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Item 1. Financial Statements

2022-07-27 compared with 2022-04-27 · 239 added, 124 removed, 541 unchanged (40% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended March 31,

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

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

17 unchanged sentences

Equity in income of unconsolidated affiliates 40.5 36.4 73.0 61.3

Gain on Calder land sale 274.6 — 274.6 —

Miscellaneous, net 0.2 0.1 0.2 0.2

Total other income (expense) 11.2 5.6

Total other income 280.2 14.5 291.4 20.1

Income from operations before provision for income taxes 479.9 149.9 538.5 202.2

8 unchanged sentences

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(in millions) June 30, 2022 December 31, 2021

Current assets:

17 unchanged sentences

Accrued expenses and other current liabilities 282.6 231.7

Income taxes payable 87.6 0.9

Current deferred revenue

19 unchanged sentences

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

CHURCHILL DOWNS INCORPORATED

10 unchanged sentences

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

Net income 339.3 339.3

Repurchase of common stock ( 0.3 ) ( 7.4 ) ( 54.1 ) ( 61.5 )

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

Stock-based compensation 7.4 7.4

Balance, June 30, 2022 37.7 $ — $ 603.8 $ ( 0.9 ) $ 602.9

Common Stock Retained

8 unchanged sentences

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

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

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

(in millions) 2022 2021

9 unchanged sentences

Amortization of operating lease assets 2.7 2.7

Gain on Calder land sale ( 274.6 ) —

Other 2.9 3.1

7 unchanged sentences

Capital project expenditures ( 144.1 ) ( 15.9 )

Proceeds from Calder land sale 279.0 —

Other ( 7.3 ) ( 0.9 )

Net cash used in investing activities ( 62.8 ) ( 12.3 )

Net cash provided by (used in) investing activities 104.6 ( 30.5 )

Cash flows from financing activities:

7 unchanged sentences

Other ( 0.2 ) 1.4

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

Net cash provided by financing activities 1,058.5 110.6

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 MARCH 31, 2022

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Three Months Ended March 31,

Six Months Ended June 30,

(in millions) 2022 2021

Supplemental disclosures of cash flow information:

Cash paid during the period for:

Interest $ 20.7 $ 15.4

Income taxes 0.1 0.1

Cash paid for interest $ 42.4 $ 35.9

Cash paid for income taxes 15.9 10.4

Cash received from income tax refunds 33.1 —

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

4 unchanged sentences

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Churchill Downs Incorporated

2 unchanged sentences

Basis of Presentation

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

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

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

12 unchanged sentences

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

Calder Land Sale

On June 17, 2022, the Company closed on the previously announced sale of 115.7 acres of excess land near Calder Casino for $ 291.0 million (or approximately $ 2.5 million per acre) to Link Logistics, a Blackstone portfolio company.

The Company received cash proceeds of $ 279.0 million, which was net of $ 12.0 million of transaction costs.

Refer to Note 4, Calder Land Sale, for further information on the sale.

Impact of COVID-19 Pandemic

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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.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

NATURAL DISASTER

2 unchanged sentences

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

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.

During the six months ended June 30, 2022, the Company incurred $ 2.3 million of operating expenses related to ongoing recovery and maintenance efforts and received $ 3.1 million from our insurance carriers.

Through June 30, 2022, the Company has received $ 5.8 million in insurance recoveries from our insurance carriers and has an insurance recovery receivable of $ 1.8 million as of June 30, 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.

CALDER LAND SALE

The Company received cash proceeds of $ 279.0 which was net of $ 12.0 million of transaction costs.

We recognized a gain of $ 274.6 million on the sale of the land, which is included in other income (expense) in the accompanying Condensed Consolidated Statements of Comprehensive Income.

The gain consisted of cash proceeds of $ 279.0 million offset by the carrying value of the assets sold of $ 4.4 million.

The Company is planning on using certain proceeds of the sale to purchase property as part of the previously announced Peninsula Pacific Entertainment LLC ("P2E") acquisition and to invest in other replacement properties that qualify as Internal Revenue Code §1031 transactions to defer the federal income tax on the gain on the Calder land sale.

The Company has identified two reverse like-kind transactions for property acquired prior to the sale of the Calder land and a forward like-kind exchange transaction to acquire additional property for the Internal Revenue Code §1031 transactions.

The Company is utilizing a qualified intermediary to facilitate these transactions.

The proceeds from the sale have been transferred to the qualified intermediary and are classified as restricted cash on the Condensed Consolidated Balance Sheet.

The funds will remain with the qualified intermediary and will be released:

(i) if the funds are utilized as part of a like-kind exchange agreement, (ii) if the Company does not identify a suitable replacement property within 45 days after the agreement date, or (iii) when a like-kind exchange agreement is not completed within the allowable time period.

The Company has completed one reverse like-kind exchange in June 2022 involving our $ 9.9 million investment in real property for the Derby City Gaming Downtown facility in Louisville, Kentucky.

The second reverse like-kind exchange will involve our investment in real property for the Queen of Terre Haute Casino Resort ("Queen of Terre Haute") property in Terre Haute, Indiana.

An exchange accommodation titleholder (“EAT”), a type of variable interest entity, was used to facilitate this reverse like-kind exchange.

As of June 30, 2022, $ 10.0 million had been invested in real property for the Queen of Terre Haute which will be held by the EAT until the exchange transaction is complete.

The Company determined that it is the primary beneficiary of the EAT, thus the property held by the EAT has been consolidated and recorded in property and equipment, net on the Condensed Consolidated Balance Sheet.

The Company plans to make additional investments in real property for the Queen of Terre Haute and expects to complete this reverse like-kind exchange in fourth quarter 2022.

The Company is planning on utilizing the remainder of the proceeds from the Calder sale to execute a forward like-kind exchange transaction by purchasing property as part of the previously announced acquisition of P2E.

The Company anticipates closing the P2E acquisition prior to the end of 2022.

If the acquisition of replacement property is not completed within 180 days of the Calder land sale, the proceeds will be distributed to the Company by the qualified intermediary and reclassified as available cash, and all applicable income taxes will be assessed on the remaining gain that was not deferred by acquiring replacement property.

As of June 30, 2022, the Company recorded $ 77.9 million in current income taxes payable related to the Calder land sale.

Upon completion of the P2E acquisition, the current tax liability will be reclassified as a deferred tax liability on the Condensed Consolidated Balance Sheet.

As of December 31, 2021, the assets sold as part of the Calder sale were classified as held for sale on the accompanying Condensed Consolidated Balance Sheets.

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

13 unchanged sentences

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.

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 the first quarter of 2023.

The Company has classified certain assets of Arlington International Racecourse ("Arlington") as held for sale totaling $ 82.9 million as of June 30, 2022 and $ 81.5 million as of 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 March 31, 2022 and December 31, 2021.

Goodwill was $ 366.8 million as of June 30, 2022 and December 31, 2021.

We performed our annual goodwill impairment analysis as of April 1, 2022, 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.

Other intangible assets are comprised of the following:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

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

3 unchanged sentences

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

We performed our annual indefinite-lived intangible assets impairment analysis as of April 1, 2022.

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.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Churchill Downs Incorporated

6 unchanged sentences

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.

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.

The Company’s effective income tax rate for the three and six months ended June 30, 2022 and June 30, 2021 was higher than the U.S.

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

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

3 unchanged sentences

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.

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

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

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

We 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,

We had approximately $ 359.1 million of repurchase authority remaining under the 2021 Stock Repurchase Program at June 30, 2022, based on trade date.

We repurchased the following shares under the 2021 Stock Repurchase Program:

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

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

Repurchase Program Shares Aggregate Purchase Price Shares Aggregate Purchase Price

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

2021 Stock Repurchase Program 321,554 $ 61.5 — $ — 438,417 $ 86.5 — $ —

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.

As of June 30, 2022, we had $ 2.0 million accrued for the future cash settlement of executed repurchases of our common stock and no accrual as of June 30, 2021.

The Duchossois Group Share Repurchase

3 unchanged sentences

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

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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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").

stock awards, restricted stock unit awards ("RSUs"), performance share unit awards, and stock options associated with our employee stock purchase plan was $ 7.4 million for the three months ended June 30, 2022 and $ 7.1 million for the three months ended June 30, 2021.

Stock-based compensation was $ 14.4 million for the six months ended June 30, 2022 and $ 12.6 million for the six months ended June 30, 2021.

During the six months ended June 30, 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):

1 unchanged sentence

2022 RSU 61 Vest equally over three service periods ending in 2025

2022 RSU 5 One year service period ending in 2023

Credit Agreement

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

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

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

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

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

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

On April 28, 2020, the Company entered into a Second Amendment to the Credit Agreement (the "Second Amendment"), which (i) provided for a financial covenant relief period through the date on which the Company delivered the Company's quarterly financial statements and compliance certificate for the fiscal quarter ended June 30, 2021, subject to certain exceptions (the "Financial Covenant Relief Period"), (ii) amended the definition of "Consolidated EBITDA" in the Credit Agreement with respect to the calculation of Consolidated EBITDA for the first two fiscal quarters after the termination of the Financial Covenant Relief Period, (iii) extended certain deadlines and made certain other amendments to the Company’s financial reporting obligations, (iv) placed certain restrictions on restricted payments during the Financial Covenant Relief Period, and (v) amended the definitions of "Material Adverse Effect" and "License Revocation" in the Credit Agreement to take into consideration COVID-19.

On April 28, 2020, the Company entered into the Second Amendment to the Credit Agreement (the "Second Amendment"), which (i) provided for a financial covenant relief period through the date on which the Company delivered the Company's quarterly financial statements and compliance certificate for the fiscal quarter ended June 30, 2021, subject to certain exceptions (the "Financial Covenant Relief Period"), (ii) amended the definition of "Consolidated EBITDA" in the Credit Agreement with respect to the calculation of Consolidated EBITDA for the first two fiscal quarters after the termination of the Financial Covenant Relief Period, (iii) extended certain deadlines and made certain other amendments to the Company’s financial reporting obligations, (iv) placed certain restrictions on restricted payments during the Financial Covenant Relief Period, and (v) amended the definitions of "Material Adverse Effect" and "License Revocation" in the Credit Agreement to take into consideration COVID-19.

On February 1, 2021, the Company entered into the Third Amendment to the Credit Agreement to increase the restricted payments capacity during the Financial Covenant Relief Period from $ 26.0 million to $ 226.0 million to accommodate a share repurchase from an affiliate of TDG.

5 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 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.

On April 13, 2022, the Company entered into the Fourth Amendment to the Credit Agreement (the "Fourth Amendment") to extend the maturity date of its existing revolving credit facility to April 13, 2027, to increase the commitments under the existing revolving credit facility from $ 700.0 million to $ 1.2 billion, and to increase the swing line commitment from $ 50.0 million to $ 100.0 million.

The Fourth Amendment also provides for a senior secured Delayed Draw Term Loan A credit facility due April 13, 2027 in the amount of $ 800.0 million which is part of the financing for the proposed acquisition by the Company of substantially all of the assets of P2E.

The Company capitalized $ 2.8 million of debt issuance costs associated with the Revolver commitment increase and $ 5.7 million of debt issuance costs associated with the Delayed Draw Term Loan A which are being amortized as interest expense over the 5-year term.

The Revolver and Delayed Draw Term Loan A bear interest at SOFR plus 10 basis points, plus a variable applicable margin which is determined by the Company's net leverage ratio.

As of June 30, 2022, that applicable margin was 137.5 basis points

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

which was based on the pricing grid in the Fourth Amendment to the Credit Agreement.

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 March 31, 2022.

The Company was compliant with all applicable covenants on June 30, 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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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.

5 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.

2030 Senior Notes

On April 13, 2022, CDI Escrow Issuer, Inc.

(the "Escrow Issuer"), a wholly owned subsidiary of the Company, completed an offering of $ 1.2 billion in aggregate principal amount of 5.75 % Senior Unsecured Notes that mature on April 13, 2030 (the "2030 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 offering of the 2030 Notes is part of the financing for the P2E acquisition.

The proceeds of the offering were placed in escrow pending satisfaction of certain conditions, including, without limitation, the consummation of the P2E acquisition.

In connection with the offering, we capitalized $ 4.7 million of debt issuance costs which are being amortized as interest expense over the term of the 2030 Notes.

Upon completion of this offering, the aggregate principal amount outstanding in escrow of the 2030 Notes is $ 1.2 billion.

The cash held in escrow is invested in money market accounts and included in restricted cash in the Condensed Consolidated Balance Sheet.

The 2030 Notes were issued at 100% of the principal amount, plus interest deemed to have accrued from April 13, 2022, with interest payable in arrears on April 1 and October 1 of each year, commencing on October 1, 2022.

The 2030 Notes will vote as one class under the indenture governing the 2030 Senior Notes.

The Escrow Issuer may redeem some or all of the 2030 Notes at any time prior to April 1, 2025, at redemption prices set forth in the 2030 Offering Memorandum.

In connection with the issuance of the 2030 Notes, the Escrow Issuer and the guarantors of the 2030 Notes entered into a Registration Rights Agreement to register any 2030 Notes under the Securities Act for resale that are not freely tradable 366 days from April 13, 2022.

REVENUE FROM CONTRACTS WITH CUSTOMERS

Performance Obligations

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.

As of June 30, 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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

aggregate transaction price of $ 74.2 million.

The revenue we expect to recognize on these remaining performance obligations is $ 1.1 million for the remainder of 2022, $ 30.5 million in 2023, $ 22.0 million in 2024, and the remainder thereafter.

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.

As of June 30, 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 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.

As of June 30, 2022 and December 31, 2021, contract assets were not material.

As of June 30, 2022 and December 31, 2021, contract liabilities were $ 27.7 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 decrease was primarily due to revenue recognized for fulfilled performance obligations.

We recognized $ 43.6 million of revenue during the three months ended June 30, 2022 and $ 46.8 million of revenue during the six months ended June 30, 2022, which was included in the contract liabilities balance at December 31, 2021.

We recognized $ 28.9 million of revenue during the three months ended June 30, 2021 and $ 31.5 million of revenue during the six months ended June 30, 2021, which was included in the contract liabilities balance at December 31, 2020.

Disaggregation of Revenue

6 unchanged sentences

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

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Within the Gaming segment, revenue is further disaggregated between live and simulcast racing, historical 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.

1 unchanged sentence

Accrued expenses and other current liabilities consisted of the following:

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

(in millions) June 30, 2022 December 31, 2021

Account wagering deposits liability $ 65.9 $ 47.5

5 unchanged sentences

INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

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.

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Rivers Des Plaines

3 unchanged sentences

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

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.

As of June 30, 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 $ 831.8 million.

Our investment in Rivers Des Plaines was $ 547.3 million and $ 554.8 million as of June 30, 2022 and December 31, 2021, respectively.

The Company received distributions from Rivers Des Plaines of $ 61.3 million and $ 25.3 million for the six months ended June 30, 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 $ 107.7 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.

Our investment in MVG was $ 111.3 million and $ 108.7 million as of June 30, 2022 and December 31, 2021, respectively.

The Company received distributions from MVG of $ 16.5 million and $ 22.0 million for the six months ended June 30, 2022 and 2021, respectively.

Summarized Financial Results for our Unconsolidated Affiliates

Summarized below are the financial results for our unconsolidated affiliates.

Three Months Ended March 31,

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

(in millions) 2022 2021 2022 2021

6 unchanged sentences

Net income $ 70.3 $ 64.0 $ 128.1 $ 108.2

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

(in millions) June 30, 2022 December 31, 2021

Current assets $ 88.4 $ 96.0

12 unchanged sentences

The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate.

Restricted Cash

Our restricted cash accounts that are held in interest-bearing accounts qualify for Level 1 in the fair value hierarchy, which includes unadjusted quoted market prices in active markets for identical assets.

The fair value of the Company’s 2028 Senior Notes and 5.50 % Senior Notes due 2027 (the "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 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 MARCH 31, 2022

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Restricted Cash

Our restricted cash accounts held in money market and interest-bearing accounts qualify for Level 1 in the fair value hierarchy, which includes unadjusted quoted market prices in active markets for identical assets.

The fair value of the Company’s 2030 Senior Notes, 2028 Senior Notes, and 5.50 % Senior Notes due 2027 (the "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 carrying amounts and estimated fair values by input level of the Company's financial instruments are as follows:

March 31, 2022

June 30, 2022

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

6 unchanged sentences

2028 Senior Notes 698.3 622.3 — 622.3 —

2030 Senior Notes 1,195.4 1,102.4 — 1,102.4 —

December 31, 2021

18 unchanged sentences

Legal fees are expensed as incurred.

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 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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

NET INCOME PER COMMON SHARE COMPUTATIONS

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

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

25 unchanged sentences

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 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

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

The TwinSpires Sports and Casino business includes the mobile and online sports betting and casino results and the results

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

of seven 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”), Ocean Downs Casino and Racetrack ("Ocean Downs"), Fair Grounds Racecourse and Slots, as well as in Arizona 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.

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

The Gaming segment has approximately 11,000 slot machines and video lottery terminals ("VLTs") and 200 table games located in eight states.

8 unchanged sentences

◦ 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.

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:

15 unchanged sentences

• Asset impairments;

• Gain on Calder land sale;

• Legal reserves;

1 unchanged sentence

• 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

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

measure provided in accordance with GAAP.

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 quarter and year is treated as an adjustment to EBITDA and is included in Other expenses, net in the Reconciliation of Comprehensive Income to Adjusted EBITDA.

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.

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Churchill Downs Incorporated

1 unchanged sentence

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

Three Months Ended March 31,

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

(in millions) 2022 2021 2022 2021

21 unchanged sentences

Net revenue from external customers $ 582.5 $ 515.1 $ 946.6 $ 839.4

Three Months Ended March 31,

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

(in millions) 2022 2021 2022 2021

6 unchanged sentences

Intercompany net revenue $ — $ — $ — $ —

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

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

7 unchanged sentences

Total $ 260.9 $ 136.8 $ 184.3 $ 582.0 $ 0.5 $ 582.5

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

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

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 $ 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

These amounts were $ 7.7 million for the three months ended June 30, 2022 and $ 5.2 million for the three months ended June 30, 2021.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Six Months Ended June 30, 2022

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

Net revenue from external customers

Live and simulcast racing $ 52.1 $ 199.9 $ 18.4 $ 270.4 $ — $ 270.4

Historical racing (a)

152.0 — 1.3 153.3 — 153.3

Racing event-related services 122.4 — 0.6 123.0 — 123.0

— 16.5 309.0 325.5 — 325.5

20.4 20.7 32.3 73.4 1.0 74.4

Total $ 346.9 $ 237.1 $ 361.6 $ 945.6 $ 1.0 $ 946.6

Six Months Ended June 30, 2021

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

Net revenue from external customers

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

Historical racing (a)

117.8 — — 117.8 — 117.8

Racing event-related services 63.5 — 0.9 64.4 1.9 66.3

— 15.4 302.7 318.1 — 318.1

12.3 18.1 18.3 48.7 1.5 50.2

Total $ 239.1 $ 244.3 $ 338.0 $ 821.4 $ 18.0 $ 839.4

These amounts were $ 14.8 million for the six months ended June 30, 2022 and $ 8.9 million for the six months ended June 30, 2021.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Adjusted EBITDA by segment is comprised of the following:

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

(in millions) Live and Historical Racing TwinSpires Gaming

8 unchanged sentences

Adjusted EBITDA $ 163.9 $ 33.9 $ 106.8

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

(in millions) Live and Historical Racing TwinSpires Gaming

8 unchanged sentences

Adjusted EBITDA $ 98.4 $ 24.6 $ 119.8

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Three Months Ended March 31,

Adjusted EBITDA by segment is comprised of the following:

Six Months Ended June 30, 2022

(in millions) Live and Historical Racing TwinSpires Gaming

Net revenue $ 363.1 $ 239.9 $ 363.7

Taxes and purses ( 86.4 ) ( 14.7 ) ( 135.5 )

Marketing and advertising ( 9.3 ) ( 10.1 ) ( 7.2 )

Salaries and benefits ( 29.8 ) ( 13.6 ) ( 47.4 )

Content expense ( 1.6 ) ( 111.2 ) ( 3.7 )

Selling, general and administrative expense ( 6.3 ) ( 5.2 ) ( 13.3 )

Other operating expense ( 38.0 ) ( 27.1 ) ( 42.2 )

Other income 0.1 — 83.5

Adjusted EBITDA $ 191.8 $ 58.0 $ 197.9

Six Months Ended June 30, 2021

(in millions) Live and Historical Racing TwinSpires Gaming

Net revenue $ 255.2 $ 247.6 $ 340.0

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

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

Salaries and benefits ( 25.3 ) ( 13.0 ) ( 40.5 )

Content expense ( 1.4 ) ( 115.0 ) ( 2.3 )

Selling, general and administrative expense ( 6.1 ) ( 5.5 ) ( 11.9 )

Other operating expense ( 28.0 ) ( 26.5 ) ( 33.2 )

Other income 0.1 — 83.3

Adjusted EBITDA $ 116.7 $ 47.7 $ 202.2

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

(in millions) 2022 2021 2022 2021

7 unchanged sentences

Stock-based compensation expense $ 7.4 $ 7.1 $ 14.4 $ 12.6

Legal reserve 3.2 — 3.2 —

Pre-opening expense 2.6 1.5 4.7 2.1

7 unchanged sentences

Other charges — — 1.0 —

Gain on Calder land sale ( 274.6 ) — ( 274.6 ) —

Total adjustments to EBITDA ( 249.9 ) 35.4 ( 226.4 ) 48.3

8 unchanged sentences

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

Three Months Ended March 31,

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

(in millions) 2022 2021 2022 2021

Gaming $ 40.5 $ 36.4 $ 73.0 $ 61.3

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

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Churchill Downs Incorporated

1 unchanged sentence

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

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

(in millions) June 30, 2022 December 31, 2021

Total assets:

6 unchanged sentences

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

Three Months Ended March 31,

Six Months Ended June 30,

(in millions) 2022 2021

7 unchanged sentences

SUBSEQUENT EVENT

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

As of the date of this filing, there were no subsequent events that may impact our disclosures in the Condensed Consolidated Financial Statements.

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