2020.

Operations were temporarily suspended again on July 2, 2020 following a Miami-Dade Emergency Order issued by the county's mayor to close all entertainment venues in Miami-Dade county.

• Fair Grounds Slots, Fair Grounds Race Course and Video Services, LLC ("VSI") (collectively, "Fair Grounds and VSI"):

◦ Fair Grounds Slots temporarily suspended operations on March 16, 2020 and reopened on June 13, 2020.

Fair Grounds Slots is currently restricted to 25 % patron capacity and has implemented social distancing measures, which has limited its gaming capacity to approximately 50 %;

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

◦ Fair Grounds Race Course conducted spectator-free live racing from March 13, 2020 through March 21, 2020 and did not have any live race days during the second quarter of 2020;

◦ VSI temporarily suspended operations on March 16, 2020 and reopened on May 18, 2020.

VSI is currently restricted to 50 % patron capacity and has implemented social distancing measures, which has limited its gaming capacity to approximately 70 %.

• Harlow's Casino Resort and Spa ("Harlow's") temporarily suspended operations on March 16, 2020 and reopened on May 21, 2020.

Harlow’s is currently restricted to 50 % of patron capacity and has implemented social distancing measures, which has limited its slot gaming capacity to approximately 66 % and its table games capacity to approximately 60 %.

• Ocean Downs Casino and Racetrack ("Ocean Downs") temporarily suspended operations on March 15, 2020 and reopened on June 19, 2020.

Ocean Downs is currently restricted to 50 % of patron capacity and has implemented social distancing measures, which has limited its video lottery terminals ("VLTs") capacity to approximately 70 % and its table game capacity to approximately 60 %.

• Oxford Casino and Hotel ("Oxford") temporarily suspended operations on March 16, 2020 and reopened on July 9, 2020.

Oxford is currently restricted to 200 persons on the gaming floor and only allows slot gaming.

• Presque Isle Downs and Casino ("Presque Isle") temporarily suspended operations on March 16, 2020 and reopened on June 26, 2020.

Presque Isle is currently restricted to 50 % of patron capacity and has implemented social distancing measures, which has limited its slot gaming capacity to approximately 60 % and its table game capacity to approximately 60 %.

• Riverwalk Casino Hotel ("Riverwalk") temporarily suspended operations on March 16, 2020 and reopened on May 21, 2020.

Riverwalk is currently restricted to 50 % of patron capacity and has implemented social distancing measures, which has limited its slot gaming capacity to approximately 66 % and its table games capacity to approximately 60 %.

Managed Properties

• Lady Luck Casino Nemacolin ("Lady Luck Nemacolin") on March 16, 2020.

• Lady Luck Casino Nemacolin ("Lady Luck Nemacolin") temporarily suspended operations on March 16, 2020 and reopened on June 12, 2020.

Lady Luck Nemacolin is currently restricted to 50 % of patron capacity and has implemented social distancing measures, which has limited its slot gaming capacity to approximately 50 % and its table game capacity to approximately 60 %.

Equity Investments

• Rivers Casino Des Plaines ("Rivers Des Plaines") on March 15, 2020.

• Miami Valley Gaming and Racing ("MVG") on March 14, 2020.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

• Rivers Casino Des Plaines ("Rivers Des Plaines") temporarily suspended operations on March 15, 2020 and reopened on July 1, 2020.

Rivers Des Plaines is currently restricted to 50 % of patron capacity and has implemented social distancing measures, which has limited its slot gaming capacity to approximately 66 % and its table games capacity to approximately 60 %.

• Miami Valley Gaming and Racing ("MVG") temporarily suspended operations on March 14, 2020 and reopened on June 19, 2020.

MVG is currently restricted to 50 % of patron capacity and has implemented social distancing measures, which has limited its VLT capacity to approximately 50 %.

• Arlington International Racecourse ("Arlington") temporarily suspended operations of its off-track betting facilities ("OTBs") and simulcast operations on March 16, 2020.

Four OTBs reopened on June 5, 2020 and the remaining OTBs reopened on various dates in July 2020.

Arlington is scheduled to conduct 30 spectator-free live racing days from July 23, 2020 through September 26, 2020.

• Turfway Park conducted nine live racing days from March 12, 2020 through March 21, 2020 and five of these live racing days were run spectator-free.

Live racing was canceled for the remaining three scheduled racing days in March 2020.

Turfway Park did not have any race days scheduled in the second quarter of 2020.

On March 25, 2020, as a result of the temporary closures and suspended operations described above, the Company announced the temporary furlough of employees at its wholly-owned and managed gaming properties and certain racing operations.

As the Company has reopened these properties, certain employees have returned to work while others remain on temporary furlough due to the capacity restrictions at these properties.

The Company is providing health, dental, vision and life insurance benefits to furloughed employees through July 31, 2020.

The Company also implemented a temporary salary reduction for all remaining non-furloughed salaried employees based on a percentage that varies dependent upon the amount of each employee’s salary.

The most senior level of executive management has received the largest salary decrease, based on both percentage and dollar amount.

Salaries for non-furloughed employees

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

• Arlington International Racecourse ("Arlington") off track betting facilities ("OTBs") and simulcast operations on March 16, 2020.

• Turfway Park conducted spectator-free live racing from March 12, 2020 through March 25, 2020 and canceled the remainder of racing dates.

On March 25, 2020, as a result of the temporary closures and suspended operations described above, the Company announced the temporary furlough of employees at its wholly-owned gaming properties and certain wholly-owned racing operations.

The Company is continuing to provide health, dental, vision and life insurance benefits to furloughed employees at our wholly-owned properties.

The Company also implemented a salary reduction for all remaining non-furloughed salaried employees based on a percentage that varies dependent upon the amount of each employee’s salary.

The most senior level of executive management has received the largest salary decrease, based on both percentage and dollar amount.

The salary reductions will remain in effect until the Company begins to return to normalized operations.

There have been a number of other aspects of our business that have been impacted by COVID-19 during the three months ended March 31, 2020, including the following:

will resume at the annual base salary beginning with their start of the employee's first full pay period subsequent to July 31, 2020.

There have been a number of other aspects of our business that have been impacted by COVID-19 during the three and six months ended June 30, 2020, including the following:

• The Company rescheduled the 146th Kentucky Oaks and Derby from May 1-2, 2020 to September 4-5, 2020.

• Starting in mid-February 2020, U.S.

and international sporting events were cancelled, which reduced our sports betting options for our customers.

On June 24, 2020, the Company received approval from the Governor of Kentucky and state public health officials for its plan to allow limited spectators to attend the Kentucky Derby week events held September 1-5, 2020.

• Horse racing content for wagering on our TwinSpires business ("TwinSpires") decreased, although handle increased as our customers wagered more on the content that was available.

• Starting in mid-February 2020, U.S.

and international sporting events were cancelled, which reduced sports betting content for our customers.

Financial Status and Outlook

The Company has temporarily reduced its planned maintenance and project capital expenditures for 2020 as a result of the temporary property and operations closures and our prioritization of capital investments based on the highest near-term return opportunities in order to maintain financial flexibility.

On March 16, 2020, we borrowed $ 675.4 million on our revolving credit facility (the "Revolver") pursuant to the Credit Agreement (defined below) to provide the Company with additional financial flexibility, which provided the Company with $ 700.9 million of cash and cash equivalents as of March 31, 2020.

The Company was in compliance with all applicable covenants in the Credit Agreement at March 31, 2020.

The Company has temporarily reduced its planned maintenance and project capital expenditures for 2020 as a result of the temporary property and operations closures and has prioritized its capital investments based on the highest near-term return opportunities in order to maintain financial flexibility.

On March 16, 2020, we borrowed $ 675.4 million on our revolving credit facility (the "Revolver") pursuant to the Credit Agreement (defined below) to provide the Company with additional financial flexibility, which provided the Company with $ 649.2 million of cash and cash equivalents as of June 30, 2020.

On April 28, 2020, the Company entered into a Second Amendment to its Credit Agreement, which (i) provides for a financial covenant relief period through the date on which the Company delivers its quarterly financial statements and compliance certificate for the fiscal quarter ending June 30, 2021, subject to certain exceptions (the “Financial Covenant Relief Period”), (ii) amends the definition of “Consolidated EBITDA” in the Credit Agreement with respect to the calculation of Consolidated EBITDA for the first two fiscal quarters after the termination of the Financial Covenant Relief Period, (iii) extends certain deadlines and makes certain other amendments to the Company’s financial reporting obligations, (iv) places certain restrictions on restricted payments during the Financial Covenant Relief Period, and (v) amends the definitions of “Material Adverse Effect” and “License Revocation” in the Credit Agreement to take into consideration COVID-19.

During the Financial Covenant Relief Period, the Company will not be required to comply with its existing consolidated total secured net leverage ratio financial covenant and the interest coverage ratio financial covenant.

During the Financial Covenant Relief Period, the Company will not be required to comply with the consolidated total secured net leverage ratio financial covenant and the interest coverage ratio financial covenant.

The Company has agreed to a minimum liquidity financial covenant that requires the Company and its restricted subsidiaries to maintain liquidity of at least $ 150.0 million during the Financial Covenant Relief Period.

We continue to assess the situation at our properties and operations on a daily basis;

however, we are unable to determine when we will be able to reopen our properties and operations and the conditions upon which we will reopen.

Our second quarter of 2020 financial results will be materially impacted by the rescheduling of the Kentucky Oaks and Derby from the second quarter of 2020 to the third quarter of 2020, by the continued closure and suspended operations of our wholly-owned gaming properties and certain wholly-owned racing operations, and by the continued closure of the casino properties related to our two equity investments.

Based on our current projected operating cash flow needs, interest and debt repayments, and revised maintenance and project capital expenditures, we believe we have adequate cash for at least the next twelve months to fund our business operations, meet all of our financial commitments, and invest in key growth capital projects.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

however, we are unable to determine when we will be able to reopen any properties and / or operations that are closed or that may be closed in the future, the conditions upon which we will reopen, and when the current restrictions in place for our opened properties will be removed.

Our third quarter of 2020 financial results will be materially impacted by the rescheduling of the Kentucky Oaks and Derby from the second quarter of 2020 to the third quarter of 2020, by the temporary suspended operations at certain properties, and continued restrictions at the properties that have reopened.

Based on our current projected operating cash flow needs, interest and debt repayments, and revised maintenance and project capital expenditures, we believe we have adequate cash to fund our business operations, meet all of our financial commitments, and invest in our prioritized key growth capital projects for well beyond the next twelve months.

Acquisitions of Presque Isle and Lady Luck Nemacolin

2 unchanged sentences

On March 8, 2019, the Company assumed management and acquired certain assets related to the management of Lady Luck Nemacolin in Farmington, Pennsylvania, from ERI for cash consideration of $ 100,000 (the "Lady Luck Nemacolin Transaction").

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Acquisition of Certain Ownership Interests of Midwest Gaming Holdings, LLC

9 unchanged sentences

Turfway Park is located on 197 acres in Florence, Kentucky.

The Company has announced plans and has begun to invest up to $ 150.0 million (including the Turfway Park Acquisition total consideration of $ 46.0 million) in a state-of-the-art live and historical thoroughbred racing facility at Turfway Park.

On July 28, 2020, the Company's Board of Directors approved the final design plans for the HRM and grandstand facility at Turfway Park.

The final plans reflect a project capital of $ 200.0 million, which includes the Turfway Park Acquisition costs and other previously approved capital.

The 155,000 square foot facility will include a grandstand, sports bar, food offerings, and up to 1,200 historical racing machines.

The Turfway Park facility is expected to open in the fourth quarter of 2021.

Refer to Note 4, Acquisitions, for further information on the Turfway Park Acquisition.

The Company has announced plans and has begun to invest up to $ 38.4 million for an extension of Turfway Park, to be located in Newport, Kentucky, which will include a simulcast area including a separate VIP simulcast room, a 17,000 square foot gaming floor with 500 historical racing machines and a feature bar.

The Company plans to open the extension in the fourth quarter of 2020.

Churchill Downs

1 unchanged sentence

Historically, the majority of our live racing revenue occurs during the second quarter with the running of the Kentucky Derby and Kentucky Oaks.

However, as announced on March 17, 2020, due to the COVID-19 pandemic, the Company rescheduled the 146th Kentucky Oaks and Kentucky Derby from May 1, 2020 and May 2, 2020 to September 4, 2020 and September 5, 2020, respectively.

Due to the COVID-19 pandemic, the Company rescheduled the 146th Kentucky Oaks and Kentucky Derby from May 1, 2020 and May 2, 2020 to September 4, 2020 and September 5, 2020, respectively.

Online Wagering

1 unchanged sentence

Historically, our revenue is higher in the second quarter with the running of the Kentucky Derby and the Kentucky Oaks.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Due to the COVID-19 pandemic, the Company rescheduled the 146th Kentucky Oaks and Kentucky Derby from May 1, 2020 and May 2, 2020 to September 4, 2020 and September 5, 2020, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

3 unchanged sentences

The new model will apply to:

(1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (2) loan commitments and certain other off-balance sheet credit exposures, (3) debt securities and other financial assets measured at fair value through other comprehensive income, and (4) beneficial interests in securitized financial assets.

(1) loans, accounts receivable,

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

trade receivables, and other financial assets measured at amortized cost, (2) loan commitments and certain other off-balance sheet credit exposures, (3) debt securities and other financial assets measured at fair value through other comprehensive income, and (4) beneficial interests in securitized financial assets.

We adopted ASC 326 on January 1, 2020 using the modified retrospective approach.

8 unchanged sentences

We adopted this guidance on January 1, 2020.

The new guidance did not result in a cumulative adjustment upon adoption and the fair value of our Presque Isle reporting unit exceeded the carrying amount in our March 31, 2020 trigger event testing (refer to Note 7, Asset Impairment, for further information).

As a result, there was no impairment recognized under the new guidance for the period ended March 31, 2020.

The new guidance did not result in a cumulative adjustment upon adoption and there was no impairment recognized under the new guidance for the three or six months ended June 30, 2020.

In August 2018, the FASB issued ASU No.

17 unchanged sentences

property and equipment (primarily land) of $ 18.8 million, indefinite-lived gaming rights of $ 9.8 million, indefinite-lived trademark of $ 5.5 million, goodwill of $ 2.7 million, and current liabilities of $ 2.6 million.

The Company has not included other disclosures regarding the Turfway Park Acquisition because the acquisition is immaterial to our business.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

DISCONTINUED OPERATIONS

1 unchanged sentence

("Big Fish Games"), a Washington corporation, to Aristocrat Technologies, Inc.

(the "Purchaser"), a Nevada corporation, an indirect, wholly owned subsidiary of Aristocrat Leisure Limited, an Australian corporation (the "Big Fish Transaction").

("Aristocrat"), a Nevada corporation, an indirect, wholly owned subsidiary of Aristocrat Leisure Limited, an Australian corporation (the "Big Fish Transaction").

On January 9, 2018, pursuant to the Stock Purchase Agreement, the Company completed the Big Fish Transaction.

The Purchaser paid aggregate consideration of $ 990.0 million in cash in connection with the Big Fish Transaction, subject to customary adjustments for working capital and indebtedness and certain other adjustments as set forth in the Stock Purchase Agreement.

Aristocrat paid aggregate consideration of $ 990.0 million in cash in connection with the Big Fish Transaction, subject to customary adjustments for working capital and indebtedness and certain other adjustments as set forth in the Stock Purchase Agreement.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

The Big Fish Games segment and the related Big Fish Transaction meet the criteria for discontinued operation presentation.

2 unchanged sentences

The condensed consolidated statements of cash flows include both continuing and discontinued operations.

The following table presents the financial results of Big Fish Games included in "loss from discontinued operations, net of tax" in the accompanying condensed consolidated statements of comprehensive income:

Three Months Ended March 31,

Kater and Thimmegowda Settlement

On May 22, 2020, we entered into an agreement in principle to settle Cheryl Kater v.

Churchill Downs Incorporated ("Kater litigation") and Manasa Thimmegowda v.

Big Fish Games, Inc.

(the “Thimmegowda litigation”).

The agreement in principle remains contingent on final court approval by the U.S.

District Court for the Western District of Washington (the “District Court”).

Under the terms of the settlement, which will take effect only after final court approval of the proposed class settlement:

(i) a total of $ 155.0 million will be paid into a settlement fund.

CDI will pay $ 124.0 million pre-tax of the settlement from its available cash;

Aristocrat will pay $ 31.0 million pre-tax of the settlement;

(ii) all members of the nationwide settlement class who do not exclude themselves will release all claims relating to the subject matter of the lawsuits;

and (iii) Aristocrat has agreed to specifically release CDI of any and all indemnification obligations under the Stock Purchase Agreement arising from or related to the Kater and Thimmegowda litigations, including any claims of diminution of value of Big Fish Games and any claims by any person who opts out of the proposed class settlement.

The $ 124.0 million pre-tax settlement related to the Company is included in loss from discontinued operations, net of tax in the accompanying condensed consolidated statements of comprehensive (loss) income for the three and six months ended June 30, 2020, and on a pre-tax basis in current liabilities of discontinued operations in the accompanying condensed consolidated balance sheets at June 30, 2020.

Three Months Ended June 30, Six Months Ended June 30,

(in millions) 2020 2019 2020 2019

1 unchanged sentence

Selling, general and administrative expense 0.3 1.6 1.5 2.0

Legal settlement 124.0 — 124.0 —

Loss from discontinued operations before provision for income taxes

2 unchanged sentences

Loss from discontinued operations, net of tax $ ( 95.2 ) $ ( 1.2 ) $ ( 96.1 ) $ ( 1.5 )

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

GOODWILL AND OTHER INTANGIBLE ASSETS

2 unchanged sentences

Balances as of December 31, 2019 $ 49.7 $ 148.2 $ 165.2 $ 4.0 $ 367.1

Additions — — — — —

Balances as of March 31, 2020 $ 49.7 $ 148.2 $ 165.2 $ 4.0 $ 367.1

Adjustments — — — ( 0.3 ) ( 0.3 )

Balances as of June 30, 2020 $ 49.7 $ 148.2 $ 165.2 $ 3.7 $ 366.8

We performed our annual goodwill impairment analysis as of April 1, 2020.

We assessed goodwill for impairment by performing qualitative or quantitative analyses for each reporting unit.

Based on the results of these analyses, no goodwill impairments were identified in connection with our annual impairment testing.

During the second quarter we recorded an immaterial measurement period adjustment for the Turfway Park acquisition that impacted the All Other goodwill balance.

Other intangible assets are comprised of the following:

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

(in millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount

2 unchanged sentences

Total $ 350.8 $ 369.8

Refer to Note 7, Asset Impairment, for further information regarding our goodwill and other intangible assets.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Refer to Note 7, Asset Impairment, for information regarding intangible asset impairments recognized during the first quarter of 2020.

We performed our annual indefinite-lived intangible assets impairment analysis as of April 1, 2020.

We assessed our indefinite-lived intangible assets for impairment by performing qualitative or quantitative analyses for each asset.

Based on the results of these analyses, no indefinite-lived intangible asset impairments were identified in connection with our annual impairment testing.

ASSET IMPAIRMENT

8 unchanged sentences

As a result, the Company recognized an impairment of $ 15.0 million in first quarter of 2020 for its Presque Isle gaming rights ($ 12.5 million related to the Gaming segment and $ 2.5 million related to the Online Wagering segment).

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

The Presque Isle trademark was initially valued in first quarter of 2019 using the relief-from-royalty method of the income approach, which estimates the fair value of the intangible asset by discounting the fair value of the hypothetical royalty payments a market participant would be willing to pay to enjoy the benefits of the asset.

5 unchanged sentences

Based on the Trigger Event, the Company updated the discount rate to reflect the increased uncertainty of the cash flows and updated project cash flow stream.

As a result, the Company did not recognize an impairment for Presque Isle goodwill in first quarter of 2020 because the fair value exceeded the carrying value.

The Company’s effective income tax rate for the three months ended March 31, 2020 reflects a tax benefit on a pretax loss.

The income tax rate was higher than the U.S.

federal statutory rate of 21.0% primarily resulting from tax benefits recognized during a period of pretax loss related to state income taxes and tax deductions in excess of book deductions related to vesting of restricted stock units.

The Company's effective income tax rate for the three months ended March 31, 2019 was higher than the U.S.

federal statutory rate of 21.0%, primarily due to $ 2.8 million of future income tax expenses recognized from the re-measurement of our net deferred tax liabilities based on an increase in income attributable to states with higher tax rates compared to the prior year quarter, as well as state income taxes and certain non-deductible expenses for purposes of income taxes.

This expense was partially offset by tax benefits resulting from tax deductions in excess of book deductions related to vesting of restricted stock units.

As a result, the Company did not recognize an impairment for Presque Isle goodwill in the first quarter of 2020 because the fair value exceeded the carrying value.

The Company’s effective income tax rate for the three and six months ended June 30, 2020 reflects a tax benefit on our actual pretax loss, while the annual estimated effective tax rate reflects tax expense on our estimated annual pretax income.

The Company’s effective income tax rate for the three months ended June 30, 2020 was higher than the U.S.

federal statutory rate of 21.0% primarily resulting from nondeductible officer's compensation, state income taxes and the establishment of a valuation allowance against current year state income tax losses in certain jurisdictions that do not require combined reporting.

The Company's annual estimated effective tax rate includes a tax benefit from a current year federal taxable loss which will be carried back to a pre-2018 tax year, reducing the effective income tax rate applied to the pre-tax loss in the second quarter of 2020.

The effective income tax rate for the six months ended June 30, 2020 was higher than the U.S.

federal statutory rate of 21.0% primarily resulting from state income taxes, nondeductible officer's compensation and year-to-date tax deductions from vesting of stock awards in excess of book deductions.

The Company's effective income tax rate for the three months ended June 30, 2019 was higher than the U.S.

federal statutory rate of 21.0%, primarily due to state income taxes and certain expenses that are not deductible for the purposes of income taxes.

This expense was partially offset by tax benefits resulting from tax deductions from vesting of stock awards in excess of book deductions.

The Company's effective income tax rate for the six months ended June 30, 2019 was higher than the U.S.

federal statutory rate of 21.0% primarily due to state income taxes, as well as $ 2.2 million of future income tax expenses recognized from the re-measurement of our net deferred tax liabilities based on an increase in income attributable to states with higher tax rates compared to the prior year quarter, and certain expenses that are not deductible for the purposes of income taxes.

This expense was partially offset by tax benefits resulting from tax deductions from vesting of stock awards in excess of book deductions.

SHAREHOLDERS’ EQUITY

1 unchanged sentence

The new program replaced the prior $ 250.0 million program that was authorized in April 2017 and had unused authorization of $ 78.3 million.

The new authorized amount includes and is not in addition to any unspent amount

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

remaining under the prior authorization.

The new authorized amount includes and is not in addition to any unspent amount remaining under the prior authorization.

Repurchases may be made at management’s discretion from time to time on the open market (either with or without a 10b5-1 plan) or through privately negotiated transactions.

The repurchase program has no time limit and may be suspended or discontinued at any time.

For the three months ended March 31, 2020, we repurchased 235,590 shares of our common stock under the October 2018 stock repurchase program at an aggregate purchase price of $ 27.9 million based on trade date.

We had approximately $ 147.1 million of repurchase authority remaining under this program at March 31, 2020, based on trade date.

For the six months ended June 30, 2020, we repurchased 235,590 shares of our common stock under the October 2018 stock repurchase program at an aggregate purchase price of $ 27.9 million, based on trade date.

We had approximately $ 147.1 million of repurchase authority remaining under this program at June 30, 2020, based on trade date.

There were no repurchases of common stock under our repurchase program for the three months ended June 30, 2020.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

STOCK-BASED COMPENSATION PLANS

We have stock-based employee compensation plans with awards outstanding under the Churchill Downs Incorporated 2016 Omnibus Stock Incentive Plan (the "2016 Plan") and the Executive Long-Term Incentive Compensation Plan, which was adopted pursuant to the 2016 Plan.

Our total stock-based compensation expense, which includes expenses related to restricted stock awards ("RSAs"), restricted stock unit awards ("RSUs"), performance share unit awards ("PSUs"), and stock options associated with our employee stock purchase plan was $ 4.3 million for the three months ended March 31, 2020 and $ 4.7 million for the three months ended March 31, 2019.

During the three months ended March 31, 2020, the Company awarded RSUs to employees and RSUs and PSUs to certain named executive officers ("NEOs").

Our total stock-based compensation expense, which includes expenses related to restricted stock awards ("RSAs"), restricted stock unit awards ("RSUs"), performance share unit awards ("PSUs"), and stock options associated with our employee stock purchase plan was $ 6.1 million for the three months ended June 30, 2020 and $ 7.4 million for the three months ended June 30, 2019.

Stock-based compensation expense was $ 10.4 million for the six months ended June 30, 2020 and $ 12.1 million for the six months ended June 30, 2019.

During the six months ended June 30, 2020, the Company awarded RSUs to employees, RSUs and PSUs to certain named executive officers ("NEOs"), and RSUs to directors.

The vesting criteria for the PSU awards granted in 2020 were based on a three-year service period with two performance conditions and a market condition related to relative total shareholder return ("TSR") consistent with prior year grants.

8 unchanged sentences

2020 PSU 37 Three year performance and service period ending in 2022

2020 RSU 12 One year service period ending in 2021

Credit Agreement

On March 16, 2020, the Company entered into a First Amendment (the “First Amendment”) to its Credit Agreement (as amended, the “Credit Agreement”), dated December 27, 2017, among the Company, the subsidiary guarantors party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders and other financial institutions party thereto.

On March 16, 2020, the Company entered into the First Amendment (the “First Amendment”) to its Credit Agreement (as amended, the “Credit Agreement”), dated December 27, 2017, among the Company, the subsidiary guarantors party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders and other financial institutions party thereto.

The First Amendment extends the maturity for the Company’s Revolver to at least September 27, 2024, which is 91 days prior to the latest maturity date of the Company’s term loan facility on December 27, 2024.

5 unchanged sentences

The Company capitalized $ 2.0 million of debt issuance costs associated with the First Amendment which are amortized as interest expense over the remaining duration of the Revolver.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

On March 16, 2020, we borrowed $ 675.4 million on our Revolver to provide the Company with additional financial flexibility, which provided the Company with $ 649.2 million of cash and cash equivalents as of June 30, 2020.

On April 28, 2020, the Company entered into the Second Amendment to its Credit Agreement, which (i) provides for a financial covenant relief period through the date on which the Company delivers its quarterly financial statements and compliance certificate for the fiscal quarter ending June 30, 2021, subject to certain exceptions (the “Financial Covenant Relief Period”), (ii) amends the definition of “Consolidated EBITDA” in the Credit Agreement with respect to the calculation of

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

On March 16, 2020, we borrowed $ 675.4 million on our Revolver to provide the Company with additional financial flexibility, which provided the Company with $ 700.9 million of cash and cash equivalents as of March 31, 2020.

The Company was in compliance with all applicable covenants in the Credit Agreement at March 31, 2020.

Consolidated EBITDA for the first two fiscal quarters after the termination of the Financial Covenant Relief Period, (iii) extends certain deadlines and makes certain other amendments to the Company’s financial reporting obligations, (iv) places certain restrictions on restricted payments during the Financial Covenant Relief Period, and (v) amends the definitions of “Material Adverse Effect” and “License Revocation” in the Credit Agreement to take into consideration COVID-19.

1 unchanged sentence

Performance Obligations

As of March 31, 2020, the Churchill Downs segment had remaining performance obligations, on contracts with a duration greater than one year, with an aggregate transaction price of $ 167.5 million.

As of June 30, 2020, the Churchill Downs segment had remaining performance obligations, on contracts with a duration greater than one year, with an aggregate transaction price of $ 162.7 million.

The revenue we expect to recognize on these remaining performance obligations is $ 38.1 million for the remainder of 2020, $ 39.1 million in 2021, $ 32.6 million in 2022, and the remainder thereafter.

As of March 31, 2020, our remaining performance obligations in segments other than Churchill Downs were not material.

As of June 30, 2020, our remaining performance obligations in segments other than Churchill Downs were not material.

Contract Assets and Contract Liabilities

As of March 31, 2020 and December 31, 2019, contract assets were not material.

As of March 31, 2020 and December 31, 2019, contract liabilities were $ 119.0 million and $ 63.1 million, respectively, which are included in current deferred revenue, non-current deferred revenue, and accrued expense in the accompanying condensed consolidated balance sheets.

As of June 30, 2020 and December 31, 2019, contract assets were not material.

As of June 30, 2020 and December 31, 2019, contract liabilities were $ 108.8 million and $ 63.1 million, respectively, which are included in current deferred revenue, non-current deferred revenue, and accrued expense in the accompanying condensed consolidated balance sheets.

Contract liabilities primarily relate to the Churchill Downs segment and the increase was primarily due to cash payments received for unfulfilled performance obligations.

We recognized $ 3.8 million of revenue during the three months ended March 31, 2020 that was included in the contract liabilities balance at December 31, 2019.

We recognized $ 2.7 million of revenue during the three months ended March 31, 2019 that was included in the contract liabilities balance at December 31, 2018.

We recognized $ 0.3 million of revenue during the three months ended June 30, 2020 and $ 4.1 million of revenue during the six months ended June 30, 2020 that was included in the contract liabilities balance at December 31, 2019.

We recognized $ 45.8 million of revenue during the three months ended June 30, 2019 and $ 48.5 million of revenue during the six months ended June 30, 2019 that was included in the contract liabilities balance at December 31, 2018.

Disaggregation of Revenue

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We believe that these disclosures depict how the amount, nature, timing, and uncertainty of cash flows are affected by economic factors.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

2 unchanged sentences

Accrued expenses and other current liabilities consisted of the following:

(in millions) March 31, 2020 December 31, 2019

(in millions) June 30, 2020 December 31, 2019

Account wagering deposits liability $ 38.5 $ 28.9

15 unchanged sentences

The Company’s investment in Midwest Gaming is presented at our initial cost of investment plus its accumulated proportional share of income or loss, including depreciation/accretion of the difference in the historical basis of the Company’s contribution, less any distributions it has received.

As of March 31, 2020, the net aggregate basis difference between the Company’s investment in Midwest Gaming and the amounts of the underlying equity in net assets was $ 834.0 million.

