What changed in this filing

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Item 1. Financial Statements

2020-10-28 compared with 2020-07-29 · 226 added, 214 removed, 686 unchanged (39% of the section changed)

1 unchanged sentence

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended September 30, Nine Months Ended September 30,

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

13 unchanged sentences

Total operating expense 288.3 278.5 738.3 836.9

Operating (loss) income ( 0.4 ) 156.4 ( 12.0 ) 184.4

Operating income 49.5 27.8 37.5 212.2

Other income (expense):

Interest expense, net ( 19.7 ) ( 18.9 ) ( 59.3 ) ( 52.0 )

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

Equity in income of unconsolidated affiliates 27.6 14.1 13.2 27.7

Miscellaneous, net ( 0.4 ) 0.2 ( 0.1 ) 0.6

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

(Loss) income from continuing operations before provision for income taxes

( 31.5 ) 146.9 ( 65.7 ) 165.3

Income tax benefit (provision) 7.9 ( 38.6 ) 19.5 ( 45.1 )

(Loss) income from continuing operations, net of tax ( 23.6 ) 108.3 ( 46.2 ) 120.2

Total other income (expense) 7.5 ( 4.6 ) ( 46.2 ) ( 23.7 )

Income (loss) from continuing operations before provision for income taxes 57.0 23.2 ( 8.7 ) 188.5

Income tax (provision) benefit ( 13.9 ) ( 8.0 ) 5.6 ( 53.1 )

Income (loss) from continuing operations, net of tax 43.1 15.2 ( 3.1 ) 135.4

Loss from discontinued operations, net of tax — ( 0.4 ) ( 96.1 ) ( 1.9 )

Net (loss) income ( 118.8 ) 107.1 ( 142.3 ) 118.7

Net income (loss) 43.1 14.8 ( 99.2 ) 133.5

Net loss attributable to noncontrolling interest ( 0.1 ) — ( 0.2 ) —

Net (loss) income and comprehensive (loss) income attributable to CDI $ ( 118.8 ) $ 107.1 $ ( 142.2 ) $ 118.7

Net (loss) income per common share data - basic:

Net income (loss) and comprehensive income (loss) attributable to CDI $ 43.2 $ 14.8 $ ( 99.0 ) $ 133.5

Net income (loss) per common share data - basic:

Continuing operations $ 1.09 $ 0.38 $ ( 0.07 ) $ 3.37

Discontinued operations $ — $ ( 0.01 ) $ ( 2.43 ) $ ( 0.05 )

Net (loss) income per common share data - basic $ ( 3.00 ) $ 2.66 $ ( 3.59 ) $ 2.95

Net (loss) income per common share data - diluted:

Net income (loss) per common share data - basic $ 1.09 $ 0.37 $ ( 2.50 ) $ 3.32

Net income (loss) per common share data - diluted:

Continuing operations $ 1.08 $ 0.37 $ ( 0.07 ) $ 3.33

Discontinued operations $ — $ ( 0.01 ) $ ( 2.43 ) $ ( 0.05 )

Net (loss) income per common share data - diluted $ ( 3.00 ) $ 2.63 $ ( 3.59 ) $ 2.92

Net income (loss) per common share data - diluted $ 1.08 $ 0.36 $ ( 2.50 ) $ 3.28

Weighted average shares outstanding:

2 unchanged sentences

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

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

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

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

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

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

Current assets:

41 unchanged sentences

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

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

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

CHURCHILL DOWNS INCORPORATED

15 unchanged sentences

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

Net income 43.2 ( 0.1 ) 43.1

Purchase of noncontrolling interest ( 0.5 ) ( 2.5 ) ( 3.0 )

Issuance of common stock 0.1 2.5 2.5

Stock-based compensation 6.9 6.9

Balance, September 30, 2020 39.5 $ 15.5 $ 357.6 $ ( 0.9 ) $ — $ 372.2

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

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

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

Common Stock Retained

16 unchanged sentences

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

Net income 14.8 14.8

Issuance of common stock 0.1 1.9 1.9

Repurchase of common stock ( 0.2 ) ( 10.4 ) ( 14.6 ) ( 25.0 )

Taxes paid related to net share settlement of stock awards ( 0.1 ) ( 0.1 )

Stock-based compensation 5.5 5.5

Other 0.1 ( 0.1 ) —

Balance, September 30, 2019 39.9 $ — $ 551.3 $ ( 0.9 ) $ — $ 550.4

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

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

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

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions) 2020 2019

4 unchanged sentences

Distributions from unconsolidated affiliates 12.8 24.7

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

Equity in income of unconsolidated affiliates ( 13.2 ) ( 27.7 )

Stock-based compensation 17.3 17.6

31 unchanged sentences

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

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

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

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Six Months Ended June 30,

Nine Months Ended September 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 — 3.7

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

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

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

Churchill Downs Incorporated

19 unchanged sentences

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.

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

As of September 30, 2020, all of our properties had reopened and remain open with applicable 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:

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

Churchill Downs

• 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.

• Churchill Downs Racetrack conducted 27 spectator-free live racing days in the second quarter of 2020 and 14 spectator-free live racing days in the third quarter of 2020, including the 146th Kentucky Oaks and Derby on September 4-5, 2020.

Churchill Downs Racetrack suspended simulcast operations on March 15, 2020, and these operations remained 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 %.

Derby City Gaming is currently restricted to 75 % of patron capacity, and is operating at 66 % of gaming capacity.

Wholly-Owned Properties

1 unchanged sentence

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.

Calder reopened on August 31, 2020 with restrictions on operating hours and is operating at 56 % of gaming capacity.

• 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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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;

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

Fair Grounds Slots is currently restricted to 25 % of patron capacity and is operating at 75 % of gaming capacity;

◦ 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 or third quarters 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 %.

VSI is currently restricted to 50 % of patron capacity and is operating at 75 % of gaming capacity.

• 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 %.

Harlow’s is currently restricted to 50 % of patron capacity and is operating at 66 % of slot gaming capacity and 60 % of table game capacity.

• 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 %.

Ocean Downs is currently restricted to 50 % of patron capacity and is operating at 70 % of video lottery terminals ("VLTs") capacity and 60 % of table game capacity.

• 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.

Oxford is currently restricted to 200 persons on the gaming floor.

• 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 %.

Presque Isle has a temporary ban on alcohol and smoking on the gaming floor, is currently restricted to 50 % of patron capacity and is operating at 60 % of slot gaming capacity and 60 % of table game capacity.

• 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 %.

Riverwalk is currently restricted to 50 % of patron capacity and is operating at 66 % of slot gaming capacity and 60 % of table game capacity.

Managed Properties

• 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 %.

Lady Luck Nemacolin has a temporary ban on alcohol and smoking on the gaming floor, is currently restricted to 50 % of patron capacity and is operating at 50 % of slot gaming capacity and 60 % of table game capacity.

Equity Investments

• 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 %.

Rivers Des Plaines has certain operating hour restrictions and temporary bans on food and beverage within the facility, is currently restricted to 25 % of patron capacity and is operating at 75 % of slot gaming capacity and 45 % of table game capacity.

• 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 %.

MVG has certain hourly restrictions on serving alcohol, is currently restricted to 63 % of patron capacity and is operating at 67 % of VLT capacity.

• 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.

Arlington conducted 18 spectator-free live racing days and 12 live racing days with patron restrictions of 300 persons during the third quarter of 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.

Turfway Park did not have any race days scheduled in the second or third quarters 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 provided 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

The most senior level of executive management

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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.

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.

received the largest salary decrease, based on both percentage and dollar amount.

Salaries for non-furloughed employees resumed at the annual base salary beginning with the start of the employee's first full pay period subsequent to July 31, 2020.

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 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.

The Company 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.

The Company had $ 622.0 million of cash and cash equivalents as of September 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.

2 unchanged sentences

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 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.

however, we are unable to determine when the current restrictions in place for our opened properties will be removed.

Our third quarter of 2020 financial results were materially impacted by the rescheduling of the 146th Kentucky Oaks and Derby from the second quarter of 2020 to the third quarter of 2020 without spectators, by the temporary suspension of operations at certain properties, and continued property restrictions.

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.

Oak Grove Racing, Gaming & Hotel

On September 18, 2020, the Company opened its simulcast and historical racing machine ("HRM") operations at Oak Grove Racing, Gaming & Hotel ("Oak Grove"), located in Oak Grove, Kentucky.

Oak Grove is currently restricted to 75 % of patron capacity and is operating at 63 % of gaming capacity.

The Oak Grove Hotel opened on October 15, 2020.

Effective September 11, 2020, the Company purchased the remaining equity interests of WKY Development, LLC, a joint venture that owns Oak Grove, from Keeneland Association, Inc.

for $ 3.0 million.

As of September 30, 2020, the Company no longer reports a noncontrolling interest associated with Oak Grove in the accompanying consolidated financial statements.

Newport Racing and Gaming

The Company invested $ 38.4 million to build out Newport Racing & Gaming ("Newport"), located in Newport, Kentucky, to create a premier entertainment experience as an extension of Turfway Park.

Newport opened on October 2, 2020 and has a pari-mutuel simulcast area, a 17,000 square foot gaming floor with 500 HRMs, and a feature bar.

Newport is currently restricted to 75 % of patron capacity.

Online Wagering

On September 24, 2020, the Company opened a retail BetAmerica sportsbook at Bronco Billy's Casino in Cripple Creek, Colorado, and on September 25, 2020, the Company opened a retail BetAmerica sportsbook at Island Resort & Casino in Harris, Michigan.

BetAmerica plans to launch its mobile sportsbook and iGaming application in each of Pennsylvania, Colorado and Michigan, and its mobile sportsbook application in Indiana, subject to regulatory approvals.

In August 2020, the Company announced the entry into multi-year agreements with GAN Limited and Kambi Group PLC to provide player account management, casino platform, sports trading and risk management services to BetAmerica.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

10 unchanged sentences

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 final plans reflect $ 200.0 million of project capital, 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

Due to the seasonal nature of our live racing business at Churchill Downs Racetrack, revenue and operating results for any interim quarter are generally not indicative of the revenues and operating results for the year and may not be comparable with results for the corresponding period of the previous year.

Due to the seasonal nature of live racing, revenue and operating results for any interim quarter for the Churchill Downs segment and the TwinSpires business within the Online Wagering segment are generally not indicative of the revenues and operating results for the year and may not be comparable with results for the corresponding period of the previous year.

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

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

Due to the seasonal nature of the racing business, revenue and operating results for any interim quarter are generally not indicative of the revenues and operating results for the year and may not be comparable with results for the corresponding period of the previous year.

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

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,

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

(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.

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

We recognized the cumulative effect of applying ASC 326 as an opening balance sheet adjustment at

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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.

We recognized the cumulative effect of applying ASC 326 as an opening balance sheet adjustment at January 1, 2020.

January 1, 2020.

The comparative information has not been retrospectively adjusted and continues to be reported under the accounting standards in effect for those periods.

The adoption of ASC 326 did not have a material impact on our business and therefore we have not included the disclosure requirements of ASC 326 in this Quarterly Report on Form 10-Q.

The adoption of ASC 326 did not have a material impact on our business.

In January 2017, the FASB issued ASU No.

4 unchanged sentences

We adopted this guidance on January 1, 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.

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 nine months ended September 30, 2020.

In August 2018, the FASB issued ASU No.

23 unchanged sentences

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.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Kater and Thimmegowda Settlement

11 unchanged sentences

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.

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 nine months ended September 30, 2020, and on a pre-tax basis in current liabilities of discontinued operations in the accompanying condensed consolidated balance sheets at September 30, 2020.

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 (loss) income:

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

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2020 2019 2020 2019

6 unchanged sentences

Loss from discontinued operations, net of tax $ — $ ( 0.4 ) $ ( 96.1 ) $ ( 1.9 )

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

3 unchanged sentences

Adjustments — — — ( 0.3 ) ( 0.3 )

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

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

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

2 unchanged sentences

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Other intangible assets are comprised of the following:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

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

16 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.

6 unchanged sentences

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.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

federal statutory rate of 21.0% primarily resulting from tax expense during a period of pre-tax income from nondeductible officer’s compensation and state income taxes, partially offset by tax benefits during a period of pre-tax income from a current year estimated federal taxable loss which will be carried back to a pre-2018 tax year, and a decrease in our unrecognized tax benefits due to the expiration of the federal income tax statute of limitations.

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

federal statutory rate of 21.0% primarily resulting from tax benefits during a period of pre-tax loss from a current year estimated federal taxable loss which will be carried back to a pre-2018 tax year, year-to-date tax deductions from vesting of stock awards in excess of book deductions, state income taxes, and a decrease in our unrecognized tax benefits due to the expiration of the federal income tax statute of limitations, partially offset by tax expense during a period of pre-tax loss from nondeductible officer’s compensation.

The Company’s effective income tax rate for the three and nine months ended September 30, 2019 was higher than the U.S.

federal statutory rate of 21.0% primarily due to state income taxes, certain expenses that are not deductible for the purposes of income taxes, and $ 2.7 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.

This expense was partially offset by a decrease in our unrecognized tax benefits due to the expiration of the federal income tax statute of limitations and year-to-date tax deductions from vesting of stock awards in excess of book deductions.

SHAREHOLDERS’ EQUITY

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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 remaining under the prior authorization.

The new authorized amount included and was 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 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

For the nine months ended September 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 September 30, 2020, based on trade date.

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

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 $ 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.

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 $ 6.9 million for the three months ended September 30, 2020 and $ 5.5 million for the three months ended September 30, 2019.

Stock-based compensation expense was $ 17.3 million for the nine months ended September 30, 2020 and $ 17.6 million for the nine months ended September 30, 2019.

During the nine months ended September 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.

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On February 12, 2020, the Compensation Committee of the Board of Directors offered, and the NEOs accepted, to settle the 2017 PSU Awards in cash.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

A summary of the RSUs and PSUs granted during 2020 is presented below (units in thousands):

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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.

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.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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.

On March 16, 2020, we borrowed $ 675.4 million on our Revolver to provide the Company with additional financial flexibility.

The Company had $ 622.0 million of cash and cash equivalents as of September 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 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 the consolidated total secured net leverage ratio financial covenant and the interest coverage ratio financial covenant.

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Performance Obligations

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.

As of September 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 $ 133.2 million.

The revenue we expect to recognize on these remaining performance obligations is $ 0.4 million for the remainder of 2020, $ 41.2 million in 2021, $ 34.2 million in 2022, and the remainder thereafter.

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

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Contract Assets and Contract Liabilities

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.

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

As of September 30, 2020 and December 31, 2019, contract liabilities were $ 60.0 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.

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 $ 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.

We recognized $ 1.7 million of revenue during the three months ended September 30, 2020 and $ 5.8 million of revenue during the nine months ended September 30, 2020 that was included in the contract liabilities balance at December 31, 2019.

We recognized $ 1.1 million of revenue during the three months ended September 30, 2019 and $ 49.6 million of revenue during the nine months ended September 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 JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

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

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

Account wagering deposits liability $ 41.3 $ 28.9

10 unchanged sentences

High Plaines retained ownership of 36.0 % of Midwest Gaming and Casino Investors retained ownership of 2.7 % of Midwest Gaming.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

We also recognized a $ 103.2 million deferred tax liability and a corresponding increase in our investment in unconsolidated affiliates related to an entity we acquired in conjunction with our acquisition of the Clairvest ownership stake in Midwest Gaming.

3 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 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.

As of September 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 $ 833.6 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 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:

The summarized income statement information for the three and nine months ended September 30, 2020 and 2019, respectively, and summarized balance sheet information as of September 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2020 2019 2020 2019

3 unchanged sentences

Total operating expense 90.4 117.3 206.7 302.9

Operating (loss) income ( 4.5 ) 43.8 28.3 70.1

Operating income 57.8 43.5 86.1 113.7

Interest and other, net ( 9.4 ) ( 17.6 ) ( 58.6 ) ( 59.9 )

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

Net income $ 48.4 $ 25.9 $ 27.5 $ 53.8

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

Current assets $ 151.3 $ 64.0

8 unchanged sentences

Total liabilities and members' deficit $ 668.0 $ 560.2

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

FAIR VALUE OF ASSETS AND LIABILITIES

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Our restricted cash accounts that are held in interest-bearing accounts qualify for Level 1 in the fair value hierarchy, which includes unadjusted quoted market prices in active markets for identical assets.

The fair value of the Company’s 4.75 % Senior Notes due 2028 (the "2028 Senior Notes") and 5.500 % Senior Notes due 2027 ("2027 Senior Notes") are estimated based on unadjusted quoted prices for identical or similar liabilities in markets that are not active and as such are Level 2 measurements.

The fair value of the Company’s 4.75 % Senior Notes due 2028 (the "2028 Senior Notes") and 5.500 % Senior Notes due 2027 (the "2027 Senior Notes") are estimated based on unadjusted quoted prices for identical or similar liabilities in markets that are not active and as such are Level 2 measurements.

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 JUNE 30, 2020

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

June 30, 2020

September 30, 2020

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

22 unchanged sentences

Legal fees are expensed as incurred.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

We review all litigation on an ongoing basis when making accrual and disclosure decisions.

3 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,

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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 June 30, 2020 and December 31, 2019.

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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

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

Numerator for basic net (loss) income per common share:

Net (loss) income from continuing operations $ ( 23.6 ) $ 108.3 $ ( 46.2 ) $ 120.2

Numerator for basic net income (loss) per common share:

Net income (loss) from continuing operations $ 43.1 $ 15.2 $ ( 3.1 ) $ 135.4

Net loss attributable to noncontrolling interest ( 0.1 ) — ( 0.2 ) —

Net (loss) income from continuing operations, net of loss attributable to noncontrolling interests ( 23.6 ) 108.3 ( 46.1 ) 120.2

Net income (loss) from continuing operations, net of loss attributable to noncontrolling interests 43.2 15.2 ( 2.9 ) 135.4

Net loss from discontinued operations — ( 0.4 ) ( 96.1 ) ( 1.9 )

Numerator for basic net (loss) income per common share $ ( 118.8 ) $ 107.1 $ ( 142.2 ) $ 118.7

Numerator for diluted net (loss) income from continuing operations per common share $ ( 23.6 ) $ 108.3 $ ( 46.1 ) $ 120.2

Numerator for diluted net (loss) income per common share $ ( 118.8 ) $ 107.1 $ ( 142.2 ) $ 118.7

Denominator for net (loss) income per common share:

Numerator for basic net income (loss) per common share $ 43.2 $ 14.8 $ ( 99.0 ) $ 133.5

Numerator for diluted net income (loss) from continuing operations per common share $ 43.2 $ 15.2 $ ( 2.9 ) $ 135.4

Numerator for diluted net income (loss) per common share $ 43.2 $ 14.8 $ ( 99.0 ) $ 133.5

Denominator for net income (loss) per common share:

Basic 39.5 40.0 39.6 40.2

1 unchanged sentence

Diluted 40.1 40.7 39.6 40.7

Net (loss) income per common share data:

Net income (loss) per common share data:

Continuing operations $ 1.09 $ 0.38 $ ( 0.07 ) $ 3.37

Discontinued operations $ — $ ( 0.01 ) $ ( 2.43 ) $ ( 0.05 )

Net (loss) income per common share - basic $ ( 3.00 ) $ 2.66 $ ( 3.59 ) $ 2.95

Net income (loss) per common share - basic $ 1.09 $ 0.37 $ ( 2.50 ) $ 3.32

Continuing operations $ 1.08 $ 0.37 $ ( 0.07 ) $ 3.33

Discontinued operations $ — $ ( 0.01 ) $ ( 2.43 ) $ ( 0.05 )

Net (loss) income per common share - diluted $ ( 3.00 ) $ 2.63 $ ( 3.59 ) $ 2.92

Net income (loss) per common share - diluted $ 1.08 $ 0.36 $ ( 2.50 ) $ 3.28

Anti-dilutive stock awards excluded from the calculation of diluted shares — — 0.6 —

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

SEGMENT INFORMATION

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Derby City Gaming is a historical racing machine facility that operates under the Churchill Downs pari-mutuel racing license at its ancillary training facility in Louisville, Kentucky.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Churchill Downs Racetrack and Derby City Gaming earn commissions primarily from pari-mutuel wagering on live races at Churchill Downs and on historical races at Derby City Gaming;

7 unchanged sentences

Our sports betting and iGaming business includes the online BetAmerica sports betting and casino gaming operations.

The Gaming segment includes revenue and expenses for the casino properties and associated racetrack or jai alai facilities which support the casino license.

10 unchanged sentences

We have aggregated the following businesses as well as certain corporate operations, and other immaterial joint ventures in "All Other" to reconcile to consolidated results:

• United Tote

• Oak Grove Racing and Gaming

• Turfway Park

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

• United Tote

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.

Eliminations include the elimination of intersegment transactions.

We utilize non-GAAP measures, including EBITDA (earnings before interest, taxes, depreciation and amortization) and Adjusted EBITDA.

We utilize non-GAAP measures, including EBITDA (earnings before interest,

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

taxes, depreciation and amortization) and Adjusted EBITDA.

Our chief operating decision maker utilizes Adjusted EBITDA to evaluate segment performance, develop strategy and allocate resources.

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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 JUNE 30, 2020

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2020 2019 2020 2019

19 unchanged sentences

Net revenue from external customers $ 337.8 $ 306.3 $ 775.8 $ 1,049.1

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

Three Months Ended September 30, Nine Months Ended

September 30,

(in millions) 2020 2019 2020 2019

6 unchanged sentences

Intercompany net revenue $ — $ — $ — $ —

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

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

7 unchanged sentences

Total $ 60.8 $ 125.9 $ 134.8 $ 321.5 $ 16.3 $ 337.8

Three Months Ended June 30, 2019

Three Months Ended September 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 $ 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

These amounts were $ 2.1 million for the three months ended September 30, 2020 and $ 8.9 million for the three months ended September 30, 2019.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

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

7 unchanged sentences

Total $ 107.6 $ 314.4 $ 319.7 $ 741.7 $ 34.1 $ 775.8

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

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

8 unchanged sentences

(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

These amounts were $ 10.5 million for the nine months ended September 30, 2020 and $ 24.7 million for the nine months ended September 30, 2019.

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

Churchill Downs Incorporated

1 unchanged sentence

Adjusted EBITDA by segment is comprised of the following:

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

(in millions) Churchill Downs Online Wagering Gaming

8 unchanged sentences

Adjusted EBITDA $ 23.9 $ 31.9 $ 75.4

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019

(in millions) Churchill Downs Online Wagering Gaming

8 unchanged sentences

Adjusted EBITDA $ 5.2 $ 15.0 $ 71.7

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

(in millions) Churchill Downs Online Wagering Gaming

Net revenue $ 122.0 $ 315.7 $ 321.3

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

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

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

Taxes and purses ( 40.3 ) ( 18.5 ) ( 125.2 )

Marketing and advertising ( 3.7 ) ( 13.3 ) ( 6.3 )

Salaries and benefits ( 19.5 ) ( 9.6 ) ( 57.6 )

Content expense ( 0.7 ) ( 156.4 ) ( 2.9 )

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

Selling, general and administrative expense ( 5.3 ) ( 6.7 ) ( 18.9 )

Other operating expense ( 22.2 ) ( 25.6 ) ( 45.0 )

1 unchanged sentence

Adjusted EBITDA $ 30.3 $ 85.7 $ 122.4

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

(in millions) Churchill Downs Online Wagering Gaming

Net revenue $ 247.2 $ 229.8 $ 526.5

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

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

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

Taxes and purses ( 52.1 ) ( 12.0 ) ( 204.7 )

Marketing and advertising ( 5.8 ) ( 9.1 ) ( 15.7 )

Salaries and benefits ( 24.5 ) ( 8.2 ) ( 76.5 )

Content expense ( 1.8 ) ( 120.4 ) ( 4.5 )

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

Selling, general and administrative expense ( 5.8 ) ( 5.5 ) ( 21.2 )

Other operating expense ( 28.8 ) ( 20.5 ) ( 62.0 )

1 unchanged sentence

Adjusted EBITDA $ 128.5 $ 54.1 $ 212.6

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

Three Months Ended September 30, Nine Months Ended

September 30,

(in millions) 2020 2019 2020 2019

Reconciliation of Comprehensive (Loss) Income to Adjusted EBITDA:

Net (loss) income and comprehensive (loss) income attributable to CDI $ ( 118.8 ) $ 107.1 $ ( 142.2 ) $ 118.7

Reconciliation of Comprehensive Income (Loss) to Adjusted EBITDA:

Net income (loss) and comprehensive income (loss) attributable to CDI $ 43.2 $ 14.8 $ ( 99.0 ) $ 133.5

Net loss attributable to noncontrolling interest 0.1 — 0.2 —

Net (loss) income before noncontrolling interest ( 118.8 ) 107.1 ( 142.3 ) 118.7

Net income (loss) before noncontrolling interest 43.1 14.8 ( 99.2 ) 133.5

Loss from discontinued operations, net of tax — 0.4 96.1 1.9

(Loss) income from continuing operations, net of tax ( 23.6 ) 108.3 ( 46.2 ) 120.2

Income (loss) from continuing operations, net of tax 43.1 15.2 ( 3.1 ) 135.4

Depreciation and amortization 22.4 22.0 66.5 64.3

Interest expense 19.7 18.9 59.3 52.0

Income tax (benefit) provision ( 7.9 ) 38.6 ( 19.5 ) 45.1

Income tax provision (benefit) 13.9 8.0 ( 5.6 ) 53.1

EBITDA $ 99.1 $ 64.1 $ 117.1 $ 304.8

2 unchanged sentences

Stock-based compensation expense $ 6.9 $ 5.5 $ 17.3 $ 17.6

Legal reserves — 3.3 — 3.6

Other charges 0.8 — 0.7 —

16 unchanged sentences

Total Adjusted EBITDA $ 121.9 $ 88.0 $ 207.3 $ 377.6

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

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 JUNE 30, 2020

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2020 2019 2020 2019

Gaming $ 27.6 $ 14.1 $ 13.2 $ 27.7

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

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

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

Total assets:

6 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions) 2020 2019

7 unchanged sentences

SUBSEQUENT EVENT

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

At its regularly scheduled meeting held on October 27, 2020, the Board of Directors of the Company declared an annual cash dividend of $ 0.622 per share, to be paid on January 6, 2021, to all shareholders of record on December 4, 2020.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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