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Item 1. Financial Statements

2022-10-26 compared with 2022-07-27 · 196 added, 123 removed, 657 unchanged (33% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

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

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

30 unchanged sentences

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

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

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

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

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

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

Current assets:

39 unchanged sentences

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

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

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

CHURCHILL DOWNS INCORPORATED

15 unchanged sentences

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

Net income 57.0 57.0

Issuance of common stock — 2.7 2.7

Repurchase of common stock ( 0.3 ) ( 11.8 ) ( 47.2 ) ( 59.0 )

Stock-based compensation 9.1 9.1

Balance, September 30, 2022 37.4 $ — $ 613.6 $ ( 0.9 ) $ 612.7

Common Stock Retained

12 unchanged sentences

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

Net income 61.4 61.4

Issuance of common stock 2.5 2.5

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

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

Stock-based compensation 7.8 7.8

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

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

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

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

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions) 2022 2021

19 unchanged sentences

Capital project expenditures ( 226.6 ) ( 29.8 )

Acquisition of businesses, net of cash acquired ( 81.7 ) —

Acquisition of gaming rights, net of cash acquired ( 33.3 ) —

Proceeds from Calder land sale 279.0 —

Other ( 7.3 ) ( 3.1 )

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

Net cash used in investing activities ( 107.0 ) ( 55.2 )

Cash flows from financing activities:

14 unchanged sentences

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

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

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

CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions) 2022 2021

4 unchanged sentences

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

Deferred payment on gaming rights included in other liabilities $ 50.0 $ —

Property and equipment additions included in accounts payable and accrued expenses 45.0 6.6

Debt issuance costs included in accrued expense and other current liabilities 1.8 —

Right-of-use assets obtained in exchange for lease obligations in operating leases 1.6 9.6

Right-of-use assets obtained in exchange for lease obligations in finance leases 6.2 2.1

Repurchase of common stock included in accrued expense and other current liabilities 2.0 1.5

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

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

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

Churchill Downs Incorporated

21 unchanged sentences

Refer to Note 5, Calder Land Sale, for further information on the sale.

Acquisitions of Chasers Poker Room and Ellis Park

On September 2, 2022, we completed the previously announced acquisition of Chasers Poker Room ("Chasers") in Salem, New Hampshire (the "Chasers Transaction").

As part of the acquisition, we made an initial payment to the sellers for rights to operate the poker room and to build a historical racing facility.

Additional payments will be made once all necessary permits are obtained and the planned historical racing facility is opened.

On September 26, 2022, we completed the acquisition of Ellis Park Racing and Gaming ("Ellis Park") in Henderson, Kentucky, from Enchantment Holdings, LLC, an affiliate of Laguna Development Corporation, for total consideration of $ 79.0 million in cash, subject to certain working capital and other purchase price adjustments (the "Ellis Park Transaction").

Refer to Note 3, Acquisitions, for further information on the transactions.

Impact of COVID-19 Pandemic

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Exit of the Direct Online Sports and Casino Business

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Chasers Poker Room

On September 2, 2022, the Company completed the Chasers Transaction which was treated as an asset acquisition.

The Company made an initial payment at closing and recorded a liability for the remaining due at a future date.

In conjunction with the acquisition the Company recorded an $ 82.2 million gaming rights intangible asset which represented its fair value at the date of acquisition.

The fair value of the gaming rights acquired in the Chasers Transaction was determined using the Greenfield Method, which is an income approach methodology that calculates the present value of the gaming rights intangible asset based on a projected cash flow stream.

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

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

The estimated future revenue, future operating expenses, start-up costs, and discount rate were the primary inputs in the valuation.

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

On September 26, 2022, the Company completed the Ellis Park Transaction for total consideration of $ 79.0 million in cash, plus $ 3.5 million in working capital and other preliminary purchase price adjustments.

The fair values of the Ellis Park Transaction were based upon preliminary valuations.

Estimates and assumptions used in such valuations are subject to change, which could be significant, within the measurement period up to one year from the acquisition date.

The areas of the preliminary valuations that are not yet finalized relate to the amounts for income taxes, intangible assets, working capital adjustments, and the final amount of residual goodwill.

The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition date during the measurement period.

The preliminary fair values of the assets acquired and liabilities assumed, net of cash acquired of $ 0.8 million, at the date of acquisition were as follows:

property and equipment of $ 19.3 million, indefinite-lived gaming rights of $ 47.4 million, indefinite-lived trademark of $ 3.6 million, goodwill of $ 8.9 million, right-of-use assets and liabilities of $ 6.0 million and net working capital of $ 2.5 million.

The Company has not included other disclosures regarding the Chasers Transaction or Ellis Park Transaction because the acquisitions are immaterial to our business.

NATURAL DISASTER

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

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

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

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

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

During the nine months ended September 30, 2022, the Company incurred $ 2.3 million of operating expenses related to ongoing recovery and maintenance efforts and received $ 8.0 million from our insurance carriers.

The Company has also recorded an insurance recovery receivable of $ 1.0 million.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

In total, the Company has received $ 10.7 million from our insurance carriers which includes $ 4.1 million related to business interruption claims.

The proceeds from the business interruption claims are included in other income in the Condensed Consolidated Statement of Comprehensive Income.

The Company is currently working with its insurance carriers to finalize its claim and we currently do not expect our losses to exceed the applicable insurance recoveries.

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 which was net of $ 12.0 million of transaction costs.

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

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

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

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

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

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

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

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

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

As of September 30, 2022, $ 22.1 million had been invested in real property for the Queen of Terre Haute which will be held by the EAT until the exchange transaction is complete.

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

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

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

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

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

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

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

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

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

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

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

As of September 30, 2022, the Company recorded $ 78.0 million in current income taxes payable related to the Calder land sale.

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

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

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

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

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

Churchill Downs Incorporated

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The closing of the sale of the Arlington Property is subject to the satisfaction of various closing conditions and the Company anticipates closing the sale of the Arlington Property in the first quarter of 2023.

The Company has classified certain assets of Arlington International Racecourse ("Arlington") as held for sale totaling $ 82.9 million as of June 30, 2022 and $ 81.5 million as of December 31, 2021, on the accompanying Condensed Consolidated Balance Sheets.

The Company has classified certain assets of Arlington International Racecourse ("Arlington") as held for sale totaling $ 82.0 million as of September 30, 2022 and $ 81.5 million as of December 31, 2021, on the accompanying Condensed Consolidated Balance Sheets.

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

GOODWILL AND OTHER INTANGIBLE ASSETS

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

Goodwill, by segment, is composed of the following:

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

Balances as of December 31, 2021 $ 52.5 $ 152.2 $ 161.1 $ 1.0 $ 366.8

Additions 8.9 — — — 8.9

Balances as of September 30, 2022 $ 61.4 $ 152.2 $ 161.1 $ 1.0 $ 375.7

We established goodwill of $ 8.9 million related to the Ellis Park Transaction.

We performed our annual goodwill impairment analysis as of April 1, 2022, and no adjustment to the carrying value of goodwill was required.

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Other intangible assets are comprised of the following:

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

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

2 unchanged sentences

Total $ 485.0 $ 348.1

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

During the third quarter of 2022 we established indefinite-lived intangible assets of $ 82.2 million for the gaming rights related to the Chasers Transaction and $ 47.4 million for gaming rights and $ 3.6 million for trademarks related to the Ellis Park Transaction.

We also recorded $ 5.0 million for gaming rights in Indiana associated with the planned development of the Queen of Terre Haute Casino Resort during the second quarter of 2022.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

The Company continues to monitor the current economic conditions and the impacts on the results of operations.

Future economic conditions could have a negative impact on the estimates and assumptions utilized in our indefinite-lived intangible asset impairment assessments.

These potential impacts could increase the risk of a future impairment of indefinite-lived intangible assets at Presque Isle Downs and Casin o.

ASSET IMPAIRMENTS

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

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

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

federal statutory rate of 21.0% primarily resulting from state income taxes and non-deductible officer’s compensation, partially offset by tax benefits resulting from certain tax credits and incentives.

The Company's effective income tax rate for the nine months ended September 30, 2022 was higher than the U.S.

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

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

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

SHAREHOLDERS’ EQUITY

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

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

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

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

We had approximately $ 300.2 million of repurchase authority remaining under the 2021 Stock Repurchase Program at September 30, 2022, based on trade date.

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

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

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2021 Stock Repurchase Program 288,781 $ 59.0 3,178 $ 0.8 727,198 $ 145.5 3,178 $ 0.8

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

2018 Stock Repurchase Program — — 245,132 $ 49.2 — — 245,132 $ 49.2

Total 288,781 $ 59.0 248,310 $ 50.0 727,198 $ 145.5 248,310 $ 50.0

As of September 30, 2022, we had $ 2.0 million accrued for the future cash settlement of executed repurchases of our common stock and a $ 1.5 million accrual as of September 30, 2021.

The Duchossois Group Share Repurchase

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

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

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

During the six months ended June 30, 2022, the Company awarded RSUs to employees and certain named executive officers ("NEOs").

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

Grant Year Award Type Number of Units Awarded Vesting Terms

Our total stock-based compensation expense, which includes expenses related to restricted stock awards, restricted stock unit awards ("RSUs"), performance share unit awards, and stock options associated with our employee stock purchase plan was $ 9.1 million for the three months ended September 30, 2022 and $ 7.8 million for the three months ended September 30, 2021.

Stock-based compensation was $ 23.5 million for the nine months ended September 30, 2022 and $ 20.4 million for the nine months ended September 30, 2021.

During the nine months ended September 30, 2022, the Company awarded RSUs to employees, RSUs and PSUs to certain named executive officers ("NEOs"), and RSUs to directors.

The vesting criteria for the PSU awards granted in 2022 were based on a three-year service period with two performance conditions and a market condition related to relative total shareholder return ("TSR") consistent with prior year grants.

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

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

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

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

Grant Year Award Type Number of Units Awarded (1)

Vesting Terms

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

2022 PSU 34 Three -year performance and service period ending in 2024

2022 RSU 5 One year service period ending in 2023

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Credit Agreement

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

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

On April 28, 2020, the Company entered into the 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 made certain other amendments to the Company’s financial reporting obligations, (iv) placed certain restrictions on restricted payments during the Financial Covenant Relief Period, and (v) amended the definitions of "Material Adverse Effect" and "License Revocation" in the Credit Agreement to take into consideration COVID-19.

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

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

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

The Company capitalized $ 2.8 million of debt issuance costs associated with the Revolver commitment increase and $ 5.8 million of debt issuance costs associated with the Delayed Draw Term Loan A which are being amortized as interest expense over the 5-year term.

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

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

As of September 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 Company was compliant with all applicable covenants on June 30, 2022.

On September 26, 2022, we borrowed $ 20.0 million on our Revolver to provide the Company with financing for the Chasers Transaction and the Ellis Park Transaction.

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

2028 Senior Notes Second Supplemental Indenture

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

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

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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.

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persons in accordance with Regulation S under the Securities Act.

The offering of the 2030 Notes is part of the financing for the P2E acquisition.

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

The offering of the 2030 Notes is part of the financing for the P2E Transaction.

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

In connection with the offering, we capitalized $ 4.3 million of debt issuance costs which are being amortized as interest expense over the term of the 2030 Notes.

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Performance Obligations

As of June 30, 2022, our Live and Historical Racing segment had remaining performance obligations on contracts with a duration greater than one year relating to television rights, sponsorships, personal seat licenses, and admissions, with an

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

aggregate transaction price of $ 74.2 million.

As of September 30, 2022, our Live and Historical Racing segment had remaining performance obligations on contracts with a duration greater than one year relating to television rights, sponsorships, personal seat licenses, and admissions, with an aggregate transaction price of $ 79.1 million.

The revenue we expect to recognize on these remaining performance obligations is $ 0.6 million for the remainder of 2022, $ 33.7 million in 2023, $ 23.3 million in 2024, and the remainder thereafter.

As of June 30, 2022, our remaining performance obligations on contracts with a duration greater than one year in segments other than Live and Historical Racing were not material.

As of September 30, 2022, our remaining performance obligations on contracts with a duration greater than one year in segments other than Live and Historical Racing were not material.

Contract Assets and Contract Liabilities

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

As of June 30, 2022 and December 31, 2021, contract liabilities were $ 27.7 million and $ 64.9 million, respectively, which are included in current deferred revenue, non-current deferred revenue, and accrued expense in the accompanying Condensed Consolidated Balance Sheets.

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

As of September 30, 2022 and December 31, 2021, contract liabilities were $ 30.4 million and $ 64.9 million, respectively, which are included in current deferred revenue, non-current deferred revenue, and accrued expense in the accompanying Condensed Consolidated Balance Sheets.

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

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

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

We recognized $ 1.3 million of revenue during the three months ended September 30, 2022 and $ 48.1 million of revenue during the nine months ended September 30,

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

2022, which was included in the contract liabilities balance at December 31, 2021.

We recognized $ 1.2 million of revenue during the three months ended September 30, 2021 and $ 32.6 million of revenue during the nine months ended September 30, 2021, which was included in the contract liabilities balance at December 31, 2020.

Disaggregation of Revenue

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Accrued expenses and other current liabilities consisted of the following:

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

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

Account wagering deposits liability $ 53.1 $ 47.5

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Accrued interest 57.3 23.9

Accrued fixed assets 37.1 17.1

Other 81.4 74.7

1 unchanged sentence

INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

Investments in and advances to unconsolidated affiliates as of June 30, 2022 and December 31, 2021 primarily consisted of a 61.3 % interest in Rivers Casino Des Plaines ("Rivers Des Plaines"), a 50 % interest in Miami Valley Gaming and Racing ("MVG"), and other immaterial joint ventures.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Investments in and advances to unconsolidated affiliates as of September 30, 2022 and December 31, 2021 primarily consisted of a 61.3 % interest in Rivers Casino Des Plaines ("Rivers Des Plaines"), a 50 % interest in Miami Valley Gaming and Racing ("MVG"), and other immaterial joint ventures.

Rivers Des Plaines

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

As of June 30, 2022, the net aggregate basis difference between the Company’s investment in Rivers Des Plaines and the amounts of the underlying equity in net assets was $ 831.8 million.

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

The Company received distributions from Rivers Des Plaines of $ 61.3 million and $ 25.3 million for the six months ended June 30, 2022 and 2021, respectively.

As of September 30, 2022, the net aggregate basis difference between the Company’s investment in Rivers Des Plaines and the amounts of the underlying equity in net assets was $ 831.5 million.

Our investment in Rivers Des Plaines was $ 547.5 million and $ 554.8 million as of September 30, 2022 and December 31, 2021, respectively.

The Company received distributions from Rivers Des Plaines of $ 92.8 million and $ 44.5 million for the nine months ended September 30, 2022 and 2021, respectively.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Miami Valley Gaming

2 unchanged sentences

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

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

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

Our investment in MVG was $ 113.4 million and $ 108.7 million as of September 30, 2022 and December 31, 2021, respectively.

The Company received distributions from MVG of $ 25.0 million and $ 33.0 million for the nine months ended September 30, 2022 and 2021, respectively.

Summarized Financial Results for our Unconsolidated Affiliates

Summarized below are the financial results for our unconsolidated affiliates.

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

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

(in millions) 2022 2021 2022 2021

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Net income $ 73.5 $ 72.4 $ 201.6 $ 180.6

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

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

Current assets $ 89.9 $ 96.0

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Restricted Cash

2 unchanged sentences

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

June 30, 2022

September 30, 2022

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

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Term Loan B-1 292.2 295.5 — 295.5 —

Revolver 20.0 20.0 — 20.0 —

2027 Senior Notes 595.0 559.5 — 559.5 —

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Legal fees are expensed as incurred.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

NET INCOME PER COMMON SHARE COMPUTATIONS

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

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

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• Live and Historical Racing

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

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

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

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

Turfway Park conducts live racing during the year and opened a HRM facility in September 2022, and Newport is an ancillary HRM facility that operates under the Turfway Park pari-mutuel racing license.

Ellis Park conducts live racing during the year and operates a gaming facility venue with HRMs.

Chasers is a charitable gaming facility offering poker and a variety of table games.

We plan to construct an expanded charitable gaming facility with up to 800 gaming positions including HRMs and table games.

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

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

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

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

The TwinSpires Sports and Casino business includes the mobile and online sports betting and casino results and the results of seven of our retail sportsbooks, which include our wholly-owned properties at Harlow’s Casino Resort and Spa ("Harlow’s"), Presque Isle, Riverwalk Casino Hotel (“Riverwalk”), Ocean Downs Casino and Racetrack ("Ocean

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

of seven of our retail sportsbooks, which include our wholly-owned properties at Harlow’s Casino Resort and Spa ("Harlow’s"), Presque Isle, Riverwalk Casino Hotel (“Riverwalk”), Ocean Downs Casino and Racetrack ("Ocean Downs"), Fair Grounds Racecourse and Slots, as well as in Arizona and Michigan which utilize a third party's casino license.

Downs"), Fair Grounds Racecourse and Slots, as well as in Arizona and Michigan which utilize a third party's casino license.

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

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• Other charges, recoveries and expenses

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

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

Churchill Downs Incorporated

6 unchanged sentences

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

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

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

Churchill Downs Incorporated

1 unchanged sentence

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

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

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

(in millions) 2022 2021 2022 2021

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Newport 6.9 4.3 20.6 13.2

Chasers 0.9 — 0.9 —

Ellis Park 0.2 — 0.2 —

Total Live and Historical Racing 92.3 79.7 439.2 318.8

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Net revenue from external customers $ 383.1 $ 393.0 $ 1,329.7 $ 1,232.4

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

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

(in millions) 2022 2021 2022 2021

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Intercompany net revenue $ — $ — $ — $ —

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

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

7 unchanged sentences

Total $ 92.3 $ 106.2 $ 183.4 $ 381.9 $ 1.2 $ 383.1

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

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

8 unchanged sentences

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

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

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

These amounts were $ 8.4 million for the three months ended September 30, 2022 and $ 6.1 million for the three months ended September 30, 2021.

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

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

7 unchanged sentences

Total $ 439.2 $ 343.3 $ 545.0 $ 1,327.5 $ 2.2 $ 1,329.7

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

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

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

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

These amounts were $ 23.2 million for the nine months ended September 30, 2022 and $ 15.0 million for the nine months ended September 30, 2021.

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

Churchill Downs Incorporated

1 unchanged sentence

Adjusted EBITDA by segment is comprised of the following:

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

(in millions) Live and Historical Racing TwinSpires Gaming

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Adjusted EBITDA $ 34.5 $ 31.1 $ 111.6

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

(in millions) Live and Historical Racing TwinSpires Gaming

8 unchanged sentences

Adjusted EBITDA $ 27.7 $ 22.1 $ 110.7

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

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

Churchill Downs Incorporated

1 unchanged sentence

Adjusted EBITDA by segment is comprised of the following:

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

(in millions) Live and Historical Racing TwinSpires Gaming

8 unchanged sentences

Adjusted EBITDA $ 226.3 $ 89.1 $ 309.5

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

(in millions) Live and Historical Racing TwinSpires Gaming

8 unchanged sentences

Adjusted EBITDA $ 144.4 $ 69.8 $ 312.9

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

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

Churchill Downs Incorporated

Notes to Condensed Consolidated Financial Statements

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

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

(in millions) 2022 2021 2022 2021

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

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

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

(in millions) 2022 2021 2022 2021

Gaming $ 42.3 $ 41.6 $ 115.3 $ 102.9

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

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

Churchill Downs Incorporated

1 unchanged sentence

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

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

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

Total assets:

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions) 2022 2021

7 unchanged sentences

SUBSEQUENT EVENT

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

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

At its regularly scheduled meeting held on October 25, 2022, the Board of Directors of the Company declared an annual cash

dividend of $ 0.714 per share, to be paid on January 6, 2023, to all shareholders of record on December 2, 2022.

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

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

What changed 10-Q

Item 1. Financial Statements