What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-27 compared with 2021-07-28 · 166 added, 143 removed, 340 unchanged (48% of the section changed)

40 unchanged sentences

This report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020, including Part I - Item 1A, "Risk Factors" of our Form 10-K for a discussion regarding some of the reasons that actual results may be materially different from those we anticipate.

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

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

Executive Overview

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We also own and operate TwinSpires, one of the largest and most profitable online wagering platforms for horse racing, sports and iGaming in the U.S.

and we have seven retail sportsbooks.

and we have eight retail sportsbooks.

We are also a leader in brick-and-mortar casino gaming in eight states with approximately 11,000 slot machines and video lottery terminals ("VLTs") and 200 table games.

1 unchanged sentence

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

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

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

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

3 unchanged sentences

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

The prior year results were reclassified to conform to this presentation.

Impact of COVID-19 Pandemic

11 unchanged sentences

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.

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

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 is 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.

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

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.

Asset Impairment

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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 JUNE 30, 2021

Key Indicators to Evaluate Business Results and Financial Condition

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The ownership, operation and management of our businesses and properties are also subject to legislative actions at both the federal and state level.

The following update on our regulatory and legislative activities should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020, including Part I – Item 1, “Business” for a discussion of regulatory and legislative changes.

The following update on our regulatory and legislative activities should be read in conjunction with our Annual

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

Report on Form 10-K for the year ended December 31, 2020, including Part I – Item 1, "Business" for a discussion of regulatory and legislative changes.

Specific State Gaming Regulations and Potential Legislative Changes

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However, under this new law, jai alai facilities can operate slots and cardrooms without conducting jai alai games.

The requirement to conduct racing still applies to thoroughbred race tracks if their slot or cardroom licenses are connected to their racing permits.

Both the tribal sports betting and decoupling legislative actions can only go into effect if the U.S.

Department of the Interior approves the compact, which could happen as soon as the third quarter

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

The requirement to conduct racing still applies to thoroughbred race tracks if the entity's slot or cardroom licenses are connected to the entity's racing permits.

Both the tribal sports betting and decoupling legislative actions went into effect when the U.S.

Department of the Interior approved the compact on August 6, 2021.

The tribe is still working on executing partnership deals with pari-mutuel facilities for sports betting.

The Company is evaluating the impact of the decoupling legislation on our Calder operations and alternative uses, including a sale of the excess Calder land.

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The Maryland Gaming Control Board will oversee sports betting, with a tax rate of 15%.

The company has submitted its application for a retail sportsbook automatically tied to its casino license.

In 2020, local zoning changes were adopted, and in the second quarter of 2021 statutory changes were made to allow Ocean Downs to build a hotel, which had previously been obstructed.

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The following table reflects our net revenue, operating income (loss), net income (loss), Adjusted EBITDA, and certain other financial information:

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

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

(in millions) 2021 2020 Change 2021 2020 Change

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Adjusted EBITDA 156.1 121.9 34.2 500.0 207.3 292.7

Three Months Ended June 30, 2021, Compared to Three Months Ended June 30, 2020

• Net revenue increased $330.0 million due to a $152.6 million increase from Live and Historical Racing driven primarily from the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020, the temporary suspension of operations at Derby City Gaming during the prior year quarter, and the opening of Oak Grove in September 2020;

a $148.7 million increase from Gaming due to the temporary suspension of operations in the prior year quarter;

a $14.4 million increase from All Other primarily due the temporary suspension of operations in the prior year quarter at Arlington and United Tote;

and a $14.3 million increase from TwinSpires due to an increase in handle in Horse Racing and our expansion in additional states related to our Sports and Casino business.

• Operating income (loss) increased $135.8 million due to an $85.4 million increase from Live and Historical Racing primarily due to the increase in net revenue;

a $73.2 million increase from Gaming due to increased operating efficiencies and the temporary suspension of operations at our Gaming properties in the prior year quarter;

a $7.0 million increase from All Other due to the temporary suspension of operations at Arlington and United Tote in the prior year quarter;

and $0.2 million from other sources.

Partially offsetting these increases were an $11.2 million asset impairment at Churchill Downs Racetrack related to revised capital plans associated with the first turn project, an $11.0 million increase in selling, general and administrative expenses primarily due to an increase in accrued bonuses in the current quarter due to the temporary suspension of operations in the prior year quarter, and a $7.8 million decrease from TwinSpires due to additional marketing spend related to the Sports and Casino business.

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

Three Months Ended September 30, 2021, Compared to Three Months Ended September 30, 2020

• Net revenue increased $55.2 million due to a $51.8 million increase from Gaming primarily due to certain capacity restrictions on patrons and gaming during the prior year quarter;

a $15.9 million increase from Live and Historical

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

Racing due to the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020, as well as an increase at Derby City Gaming primarily due to certain capacity restrictions on patrons and gaming during the prior year quarter, partially offset by the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020 without spectators;

and a $12.8 million increase from All Other primarily due to an increase in handle and admissions at Arlington.

Partially offsetting these increases was a $25.3 million decrease from TwinSpires primarily from the timing of the Kentucky Oaks and Derby.

• Operating income increased $18.1 million due to a $20.3 million increase from Gaming due to the increase in net revenue and increased operating efficiencies;

a $9.3 million increase from Live and Historical Racing primarily due to the increase in net revenue from our HRM facilities partially offset by our decrease in net revenue at Churchill Downs Racetrack due to the timing of the Kentucky Oaks and Derby;

a $6.1 million increase from All Other primarily due to the increase in net revenue from Arlington;

and a $2.7 million decrease in selling, general and administrative expenses primarily due to a decrease in accrued bonuses from an adjustment to our estimated payout in the prior year quarter that did not recur.

Partially offsetting these increases were an $18.8 million decrease from TwinSpires due to the decrease in net revenue from Horse Racing and additional marketing spend related to the Sports and Casino business, and a $1.5 million increase in transaction expense, net due to an increase in legal and professional expenses.

• Net income (loss) from continuing operations increased $18.3 million.

The following items impacted comparability of the Company's second quarter of 2021 net income from continuing operations compared to the prior year quarter:

an $8.1 million non-cash after-tax impact related to our asset impairment at Churchill Downs Racetrack related to revised capital plans associated with the first turn project and a $4.8 million after-tax increase in Rivers Des Plaines' legal reserves and transaction costs.

Partially offsetting these increases were a $2.3 million after-tax expense decrease related to our equity portion of the non-cash change in the fair value of Rivers Des Plaines' interest rate swaps and a $0.3 million after-tax decrease in expenses related to lower transaction, pre-opening and other expenses.

The following items impacted comparability of the Company's third quarter of 2021 net income from continuing operations compared to the prior year quarter:

a $3.2 million after-tax decrease in expenses related to lower transaction, pre-opening and other expenses, and a $0.3 million after-tax benefit increase related to our equity portion of the non-cash change in the fair value of Rivers Des Plaines' interest rate swaps.

Partially offsetting these increases was a $0.4 million after-tax increase in Rivers Des Plaines' legal reserves and transaction costs.

Excluding these items, net income (loss) from continuing operations increased $15.2 million primarily due to a $15.3 million after-tax increase driven by the results of our operations and equity in income from our unconsolidated affiliates, partially offset by a $0.1 million after-tax increase in interest expense associated with higher outstanding debt balances.

• Net income (loss) attributable to Churchill Downs Incorporated increased $227.1 million due to a $131.9 million increase in net income from continuing operations discussed above and a $95.2 million decrease in net loss from discontinued operations related to the settlement of the Kater and Thimmegowda litigations during the second quarter of 2020.

• Adjusted EBITDA increased $203.2 million driven by a $121.6 million increase from Gaming primarily due to the increased operating efficiencies at our wholly-owned properties and equity investments and temporary suspension of operations in the prior year quarter;

a $94.8 million increase from Live and Historical Racing primarily due to the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020, the temporary suspension of operations at Derby City Gaming in the prior year quarter, and the opening of Oak Grove HRM facility in September 2020;

and a $2.4 million increase from All Other primarily due to the temporary suspension of operations at Arlington and United Tote in the prior year quarter.

Partially offsetting these increases was a $15.6 million decrease from TwinSpires primarily due to increased marketing and promotional activities for both the Horse Racing and Sports and Casino businesses.

Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020

• Net revenue increased $401.4 million due to a $187.7 million increase from Live and Historical Racing driven primarily from the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020, the temporary suspension of operations at Derby City Gaming during the prior year, and the opening of Oak Grove in September 2020;

a $154.8 million increase from Gaming due to the temporary suspension of operations in the prior year;

a $44.9 million increase from TwinSpires due to an increase in handle in Horse Racing and our expansion in additional states related to our Sports and Casino business;

and a $14.0 million increase from All Other primarily due the temporary suspension of operations in the prior year at Arlington and United Tote.

• Operating income (loss) increased $194.1 million due to a $98.9 million increase from Live and Historical Racing primarily due to the increase in net revenue;

a $97.1 million increase from Gaming due to increased operating efficiencies and the temporary suspension of operations at our Gaming properties in the prior year;

• Net income (loss) attributable to Churchill Downs Incorporated increased $18.2 million due to a $18.3 million increase in net income from continuing operations discussed above, partially offset by a $0.1 million decrease in net loss attributable to our non-controlling interest from the prior year quarter that did not recur in the current year quarter.

• Adjusted EBITDA increased $34.2 million driven by a $36.0 million increase from Gaming primarily due to the increased operating efficiencies at our wholly-owned properties and equity investments and certain capacity restrictions on patrons and gaming during the prior year quarter;

a $6.5 million increase from All Other primarily due to an increase in handle and admissions at Arlington;

and a $3.6 million increase from Live and Historical Racing primarily due to the opening of Oak Grove HRM facility in September 2020 and Newport in October 2020 and certain capacity restrictions on patrons and gaming during the prior year quarter at Derby City Gaming, partially offset by the timing of the Kentucky Oaks and Derby.

Partially offsetting these increases was an $11.9 million decrease from TwinSpires primarily due to decrease in net revenue from Horse Racing due to the timing of the Kentucky Oaks and Derby and increased marketing and promotional activities for the Sports and Casino businesses.

