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Item 1. Financial Statements

2022-04-27 compared with 2021-10-27 · 185 added, 334 removed, 480 unchanged (52% of the section changed)

1 unchanged sentence

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended March 31,

(in millions, except per common share data) 2022 2021

19 unchanged sentences

Total other income (expense) 11.2 5.6

Income (loss) from continuing operations before (provision) benefit for income taxes 87.7 57.0 289.9 ( 8.7 )

Income tax (provision) benefit ( 26.3 ) ( 13.9 ) ( 84.1 ) 5.6

Income (loss) from continuing operations, net of tax 61.4 43.1 205.8 ( 3.1 )

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

Net income (loss) 61.4 43.1 205.8 ( 99.2 )

Net loss attributable to noncontrolling interest — ( 0.1 ) — ( 0.2 )

Net income (loss) and comprehensive income (loss) attributable to Churchill Downs Incorporated $ 61.4 $ 43.2 $ 205.8 $ ( 99.0 )

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

Continuing operations $ 1.59 $ 1.09 $ 5.31 $ ( 0.07 )

Discontinued operations $ — $ — $ — $ ( 2.43 )

Net income (loss) per common share data - basic $ 1.59 $ 1.09 $ 5.31 $ ( 2.50 )

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

Continuing operations $ 1.57 $ 1.08 $ 5.23 $ ( 0.07 )

Discontinued operations $ — $ — $ — $ ( 2.43 )

Net income (loss) per common share data - diluted $ 1.57 $ 1.08 $ 5.23 $ ( 2.50 )

Income from operations before provision for income taxes 58.6 52.3

Income tax provision ( 16.5 ) ( 16.2 )

Net income $ 42.1 $ 36.1

Net income per common share data:

Basic net income $ 1.10 $ 0.93

Diluted net income $ 1.08 $ 0.91

Weighted average shares outstanding:

2 unchanged sentences

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(in millions) March 31, 2022 December 31, 2021

Current assets:

10 unchanged sentences

Other intangible assets, net

Long-term assets held for sale 87.8 87.8

Total assets $ 3,036.9 $ 2,981.6

7 unchanged sentences

Dividends payable

Current liabilities of discontinued operations — 124.0

Total current liabilities 432.2 395.0

16 unchanged sentences

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

CHURCHILL DOWNS INCORPORATED

1 unchanged sentence

Common Stock Retained

Earnings Accumulated Other Comprehensive Loss Noncontrolling Interest Total Shareholders' Equity

Earnings Accumulated Other Comprehensive Loss Total Shareholders' Equity

(in millions, except per common share data) Shares Amount

6 unchanged sentences

Balance, March 31, 2022 38.0 $ — $ 318.7 $ ( 0.9 ) $ 317.8

Net income 108.3 108.3

Stock-based compensation 7.1 7.1

Other ( 0.2 ) ( 0.2 )

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

Net income 61.4 61.4

Issuance of common stock 2.5 2.5

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

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

Stock-based compensation 7.8 7.8

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

Common Stock Retained

Earnings Accumulated Other Comprehensive Loss Noncontrolling Interest Total Shareholders' Equity

Earnings Accumulated Other Comprehensive Loss Total Shareholders' Equity

(in millions, except per common share data) Shares Amount

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

Net loss ( 23.4 ) ( 0.1 ) ( 23.5 )

Net income 36.1 36.1

Issuance of common stock 0.1 —

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

Cash settlement of stock awards ( 12.7 ) ( 12.7 )

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

Stock-based compensation 5.5 5.5

Adoption of ASC 326 ( 0.5 ) ( 0.5 )

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

Net loss ( 118.8 ) ( 118.8 )

Stock-based compensation 6.1 6.1

Other ( 0.2 ) ( 0.2 )

Balance, June 30, 2020 39.4 6.1 314.9 ( 0.9 ) 2.6 322.7

Net income 43.2 ( 0.1 ) 43.1

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

Issuance of common stock 0.1 2.5 2.5

Stock-based compensation 6.9 6.9

Balance, September 30, 2020 39.5 $ 15.5 $ 357.6 $ ( 0.9 ) $ — $ 372.2

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions) 2022 2021

Cash flows from operating activities:

Net income (loss) $ 205.8 $ ( 99.2 )

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

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

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

Net income $ 42.1 $ 36.1

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

Depreciation and amortization 25.1 26.0

21 unchanged sentences

Repurchase of common stock ( 24.3 ) ( 193.9 )

Cash settlement of stock awards — ( 12.7 )

Taxes paid related to net share settlement of stock awards ( 13.1 ) ( 12.6 )

2 unchanged sentences

Other ( 0.1 ) 1.6

Net cash provided by financing activities 53.5 612.6

Net cash (used in) provided by financing activities ( 68.0 ) 106.8

Cash flows from discontinued operations:

4 unchanged sentences

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions) 2022 2021

5 unchanged sentences

Property and equipment additions included in accounts payable and accrued expenses $ 29.9 $ 4.2

Debt issuance costs included in accrued expense and other current liabilities 3.2 —

Right-of-use assets obtained in exchange for lease obligations in operating leases 0.9 —

1 unchanged sentence

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Churchill Downs Incorporated

12 unchanged sentences

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

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

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

During the first quarter of 2022, we updated our operating segments to reflect the internal management reporting used by our chief operating decision maker to evaluate results of operations and to assess performance and allocate resources.

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

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

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

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

Live and Historical Racing, TwinSpires, and Gaming.

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

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

Our chief operating decision maker decided to include the results of our United Tote business in the TwinSpires segment as we evolve our strategy to integrate the United Tote offering with TwinSpires Horse Racing, which we believe will create additional business to business revenue opportunities.

Results of our United Tote business were previously included in our All Other segment.

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

Impact of COVID-19 Pandemic

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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.

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.

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

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

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

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

We will continue to monitor for new developments related to the pandemic and assess these developments to maintain continuity in our operations.

Exit of the Direct Online Sports and Casino Business

On February 24, 2022 the Company announced plans to exit the direct online Sports and Casino business.

The Company will maintain its retail Sports operations and pursue monetization of its online market access licenses.

RECENT ACCOUNTING PRONOUNCEMENTS

Adopted on January 1, 2021

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

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

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

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

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

Effective after 2021

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.

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 simplifies the accounting for transitioning from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates.

The guidance was effective upon issuance and if elected, will be applied prospectively through December 31, 2022.

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

ASSETS HELD FOR SALE

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

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

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

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

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

NATURAL DISASTER

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

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

Two OTBs remain closed.

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

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

During the first quarter of 2022, the Company incurred $ 2.3 million of operating expenses related to ongoing recovery and

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

maintenance efforts and received $ 0.3 million from our insurance carriers.

Through March 31, 2022, the Company has received $ 3.0 million in insurance recoveries from our insurance carriers and has an insurance recovery receivable of $ 4.6 million as of March 31, 2022.

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

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

DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

Discontinued Operations

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

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

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

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

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

("Big Fish Games").

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

The condensed consolidated statements of cash flows reflect Big Fish Games as discontinued operations for all periods presented.

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

The Company now separates continuing from discontinued operations in our condensed consolidated statement of cash flows.

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

3 unchanged sentences

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

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

(in millions) 2021 2020 2021 2020

Net revenue $ — $ — $ — $ —

Selling, general and administrative expense — — — 1.5

Legal settlement — — — 124.0

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

Income tax benefit — — — 29.4

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

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 and 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 March 31, 2022 and December 31, 2021, on the accompanying condensed consolidated balance sheets.

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

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 land is subject to the satisfaction of various closing conditions.

The Company anticipates closing the sale of the land in the second quarter of 2022.

As of March 31, 2022 and December 31, 2021, the Company has classified certain assets of Calder totaling $ 6.3 million as held for sale on the accompanying condensed consolidated balance sheets.

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

GOODWILL AND OTHER INTANGIBLE ASSETS

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

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

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

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

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

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

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

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

Goodwill was $ 366.8 million as of March 31, 2022 and December 31, 2021.

Other intangible assets are comprised of the following:

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

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

2 unchanged sentences

Total $ 351.9 $ 348.1

We performed our annual indefinite-lived intangible assets impairment analysis as of April 1, 2021.

We assessed our indefinite-lived intangible assets for impairment by performing qualitative or quantitative analyses for each asset.

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

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

ASSET IMPAIRMENTS

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

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

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

During the first quarter of 2022 we established an indefinite-lived intangible asset of $ 5.0 million for gaming rights in Indiana associated with the planned development of the Queen of Terre Haute Casino Resort.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

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.

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

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

This method assumes that the Presque Isle gaming rights provide the opportunity to develop a casino and online wagering platform in a specified region, and that the present value of the projected cash flows are 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, operating expenses, start-up costs, and discount rate were the primary inputs in the valuation.

Based on the Trigger Event in 2020, the Company updated the discount rate to reflect the increased uncertainty of the cash flows and updated the projected cash flow stream.

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

The Presque Isle trademark was initially valued in first quarter of 2019 using the relief-from-royalty method of the income approach, which estimates the fair value of the intangible asset by discounting the fair value of the hypothetical royalty payments a market participant would be willing to pay to enjoy the benefits of the asset.

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

Based on the Trigger Event in 2020, the Company updated the discount rate to reflect the increased uncertainty of the cash flows and updated projected cash flow stream.

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

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

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

Based on the Trigger Event in 2020, the Company updated the discount rate to reflect the increased uncertainty of the cash flows and updated project cash flow stream.

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

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

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

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

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

ASSET IMPAIRMENTS

On February 24, 2022, the Company announced plans to exit the direct online Sports and Casino business.

The Company will maintain its retail Sports operations and pursue monetization of its online market access licenses.

During the quarter ended March 31, 2022, the Company evaluated whether this planned exit would indicate it is more likely than not that any of the Company’s intangible assets, long-lived assets, current assets or property and equipment, were impaired (“Trigger Event”).

Based on the Company’s evaluation, the Company concluded that a Trigger Event occurred related to certain TwinSpires assets.

As a result, the Company recorded a $ 4.9 million non-cash impairment charge related to certain assets in the TwinSpires segment.

The Company’s effective income tax rate for the three months ended March 31, 2022 was higher than the U.S.

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

The effective income tax rate for the nine months ended September 30, 2020 was also higher due to the establishment of a valuation allowance against current year state income tax losses in certain jurisdictions that don’t require combined reporting and from vesting of restricted stock compensation in excess of book deductions.

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

The Company’s effective income tax rate for the three months ended March 31, 2021 was higher than the U.S.

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

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

SHAREHOLDERS’ EQUITY

Stock Repurchase Programs

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

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

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

("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 11, Debt).

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

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

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

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

2 unchanged sentences

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

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

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

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

We had approximately $ 420.6 million of repurchase authority remaining under the 2021 Stock Repurchase Program at March 31, 2022, based on trade date.

Three Months Ended March 31,

(in millions, except share data) 2022 2021

Repurchase Program Shares Aggregate Purchase Price Shares Aggregate Purchase Price

2021 Stock Repurchase Program 116,863 $ 25.0 — $ —

As of March 31, 2022, we had $ 0.7 million accrued for the future cash settlement of executed repurchases of our common stock and no accrual as of March 31, 2021.

The Duchossois Group Share Repurchase

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 for an aggregate purchase price of $ 193.9 million.

STOCK-BASED COMPENSATION PLANS

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

Our total stock-based compensation expense, which includes expenses related to restricted stock awards, restricted stock unit awards ("RSUs"), performance share unit awards ("PSUs"), and stock options associated with our employee stock purchase plan was $ 7.8 million for the three months ended September 30, 2021 and $ 6.9 million for the three months ended September 30, 2020.

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

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

The vesting criteria for the PSU awards granted in 2021 were based on a three-year service period with two performance conditions and a market condition related to relative total shareholder return ("TSR") consistent with prior year grants.

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

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

The PSUs are converted into shares of our common stock at the time the PSU award value is finalized.

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

Grant Year Award Type Number of Units Awarded (1)

Vesting Terms

adopted pursuant to the 2016 Plan.

Our total stock-based compensation expense, which includes expenses related to restricted stock awards, restricted stock unit awards ("RSUs"), performance share unit awards, and stock options associated with our employee stock purchase plan was $ 7.0 million for the three months ended March 31, 2022 and $ 5.5 million for the three months ended March 31, 2021.

During the three months ended March 31, 2022, the Company awarded RSUs to employees and certain named executive officers ("NEOs").

A summary of the RSUs granted during 2022 is presented below (units in thousands):

Grant Year Award Type Number of Units Awarded Vesting Terms

2022 RSU 59 Vest equally over three service periods ending in 2025

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

2021 RSU 5 One -year service period ending in 2022

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

Credit Agreement

11 unchanged sentences

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 September 30, 2021 was LIBOR plus 150 basis points based on the Revolver pricing grid in the Second Amendment and the Company's net leverage ratio as of June 30, 2021.

The interest rate on the Revolver on March 31, 2022 was LIBOR plus 137.5 basis points based on the Revolver pricing grid in the Second Amendment and the Company's net leverage ratio as of March 31, 2022.

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

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

The Company was compliant with all applicable covenants on March 31, 2022.

2028 Senior Notes Second Supplemental Indenture

2 unchanged sentences

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.

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

4 unchanged sentences

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.

Refer to Note 18, Subsequent Event, for information regarding the Company's April 2022 financing transactions.

REVENUE FROM CONTRACTS WITH CUSTOMERS

Performance Obligations

As of September 30, 2021, the Live and Historical Racing segment had remaining performance obligations on contracts with a duration greater than one year of an aggregate transaction price of $ 105.7 million.

As of March 31, 2022, 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 $ 114.3 million.

The revenue we expect to recognize on these remaining performance obligations is $ 41.6 million for the remainder of 2022, $ 30.1 million in 2023, $ 22.0 million in 2024, and the remainder thereafter.

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

As of March 31, 2022, 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

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

As of September 30, 2021 and December 31, 2020, contract liabilities were $ 43.5 million and $ 53.7 million, respectively, which are included in current deferred revenue, non-current deferred revenue, and accrued expense in the accompanying condensed consolidated balance sheets.

Contract liabilities primarily relate to the Live and Historical Racing segment and the decrease was primarily due to revenue recognized for fulfilled performance obligations.

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

We recognized $ 1.7 million of revenue during the three months ended September 30, 2020 and $ 5.8 million of revenue during the nine months ended September 30, 2020, which was included in the contract liabilities balance at December 31, 2019.

As of March 31, 2022 and December 31, 2021, contract assets were not material.

As of March 31, 2022 and December 31, 2021, contract liabilities were $ 121.3 million and $ 64.9 million, respectively, which are included in current deferred revenue, non-current deferred revenue, and accrued expense in the accompanying condensed consolidated balance sheets.

Contract liabilities primarily relate to the Live and Historical Racing segment and the increase was primarily due to cash payments received for unfulfilled performance obligations.

We recognized $ 3.2 million of revenue during the three months ended March 31, 2022, which was included in the contract liabilities balance at December 31, 2021.

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

Disaggregation of Revenue

7 unchanged sentences

Within the Gaming segment, revenue is further disaggregated between live and simulcast racing, racing event-related services, gaming, and other services.

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following:

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

(in millions) March 31, 2022 December 31, 2021

Account wagering deposits liability $ 55.0 $ 47.5

5 unchanged sentences

INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

Investments in and advances to unconsolidated affiliates as of September 30, 2021 and December 31, 2020 primarily consisted of a 61.3 % interest in Rivers Casino Des Plaines ("Rivers Des Plaines"), a 50 % interest in Miami Valley Gaming and Racing ("MVG"), and other immaterial joint ventures.

Investments in and advances to unconsolidated affiliates as of March 31, 2022 and December 31, 2021 primarily consisted of a 61.3 % interest in Rivers Casino Des Plaines ("Rivers Des Plaines"), a 50 % interest in Miami Valley Gaming and Racing ("MVG"), and other immaterial joint ventures.

Rivers Des Plaines

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

(1) the Company owns 61.3 %;

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

(1) the Company owns 61.3 %, (2) High Plaines Gaming, LLC ("High Plaines"), an affiliate of Rush Street Gaming, LLC, owns 36.0 %, and (3) Casino Investors, LLC owns 2.7 %.

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

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

As of September 30, 2021, the net aggregate basis difference between the Company’s investment in Rivers Des Plaines and the amounts of the underlying equity in net assets was $ 832.6 million.

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

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

As of March 31, 2022, the net aggregate basis difference between the Company’s investment in Rivers Des Plaines and the amounts of the underlying equity in net assets was $ 832.0 million.

Our investment in Rivers Des Plaines was $ 547.8 million and $ 554.8 million as of March 31, 2022 and December 31, 2021, respectively.

The Company received distributions from Rivers Des Plaines of $ 30.5 million and $ 12.0 million for the three months ended March 31, 2022 and 2021, respectively.

Miami Valley Gaming

2 unchanged sentences

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

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

The Company received distributions from MVG of $ 33.0 million and $ 10.5 million for the nine months ended September 30, 2021 and 2020, respectively.

Our investment in MVG was $ 107.7 million and $ 108.7 million as of March 31, 2022 and December 31, 2021, respectively.

The Company received distributions from MVG of $ 10.0 million for the three months ended March 31, 2022 and 2021.

Summarized Financial Results for our Unconsolidated Affiliates

Summarized below are the financial results for our unconsolidated affiliates.

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

Three Months Ended March 31,

(in millions) 2022 2021

6 unchanged sentences

Net income $ 57.8 $ 44.2

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

(in millions) March 31, 2022 December 31, 2021

Current assets $ 96.8 $ 96.0

16 unchanged sentences

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Churchill Downs Incorporated

1 unchanged sentence

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

September 30, 2021

March 31, 2022

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

6 unchanged sentences

2028 Senior Notes 698.2 679.0 — 679.0 —

Total financial liabilities $ 1,969.0 $ 2,034.9 $ — $ 2,034.9 $ —

December 31, 2021

4 unchanged sentences

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 —

2028 Senior Notes 698.1 724.5 — 724.5 —

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

CONTINGENCIES

2 unchanged sentences

We are self-insured up to an aggregate stop loss for our general liability and workers' compensation coverages.

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

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

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

In accordance with current accounting standards for loss contingencies and based upon information currently known to us, we establish reserves for litigation when it is probable that a loss associated with a claim or proceeding has been incurred and the amount of the loss or range of loss can be reasonably estimated.

2 unchanged sentences

Legal fees are expensed as incurred.

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

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

If the loss contingency in question is not both probable and reasonably estimable, we do not establish an accrual and the matter will continue to be monitored for any developments that would make the loss contingency both probable and reasonably estimable.

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

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Churchill Downs Incorporated

2 unchanged sentences

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions, except per share data) 2022 2021

Numerator for basic net income (loss) per common share:

Net income (loss) from continuing operations $ 61.4 $ 43.1 $ 205.8 $ ( 3.1 )

Net loss attributable to noncontrolling interest — ( 0.1 ) — ( 0.2 )

Net income (loss) from continuing operations, net of loss attributable to noncontrolling interests 61.4 43.2 205.8 ( 2.9 )

Net loss from discontinued operations — — — ( 96.1 )

Numerator for basic net income (loss) per common share $ 61.4 $ 43.2 $ 205.8 $ ( 99.0 )

Numerator for diluted net income (loss) from continuing operations per common share $ 61.4 $ 43.2 $ 205.8 $ ( 2.9 )

Numerator for diluted net income (loss) per common share $ 61.4 $ 43.2 $ 205.8 $ ( 99.0 )

Denominator for net income (loss) per common share:

Numerator for basic and diluted net income per common share:

Net income $ 42.1 $ 36.1

Denominator for net income per common share:

Basic 38.3 39.0

1 unchanged sentence

Diluted 38.8 39.6

Net income (loss) per common share data:

Continuing operations $ 1.59 $ 1.09 $ 5.31 $ ( 0.07 )

Discontinued operations $ — $ — $ — $ ( 2.43 )

Net income (loss) per common share - basic $ 1.59 $ 1.09 $ 5.31 $ ( 2.50 )

Continuing operations $ 1.57 $ 1.08 $ 5.23 $ ( 0.07 )

Discontinued operations $ — $ — $ — $ ( 2.43 )

Net income (loss) per common share - diluted $ 1.57 $ 1.08 $ 5.23 $ ( 2.50 )

Anti-dilutive stock awards excluded from the calculation of diluted shares — — — 0.6

Net income per common share data:

Basic net income $ 1.10 $ 0.93

Diluted net income $ 1.08 $ 0.91

SEGMENT INFORMATION

3 unchanged sentences

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

Derby City Gaming is a historical racing machine facility that operates under the Churchill Downs pari-mutuel racing license at its ancillary training facility in Louisville, Kentucky.

Oak Grove conducts live harness racing during the year and operates

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

a HRM facility under its pari-mutuel racing license.

Derby City Gaming is an historical racing machine ("HRM") facility that operates under the Churchill Downs pari-mutuel racing license at its ancillary training facility in Louisville, Kentucky.

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

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.

2 unchanged sentences

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

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;

The TwinSpires segment includes the revenue and expenses for the online horse racing and the retail and online Sports and Casino business.

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

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

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

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

Also included in TwinSpires Horse Racing is our United Tote business which provides totalisator services to patrons who wager on horse races.

Our TwinSpires Sports and Casino business includes the retail and online sports and casino gaming operations.

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

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

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

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

On February 24, 2022 the Company announced its plans to exit the direct online Sports and Casino business and pursue monetization of its online market access licenses.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

1 unchanged sentence

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

◦ Calder Casino and Racing ("Calder")

◦ Fair Grounds and VSI

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

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

◦ Ocean Downs

◦ Oxford Casino and Hotel ("Oxford")

5 unchanged sentences

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:

• United Tote

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

Eliminations include the elimination of intersegment transactions.

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

interest, taxes, depreciation and amortization) and Adjusted EBITDA.

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

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

3 unchanged sentences

• Transaction expense, net which includes:

– Acquisition and disposition related charges;

– Acquisition, disposition, and land sale related charges;

– Direct online Sports and Casino business costs;

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

7 unchanged sentences

• Other charges, recoveries and expenses

As of December 31, 2021, Arlington ceased racing and simulcast operations given the pending sale of the property to the Chicago Bears.

Arlington's operating loss in the current year quarter was treated as an adjustment to EBITDA and is included in Other expenses, net in the Reconciliation of Comprehensive Income to Adjusted EBITDA.

We utilize the Adjusted EBITDA metric to provide a more accurate measure of our core operating results and enable management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner.

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

measure provided in accordance with GAAP.

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

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

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

The tables below present net revenue from external customers and intercompany revenue from each of our segments, net revenue from external customers for each group of similar services, Adjusted EBITDA by segment, and a reconciliation of comprehensive income (loss) to Adjusted EBITDA:

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

Three Months Ended March 31,

(in millions) 2022 2021

21 unchanged sentences

Net revenue from external customers $ 364.1 $ 324.3

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

Three Months Ended March 31,

(in millions) 2022 2021

6 unchanged sentences

Intercompany net revenue $ — $ —

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Three Months Ended September 30, 2021

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

Net revenue from external customers

Live and simulcast racing $ 5.4 $ 89.4 $ 4.9 $ 99.7 $ 12.6 $ 112.3

Historical racing (a)

66.2 — — 66.2 — 66.2

Racing event-related services 1.8 — 0.1 1.9 5.0 6.9

— 8.7 166.6 175.3 — 175.3

6.3 3.7 13.7 23.7 8.6 32.3

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

Three Months Ended September 30, 2020

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

Net revenue from external customers

Live and simulcast racing $ 14.9 $ 119.0 $ 4.6 $ 138.5 $ 8.4 $ 146.9

Historical racing (a)

27.1 — — 27.1 — 27.1

Racing event-related services 19.1 — 0.7 19.8 0.2 20.0

— 3.1 122.3 125.4 — 125.4

2.7 5.0 5.9 13.6 4.8 18.4

Total $ 63.8 $ 127.1 $ 133.5 $ 324.4 $ 13.4 $ 337.8

(a) Food and beverage, hotel, and other services furnished to customers for free as an inducement to wager or through the redemption of our customers' loyalty points are recorded at the estimated standalone selling prices in other revenue with a corresponding offset recorded as a reduction in historical pari-mutuel revenue for HRMs or gaming revenue for our casino properties.

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

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

7 unchanged sentences

Total $ 86.0 $ 100.3 $ 177.3 $ 363.6 $ 0.5 $ 364.1

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

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

8 unchanged sentences

(a) Food and beverage, hotel, and other services furnished to customers for free as an inducement to wager or through the redemption of our customers' loyalty points are recorded at the estimated standalone selling prices in Other revenue with a corresponding offset recorded as a reduction in historical Pari-mutuel revenue for HRMs or Gaming revenue for our casino properties.

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Adjusted EBITDA by segment is comprised of the following:

Three Months Ended September 30, 2021

(in millions) Live and Historical Racing TwinSpires Gaming

Net revenue $ 81.5 $ 102.2 $ 185.6

Taxes and purses ( 24.6 ) ( 8.0 ) ( 71.8 )

Marketing and advertising ( 2.9 ) ( 10.6 ) ( 3.6 )

Salaries and benefits ( 10.9 ) ( 3.6 ) ( 22.5 )

Content expense ( 0.5 ) ( 47.1 ) ( 1.2 )

Selling, general and administrative expense ( 3.1 ) ( 2.2 ) ( 7.1 )

Other operating expense ( 11.8 ) ( 10.0 ) ( 19.7 )

Other income — — 51.0

Adjusted EBITDA $ 27.7 $ 20.7 $ 110.7

Three Months Ended September 30, 2020

(in millions) Live and Historical Racing TwinSpires Gaming

Net revenue $ 71.1 $ 127.6 $ 133.7

Taxes and purses ( 20.4 ) ( 8.2 ) ( 51.5 )

Marketing and advertising ( 2.7 ) ( 6.9 ) ( 0.6 )

Salaries and benefits ( 8.8 ) ( 3.1 ) ( 19.1 )

Content expense ( 0.2 ) ( 62.7 ) ( 1.2 )

Selling, general and administrative expense ( 2.8 ) ( 3.9 ) ( 8.2 )

Other operating expense ( 12.1 ) ( 10.2 ) ( 14.3 )

Other income — — 35.9

Adjusted EBITDA $ 24.1 $ 32.6 $ 74.7

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

These amounts were $ 7.0 million for the three months ended March 31, 2022 and $ 3.7 million for the three months ended March 31, 2021.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Churchill Downs Incorporated

1 unchanged sentence

Adjusted EBITDA by segment is comprised of the following:

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

(in millions) Live and Historical Racing TwinSpires Gaming

8 unchanged sentences

Adjusted EBITDA $ 27.9 $ 24.1 $ 91.1

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

(in millions) Live and Historical Racing TwinSpires Gaming

8 unchanged sentences

Adjusted EBITDA $ 18.3 $ 23.1 $ 82.4

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

Three Months Ended March 31,

(in millions) 2022 2021

Reconciliation of Comprehensive Income (Loss) to Adjusted EBITDA:

Net income (loss) and comprehensive income (loss) attributable to Churchill Downs Incorporated $ 61.4 $ 43.2 $ 205.8 $ ( 99.0 )

Net loss attributable to noncontrolling interest — 0.1 — 0.2

Net income (loss) before noncontrolling interest 61.4 43.1 205.8 ( 99.2 )

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

Income (loss) from continuing operations, net of tax 61.4 43.1 205.8 ( 3.1 )

Reconciliation of Comprehensive Income to Adjusted EBITDA:

Net income and comprehensive income $ 42.1 $ 36.1

Depreciation and amortization 25.1 26.0

Interest expense 21.3 19.4

Income tax provision (benefit) 26.3 13.9 84.1 ( 5.6 )

Income tax provision 16.5 16.2

EBITDA $ 105.0 $ 97.7

Adjustments to EBITDA:

Selling, general and administrative:

Stock-based compensation expense $ 7.0 $ 5.5

Other charges — 0.8 0.2 0.7

Pre-opening expense and other expense 1.7 6.2 3.8 9.8

Pre-opening expense 2.1 0.6

Other expenses, net 2.5 —

Asset impairments 4.9 —

4 unchanged sentences

Rivers Des Plaines' legal reserves and transaction costs 0.3 1.3

Other charges 1.0 —

Total adjustments to EBITDA 23.5 12.9

8 unchanged sentences

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

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

Three Months Ended March 31,

(in millions) 2022 2021

Gaming $ 32.5 $ 24.9

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Churchill Downs Incorporated

1 unchanged sentence

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

September 30, 2021 December 31, 2020

(in millions) March 31, 2022 December 31, 2021

Total assets:

6 unchanged sentences

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

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions) 2022 2021

7 unchanged sentences

SUBSEQUENT EVENT

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

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

April 2022 Financing Transactions

On April 13, 2022, the Company announced an amendment of its senior secured credit agreement (the “Credit Agreement Amendment”) to extend the maturity date of its existing revolving credit facility to 2027 and to increase the commitments under the existing revolving credit facility from $ 700 million to $ 1,200 million.

The Credit Agreement Amendment also provides for a senior secured delayed draw term loan A credit facility due 2027 in the amount of $ 800 million (the “Delayed Draw Term Loan A”) and makes certain other changes to its existing credit agreement.

The interest rate applicable to borrowings on the Revolver and Delayed Draw Term Loan A will be secured financing overnight rate ("SFOR")-based plus a spread, determined by the Company’s and guarantors' leverage ratio.

The Company also successfully closed into escrow the previously announced offering of $ 1,200 million in aggregate principal amount of 5.750 % senior notes due 2030.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements