What changed in this filing

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Item 1. Financial Statements

2021-07-28 compared with 2021-04-21 · 212 added, 137 removed, 568 unchanged (38% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended March 31,

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

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

10 unchanged sentences

Selling, general and administrative expense 33.4 22.4 63.6 46.5

Impairment of intangible assets — 17.5

Asset impairments 11.2 — 11.2 17.5

Transaction expense, net — 0.2 0.1 0.5

6 unchanged sentences

Total other income (expense) 14.5 ( 31.1 ) 20.1 ( 53.7 )

Income (loss) from continuing operations before provision for income taxes 52.3 ( 34.2 )

Income (loss) from continuing operations before (provision) benefit for income taxes 149.9 ( 31.5 ) 202.2 ( 65.7 )

Income tax (provision) benefit ( 41.6 ) 7.9 ( 57.8 ) 19.5

16 unchanged sentences

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(in millions) June 30, 2021 December 31, 2020

Current assets:

38 unchanged sentences

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Three Months Ended March 31, 2021

Common Stock Retained

8 unchanged sentences

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

Three Months Ended March 31, 2020

Net income 108.3 108.3

Stock-based compensation 7.1 7.1

Other ( 0.2 ) ( 0.2 )

Balance, June 30, 2021 38.5 $ 8.8 $ 309.5 $ ( 0.9 ) $ — $ 317.4

Common Stock Retained

9 unchanged sentences

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

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

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

(in millions) 2021 2020

7 unchanged sentences

Deferred income taxes 7.4 ( 24.8 )

Impairment of intangible assets — 17.5

Asset impairments 11.2 17.5

Amortization of operating lease assets 2.7 2.5

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Other assets and liabilities 87.8 3.4

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

Net cash provided by operating activities 210.3 76.9

Cash flows from investing activities:

1 unchanged sentence

Capital project expenditures ( 15.9 ) ( 118.1 )

Other ( 0.9 ) ( 0.5 )

Net cash used in investing activities ( 30.5 ) ( 131.8 )

8 unchanged sentences

Change in bank overdraft ( 6.1 ) —

Other 1.6 ( 0.1 )

Net cash provided by financing activities 110.6 611.4

3 unchanged sentences

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Three Months Ended March 31,

Six Months Ended June 30,

(in millions) 2021 2020

3 unchanged sentences

Income taxes 10.4 0.7

Schedule of non-cash investing and financing activities:

Schedule of non-cash operating, investing and financing activities:

Property and equipment additions included in accounts payable and accrued expenses $ 5.0 $ 28.1

Right-of-use assets obtained in exchange for lease obligations in operating leases 9.2 2.6

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

Churchill Downs Incorporated

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Basis of Presentation

The Churchill Downs Incorporated (the "Company", "we", "us", "our") financial statements are presented in conformity with the requirements of this Quarterly Report on Form 10-Q and consequently do not include all of the disclosures normally required by U.S.

Churchill Downs Incorporated (the "Company", "we", "us", "our") financial statements are presented in conformity with the requirements of this Quarterly Report on Form 10-Q and consequently do not include all of the disclosures normally required by U.S.

generally accepted accounting principles ("GAAP") or those normally made in our Annual Report on Form 10-K.

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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.

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.

Although vaccines are now available, we cannot predict the duration of the COVID-19 global pandemic.

The extent to which the COVID-19 pandemic, including the emergence of variant strains, will continue to impact the Company remains uncertain and will depend on many factors that are not within our control.

In March 2020, as a result of the COVID-19 outbreak, we temporarily suspended operations at our wholly-owned and managed gaming properties, announced the temporary furlough of our employees at these properties and certain racing operations, and implemented a temporary salary reduction for all remaining non-furloughed salaried employees based on a percentage that varied dependent upon the amount of each employee’s salary.

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

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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

During the second quarter of 2021, we held the 147 th Kentucky Oaks and Derby with capacity restrictions in compliance with Kentucky venue limitations at that time.

The capacity restrictions limited reserved seating in each area to approximately 40 % to 60 % capacity and also limited general admission tickets.

The 146 th Kentucky Oaks and Derby was held in the third quarter of 2020.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

RECENT ACCOUNTING PRONOUNCEMENTS

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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.

The amendments also clarify and amend existing guidance to improve consistent application of and simplify GAAP for other areas of Topic 740.

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

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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.

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 to alternative reference rates.

The guidance was effective upon issuance and if elected, will 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

On November 29, 2017, the Company entered into a definitive Stock Purchase Agreement (the "Stock Purchase Agreement") to sell its mobile gaming subsidiary, Big Fish Games, Inc.

On January 9, 2018, the Company completed the sale of its mobile gaming subsidiary, Big Fish Games, Inc.

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

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

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

("Aristocrat"), a Nevada corporation, an indirect, wholly-owned subsidiary of Aristocrat Leisure Limited, an Australian corporation (the "Big Fish Transaction") pursuant to a definitive Stock Purchase Agreement (the "Stock Purchase Agreement").

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.

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

Kater and Thimmegowda Settlement

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

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Big Fish Games, Inc.

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

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

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

Three Months Ended March 31,

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

(in millions) 2021 2020 2021 2020

1 unchanged sentence

Selling, general and administrative expense — 0.3 — 1.5

Loss from discontinued operations before provision for income taxes

Legal settlement — 124.0 — 124.0

Loss from discontinued operations before benefit for income taxes — ( 124.3 ) — ( 125.5 )

Income tax benefit — 29.1 — 29.4

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

Churchill Downs Incorporated

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GOODWILL AND OTHER INTANGIBLE ASSETS

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

Goodwill was $ 366.8 million as of June 30, 2021 and December 31, 2020.

We performed our annual goodwill impairment analysis as of April 1, 2021, and no adjustment to the carrying value of goodwill was required.

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

We concluded that the fair values of our reporting units exceeded their carrying values, and therefore no impairments were identified.

In the first quarter of 2021, we realigned our segments as described in Note 1, Description of Business.

This change resulted in the allocation of $ 4.0 million of goodwill from the Gaming segment to the TwinSpires segment based on the relative fair value approach.

The Company evaluated whether an interim goodwill impairment test should be performed as a result of our segment changes.

Based on this evaluation, the Company determined this event did not indicate it was more likely than not that a goodwill impairment exists.

Other intangible assets are comprised of the following:

March 31, 2021 December 31, 2020

June 30, 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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Total $ 348.2 $ 350.6

Refer to Note 5, Asset Impairment, for information regarding intangible asset impairments recognized during the first quarter of 2020.

ASSET IMPAIRMENT

Refer to Note 5, Asset Impairments, 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, 2021.

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 IMPAIRMENTS

During the quarter ended June 30, 2021, the Company recorded an $ 11.2 million non-cash impairment charge related to certain assets at Churchill Downs Racetrack included in our Live and Historical Racing segment.

The impairment was due to a change in the Churchill Downs Racetrack capital plans and the Company's planned usage of these assets.

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.

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 global pandemic on cash flows.

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.

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 global pandemic.

Based on the Company's evaluation, the Company concluded that a Trigger Event occurred related to the Presque Isle Downs and Casino ("Presque Isle") gaming rights, trademark, and the reporting unit's goodwill due to the impact and uncertainty of the COVID-19 global pandemic.

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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The estimated future revenue, operating expenses, start-up costs, and discount rate were the primary inputs in the valuation.

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 $ 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).

Based on the Trigger Event in 2020, 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 $ 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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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.

The estimated future revenue, royalty rate, and discount rate were the primary inputs in the valuation of the trademark.

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.

Based on the Trigger Event in 2020, 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 the first quarter of 2020 for the Presque Isle trademark.

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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

Based on the Trigger Event in 2020, 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.

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.

The Company’s effective income tax rate for the three and six months ended June 30, 2021 was higher than the U.S.

federal statutory rate of 21.0% primarily resulting from state income taxes and non-deductible officer’s compensation.

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

The effective income tax rate for both periods were higher than the U.S.

federal statutory rate of 21.0% primarily resulting from state income taxes and non-deductible officer’s compensation.

The effective income tax rate for the three months ended June 30, 2020 was also higher due to the establishment of a valuation allowance against current year state income tax losses in certain jurisdictions that don’t require combined reporting.

The effective income tax rate for the six months ended June 30, 2020 was also higher from vesting of restricted stock compensation in excess of book deductions.

The Company’s annual estimated effective tax rate for 2020 included a 14 % tax benefit from a current year federal taxable loss which will be carried back to a pre-2018 tax year, reducing the effective income tax rate applied to the pretax loss for both the three-month ended and the six-month ended June 30, 2020.

SHAREHOLDERS’ EQUITY

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

On October 30, 2018, the Board of Directors of the Company approved a common stock repurchase program of up to $ 300.0 million ("2018 Stock Repurchase Program").

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.

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.

We have approximately $ 147.1 million of repurchase authority remaining under this program at June 30, 2021, based on trade date.

There were no repurchases of our common stock under the 2018 Stock Repurchase Program for the three or six months ended June 30, 2021, or the three months ended June 30, 2020.

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

(“TDG”) to repurchase 1,000,000 shares of the Company’s common stock for $ 193.94 per share in a privately negotiated transaction for an aggregate purchase price of $ 193.9 million.

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.

The Company repurchased the shares using available cash and borrowings under the Revolver (as defined in Note 9, Debt).

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

STOCK-BASED COMPENSATION PLANS

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

Our total stock-based compensation expense, which includes expenses related to restricted stock awards ("RSAs"), restricted stock unit awards ("RSUs"), performance share unit awards ("PSUs"), and stock options associated with our employee stock purchase plan was $ 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").

Our total stock-based compensation expense, which includes expenses related to restricted stock awards, restricted stock unit awards ("RSUs"), performance share unit awards ("PSUs"), and stock options associated with our employee stock purchase plan was $ 7.1 million for the three months ended June 30, 2021 and $ 6.1 million for the three months ended June 30, 2020.

Stock-based compensation expense was $ 12.6 million for the six months ended June 30, 2021 and $ 10.4 million for the six months ended June 30, 2020.

During the six months ended June 30, 2021, the Company awarded RSUs to employees, RSUs and PSUs to certain named executive officers ("NEOs"), and RSUs to directors.

The vesting criteria for the PSU awards granted in 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.

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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 MARCH 31, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

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

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

2021 RSU 5 One -year service period ending in 2022

(1) PSUs reflect the target number of units for the original PSU grant.

Credit Agreement

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

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The Company capitalized $ 3.5 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 interest rate on the Revolver on June 30, 2021 was LIBOR plus 175 basis points based on the Revolver pricing grid in the Second Amendment and the Company's net leverage ratio as of June 30, 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.

Although the Company was not required to meet the Company’s financial covenants under the Credit Agreement on June 30, 2021 (as a result of the Second Amendment), the Company was compliant with all applicable covenants on June 30, 2021.

2028 Senior Notes Second Supplemental Indenture

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In connection with the offering, we capitalized $ 3.4 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.

Upon completion of this offering, the aggregate principal amount 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 2028 Senior 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.

The Company may redeem some or all of the Additional 2028 Notes at any time 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.

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Performance Obligations

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.

As of June 30, 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 $ 99.5 million.

The revenue we expect to recognize on these remaining performance obligations is $ 0.7 million for the remainder of 2021, $ 37.2 million in 2022, $ 23.0 million in 2023, and the remainder thereafter.

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

As of June 30, 2021, our remaining performance obligations in segments other than Live and Historical Racing were not material.

Contract Assets and Contract Liabilities

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.

As of June 30, 2021 and December 31, 2020, contract assets were not material.

As of June 30, 2021 and December 31, 2020, contract liabilities were $ 41.1 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 decrease was primarily due to revenue recognized for fulfilled performance obligations.

We recognized $ 28.9 million of revenue during the three months ended June 30, 2021, and $ 31.5 million of revenue during the six months ended June 30, 2021 that was

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

included in the contract liabilities balance at December 31, 2020.

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

Disaggregation of Revenue

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

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

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

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

(in millions) June 30, 2021 December 31, 2020

Account wagering deposits liability $ 54.7 $ 38.1

Accrued salaries and related benefits 21.2 19.6

Accrued interest 24.0 19.2

Purses payable 35.1 18.5

Accrued salaries and related benefits 14.1 19.6

Other 79.9 72.4

1 unchanged sentence

INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

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.

Investments in and advances to unconsolidated affiliates as of June 30, 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

4 unchanged sentences

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.

As of June 30, 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 $ 832.8 million.

Our investment in Rivers Des Plaines was $ 535.2 million and $ 519.0 million as of June 30, 2021 and December 31, 2020, respectively.

The Company received distributions from Rivers Des Plaines of $ 25.3 million and $ 1.3 million for the six months ended June 30, 2021 and 2020, respectively.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Miami Valley Gaming

2 unchanged sentences

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

Our investment in MVG was $ 108.3 million and $ 110.7 million as of June 30, 2021 and December 31, 2020, respectively.

The Company received distributions from MVG of $ 22.0 million and $ 3.5 million for the six months ended June 30, 2021 and 2020, respectively.

Summarized Financial Results for our Unconsolidated Affiliates

Summarized below are the financial results for our unconsolidated affiliates.

Three Months Ended March 31,

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

(in millions) 2021 2020 2021 2020

3 unchanged sentences

Total operating expense 114.2 11.3 204.1 116.3

Operating income 48.8 32.8

Operating income (loss) 83.7 ( 4.5 ) 132.5 28.3

Interest and other, net ( 19.7 ) ( 13.4 ) ( 24.3 ) ( 49.2 )

Net income (loss) $ 64.0 $ ( 17.9 ) $ 108.2 $ ( 20.9 )

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

(in millions) June 30, 2021 December 31, 2020

Current assets $ 86.3 $ 132.8

8 unchanged sentences

Total liabilities and members' deficit $ 620.7 $ 645.2

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

Churchill Downs Incorporated

9 unchanged sentences

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

March 31, 2021

June 30, 2021

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

6 unchanged sentences

2028 Senior Notes 698.0 722.8 — 722.8 —

Total financial liabilities $ 1,970.1 $ 2,032.4 $ — $ 2,032.4 $ —

December 31, 2020

7 unchanged sentences

2028 Senior Notes 494.6 526.9 — 526.9 —

Total financial liabilities $ 1,622.3 $ 1,699.8 $ — $ 1,699.8 $ —

CONTINGENCIES

6 unchanged sentences

Legal fees are expensed as incurred.

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

development or where the plaintiffs seek indeterminate damages.

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.

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.

3 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

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

19 unchanged sentences

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

Churchill Downs Incorporated

15 unchanged sentences

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

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

13 unchanged sentences

◦ 50 % equity investment in MVG

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

Churchill Downs Incorporated

26 unchanged sentences

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

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 income (loss) to Adjusted EBITDA:

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31,

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

(in millions) 2021 2020 2021 2020

21 unchanged sentences

Net revenue from external customers $ 515.1 $ 185.1 $ 839.4 $ 438.0

Three Months Ended March 31,

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

(in millions) 2021 2020 2021 2020

6 unchanged sentences

Intercompany net revenue $ — $ — $ — $ —

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

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

7 unchanged sentences

Total $ 175.9 $ 135.6 $ 186.0 $ 497.5 $ 17.6 $ 515.1

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

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

8 unchanged sentences

(a) Food and beverage, hotel, and other services furnished to customers for free as an inducement to 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

These amounts were $ 5.2 million for the three months ended June 30, 2021 and $ 0.8 million for the three months ended June 30, 2020.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Six Months Ended June 30, 2021

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

Net revenue from external customers

Live and simulcast racing $ 45.5 $ 210.8 $ 16.1 $ 272.4 $ 14.6 $ 287.0

Historical racing (a)

117.8 — — 117.8 — 117.8

Racing event-related services 63.5 — 0.9 64.4 1.9 66.3

— 15.4 302.7 318.1 — 318.1

12.3 9.1 18.3 39.7 10.5 50.2

Total $ 239.1 $ 235.3 $ 338.0 $ 812.4 $ 27.0 $ 839.4

Six Months Ended June 30, 2020

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

Net revenue from external customers

Live and simulcast racing $ 20.1 $ 179.5 $ 11.6 $ 211.2 $ 6.5 $ 217.7

Historical racing (a)

27.7 — — 27.7 — 27.7

Racing event-related services 0.5 — 2.0 2.5 0.1 2.6

— 3.9 153.2 157.1 — 157.1

3.1 7.0 16.4 26.5 6.4 32.9

Total $ 51.4 $ 190.4 $ 183.2 $ 425.0 $ 13.0 $ 438.0

These amounts were $ 8.9 million for the six months ended June 30, 2021 and $ 8.4 million for the six months ended June 30, 2020.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Adjusted EBITDA by segment is comprised of the following:

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

(in millions) Live and Historical Racing TwinSpires Gaming

8 unchanged sentences

Adjusted EBITDA $ 98.4 $ 23.1 $ 119.8

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

(in millions) Live and Historical Racing TwinSpires Gaming

8 unchanged sentences

Adjusted EBITDA $ 3.6 $ 38.7 $ ( 1.8 )

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31,

Adjusted EBITDA by segment is comprised of the following:

Six Months Ended June 30, 2021

(in millions) Live and Historical Racing TwinSpires Gaming

Net revenue $ 255.2 $ 236.0 $ 340.0

Taxes and purses ( 70.8 ) ( 14.7 ) ( 129.3 )

Marketing and advertising ( 7.0 ) ( 25.2 ) ( 3.9 )

Salaries and benefits ( 25.3 ) ( 6.3 ) ( 40.5 )

Content expense ( 1.4 ) ( 115.0 ) ( 2.3 )

Selling, general and administrative expense ( 6.1 ) ( 4.6 ) ( 11.9 )

Other operating expense ( 28.0 ) ( 24.6 ) ( 33.2 )

Other income 0.1 — 83.3

Adjusted EBITDA $ 116.7 $ 45.6 $ 202.2

Six Months Ended June 30, 2020

(in millions) Live and Historical Racing TwinSpires Gaming

Net revenue $ 59.4 $ 191.1 $ 184.7

Taxes and purses ( 23.5 ) ( 11.0 ) ( 73.0 )

Marketing and advertising ( 1.5 ) ( 6.4 ) ( 5.7 )

Salaries and benefits ( 12.5 ) ( 6.5 ) ( 38.5 )

Content expense ( 0.8 ) ( 91.7 ) ( 1.4 )

Selling, general and administrative expense ( 2.9 ) ( 3.1 ) ( 10.6 )

Other operating expense ( 13.6 ) ( 17.8 ) ( 30.5 )

Other income — 0.1 21.1

Adjusted EBITDA $ 4.6 $ 54.7 $ 46.1

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

(in millions) 2021 2020 2021 2020

12 unchanged sentences

Stock-based compensation expense $ 7.1 $ 6.1 $ 12.6 $ 10.4

Other charges 0.2 ( 0.1 ) 0.2 ( 0.1 )

Pre-opening expense and other expense 1.5 1.9 2.1 3.6

Impairment of intangible assets — 17.5

Asset impairments 11.2 — 11.2 17.5

Transaction expense, net — 0.2 0.1 0.5

12 unchanged sentences

Total Adjusted EBITDA $ 233.3 $ 30.1 $ 343.9 $ 85.4

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

Churchill Downs Incorporated

1 unchanged sentence

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

Three Months Ended March 31,

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

(in millions) 2021 2020 2021 2020

Gaming $ 36.4 $ ( 11.1 ) $ 61.3 $ ( 14.4 )

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 asset information for each of our segments:

June 30, 2021 December 31, 2020

Total assets:

Live and Historical Racing $ 653.6 $ 664.1

TwinSpires 280.5 257.2

Gaming 964.1 949.3

Total segment assets 1,898.2 1,870.6

All Other 1,072.4 815.8

Total assets $ 2,970.6 $ 2,686.4

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

Three Months Ended March 31,

Six Months Ended June 30,

(in millions) 2021 2020

8 unchanged sentences

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

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