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Item 1. Financial Statements

2021-10-27 compared with 2021-07-28 · 165 added, 131 removed, 649 unchanged (31% of the section changed)

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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

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

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

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Total operating expense 325.4 288.3 982.7 738.3

Operating income (loss) 135.4 ( 0.4 ) 182.1 ( 12.0 )

Operating income 67.6 49.5 249.7 37.5

Other income (expense):

Interest expense, net ( 21.7 ) ( 19.7 ) ( 63.1 ) ( 59.3 )

Equity in income (loss) of unconsolidated affiliates 36.4 ( 11.1 ) 61.3 ( 14.4 )

Equity in income of unconsolidated affiliates 41.7 27.6 103.0 13.2

Miscellaneous, net 0.1 ( 0.4 ) 0.3 ( 0.1 )

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

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

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

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(in millions) September 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 JUNE 30, 2021

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

CHURCHILL DOWNS INCORPORATED

14 unchanged sentences

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

Net income 61.4 61.4

Issuance of common stock 2.5 2.5

Repurchase of common stock ( 0.2 ) ( 19.1 ) ( 30.9 ) ( 50.0 )

Taxes paid related to net share settlement of stock awards ( 0.3 ) ( 0.3 )

Stock-based compensation 7.8 7.8

Balance, September 30, 2021 38.3 $ — $ 339.7 $ ( 0.9 ) $ — $ 338.8

Common Stock Retained

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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.

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

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

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions) 2021 2020

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Net income (loss) $ 205.8 $ ( 99.2 )

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

Income (loss) from continuing operations, net of tax $ 205.8 $ ( 3.1 )

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

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Distributions from unconsolidated affiliates 77.7 12.8

Equity in (income) loss of unconsolidated affiliates ( 61.3 ) 14.4

Equity in income of unconsolidated affiliates ( 103.0 ) ( 13.2 )

Stock-based compensation 20.4 17.3

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Deferred revenue ( 11.6 ) ( 1.9 )

Current liabilities of discontinued operations ( 124.0 ) 124.0

Other assets and liabilities 65.8 39.7

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Change in bank overdraft ( 13.4 ) —

Other 2.3 2.3

Net cash provided by financing activities 53.5 612.6

Cash flows from discontinued operations:

Operating activities of discontinued operations ( 124.0 ) ( 1.3 )

Net increase in cash, cash equivalents and restricted cash 265.3 537.1

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

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

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

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions) 2021 2020

6 unchanged sentences

Right-of-use assets obtained in exchange for lease obligations in operating leases 9.6 2.8

Repurchase of common stock included in accrued expense and other current liabilities 1.5 —

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

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

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

Churchill Downs Incorporated

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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

The 146 th Kentucky Oaks and Derby was held in the third quarter of 2020 without spectators.

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

Churchill Downs Incorporated

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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 to alternative reference rates.

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, and 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.

ASSETS HELD FOR SALE

On September 29, 2021, the Company announced an agreement to sell the 326 -acre property in Arlington Heights, Illinois (the "Arlington Property"), which is the current home of Arlington International Racecourse ("Arlington"), to the Chicago Bears for $ 197.2 million.

The closing of the sale of the Arlington Property is subject to the satisfaction of various closing conditions.

The Company anticipates closing the sale of the Arlington Property in late 2022 or early 2023.

The Company has classified certain assets of Arlington totaling $ 81.5 million as held for sale as of September 30, 2021, which are included in property and equipment, net on the accompanying condensed consolidated balance sheets.

Arlington’s operations and assets are included in All Other in our consolidated results.

NATURAL DISASTER

In August 2021, Hurricane Ida caused damage to portions of Louisiana, including Fair Grounds Race Course & Slots, and 15 off-track betting facilities ("OTBs") owned by Video Services, LLC ("VSI") (collectively, "Fair Grounds and VSI").

All of the Fair Grounds and VSI operations were reopened as of September 30, 2021, with the exception of two OTBs.

The Company carries property and casualty insurance, as well as business interruption insurance subject to certain deductibles.

As of September 30, 2021, the Company has recorded a reduction of property and equipment, net of $ 3.1 million and incurred $ 2.2 million in operating expenses, with an offsetting insurance recovery receivable of $ 5.3 million.

The Company is currently working with its insurance carriers to finalize its claim.

We continue to assess damages and insurance coverage, and we currently do not expect our losses to exceed the applicable insurance recoveries.

DISCONTINUED OPERATIONS

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") 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.

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

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

The Company previously included both continuing and discontinued operations in our condensed consolidated statement of cash flows.

The prior year results were reclassified to conform to the current period presentation.

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

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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 June 30, Six Months Ended June 30,

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

(in millions) 2021 2020 2021 2020

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

GOODWILL AND OTHER INTANGIBLE ASSETS

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

Goodwill was $ 366.8 million as of September 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.

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Other intangible assets are comprised of the following:

June 30, 2021 December 31, 2020

September 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 $ 349.3 $ 350.6

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.

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

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

ASSET IMPAIRMENTS

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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.

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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.

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).

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

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

The Company’s effective income tax rate for the three and nine months ended September 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 Company’s effective income tax rate for the three and nine months ended September 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.

The effective income tax rate for the nine months ended September 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 and from vesting of restricted stock compensation in excess of book deductions.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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 ("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 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.

The 2018 Stock Repurchase Program was in effect until September 29, 2021 and had unused authorization of $ 97.9 million.

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

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The Company repurchased the shares using available cash and borrowings under the Revolver (as defined in Note 11, Debt).

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2021, we repurchased 245,132 shares under the 2018 Stock Repurchase Program at the aggregate purchase price of $ 49.2 million based on trade date.

We repurchased 235,590 shares of our common stock under this program at an aggregate purchase price of $ 27.9 million based on trade date for the nine months ended September 30, 2020.

There were no purchases for the three months ended September 30, 2020.

On September 29, 2021, the Board of Directors of the Company approved a common stock repurchase program of up to $ 500.0 million ("2021 Stock Repurchase Program").

The 2021 Stock Repurchase Program includes and is not in addition to any unspent amount remaining under the prior 2018 Stock Purchase Program authorization.

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

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

We have approximately $ 499.2 million of repurchase authority remaining under the 2021 Stock Repurchase Program at September 30, 2021, based on trade date.

We repurchased 3,178 shares of our common stock under the 2021 Stock Repurchase Program at an aggregate purchase price of $ 0.8 million based on trade date for the three and nine months ended September 30, 2021.

As of September 30, 2021, we had $ 1.5 million accrued for the future cash settlement of executed repurchases of our common stock and no accrual as of September 30, 2020.

STOCK-BASED COMPENSATION PLANS

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

Our total stock-based compensation expense, which includes expenses related to restricted stock awards, 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.

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 $ 7.8 million for the three months ended September 30, 2021 and $ 6.9 million for the three months ended September 30, 2020.

Stock-based compensation expense was $ 20.4 million for the nine months ended September 30, 2021 and $ 17.3 million for the nine months ended September 30, 2020.

During the nine months ended September 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 SEPTEMBER 30, 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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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 April 28, 2020, the Company entered into a Second Amendment to the Credit Agreement (the "Second Amendment"), which (i) provided for a financial covenant relief period through the date on which the Company delivered the Company's quarterly financial statements and compliance certificate for the fiscal quarter ended June 30, 2021, subject to certain exceptions (the "Financial Covenant Relief Period"), (ii) amended 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) extended certain deadlines and made certain other amendments to the Company’s financial reporting obligations, (iv) placed certain restrictions on restricted payments during the Financial Covenant Relief Period, and (v) amended 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 9, 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 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 interest rate on the Revolver on September 30, 2021 was LIBOR plus 150 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 June 30, 2021 (as a result of the Second Amendment), the Company was compliant with all applicable covenants on June 30, 2021.

The Company was compliant with all applicable covenants on September 30, 2021.

2028 Senior Notes Second Supplemental Indenture

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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.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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.

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Performance Obligations

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.

As of September 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 $ 105.7 million.

The revenue we expect to recognize on these remaining performance obligations is $ 0.5 million for the remainder of 2021, $ 37.9 million in 2022, $ 27.4 million in 2023, and the remainder thereafter.

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

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

Contract Assets and Contract Liabilities

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.

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

As of September 30, 2021 and December 31, 2020, contract liabilities were $ 43.5 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.

We recognized $ 1.2 million of revenue during the three months ended September 30, 2021, and $ 32.7 million of revenue during the nine months ended September 30, 2021, which was included in the contract liabilities balance at December 31, 2020.

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, which 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 SEPTEMBER 30, 2021

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

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

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

Account wagering deposits liability $ 53.4 $ 38.1

Purses payable 38.1 18.5

Accrued salaries and related benefits 28.0 19.6

Accrued interest 23.9 19.2

Purses payable 35.1 18.5

Other 84.0 72.4

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INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

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.

Investments in and advances to unconsolidated affiliates as of September 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 other immaterial joint ventures.

Rivers Des Plaines

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

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

As of September 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 $ 832.6 million.

Our investment in Rivers Des Plaines was $ 547.2 million and $ 519.0 million as of September 30, 2021 and December 31, 2020, respectively.

The Company received distributions from Rivers Des Plaines of $ 44.5 million and $ 2.3 million for the nine months ended September 30, 2021 and 2020, respectively.

Miami Valley Gaming

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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 $ 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.

Our investment in MVG was $ 107.8 million and $ 110.7 million as of September 30, 2021 and December 31, 2020, respectively.

The Company received distributions from MVG of $ 33.0 million and $ 10.5 million for the nine months ended September 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 June 30, Six Months Ended June 30,

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

(in millions) 2021 2020 2021 2020

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Total operating expense 119.6 90.4 323.7 206.7

Operating income (loss) 83.7 ( 4.5 ) 132.5 28.3

Operating income 82.8 57.8 215.3 86.1

Interest and other, net ( 10.4 ) ( 9.4 ) ( 34.7 ) ( 58.6 )

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

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

Net income $ 72.4 $ 48.4 $ 180.6 $ 27.5

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

Current assets $ 92.6 $ 132.8

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Total liabilities and members' deficit $ 642.9 $ 645.2

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

FAIR VALUE OF ASSETS AND LIABILITIES

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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.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

June 30, 2021

September 30, 2021

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

25 unchanged sentences

Legal fees are expensed as incurred.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

3 unchanged sentences

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

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

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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 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 — — — 0.6

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

SEGMENT INFORMATION

4 unchanged sentences

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.

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

Oak Grove conducts live harness racing during the year and operates

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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.

8 unchanged sentences

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 Company launched its mobile sports betting app in Michigan in January 2021, Tennessee in March 2021, and Arizona in September 2021.

The TwinSpires Sports and Casino business includes the mobile and online sports betting and casino results and the results of eight of our 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 Arizona, 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.

2 unchanged sentences

◦ Calder Casino and Racing ("Calder")

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

◦ Fair Grounds and VSI

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

5 unchanged sentences

◦ 50 % equity investment in MVG

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

• Arlington International Racecourse ("Arlington")

• United Tote

1 unchanged sentence

Eliminations include the elimination of intersegment transactions.

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

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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.

17 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).

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

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

Churchill Downs Incorporated

1 unchanged sentence

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:

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

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

(in millions) 2021 2020 2021 2020

12 unchanged sentences

Presque Isle 35.9 27.5 90.2 56.4

Ocean Downs 31.7 24.3 78.7 42.2

Calder 25.9 6.5 74.2 34.0

Oxford 31.8 12.2 72.1 32.4

Ocean Downs 27.0 3.1 47.0 17.9

Riverwalk 14.5 15.2 47.3 34.6

4 unchanged sentences

Net revenue from external customers $ 393.0 $ 337.8 $ 1,232.4 $ 775.8

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

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

(in millions) 2021 2020 2021 2020

6 unchanged sentences

Intercompany net revenue $ — $ — $ — $ —

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

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

7 unchanged sentences

Total $ 79.7 $ 101.8 $ 185.3 $ 366.8 $ 26.2 $ 393.0

Three Months Ended June 30, 2020

Three Months Ended September 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 $ 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

These amounts were $ 6.1 million for the three months ended September 30, 2021 and $ 2.1 million for the three months ended September 30, 2020.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

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

7 unchanged sentences

Total $ 318.8 $ 337.1 $ 523.3 $ 1,179.2 $ 53.2 $ 1,232.4

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

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

8 unchanged sentences

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

These amounts were $ 15.0 million for the nine months ended September 30, 2021 and $ 10.5 million for the nine months ended September 30, 2020.

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

Churchill Downs Incorporated

1 unchanged sentence

Adjusted EBITDA by segment is comprised of the following:

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

(in millions) Live and Historical Racing TwinSpires Gaming

8 unchanged sentences

Adjusted EBITDA $ 27.7 $ 20.7 $ 110.7

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

(in millions) Live and Historical Racing TwinSpires Gaming

8 unchanged sentences

Adjusted EBITDA $ 24.1 $ 32.6 $ 74.7

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

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

Churchill Downs Incorporated

1 unchanged sentence

Adjusted EBITDA by segment is comprised of the following:

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

(in millions) Live and Historical Racing TwinSpires Gaming

8 unchanged sentences

Adjusted EBITDA $ 144.4 $ 66.3 $ 312.9

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

(in millions) Live and Historical Racing TwinSpires Gaming

8 unchanged sentences

Adjusted EBITDA $ 28.7 $ 87.3 $ 120.8

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

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

(in millions) 2021 2020 2021 2020

29 unchanged sentences

Total Adjusted EBITDA $ 156.1 $ 121.9 $ 500.0 $ 207.3

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

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

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

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

(in millions) 2021 2020 2021 2020

Gaming $ 41.6 $ 27.6 $ 102.9 $ 13.2

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Total assets:

6 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions) 2021 2020

7 unchanged sentences

SUBSEQUENT EVENT

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

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

At its regularly scheduled meeting held on October 26, 2021, the Board of Directors of the Company declared an annual cash dividend of $ 0.667 per share, to be paid on January 7, 2022, to all shareholders of record on December 3, 2021.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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