What changed in this filing

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Item 1. Financial Statements

2021-04-21 compared with 2020-10-28 · 265 added, 472 removed, 440 unchanged (63% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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

Three Months Ended March 31,

(in millions, except per common share data) 2021 2020

Churchill Downs $ 60.8 $ 31.4 $ 107.6 $ 234.6

Online Wagering 125.9 70.2 314.4 228.9

Live and Historical Racing $ 63.2 $ 28.1

TwinSpires 99.7 69.1

Gaming 152.0 145.9

2 unchanged sentences

Operating expense:

Churchill Downs 48.3 30.8 106.0 127.8

Online Wagering 83.5 52.2 208.2 159.3

Live and Historical Racing 54.7 33.1

TwinSpires 73.0 50.8

Gaming 106.3 124.1

4 unchanged sentences

Total operating expense 277.6 264.5

Operating income 49.5 27.8 37.5 212.2

Operating income (loss) 46.7 ( 11.6 )

Other income (expense):

Interest expense, net ( 19.4 ) ( 19.3 )

Equity in income of unconsolidated affiliates 27.6 14.1 13.2 27.7

Equity in income (loss) of unconsolidated affiliates 24.9 ( 3.3 )

Miscellaneous, net 0.1 —

6 unchanged sentences

Net loss attributable to noncontrolling interest — ( 0.1 )

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

Net income (loss) and comprehensive income (loss) attributable to Churchill Downs Incorporated $ 36.1 $ ( 23.4 )

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

10 unchanged sentences

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(in millions) March 31, 2021 December 31, 2020

Current assets:

22 unchanged sentences

Long-term debt, net of current maturities and loan origination fees

1,076.3 384.0

Notes payable, net of debt issuance costs

11 unchanged sentences

( 0.9 ) ( 0.9 )

Total Churchill Downs Incorporated shareholders' equity 372.2 508.3

Noncontrolling interest — 2.7

Total shareholders' equity 202.2 367.1

1 unchanged sentence

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Three Months Ended March 31, 2021

Common Stock Retained

2 unchanged sentences

Balance, December 31, 2020 39.5 $ 18.2 $ 349.8 $ ( 0.9 ) $ — $ 367.1

Net loss ( 23.4 ) ( 0.1 ) ( 23.5 )

Net income 36.1 36.1

Issuance of common stock 0.1 —

Repurchase of common stock ( 1.0 ) ( 22.0 ) ( 171.9 ) ( 193.9 )

Cash settlement of stock awards ( 12.7 ) ( 12.7 )

Taxes paid related to net share settlement of stock awards ( 0.1 ) ( 12.6 ) ( 12.6 )

Stock-based compensation 5.5 5.5

Adoption of ASC 326 ( 0.5 ) ( 0.5 )

Balance, March 31, 2021 38.5 $ 1.7 $ 201.4 $ ( 0.9 ) $ — $ 202.2

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

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

Three Months Ended March 31, 2020

Common Stock Retained

2 unchanged sentences

Balance, December 31, 2019 39.7 $ — $ 509.2 $ ( 0.9 ) $ 2.7 $ 511.0

Net income 11.6 11.6

Issuance of common stock 0.1 — —

Net loss ( 23.4 ) ( 0.1 ) ( 23.5 )

Repurchase of common stock ( 0.3 ) ( 4.3 ) ( 23.6 ) ( 27.9 )

Cash settlement of stock awards ( 12.7 ) ( 12.7 )

Taxes paid related to net share settlement of stock awards ( 15.1 ) ( 15.1 )

Issuance of restricted stock awards, net of forfeitures 0.1 — —

Stock-based compensation 4.3 4.3

Adoption of ASC 326 ( 0.5 ) ( 0.5 )

Other 0.2 0.2

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

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

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 SEPTEMBER 30, 2020

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions) 2021 2020

Cash flows from operating activities:

Net (loss) income $ ( 99.2 ) $ 133.5

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Net income (loss) $ 36.1 $ ( 23.5 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 26.0 22.0

Distributions from unconsolidated affiliates 22.0 1.3

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

Equity in (income) loss of unconsolidated affiliates ( 24.9 ) 3.3

Stock-based compensation 5.5 4.3

3 unchanged sentences

Other 1.2 0.9

Changes in operating assets and liabilities, net of business acquisitions and dispositions:

Changes in operating assets and liabilities:

Income taxes 9.2 ( 10.7 )

Deferred revenue 21.0 53.4

Current liabilities of discontinued operations ( 124.0 ) —

Other assets and liabilities 2.2 ( 24.3 )

Net cash provided by operating activities 137.3 260.2

Net cash (used in) provided by operating activities ( 19.8 ) 43.5

Cash flows from investing activities:

1 unchanged sentence

Capital project expenditures ( 7.6 ) ( 39.3 )

Acquisition of businesses, net of cash acquired — ( 172.1 )

Investments in and advances to unconsolidated affiliates — ( 410.1 )

Distributions of capital from unconsolidated affiliates — 5.8

Acquisition of gaming licenses — ( 22.1 )

Other ( 2.7 ) ( 1.1 )

Net cash used in investing activities ( 12.3 ) ( 48.3 )

7 unchanged sentences

Debt issuance costs ( 5.8 ) ( 0.9 )

Change in bank overdraft ( 12.8 ) —

Other 1.6 ( 0.1 )

4 unchanged sentences

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions) 2021 2020

4 unchanged sentences

Schedule of non-cash investing and financing activities:

Deferred tax liability assumed from equity investment $ — $ 103.2

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 SEPTEMBER 30, 2020

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

Churchill Downs Incorporated

10 unchanged sentences

We conduct our business through three reportable segments:

Churchill Downs, Online Wagering, and Gaming.

Live and Historical Racing, TwinSpires, and Gaming.

We aggregate our other businesses as well as certain corporate operations, and other immaterial joint ventures, in All Other.

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

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

During the first quarter of 2021, we updated our operating segments to reflect the internal management reporting used by our chief operating decision maker to evaluate results of operations and to assess performance and allocate resources.

Our internal management reporting changed primarily due to the continued growth from Oak Grove Racing, Gaming & Hotel ("Oak Grove") and Turfway Park, which opened its annex historical racing machine ("HRM") facility, Newport Racing & Gaming ("Newport"), in October 2020, which resulted in our chief operating decision maker's decision to include Oak Grove, Turfway Park and Newport in the new Live and Historical Racing segment.

The Live and Historical Racing segment now includes Churchill Downs Racetrack, Derby City Gaming, Oak Grove, Turfway Park, and Newport.

We also realigned our retail sports betting results at our wholly-owned casinos from our Gaming segment to our TwinSpires segment.

As a result of this realignment, our operating segments that meet the requirements to be disclosed separately as reportable segments are:

Live and Historical Racing, TwinSpires, and Gaming.

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

The prior year results in the accompanying condensed consolidated statements of comprehensive income (loss) were reclassified to conform to this presentation.

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 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.

The COVID-19 global pandemic has resulted in travel limitations and business and government shutdowns which have had significant negative economic impacts in the United States and in relation to our business.

Although vaccines are now available, distribution is currently limited and there can be no assurance that these vaccines will be successful in ending the COVID-19 global pandemic.

The long-term impact of COVID-19 on the U.S.

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 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 and the current status of each property:

Churchill Downs

• 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 75 % of patron capacity, and is operating at 66 % of gaming capacity.

Wholly-Owned Properties

• 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.

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"):

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

◦ 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 % 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 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 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.

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

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 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 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 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 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 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 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 provided health, dental, vision and life insurance benefits to furloughed employees through July 31, 2020.

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

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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 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.

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.

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 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

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

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

One property temporarily suspended operations again in July 2020 and reopened in August 2020, and three properties temporarily suspended operations again in December 2020 and reopened in January 2021.

As the Company 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 provided health, dental, vision and life insurance benefits to furloughed employees through July 31, 2020 and during the subsequent property closure periods.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Acquisitions of Presque Isle and Lady Luck Nemacolin

On January 11, 2019, we completed the acquisition of Presque Isle located in Erie, Pennsylvania from Eldorado Resorts, Inc.

("ERI") for cash consideration of $ 178.9 million (the "Presque Isle Transaction") and $ 1.6 million of working capital and other purchase price adjustments.

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").

Acquisition of Certain Ownership Interests of Midwest Gaming Holdings, LLC

On March 5, 2019, the Company completed the acquisition of certain ownership interests of Midwest Gaming Holdings, LLC ("Midwest Gaming"), the parent company of Rivers Des Plaines in Des Plaines, Illinois to acquire approximately 42 % of Midwest Gaming from affiliates and co-investors of Clairvest Group Inc.

("Clairvest") and members of High Plaines Gaming, LLC ("High Plaines"), an affiliate of Rush Street Gaming, LLC and Casino Investors, LLC ("Casino Investors") for cash consideration of approximately $ 406.6 million and $ 3.5 million of certain transaction costs and working capital adjustments (the "Sale Transaction").

Following the closing of the Sale Transaction, the parties completed a recapitalization transaction on March 6, 2019 (the "Recapitalization"), pursuant to which Midwest Gaming used approximately $ 300.0 million in proceeds from amended and extended credit facilities to redeem, on a pro rata basis, additional Midwest Gaming units held by High Plaines and Casino Investors.

As a result of the Recapitalization, the Company's ownership of Midwest Gaming increased to 61.3 %.

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

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.

Refer to Note 14, Investments in and Advances to Unconsolidated Affiliates, for further information on the Midwest Gaming transactions.

Turfway Park Acquisition

The Company completed the acquisition of Turfway Park from Jack Entertainment LLC ("JACK") and Hard Rock International (“Hard Rock”) on October 9, 2019 for total consideration of $ 46.0 million in cash ("Turfway Park Acquisition").

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

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 $ 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.

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

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.

As of March 31, 2021, all of our properties were reopened with certain operating restrictions.

RECENT ACCOUNTING PRONOUNCEMENTS

Recent Accounting Pronouncement - Adopted on January 1, 2020

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2016-13, Financial Instruments - Credit Losses, ("ASC 326") which introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses.

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.

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

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.

In January 2017, the FASB issued ASU No.

2017-04, Intangibles - Goodwill and Other:

Simplifying the Test for Goodwill Impairment.

This new guidance simplifies the accounting for goodwill impairments by removing step two from the goodwill impairment test.

Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess.

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 nine months ended September 30, 2020.

In August 2018, the FASB issued ASU No.

2018-15, Intangibles - Goodwill and Other:

Internal-Use Software, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

The new guidance also requires an entity to expense the capitalized implementation costs of a hosting arrangement over the term of the hosting arrangement.

We adopted this guidance on January 1, 2020.

This guidance is consistent with our current accounting policies, and therefore our adoption of this guidance did not have a material impact on our business.

SIGNIFICANT ACCOUNTING POLICIES

Except for the accounting policy for the allowance for doubtful accounts receivable described below, which was updated as a result of our adoption of ASC 326 on January 1, 2020, as described in Note 2, Recent Accounting Pronouncements, there have been no changes to our significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2019.

Allowance for Doubtful Accounts Receivable

Upon our adoption of ASC 326 on January 1, 2020, we maintained an allowance for doubtful accounts for current expected credit losses on our financial assets measured at amortized cost which are primarily included in accounts receivable, net in the accompanying condensed consolidated balance sheets.

The Company evaluates current expected credit losses on a collective (pool) basis when similar risk characteristics exist.

Write-offs are recognized when the Company concludes that all or a portion of a financial asset is no longer collectible.

Any subsequent recovery is recognized when it occurs.

On October 9, 2019, the Company completed the Turfway Park Acquisition for total consideration of $ 46.0 million.

Of the total consideration paid, $ 36.0 million was allocated to JACK and accounted for as a business combination.

The remaining $ 10.0 million was paid to Hard Rock for the assignment of the purchase and sale agreement rights and was accounted for separately from the business combination as an intangible asset and amortized through expense in the fourth quarter of 2019.

The cash purchase price paid to JACK was $ 36.0 million, less $ 0.9 million of working capital and purchase price adjustments.

The preliminary fair values of the assets acquired and liabilities assumed, net of cash acquired of $ 0.9 million, at the date of acquisition were as follows:

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.

Adopted on January 1, 2021

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, Income Taxes.

The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

This ASU is effective for public business entities for fiscal years and interim periods beginning after December 15, 2020.

The adoption of this ASU did not have a material impact on our business.

Effective after 2021

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to applying the guidance on contract modifications, hedge accounting, and other transactions, to simplify the accounting for transitioning from the London Interbank Offered Rate (LIBOR), and other interbank offered rates expected to be discontinued, to alternative reference rates.

The guidance was effective upon issuance;

if elected, it is to be applied prospectively through December 31, 2022.

We are currently evaluating the effect the adoption of this new accounting standard will have on our results of operations, financial condition, and cash flows.

DISCONTINUED OPERATIONS

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

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.

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

The condensed consolidated statements of comprehensive income and the notes to financial statements reflect Big Fish Games as discontinued operations for all periods presented.

Aristocrat paid an 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.

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

The condensed consolidated statements of comprehensive income (loss) and the notes to condensed consolidated financial statements reflect Big Fish Games as discontinued operations for all periods presented.

Unless otherwise specified, disclosures in these condensed consolidated financial statements reflect continuing operations only.

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

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.

Churchill Downs Incorporated 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 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 September 30, Nine Months Ended September 30,

(collectively, the "Kater and Thimmegowda Litigation").

The $ 124.0 million settlement was paid on March 25, 2021.

Three Months Ended March 31,

(in millions) 2021 2020

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Selling, general and administrative expense — 1.2

Legal settlement — — 124.0 —

Loss from discontinued operations before provision for income taxes

— ( 0.8 ) ( 125.5 ) ( 2.8 )

Income tax benefit — 0.3

Loss from discontinued operations, net of tax $ — $ ( 0.9 )

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill, by segment, is comprised of the following:

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

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

Adjustments — — — ( 0.3 ) ( 0.3 )

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.

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.

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill was $ 366.8 million as of March 31, 2021 and December 31, 2020.

Other intangible assets are comprised of the following:

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

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

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Refer to Note 5, 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

During the quarter ended March 31, 2020, the Company evaluated whether events or circumstances changed that would indicate it is more likely than not that any of its intangible assets, goodwill, or property and equipment, were impaired ("Trigger Event"), or if there were any other than temporary impairments of our equity investments.

Factors considered in this evaluation included, among other things, the amount of the fair value over carrying value from the annual impairment testing performed as of April 1, 2019, changes in carrying values, changes in discount rates, and the impact of temporary property closures due to the COVID-19 pandemic on cash flows.

Based on the Company's evaluation, the Company concluded that a Trigger Event occurred related to the Presque Isle gaming rights, trademark, and the reporting unit's goodwill due to the impact and uncertainty of the COVID-19 pandemic and the recent closing of the Presque Isle Transaction in 2019.

During the quarter ended March 31, 2020, the Company evaluated whether events or circumstances changed that would indicate it is more likely than not that any of the Company's intangible assets, goodwill, or property and equipment, were impaired ("Trigger Event"), or if there were any other than temporary impairments of our equity investments.

Because Presque Isle Downs and Casino (“Presque Isle”) was acquired in 2019, we did not expect the estimated fair value and the carry value to be significantly different.

The initial fair value of Presque Isle gaming rights in the first quarter of 2019 was determined using the Greenfield Method, which is an income approach methodology that calculates the present value based on a projected cash flow stream.

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

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).

As a result, the $ 77.6 million carrying value of the Presque Isle gaming rights exceeded the fair value of $ 62.6 million and the Company recognized an impairment of $ 15.0 million in first quarter of 2020 for the Presque Isle gaming rights ($ 12.5 million related to t he Gaming s egment and $ 2.5 million related to the TwinSpires segment).

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.

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

As a result, the Company recognized an impairment of $ 2.5 million in first quarter of 2020 for its Presque Isle trademark.

As a result, the Company recognized an impairment of $ 2.5 million in the first quarter of 2020 for the Presque Isle trademark.

The fair value of the Presque Isle reporting unit's goodwill was determined under the market and income valuation approaches using inputs primarily related to discounted projected cash flows and price multiples of publicly traded comparable companies.

In accordance with Accounting Standards Codification 350, Intangibles - Goodwill and Other, the Company performed its impairment testing of the Presque Isle gaming rights and trademark prior to testing Presque Isle goodwill.

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 the first quarter of 2020 because the fair value exceeded the carrying value.

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

In accordance with Accounting Standards Codification 350, Intangibles - Goodwill and Other, the Company performed the impairment testing of the Presque Isle gaming rights and trademark prior to testing Presque Isle goodwill.

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

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.

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 months ended March 31, 2021 was higher than the U.S.

federal statutory rate of 21.0% primarily resulting from state income taxes, non-deductible officer’s compensation, and an increase to our unrecognized tax benefits due to an extension of the statute of limitations for certain tax positions.

This expense was partially offset by tax benefits resulting from year-to-date tax deductions from vesting of restricted stock compensation in excess of book deductions.

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 from year-to-date vesting of restricted stock compensation in excess of book deductions.

SHAREHOLDERS’ EQUITY

On October 30, 2018, the Board of Directors of the Company approved a new common stock repurchase program of up to $ 300.0 million.

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 included and was not in addition to any unspent amount remaining under the prior authorization.

On October 30, 2018, the Board of Directors of the Company approved a common stock repurchase program of up to $ 300.0 million.

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 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.

We have approximately $ 147.1 million of repurchase authority remaining under this program at March 31, 2021, based on trade date.

There were no repurchases of our common stock under our October 2018 stock repurchase program for the three months ended March 31, 2021.

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 for the three months ended March 31, 2020.

On February 1, 2021, the Company entered into an agreement (the “Stock Repurchase Agreement”) with an affiliate of The Duchossois Group, Inc.

(“TDG”) to repurchase 1,000,000 shares of the Company’s common stock for $ 193.94 per share in a privately negotiated transaction.

The aggregate purchase price was $ 193.9 million.

The Stock Repurchase Agreement contains customary representations, warranties and covenants of the parties.

The repurchase of shares of common stock from TDG pursuant to the Stock Repurchase Agreement was approved by the Company's Board of Directors separately from, and did not reduce the authorized amount remaining under, the existing common stock repurchase program.

The Company repurchased the shares using available cash and borrowings under the Revolver.

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 $ 6.9 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.

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 $ 5.5 million for the three months ended March 31, 2021 and $ 4.3 million for the three months ended March 31, 2020.

During the three months ended March 31, 2021, the Company awarded RSUs to employees and RSUs and PSUs to certain named executive officers ("NEOs").

The vesting criteria for the PSU awards granted in 2021 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.

The total compensation cost we will recognize under the PSUs will be determined using the Monte Carlo valuation methodology, which factors in the value of the TSR market condition when determining the grant date fair value of the PSU.

The total compensation cost we will recognize under the PSUs is determined using the Monte Carlo valuation methodology, which factors in the value of the TSR market condition when determining the grant date fair value of the PSU.

Compensation cost for each PSU is recognized during the performance and service period based on the probable achievement of the two performance criteria.

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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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

Churchill Downs Incorporated

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A summary of the RSUs and PSUs granted during 2021 is presented below (units in thousands):

Grant Year Award Type Number of Units Awarded Vesting Terms

2020 RSU 44 Vest equally over three service periods ending in 2021, 2022, and 2023

2020 RSU 37 Vest equally over three service periods ending in 2020, 2021, and 2022

Grant Year Award Type Number of Units Awarded (1)

Vesting Terms

2021 RSU 62 Vest equally over three service periods ending in 2024

2021 PSU 27 Three year performance and service period ending in 2023

2020 RSU 12 One year service period ending in 2021

(1) PSUs presented are based on the target number of units for the original PSU grant.

Credit Agreement

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.

Previously, the maturity date of the revolving credit facility was December 27, 2022.

The interest rates applicable to the Company’s borrowings under the Credit Agreement are LIBOR-based plus a spread, determined by the Company’s consolidated total net leverage ratio.

The First Amendment, among other things, lowers the upper limit of the applied spreads with respect to revolving loans from 2.25 % to 1.75 % and for commitment fees with respect thereto from 0.35 % to 0.30 %, and generally offers a reduced pricing schedule for outstanding borrowings and commitment fees with respect to the Revolver across all other leverage pricing levels.

The interest rates applicable to borrowings under the facilities are LIBOR-based plus a spread, determined by the Company’s consolidated total net leverage ratio.

The First Amendment does not alter the Company’s borrowing capacity.

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.

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.

On December 27, 2017, we entered into a senior secured credit agreement (as amended, the "Credit Agreement") with a syndicate of lenders.

The Credit Agreement provides for a $ 700.0 million senior secured revolving credit facility due 2022 (the "Revolver") and a $ 400.0 million senior secured term loan B due 2024 (the "Term Loan B").

Included in the maximum borrowing of $ 700.0 million under the Revolver is a letter of credit sub facility not to exceed $ 50.0 million and a swing line commitment up to a maximum principal amount of $ 50.0 million.

The Credit Agreement is collateralized by substantially all of the wholly-owned assets of the Company.

On April 28, 2020, the Company entered into a Second Amendment to the Credit Agreement, which (i) provides for a financial covenant relief period through the date on which the Company delivers the Company's 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.

On February 1, 2021, the Company entered into the Third Amendment to the Credit Agreement to increase the restricted payments capacity during the Financial Covenant Relief Period from $ 26.0 million to $ 226.0 million to accommodate a share repurchase from an affiliate of TDG.

Refer to Note 7, Shareholders' Equity, for information regarding this transaction.

On March 17, 2021, the Company entered into the Incremental Joinder Agreement No.

1 (the "Joinder") to its Credit Agreement which provided $ 300.0 million in New Term Loan Commitments ("Term Loan B-1") as a new tranche of term loans under the existing Credit Agreement (as conformed to recognize the new loan), and carries a maturity date of March 17, 2028.

The Term Loan B-1 bears interest at LIBOR plus 200 basis points and requires quarterly payments of 0.25 % of the original $ 300.0 million balance.

The Term Loan B-1 may be subject to additional mandatory prepayment from excess cash flow on an annual basis per the provisions of the Credit Agreement.

The Company capitalized $ 3.4 million of debt issuance costs associated with the Joinder which are being amortized as interest expense over the 7 year term of the Term Loan B-1.

The interest rate on the Revolver on March 31, 2021 was LIBOR plus 175 points based on the Revolver pricing grid in the Second Amendment and the Company's net leverage ratio as of March 31, 2021.

The Term Loan B and Term Loan B-1 bear interest at LIBOR plus 200 basis points.

Although the Company was not required to meet the Company’s financial covenants under the Credit Agreement on March 31, 2021 (as a result of the Second Amendment), the Company was compliant with all applicable covenants on March 31, 2021.

2028 Senior Notes Second Supplemental Indenture

On March 17, 2021, the Company completed an offering of $ 200.0 million in aggregate principal amount of 4.75 % Senior Unsecured Notes that mature on January 15, 2028 (the "Additional 2028 Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the Securities Act, and to certain non-U.S.

persons in accordance with Regulation S under the Securities Act.

The Additional 2028 Notes were offered under the indenture dated as of December 27, 2017, governing the $ 500.0 million aggregate principal amount of 4.75 % Senior Unsecured Notes due 2028 ("Existing 2028 Notes") and form a part of the same series for purposes of the indenture.

In connection with the offering, we capitalized $ 3.3 million of debt issuance costs which are being amortized as interest expense over the term of the Additional 2028 Notes.

Upon completion of this offering, the aggregate principal amount of outstanding of the Existing 2028 Notes, together with the Additional 2028 Notes (collectively the "2028 Senior Notes") is $ 700.0 million.

The Additional 2028 Notes were issued at 103.25 % of the principal amount, plus interest deemed to have accrued from January 15, 2021, with interest payable on January 15th and July 15th of each year, commencing on July 15, 2021.

The 2028 Senior

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Notes will vote as one class under the indenture governing the 2028 Senior Notes.

The 3.25 % premium will be amortized through interest expense, net over the term of the Additional 2028 Notes.

The Company used the net proceeds from the Additional 2028 Notes and the Term Loan B-1 (i) to repay indebtedness outstanding under our Revolving Credit Facility, (ii) to fund related transaction fees and expenses and (iii) for working capital and other general corporate purposes.

The Company may redeem some or all of the Additional 2028 Notes at any time prior to January 15, 2023, at a price equal to 100 % of the principal amount of the 2028 Senior Notes redeemed plus an applicable make-whole premium.

On or after such date, the Company may redeem some or all of the Additional 2028 Notes at redemption prices set forth in the 2028 Offering Memorandum.

In connection with the issuance of the Additional 2028 Notes, the Company and the 2028 Guarantors entered into a Registration Rights Agreement to register any 2028 Senior Notes under the Securities Act for resale that are not freely tradable 366 days from March 17, 2021.

REVENUE FROM CONTRACTS WITH CUSTOMERS

Performance Obligations

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.

As of March 31, 2021, the Live and Historical Racing segment had remaining performance obligations on contracts with a duration greater than one year of an aggregate transaction price of $ 136.0 million.

The revenue we expect to recognize on these remaining performance obligations is $ 32.5 million for the remainder of 2021, $ 37.8 million in 2022, $ 23.3 million in 2023, and the remainder thereafter.

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

As of March 31, 2021, our remaining performance obligations in segments other than Live and Historical Racing were not material.

Contract Assets and Contract Liabilities

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 $ 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.

As of March 31, 2021 and December 31, 2020, contract assets were not material.

As of March 31, 2021 and December 31, 2020, contract liabilities were $ 74.3 million and $ 53.7 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 Live and Historical Racing segment and the increase was primarily due to cash payments received for unfulfilled performance obligations.

We recognized $ 2.6 million of revenue during the three months ended March 31, 2021 that was included in the contract liabilities balance at December 31, 2020.

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.

Disaggregation of Revenue

In Note 16, Segment Information, the Company has included its disaggregated revenue disclosures as follows:

• For the Churchill Downs segment, revenue is disaggregated between Churchill Downs Racetrack and Derby City Gaming given that Churchill Downs Racetrack's revenues primarily revolve around live racing events while Derby City Gaming's revenues primarily revolve around historical racing events.

Within the Churchill Downs segment, revenue is further disaggregated between live and simulcast racing, historical racing, racing event-related services, and other services.

• For the Online Wagering segment, revenue is disaggregated between TwinSpires and online sports betting and iGaming business given that TwinSpires' revenue is primarily related to online pari-mutuel wagering on live race events while online sports betting and iGaming revenue relates to casino gaming service offerings.

Online sports betting and iGaming service offerings are currently nominal.

Within the Online Wagering segment, revenue is further disaggregated between live and simulcast racing, gaming, and other services.

• For the Live and Historical Racing segment, revenue is disaggregated between racing facilities and HRM facilities given that our racing facilities revenues primarily revolve around live racing events while our HRM facilities revenues primarily revolve around historical racing events.

This segment is also disaggregated by location given the geographic economic factors that affect the revenue of service offerings.

Within the Live and Historical racing segment, revenue is further disaggregated between live and simulcast racing, historical racing, racing event-related services, and other services.

• For the TwinSpires segment, revenue is disaggregated between Horse Racing and Sports and Casino given that Horse Racing revenue is primarily related to online pari-mutuel wagering on live race events while Sports and Casino revenue relates to casino gaming service offerings.

Within the TwinSpires segment, revenue is further disaggregated between live and simulcast racing, gaming, and other services.

• For the Gaming segment, revenue is disaggregated by location given the geographic economic factors that affect the revenue of Gaming service offerings.

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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, 2021

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

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

(in millions) March 31, 2021 December 31, 2020

Account wagering deposits liability $ 40.9 $ 38.1

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INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

Midwest Gaming

On March 5, 2019, the Company completed the Sale Transaction to acquire approximately 42 % of Midwest Gaming, the parent company of Rivers Des Plaines, for cash consideration of approximately $ 406.6 million and $ 3.5 million of certain transaction costs and working capital adjustments.

Following the closing of the Sale Transaction, the parties completed the Recapitalization pursuant to which Midwest Gaming used approximately $ 300.0 million in proceeds from amended and extended credit facilities to redeem, on a pro rata basis, additional Midwest Gaming units held by High Plaines and Casino Investors.

As a result of the Recapitalization, the Company's ownership of Midwest Gaming increased to 61.3 %.

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

Investments in and advances to unconsolidated affiliates as of March 31, 2021 and December 31, 2020 primarily consisted of a 61.3 % interest in Rivers Casino Des Plaines ("Rivers Des Plaines"), a 50 % interest in Miami Valley Gaming and Racing ("MVG"), and two other immaterial joint ventures.

Rivers Des Plaines

The ownership of Rivers Des Plaines is comprised of the following:

(1) the Company owns 61.3 %;

(2) High Plaines Gaming, LLC ("High Plaines"), an affiliate of Rush Street Gaming, LLC, owns 36.0 %, and (3) Casino Investors, LLC owns 2.7 %.

Both the Company and High Plaines have participating rights over Rivers Des Plaines, and both must consent to operating, investing and financing decisions.

As a result, we account for Rivers Des Plaines using the equity method.

As of March 31, 2021, the net aggregate basis difference between the Company’s investment in Rivers Des Plaines and the amounts of the underlying equity in net assets was $ 833.1 million.

Our investment in Rivers Des Plaines was $ 523.1 million and $ 519.0 million as of March 31, 2021 and December 31, 2020, respectively.

The Company received distributions from Rivers Des Plaines of $ 12.0 million and $ 1.3 million for the three months ended March 31, 2021 and 2020, respectively.

Miami Valley Gaming

Delaware North Companies Gaming & Entertainment Inc.

("DNC") owns the remaining 50 % interest in MVG.

Since both we and DNC have participating rights over MVG, and both must consent to MVG's operating, investing and financing decisions, we account for MVG using the equity method.

Our investment in MVG was $ 109.3 million and $ 110.7 million as of March 31, 2021 and December 31, 2020, respectively.

The Company received distributions from MVG of $ 10.0 million for the three months ended March 31, 2021.

There were no distributions for the three months ended March 31, 2020.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

A new limited liability company agreement was entered into by the members of Midwest Gaming as a result of the change in ownership structure.

Under the new limited liability company agreement, both the Company and High Plaines have participating rights over Midwest Gaming, and both must consent to Midwest Gaming's operating, investing and financing decisions.

As a result, we account for Midwest Gaming using the equity method.

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 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 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 September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(in millions) 2021 2020

5 unchanged sentences

Interest and other, net ( 4.6 ) ( 35.8 )

Net income $ 48.4 $ 25.9 $ 27.5 $ 53.8

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

Net income (loss) $ 44.2 $ ( 3.0 )

(in millions) March 31, 2021 December 31, 2020

Current assets $ 87.7 $ 132.8

8 unchanged sentences

Total liabilities and members' deficit $ 599.9 $ 645.2

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

Churchill Downs Incorporated

6 unchanged sentences

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 (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.

The fair value of the Company’s 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 Term Loan B, Term Loan B-1, and Revolver under the Credit Agreement approximate the gross carrying value of the variable rate debt and as such are Level 2 measurements.

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

September 30, 2020

March 31, 2021

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

3 unchanged sentences

Term Loan B 384.0 387.0 — 387.0 —

Revolver 694.6 694.6 — 694.6 —

Term Loan B-1 295.9 300.0 — 300.0 —

2027 Senior Notes 593.4 625.9 — 625.9 —

6 unchanged sentences

Term Loan B 384.8 388.0 — 388.0 —

Revolver 149.7 149.7 — 149.7 —

2027 Senior Notes 593.2 635.2 — 635.2 —

8 unchanged sentences

Legal fees are expensed as incurred.

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

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

For certain legal proceedings, we cannot reasonably estimate losses or a range of loss, if any, particularly for proceedings that are in the early stages of

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

For certain legal proceedings, we cannot reasonably estimate losses or a range of loss, if any, particularly for proceedings that are in the early stages of development or where the plaintiffs seek indeterminate damages.

development or where the plaintiffs seek indeterminate damages.

Various factors, including, but not limited to, the outcome of potentially lengthy discovery and the resolution of important factual questions, may need to be determined before probability can be established or before a loss or range of loss can be reasonably estimated.

1 unchanged sentence

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.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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 September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(in millions, except per share data) 2021 2020

19 unchanged sentences

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

SEGMENT INFORMATION

We manage our operations through three reportable segments:

• Churchill Downs

The Churchill Downs segment includes live and historical pari-mutuel racing related revenue and expenses at Churchill Downs Racetrack and Derby City Gaming.

• Live and Historical Racing

The Live and Historical Racing segment includes live and historical pari-mutuel racing related revenue and expenses at Churchill Downs Racetrack, Derby City Gaming, Oak Grove, Turfway Park, and Newport.

Churchill Downs Racetrack is the home of the Kentucky Derby and conducts live racing during the year.

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;

Oak Grove conducts live harness racing during the year and operates a HRM facility under its pari-mutuel racing license.

Turfway Park conducts live racing during the year, and Newport is an ancillary HRM facility that operates under the Turfway Park pari-mutuel racing license.

Our Live and Historical Racing properties earn commissions primarily from pari-mutuel wagering on live and historical races;

simulcast fees earned from other wagering sites;

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

• Online Wagering

The Online Wagering segment includes the revenue and expenses for TwinSpires and the online sports betting and iGaming business.

TwinSpires operates our online horse racing wagering business on TwinSpires.com, BetAmerica.com and other Company platforms;

facilitates high dollar wagering by international customers (Velocity);

and provides the platform for horse racing statistical data generated by our information business that provides data and processing services to the equine industry (Brisnet).

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

The TwinSpires segment includes the revenue and expenses for the online horse racing and the online and retail sports betting and iGaming wagering business.

TwinSpires Horse Racing operates the online horse racing wagering business for TwinSpires.com, BetAmerica.com, and other white-label platforms;

facilitates high dollar wagering by international customers (through Velocity);

and provides the Bloodstock Research Information Services platform for horse racing statistical data.

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

Our TwinSpires Sports and Casino business operates our sports betting and casino iGaming platform in multiple states.

The Company launched its mobile sports betting app in Michigan in January 2021 and Tennessee in March 2021.

The TwinSpires Sports and Casino business includes the mobile and online sports betting and casino results and the results of our six retail sportsbooks, which include our wholly-owned properties at Harlow’s Casino Resort and Spa (“Harlow’s”), Presque Isle, and Riverwalk Casino Hotel (“Riverwalk”), as well as in Colorado, Indiana and Michigan which utilize a third party's casino license.

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

The Gaming segment has approximately 11,000 slot machines and VLTs and 200 table games located in eight states.

The Gaming segment has approximately 11,000 slot machines and video lottery terminals ("VLTs") and 200 table games located in eight states.

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

◦ Fair Grounds and VSI

◦ Lady Luck Nemacolin management agreement

◦ Ocean Downs

◦ Calder Casino and Racing ("Calder")

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

◦ Lady Luck Casino Nemacolin ("Lady Luck Nemacolin") management agreement

◦ Ocean Downs Casino and Racetrack ("Ocean Downs")

◦ Oxford Casino and Hotel ("Oxford")

◦ Presque Isle

The Gaming segment Adjusted EBITDA also includes the Adjusted EBITDA related to the Company’s equity investments in the following:

◦ 61.3 % equity investment in Midwest Gaming, the parent company of Rivers Des Plaines

◦ 61.3 % equity investment in Rivers Des Plaines

◦ 50 % equity investment in MVG

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

The Gaming segment generates revenue and expenses from slot machines, table games, VLTs, video poker, retail sports betting, ancillary food and beverage services, hotel services, commission on pari-mutuel wagering, racing event-related services, and / or other miscellaneous operations.

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:

• Turfway Park

• Arlington International Racecourse ("Arlington")

• 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,

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.

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

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

4 unchanged sentences

– Acquisition and disposition related charges;

◦ Calder racing exit costs;

– Other transaction expense, including legal, accounting, and other deal-related expense;

• Stock-based compensation expense;

• Midwest Gaming's impact on our investments in unconsolidated affiliates from:

• Rivers Des Plaines' impact on our investments in unconsolidated affiliates from:

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

◦ Recapitalization and transaction costs;

– Legal reserves and transaction costs;

• Asset impairments;

• Gain on Ocean Downs/Saratoga Transaction;

• Legal reserves;

4 unchanged sentences

Our calculation of Adjusted EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited.

For segment reporting, Adjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the accompanying condensed consolidated statements of comprehensive income.

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 SEPTEMBER 30, 2020

For segment reporting, Adjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the accompanying condensed consolidated statements of comprehensive income (loss).

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

Three Months Ended March 31,

(in millions) 2021 2020

Net revenue from external customers:

Churchill Downs:

Live and Historical Racing:

Churchill Downs Racetrack $ 2.0 $ 1.9

Derby City Gaming 32.9 21.6

Total Churchill Downs 60.8 31.4 107.6 234.6

Online Wagering:

TwinSpires 124.1 70.2 310.6 228.8

Online Sports Betting and iGaming 1.8 — 3.8 0.1

Total Online Wagering 125.9 70.2 314.4 228.9

Oak Grove 19.4 —

Turfway Park 4.5 4.6

Newport 4.4 —

Total Live and Historical Racing 63.2 28.1

Horse Racing 92.7 66.6

Sports and Casino 7.0 2.5

Total TwinSpires 99.7 69.1

Fair Grounds and VSI 38.3 31.6

9 unchanged sentences

Net revenue from external customers $ 324.3 $ 252.9

Three Months Ended September 30, Nine Months Ended

September 30,

Three Months Ended March 31,

(in millions) 2021 2020

Intercompany net revenue:

Churchill Downs $ 7.2 $ 1.3 $ 14.4 $ 12.6

Online Wagering 0.5 0.2 1.3 0.9

Live and Historical Racing $ 1.5 $ 1.0

TwinSpires 0.4 0.3

Gaming 2.0 1.5

2 unchanged sentences

Intercompany net revenue $ — $ —

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Three Months Ended September 30, 2020

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

Three Months Ended March 31, 2021

(in millions) Live and Historical Racing TwinSpires Gaming Total Segments All Other Total

Net revenue from external customers

6 unchanged sentences

Total $ 63.2 $ 99.7 $ 152.0 $ 314.9 $ 9.4 $ 324.3

Three Months Ended September 30, 2019

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

Three Months Ended March 31, 2020

(in millions) Live and Historical Racing TwinSpires Gaming Total Segments All Other Total

Net revenue from external customers

6 unchanged sentences

Total $ 28.1 $ 69.1 $ 145.9 $ 243.1 $ 9.8 $ 252.9

(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 $ 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

Nine Months Ended September 30, 2020

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

Net revenue from external customers

Live and simulcast racing $ 30.2 $ 298.5 $ 16.2 $ 344.9 $ 19.7 $ 364.6

Historical racing (b)

52.6 — — 52.6 2.2 54.8

Racing event-related services 19.6 — 2.7 22.3 0.3 22.6

— 3.8 278.5 282.3 — 282.3

5.2 12.1 22.3 39.6 11.9 51.5

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

Nine Months Ended September 30, 2019

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

Net revenue from external customers

Live and simulcast racing $ 48.1 $ 218.7 $ 23.9 $ 290.7 $ 34.7 $ 325.4

Historical racing (b)

58.7 — — 58.7 — 58.7

Racing event-related services 115.0 — 3.1 118.1 5.3 123.4

— 0.1 442.4 442.5 — 442.5

12.8 10.1 55.3 78.2 20.9 99.1

Total $ 234.6 $ 228.9 $ 524.7 $ 988.2 $ 60.9 $ 1,049.1

(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 $ 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

(a) Food and beverage, hotel, and other services furnished to customers for free as an inducement to wager or through the redemption of our customers' loyalty points are recorded at the 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 $ 3.7 million for the three months ended March 31, 2021 and $ 7.6 million for the three months ended March 31, 2020.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

Churchill Downs Incorporated

1 unchanged sentence

Adjusted EBITDA by segment is comprised of the following:

Three Months Ended September 30, 2020

(in millions) Churchill Downs Online Wagering Gaming

Net revenue $ 68.0 $ 126.4 $ 134.9

Taxes and purses ( 19.3 ) ( 8.0 ) ( 51.7 )

Marketing and advertising ( 2.3 ) ( 6.9 ) ( 0.6 )

Salaries and benefits ( 8.4 ) ( 3.1 ) ( 19.1 )

Content expense ( 0.2 ) ( 63.5 ) ( 1.3 )

Selling, general and administrative expense ( 2.6 ) ( 3.6 ) ( 8.3 )

Other operating expense ( 11.3 ) ( 9.4 ) ( 14.4 )

Other income — — 35.9

Adjusted EBITDA $ 23.9 $ 31.9 $ 75.4

Three Months Ended September 30, 2019

(in millions) Churchill Downs Online Wagering Gaming

Net revenue $ 32.7 $ 70.4 $ 178.6

Taxes and purses ( 10.2 ) ( 4.4 ) ( 71.2 )

Marketing and advertising ( 1.1 ) ( 3.6 ) ( 5.5 )

Salaries and benefits ( 6.8 ) ( 3.0 ) ( 26.6 )

Content expense ( 0.5 ) ( 36.5 ) ( 1.6 )

Selling, general and administrative expense ( 2.1 ) ( 1.8 ) ( 7.9 )

Other operating expense ( 6.9 ) ( 6.1 ) ( 21.2 )

Other income 0.1 — 27.1

Adjusted EBITDA $ 5.2 $ 15.0 $ 71.7

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Nine Months Ended September 30, 2020

(in millions) Churchill Downs Online Wagering Gaming

Three Months Ended March 31, 2021

(in millions) Live and Historical Racing TwinSpires Gaming

Net revenue $ 64.7 $ 100.1 $ 154.0

7 unchanged sentences

Adjusted EBITDA $ 18.3 $ 22.5 $ 82.4

Nine Months Ended September 30, 2019

(in millions) Churchill Downs Online Wagering Gaming

Three Months Ended March 31, 2020

(in millions) Live and Historical Racing TwinSpires Gaming

Net revenue $ 29.1 $ 69.4 $ 147.4

7 unchanged sentences

Adjusted EBITDA $ 1.0 $ 16.0 $ 47.9

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Three Months Ended September 30, Nine Months Ended

September 30,

Three Months Ended March 31,

(in millions) 2021 2020

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 income (loss) and comprehensive income (loss) attributable to Churchill Downs Incorporated $ 36.1 $ ( 23.4 )

Net loss attributable to noncontrolling interest — 0.1

9 unchanged sentences

Stock-based compensation expense $ 5.5 $ 4.3

Legal reserves — 3.3 — 3.6

Other charges 0.8 — 0.7 —

Pre-opening expense and other expense 0.6 1.7

3 unchanged sentences

Interest, depreciation and amortization expense related to equity investments 9.6 9.5

Changes in fair value of Midwest Gaming's interest rate swaps ( 1.5 ) 3.2 14.7 15.4

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

Other — 0.1 — —

Changes in fair value of Rivers Des Plaines' interest rate swaps ( 4.2 ) 14.9

Rivers Des Plaines' legal reserves and transaction costs 1.3 —

Total adjustments to EBITDA 12.9 48.2

1 unchanged sentence

Adjusted EBITDA by segment:

Churchill Downs $ 23.9 $ 5.2 $ 30.3 $ 128.5

Online Wagering 31.9 15.0 85.7 54.1

Live and Historical Racing $ 18.3 $ 1.0

TwinSpires 22.5 16.0

Gaming 82.4 47.9

2 unchanged sentences

Total Adjusted EBITDA $ 110.6 $ 55.3

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

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,

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

Three Months Ended March 31,

(in millions) 2021 2020

Gaming $ 24.9 $ ( 3.3 )

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

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

Total assets:

Churchill Downs $ 394.2 $ 370.3

Online Wagering 253.5 241.5

Gaming 968.9 1,030.1

Total segment assets 1,616.6 1,641.9

All Other 1,646.4 909.1

Total assets $ 3,263.0 $ 2,551.0

As noted in Note 1, Description of Business, we updated our segments and moved our Oak Grove, Turfway Park and Newport businesses into the Live and Historical Racing segment with Churchill Downs Racetrack and Derby City Gaming.

As a result, we moved $ 196.4 million of assets from Oak Grove, $ 52.1 million of assets from Turfway Park, and $ 37.9 million from Newport from All Other segment assets to the Live and Historical Racing segment at December 31, 2020.

As noted in Note 9, Debt, as a result of our proceeds received from the Term Loan B-1 and Additional 2028 Notes, our All Other total assets increased $ 99.8 million at March 31, 2021 compared to December 31, 2020, which was primarily an increase in cash and cash equivalents.

There were no other significant changes in our segment assets at March 31, 2021 compared to December 31, 2020.

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

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions) 2021 2020

Capital expenditures:

Churchill Downs $ 37.3 $ 24.7

Online Wagering 9.6 7.3

Capital expenditures, net:

Live and Historical Racing $ 7.8 $ 39.7

TwinSpires 2.3 3.5

Gaming 1.6 3.3

3 unchanged sentences

SUBSEQUENT EVENT

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

As of the date of this filing, there were no subsequent events that may impact our disclosures in the condensed consolidated financial statements.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

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