Nine Months Ended September 30, 2021, Compared to Nine Months Ended September 30, 2020

• Net revenue increased $456.6 million due to a $206.6 million increase from Gaming due to the temporary suspension of operations in the prior year;

a $203.6 million increase from Live and Historical Racing driven primarily from the openings of the Oak Grove HRM facility in September 2020 and Newport in October 2020, the temporary suspension of operations at Derby City Gaming during the prior year, and the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020 without spectators;

a $26.8 million increase from All Other primarily due the temporary suspension of operations in the prior year at Arlington and United Tote;

and a $19.6 million increase from TwinSpires due to our expansion in additional states related to our Sports and Casino business and an increase in handle in Horse Racing.

• Operating income increased $212.2 million due to a $117.4 million increase from Gaming due to the increase in net revenue and increased operating efficiencies;

a $108.2 million increase from Live and Historical Racing primarily due to the increase in net revenue;

a $14.0 million increase from All Other due to the temporary suspension of operations at Arlington and United Tote in the prior year;

a $6.3 million decrease in asset impairments due to the $11.2 million non-cash related to our asset impairment at Churchill Downs Racetrack related to revised capital plans associated with the first turn project during the current year quarter, offset by the $17.5 million non-cash intangible asset impairment in the first quarter of 2020;

a $0.6 million increase from TwinSpires primarily due to the increase in handle from Horse Racing partially offset by additional marketing spend related to the Sports and Casino business;

and a $0.4 million increase from other sources.

Partially offsetting these increases was a $17.1 million increase in selling, general and administrative expenses primarily due to an increase in accrued bonuses in the current year.

and a $6.3 million decrease in asset impairments due to the $11.2 million non-cash asset impairment at Churchill Downs Racetrack related to revised capital plans associated with the first turn project during the current year period, offset by the $17.5 million non-cash intangible asset impairment in the first

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

quarter of 2020.

Partially offsetting these increases were an $18.2 million decrease from TwinSpires primarily due to additional marketing spend related to the Sports and Casino business;

a $14.4 million increase in selling, general and administrative expenses primarily due to an increase in accrued bonuses in the current year;

and a $1.1 million increase in transaction expense, net due to an increase in legal and professional expenses.

• Net income (loss) from continuing operations increased $208.9 million.

The following items impacted comparability of the Company's net income from continuing operations during the six months ended June 30, 2021 compared to the prior year period:

The following items impacted comparability of the Company's net income from continuing operations during the nine months ended September 30, 2021 compared to the prior year period:

a $16.8 million after-tax expense decrease related to our equity portion of the non-cash change in the fair value of Rivers Des Plaines' interest rate swaps;

a $4.0 million non-cash after-tax decrease related to asset impairments;

and a $1.3 million after-tax decrease in expenses related to lower transaction, pre-opening and other expenses.

a $4.5 million after-tax decrease in expenses related to lower transaction, pre-opening and other expenses;

and a $4.1 million non-cash after-tax decrease related to asset impairments.

Partially offsetting these decreases was a $6.1 million after-tax increase in Rivers Des Plaines' legal reserves and transaction costs.

Excluding these items, net income (loss) from continuing operations increased $174.7 million primarily due to a $174.8 million after-tax increase driven by the results of our operations and equity in income from

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

our unconsolidated affiliates, partially offset by a $0.1 million after-tax increase in interest expense associated with higher outstanding debt balances.

Excluding these items, net income (loss) from continuing operations increased $189.6 million primarily due to a $189.5 million after-tax increase driven by the results of our operations and equity in income from our unconsolidated affiliates and a $0.1 million after-tax decrease in interest expense associated with higher outstanding debt balances.

• Net income (loss) attributable to Churchill Downs Incorporated increased $304.8 million due to a $208.9 million increase in net income from continuing operations discussed above and a $96.1 million decrease in net loss from discontinued operations related to the settlement of the Kater and Thimmegowda litigations during the second quarter of 2020, partially offset by a $0.2 million decrease in net loss attributable to our noncontrolling interest.

• Adjusted EBITDA increased $258.5 million driven by a $156.1 million increase from Gaming primarily due to the increased operating efficiencies at our wholly-owned properties and equity investments and temporary suspension of operations in the prior year and a $112.1 million increase from Live and Historical Racing primarily due to the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020, increased operating efficiencies and the temporary suspension of operations at Derby City Gaming in the prior year, and the opening of Oak Grove HRM facility in September 2020.

Partially offsetting these increases was a $9.1 million decrease from TwinSpires primarily due to increased marketing and promotional activities for the Sports and Casino business and a $0.6 million decrease from All Other.

• Adjusted EBITDA increased $292.7 million driven by a $192.1 million increase from Gaming primarily due to the increased operating efficiencies at our wholly-owned properties and equity investments and temporary suspension of operations in the prior year;

a $115.7 million increase from Live and Historical Racing primarily due to the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020 without spectators, the increased operating efficiencies and the temporary suspension of operations at Derby City Gaming in the prior year, and the opening of Oak Grove HRM facility in September 2020;

and a $5.9 million increase from All Other primarily due to the temporary suspension of operations at Arlington and United Tote in the prior year.

Partially offsetting these increases was a $21.0 million decrease from TwinSpires primarily due to increased marketing and promotional activities for the Horse Racing and Sports and Casino businesses.

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

Financial Results by Segment

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The following table presents net revenue for our segments, including intercompany revenue:

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

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

(in millions) 2021 2020 Change 2021 2020 Change

21 unchanged sentences

Net Revenue $ 393.0 $ 337.8 $ 55.2 $ 1,232.4 $ 775.8 $ 456.6

Three Months Ended June 30, 2021, Compared to Three Months Ended June 30, 2020

• Live and Historical Racing revenue increased $160.2 million due to a $97.1 million increase at Churchill Downs Racetrack primarily due to the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second

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

quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020;

a $32.2 million increase at Derby City Gaming primarily due to the temporary suspension of operations during the prior year quarter and the completion of their second outdoor patio which added an additional 225 HRMs in September 2020;

a $25.6 million increase at Oak Grove as a result of the opening of the HRM facility in September 2020 and the hotel in October 2020;

a $4.6 million increase at Newport due to the opening of the facility in October 2020;

and a $0.7 million increase at Turfway Park primarily due to the temporary suspension of operations during the prior year quarter.

• TwinSpires revenue increased $14.2 million from the prior year quarter primarily due to a $7.2 million increase from Horse Racing and a $7.0 million increase from Sports and Casino.

Horse Racing net revenue increased as a result of an increase in handle of $50.9 million, or 8.9%, compared to the prior year quarter primarily due to the running of the 147th Kentucky Oaks and Derby in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020.

Sports and Casino net revenues increased as a result of our expansion in additional states and marketing and promotional activities.

• Gaming revenue increased $148.7 million primarily due to the temporary suspension of operations of all of our Gaming properties and the loss of revenue at each property during the prior year quarter.

• All Other revenue increased $15.5 million primarily due to an $11.5 million increase at Arlington and a $3.8 million increase at United Tote, both of which were due to the temporary suspension of operations in the prior year quarter, and a $0.2 million increase from other sources.

Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020

• Live and Historical Racing revenue increased $195.8 million due to a $97.5 million increase at Churchill Downs Racetrack primarily due to the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020;

a $45.0 million increase at Oak Grove as a result of the opening of the HRM facility in September 2020 and the hotel in October 2020;

a $43.5 million increase at Derby City Gaming primarily due to the temporary suspension of operations during the prior year period and the completion of their second outdoor patio which added an additional 225 HRMs in September 2020;

Three Months Ended September 30, 2021, Compared to Three Months Ended September 30, 2020

• Live and Historical Racing revenue increased $10.4 million due to a $24.7 million increase at Oak Grove as a result of the opening of the HRM facility in September 2020 and the hotel in October 2020;

a $14.3 million increase at Derby City Gaming primarily due to certain capacity restrictions on patrons and gaming during the prior year quarter and the completion of their second outdoor patio which added an additional 225 HRMs in September 2020;

and a $4.3 million increase at Newport due to the opening of the facility in October 2020.

Partially offsetting these increases was a $32.9 million decrease at Churchill Downs Racetrack primarily due to the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020 without spectators.

• TwinSpires revenue decreased $25.4 million from the prior year quarter primarily due to a $30.9 million decrease from Horse Racing that was partially offset by a $5.5 million increase from Sports and Casino.

Horse Racing net revenue decreased as a result of lower handle primarily due to the timing of the Kentucky Oaks and Derby.

Sports and Casino net revenue increased as a result of our expansion in additional states and marketing and promotional activities.

• Gaming revenue increased $51.9 million due to certain capacity restrictions on patrons and gaming during the prior year quarter.

Net revenue increased for all Gaming properties except for Riverwalk and Fair Grounds and VSI.

Fair Grounds and VSI were negatively impacted by Hurricane Ida in August 2021, resulting in a temporary closure of Fair Grounds Race Course & Slots and OTBs.

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

• All Other revenue increased $12.6 million primarily due to an $11.5 million increase at Arlington due to an increase in handle and admissions, and a $1.1 million increase at United Tote primarily due to an increase in equipment sales.

Nine Months Ended September 30, 2021, Compared to Nine Months Ended September 30, 2020

• Live and Historical Racing revenue increased $206.2 million due to a $69.7 million increase at Oak Grove as a result of the opening of the HRM facility in September 2020 and the hotel in October 2020;

a $64.6 million increase at Churchill Downs Racetrack primarily due to the running of the 147th Kentucky Oaks and Derby with capacity restrictions compared to the running of the 146th Kentucky Oaks and Derby without spectators;

a $57.8 million increase at Derby City Gaming primarily due to the temporary suspension of operations during the prior year and the completion of their second outdoor patio which added an additional 225 HRMs in September 2020;

a $13.3 million increase at Newport due to the opening in October 2020;

and a $0.8 million increase at Turfway Park primarily due to the temporary suspension of operations during the prior year period.

• TwinSpires revenue increased $44.9 million from the prior year quarter primarily due to a $33.3 million increase from Horse Racing and a $11.6 million increase from Sports and Casino.

Horse Racing net revenue increased as a result of an increase in handle of $164.2 million, or 18.3%, compared to the prior year due to the continued shift from wagering at brick-and-mortar locations to online wagering and the running of the 147th Kentucky Oaks and Derby in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020.

• TwinSpires revenue increased $19.5 million from the prior year period primarily due to a $17.1 million increase from Sports and Casino and a $2.4 million increase from Horse Racing.

Sports and Casino net revenues increased as a result of our expansion in additional states and marketing and promotional activities.

Horse Racing net revenue increased as a result of an increase in handle compared to the prior year due to the continued shift from wagering at brick-and-mortar locations to online wagering.

• Gaming revenue increased $207.2 million primarily due to the temporary suspension of operations of all of our Gaming properties and the loss of revenue at each property during the prior year.

• All Other revenue increased $15.4 million primarily due to an $11.5 million increase at Arlington and a $3.6 million increase at United Tote, both of which were due to the temporary suspension of operations in the prior year quarter, and a $0.3 million increase from other sources.

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

• All Other revenue increased $28.0 million primarily due to a $23.1 million increase at Arlington and a $4.7 million increase at United Tote, both of which were due to the temporary suspension of operations in the prior year period, and a $0.2 million increase from other sources.

Consolidated Operating Expense

The following table is a summary of our consolidated operating expense:

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

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

(in millions) 2021 2020 Change 2021 2020 Change

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Total expense $ 325.4 $ 288.3 $ 37.1 $ 982.7 $ 738.3 $ 244.4

Three Months Ended June 30, 2021, Compared to Three Months Ended June 30, 2020

Three Months Ended September 30, 2021, Compared to Three Months Ended September 30, 2020

Significant items affecting comparability of consolidated operating expense include:

• Taxes and purses increased $96.3 million driven by the temporary suspension of operations in the prior year quarter, the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020, and the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020.

• Content expense increased $4.1 million primarily due to an increase in certain host fees and source market fees for the TwinSpires Horse Racing business.

• Salaries and benefits expense increased $24.4 million driven by the temporary suspension of operations in the prior year quarter, the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020, and the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020.

• Selling, general and administrative expense increased $11.0 million driven primarily from an increase in our accrued bonuses in the current year quarter compared to the prior year quarter.

• Taxes and purses increased $28.2 million primarily driven by the increase in net revenue by our wholly-owned gaming properties and the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020.

• Content expense decreased $9.3 million primarily due to the running of the 147th Kentucky Oaks and Derby in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020.

• Salaries and benefits expense increased $6.0 million driven by certain capacity restrictions on patrons and gaming during the prior year quarter, and the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020, partially offset by the timing of the Kentucky Oaks and Derby.

• Selling, general and administrative expense decreased $2.7 million driven primarily from a decrease in accrued bonus from an adjustment to the estimated annual payout in the prior year quarter that did not recur.

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

• Depreciation and amortization increased $3.5 million primarily driven by the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020.

• Marketing and advertising expense increased $20.3 million primarily due to increased marketing by our TwinSpires Horse Racing and Sports and Casino businesses, the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020, and the temporary suspension of operations in the prior year quarter.

• Asset impairments increased $11.2 million due to a non-cash impairment charge due to a change in the Churchill Downs Racetrack first turn capital plans and the Company's planned usage of these assets.

• Marketing and advertising expense increased $5.7 million primarily due to increased marketing by our TwinSpires Sports and Casino businesses and for our Gaming segment as operations have returned to full capacity, partially offset by the timing of the Kentucky Oaks and Derby.

• Transaction expense, net increased $1.5 million primarily due to increased legal and professional expenses.

• Other operating expenses include maintenance, utilities, food and beverage costs, property taxes, insurance, and other operating expenses.

Other operating expense increased $23.2 million primarily driven by the temporary suspension of operations at our properties during the prior year quarter and the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020.

Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020

Other operating expense increased $4.2 million primarily driven by certain capacity restrictions on patrons and gaming during the prior year quarter and the opening of Oak Grove HRM facility in September 2020 and Newport in October 2020.

Nine Months Ended September 30, 2021, Compared to Nine Months Ended September 30, 2020

Significant items affecting comparability of consolidated operating expense include:

• Taxes and purses increased $109.5 million driven by the temporary suspension of operations in the prior year, the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020, and the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of

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

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

• Taxes and purses increased $137.7 million driven by the temporary suspension of operations in the prior year, and the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020.

• Content expense increased $7.0 million primarily due to an increase in certain host fees and source market fees for the TwinSpires Horse Racing business.

• Salaries and benefits expense increased $16.2 million driven by the temporary suspension of operations in the prior year, the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020, and the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020.

• Selling, general and administrative expense increased $17.1 million driven primarily from an increase in our accrued bonuses in the current year compared to the prior year due to the temporary suspension of operations in the second quarter of 2020.

• Salaries and benefits expense increased $22.2 million driven by the temporary suspension of operations in the prior year, and the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020.

• Selling, general and administrative expense increased $14.4 million driven primarily from an increase in our accrued bonuses in the current year compared to the prior year due to the temporary suspension of operations in the prior year.

• Depreciation and amortization increased $11.4 million primarily driven by the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020.

• Marketing and advertising expense increased $22.6 million primarily due to increased marketing by our TwinSpires Horse Racing and Sports and Casino businesses, the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020, and the temporary suspension of operations in the prior year quarter.

• Marketing and advertising expense increased $28.3 million primarily due to increased marketing by our TwinSpires segment, and the temporary suspension of operations in the prior year.

• Asset impairments decreased $6.3 million due to an $11.2 million non-cash impairment charge relating to the change in the Churchill Downs Racetrack first turn capital plans and the Company's planned usage of these assets, compared to a $17.5 million non-cash intangibles impairment recognized during the first quarter of 2020 that did not recur in the current year.

• Other operating expenses include maintenance, utilities, food and beverage costs, property taxes, insurance, and other operating expenses.

Other operating expense increased $24.4 million primarily driven by the temporary suspension of operations at our properties during the prior year and the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020.

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

Other operating expense increased $28.6 million primarily driven by the temporary suspension of operations at our properties during the prior year, and the opening of the Oak Grove HRM facility in September 2020 and Newport in October 2020.

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

Adjusted EBITDA

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Adjusted EBITDA should not be considered as an alternative to operating income as an indicator of performance, as an alternative to cash flows from operating activities as a measure of liquidity, or as an alternative to any other measure provided in accordance with GAAP.

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

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

(in millions) 2021 2020 Change 2021 2020 Change

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Total Adjusted EBITDA $ 156.1 $ 121.9 $ 34.2 $ 500.0 $ 207.3 $ 292.7

Three Months Ended June 30, 2021, Compared to Three Months Ended June 30, 2020

• Live and Historical Racing Adjusted EBITDA increased $94.8 million due to a $65.2 million increase from Churchill Downs Racetrack primarily due to the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020;

a $19.3 million increase from Derby City Gaming due to the increase in net revenue, increased operating efficiencies, and the temporary suspension of operations during the prior year quarter;

a $9.4 million increase at Oak Grove due to the opening of the Oak Grove HRM facility in September 2020;

a $0.6 million increase at Newport due to the opening of the Newport facility in October 2020;

and a $0.3 million increase from other sources.

• TwinSpires Adjusted EBITDA decreased $15.6 million primarily due to a $8.2 million decrease from Horse Racing due to an increase in marketing and advertising expense associated with the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020, partially offset by an increase in net revenue;

and a $7.4 million increase in the loss from our Sports and Casino business due to increased marketing and promotional activities.

• Gaming Adjusted EBITDA increased $121.6 million driven by a $69.8 million increase at our wholly-owned Gaming properties and a $51.8 million increase from our equity investments, both of which were due to increased operating efficiencies and the temporary closure of all of our Gaming properties in the prior year quarter.

• All Other Adjusted EBITDA increased $2.4 million driven by a $4.9 million increase at Arlington and a $1.8 million increase at United Tote, both of which primarily resulted from the temporary suspension of operations in the prior year quarter.

Partially offsetting this increase was a $4.3 million decrease from Corporate primarily due to an increase in accrued bonuses compared to the prior year quarter.

Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020

• Live and Historical Racing Adjusted EBITDA increased $112.1 million due to a $65.5 million increase from Churchill Downs Racetrack primarily due to the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020;

Three Months Ended September 30, 2021, Compared to Three Months Ended September 30, 2020

• Live and Historical Racing Adjusted EBITDA increased $3.6 million due to a $9.6 million increase at Oak Grove due to the opening of the Oak Grove HRM facility in September 2020 and an $8.7 million increase at Derby City Gaming due to the increase in net revenue and increased operating efficiencies.

Partially offsetting these increases was a $14.7 million decrease at Churchill Downs Racetrack primarily due to the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020 without spectators.

• TwinSpires Adjusted EBITDA decreased $11.9 million primarily due to a $6.8 million increase in the loss from our Sports and Casino business due to increased marketing and promotional activities and a $5.1 million decrease from Horse Racing primarily due to the timing of the Kentucky Oaks and Derby.

• Gaming Adjusted EBITDA increased $36.0 million driven by a $20.9 million increase at our wholly-owned Gaming properties and a $15.1 million increase from our equity investments, both of which were due to increased operating efficiencies and certain capacity restrictions on patrons and gaming during the prior year quarter.

• All Other Adjusted EBITDA increased $6.5 million driven by a $5.9 million increase at Arlington due to an increase in handle and admissions, a $0.5 million increase at United Tote due to the increase in net revenue, and a $0.1 million increase from Corporate.

Nine Months Ended September 30, 2021, Compared to Nine Months Ended September 30, 2020

• Live and Historical Racing Adjusted EBITDA increased $115.7 million due to a $50.8 million increase from Churchill Downs Racetrack primarily due to the running of the 147th Kentucky Oaks and Derby with capacity restrictions compared to the running of the 146th Kentucky Oaks and Derby without spectators;

a $36.9 million increase from Derby City Gaming due to the increase in net revenue, increased operating efficiencies, and the temporary suspension of operations during the prior year;

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and a $0.7 million increase at Turfway Park primarily due to an increase in handle and the temporary suspension of operations in the prior year.

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

• TwinSpires Adjusted EBITDA decreased $9.1 million primarily due to a $10.8 million increase in the loss from our Sports and Casino business due to increased marketing and promotional activities, partially offset by a $1.7 million increase in Horse Racing primarily due to the increase in handle partially offset by an increase in marketing and advertising expense associated with the running of the 147th Kentucky Oaks and Derby with capacity restrictions in the second quarter of 2021 compared to the running of the 146th Kentucky Oaks and Derby in the third quarter of 2020.

• TwinSpires Adjusted EBITDA decreased $21.0 million primarily due to a $17.5 million increase in the loss from our Sports and Casino business due to increased marketing and promotional activities and a $3.5 million decrease from Horse Racing due to increased marketing and advertising expense.

• Gaming Adjusted EBITDA increased $192.1 million driven by a $114.8 million increase at our wholly-owned Gaming properties and a $77.3 million increase from our equity investments, both of which were due to increased operating efficiencies and the temporary closure of all of our Gaming properties in the prior year.

• All Other Adjusted EBITDA decreased $0.6 million driven by a $8.6 million increase in accrued bonuses at Corporate compared to the prior year period.

Partially offsetting this decrease was a $6.2 million increase from Arlington due to increased operating efficiencies and the temporary suspension of operations in the prior year and a $1.8 million increase at United Tote due to the temporary suspension of operations during the prior year.

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

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

• All Other Adjusted EBITDA increased $5.9 million driven by a $12.1 million increase from Arlington due to increased operating efficiencies and the temporary suspension of operations in the prior year and a $2.3 million increase at United Tote due to the temporary suspension of operations during the prior year.

Partially offsetting these increases was a $8.5 million decrease at Corporate primarily due to an increase in accrued bonuses.

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 Change 2021 2020 Change

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Adjusted EBITDA $ 156.1 $ 121.9 $ 34.2 $ 500.0 $ 207.3 $ 292.7

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

Consolidated Balance Sheet

The following table is a summary of our overall financial position:

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

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

Total assets $ 2,973.5 $ 2,686.4 $ 287.1

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Significant items affecting the comparability of our condensed consolidated balance sheets include:

• Total assets increased $284.2 million driven by a $274.8 million increase in cash and cash equivalents primarily due to the net proceeds from the new Term Loan B-1 and Additional 2028 Notes and the increase in operating income for the six months ended June 30, 2021 ;

a $15.6 million increase in restricted cash due to increased account wagering

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

• Total assets increased $287.1 million driven by a $248.3 million increase in cash and cash equivalents primarily due to the net proceeds from the new Term Loan B-1 and Additional 2028 Notes and the increase in operating income for the nine months ended September 30, 2021 ;

a $24.5 million increase in investment in and advances to unconsolidated affiliates due to the Company's interest in Rivers and MVG;

a $17.0 million increase in restricted cash due to increased account wagering deposits;

a $14.1 million increase in accounts receivable, net primarily due to timing;

and a $11.9 milli on increase in all other assets.

Partially offsetting these increases was a $24.5 decrease in property and equipment primarily due to depreciation expense for the current quarter and the asset impairment at Churchill Downs Racetrack and a $10.3 million decrease in income taxes receivable due to the current year income tax expense partially offset by the payment of the Kater and Thimmegowda litigation settlements.

Partially offsetting these increases was a $28.7 decrease in property and equipment primarily due to depreciation expense and the asset impairment at Churchill Downs Racetrack.

• Total liabilities increased $315.4 million primarily driven by a $204.2 million increase in notes payable due to proceeds from our Additional 2028 Notes;

a $139.5 million increase in long-term debt due to proceeds from the new Term Loan B-1 under our Credit Agreement;

a $53.8 million increase in accounts payable driven by timing of payments;

a $47.1 million increase in accrued expenses and other current liabilities driven by an increase in purses payable due to timing, increased account wagering deposits with TwinSpires and increased accrued interest payable related to our senior notes;

and a $36.6 million increase in deferred income taxes primarily driven by the payment of the Kater and Thimmegowda litigation settlements.

a $59.6 million increase in accrued expenses and other current liabilities driven by an increase in purses payable due to timing and increased account wagering deposits with TwinSpires;

a $42.0 million increase in deferred income taxes primarily driven by the payment of the Kater and Thimmegowda litigation settlements;

and a $21.7 million increase in accounts payable driven by timing of payments.

Partially offsetting these increases were a $124.0 million decrease in current liabilities of discontinued operations due to the payments of the Kater and Thimmegowda litigation settlements;

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and a $2.7 million decrease in all other liabilities.

• Total shareholders’ equity decreased $49.7 million driven by $193.9 million in repurchases of common stock, a $12.6 million decrease in taxes paid related to net share settlement of stock awards, and a $0.2 million decrease from other sources.

Partially offsetting these decreases were a $144.4 million increase from current year net income and a $12.6 million increase from stock-based compensation.

• Total shareholders’ equity decreased $28.3 million driven by $243.9 million in repurchases of common stock and a $12.9 million decrease in taxes paid related to net share settlement of stock awards.

Partially offsetting these decreases were a $205.8 million increase from current year net income, a $20.4 million increase from stock-based compensation, and a $2.3 million increase from other sources.

Liquidity and Capital Resources

The following table is a summary of our liquidity and cash flows:

(in millions) Six Months Ended June 30,

(in millions) Nine Months Ended September 30,

Cash flows from:

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Capital project expenditures represent fixed asset additions related to land or building improvements to new or existing assets or purchases of new (non-replacement) equipment or software related to specific projects deemed necessary expenditures.

Six Months Ended June 30, 2021, Compared to the Six Months Ended June 30, 2020

• Cash flows from operating activities increased $133.4 million driven by a $194.1 million increase in operating income, a $42.7 million increase in distributions from unconsolidated affiliates, and a $20.6 million increase from all other operating activities.

Partially offsetting these increases were a $124.0 million decrease from the payment of the Kater and Thimmegowda litigation settlements.

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 the 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.

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

Nine Months Ended September 30, 2021, Compared to the Nine Months Ended September 30, 2020

• Cash flows from operating activities increased $252.4 million driven by a $212.2 million increase in operating income and a $64.9 million increase in distributions from unconsolidated affiliates.

Partially offsetting these increases was a $24.7 million decrease from all other operating activities.

We anticipate that cash flows from operations over the next twelve months will be adequate to fund our business operations and capital expenditures.

• Cash used in investing activities decreased $157.6 million driven by a $162.1 million decrease in capital project expenditures due to reduced capital project spending in the current year compared to prior year.

Partially offsetting this decrease was a $0.9 million increase from all other investing activities.

• Cash provided by financing activities decreased $500.8 million primarily driven by a $339.3 million decrease in net borrowings from long-term debt and a $165.5 million increase in common stock repurchases.

Partially offsetting these decreases was a $4.0 million increase from all other financing activities.

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

Partially offsetting this decrease was a $4.1 million increase in capital maintenance expenditures and a $0.4 million increase from all other investing activities.

• Cash provided by financing activities decreased $559.1 million primarily driven by a $340.0 million decrease in net borrowings from long-term debt, a $214.0 million increase in common stock repurchases, and a $5.1 million decrease from all other financing activities.

Credit Facilities and Indebtedness

The following table presents our debt outstanding:

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

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

Term Loan B due 2024 $ 385.0 $ 388.0 $ (3.0)

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Credit Agreement

On December 27, 2017, we entered into the Credit Agreement (as defined below) with a syndicate of lenders.

The Credit Agreement provides for a $700.0 million senior secured revolving credit facility (the "Revolver") and a $400.0 million Senior Secured Term Loan B due 2024 (the "Term Loan B" and together with the Revolver, the "Credit Agreement").

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

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

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

The Credit Amendment is secured 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.

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) 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 makes 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, of the Notes to the Condensed Consolidated Financial Statements for information regarding this transaction.

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

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.

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The Credit Agreement also contains financial covenants providing for the maintenance of a maximum consolidated secured net leverage ratio and maintenance of a minimum consolidated interest coverage ratio.

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.

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

Actual Requirement

Interest coverage ratio 6.3 to 1.0 > 2.5 to 1.0

Consolidated total secured net leverage ratio 1.0 to 1.0 < 4.0 to 1.0

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

The Term Loan B requires quarterly payments of 0.25% of the original $400.0 million balance, or $1.0 million per quarter.

The Term Loan B may be subject to additional mandatory prepayment from excess cash flow on an annual basis per the provisions of the 2017 Credit Agreement.

The Company is required to pay a commitment fee on the unused portion of the Revolver determined by a pricing grid based on the consolidated total net leverage ratio of the Company.

For the period ended September 30, 2021, the Company's commitment fee rate was 0.25%.

2027 Senior Notes

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and (viii) enter into transactions with affiliates.

In connection with the issuance of the 2027 Senior Notes, the Company and the 2027 Guarantors entered into a Registration Rights Agreement to register any 2027 Senior Notes under the Securities Act for resale that are not freely tradable 366 days from March 25, 2019.

2028 Senior Notes

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The Existing 2028 Senior Notes were issued pursuant to an indenture, dated December 27, 2017 (the "2028 Indenture"), among the Company, certain subsidiaries of the Company as guarantors (the "2028 Guarantors"), and U.S.

Bank National Association, as trustee.

Bank National Association,

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

The Company may redeem some or all of the Existing 2028 Senior Notes at any time at redemption prices set forth in the 2028 Indenture.

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and (viii) enter into transactions with affiliates.

In connection with the issuance of the Existing 2028 Senior Notes, the Company and the 2028 Guarantors entered into a Registration Rights Agreement to register any Existing 2028 Senior Notes under the Securities Act for resale that are not freely tradable 366 days from December 27, 2017.

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

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

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

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.

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Contractual Obligations

Our commitments to make future payments as of June 30, 2021, are estimated as follows:

(in millions) July 1 to December 31, 2021 2022-2023 2024-2025 Thereafter Total

Our commitments to make future payments as of September 30, 2021, are estimated as follows:

(in millions) October 1 to December 31, 2021 2022-2023 2024-2025 Thereafter Total

Term Loan B $ 1.0 $ 8.0 $ 376.0 $ — $ 385.0

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Total $ 26.8 $ 207.2 $ 565.6 $ 1,762.4 $ 2,562.0

(1) Interest includes the estimated contractual payments under our Credit Agreement assuming no change in the weighted average borrowing rate of 2.10% which was the rate in place as of June 30, 2021.

(1) Interest includes the estimated contractual payments under our Credit Agreement assuming no change in the weighted average borrowing rate of 2.09% which was the rate in place as of September 30, 2021.

(2) Includes the maximum estimated exposure where we are contractually obligated to make future minimum payments.

As of June 30, 2021, we had approximately $4.4 million of tax liabilities related to unrecognized tax benefits.

As of September 30, 2021, we had approximately $4.0 million of tax liabilities related to unrecognized tax benefits.

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 2. Management’s Discussion and Analysis