Churchill Downs Inc 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains various "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"), which provides certain "safe harbor" provisions for forward-looking statements. All forward-looking statements made in this report are made pursuant to the Act. The reader is cautioned that such forward-looking statements are based on information available at the time and / or management’s good faith belief with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Forward-looking statements speak only as of the date that the statement was made. We assume no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. Forward-looking statements are typically identified by the use of terms such as “anticipate,” "believe," "could," "estimate," "expect," "intend," "may," "might," "plan," "predict," "project," "seek," "should," "will," and similar words, although some forward-looking statements are expressed differently. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. 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) 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, including the impact of inflation; • additional or increased taxes and fees; • the impact of significant competition, and the expectation the competition levels will increase; • changes in consumer preferences, attendance, wagering, and sponsorships; • loss of key or highly skilled personnel; • lack of confidence in the integrity of our core businesses or any deterioration in our reputation; • risks associated with equity investments, strategic alliances and other third-party agreements; • inability to respond to rapid technological changes in a timely manner; • concentration and evolution of slot machine and historical racing machine ("HRM") manufacturing and other technology conditions that could impose additional costs; • inability to negotiate agreements with industry constituents, including horsemen and other racetracks; • inability to successfully focus on market access and retail operations for our TwinSpires Sports and Casino business and effectively compete; • inability to identify, complete, or fully realize the benefits of, our proposed acquisitions, divestitures, development of new venues or the expansion of existing facilities on time, on budget, or as planned; • general risks related to real estate ownership and significant expenditures, including fluctuations in market values and environmental regulations; • reliance on our technology services and catastrophic events and system failures disrupting our operations; • online security risk, including cyber-security breaches, or loss or misuse of our stored information as a result of a breach, including customers’ personal information, could lead to government enforcement actions or other litigation; • personal injury litigation related to injuries occurring at our racetracks; • compliance with the Foreign Corrupt Practices Act or applicable money-laundering regulations; FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022 27 • payment-related risks, such as risk associated with fraudulent credit card and debit card use; • work stoppages and labor issues; • risks related to pending or future legal proceedings and other actions; • highly regulated operations and changes in the regulatory environment could adversely affect our business; • restrictions in our debt facilities limiting our flexibility to operate our business; • failure to comply with the financial ratios and other covenants in our debt facilities and other indebtedness; • disruptions in the credit markets or changes to our credit ratings may adversely affect our business; and • increase in our insurance costs, or obtain similar insurance coverage in the future, and inability to recover under our insurance policies for damages sustained at our properties in the event of inclement weather and casualty events. The following information is unaudited. Tabular dollars are in millions, except per share amounts. All per share amounts assume dilution unless otherwise noted. 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 JUNE 30, 2022 28 Our Business Executive Overview 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 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. We were organized as a Kentucky corporation in 1928, and our principal executive offices are located in Louisville, Kentucky. Segments During the first quarter of 2022, we updated our operating segments to reflect the internal management reporting used by our chief operating decision maker to evaluate results of operations and to assess performance and allocate resources. Our chief operating decision maker decided to include the results of our United Tote business in the TwinSpires segment as we evolve our strategy to integrate the United Tote offering with TwinSpires Horse Racing, which we believe will create additional business to business revenue opportunities. Results of our United Tote business were previously included in our All Other segment. The prior year results were reclassified to conform to this presentation. P2E Acquisition On February 18, 2022, the Company entered into a definitive purchase agreement to acquire substantially all of the assets of Peninsula Pacific Entertainment LLC ("P2E") for total consideration of $2.485 billion (the "P2E Purchase Agreement") (collectively, the "P2E Transaction"). The P2E Purchase Agreement contemplates the acquisition by the Company of the following properties: Colonial Downs Racetrack in New Kent, Virginia ("Colonial Downs"), six historical racing entertainment venues across Virginia, del Lago Resort & Casino ("del Lago") in Waterloo, New York, and the operations of Hard Rock Hotel & Casino in Sioux City, Iowa (“Hard Rock Sioux City”). The 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. If certain required regulatory approvals are not obtained and the P2E Purchase Agreement is terminated, the Company may have to pay a Regulatory Termination Fee of up to $137.5 million. April 2022 Financing Transactions 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, FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022 29 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 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 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. The extent to which the COVID-19 pandemic, including the emergence of variant strains, will continue to impact the Company remains uncertain and will depend on many factors that are not within our control. We will continue to monitor for new developments related to the pandemic and assess these developments to maintain continuity in our operations. Asset Impairment 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”). Based on the Company’s evaluation, the Company concluded that a Trigger Event occurred related to certain TwinSpires assets. As a result, the Company recorded a $4.9 million non-cash impairment charge related to certain assets in the TwinSpires segment. Key Indicators to Evaluate Business Results and Financial Condition Our management monitors a variety of key indicators to evaluate our business results and financial condition. These indicators include changes in net revenue, operating expense, operating income, earnings per share, outstanding debt balance, operating cash flow and capital spend. Our condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP"). We also use non-GAAP measures, including EBITDA (earnings before interest, taxes, depreciation and amortization) and Adjusted EBITDA. We believe that the use of Adjusted EBITDA as a key performance measure of results of operations enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner. Our chief operating decision maker utilizes Adjusted EBITDA to evaluate segment performance, develop strategy and allocate resources. Adjusted EBITDA is a supplemental measure of our performance that is not required by, or presented in accordance with, GAAP. 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. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, adjusted for the following: Adjusted EBITDA includes our portion of EBITDA from our equity investments. Adjusted EBITDA excludes: • Transaction expense, net which includes: • Acquisition, disposition, and land sale related charges; • Direct online Sports and Casino business costs; and • Other transaction expense, including legal, accounting, and other deal-related expense; • Stock-based compensation expense; • Rivers Des Plaines' impact on our investments in unconsolidated affiliates from: – The impact of changes in fair value of interest rate swaps; and – Legal reserves and transaction costs; • Asset impairments; • Gain on Calder land sale; • Legal reserves; • Pre-opening expense; and • Other charges, recoveries and expenses FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022 30 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. 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. Governmental Regulations and Legislative Changes We are subject to various federal, state and international laws and regulations that affect our businesses. The ownership, operation and management of our Live and Historical Racing, TwinSpires, and Gaming segments, as well as our other operations, are subject to regulation under the laws and regulations of each of the jurisdictions in which we operate. The ownership, operation and management of our businesses and properties are also subject to legislative actions at both the federal and state level. The following update on our regulatory and legislative 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 Maine 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 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 Operating income 199.7 135.4 64.3 247.1 182.1 65.0 Operating income margin 34 % 26 % 26 % 22 % Net income 339.3 108.3 231.0 381.4 144.4 237.0 Adjusted EBITDA 291.2 233.3 57.9 419.7 343.9 75.8 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 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 31 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 $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 32 Financial Results by Segment Net Revenue by Segment The following table presents net revenue for our segments, including intercompany revenue: Three Months Ended June 30, Six Months Ended June 30, (in millions) 2022 2021 Change 2022 2021 Change Live and Historical Racing: Churchill Downs Racetrack $ 188.9 $ 119.6 $ 69.3 $ 191.4 122.2 $ 69.2 Derby City Gaming 44.2 39.9 4.3 87.0 72.8 14.2 Oak Grove 34.1 25.6 8.5 64.5 45.0 19.5 Newport 7.4 4.5 2.9 13.7 8.9 4.8 Turfway Park 1.3 0.9 0.4 6.5 6.3 0.2 Total Live and Historical Racing 275.9 190.5 85.4 363.1 255.2 107.9 TwinSpires: Horse Racing 132.3 134.2 (1.9) 223.4 232.2 (8.8) Sports and Casino 6.2 8.4 (2.2) 16.5 15.4 1.1 Total TwinSpires 138.5 142.6 (4.1) 239.9 247.6 (7.7) Gaming: Fair Grounds and VSI 37.2 35.1 2.1 80.6 75.4 5.2 Presque Isle 30.4 30.5 (0.1) 57.6 54.3 3.3 Calder 28.0 27.4 0.6 55.0 48.3 6.7 Ocean Downs 27.4 27.0 0.4 48.7 47.0 1.7 Oxford 29.4 24.6 4.8 56.2 40.3 15.9 Riverwalk 14.0 18.4 (4.4) 28.4 32.8 (4.4) Harlow's 12.0 16.6 (4.6) 25.1 30.6 (5.5) Lady Luck Nemacolin 6.1 6.4 (0.3) 12.1 11.3 0.8 Total Gaming 184.5 186.0 (1.5) 363.7 340.0 23.7 All Other 0.5 14.8 (14.3) 1.0 22.0 (21.0) Eliminations (16.9) (18.8) 1.9 (21.1) (25.4) 4.3 Net Revenue $ 582.5 $ 515.1 $ 67.4 $ 946.6 $ 839.4 $ 107.2 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 33 • 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 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. Consolidated Operating Expense The following table is a summary of our consolidated operating expense: 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 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 Depreciation and amortization 26.1 26.0 0.1 51.2 52.0 (0.8) Marketing and advertising 15.3 24.1 (8.8) 26.8 36.2 (9.4) Transaction expense, net 1.2 — 1.2 6.2 0.1 6.1 Asset impairments — 11.2 (11.2) 4.9 11.2 (6.3) Other operating expense 61.9 52.8 9.1 111.0 92.8 18.2 Total expense $ 382.8 $ 379.7 $ 3.1 $ 699.5 $ 657.3 $ 42.2 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. This FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022 34 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. • Content expense decreased $0.9 million primarily due to a decrease in online simulcast host fees in the TwinSpires Horse Racing business. • 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 $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 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 $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 35 Adjusted EBITDA We believe that the use of Adjusted EBITDA as a key performance measure of the results of operations enables management and investors to evaluate and compare from period to period our operating performance in a meaningful and consistent manner. Adjusted EBITDA is a supplemental measure of our performance that is not required by or presented in accordance with GAAP. Adjusted EBITDA should not be considered as an alternative to operating income as an indicator of performance, as an alternative to cash flows from operating activities as a measure of liquidity, or as an alternative to any other measure provided in accordance with GAAP. Three Months Ended June 30, Six Months Ended June 30, (in millions) 2022 2021 Change 2022 2021 Change Live and Historical Racing $ 163.9 $ 98.4 $ 65.5 $ 191.8 $ 116.7 $ 75.1 TwinSpires 33.9 24.6 9.3 58.0 47.7 10.3 Gaming 106.8 119.8 (13.0) 197.9 202.2 (4.3) Total Segment Adjusted EBITDA 304.6 242.8 61.8 447.7 366.6 81.1 All Other (13.4) (9.5) (3.9) (28.0) (22.7) (5.3) Total Adjusted EBITDA $ 291.2 $ 233.3 $ 57.9 $ 419.7 $ 343.9 $ 75.8 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 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 36 • 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. Reconciliation of Comprehensive Income to Adjusted EBITDA 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 Additions: Depreciation and amortization 26.1 26.0 0.1 51.2 52.0 (0.8) Interest expense 35.1 22.0 13.1 56.4 41.4 15.0 Income tax provision 140.6 41.6 99.0 157.1 57.8 99.3 EBITDA $ 541.1 $ 197.9 $ 343.2 $ 646.1 $ 295.6 $ 350.5 Adjustments to EBITDA: 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 Other expense, net 1.8 0.2 1.6 4.3 0.2 4.1 Asset impairments — 11.2 (11.2) 4.9 11.2 (6.3) Transaction expense, net 1.2 — 1.2 6.2 0.1 6.1 Other income, expense: Interest, depreciation and amortization expense related to equity investments 10.5 10.5 — 21.6 20.1 1.5 Changes in fair value of Rivers Des Plaines' interest rate swaps (2.2) (1.8) (0.4) (12.6) (6.0) (6.6) Rivers Des Plaines' legal reserves and transactions costs 0.2 6.7 (6.5) 0.5 8.0 (7.5) 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) Adjusted EBITDA $ 291.2 $ 233.3 $ 57.9 $ 419.7 $ 343.9 $ 75.8 Consolidated Balance Sheet The following table is a summary of our overall financial position: (in millions) June 30, 2022 December 31, 2021 Change Total assets $ 4,619.6 $ 2,981.6 $ 1,638.0 Total liabilities $ 4,016.7 $ 2,674.8 $ 1,341.9 Total shareholders' equity $ 602.9 $ 306.8 $ 296.1 Significant items affecting the comparability of our condensed consolidated balance sheets include: • 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 37 • 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. Liquidity and Capital Resources The following table is a summary of our liquidity and cash flows: (in millions) Six Months Ended June 30, Cash flows from: 2022 2021 Change Operating activities $ 380.8 $ 334.3 $ 46.5 Investing activities $ 104.6 $ (30.5) $ 135.1 Financing activities $ 1,058.5 $ 110.6 $ 947.9 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 $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 Included in cash flows from investing activities are capital maintenance expenditures and capital project expenditures. Capital maintenance expenditures relate to the replacement of existing fixed assets with a useful life greater than one year that are obsolete, exhausted, or no longer cost effective to repair. Capital project expenditures represent fixed asset additions related to land or building improvements to new or existing assets or purchases of new (non-replacement) equipment or software related to specific projects deemed necessary expenditures. We have announced several project capital investments during the past year, including the following: Churchill Downs Racetrack Homestretch Club and the Turn I Experience, Derby City Gaming Expansion and Hotel, Derby City Gaming Downtown, Turfway Park HRM Facility and Grandstand, the Queen of Terre Haute Casino Resort, and Louisiana HRMs. We currently estimate that we will spend between $300.0 million and $350.0 million for project capital in 2022, although this amount may vary significantly based on the timing of work completed, unanticipated delays, and timing of payments to third parties. Common Stock Repurchase Program 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 Repurchase Program authorization. Repurchases may be made at FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022 38 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 $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) 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) 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 Current maturities of long-term debt 7.0 7.0 — Total debt, net of current maturities 3,171.3 1,974.8 1,196.5 Issuance costs, net of premiums and discounts (17.0) (13.8) (3.2) Net debt $ 3,154.3 $ 1,961.0 $ 1,193.3 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 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, which (i) provided for a financial covenant relief period through the date on which the Company delivered the Company's quarterly financial statements and compliance certificate for the fiscal quarter ended June 30, 2021, subject to certain exceptions (the "Financial Covenant Relief Period"), (ii) amended the definition of "Consolidated EBITDA" in the Credit Agreement with respect to the calculation of Consolidated EBITDA for the first two fiscal quarters after the termination of the Financial Covenant Relief Period, (iii) extended certain deadlines and makes certain other amendments to the Company’s financial reporting obligations, (iv) placed certain restrictions on restricted payments during the Financial Covenant Relief Period, and (v) amended the definitions of "Material Adverse Effect" and "License Revocation" in the Credit Agreement to take into consideration COVID-19. On February 1, 2021, the Company entered into the Third Amendment to the Credit Agreement to increase the restricted payments capacity during the Financial Covenant Relief Period from $26.0 million to $226.0 million to accommodate a share repurchase from an affiliate of TDG. Refer to Note 9, Shareholders' Equity, of the Notes to the Condensed Consolidated Financial Statements for information regarding this transaction. On March 17, 2021, the Company entered into the Incremental Joinder Agreement No. 1 (the "Joinder") to its Credit Agreement which provided $300.0 million in New Term Loan Commitments ("Term Loan B-1") as a new tranche of term loans under the existing Credit Agreement (as conformed to recognize the new loan), and carries a maturity date of March 17, 2028. The Term Loan B-1 bears interest at LIBOR plus 200 basis points and requires quarterly payments of 0.25% of the original $300.0 million balance. The Term Loan B-1 may be subject to additional mandatory prepayment from excess cash flow on an annual basis per the provisions of the Credit Agreement. The Company capitalized $3.5 million of debt issuance costs associated with the Joinder which are being amortized as interest expense over the 7-year term of the Term Loan B-1. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022 39 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 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. Actual Requirement Interest coverage ratio 7.75 to 1.0 > 2.5 to 1.0 Consolidated total secured net leverage ratio .35 to 1.0 < 4.0 to 1.0 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. 2027 Senior Notes On March 25, 2019, we completed an offering of $600.0 million in aggregate principal amount of 5.50% Senior Unsecured Notes that mature on April 1, 2027 (the "2027 Senior Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The 2027 Senior Notes were issued at par, with interest payable on April 1 st and October 1 st of each year, commencing on October 1, 2019. The Company used the net proceeds from the offering to repay our outstanding balance on the Revolver portion of our Credit Agreement. In connection with the offering, we capitalized $8.9 million of debt issuance costs which are being amortized as interest expense over the term of the 2027 Senior Notes. The 2027 Senior Notes were issued pursuant to an indenture, dated March 25, 2019 (the "2027 Indenture"), among the Company, certain subsidiaries of the Company as guarantors (the "2027 Guarantors"), and U.S. Bank National Association, as trustee. The Company may redeem some or all of the 2027 Senior Notes at any time at redemption prices set forth in the 2027 Indenture. The terms of the 2027 Indenture, among other things, limit the ability of the Company to: (i) incur additional debt and issue preferred stock; (ii) pay dividends or make other restricted payments; (iii) make certain investments; (iv) create liens; (v) allow restrictions on the ability of certain of our subsidiaries to pay dividends or make other payments; (vi) sell assets; (vii) merge or consolidate with other entities; and (viii) enter into transactions with affiliates. 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 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022 40 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 Existing 2028 Senior Notes were issued at par, with interest payable on January 15 th and July 15 th of each year, commencing on July 15, 2018. The Company used the net proceeds from the offering to repay a portion of our $600.0 million 5.375% Senior Unsecured Notes. In connection with the offering, we capitalized $7.7 million of debt issuance costs which are being amortized as interest expense over the term of the Existing 2028 Senior Notes. The Existing 2028 Senior Notes were issued pursuant to an indenture, dated December 27, 2017 (the "2028 Indenture"), among the Company, certain subsidiaries of the Company as guarantors (the "2028 Guarantors"), and U.S. Bank National Association, as trustee. The Company may redeem some or all of the Existing 2028 Senior Notes at any time at redemption prices set forth in the 2028 Indenture. The terms of the 2028 Indenture, among other things, limit the ability of the Company to: (i) incur additional debt and issue preferred stock; (ii) pay dividends or make other restricted payments; (iii) make certain investments; (iv) create liens; (v) allow restrictions on the ability of certain of our subsidiaries to pay dividends or make other payments; (vi) sell assets; (vii) merge or consolidate with other entities; and (viii) enter into transactions with affiliates. On March 17, 2021, the Company completed an offering of $200.0 million in aggregate principal amount of 4.75% Senior Unsecured Notes that mature on January 15, 2028 (the "Additional 2028 Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the Securities Act, and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The Additional 2028 Notes were offered under the indenture dated as of December 27, 2017, governing the Existing 2028 Senior Notes and form a part of the same series for purposes of the indenture. In connection with the offering, we capitalized $3.4 million of debt issuance costs which are being amortized as interest expense over the term of the Additional 2028 Notes. Upon completion of this offering, the aggregate principal amount outstanding of the Existing 2028 Notes, together with the Additional 2028 Notes (collectively the "2028 Senior Notes") is $700.0 million. The Additional 2028 Notes were issued at 103.25% of the principal amount, plus interest deemed to have accrued from January 15, 2021, with interest payable on January 15 th and July 15 th of each year, commencing on July 15, 2021. The 2028 Senior Notes will vote as one class under the indenture governing the 2028 Senior Notes. The 3.25% premium will be amortized through interest expense, net over the term of the Additional 2028 Notes. The Company used the net proceeds from the Additional 2028 Notes and the Term Loan B-1 (i) to repay indebtedness outstanding under our Revolving Credit Facility, (ii) to fund related transaction fees and expenses and (iii) for working capital and other general corporate purposes. The Company may redeem some or all of the Additional 2028 Notes at any time as set forth in the 2028 Offering Memorandum. 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 41 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 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 Interest on Term Loan B (1) 7.2 27.9 — — 35.1 Term Loan B-1 1.5 6.0 6.0 282.8 296.3 Interest on Term Loan B-1 (1) 5.5 21.8 21.3 12.7 61.3 2027 Senior Notes — — — 600.0 600.0 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 Minimum Guarantees (2) 4.9 4.6 3.6 4.7 17.8 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 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 June 30, 2022, we had approximately $7.7 million of tax liabilities related to unrecognized tax benefits.