As of June 30, 2020, the net aggregate basis difference between the Company’s investment in Midwest Gaming and the amounts of the underlying equity in net assets was $ 833.8 million.

Summarized Financial Results for our Unconsolidated Affiliates

Summarized below are the financial results for our unconsolidated affiliates.

The summarized income statement information for the three months ended March 31, 2020 and 2019 and summarized balance sheet information as of March 31, 2020 and December 31, 2019 includes the following equity investments:

The summarized income statement information for the three and six months ended June 30, 2020 and 2019, respectively, and summarized balance sheet information as of June 30, 2020 and December 31, 2019 includes the following equity investments:

MVG, Rivers Des Plaines from the transaction date of March 5, 2019, and two other immaterial joint ventures.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in millions) 2020 2019 2020 2019

3 unchanged sentences

Total operating expense 11.3 122.4 116.3 185.6

Operating income 32.8 26.3

Operating (loss) income ( 4.5 ) 43.8 28.3 70.1

Interest and other, net ( 13.4 ) ( 25.3 ) ( 49.2 ) ( 42.3 )

Net (loss) income $ ( 17.9 ) $ 18.5 $ ( 20.9 ) $ 27.8

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

(in millions) March 31, 2020 December 31, 2019

(in millions) June 30, 2020 December 31, 2019

Current assets $ 98.3 $ 64.0

16 unchanged sentences

The fair values of the Company's $ 400.0 million Senior Secured Term Loan B (the "Term Loan B") and Revolver under the Credit Agreement approximate the gross carrying value of the variable rate debt and as such are Level 2 measurements.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

1 unchanged sentence

The carrying amounts and estimated fair values by input level of the Company's financial instruments are as follows:

March 31, 2020

June 30, 2020

(in millions) Carrying Amount Fair Value Level 1 Level 2 Level 3

27 unchanged sentences

In the event that a legal proceeding results in a substantial judgment against, or settlement by us, there can be no assurance that any resulting liability or financial commitment would not have a material adverse impact on our business.

Kater and Thimmegowda Settlement

Refer to Note 5, Discontinued Operations, for further discussion of the Kater and Thimmegowda settlement.

Louisiana Environmental Protection Agency Non-Compliance Issue

On December 6, 2013, we received a notice from the United States Environmental Protection Agency ("EPA") regarding alleged CAFO non-compliance at Fair Grounds Race Course.

On October 21, 2019, we reached an agreement in principle, subject to final regulatory and court approval.

If approved, the agreement will include a $ 2.8 million penalty, which was accrued for in the third quarter of 2019 and is included in accrued expense and other current liabilities in our accompanying condensed consolidated balance sheets at March 31, 2020 and December 31, 2019.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

On October 21, 2019, we reached an agreement in principle,

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

subject to final regulatory and court approval.

NET INCOME PER COMMON SHARE COMPUTATIONS

The following is a reconciliation of the numerator and denominator of the net income per common share computations:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in millions, except per share data) 2020 2019 2020 2019

19 unchanged sentences

Anti-dilutive stock awards excluded from the calculation of diluted shares 0.5 — 0.5 —

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

SEGMENT INFORMATION

7 unchanged sentences

admissions, personal seat licenses, sponsorships, television rights, and other miscellaneous services (collectively "racing event-related services"), as well as food and beverage services.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

• Online Wagering

7 unchanged sentences

The Gaming segment revenue and Adjusted EBITDA includes the following properties:

◦ Fair Grounds Slots, Fair Grounds Race Course, and VSI (collectively, "Fair Grounds and VSI")

◦ Fair Grounds and VSI

◦ Lady Luck Nemacolin management agreement

9 unchanged sentences

• Turfway Park

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

We conduct our business through these reportable segments and report net revenue and operating expense associated with these reportable segments in the accompanying condensed consolidated statements of comprehensive income.

12 unchanged sentences

◦ The impact of changes in fair value of interest rate swaps;

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

◦ Recapitalization and transaction costs;

9 unchanged sentences

The tables below present net revenue from external customers and intercompany revenue from each of our segments, net revenue from external customers for each group of similar services, Adjusted EBITDA by segment, and a reconciliation of comprehensive (loss) income to Adjusted EBITDA:

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in millions) 2020 2019 2020 2019

19 unchanged sentences

Net revenue from external customers $ 185.1 $ 477.4 $ 438.0 $ 742.8

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in millions) 2020 2019 2020 2019

6 unchanged sentences

Intercompany net revenue $ — $ — $ — $ —

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

(in millions) Churchill Downs Online Wagering Gaming Total Segments All Other Total

7 unchanged sentences

Total $ 23.3 $ 121.2 $ 37.3 $ 181.8 $ 3.3 $ 185.1

Three Months Ended March 31, 2019

Three Months Ended June 30, 2019

(in millions) Churchill Downs Online Wagering Gaming Total Segments All Other Total

8 unchanged sentences

(a) Food and beverage, hotel, and other services furnished to customers for free as an inducement to gamble or through the redemption of our customers' loyalty points are recorded at their estimated standalone selling prices in Other revenue with a corresponding offset recorded as a reduction in historical pari-mutuel revenue for HRMs or gaming revenue for our casino properties.

These amounts were $ 7.6 million for the three months ended March 31, 2020 and $ 7.8 million for the three months ended March 31, 2019.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

These amounts were $ 0.8 million for the three months ended June 30, 2020 and $ 7.9 million for the three months ended June 30, 2019.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Six Months Ended June 30, 2020

(in millions) Churchill Downs Online Wagering Gaming Total Segments All Other Total

Net revenue from external customers

Live and simulcast racing $ 15.9 $ 179.5 $ 11.6 $ 207.0 $ 10.7 $ 217.7

Historical racing (b)

27.7 — — 27.7 — 27.7

Racing event-related services 0.5 — 2.0 2.5 0.1 2.6

— 2.2 154.9 157.1 — 157.1

2.7 6.8 16.4 25.9 7.0 32.9

Total $ 46.8 $ 188.5 $ 184.9 $ 420.2 $ 17.8 $ 438.0

Six Months Ended June 30, 2019

(in millions) Churchill Downs Online Wagering Gaming Total Segments All Other Total

Net revenue from external customers

Live and simulcast racing $ 42.7 $ 151.6 $ 17.7 $ 212.0 $ 19.7 $ 231.7

Historical racing (b)

37.4 — — 37.4 — 37.4

Racing event-related services 113.4 — 2.3 115.7 2.2 117.9

— 0.1 289.2 289.3 — 289.3

9.7 7.0 37.2 53.9 12.6 66.5

Total $ 203.2 $ 158.7 $ 346.4 $ 708.3 $ 34.5 $ 742.8

(b) Food and beverage, hotel, and other services furnished to customers for free as an inducement to gamble or through the redemption of our customers' loyalty points are recorded at their estimated standalone selling prices in Other revenue with a corresponding offset recorded as a reduction in historical pari-mutuel revenue for HRMs or gaming revenue for our casino properties.

These amounts were $ 8.4 million for the six months ended June 30, 2020 and $ 15.5 million for the six months ended June 30, 2019.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Adjusted EBITDA by segment is comprised of the following:

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

(in millions) Churchill Downs Online Wagering Gaming

8 unchanged sentences

Adjusted EBITDA $ 4.5 $ 38.8 $ ( 2.0 )

Three Months Ended March 31, 2019

Three Months Ended June 30, 2019

(in millions) Churchill Downs Online Wagering Gaming

8 unchanged sentences

Adjusted EBITDA $ 121.9 $ 22.2 $ 76.1

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31,

Six Months Ended June 30, 2020

(in millions) Churchill Downs Online Wagering Gaming

Net revenue $ 54.0 $ 189.3 $ 186.4

Taxes & purses ( 21.0 ) ( 10.5 ) ( 73.5 )

Marketing & advertising ( 1.4 ) ( 6.4 ) ( 5.7 )

Salaries & benefits ( 11.1 ) ( 6.5 ) ( 38.5 )

Content expense ( 0.5 ) ( 92.9 ) ( 1.6 )

SG&A expense ( 2.7 ) ( 3.1 ) ( 10.6 )

Other operating expense ( 10.9 ) ( 16.2 ) ( 30.6 )

Other income — 0.1 21.1

Adjusted EBITDA $ 6.4 $ 53.8 $ 47.0

Six Months Ended June 30, 2019

(in millions) Churchill Downs Online Wagering Gaming

Net revenue $ 214.5 $ 159.4 $ 347.9

Taxes & purses ( 41.9 ) ( 7.6 ) ( 133.5 )

Marketing & advertising ( 4.7 ) ( 5.5 ) ( 10.2 )

Salaries & benefits ( 17.7 ) ( 5.2 ) ( 49.9 )

Content expense ( 1.3 ) ( 83.9 ) ( 2.9 )

SG&A expense ( 3.7 ) ( 3.7 ) ( 13.3 )

Other operating expense ( 21.9 ) ( 14.4 ) ( 40.8 )

Other income — — 43.6

Adjusted EBITDA $ 123.3 $ 39.1 $ 140.9

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Three Months Ended June 30, Six Months Ended June 30,

(in millions) 2020 2019 2020 2019

20 unchanged sentences

Midwest Gaming's recapitalization and transactions costs — 0.8 — 4.7

Other — ( 0.1 ) — ( 0.1 )

Total adjustments to EBITDA 19.2 27.2 67.4 48.9

8 unchanged sentences

The table below presents information about equity in (loss) income of unconsolidated investments included in our reported segments:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in millions) 2020 2019 2020 2019

Gaming $ ( 11.1 ) $ 9.5 $ ( 14.4 ) $ 13.6

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Churchill Downs Incorporated

1 unchanged sentence

The table below presents total asset information for each of our segments:

(in millions) March 31, 2020 December 31, 2019

(in millions) June 30, 2020 December 31, 2019

Total assets:

6 unchanged sentences

The table below presents total capital expenditures for each of our segments:

Three Months Ended March 31,

Six Months Ended June 30,

(in millions) 2020 2019

7 unchanged sentences

SUBSEQUENT EVENT

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

As of the date of this filing, there were no subsequent events that may impact our disclosures in the condensed consolidated financial statements except for the discussions regarding the impact of the COVID-19 pandemic on our business disclosed in Note 1, Description of Business.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements