What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-23 compared with 2021-02-24 · 391 added, 528 removed, 1114 unchanged (45% of the section changed)

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CHURCHILL DOWNS INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

for the years ended December 31,

(in millions, except per common share data) 2021 2020 2019

Churchill Downs $ 142.8 $ 274.2 $ 195.8

Online Wagering 408.3 290.5 290.2

Live and Historical Racing $ 409.1 $ 169.6 $ 276.7

TwinSpires 431.7 414.5 295.6

Gaming 695.4 435.3 687.3

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Operating expense:

Churchill Downs 141.9 163.8 116.3

Online Wagering 273.3 205.8 196.1

Live and Historical Racing 288.9 179.0 178.8

TwinSpires 325.4 275.8 207.9

Gaming 476.3 357.9 526.0

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Selling, general and administrative expense 138.5 114.8 122.0

Impairment of intangible assets 17.5 — —

Asset impairments 15.3 17.5 —

Transaction expense, net 7.9 1.0 5.3

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Interest expense, net ( 84.7 ) ( 80.0 ) ( 70.9 )

Equity in income of unconsolidated investments 27.7 50.6 29.6

Gain on Ocean Downs/Saratoga transaction — — 54.9

Equity in income of unconsolidated affiliates 143.2 27.7 50.6

Miscellaneous, net 0.7 0.1 1.0

Total other (expense) income ( 52.2 ) ( 19.3 ) 45.1

Total other income (expense) 59.2 ( 52.2 ) ( 19.3 )

Income from continuing operations before provision for income taxes 343.6 8.0 196.4

Income tax benefit (provision) 5.3 ( 56.8 ) ( 51.3 )

Income from continuing operations, net of tax 13.3 139.6 182.6

(Loss) income from discontinued operations, net of tax ( 95.4 ) ( 2.4 ) 170.2

Net (loss) income ( 82.1 ) 137.2 352.8

Income tax (provision) benefit ( 94.5 ) 5.3 ( 56.8 )

Income from continued operations, net of tax 249.1 13.3 139.6

Loss from discontinued operations, net of tax — ( 95.4 ) ( 2.4 )

Net income (loss) 249.1 ( 82.1 ) 137.2

Net loss attributable to noncontrolling interest — ( 0.2 ) ( 0.3 )

Net (loss) income attributable to Churchill Downs Incorporated $ ( 81.9 ) $ 137.5 $ 352.8

Net income (loss) and comprehensive income (loss) attributable to Churchill Downs Incorporated $ 249.1 $ ( 81.9 ) $ 137.5

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

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Discontinued operations $ — $ ( 2.41 ) $ ( 0.06 )

Net (loss) income per common share - basic $ ( 2.07 ) $ 3.43 $ 8.54

Net income (loss) per common share - basic $ 6.45 $ ( 2.07 ) $ 3.43

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

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Discontinued operations $ — $ ( 2.41 ) $ ( 0.06 )

Net (loss) income per common share - diluted $ ( 2.08 ) $ 3.38 $ 8.48

Net income (loss) per common share - diluted $ 6.35 $ ( 2.08 ) $ 3.38

Weighted average shares outstanding:

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Diluted 39.2 40.1 40.6

Other comprehensive income (loss):

Foreign currency translation, net of tax $ — $ — $ 0.6

Change in pension benefits, net of tax — — ( 0.2 )

Other comprehensive income — — 0.4

Comprehensive (loss) income attributable to Churchill Downs Incorporated $ ( 81.9 ) $ 137.5 $ 353.2

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

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Other intangible assets, net

Long-term assets held for sale

Total assets $ 2,981.6 $ 2,686.4

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( 0.9 ) ( 0.9 )

Total Churchill Downs Incorporated shareholders' equity 367.1 508.3

Noncontrolling interest — 2.7

Total shareholders' equity 306.8 367.1

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Net income 137.5 ( 0.3 ) 137.2

Contributions from non-controlling interest 3.0 3.0

Issuance of common stock 0.2 1.9 1.9

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Adoption of ASC 842

Cash dividends ($ 0.543 per share)

( 0.3 ) ( 0.3 )

Foreign currency translation adjustment, net of $( 0.1 ) tax

Change in pension benefits, net of $( 0.1 ) tax

Cash dividends ($ 0.581 per share)

( 23.4 ) ( 23.4 )

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

Net income 137.5 ( 0.3 ) 137.2

Contributions from noncontrolling interest 3.0 3.0

Net loss ( 81.9 ) ( 0.2 ) ( 82.1 )

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

Issuance of common stock 0.1 2.4 2.4

Repurchase of common stock ( 0.2 ) ( 4.3 ) ( 23.6 ) ( 27.9 )

Cash settlement of stock awards ( 12.7 ) ( 12.7 )

Taxes paid related to net share settlement of stock awards ( 0.1 ) ( 3.6 ) ( 15.1 ) ( 18.7 )

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

Stock-based compensation 23.7 23.7

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

Net loss ( 81.9 ) ( 0.2 ) ( 82.1 )

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

Net income 249.1 249.1

Issuance of common stock 0.2 2.5 2.5

Repurchase of common stock ( 1.5 ) ( 48.5 ) ( 249.0 ) ( 297.5 )

Cash settlement of stock awards ( 12.7 ) ( 12.7 )

Taxes paid related to net share settlement of stock awards ( 0.1 ) ( 16.1 ) ( 16.1 )

Stock-based compensation 27.8 27.8

Adoption of ASC 326

( 0.5 ) ( 0.5 )

Cash dividends ($ 0.667 per share)

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Cash flows from operating activities:

Net (loss) income $ ( 82.1 ) $ 137.2 $ 352.8

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

Net income (loss) $ 249.1 $ ( 82.1 ) $ 137.2

Loss from discontinued operations, net of tax — ( 95.4 ) ( 2.4 )

Income from continuing operations, net of tax $ 249.1 $ 13.3 $ 139.6

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 103.2 92.9 96.4

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Deferred income taxes 9.8 30.1 31.5

Impairment of intangible assets 17.5 — —

Asset impairments 15.3 17.5 —

Amortization of operating lease assets 5.3 5.0 4.6

Gain on Ocean Downs/Saratoga transaction — — ( 54.9 )

Gain on sale of Big Fish Games — — ( 219.5 )

Other 5.3 4.5 2.8

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Deferred revenue 10.7 ( 8.3 ) ( 9.3 )

Current liabilities of discontinued operations 124.0 — —

Other assets and liabilities 53.9 ( 3.9 ) 12.0

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Acquisition of other intangible assets — — ( 32.1 )

Proceeds from sale of Big Fish Games — — 970.7

Other ( 8.6 ) ( 5.2 ) ( 1.2 )

Net cash (used in) provided by investing activities ( 239.4 ) ( 781.2 ) 824.1

Net cash used in investing activities ( 100.4 ) ( 239.4 ) ( 781.2 )

Cash flows from financing activities:

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Taxes paid related to net share settlement of stock awards ( 12.9 ) ( 18.7 ) ( 11.5 )

Repayment of Ocean Downs debt — — ( 54.7 )

Big Fish Games earnout and deferred payments — — ( 58.2 )

Debt issuance costs ( 6.9 ) ( 2.0 ) ( 8.9 )

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Other 2.2 2.1 2.4

Net cash provided by (used in) financing activities 76.0 460.8 ( 933.3 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 21.5 ) ( 30.8 ) 88.6

Effect of exchange rate changes on cash — — ( 0.8 )

Net cash (used in) provided by financing activities ( 0.5 ) 76.0 460.8

Cash flows from discontinued operations:

Operating activities of discontinued operations ( 124.0 ) ( 1.3 ) ( 2.9 )

Net increase (decrease) in cash, cash equivalents and restricted cash 234.6 ( 21.5 ) ( 30.8 )

Cash, cash equivalents and restricted cash, beginning of year 121.0 142.5 173.3

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Repurchase of common stock included in accrued expense and other current liabilities — — 0.5

Acquisition of Ocean Downs, net of cash acquired — — 115.2

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

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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 nine 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.

We were organized as a Kentucky corporation in 1928, and our principal executive offices are located in Louisville, Kentucky.

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 Racing and Gaming ("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.

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

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

Live and Historical Racing, TwinSpires, and Gaming.

For additional information, refer to Note 22, Segment Information.

Impact of the COVID-19 Global Pandemic

In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic.

Considerable uncertainty still surrounds the COVID-19 virus and the potential effects of COVID-19, and the extent of and effectiveness of responses taken on international, national and local levels.

Measures taken to limit the impact of COVID-19, including shelter-in-place orders, social distancing measures, travel bans and restrictions, and business and government shutdowns, have resulted and continue to result in significant negative economic impacts in the U.S.

and in relation to our business.

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

and world economies and continuing impact on our business remains uncertain, the duration and scope of which cannot currently be predicted.

In response to the measures taken to limit the impact of COVID-19 described above, and for the protection of our employees, customers, and communities, we temporarily suspended operations at our properties in March 2020.

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

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

We implemented a number of initiatives to facilitate social distancing and enhanced cleaning, such as increased frequency of cleaning and sanitizing of all high-touch surfaces, mandatory temperature checks of all guests and team members upon entry and required training for all team members on safety protocols.

Certain amenities at our properties have continued to be suspended, including food buffets and valet services, and certain restaurants and food outlets.

A summary of the temporary closures and the current restrictions at each property is provided in Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations contained within this Report.

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

As the Company reopened these properties, certain employees have returned to work while others remain on temporary furlough due to the capacity restrictions at these properties.

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

The Company also implemented a temporary salary reduction for all remaining non-furloughed salaried employees based on a percentage that varies dependent upon the amount of each employee’s salary.

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

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

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

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

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

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

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") provides an employee retention credit (“CARES Employee Retention Credit”), which is a refundable tax credit against certain employment taxes of up to $5,000 per employee for eligible employers.

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

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

All of our gaming properties have remained open since January 2021.

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

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

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

Due to such restrictions, our revenues from the Kentucky Oaks and Derby in each year were significantly less than we would otherwise expect.

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") provided an employee retention credit ("CARES Employee Retention Credit"), which is a refundable tax credit against certain employment taxes of up to $5,000 per employee for eligible employers.

The tax credit is equal to 50% of qualified wages paid to employees during a quarter, capped at $10,000 of qualified wages per employee.

The Company qualified for the tax credit and received additional tax credits for qualified wages, and the Company recorded a $ 2.7 million benefit related to the CARES Employee Retention Credit in operating expense in the accompanying consolidated statement of comprehensive (loss) income for the year ended December 31, 2020.

The CARES Act also provides for deferred payment of the employer portion of social security taxes through December 31, 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022.

The Company qualified for the tax credit and received additional tax credits for qualified wages, and the Company recorded a $ 2.7 million benefit related to the CARES Employee Retention Credit in operating expense in the accompanying consolidated statement of comprehensive income (loss) for the year ended December 31, 2020.

The CARES Act also provided for deferred payment of the employer portion of social security taxes through December 31, 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022.

Approximately $ 5.3 million of deferred payments are recorded as liabilities within accrued expense and other current liabilities and other noncurrent liabilities in the accompanying consolidated balance sheet as of December 31, 2020.

The Company reduced planned maintenance and project capital expenditures for 2020 as a result of the temporary property and operations closures and prioritized capital investments based on the highest near-term return opportunities in order to maintain financial flexibility.

Refer to Note 12, Total Debt, for discussion of from borrowings and repayments on our revolving credit facility (the "Revolver") pursuant to the Credit Agreement, and the amendments entered into during 2020.

The Company paid the $ 5.3 million of deferred payments during the year ended December 31, 2021.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Based on our current projected operating cash flow needs, interest and debt repayments, and revised maintenance and project capital expenditures, we believe we have adequate cash to fund our business operations, meet all of our financial commitments, and invest in our prioritized key growth capital projects for well beyond the next twelve months.

SIGNIFICANT ACCOUNTING POLICIES

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If a quantitative impairment test of our indefinite-lived intangible assets is required, we generally determine the fair value using the Greenfield Method for gaming rights and relief-from-royalty method of the income approach for trademarks.

The Greenfield Method is an income approach methodology that calculates the present value based on a projected cash flow stream.

Qualitative factors include macroeconomic conditions, industry and market conditions, cost factors and overall financial performance, among others.

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Evaluations of possible impairment require us to estimate, among other factors, forecasts of future operating results, revenue growth, operating expense, tax rates, start-up costs, capital expenditures, depreciation, working capital, discount rates, long-term growth rates, risk premiums, royalty rates, terminal values and fair market values of our reporting units and assets.

The estimated future revenue, operating expenses, start-up costs and discount rate are the primary inputs to the Greenfield Method.

Changes in estimates or the application of alternative assumptions could produce significantly different results.

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Property and Equipment

We review the carrying value of our property and equipment to be held and used in our operations whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable from estimated future undiscounted cash

Adverse industry or economic trends, lower projections of profitability, or a significant adverse change in legal factors or in the business climate, among other items, may be indications

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

flows expected to result from the asset's use and eventual disposition.

Adverse industry or economic trends, lower projections of profitability, or a significant adverse change in legal factors or in the business climate, among other items, may be indications of potential impairment issues.

of potential impairment issues.

If the undiscounted cash flows exceed the carrying value, no impairment is indicated.

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Revenue Recognition

On January 1, 2018, the Company adopted Accounting Standards Update ("ASU") No.

2014-09, Revenue from Contracts with Customers ("ASC 606") using the modified retrospective method.

The adoption of ASC 606 had no impact on cash provided by or used in operating, financing, or investing activities on our accompanying consolidated statements of cash flows.

Due to the adoption of ASC 606, we made certain modifications to the classification of net revenue and operating expenses in the Online Wagering segment primarily due to the fact that under ASC 606, we are the principal in all import revenue contracts.

Under ASC 606, in circumstances where we make advance sales and advance billings to customers, we recognize a receivable and deferred revenue when we have an unconditional right to receive payment.

Previously, we recognized a receivable and deferred revenue at the time of the advance sale and billing if it was probable we would collect the receivable and recognize revenue.

We generate revenue from pari-mutuel wagering transactions with customers related to live races, simulcast races, and historical races as well as simulcast host fees earned from other wagering sites.

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Our live racetracks' revenue and income are influenced by our racing calendar.

Similarly, Online Wagering horse racing revenue and income is influenced by racing calendars.

Similarly, TwinSpires horse racing revenue and income is influenced by racing calendars.

Therefore, revenue and operating results for any interim quarter are not generally indicative of the revenue and operating results for the year and may not be comparable with results for the corresponding period of the previous year.

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For live races we present at our racetracks, we recognize revenue on wagers we accept from customers at our racetrack ("on-track revenue") and revenue we earn from exporting our live racing signals to other race tracks, off-track betting facilities ("OTBs"), and advance deposit wagering providers ("export revenue").

For simulcast races we display at our racetracks, OTBs, and Online Wagering platforms, we recognize revenue we earn from providing a wagering service to our customers on these imported live races ("import revenue").

Online Wagering import revenue is generated through advance deposit wagering which consists of patrons wagering through an advance deposit account.

For simulcast races we display at our racetracks, OTBs, and TwinSpires' platforms, we recognize revenue we earn from providing a wagering service to our customers on these imported live races ("import revenue").

TwinSpires import revenue is generated through advance deposit wagering which consists of patrons wagering through an advance deposit account.

Each wagering contract for on-track revenue, and import revenue contains a single performance obligation and our export revenue contracts contain a series of distinct services that form a single performance obligation.

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The transaction price for export revenue is variable based on the simulcast host fee we charge our customers for exporting our signal.

We may provide cash incentives in conjunction with wagering transactions we accept from Online Wagering customers.

We may provide cash incentives in conjunction with wagering transactions we accept from TwinSpires' customers.

These cash incentives represent consideration payable to a customer and therefore are treated as a reduction of the transaction price for the wagering transaction.

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The revenue we recognize for on-track revenue, import revenue, and HRM revenue is the commission we are entitled to retain for providing a wagering service to our customers.

For these arrangements, we are the principal as we control the wagering

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

For these arrangements, we are the principal as we control the wagering service;

therefore, any charges, including any applicable simulcast fees, we incur for delivering the wagering service are presented as operating expenses.

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The transaction prices for our admissions, PSLs, sponsorships, and television rights contracts are fixed.

We allocate the transaction price to our sponsorship contract performance obligations based on the estimated relative standalone selling price of each distinct service.

We allocate the transaction

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

price to our sponsorship contract performance obligations based on the estimated relative standalone selling price of each distinct service.

The revenue we recognize for admissions to a live racing event day is recognized once the related event is complete.

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The loyalty point contract liability amount is deferred and recognized as revenue when the customer redeems the points for a wagering transaction or food and beverage, and such goods or services are delivered to the customer.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

We use estimates and judgments for financial reporting to determine our current tax liability and deferred taxes.

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Tax positions taken are not offset or aggregated with other positions.

Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority.

Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority.

The portion of the benefits associated with the tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets, along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

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Restricted Cash and Account Wagering Deposit Liabilities

Restricted cash includes deposits collected from our Online Wagering customers.

Restricted cash includes deposits collected from our TwinSpires' customers.

Other amounts included in restricted cash represent amounts due to horsemen for purses, stakes and awards that are paid in accordance with the terms of our contractual agreements or statutory requirements.

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Internal Use Software

Internal use software costs for Online Wagering software are capitalized in property and equipment, net in the accompanying consolidated balance sheets, in accordance with accounting guidance governing computer software developed or obtained for internal use.

Internal use software costs for our TwinSpires' segment software are capitalized in property and equipment, net in the accompanying consolidated balance sheets, in accordance with accounting guidance governing computer software developed or obtained for internal use.

Once the software is placed in operation, we amortize the capitalized software over the software's estimated economic useful life, which is generally three years.

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We incurred amortization expense of approximately $ 10.3 million in 2021, $ 9.4 million in 2020, and $ 8.8 million in 2019, for projects which had been placed in service.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Fair Value of Assets and Liabilities

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Distributions in excess of equity method income are recognized as a return of investment and recorded as investing cash inflows in the accompanying consolidated statements of cash flows.

We classify income and losses as well as gains and impairments related to our investments in unconsolidated affiliates as a component of other income (expense) in the accompanying consolidated statements of comprehensive (loss) income.

We evaluate our investments in unconsolidated affiliates for impairment whenever events or changes in circumstances indicate that the carrying value of the investment may have experienced an "other-than-temporary" decline in value.

If such conditions exist, we compare the estimated fair value of the investment to the investment's carrying value to determine if an impairment is indicated and determine whether the impairment is "other-than-temporary" based on an assessment of all relevant factors, including consideration of our intent and ability to retain our investment until the recovery of the unrealized loss.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

including consideration of our intent and ability to retain our investment until the recovery of the unrealized loss.

We estimate fair value using a discounted cash flow analysis based on estimated future results of the investee.

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(1) whether any expired or existing contracts are or contain leases, (2) lease classification of any expired or existing leases and (3) initial direct costs of any expired or existing leases.

Due to the adoption of ASC 842, we recognize operating lease right-of-use assets ("ROUAs") and lease liabilities for our operating leases with lease terms greater than one year.

We do not have any material finance leases or any material operating leases where we are the lessor.

Upon adopting ASC 842, we determine if an arrangement is a lease at inception.

Due to the adoption of ASC 842, we recognize lease right-of-use assets ("ROUAs") and lease liabilities for our leases with lease terms greater than one year.

We do not have any material leases where we are the lessor.

We determine if an arrangement is a lease at inception and categorize as either operating or finance based on the criteria of ASC 842.

An arrangement contains a lease when the arrangement conveys the right to control the use of an identified asset over the lease term.

Operating and finance leases are included in property and equipment, net;

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We do not apply the ROUA and leases liability recognition requirements to short-term leases.

Operating lease ROUAs and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date.

Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date.

These leases do not provide an implicit rate, so therefore we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future lease payments.

The operating lease ROUAs also include any lease payments made prior to commencement and exclude lease incentives and initial direct costs incurred.

ROUAs are recognized at the lease commencement date at the value of the lease liability, adjusted for any lease payments made prior to commencement and exclude lease incentives and initial direct costs incurred.

The lease terms include all non-cancelable periods and may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term for operating leases.

Interest expense on the finance lease liabilities is recorded separately using the interest method.

Debt Issuance Costs and Loan Origination Fees

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All of our casino taxes and the majority of our pari-mutuel taxes are gross receipts taxes levied on the gaming entity.

We recognize these taxes as Churchill Downs, Online Wagering, Gaming, and All Other operating expenses in our consolidated statements of comprehensive (loss) income.

In certain jurisdictions governing our pari-

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

mutuel contracts with customers, there are specific pari-mutuel taxes that are assessed on winning wagers from our customers, which we collect and remit to the government.

We recognize these taxes as Live and Historical Racing, TwinSpires, Gaming, and All Other operating expenses in our consolidated statements of comprehensive income (loss).

In certain jurisdictions governing our pari-mutuel contracts with customers, there are specific pari-mutuel taxes that are assessed on winning wagers from our customers, which we collect and remit to the government.

These taxes are presented on a net basis.

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It is possible that reasonable alternative selections would produce different reserve estimates.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Advertising and Marketing

We expense the costs of general advertising, marketing and associated promotional expenditures at the time the costs are incurred.

We incurred advertising and marketing expense of approximately $ 31.4 million in 2020, $ 41.8 million in 2019, and $ 28.8 million in 2018 in our accompanying consolidated statements of comprehensive (loss) income.

We incurred advertising and marketing expense of approximately $ 74.5 million in 2021, $ 31.4 million in 2020, and $ 41.8 million in 2019 in our accompanying consolidated statements of comprehensive income (loss).

Stock-Based Compensation

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In such instances, we record the cost of any further share repurchases as a reduction to retained earnings.

Due to the large number of shares of our common stock repurchased over the past several years, our common stock balance frequently will be zero at the end of any given reporting period.

Due to the large number of shares of our common stock repurchased over the past several years, our common stock balance will frequently be zero at the end of any given reporting period.

Refer to Note 11, Shareholders' Equity, for additional information on our share repurchases.

Insurance Recoveries

The Company maintains insurance policies that provide coverage for property damages and business interruption.

Losses due to physical damages are recognized during the accounting period in which they occur, while the amount of monetary assets to be received from the insurance policy is recognized when receipt of insurance recoveries is probable.

Losses, which are reduced by the related probable insurance recoveries, are recorded as operating expenses on the accompanying consolidated statements of comprehensive income (loss).

Anticipated proceeds in excess of recognized losses would be considered a gain contingency and recognized when the contingency related to the insurance claim has been resolved.

Recent Accounting Pronouncements - Adopted on January 1, 2021

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

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

The new model will apply to:

(1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (2) loan commitments and certain other off-balance sheet credit exposures, (3) debt securities and other financial assets measured at fair value through other comprehensive income, and (4) beneficial interests in securitized financial assets.

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

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

The comparative

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

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

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

In August 2018, the FASB issued ASU No.

2018-15, Intangibles - Goodwill and Other:

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

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

We adopted this guidance on January 1, 2020.

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

In January 2017, the FASB issued ASU No.

2017-04, Intangibles - Goodwill and Other:

Simplifying the Test for Goodwill Impairment.

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

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

We adopted this guidance on January 1, 2020.

The new guidance did not result in a cumulative adjustment upon adoption and there was no impairment recognized under the new guidance for the year ended December 31, 2020.

Recent Accounting Pronouncements - effective in 2021 or thereafter

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

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

The guidance was effective upon issuance;

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

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

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

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

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

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

The Company does not expect the adoption of this ASU to have a material impact on the Company's consolidated financial statements.

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

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

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

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

Recent Accounting Pronouncements - effective in 2022 or thereafter

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, 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.

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 December 31, 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 December 31, 2021, the Company has recorded a reduction of property and equipment, net of $ 2.8 million and incurred

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

$ 2.5 million in operating expenses.

Through December 31, 2021, the Company has received $ 2.7 million in insurance recoveries from our carriers, and has an insurance recovery receivable of $ 2.6 million at December 31, 2021.

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.

On January 11, 2019, we completed the acquisition of Presque Isle Downs and Casino ("Presque Isle") located in Erie, Pennsylvania from Eldorado Resorts, Inc.

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

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Non-current liabilities ( 0.6 )

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

The fair value of the intangible assets consists of the following:

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The goodwill was assigned to the Gaming segment and is deductible for tax purposes.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Refer to Note 9, Asset Impairment, for information regarding intangible asset impairments recognized during the first quarter of 2020 related to the Presque Isle gaming rights and trademark.

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The unaudited pro forma net income giving effect to the Presque Isle Transaction was not materially different than our historical net income.

Year Ended December 31,

(in millions) 2019 2018

(in millions) Year Ended December 31, 2019

Net revenue $ 1,332.9

Lady Luck Nemacolin

On March 8, 2019, the Company assumed management and acquired certain assets related to the management of Lady Luck Nemacolin in Farmington, Pennsylvania, from ERI for cash consideration of $ 100,000 (the "Lady Luck Nemacolin Transaction").

On March 8, 2019, the Company assumed management and acquired certain assets related to the management of Lady Luck Casino Nemacolin ("Lady Luck Nemacolin") in Farmington, Pennsylvania, from ERI for cash consideration of $ 100,000 (the "Lady Luck Nemacolin Transaction").

The Lady Luck Nemacolin Transaction did not meet the definition of a business and therefore was accounted for as an asset acquisition.

The net assets acquired in conjunction with the Lady Luck Nemacolin Transaction were not material.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

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

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property and equipment (primarily land) of $ 18.8 million, indefinite-lived gaming rights of $ 9.8 million, indefinite-lived trademark of $ 5.5 million, goodwill of $ 2.7 million, and current liabilities of $ 2.3 million.

On July 16, 2018, the Company announced the entry into a tax-efficient partial liquidation agreement (the "Liquidation Agreement") for the remaining 50 % ownership of the Casino at Ocean Downs and Ocean Downs Racetrack located in Berlin, Maryland ("Ocean Downs") owned by Saratoga Casino Holdings LLC ("SCH") in exchange for the Company's 25 % equity interest in SCH, which is the parent company of Saratoga Casino Hotel in Saratoga Springs, New York ("Saratoga New York") and Saratoga Casino Black Hawk in Black Hawk, Colorado ("Saratoga Colorado") (collectively, the "Ocean Downs/Saratoga Transaction").

On August 31, 2018, the Company closed the Ocean Downs/Saratoga Transaction, which resulted in the Company owning 100 % of Ocean Downs and having no further equity interest or management involvement in Saratoga New York or Saratoga Colorado.

As part of the Ocean Downs/Saratoga Transaction, Saratoga Harness Racing, Inc.

("SHRI") has agreed to grant the Company and our affiliates exclusive rights to operate online sports betting and iGaming on behalf of SHRI in New York and Colorado for a period of fifteen years from the date of the Liquidation Agreement, should such states permit SHRI to engage in sports betting and iGaming, subject to payment of commercially reasonable royalties to SHRI.

We consolidated Ocean Downs upon closing of the Ocean Downs/Saratoga Transaction on August 31, 2018.

Prior to the Ocean Downs/Saratoga Transaction, the Company held an effective 62.5 % ownership interest in Ocean Downs, and a 25 % ownership interest in Saratoga New York and Saratoga Colorado, all of which were accounted for under the equity method.

The consideration transferred to SCH to acquire the remaining interest in Ocean Downs was the Company's equity investments in Saratoga New York and Saratoga Colorado, which had an aggregate fair value of $ 47.8 million at the acquisition date.

Under the acquisition method, the fair values of the consideration transferred and the Company's equity method investment in Ocean Downs, which had a fair value of $ 80.5 million at the acquisition date, were allocated to the assets acquired and liabilities assumed in the Ocean Downs/Saratoga Transaction.

The Company's carrying values in these equity method investments were significantly less than their fair values, resulting in a pre-tax gain of $ 54.9 million, which is included in the accompanying consolidated statements of comprehensive (loss) income.

The fair values of the Company's equity method investments in Ocean Downs, Saratoga New York, and Saratoga Colorado were determined under the market and income valuation approaches using inputs primarily related to discounted projected cash flows and price multiples of publicly traded comparable companies.

The following table summarizes the final fair values of the assets acquired and liabilities assumed, net of cash acquired of $ 13.1 million, at the acquisition date.

(in millions) Total

Current assets $ 1.9

Property and equipment 57.4

Goodwill 20.4

Intangible assets 95.4

Current liabilities ( 5.2 )

Debt ( 54.7 )

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

The final fair value of the intangible assets consisted of the following:

(in millions) Fair Value Recognized Weighted-Average Useful Life

Gaming rights $ 87.0 N/A

Trademark 8.3 N/A

Other 0.1 1.3 years

Total intangible assets $ 95.4

Current assets and current liabilities were valued at the existing carrying values due to their short-term nature and represent management's estimated fair value of the respective items on August 31, 2018.

The debt of $ 54.7 million assumed by the Company was valued at the Company's outstanding principal balance, which approximated fair value on August 31, 2018.

The Company subsequently paid off the debt in full on September 4, 2018.

The property and equipment acquired primarily relates to land, buildings, equipment, and furniture and fixtures.

The fair values of the property and equipment were primarily determined using the cost replacement method, which is based on replacement or reproduction costs of the assets.

The fair value of the Ocean Downs gaming rights was determined using the Greenfield method, which is an income approach methodology that calculates the present value of the overall business enterprise based on a projected cash flow stream.

This method assumes that the gaming rights intangible asset provides the opportunity to develop a casino in a specified region, and that the present value of the projected cash flows is a result of the realization of advantages contained in these rights.

Under this methodology, the acquirer is expected to absorb all start-up costs, as well as incur all expenses pertaining to the acquisition and/or the creation of all tangible and intangible assets.

The estimated future revenue and operating expenses and start-up costs of Ocean Downs were the primary inputs in the valuation.

The gaming rights intangible asset was assigned an indefinite useful life based on the Company's expected use of the asset and determination that no legal, regulatory, contractual, competitive, economic, or other factors limit the useful life of the gaming rights.

The renewal of the gaming rights in Maryland is subject to various legal requirements.

However, the Company's historical experience has not indicated, nor does the Company expect any limitations regarding the Company's ability to continue to renew the Company's gaming rights in Maryland.

The trademark intangible asset was valued using the relief-from-royalty method of the income approach, which estimates the fair value of the intangible asset by discounting the fair value of the hypothetical royalty payments a market participant would be willing to pay to enjoy the benefits of the asset.

The trademark was assigned an indefinite useful life based on the Company’s intention to keep the Ocean Downs name for an indefinite period of time.

Goodwill of $ 20.4 million was recognized due to the expected contribution of Ocean Downs to the Company's overall business strategy.

The goodwill was assigned to the Gaming segment and is not deductible for tax purposes.

In connection with the Ocean Downs/Saratoga Transaction, the Company recorded a deferred tax liability and income tax expense of $ 12.6 million.

The deferred tax liability represents the excess of the financial reporting amounts of the net assets of Ocean Downs over their respective basis under federal, state, and local tax law expected to be applied to taxable income in the periods such differences are expected to be realized.

After the closing of the Ocean Downs/Saratoga Transaction, for the period from September 1, 2018 through December 31, 2018, net revenue for Ocean Downs was $ 25.9 million, and net income was not material.

The following unaudited pro forma consolidated financial information for the Company has been prepared assuming the Company's acquisition of the remaining 50 % interest in Ocean Downs occurred as of January 1, 2018 and excludes the gain recognized from the Ocean Downs/Saratoga Transaction.

The unaudited pro forma financial information is not necessarily indicative of either future results of operations or results of operations that might have been achieved had the acquisition been consummated as of January 1, 2018.

The unaudited pro forma net income giving effect to the Ocean Downs/Saratoga Transaction was not materially different than our historical net income.

Years Ended December 31,

(in millions) 2018

Net revenue $ 1,065.4

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

Discontinued Operations

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

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

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

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

The Purchaser paid an aggregate consideration of $ 990.0 million in cash in connection with the Big Fish Transaction, subject to customary adjustments for working capital and indebtedness and certain other adjustments as set forth in the Stock Purchase Agreement.

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

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

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

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

The Company received cash proceeds of $ 970.7 million which was net of $ 5.2 million of working capital adjustments and $ 14.1 million of transaction costs.

The Company recognized a gain of $ 219.5 million upon the sale recorded in income from discontinued operations in the accompanying consolidated statements of comprehensive (loss) income in 2018.

The gain consisted of cash proceeds of $ 970.7 million offset by the carrying value of Big Fish Games of $ 751.2 million.

The income tax provision on the gain was $ 51.2 million, resulting in an after-tax gain of $ 168.3 million.

Kater and Thimmegowda Settlement

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

("Big Fish Games").

The Big Fish Games business met the criteria for discontinued operation presentation.

The consolidated statements of comprehensive income (loss), consolidated statements of cash flows, and the notes to 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 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.

Churchill Downs Incorporated ("Kater Litigation") and Manasa Thimmegowda v.

Churchill Downs Incorporated and Manasa Thimmegowda v.

Big Fish Games, Inc.

(the “Thimmegowda Litigation”).

The agreement in principle remains contingent on final court approval by the U.S.

District Court for the Western District of Washington (the “District Court”).

Under the terms of the settlement, which will take effect only after final court approval of the proposed class settlement:

A total of $ 155.0 million will be paid into a settlement fund.

The Company will pay $ 124.0 million pre-tax of the settlement from the Company's available cash and Aristocrat will pay the remaining $ 31.0 million pre-tax of the settlement.

The $ 124.0 million pre-tax settlement related to the Company is included in loss from discontinued operations, net of tax in the accompanying consolidated statements of comprehensive (loss) income for the year ended December 31, 2020, and on a pre-tax basis in current liabilities of discontinued operations in the accompanying consolidated balance sheet as of December 31, 2020.

All members of the nationwide settlement class who do not exclude themselves will release all claims relating to the subject matter of the lawsuits.

Aristocrat has agreed to specifically release the Company of any and all indemnification obligations under the Stock Purchase Agreement arising from or related to the Kater Litigation and the Thimmegowda Litigation, including any claims of diminution of value of Big Fish Games and any claims by any person who opts out of the proposed class settlement.

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

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

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

Years Ended December 31,

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Operating loss — ( 124.1 ) ( 3.5 )

Gain on sale of Big Fish Games — — 219.5

Other income — — 0.1

Total other income — — 219.6

(Loss) income from discontinued operations before provision for income taxes ( 124.1 ) ( 3.5 ) 217.5

Income tax benefit (provision) 28.7 1.1 ( 47.3 )

(Loss) income from discontinued operations, net of tax $ ( 95.4 ) $ ( 2.4 ) $ 170.2

Stock-Based Compensation

As part of the Big Fish Transaction, the vesting dates for all outstanding unvested restricted stock awards, restricted stock unit awards, and performance share unit awards (collectively the "Stock Awards") for certain Big Fish Games' employees were accelerated to vest on the closing date.

Most of these Stock Awards would not have vested prior to the closing date of the Big Fish Transaction.

Therefore, the related stock-based compensation expense previously recognized through the modification date was reduced to zero and a new fair value of the Stock Awards was established on the date of the announcement of the Big Fish Transaction.

The expense was amortized during the period from the date of the announcement to the closing of the Big Fish Transaction.

Total stock-based compensation expense related to Big Fish Games, which includes the accelerated vesting of the Stock Awards and stock options associated with the Company's employee stock purchase plan, was $ 3.4 million in 2018.

Earnout Liabilities

As of December 31, 2017, we had $ 34.2 million of deferred earnout consideration and $ 28.4 million of deferred payments due to the founder of Big Fish Games, both of which were paid on January 3, 2018.

Loss from discontinued operations before provision for income taxes — ( 124.1 ) ( 3.5 )

Income tax benefit — 28.7 1.1

Loss from discontinued operations, net of tax $ — $ ( 95.4 ) $ ( 2.4 )

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"), 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.

Subject to the satisfaction of the various closing conditions, the Company anticipates closing the sale of the Arlington Property in early 2023.

The Company has classified certain assets of Arlington International Racecourse ("Arlington") totaling $ 81.5 million as held for sale as of December 31, 2021, on the accompanying consolidated balance sheets.

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

During the year ended December 31, 2021, the Company recorded $ 1.4 million of severance costs and $ 3.9 million related to our multi-employer pension liability in conjunction with the announced sale of the Arlington Property, which is included in transaction expense, net in the accompanying consolidated statements of comprehensive income (loss).

On November 22, 2021, the Company announced an agreement to sell 115.7 acres of land near Calder Casino and Racing ("Calder") for $ 291.0 million or approximately $ 2.5 million per acre to Link Logistics Real Estate, a Blackstone portfolio company.

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

The Company anticipates closing the sale of the property in the first half of 2022.

The Company has classified certain assets of Calder totaling $ 6.3 million as held for sale as of December 31, 2021, on the accompanying consolidated balance sheets.

Calder's operations and assets are included in Gaming in our consolidated results.

Churchill Downs Incorporated

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Property and equipment, net is comprised of the following:

As of December 31,

(in millions) 2021 2020

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Total $ 994.9 $ 1,082.1

Depreciation expense was $ 88.0 million in 2020, $ 81.4 million in 2019 and $ 57.6 million in 2018 and is classified in operating expense in the accompanying consolidated statements of comprehensive (loss) income .

Depreciation expense was $ 98.4 million in 2021, $ 88.0 million in 2020 and $ 81.4 million in 2019 and is classified in operating expense in the accompanying consolidated statements of comprehensive income (loss) .

Goodwill, by segment, is comprised of the following:

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

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

Balances as of December 31, 2019 $ 52.7 $ 152.2 $ 161.2 $ 1.0 $ 367.1

Additions — — 26.1 3.0 29.1

Adjustments ( 0.3 ) — — — ( 0.3 )

Balances as of December 31, 2020 52.4 152.2 161.2 1.0 366.8

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Based on the results of these analyses, no goodwill impairments were identified in connection with our annual impairment testing.

During 2020, we recorded an immaterial measurement period adjustment for the Turfway Park Acquisition that impacted the All Other goodwill balance.

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

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

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

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

Churchill Downs Incorporated

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In 2019, we established indefinite-lived intangible assets of $ 56.0 million for gaming rights and $ 15.2 million for trademarks related to the Presque Isle Transaction.

We also acquired indefinite-lived intangible assets of $ 8.0 million for online gaming rights in Pennsylvania related to our Online Wagering operations, $ 10.0 million for retail sports betting gaming rights at Presque Isle and online sports betting gaming rights in Pennsylvania, as well as $ 3.0 million for other gaming rights at Presque Isle.

We also acquired indefinite-lived intangible assets of $ 8.0 million for online gaming rights in Pennsylvania related to our TwinSpires operations, $ 10.0 million for retail sports betting gaming rights at Presque Isle and online sports betting gaming rights in Pennsylvania, as well as $ 3.0 million for other gaming rights at Presque Isle.

We also established indefinite-lived intangible assets of $ 5.5 million for trademarks and $ 9.8 million for gaming rights related to the Turfway Park acquisition.

In 2018, we established indefinite-lived intangible assets of $ 87.0 million for gaming rights and $ 8.3 million for trademarks related to the Ocean Downs/Saratoga Transaction.

We also established definite-lived intangible assets of $ 2.3 million relating to the opening of Derby City Gaming and $ 0.1 million relating to the Ocean Downs/Saratoga Transaction for other intangibles.

Amortization expense for definite-lived intangible assets was $ 4.9 million in 2020, $ 15.0 million in 2019, and $ 6.0 million in 2018, and is classified in operating expense in the accompanying consolidated statements of comprehensive (loss) income.

As described further in Note 3, Acquisitions, we accelerated the amortization for the assignment of the Turfway Park Acquisition purchase and sale agreement rights of $ 10.0 million in the fourth quarter of 2019, which is included in All Other in the accompanying consolidated statements of comprehensive (loss) income.

Amortization expense for definite-lived intangible assets was $ 4.8 million in 2021, $ 4.9 million in 2020, and $ 15.0 million in 2019, and is classified in operating expense in the accompanying consolidated statements of comprehensive income (loss).

As described further in Note 4 , Acquisitions, we expensed the Turfway Park Acquisition purchase and sale agreement rights of $ 10.0 million in the fourth quarter of 2019, which is included in Live and Historical Racing in the accompanying consolidated statements of comprehensive income (loss).

We submitted payments of $ 2.3 million in 2021 and 2020 for annual license fees for Calder, which are being amortized to expense over the annual license period.

Indefinite-lived intangible assets consist primarily of trademarks and state gaming rights in Maine, Maryland, Mississippi, Louisiana, Pennsylvania and Kentucky.

Refer to Note 8, Asset Impairment, for information regarding intangible asset impairments recognized during the first quarter of 2020.

Refer to Note 9 , Asset Impairment s, 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, which included an assessment of qualitative and quantitative factors to determine whether it is more likely than not that the fair values of the indefinite-lived intangible assets are less than the carrying amount.

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Notes to Consolidated Financial Statements

ASSET IMPAIRMENT

ASSET IMPAIRMENTS

During the quarter ended December 31, 2021, the Company recorded a $ 4.1 million non-cash impairment charge related to certain assets in the TwinSpires segment.

This impairment was due to changes in expectations of future realization of certain third party market access royalty prepayments related to our New Jersey sports betting and iGaming that resulted in projected future cash flows being less than carrying value in the fourth quarter of 2021.

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

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

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

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

Because Presque Isle was acquired in 2019, we did not expect the estimated fair value and the carry value to be significantly different.

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

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

As a result, the $ 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 the Gaming segment and $ 2.5 million related to the Online Wagering 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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Notes to Consolidated Financial Statements

Components of the (benefit) provision for income taxes are as follows:

Components of the provision (benefit) for income taxes are as follows:

Years Ended December 31,

(in millions) 2021 2020 2019

Current (benefit) provision:

Current provision (benefit):

Federal $ 66.1 $ ( 38.7 ) $ 19.2

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9.8 30.3 31.6

Income tax (benefit) provision $ ( 5.3 ) $ 56.8 $ 51.3

Income tax provision (benefit) $ 94.5 $ ( 5.3 ) $ 56.8

Income from continuing operations before provision for income taxes were as follows:

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Income from continuing operations before provision for income taxes $ 343.6 $ 8.0 $ 196.4

Our income tax (benefit) expense is different from the amount computed by applying the federal statutory income tax rate to income from continuing operations before taxes as follows:

Our income tax provision (benefit) is different from the amount computed by applying the federal statutory income tax rate to income from continuing operations before taxes as follows:

Years Ended December 31,

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State income taxes, net of federal income tax benefit 15.8 ( 0.6 ) 8.0

Net operating loss carry back - CARES Act ( 13.3 ) — —

Windfall deduction from equity compensation ( 5.1 ) ( 5.2 ) ( 4.7 )

Non-deductible officer's compensation 6.4 3.5 4.5

Re-measurement of deferred taxes 1.9 8.3 —

Uncertain tax positions 1.7 ( 1.0 ) —

Valuation allowance - state and foreign net operating losses 1.8 1.1 —

Uncertain tax positions 0.1 1.7 ( 1.0 )

Re-measurement of deferred taxes ( 1.5 ) 1.9 8.3

Windfall deduction from equity compensation ( 1.4 ) ( 1.3 ) ( 4.2 )

Net operating loss carry back - CARES Act — ( 13.3 ) —

Other 1.2 — —

Income tax (benefit) provision $ ( 5.3 ) $ 56.8 $ 51.3

On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Act") was signed into law.

The Tax Act significantly revised the U.S.

corporate income tax by, among other things, lowering the statutory corporate tax rate from 35% to 21%, eliminating certain deductions, imposing a one-time tax on accumulated earnings of foreign subsidiaries as of 2017, introducing new tax regimes, and changing how foreign earnings are subject to U.S.

The Tax Act also enhanced and extended through 2026 the option to claim accelerated depreciation deductions on qualified property.

The CARES Act provides, among other things, that any net operating loss arising in a tax year beginning in 2018, 2019 or 2020 may be carried back five years or carried forward indefinitely, offsetting up to 100 % of taxable income in tax years beginning

Income tax provision (benefit) $ 94.5 $ ( 5.3 ) $ 56.8

The CARES Act provided, among other things, that any net operating loss arising in a tax year beginning in 2018, 2019 or 2020 may be carried back five years or carried forward indefinitely, offsetting up to 100 % of taxable income in tax years beginning before 2021.

The Company filed a refund claim in 2021 from carrying back our 2020 net operating loss to a year before the statutory corporate tax rate was reduced from 35% to 21% by the Tax Act.

Due to the higher statutory rate applied to this net operating loss, the Company recognized an income tax benefit of $ 13.3 million for the year ended December 31, 2020.

The Company recognized income tax expense of $ 8.3 million during 2019 from the re-measurement of our net deferred tax liabilities based on an increase in income attributable to states with higher tax rates compared to the prior period.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

The Company intends to carry back our 2020 net operating loss to claim a refund of taxes paid in a year before the statutory corporate tax rate was reduced from 35% to 21% by the Tax Act.

Due to the higher statutory rate applied to this net operating loss, the Company recognized an income tax benefit of $ 13.3 million for the year ended December 31, 2020.

The Company recognized $ 1.9 million during 2020 and $ 8.3 million during 2019 of income tax expense from the re-measurement of our net deferred tax liabilities based on an increase in income attributable to states with higher tax rates compared to the prior period.

The Company will generate a capital loss associated with the Kater litigation.

We have recorded a $ 29.0 million deferred tax asset without a valuation allowance for the capital loss in 2020, as we fully expect to be able to offset the capital loss with previously recognized capital gains.

The Company reclassified a $ 29.0 million deferred tax asset related to the capital loss associated with the Kater litigation as a tax receivable due to the settlement payment made in 2021.

We fully expect to be able to offset the capital loss with previously recognized capital gains.

Components of our deferred tax assets and liabilities were as follows:

As of December 31,

(in millions) 2021 2020

Deferred tax assets:

Capital loss $ 29.0 $ —

Net operating losses and credit carryforward 9.3 3.4

Lease liabilities $ 10.2 $ 7.7

Net operating losses and credits carryforward 8.8 9.3

Deferred compensation plans 6.9 6.7

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Allowance for uncollectible receivables 1.3 1.2

Capital loss — 29.0

Deferred tax assets 35.7 62.2

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Equity investments in excess of tax basis 128.9 121.6

Property and equipment in excess of tax basis 77.9 53.4

Intangible assets in excess of tax basis 74.1 65.6

Property and equipment in excess of tax basis 69.7 77.9

Right-of-use assets 9.9 7.4

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Net deferred tax liability $ ( 252.9 ) $ ( 213.9 )

As of December 31, 2020, we had federal net operating losses of $ 3.2 million which were acquired in conjunction with the 2010 acquisition of Youbet.com.

The utilization of these losses, which expire in 2025 and 2026, is limited on an annual basis pursuant to Internal Revenue Code § 382.

We believe that we will be able to fully utilize all of these losses.

We also have state net operating losses of $ 7.3 million.

We have recorded a valuation allowance of $ 1.1 million against the state net operating losses due to the fact that it is unlikely that we will generate income in certain states which is necessary to utilize the deferred tax assets.

As of December 31, 2021, we had U.S.

state and foreign net operating losses with tax values of $ 6.6 million and $ 0.4 million, respectively.

We have recorded a valuation allowance of $ 3.2 million due to the fact that it is unlikely that we will generate income in certain state and foreign jurisdictions which is necessary to utilize the deferred tax assets.

We also had U.S.

state tax credits with a tax value of $ 1.8 million that do not expire which we expect to fully utilize.

The Internal Revenue Service has completed audits through 2012.

Tax years 2018 and after are open to examination.

Tax year 2015 is open to examination as a result of the Company's claim for refund of 2015 tax from carrying back its 2020 net operating loss pursuant to the CARES Act.

As of December 31, 2021, we had approximately $ 3.9 million of total gross unrecognized tax benefits, excluding interest of $ 0.2 million.

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We anticipate a decrease in our unrecognized tax positions of approximately $ 0.7 million during the next twelve months primarily due to the expiration of statutes of limitation.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

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Balance as of December 31 $ 3.9 $ 3.9 $ 1.8

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

SHAREHOLDERS’ EQUITY

Stock Repurchase Program

On November 29, 2017, the Board of Directors of the Company authorized a $ 500.0 million share repurchase program in a "modified Dutch auction" tender offer (the "Tender Offer") utilizing a portion of the proceeds from the Big Fish Transaction.

The Company completed the Tender Offer on February 12, 2018, and repurchased 5,660,376 shares of the Company's common stock at a purchase price of $ 88.33 per share with an aggregate cost of $ 500.0 million, excluding fees and expenses related to the Tender Offer.

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

Stock Repurchase Programs

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

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

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.

For the year ended December 31, 2020, we repurchased 235,590 shares of our common stock under the October 2018 stock repurchase program at a total cost of $ 27.9 million.

We had $ 445.6 million of repurchase authority remaining under this program at December 31, 2021.

For the year ended December 31, 2019, we repurchased 864,233 shares of our common stock under the October 2018 stock repurchase program at a total cost of $ 93.0 million.

As of December 31, 2019, we accrued $ 0.5 million for the future cash settlement of executed repurchases of our common stock.

For the year ended December 31, 2018, excluding the shares purchased under the Tender Offer, we repurchased 372,282 shares of our common stock under the October 2018 stock repurchase program at a total cost of $ 32.0 million.

Privately Negotiated Share Repurchase

Refer to Note 23, Subsequent Events, for information regarding the Company's privately negotiated share repurchase on February 1, 2021.

On October 30, 2018, the Company’s Board of Directors approved a three-for-one stock split (the "Stock Split") and an amendment to the Company’s Articles of Incorporation to increase the number of shares of common stock the Company is authorized to issue from 50,000,000 shares, no par value, to 150,000,000 shares, no par value.

This amendment to the Company’s Articles of Incorporation became effective on January 25, 2019 and our common stock began trading at the split-adjusted price on January 28, 2019.

All share and per-share amounts in the Company’s consolidated financial statements and related notes have been retroactively adjusted to reflect the effects of the Stock Split.

We repurchased the following shares under the 2018 and 2021 Stock Repurchase Programs:

For the year ending December 31,

(in millions, except share data) 2021 2020 2019

Repurchase Program Shares Aggregate Purchase Price Shares Aggregate Purchase Price Shares Aggregate Purchase Price

2021 Stock Repurchase Program 226,232 $ 54.4 — $ — — $ —

2018 Stock Repurchase Program 245,132 $ 49.2 235,590 $ 27.9 864,233 $ 93.0

Total 471,364 $ 103.6 235,590 $ 27.9 864,233 $ 93.0

The Duchossois Group ("TDG") Share Repurchase

On February 1, 2021, the Company entered into an agreement (the "Stock Repurchase Agreement") with an affiliate of TDG to repurchase 1,000,000 shares of the Company’s common stock for $ 193.94 per share in a privately negotiated transaction for an aggregate purchase price of $ 193.9 million.

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

The Company repurchased the shares using available cash and borrowings under the Revolver (as defined in Note 13, Debt).

STOCK-BASED COMPENSATION PLANS

Our total compensation expense, which includes expense related to restricted stock awards, restricted stock unit awards, performance share unit awards, and stock options associated with our employee stock purchase plan, was $ 27.8 million in 2021, $ 23.7 million in 2020, and $ 23.8 million in 2019.

The income tax benefit related to stock-based employee compensation expense was $ 1.9 million in 2020, $ 2.1 million in 2019, and $ 2.7 million in 2018.

We recorded a deferred tax asset related to stock-based compensation expense of $ 1.5 million in 2021, $ 1.9 million in 2020, and $ 2.1 million in 2019.

Our stock-based employee compensation plans are described below.

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

The 2016 Incentive Plan is intended to advance our long-term success by encouraging stock ownership among key employees and the Board of Directors.

Awards may be in the form of stock options, stock appreciation

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

rights, restricted stock ("RSA"), restricted stock units ("RSU"), performance share units ("PSU"), performance units, or performance cash.

The 2016 Incentive Plan has a minimum vesting period of one year for awards granted.

The 2016 Plan is intended to advance our long-term success by encouraging stock ownership among key employees and the Board of Directors.

Awards may be in the form of stock options, stock appreciation rights, restricted stock awards ("RSA"), restricted stock units ("RSU"), performance share units ("PSU"), performance units, or performance cash.

The 2016 Plan has a minimum vesting period of one year for awards granted.

Restricted Stock, Restricted Stock Units, and Performance Share Units

The 2016 Incentive Plan permits the award of RSAs, RSUs, or PSUs to directors and key employees responsible for the management, growth and protection of our business.

The 2016 Plan permits the award of RSAs, RSUs, or PSUs to directors and key employees responsible for the management, growth and protection of our business.

The fair value of RSAs and RSUs that vest solely based on continued service under the Plan is determined by the product of the number of shares granted and the grant date market price of our common stock.

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RSUs granted to directors are converted into shares of our common stock at the time of the director's retirement.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

In 2019, 2020, and 2021, the Company granted three -year performance and total shareholder return ("TSR") PSU awards (the "PSU Awards") to certain named executive officers ("NEOs").

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and (2) a cash flow metric that is the aggregate of the cash flow targets for the three individual years that is set annually at the beginning of each year.

The cash flow metric is defined as cash flow from operating activities, excluding the change in restricted cash, plus distributions of capital from equity investments less capital maintenance expenditures.

The cash flow metric is defined as cash flow from operating activities and discontinued operations excluding the change in restricted cash, plus distributions of capital from equity investments less capital maintenance expenditures.

The Compensation Committee of the Board of Directors (the "Compensation Committee") can make adjustments as it may deem appropriate to these metrics.

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

In October 2018, the Company granted a special equity award to two NEOs (" 7 -Year Grant") consisting of PSU Awards that may be adjusted up to 200 % based on the Company's relative TSR performance versus the Russell 2000 over a three -year period, and service-based RSU awards, both of which vest which vest in 25 % annual increments over four years beginning on the fourth anniversary of the grant date, totaling seven years to be fully vested.

In October 2018, the Company granted a special equity award to two NEOs (" 7 -Year Grant") consisting of PSU Awards that may be adjusted up to 200 % based on the Company's relative TSR performance versus the Russell 2000 over a three -year period ended October 29, 2021, and service-based RSU awards, both of which vest in 25 % annual increments over four years beginning on the fourth anniversary of the grant date, totaling seven years to be fully vested.

The performance period ended on October 29, 2021, and the TSR performance was 200 %.

The total compensation cost recognized for PSU Awards is determined using the Monte Carlo valuation methodology, which factors in the value of the TSR when determining the grant date fair value of the award.

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Vesting Terms

2020 RSU 82 Vest equally over three service periods ending in 2021, 2022, and 2023

2021 RSU 63 Vest equally over three service periods ending in 2024

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

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Balance as of December 31, 2021 479 $ 82.99 179 $ 135.01 658 $ 90.27

(1) Adjustment to number of target units awarded for PSUs based on achievement of performance and TSR goals.

The fair value of shares and units vested was $ 36.9 million in 2020 and 2019, and $ 32.4 million in 2018.

(1) Adjustment to number of target units awarded for PSUs based on achievement of underlying performance goals.

The fair value of shares and units vested was $ 45.4 million in 2021, and $ 36.9 million in 2020 and 2019.

A summary of total unrecognized stock-based compensation expense related to RSAs, RSUs, and PSUs (based on current performance estimates), at December 31, 2021 is presented below:

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Unrecognized expense:

RSA $ 0.8 1.02

RSU $ 9.2 1.76

PSU 12.9 2.08

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Each period commences on August 1 and ends on the following July 31.

Compensation expense related to the ESP Plan was not material for any year included in our accompanying consolidated statements of comprehensive (loss) income.

Compensation expense related to the ESP Plan was not material for any year included in our accompanying consolidated statements of comprehensive income (loss).

Churchill Downs Incorporated

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The following table presents our total debt outstanding:

As of December 31, 2020

December 31, 2021

(in millions) Outstanding Principal Issuance Costs and Fees Long-Term Debt, Net

Term Loan B due 2024 $ 384.0 $ 2.4 $ 381.6

Revolver 149.7 — 149.7

Term Loan B-1 due 2028 297.8 3.8 294.0

2027 Senior Notes 600.0 5.7 594.3

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Total debt, net of current maturities $ 1,974.8 $ 13.8 $ 1,961.0

As of December 31, 2019

December 31, 2020

(in millions) Outstanding Principal Issuance Costs and Fees Long-Term Debt, Net

Term Loan B due 2024 $ 388.0 $ 3.2 $ 384.8

Revolver 149.7 — 149.7

2027 Senior Notes 600.0 6.8 593.2

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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 Company had $ 695.4 million available borrowing capacity, after consideration of $ 4.6 million in outstanding letters of credit, under the Revolver as of December 31, 2021.

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

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The Credit Agreement also contains financial covenants providing for the maintenance of a maximum consolidated secured net leverage ratio ( 4.0 to 1.0 or 4.5 to 1.0 for the year following any permitted acquisition greater than $ 100.0 million) and the maintenance of a minimum consolidated interest coverage ratio of 2.5 to 1.0.

On March 16, 2020, the Company entered into the First Amendment to the Credit Agreement (the “First Amendment”).

The First Amendment extended the maturity for the Company’s Revolver from December 27, 2022 to at least September 27, 2024,

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

which is 91 days prior to the latest maturity date of the Company’s term loan facility on December 27, 2024.

On March 16, 2020, the Company entered into the First Amendment to the Credit Agreement (the “First Amendment”).

The First Amendment extended the maturity for the Company’s Revolver from December 27, 2022 to at least September 27, 2024, which is 91 days prior to the latest maturity date of the Company’s term loan facility on December 27, 2024.

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

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The Company capitalized $ 2.0 million of debt issuance costs associated with the First Amendment which will be amortized as interest expense over the remaining duration of the Revolver.

The Company had an outstanding balance of $ 149.7 million and had $ 545.8 million available on the Revolver as of December 31, 2020.

The Company had $ 67.4 million of cash and cash equivalents as of December 31, 2020.

On April 28, 2020, the Company entered into a Second Amendment to the Credit Agreement (the “Second Amendment”).

The Second Amendment (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.

During the Financial Covenant Relief Period, the Company will not be required to comply with the consolidated total secured net leverage ratio financial covenant and the interest coverage ratio financial covenant.

The Company has agreed to a minimum liquidity financial covenant that requires the Company and restricted subsidiaries to maintain liquidity of at least $ 150.0 million during the Financial Covenant Relief Period.

While the Second Amendment is in effect, the Company agreed to limit restricted payments to $ 26.0 million.

The Second Amendment (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 ending 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.

During the Financial Covenant Relief Period, the Company was not required to comply with the consolidated total secured net leverage ratio financial covenant and the interest coverage ratio financial covenant.

The Company agreed to a minimum liquidity financial covenant that required the Company and restricted subsidiaries to maintain liquidity of at least $ 150.0 million during the Financial Covenant Relief Period.

While the Second Amendment was in effect, the Company agreed to limit restricted payments to $ 26.0 million.

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, as defined in the Second Amendment, from $ 26.0 million to $ 226.0 million to accommodate a share repurchase from an affiliate of The Duchossois Group, Inc.

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

Refer to Note 23, Subsequent Events, for information regarding this transaction.

The interest rate on the Revolver on December 31, 2020 was LIBOR plus 175 points based on the Revolver pricing grid in the Second Amendment and the Company's net leverage ratio as of December 31, 2020.

The Term Loan B bears 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 December 31, 2020 (as a result of the Second Amendment), the Company was compliant with all applicable covenants on December 31, 2020.

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

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

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

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

The Company capitalized $ 3.5 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 December 31, 2021 was LIBOR plus 137.5 points based on the Revolver pricing grid in the Second Amendment and the Company's net leverage ratio as of September 30, 2021.

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

The Company was compliant with all applicable covenants on December 31, 2021.

2027 Senior Notes

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On or after such date, the Company may redeem some or all of the 2027 Senior Notes at redemption prices set forth in the 2027 Indenture.

At any time prior to April 1, 2022, the Company may redeem up to 40 % of the aggregate principal amount of the 2027 Senior Notes at a redemption price equal to 105.5 % of the principal amount thereof with the net cash proceeds of one or more equity offerings provided that certain conditions are met.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

offerings provided that certain conditions are met.

The terms of the 2027 Indenture, among other things, limit the ability of the Company to:

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and (viii) enter into transactions with affiliates.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

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

On December 27, 2017, we completed an offering of $ 500.0 million in aggregate principal amount of 4.75 % Senior Unsecured Notes that mature on January 15, 2028 (the "2028 Senior 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.

On December 27, 2017, we completed an offering of $ 500.0 million in aggregate principal amount of 4.75 % Senior Unsecured Notes that mature on January 15, 2028 (the "Existing 2028 Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the Securities Act, and to certain non-U.S.

persons in accordance with Regulation S under the Securities Act.

The 2028 Senior Notes were issued at par, with interest payable on January 15 th and July 15 th of each year, commencing on July 15, 2018.

The Existing 2028 Notes were issued at par, with interest payable on January 15 th and July 15 th of each year, commencing on July 15, 2018.

The Company used the net proceeds from the offering to repay a portion of our $ 600.0 million 5.375 % Senior Unsecured Notes (the "2021 Senior Notes").

In connection with the offering, we capitalized $ 7.7 million of debt issuance costs which are being amortized as interest expense over the term of the 2028 Senior Notes.

In connection with the offering, we capitalized $ 7.7 million of debt issuance costs which are being amortized as interest expense over the term of the Existing 2028 Notes.

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

persons in accordance with Regulation S under the Securities Act.

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

In connection with the offering, we capitalized $ 3.4 million of debt issuance costs which are being amortized as interest expense over the term of the Additional 2028 Notes.

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

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

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

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

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

The 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.

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

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

At any time prior to January 15, 2021, the Company may redeem up to 40 % of the aggregate principal amount of the 2028 Senior Notes at a redemption price equal to 104.75 % of the principal amount thereof with the net cash proceeds of one or more equity offerings provided that certain conditions are met.

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

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

The terms of the 2028 Indenture, among other things, limit the ability of the Company to:

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and (viii) enter into transactions with affiliates.

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

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

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Future aggregate maturities of total debt are as follows (in millions):

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Performance Obligations

As of December 31, 2020, our Churchill Downs segment had remaining performance obligations on contracts with a duration greater than one year relating to television rights, sponsorships, personal seat licenses, and admissions, with an aggregate transaction price of $ 131.8 million.

As of December 31, 2021, our Live and Historical Racing segment had remaining performance obligations on contracts with a duration greater than one year relating to television rights, sponsorships, personal seat licenses, and admissions, with an aggregate transaction price of $ 111.3 million.

The revenue we expect to recognize on these remaining performance obligations is $ 40.9 million in 2022, $ 29.0 million in 2023, $ 21.3 million in 2024, and the remainder thereafter.

As of December 31, 2020, our remaining performance obligations on contracts with a duration greater than one year in segments other than Churchill Downs were not material.

As of December 31, 2021, our remaining performance obligations on contracts with a duration greater than one year in segments other than Live and Historical Racing were not material.

Contract Assets and Contract Liabilities

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Contract liabilities were $ 64.9 million as of December 31, 2021 and $ 53.7 million as of December 31, 2020.

Contract liabilities are included in current deferred revenue, non-current deferred revenue, and accrued expense and other current liabilities in the

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

accompanying consolidated balance sheets.

Contract liabilities primarily relate to our Churchill Downs segment and the decrease was primarily due to revenue recognized for performance obligations related to Churchill Downs Racetrack that were fulfilled in 2020.

We recognized $ 6.7 million of revenue during the year ended December 31, 2020 that was included in the contract liabilities balance at December 31, 2019.

Contract liabilities are included in current deferred revenue, non-current deferred revenue, and accrued expense and other current liabilities in the accompanying consolidated balance sheets.

Contract liabilities primarily relate to our Live and Historical Racing segment and the increase was primarily due to 2022 Oaks and Derby ticket sales revenue.

We recognized $ 33.0 million of revenue during the year ended December 31, 2021 that was included in the contract liabilities balance at December 31, 2020.

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In Note 22, Segment Information, the Company has included its disaggregated revenue disclosures as follows:

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

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

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

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

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

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

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

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

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

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

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Accounts receivable is comprised of the following:

As of December 31,

(in millions) 2021 2020

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Accrued expenses and other current liabilities consisted of the following:

As of December 31,

(in millions) 2021 2020

Accrued salaries and related benefits $ 19.6 $ 29.2

Account wagering deposits liability $ 47.5 $ 38.1

Accrued salaries and related benefits 39.9 19.6

Purses payable 28.6 18.5

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INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

Investments in and advances to unconsolidated affiliates as of December 31, 2020 and 2019 primarily consisted of a 50 % interest in MVG, a 61.3 % interest in Rivers Des Plaines (as described further below), and two other immaterial joint ventures.

Miami Valley Gaming

Delaware North Companies Gaming & Entertainment Inc.

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

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

Our investment in MVG was $ 110.1 million as of December 31, 2020 and $ 110.8 million as of December 31, 2019.

The Company received distributions from MVG of $ 20.0 million in 2020, $ 23.8 million in 2019 and $ 18.8 million in 2018.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

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

Rivers Des Plaines

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

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

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

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

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

The Company’s investment in Midwest Gaming is presented at our initial cost of investment plus the Company's accumulated proportional share of income or loss, including depreciation/accretion of the difference in the historical basis of the Company’s contribution, less any distributions it has received.

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Our investment in Rivers Des Plaines was $ 554.8 million as of December 31, 2021 and $ 519.0 million as of December 31, 2020.

The Company received distributions from Rivers Des Plaines of $ 10.7 million in 2020 and $ 14.2 million in 2019.

Ocean Downs was accounted for under the equity method prior to August 31, 2018.

On August 31, 2018, the Company completed the acquisition of the remaining 50 % ownership of Ocean Downs owned by SCH in exchange for liquidating the Company's 25 % equity interest in SCH, which is the parent company of Saratoga New York and Saratoga Colorado.

As of August 31, 2018, the Company owns 100 % of Ocean Downs and has no equity interest or management involvement in Saratoga New York or Saratoga Colorado.

The Company received distributions from Rivers Des Plaines of $ 67.2 million in 2021, $ 10.7 million in 2020 and $ 14.2 million in 2019.

Miami Valley Gaming

Delaware North Companies Gaming & Entertainment Inc.

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

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

Our investment in MVG was $ 108.7 million as of December 31, 2021 and $ 110.7 million as of December 31, 2020.

The Company received distributions from MVG of $ 42.0 million in 2021, $ 20.0 million in 2020 and $ 23.8 million in 2019.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Summarized Financial Results for our Unconsolidated Affiliates

The financial results for our unconsolidated affiliates are summarized below.

The summarized income statement information for 2020 and summarized balance sheet information as of December 31, 2020 includes the following equity investments:

MVG, Rivers Des Plaines, and one other immaterial joint venture.

The summarized income statement information for 2019 and summarized balance sheet information as of December 31, 2019 includes the following equity investments:

MVG, Rivers Des Plaines from the transaction date of March 5, 2019, and two other immaterial joint ventures.

The summarized income statement information for 2021 and 2020 and summarized balance sheet information as of December 31, 2021 and 2020 includes the following equity investments:

MVG, Rivers Des Plaines, and other immaterial joint ventures.

The summarized income statement information for 2019 includes the following equity investments:

MVG, Saratoga New York, Saratoga Colorado, Ocean Downs,

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

and two other immaterial joint ventures.

The 2018 summarized income statement information includes the results of Ocean Downs, Saratoga New York, and Saratoga Colorado through August 31, 2018.

MVG, Rivers Des Plaines from the transaction date of March 5, 2019, and other immaterial joint ventures.

(in millions) 2021 2020

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The components of total lease cost were as follows:

(in millions) Year Ended December 31, 2020 Year Ended December 31, 2019

Years Ended December 31,

(in millions) 2021 2020

Short-term lease cost (a) (b)

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(b) Includes variable lease costs, which were not material.

Supplemental cash flow information related to leases are as follows:

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

(in millions) Year Ended December 31, 2020 Year Ended December 31, 2019

Supplemental cash flow information related to leases are as follows:

Years Ended December 31,

(in millions) 2021 2020

Cash paid for amounts included in the measurement of lease liabilities

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Other information related to operating leases was as follows:

As of December 31,

Weighted Average Remaining Lease Term 2021 2020

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Board of Directors and Officers Retirement Plan

We provide eligible executives and members of our Board of Directors an opportunity to defer to a future date the receipt of base and bonus compensation for services as well as director’s fees through the 2005 Deferred Compensation Plan (the "Deferred Plan").

Our matching contribution on base compensation deferral of executives equals the matching contribution of our profit-sharing plan with certain limits.

Members of our Board of Directors may elect to invest the deferred director fee compensation into our common stock within the Deferred Plan.

Under the 2005 Deferred Compensation Plan (the "Deferred Plan"), members of our Board of Directors may elect to invest the deferred director fee compensation into our common stock within the Deferred Plan.

Investments in our common stock are credited as hypothetical shares of common stock based on the market price of the stock at the time the compensation was earned.

Upon the end of the director's service, common stock shares are issued to the director.

On December 13, 2019, the Compensation Committee elected to freeze the Deferred Plan with respect to employee participant deferrals after the 2019 plan year.

Members of our Board of Directors may continue to participate in the Deferred Plan.

On December 13, 2019, the Compensation Committee adopted the Churchill Downs Incorporated Restricted Stock Unit Deferral Plan, effective January 1, 2020.

Certain individual employees who are management or highly compensated employees of the Company may elect to defer settlement of RSUs granted pursuant to the 2016 Incentive Plan.

Prior to December 13, 2019, we provided eligible executives the opportunity to defer the receipt of base and bonus compensation to a future date and included a Company matching contribution on base compensation with certain limits through the Deferred Plan.

On December 13, 2019, the Compensation Committee elected to freeze the Deferred Plan for eligible executives after the 2019 plan year.

On December 13, 2019, the Compensation Committee adopted the Churchill Downs Incorporated Restricted Stock Unit Deferral Plan, effective January 1, 2020 (the “RSU Deferral Plan”).

Under the RSU Deferral Plan, certain individual employees who are management or highly compensated employees of the Company may elect to defer settlement of RSUs granted pursuant to the 2016 Plan.

Other Retirement Plans

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

The fair value of the Company's Senior Secured Term Loan B due 2024 (the "Term Loan B") and the Revolver approximates the gross carrying value as both are variable rate debt and as such are Level 2 measurements.

The fair value of the Company's Senior Secured 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.

Churchill Downs Incorporated

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Term Loan B $ 381.6 $ 384.0 $ — $ 384.0 $ —

Revolver 149.7 149.7 — 149.7 —

Term Loan B-1 294.0 297.8 — 297.8 —

2027 Senior Notes 594.3 619.5 619.5

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Term Loan B 384.8 388.0 — 388.0 $ —

Revolver 149.7 149.7 — 149.7 —

2027 Senior Notes 593.2 635.2 — 635.2 —

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Notes to 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:

NET INCOME (LOSS) PER COMMON SHARE COMPUTATIONS

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

Years Ended December 31,

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Net income from continuing operations, net of loss attributable to noncontrolling interests 249.1 13.5 139.9

Net (loss) income from discontinued operations ( 95.4 ) ( 2.4 ) 170.2

Numerator for basic net (loss) income per common share $ ( 81.9 ) $ 137.5 $ 352.8

Net loss from discontinued operations — ( 95.4 ) ( 2.4 )

Numerator for basic net income (loss) per common share $ 249.1 $ ( 81.9 ) $ 137.5

Numerator for diluted net income from continuing operations per common share $ 249.1 $ 13.5 $ 139.9

Numerator for diluted net (loss) income per common share $ ( 81.9 ) $ 137.5 $ 352.8

Denominator for net (loss) income per common share:

Numerator for diluted net income (loss) per common share $ 249.1 $ ( 81.9 ) $ 137.5

Denominator for net income (loss) per common share:

Basic 38.6 39.6 40.1

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Diluted 39.2 40.1 40.6

Net (loss) income per common share data:

Net income (loss) per common share data:

Continuing operations $ 6.45 $ 0.34 $ 3.49

Discontinued operations $ — $ ( 2.41 ) $ ( 0.06 )

Net (loss) income per common share - basic $ ( 2.07 ) $ 3.43 $ 8.54

Net income (loss) per common share - basic $ 6.45 $ ( 2.07 ) $ 3.43

Continuing operations $ 6.35 $ 0.33 $ 3.44

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$ — $ ( 2.41 ) $ ( 0.06 )

Net (loss) income per common share - diluted $ ( 2.08 ) $ 3.38 $ 8.48

Net income (loss) per common share - diluted $ 6.35 $ ( 2.08 ) $ 3.38

(1) Amounts exclude all potential common equivalent shares for periods when there is a net loss from discontinued operations.

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We manage our operations through three reportable segments:

Churchill Downs, Online Wagering and Gaming.

Live and Historical Racing, TwinSpires, and Gaming.

Refer to Note 1, Description of Business, for additional information regarding the changes we made to our segments during the first quarter of 2021.

Prior year amounts have been reclassified to conform to this presentation.

Our operating segments reflect the internal management reporting used by our chief operating decision maker to evaluate results of operations and to assess performance and allocate resources.

• Churchill Downs

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

• Live and Historical Racing

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

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

Derby City Gaming is an HRM facility that operates under the Churchill Downs pari-mutuel racing license at the auxiliary training facility for Churchill Downs Racetrack in Louisville, Kentucky.

Churchill Downs Racetrack and Derby City Gaming earn commissions primarily from pari-mutuel wagering on live races at Churchill Downs and on historical races at Derby City Gaming, simulcast fees earned from other wagering sites, admissions, personal seat licenses, sponsorships, television rights, and other miscellaneous services (collectively "racing event-related services"), as well as food and beverage services.

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 an HRM facility under its pari-mutuel racing license.

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

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

simulcast fees earned from other wagering sites;

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

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

• Online Wagering

The Online Wagering segment includes the revenue and expenses for the TwinSpires Horse Racing business and the TwinSpires Sports and Casino business.

Both businesses are headquartered in Louisville, Kentucky.

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

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

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

Our TwinSpires Sports and Casino business operates our sports betting and casino iGaming platform in multiple states, including Colorado, Indiana, Michigan, Mississippi, New Jersey, and Pennsylvania.

The TwinSpires sports and casino business includes the mobile and online sports betting and casino results and the results of our three retail sportsbooks in Colorado, Indiana and Michigan which utilize a third party's casino license.

The results of the two retail sportsbooks at our Mississippi properties, our retail sportsbook at Presque Isle in Pennsylvania and the retail and online BetRivers sportsbook in Illinois provided by Rivers Des Plaines and managed by Rush Street Interactive, are included in the Gaming segment.

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

Our TwinSpires Sports and Casino business operates our sports betting platform in multiple states, including Colorado, Indiana, Maryland, Michigan, Mississippi, New Jersey, Pennsylvania, Tennessee, and Arizona.

Our casino iGaming platform is operated in Michigan, New Jersey, and Pennsylvania.

The Sports and Casino business includes the results of mobile sports betting, online sports betting, casino iGaming, and our retail sportsbooks.

We operate eight retail sportsbooks in Colorado, Indiana, Maryland, Michigan, Arizona, Pennsylvania, and Mississippi, four of which operate under a third party’s casino license.

River Casino Des Plaines ("Rivers Des Plaines") retail and online BetRivers sportsbook is included in the Gaming segment.

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

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The Gaming segment revenue and expenses includes the following properties:

◦ Calder Casino and Racing ("Calder")

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

◦ Harlow’s Casino Resort and Spa ("Harlow's")

◦ Fair Grounds and VSI

◦ Lady Luck Casino Nemacolin management agreement

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

◦ Ocean Downs

◦ Oxford Casino and Hotel ("Oxford")

◦ Presque Isle

◦ Riverwalk Casino Hotel ("Riverwalk")

The Gaming segment also includes net income for our ownership portion of the Company’s equity investments in the following:

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◦ 50 % equity investment in MVG

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.

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

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

• Turfway Park

• Arlington International Racecourse ("Arlington")

• United Tote

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Adjusted EBITDA includes the following adjustments:

Adjusted EBITDA includes our portion of EBITDA from our equity investments.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Adjusted EBITDA includes our portion of EBITDA from our equity investments.

Adjusted EBITDA excludes:

• Transaction expense, net which includes:

◦ Acquisition and disposition related charges, including fair value adjustments related to earnouts and deferred payments;

◦ Calder racing exit costs;

– Acquisition, disposition, and land sale related charges;

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

• Stock-based compensation expense;

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

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

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

◦ Recapitalization and transaction costs;

– Legal reserves and transaction costs;

• Asset impairments;

• Gain on Ocean Downs/Saratoga Transaction;

• Loss on extinguishment of debt;

• Legal reserves;

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

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

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

The tables below present net revenue from external customers and intercompany revenue from each of our segments, Adjusted EBITDA by segment and reconciles comprehensive income to Adjusted EBITDA:

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

The tables below present net revenue from external customers and intercompany revenue from each of our segments, Adjusted EBITDA by segment and reconciles comprehensive (loss) income to Adjusted EBITDA:

Years Ended December 31,

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Net revenue from external customers:

Churchill Downs:

Live and Historical Racing:

Churchill Downs Racetrack $ 128.1 $ 63.3 $ 187.6

Derby City Gaming 154.3 79.5 86.6

Total Churchill Downs 142.8 274.2 195.8

Online Wagering:

TwinSpires Horse Racing 403.4 289.9 290.2

TwinSpires Sports and Casino 4.9 0.6 —

Total Online Wagering 408.3 290.5 290.2

Oak Grove 100.7 16.6 —

Turfway Park 8.1 7.1 2.5

Newport 17.9 3.1 —

Total Live and Historical Racing 409.1 169.6 276.7

Horse Racing 396.9 403.2 289.9

Sports and Casino 34.8 11.3 5.7

Total TwinSpires 431.7 414.5 295.6

Fair Grounds and VSI 133.6 97.6 123.0

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Lady Luck Nemacolin 24.5 20.7 29.3

Saratoga — — 0.6

Total Gaming 695.4 435.3 687.3

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Intercompany net revenues:

Churchill Downs $ 17.7 $ 15.2 $ 12.7

Online Wagering 1.6 1.1 1.3

Live and Historical Racing:

Churchill Downs Racetrack $ 19.9 $ 17.8 $ 15.2

Turfway Park 1.6 1.4 0.3

Total Live and Historical Racing 21.5 19.2 15.5

TwinSpires 1.4 1.5 1.1

Fair Grounds and VSI 2.6 2.3 1.9

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Notes to Consolidated Financial Statements

Twelve Months Ended December 31, 2020

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

Year Ended December 31, 2021

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

Net revenue from external customers

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Total $ 409.1 $ 431.7 $ 695.4 $ 1,536.2 $ 61.0 $ 1,597.2

Twelve Months Ended December 31, 2019

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

Year Ended December 31, 2020

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

Net revenue from external customers

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Total $ 169.6 $ 414.5 $ 435.3 $ 1,019.4 $ 34.6 $ 1,054.0

Twelve Months Ended December 31, 2018

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

Year Ended December 31, 2019

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

Net revenue from external customers

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Year Ended December 31, 2021

(in millions) Churchill Downs Online Wagering Gaming

(in millions) Live and Historical Racing TwinSpires Gaming

Net revenue $ 430.6 $ 433.1 $ 698.4

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Year Ended December 31, 2020

(in millions) Churchill Downs Online Wagering Gaming

(in millions) Live and Historical Racing TwinSpires Gaming

Net revenue $ 188.8 $ 416.0 $ 437.8

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Year Ended December 31, 2019

(in millions) Churchill Downs Online Wagering Gaming

(in millions) Live and Historical Racing TwinSpires Gaming

Net revenue $ 292.2 $ 296.7 $ 689.7

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(in millions) 2021 2020 2019

Reconciliation of Comprehensive (Loss) Income to Adjusted EBITDA:

Comprehensive (loss) income attributable to Churchill Downs Incorporated $ ( 81.9 ) $ 137.5 $ 353.2

Foreign currency translation, net of tax — — ( 0.6 )

Change in pension benefits, net of tax — — 0.2

Net (loss) income attributable to Churchill Downs Incorporated ( 81.9 ) 137.5 352.8

Reconciliation of Comprehensive Income (Loss) to Adjusted EBITDA:

Net income (loss) and comprehensive income (loss) attributable to Churchill Downs Incorporated $ 249.1 $ ( 81.9 ) $ 137.5

Net loss attributable to noncontrolling interest — 0.2 0.3

Net (loss) income before noncontrolling interest ( 82.1 ) 137.2 352.8

Loss (income) from discontinued operations, net of tax 95.4 2.4 ( 170.2 )

Net income (loss) 249.1 ( 82.1 ) 137.2

Loss from discontinued operations, net of tax — 95.4 2.4

Income from continuing operations, net of tax 249.1 13.3 139.6

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Interest expense 84.7 80.0 70.9

Income tax (benefit) provision ( 5.3 ) 56.8 51.3

Income tax provision (benefit) 94.5 ( 5.3 ) 56.8

EBITDA $ 531.5 $ 180.9 $ 363.7

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Legal reserves — — 3.6

Other, net 0.8 0.4 ( 0.6 )

Pre-opening expense 11.2 5.1 4.8

Other charges 0.2 0.8 0.4

Pre-opening expense and other expense 5.8 11.2 5.1

Other income, expense:

Interest, depreciation and amortization expense related to equity investments 41.5 38.5 32.6

Changes in fair value of Midwest Gaming's interest rate swaps 12.9 12.4 —

Midwest Gaming's recapitalization and transactions costs — 4.7 —

Changes in fair value of Rivers Des Plaines' interest rate swaps ( 12.9 ) 12.9 12.4

Rivers Des Plaines' legal reserves and transactions costs 9.9 — 4.7

Other charges and recoveries, net — — ( 0.2 )

Gain on Ocean Downs/Saratoga transaction — — ( 54.9 )

Transaction expense, net 7.9 1.0 5.3

Impairment of tangible and other intangible assets 17.5 — —

Asset impairments 15.3 17.5 —

Total adjustments to EBITDA 95.5 105.6 87.7

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Adjusted EBITDA by segment:

Churchill Downs $ 38.3 $ 137.7 $ 102.4

Online Wagering 109.3 66.3 79.0

Live and Historical Racing $ 175.0 $ 39.1 $ 135.6

TwinSpires 78.0 112.9 69.3

Gaming 411.9 173.1 277.9

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Notes to Consolidated Financial Statements

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

Years Ended December 31,

(in millions) 2020 2019 2018

Gaming $ 27.5 $ 50.5 $ 29.4

All Other 0.2 0.1 0.2

$ 27.7 $ 50.6 $ 29.6

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

As of December 31,

(in millions) 2021 2020

Total assets:

Churchill Downs $ 377.7 $ 370.3

Online Wagering 249.1 241.5

Live and Historical Racing $ 682.7 $ 663.1

TwinSpires 271.8 257.2

Gaming 1,003.3 950.3

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Capital expenditures:

Churchill Downs $ 38.2 $ 31.4 $ 109.6

Online Wagering 11.6 9.7 9.7

Live and Historical Racing $ 60.1 $ 213.3 $ 77.7

TwinSpires 17.4 6.6 9.7

Gaming 10.3 11.6 37.1

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We believe that each such transaction has been on terms no less favorable for us than could have been obtained in a transaction with a third party, and no officer or director received any extra or special benefit in connection with such transactions.

Refer to Note 23, Subsequent Events, for information regarding a related party transaction.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

SUBSEQUENT EVENTS

Stock Repurchase Agreement

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

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

On February 1, 2021, the Company entered into an agreement (the “Stock Repurchase Agreement”) with an affiliate of TDG to repurchase 1,000,000 shares of the Company’s common stock for $ 193.94 per share in a privately negotiated transaction.

The aggregate purchase price was $ 193.9 million.

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The Third Amendment increased the amount of certain otherwise restricted payments permitted during the Financial Covenant Relief Period from $ 26.0 million to $ 226.0 million to accommodate the repurchase of shares of common stock from TDG described above.

Arlington Park

On February 23, 2021, the Company launched a process to sell the 326 acres at Arlington Park.

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

(in millions, except per common share data) Year Ended December 31, 2020

First Quarter

Second Quarter Third Quarter

Fourth Quarter

Net revenues $ 252.9 $ 185.1 $ 337.8 $ 278.2

Operating (loss) income ( 11.6 ) ( 0.4 ) 49.5 22.7

(Loss) income from continuing operations, net of tax ( 22.6 ) ( 23.6 ) 43.1 16.4

(Loss) income from discontinued operations, net of tax ( 0.9 ) ( 95.2 ) — 0.7

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

Continuing operations $ ( 0.57 ) $ ( 0.59 ) $ 1.09 $ 0.41

Discontinued operations $ ( 0.02 ) $ ( 2.41 ) $ — $ 0.02

Net (loss) income per common share - basic $ ( 0.59 ) $ ( 3.00 ) $ 1.09 $ 0.43

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

Continuing operations $ ( 0.57 ) $ ( 0.59 ) $ 1.08 $ 0.41

Discontinued operations $ ( 0.02 ) $ ( 2.41 ) $ — $ 0.02

Net (loss) income per common share - diluted $ ( 0.59 ) $ ( 3.00 ) $ 1.08 $ 0.43

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

(in millions, except per common share data) Year Ended December 31, 2019

First Quarter (a)

Second Quarter Third Quarter

Fourth Quarter (b)

Net revenues $ 265.4 $ 477.4 $ 306.3 $ 280.6

Operating income 28.0 156.4 27.8 3.5

Income from continuing operations, net of tax 11.9 108.3 15.2 4.2

Income (loss) from discontinued operations, net of tax ( 0.3 ) ( 1.2 ) ( 0.4 ) ( 0.5 )

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

Continuing operations $ 0.30 $ 2.70 $ 0.38 $ 0.11

Discontinued operations ( 0.01 ) ( 0.03 ) ( 0.01 ) ( 0.01 )

Net income per common share - basic $ 0.29 $ 2.67 $ 0.37 $ 0.10

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

Continuing operations $ 0.30 $ 2.66 $ 0.37 $ 0.11

Discontinued operations ( 0.01 ) ( 0.03 ) ( 0.01 ) ( 0.01 )

Net income per common share - diluted $ 0.29 $ 2.63 $ 0.36 $ 0.10

(a) First quarter of 2019 includes the acquisitions of Presque Isle and Lady Luck Nemacolin, and the equity investment in Midwest Gaming.

(b) Fourth quarter of 2019 includes the acquisition of Turfway Park and $ 10.0 million accelerated amortization of the purchase and sale rights related to the Turfway Park Acquisition.

(c) Net (loss) income per common share calculations for each quarter are based on the weighted average number of shares outstanding during the respective period.

The sum of the quarters may not equal the full-year income (loss) per share.

SUBSEQUENT EVENTS

On February 18, 2022, the Company entered into a definitive purchase agreement to acquire substantially all of the assets of Peninsula Pacific Entertainment LLC ("P2E") for total consideration of $ 2.485 billion (the "Purchase Agreement") (collectively, the "P2E Transaction").

The Purchase Agreement contemplates the acquisition by the Company of the following properties:

Colonial Downs Racetrack in New Kent, Virginia ("Colonial Downs"), six historical racing entertainment venues across Virginia, del Lago Resort & Casino ("del Lago") in Waterloo, New York, and the operations of Hard Rock Hotel & Casino in Sioux City, Iowa (“Hard Rock Sioux City”).

The P2E Transaction is dependent on customary closing conditions, including the Company obtaining approvals from the Virginia Racing Commission, the New York State Gaming Commission, and the Iowa Racing and Gaming Commission.

The transaction is expected to close by the end of 2022.

Either the Company or P2E may terminate the Purchase Agreement if the closing has not occurred prior to the date that is nine months after signing the Purchase Agreement, subject to the ability of either party to elect to extend such date for an additional four months in certain circumstances.

If certain required regulatory approvals are not obtained and the Purchase Agreement is terminated, the Company may have to pay a Regulatory Termination Fee of up to $ 137.5 million.

If the Company does not secure the financing required to fund the consideration payable under the Purchase Agreement and the Purchase Agreement is terminated, the Company may have to pay a Termination Fee of up to $ 330.0 million.

Report of Independent Registered Public Accounting Firm

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Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Churchill Downs Incorporated and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of comprehensive (loss) income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2020 listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of Churchill Downs Incorporated and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of comprehensive income (loss), of shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2021 appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Changes in Accounting Principles

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenue from contracts with customers in 2018.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

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Management performs an annual review for impairment as of April 1 of each fiscal year for its indefinite-lived intangible assets, or more frequently if events or circumstances indicate that it is more likely than not the relevant asset may be impaired.

During the quarter ended March 31, 2020, management concluded it was more likely than not that the Presque Isle gaming rights intangible asset may be impaired due to the impact and uncertainty of the COVID-19 pandemic.

Management performed an impairment assessment and recognized an impairment of $15.0 million for the Presque Isle indefinite-lived gaming rights intangible asset.

The fair value of the Presque Isle indefinite-lived gaming rights intangible asset was determined by management using the Greenfield Method, which is an income approach methodology that calculates the present value based on a projected cash flow stream.

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The principal considerations for our determination that performing procedures relating to the impairment assessment for the Presque Isle indefinite-lived gaming rights intangible asset is a critical audit matter are (i) the high degree of auditor judgment and subjectivity in performing procedures relating to the fair value measurement of the gaming rights indefinite-lived intangible asset due to the significant judgment by management when developing the fair value estimate;

(ii) significant audit effort in evaluating the significant assumptions related to estimated future revenue, operating expenses, start-up costs, and discount rate;

(ii) significant audit effort in evaluating the significant assumptions related to estimated future revenue and discount rate;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

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testing the completeness and accuracy of underlying data used in the Greenfield Method;

and evaluating the reasonableness of significant assumptions used by management related to estimated future revenue, operating expenses, start-up costs, and discount rate.

Evaluating management’s assumptions related to estimated future revenue, operating expenses, and start-up costs involved evaluating whether the assumptions used were reasonable considering the current and past performance of Presque Isle and relevant third-party economic and industry data.

and evaluating the reasonableness of significant assumptions used by management related to estimated future revenue and discount rate.

Evaluating management’s assumption related to estimated future revenue involved evaluating whether the assumption used was reasonable considering the current and past performance of Presque Isle and relevant third-party economic and industry data.

Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the Greenfield Method and evaluating the reasonableness of the discount rate assumption.

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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-K

Item 8. Financial Statements and Supplementary Data