What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-27 compared with 2022-04-27 · 191 added, 111 removed, 302 unchanged (50% of the section changed)

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Important factors that could cause actual results to differ materially from expectations include the following:

• the receipt of regulatory approvals on terms desired or anticipated, unanticipated difficulties or expenditures relating to our proposed transactions, including, without limitation, difficulties that result in the failure to realize expected synergies, efficiencies and cost savings from the proposed transactions within the expected time period (if at all), our ability to obtain financing on the anticipated terms and schedule, disruptions of our or Peninsula Pacific Entertainment LLC's ("P2E") current plans, operations and relationships with customers and suppliers caused by the announcement and pendency of the proposed transaction, our and P2E’s ability to consummate a sale-leaseback transaction with respect to the Hard Rock Sioux City on terms desired or anticipated;

• the receipt of regulatory approvals on terms desired or anticipated, unanticipated difficulties or expenditures relating to our proposed transactions, including, without limitation, difficulties that result in the failure to realize expected synergies, efficiencies and cost savings from the proposed transactions within the expected time period (if at all) and risks in connection with Internal Revenue Code §1031 exchanges, our ability to obtain financing on the anticipated terms and schedule, disruptions of our or Peninsula Pacific Entertainment LLC's ("P2E") current plans, operations and relationships with customers and suppliers caused by the announcement and pendency of the proposed transaction, our and P2E’s ability to consummate a sale-leaseback transaction with respect to the Hard Rock Sioux City on terms desired or anticipated;

• the impact of the novel coronavirus (COVID-19) pandemic, including the emergence of variant strains, and related economic matters on our results of operations, financial conditions and prospects;

• the occurrence of extraordinary events, such as terrorist attacks, public health threats, civil unrest, and inclement weather;

• the effect of economic conditions on our consumers' confidence and discretionary spending or our access to credit;

• the effect of economic conditions on our consumers' confidence and discretionary spending or our access to credit, including the impact of inflation;

• additional or increased taxes and fees;

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• compliance with the Foreign Corrupt Practices Act or applicable money-laundering regulations;

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

• payment-related risks, such as risk associated with fraudulent credit card and debit card use;

• work stoppages and labor issues;

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

• risks related to pending or future legal proceedings and other actions;

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This report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021, including Part I - Item 1A, "Risk Factors" of our Form 10-K for a discussion regarding some of the reasons that actual results may be materially different from those we anticipate.

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

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

Executive Overview

Churchill Downs Incorporated (the "Company," "we", "us", "our") is an industry-leading racing, online wagering and gaming entertainment company anchored by our iconic flagship event, the Kentucky Derby.

Churchill Downs Incorporated (the "Company") is an industry-leading racing, online wagering and gaming entertainment company anchored by our iconic flagship event, the Kentucky Derby.

We own and operate three entertainment venues with approximately 3,050 HRMs in Kentucky.

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

and we have nine retail sportsbooks.

and we have eight retail sportsbooks.

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

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

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

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

The Company has obtained the acquisition of ownership interest approval for the Virginia properties from the Virginia Racing Commission.

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

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

Either the Company or P2E may terminate the P2E Purchase Agreement if the closing has not occurred prior to the date that is nine months after signing the P2E Purchase Agreement (such date being November 18, 2022), subject to the ability of either party to elect to extend such date for an additional four months in certain circumstances.

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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 the credit agreement.

The interest rate applicable to borrowings on the Revolver and Delayed Draw Term Loan A will be secured financing overnight rate-based plus a spread, determined by the Company’s total net 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.

On April 13, 2022, the Company announced an amendment of its senior secured credit agreement (the “Fourth 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 $700.0 million to $1.2 billion.

The Fourth Amendment also provides for a senior secured delayed draw term loan A credit facility due 2027 in the amount of $800.0 million (the “Delayed Draw Term Loan A”).

The interest rate applicable to borrowings on the Revolver and Delayed Draw Term Loan A will be SOFR-based plus a spread, determined by the Company's total net leverage ratio.

The Company also closed into escrow an offering of $1.2 billion in aggregate principal amount of 5.75% senior notes due 2030.

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.

The Company is planning on using certain proceeds of the sale to purchase property as part of the previously announced P2E Transaction and to invest in other replacement properties that qualify as Internal Revenue Code §1031 transactions.

The Company has retained ownership of approximately 54 acres of land on which the Company's wholly-owned Calder Casino sits.

The Company may sell 15-20 acres of land in the future for retail development.

Chasers Poker Room Acquisition

On March 22, 2022, the Company entered into a definitive purchase agreement to acquire Chasers Poker Room ("Chasers") in Salem, New Hampshire.

Chasers is a charitable gaming facility located approximately 30 miles from Boston, Massachusetts, that offers poker and a variety of table games.

Chasers is a charitable gaming facility located approximately 30 miles from Boston, Massachusetts,

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

that offers poker and a variety of table games.

Following the closing of the acquisition, the Company plans to develop an expanded charitable gaming facility in Salem to accommodate historical racing machines.

The Company expects the total investment in Salem, inclusive of the Chasers purchase price to be approximately $150.0 million.

The transaction is expected to close during the second quarter of 2022.

The transaction is expected to close in the third quarter of 2022.

Impact of COVID-19 Pandemic

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

The COVID-19 global pandemic has resulted in travel limitations and business and government shutdowns which have had significant negative

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

economic impacts in the United States and in relation to our business.

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

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

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Asset Impairment

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

On February 24, 2022, the Company announced its plans to exit the dire ct online sports and casino bus iness 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”).

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• Asset impairments;

• Gain on Calder land sale;

• Legal reserves;

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• Other charges, recoveries and expenses

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

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.

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.

For segment reporting, Adjusted EBITDA includes intercompany revenue and expense totals that are eliminated in the accompanying Condensed Consolidated Statements of Comprehensive Income.

Refer to the Reconciliation of Comprehensive Income to Adjusted EBITDA included in this section for additional information.

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

Governmental Regulations and Legislative Changes

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

There have been no material changes with respect to our regulatory and legislative activities disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

The following update on our regulatory and legislative actions should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021, including Part I - Item 1, "Business" for a discussion of regulatory and legislative changes.

Specific State Gaming Regulations

The 2022 Maine Legislature passed a sports betting bill effective August 8, 2022 which allows Oxford Casino to offer sports betting at its facility.

The four-year initial and annual renewal fee for a sports wagering license is $4,000 and the state tax on sports betting is 10% of gross sports wagering receipts.

Consolidated Financial Results

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

Three Months Ended March 31,

(in millions) 2022 2021 Change

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

(in millions) 2022 2021 Change 2022 2021 Change

Net revenue $ 582.5 $ 515.1 $ 67.4 $ 946.6 $ 839.4 $ 107.2

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Adjusted EBITDA 291.2 233.3 57.9 419.7 343.9 75.8

Three Months Ended March 31, 2022, Compared to Three Months Ended March 31, 2021

• Net revenue increased $39.8 million due to a $25.3 million increase from Gaming primarily due to certain capacity restrictions on patrons and gaming during the prior year quarter;

a $22.8 million increase from Live and Historical Racing due to capacity restrictions at the Oak Grove HRM facility and Derby City Gaming in the prior year quarter and overall continued growth in the businesses.

Partially offsetting these increases were a $5.1 million decrease in revenue from All Other primarily driven by the cessation of racing and simulcast operations at Arlington at the end of 2021 and a decrease of $3.2 million f rom TwinSpires driven by a decrease in Horse Racing handle partially offset by an increase in Sports and Casino due to our expansion in additional states during 2021.

• Operating income increased $0.7 million due to a $9.8 million increase from Live and Historical Racing primarily due to an increase in net revenue;

a $6.4 million increase from Gaming primarily due to the increase in net revenue as a result of capacity restrictions on patrons and gaming during the prior year quarter;

and a $0.6 million increase from All Other.

Partially offsetting these increases were a $5.7 million increase in selling, general and administrative expenses due to an increase in employee benefits as well as an increase in legal fees, a $4.9 million increase in transaction expenses driven by the P2E Transaction, a $4.9 asset impairment related to TwinSpires Sports and Casino as a result of the decision to exit the direct online Sports and Casino business, and a $0.6 million decrease at TwinSpires.

Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021

• Net revenue increased $67.4 million due to a $85.0 million increase from Live and Historical Racing primarily driven by Churchill Downs Racetrack running of the Kentucky Derby in 2022 without capacity restrictions that were in place in 2021 .

Partially offsetting this increase was a $11.9 million decrease in All Other primarily driven by the cessation of racing and simulcast operations at Arlington at the end of 2021, a $4.0 million decrease from TwinSpires driven by the decision to exit the direct online sports and ca sino business in the first quarter of 2022 and from horse racing as a higher portion of our patrons returned to wagering at brick-and-mortar facilities in the current quarter instead of wagering online, and a $1.7 million decrease in Gaming revenue primarily driven by the current economic conditions and competitive pressures in Mississippi and Louisiana and a mask mandate at our Harlow's property in Mississippi that was discontinued in early June 2022.

• Operating income increased $64.3 million due to a $63.9 million increase from Live and Historical Racing primarily due to an increase in net revenue, a $7.9 million increase from TwinSpires primarily due to d ecreased online marketing and promotions expense, and a $11.2 million decrease in asset impairment expense related to the 2021 revised capital plans associated with the Churchill Downs Racetrack first turn project .

Partially offsetting these increases are a $9.5 million decrease in Gaming primarily driven by decline in net revenue and an increase in marketing and salaries expense, a $3.0 million decrease in All Other as a result of Arlington not conducting live racing and ceasing simulcasting at the end of 2021, and a $6.2 million increase in Corporate expenses and transaction and legal costs.

• Net income increased $231.0 million.

The following items impacted comparability of the Company's first quarter of 2022 net income compared to the prior year's first quarter:

a $6.3 million after-tax increase in expenses related to transaction, pre-opening and other expenses, net, and a $3.5 million after-tax impairment charge driven by the decision to exit the direct online Sports and Casino business, and $0.7 million of other charges primarily related to our equity portion of Miami Valley Gaming's after-tax non-cash impairment charge related to prior expansion plans.

Partially offsetting these increases were a $4.5 million after tax benefit increase related to our equity portion of the non-cash change in the fair value of Rivers Des Plaines' interest rate swaps and a $0.7 million after tax decrease in Rivers Des Plaines' legal reserves and transaction costs.

The following items impacted comparability of the Company's second quarter of 2022 net income compared to the prior year's second quarter:

a $193.6 million after tax gain on the sale of Calder land,

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

an $8.1 million after-tax charge related to the 2021 asset impairment at Churchill Downs Racetrack that did not recur in 2022, a $4.7 million after tax decrease in Rivers Des Plaines' legal reserves and transaction costs, and a $0.3 million after tax benefit related to our equity portion of the non-cash change in the fair value of Rivers Des Plaines' interest rate swaps.

Offsetting these increases in net income were a $2.8 million after-tax increase in expenses related to transaction, pre-opening and other expenses, net, and a $2.3 million after-tax increase in legal reserves.

Excluding these items, net income increased $29.4 million primarily due to a $38.6 million after-tax increase driven by the results of our operations and equity in income from our unconsolidated affiliates, partially offset by a $9.2 million after-tax increase in interest expense associated with higher outstanding debt balances.

• Adjusted EBITDA increased $17.9 million driven by a $9.6 million increase from Live and Historical Racing primarily due an increase in net revenue, a $8.7 million increase from Gaming primarily due to certain capacity restrictions on patrons and gaming during the prior year quarter, and a $1.0 million increase from TwinSpires Sports and Casino primarily due to a decrease in marketing and promotional activities, partially offset by a decline in TwinSpires Horse Racing due to decreased handle.

Partially offsetting these increases was a $1.4 million decrease from All Other primarily due to an increase in Corporate expenses offset by an increase at Arlington, as operations expenses incurred in the previous year quarter did not recur.

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

• Adjusted EBITDA increased $57.9 million driven by a $65.5 million increase from Live and Historical Racing primarily due to Churchill Downs Racetrack running of the Kentucky Derby in 2022 without capacity restrictions that were in place in 2021 and a $9.3 million increase from TwinSpires primarily due from Sports and Casino business decreased marketing and promotions expense.

Partially offsetting these increases was a $13.0 million decrease from Gaming primarily due to the current economic conditions and increased marketing and salaries expense and a $3.9 million decrease from All Other driven by Arlington not conducting live racing in the second quarter of 2022 and an increase in Corporate expenses.

Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021

• Net revenue increased $107.2 million due to a $107.8 million increase from Live and Historical Racing driven by Churchill Downs Racetrack running of the Kentucky Derby in 2022 without capacity restrictions that were in place in 2021 and a $23.6 million increase from Gaming primarily due to increases at Oxford, Calder, and Presque Isle as a result of capacity restrictions during the first half of 2021.

Partially offsetting this increase was a $17.0 million decrease in All Other primarily driven by the cessation of racing and simulcast operations at Arlington at the end of 2021 and a $7.2 million decrease from TwinSpires driven by the decision to exit the direct online sports and casino business in the first quarter of 2022 and from horse racing as a higher portion of our patrons returned to wagering at brick-and-mortar facilities instead of wagering online in the current year.

• Operating income increased $65.0 million due to a $73.7 million increase from Live and Historical Racing driven by the increase in net revenue, a $7.3 million increase from TwinSpires primarily due to d ecreased online marketing and promotions expense, and a net reduction in asset impairments of $6.3 million as non-cash impairment charges recorded in 2021 for certain first turn assets at Churchill Downs Racetrack were greater than the non-cash impairment charge recorded in the first quarter of 2022 as a result of our announcement to exit the direct online sports and casino business.

Offsetting these increases was a $6.1 m illion increase in transaction expense related to the P2E Transaction, a $3.1 million decrease in Gaming primarily driven by decline in net revenue attributable to current economic conditions and an increase in marketing and salaries expense, a $2.4 million decrease in All Other driven by Arlington not conducting live racing in the second quarter of 2022, and a $10.7 million increase in selling, general and administrative expenses due to an increase in employee benefits as well as an increase in legal fees and reserves.

• Net income increased $237.0 million.

The following items impacted comparability of the Company's net income from continuing operations during the six months ended June 30, 2022 compared to the prior year period:

a $193.6 million after tax gain on the sale of Calder assets, a net reduction in after tax impairment charges of $4.5 million as impairment charges recorded in 2021 for certain first turn assets at Churchill Downs Racetrack were greater than the impairment charge recorded in the first quarter of 2022 as a result of our announcement to exit the direct online sports and casino business, a $5.4 million after tax decrease in expense relate to Rivers Des Plaines' legal reserves and transaction costs, and a $4.7 million after tax benefit related to our equity portion of the non-cash change in the fair value of Rivers Des Plaines' interest rate swaps.

Offsetting these increases in net income were a $9.1 million after-tax increase in expenses related to transaction, pre-opening and other expenses, net, a $2.3 million after-tax increase in legal reserves, and $0.7 million of other charges.

Excluding these items, net income increased $40.9 million primarily due to a $51.6 million after-tax increase driven by the results of our operations and equity in income from our unconsolidated affiliates, partially offset by a $10.7 million after-tax increase in interest expense associated with higher outstanding debt balances.

• Adjusted EBITDA increased $75.8 million driven by a $75.1 million increase from Live and Historical Racing primarily due to Churchill Downs Racetrack running of the Kentucky Derby in 2022 without capacity restrictions that were in place in 2021 and a $10.3 million increase from TwinSpires primarily due from Sports and Casino business decreased online marketing and promotions expense.

Partially offsetting these increases was a $5.3 million decrease from All Other driven by Arlington not conducting live racing or simulcast operations during 2022 and an increase in Corporate expenses and a $4.3 million decrease in Gaming primarily driven by increases in marketing and salaries expense.

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

Financial Results by Segment

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

Three Months Ended March 31,

(in millions) 2022 2021 Change

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

(in millions) 2022 2021 Change 2022 2021 Change

Live and Historical Racing:

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Net Revenue $ 582.5 $ 515.1 $ 67.4 $ 946.6 $ 839.4 $ 107.2

Three Months Ended March 31, 2022, Compared to Three Months Ended March 31, 2021

• Live and Historical Racing revenue increased $22.5 million due primarily to an $11.0 million increase at Oak Grove, a $9.9 million increase from Derby City Gaming, and a $1.9 million increase from Newport.

Oak Grove and Derby City Gaming reflected the benefit of the elimination of the operating restrictions that were in place during the first quarter of 2021 and overall continued growth in the businesses.

Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021

• Live and Historical Racing revenue increased $85.4 million primarily due to an $69.3 million increase at Churchill Downs Racetrack due to the running of the Kentucky Derby in 2022 without capacity restrictions that were in place in 2021, an $8.5 million increase from Oak Grove, a $4.3 million increase at Derby City Gaming, a $2.9 million increase from Newport and a $0.4 million increase at Turfway Park.

The HRM properties benefited from the elimination of the capacity restrictions that were in place during the second quarter of 2021 and overall continued growth in the businesses.

• TwinSpires revenue decreased $4.1 million from the prior year quarter due to a decrease of $2.2 million from Sports and Casino and a $1.9 million decrease from Horse Racing.

The decrease in Sports and Casino was driven by the decision to exit the direct online sports and casino business in the first quarter of 2022.

Horse Racing net revenue decreased as a higher portion of our patrons returned to wagering at brick-and-mortar facilities instead of wagering online in the current quarter compared to the prior year quarter.

• Gaming revenue decreased $1.5 million primarily due to a decrease of $4.6 million at Harlow's and a $4.4 million decrease at Riverwalk as a result of current economic conditions, competitive pressures, and a mask mandate at Harlow's that was discontinued in early June 2022.

These decreases were partially offset by a $4.8 million increase at Oxford due to certain restrictions during the prior year quarter, a $2.1 million increase at Fair Grounds from the 2022 Jazz Festival that more than offset the decline in Fair Grounds Slots revenue due to current economic conditions and the ongoing closure of our Houma OTB, and a $0.6 million net increase in all other properties.

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

• All Other revenue decreased $14.3 million primarily as a result of Arlington ceasing racing and simulcast operations at the end of 2021.

Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021

• Live and Historical Racing revenue increased $107.9 million primarily due to a $69.2 million increase at Churchill Downs Racetrack primarily due to the running of the Kentucky Derby in 2022 without capacity restrictions that were in place in 2021, a $19.5 million increase at Oak Grove, a $14.2 million increase from Derby City Gaming, a $4.8 million increase from Newport, and a $0.2 million increase from Turfway Park.

The increase at our HRM properties reflected the benefit of the elimination of the operating restrictions that were in place during the first half of 2021 and overall continued growth in the businesses.

• TwinSpires revenue decreased $7.7 million from the prior year quarter primarily due to a $8.8 million decrease from Horse Racing that was partially offset by a $1.1 million increase from Sports and Casino.

Horse Racing net revenue decreased as a portion of our patrons returned to wagering at brick-and-mortar facilities in the current quarter instead of wagering online.

Sports and Casino net revenue increased as a result of our expansion in additional states during 2021.

• Gaming revenue increased $25.2 million primarily due to certain capacity restrictions on patrons and gaming during the prior year quarter that were no longer in place at Oxford, Calder, and Presque Isle.

Horse Racing net revenue decreased as a higher portion of our patrons returned to wagering at brick-and-mortar facilities instead of wagering online in the current year compared to the prior year.

Sports and Casino net revenue increased as a result of higher hold rates.

• Gaming revenue increased $23.7 million primarily due to increases at Oxford, Calder, and Presque Isle as a result of certain capacity restrictions during the first half of the prior year and at Fair Grounds as a result of the 2022 Jazz Festival that was not held in the prior year due to COVID-19.

These increases were offset by decreases primarily at Harlow's and Riverwalk driven by the current economic conditions, competitive pressures, and a mask mandate at Harlow's that was discontinued in early June 2022.

• All Other revenue decreased $21.0 million primarily as a result of Arlington ceasing racing and simulcast operations at the end of 2021.

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

Consolidated Operating Expense

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

Three Months Ended March 31,

(in millions) 2022 2021 Change

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

(in millions) 2022 2021 Change 2022 2021 Change

Taxes and purses $ 135.0 $ 132.9 $ 2.1 $ 236.6 $ 221.8 $ 14.8

Salaries and benefits 42.3 37.2 5.1

Content expense 55.0 54.1 0.9 96.3 97.2 (0.9)

Salaries and benefits 49.9 45.2 4.7 92.2 82.4 9.8

Selling, general and administrative expense 38.4 33.4 5.0 74.3 63.6 10.7

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Total expense $ 382.8 $ 379.7 $ 3.1 $ 699.5 $ 657.3 $ 42.2

Three Months Ended March 31, 2022, Compared to Three Months Ended March 31, 2021

Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021

Significant items affecting comparability of consolidated operating expense include:

• Taxes and purses increased $2.1 million primarily driven by the increase in net revenue at our HRM properties.

• Content expense increased $0.9 million primarily due to an increase in online simulcast host fees in the TwinSpires Horse Racing business.

• Salaries and benefits expense increased $4.7 million driven primarily by the running of the Kentucky Derby in 2022 at full capacity and the capacity restrictions at our gaming properties in the prior year quarter.

• Selling, general and administrative expense increased $5.0 million driven primarily from an increase in employee benefits as well as an increase in legal fees and reserves.

• Marketing and advertising expense decreased $8.8 million primarily due to decreased online marketing by our TwinSpires Sports and Casino business due to the decision to exit the direct online sports and casino business.

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

decrease was partially offset by increased marketing spend at the properties in our Live and Historical racing segment.

• Transaction expense, net increased $1.2 million primarily due to increased legal and professional expenses related to the P2E Transaction.

• Asset impairments decreased $11.2 million due to a 2021 non-cash impairment charge related to a change in the Company's planned usage of certain first turn assets at Churchill Downs Racetrack.

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

Other operating expense increased $9.1 million primarily driven by the running of the Kentucky Derby at full capacity in 2022, costs associated with the 2022 Jazz Festival held at Fair Grounds, and increases in food and beverage costs.

Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021

Significant items affecting comparability of consolidated operating expense include:

• Taxes and purses increased $14.8 million primarily driven by the increase in net revenue by our wholly-owned gaming and HRM properties.

• Salaries and benefits expense increased $5.1 million driven by the capacity restrictions at our gaming properties in the prior year quarter.

• Content expense decreased $0.9 million primarily due to a decrease in online simulcast host fees in the TwinSpires Horse Racing business.

• Selling, general and administrative expense increased $5.7 million driven primarily from an increase in employee benefits as well as an increase in legal fees.

• Salaries and benefits expense increased $9.8 million driven by the running of the Kentucky Derby at full capacity in 2022 and the capacity restrictions at our gaming properties in the prior year.

• Selling, general and administrative expense increased $10.7 million driven primarily from an increase in employee benefits as well as an increase in legal fees and reserves.

• Depreciation and amortization decreased $0.8 million primarily driven by the assets held for sale at Arlington.

• Marketing and advertising expense decreased $0.6 million primarily due to decreased marketing by our TwinSpires Sports and Casino business due to the decision to exit the direct online Sports and Casino business.

This decrease was partially offset by increased marketing spend at our gaming properties.

• Marketing and advertising expense decreased $9.4 million primarily due to decreased online marketing by our TwinSpires Sports and Casino business due to the decision to exit the direct online sports and casino business.

This decrease was partially offset by increased marketing spend at our Gaming and Live and Historical racing properties.

• Transaction expense, net increased $6.1 million primarily due to increased legal and professional expenses related to the P2E Transaction.

• Asset impairments increased $4.9 million due to a non-cash impairment charge related to the Company's plan to exit the direct online Sports and Casino business.

• Asset impairments decreased $6.3 million due to $11.2 million non-cash impairment charge related to a change in the Company's planned usage of certain first turn assets at Churchill Downs Racetrack recognized during the second quarter of 2021 that did not recur.

This charge was partially offset by a non-cash impairment charge of $4.9 million related to the Company's plan to exit the direct online sports and casino business that was recorded in the first quarter of 2022.

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

Other operating expense increased $9.1 million primarily driven by significant increases in property insurance, food and beverage costs, and preparation for the running of the 148th Kentucky Oaks and Derby.

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

Other operating expense increased $18.2 million primarily driven by increases in property insurance, food and beverage costs, the running of the Kentucky Derby at full capacity in 2022, and the 2022 Jazz Festival held at Fair Grounds.

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

Adjusted EBITDA

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

Three Months Ended March 31,

(in millions) 2022 2021 Change

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

(in millions) 2022 2021 Change 2022 2021 Change

Live and Historical Racing $ 163.9 $ 98.4 $ 65.5 $ 191.8 $ 116.7 $ 75.1

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Total Adjusted EBITDA $ 291.2 $ 233.3 $ 57.9 $ 419.7 $ 343.9 $ 75.8

Three Months Ended March 31, 2022, Compared to Three Months Ended March 31, 2021

• Live and Historical Racing Adjusted EBITDA increased $9.6 million due to a $5.3 million increase at Oak Grove, a $5.2 million increase at Derby City Gaming, and a $0.7 million increase at Newport from the increase in net revenue.

Partially offsetting these increases was a $1.2 million decrease at Churchill Downs Racetrack due to the timing of Derby Week expenses and a $0.4 million decrease from higher expenses at Turfway Park.

Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021

• Live and Historical Racing Adjusted EBITDA increased $65.5 million due to a $58.5 million increase at Churchill Downs Racetrack driven by the running of the Kentucky Derby in 2022 without capacity restrictions that were in place in 2021, a $4.0 million increase at Oak Grove, a $1.7 million increase at Derby City Gaming, and a $1.3 million increase at Newport driven by increases in net revenue.

• TwinSpires Adjusted EBITDA increased $9.3 million primarily due to a $10.8 million increase from our Sports and Casino business due to decreased online marketing and promotional activities.

This increase was offset by a $1.2 million decrease from Horse Racing due to a reduction in net revenue and a $0.3 million decrease from United Tote.

• Gaming Adjusted EBITDA decreased $13.0 million driven by a $10.2 million decrease at our wholly-owned Gaming properties and a $2.8 million decrease from our equity investments.

The decreases at our wholly-owned Gaming properties are the result of decreased revenue and increases in marketing and salaries expense.

The decrease in our equity investments is also driven by increased marketing and salaries expense.

• All Other Adjusted EBITDA decreased $3.9 million driven primarily by a $3.1 million decrease as a result of Arlington not conducting live racing in the second quarter of 2022 as we ceased racing and simulcast operations at the end of 2021.

We are excluding Arlington's operating results from Adjusted EBITDA in 2022 pending the sale of the property to the Chicago Bears.

Corporate expense increased $0.8 million as a result of increased legal fees and charitable donations.

Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021

• Live and Historical Racing Adjusted EBITDA increased $75.1 million due to a $57.3 million increase at Churchill Down Racetrack driven by running the Kentucky Derby in 2022 without capacity restrictions that were in place in 2021, a $9.3 million increase at Oak Grove, a $6.9 increase at Derby City Gaming, and a $2.1 million increase at Newport driven by increases in net revenue.

These were partially offset by a decrease at Turfway of $0.5 million.

• TwinSpires Adjusted EBITDA increased $10.3 million primarily due to a $14.5 million increase from our Sports and Casino business due to decreased marketing and promotional activities and a $0.4 million increase at United Tote.

Partially offsetting these increases was a decrease from Horse Racing of $4.6 million due to the reduction in net revenue.

• Gaming Adjusted EBITDA increased $8.7 million driven by a $5.6 million increase at our wholly-owned Gaming properties due to increased net revenue and a $3.1 million increase from our equity investments, both of which were due to certain capacity restrictions on patrons and gaming during the prior year quarter.

• All Other Adjusted EBITDA decreased $1.4 million driven by a $2.6 million increase in legal fees and the timing of other Corporate expenses that was partially offset by a $1.2 million decrease in the Arlington operating loss in the current year quarter compared to the prior year quarter as a result of Arlington ceasing racing and simulcast operations at the end of 2021.

• Gaming Adjusted EBITDA decreased $4.3 million driven by a $4.5 million decrease at our wholly-owned Gaming properties that was partially offset by a $0.2 million increase from our equity investments.

The decreases at our wholly owned Gaming properties are primarily driven by increases in marketing and salaries expense.

The increase in our equity investments is driven by capacity restrictions the prior year that are no longer in place.

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

• All Other Adjusted EBITDA decreased $5.3 million driven by a $3.4 million increase in Corporate expenses, primarily legal fees and charitable donations and a $1.9 million decrease from Arlington as we ceased racing and simulcast operations at the end of 2021.

We are excluding Arlington's operating results from Adjusted EBITDA in 2022 pending the sale of the property to the Chicago Bears.

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

Reconciliation of Comprehensive Income to Adjusted EBITDA

Three Months Ended March 31,

(in millions) 2022 2021 Change

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

(in millions) 2022 2021 Change 2022 2021 Change

Net income and comprehensive income $ 339.3 $ 108.3 $ 231.0 $ 381.4 $ 144.4 $ 237.0

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Stock-based compensation expense $ 7.4 $ 7.1 $ 0.3 $ 14.4 $ 12.6 $ 1.8

Legal reserves 3.2 — 3.2 3.2 — 3.2

Pre-opening expense 2.6 1.5 1.1 4.7 2.1 2.6

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Other charges — — — 1.0 — 1.0

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

Total adjustments to EBITDA (249.9) 35.4 (285.3) (226.4) 48.3 (274.7)

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

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

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

Total assets $ 4,619.6 $ 2,981.6 $ 1,638.0

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

• Total assets increased $55.3 million driven b y a $40.9 million increase in property and equipment driven by capital expenditures at Churchill Downs Racetrack, Turfway Park, and Derby City Gaming;

a $16.9 million increase in other current assets driven by an increase in prepaid insurance;

and a $11.8 million increase in all other assets.

Partially offsetting these increases was an $8.1 million decrease in investments in and advances to unconsolidated affiliates driven by distributions received from Rivers Des Plaines and MVG;

and a $6.2 million decrease in income tax receivable driven by the current year quarter income tax provision.

• Total liabilities increased $44.3 million primarily driven by a $56.3 million increase in current deferred revenue due to advance sales associated with the 148th Kentucky Oaks and Derby tickets and sponsorships;

a $15.3 million increase in accounts payable driven by timing of payments;

and a $10.5 increase in all other liabilities.

Partially offsetting these increases were a $26.1 million decrease in dividends payable due to the payment of our annual dividends;

and a $11.7 million decrease in accrued expenses and other liabilities.

• Total assets increased $1,638.0 million driven b y a $1,525.0 million increase in restricted cash driven by cash proceeds received for the closing of the 2030 Senior Notes into escrow and the Calder land sale, $135.2 million increase in property and equipment driven by capital expenditures at Churchill Downs Racetrack, Turfway Park, and Derby City Gaming, a $23.2 million increase in accounts receivable driven by simulcast and other pari-mutuel wagering activity, and a $20.6 million increase in all other assets.

Partially offsetting these increases was a $66.0 million decrease in income t ax receivable driven primarily by the current year income tax provision and a refund received from the IRS.

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

• Total liabilities increased $1,341.9 million primarily driven by a $1,196.1 million increase in notes payable, net of debt issuance costs, related to the closing of the 2030 Senior Notes into escrow, an $86.7 million increase in income tax payable primarily driven by the tax gain on the Calder land sale, a $57.5 million increase in accounts payable primarily due to timing of racing related payments, a $20.4 million increase in deferred income tax due to our current year income tax provision, an $18.4 million increase in advance deposit wagering accounts, a $14.9 million increase in accrued interest due to higher outstanding debt balances and a $10.3 million increase in purses payable due to our spring and summer race meets.

Partially offsetting these increases was a $35.6 million decrease in current deferred revenue related to recognition of advanced sales for the 2022 Kentucky Derby, a $26.1 million decrease in dividends payable due to the payment of our annual dividends, and a $0.7 decrease in all other liabilities.

• Total shareholders’ equity increased $296.1 million driven by a $381.4 million increase from current year net income and $14.4 million from stock-based compensation.

Partially offsetting this increase were $86.5 million in repurchases of common stock and $13.2 million in taxes paid related to net share settlement of stock awards.

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

Liquidity and Capital Resources

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

(in millions) Three Months Ended March 31,

(in millions) Six Months Ended June 30,

Cash flows from:

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Financing activities $ 1,058.5 $ 110.6 $ 947.9

Three Months Ended March 31, 2022, Compared to the Three Months Ended March 31, 2021

• Cash flows from operating activities increased $31.0 million driven by a $35.3 million increase in current deferred revenue mainly due to advance sales associated with the 148th Kentucky Oaks and Derby tickets and sponsorships, an $18.6 million increase in distributions from unconsolidated affiliates, and a $0.7 million increase in operating income.

Partially offsetting these increases was a $23.6 million decrease from all other operating activities.

Six Months Ended June 30, 2022, Compared to the Six Months Ended June 30, 2021

• Cash flows from operating activities increased $46.5 million driven by a $65.0 million increase in operating income, a $30.4 million increase in distributions from unconsolidated affiliates, and a $32.9 million tax refund related to the 2020 tax return loss.

Partially offsetting these increases was a $25.3 million decrease in deferred revenue primarily due to the recognition of advanced sales for the 2022 Kentucky Derby and a $56.5 million decrease in all other operating activities.

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

• Cash used in investing activities increased $50.5 million driven by a $37.9 million increase in capital project expenditures at Churchill Downs Racetrack and Turfway Park, a $5.3 million increase in capital maintenance expenditures and a $7.3 million increase from all other investing activities.

• Cash provided by financing activities decreased $174.8 million primarily driven by a $356.9 million decrease in net borrowings from long-term debt.

Partially offsetting this decrease was a $169.6 million increase in common stock repurchases and a $12.5 million decrease from all other financing activities.

• Cash used in investing activities increased $135.1 million driven by the $279.0 million increase from proceeds from the Calder land sale.

This increase was offset by a $128.2 million increase in capital project expenditures primarily at Churchill Downs Racetrack and Turfway Park, a $9.3 million increase in capital maintenance expenditures and a $6.4 million increase from all other investing activities.

• Cash provided by financing activities increased $947.9 million primarily driven by a $843.1 million increase in net borrowings from long-term debt and a $109.4 million decrease in common stock repurchases.

Partially offsetting this increase was a $4.6 million decrease from all other financing activities.

Capital Expenditures

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

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

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

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

Repurchases may be made at

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

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

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

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

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

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

Credit Facilities and Indebtedness

The following table presents our debt outstanding:

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

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

Revolver $ — $ — $ —

Delayed Draw Term Loan A due 2027 — — —

Term Loan B due 2024 382.0 384.0 (2.0)

Term Loan B-1 due 2028 296.3 297.8 (1.5)

Revolver — — —

2027 Senior Notes 600.0 600.0 —

2028 Senior Notes 700.0 700.0 —

2030 Senior Notes 1,200.0 — 1,200.0

Total debt 3,178.3 1,981.8 1,196.5

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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.

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The Company capitalized $3.5 million of debt issuance costs associated with the Joinder which are being amortized as interest expense over the 7-year term of the Term Loan B-1.

On April 13, 2022, the Company entered into the Credit Agreement Amendment to extend the maturity date of our 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 the Delayed Draw Term Loan A credit facility due 2027 in the amount of $800 million.

The interest rate applicable to borrowings on the Revolver and Delayed Draw Term Loan A will be SOFR-based plus a spread, determined by the Company’s and the guarantors’ leverage ratio.

The interest rate on the Revolver on March 31, 2022 was LIBOR plus 138 basis points based on the Revolver pricing grid in the Second Amendment and the Company's net leverage ratio as of March 31, 2022.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 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 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 Credit Agreement contains certain customary affirmative and negative covenants, which include limitations on liens, investments, indebtedness, dispositions, mergers and acquisitions, the making of restricted payments, changes in the nature of

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

business, changes in fiscal year, and transactions with affiliates.

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

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Consolidated total secured net leverage ratio .35 to 1.0 < 4.0 to 1.0

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

The Company was compliant with all applicable covenants on June 30, 2022.

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

For the period ended June 30, 2022, the Company's commitment fee rate for the Revolver was 0.20%.

Once drawn, the Delayed Draw Term Loan A requires quarterly payments of 1.25% of the original $800.0 million balance, or $10.0 million per quarter.

The Company is required to pay an unused commitment fee for the period from and including the date that is sixty days after the Fourth Amendment up to the date funds are drawn.

That fee is determined by a pricing grid based on the Company’s consolidated total net leverage ratio.

For the period ended June 30, 2022, the Company's commitment fee rate for the Delayed Draw Term Loan A was 0.20%.

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

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

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

For the period ended March 31, 2022, the Company's commitment fee rate was 0.20%.

2027 Senior Notes

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2028 Senior Notes

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

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

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.

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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

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

outstanding of the Existing 2028 Notes, together with the Additional 2028 Notes (collectively the "2028 Senior Notes") is $700 million.

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

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

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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.

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 5.750% 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 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 Senior 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 st and October 1 st of each year, commencing on October 1, 2022.

The 2030 Senior 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.

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

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

Contractual Obligations

Our commitments to make future payments as of March 31, 2022, are estimated as follows:

Our commitments to make future payments as of June 30, 2022, are estimated as follows:

(in millions) 2022 2023-2024 2025-2026 Thereafter Total

Term Loan A $ 10.0 $ 80.0 $ 80.0 $ 630.0 $ 800.0

Interest on Term Loan A 7.5 56.3 50.2 6.6 120.6

Term Loan B 2.0 380.0 — — 382.0

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2028 Senior Notes — — — 700.0 700.0

2030 Senior Notes — — — 1,200.0 1,200.0

Interest on 2027 Senior Notes 16.6 66.0 66.0 16.5 165.1

Interest on 2028 Senior Notes 16.6 66.5 66.5 49.9 199.5

Interest on 2030 Senior Notes 32.2 138.0 138.0 244.0 552.2

Operating and Finance Leases 3.5 12.9 11.6 16.0 44.0

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Total $ 107.5 $ 860.0 $ 443.2 $ 3,763.2 $ 5,173.9

(1) Interest includes the estimated contractual payments under our Credit Agreement assuming no change in the weighted average borrowing rate of 2.21% which was the rate in place as of March 31, 2022.

(1) Interest includes the estimated contractual payments under our Credit Agreement assuming no change in the weighted average borrowing rate of 3.67% which was the rate in place as of June 30, 2022.

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

As of March 31, 2022, we had approximately $3.9 million of tax liabilities related to unrecognized tax benefits.

As of June 30, 2022, we had approximately $7.7 million of tax liabilities related to unrecognized tax benefits.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis