What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-22 compared with 2022-02-23 · 438 added, 444 removed, 1061 unchanged (45% of the section changed)

16 unchanged sentences

Asset impairments 38.3 15.3 17.5

Transaction expense, net 7.9 1.0 5.3

Transaction expense 42.1 7.9 1.0

Total operating expense 1,488.0 1,312.8 993.8

3 unchanged sentences

Equity in income of unconsolidated affiliates 152.7 143.2 27.7

Gain on Calder land sale 274.6 — —

Miscellaneous, net 7.0 0.7 0.1

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Restricted cash

Accounts receivable, net of allowance for doubtful accounts of $ 5.4 in 2021 and $ 4.9 in 2020

Accounts receivable, net 81.5 42.3

Income taxes receivable

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Other intangible assets, net

2,391.8 348.1

Long-term assets held for sale

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Accrued expenses and other current liabilities

Income taxes payable

Current deferred revenue

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Dividends payable

Current liabilities of discontinued operations — 124.0

Total current liabilities 621.6 395.0

Long-term debt (net of current maturities and loan origination fees of $ 10.2 in 2022 and $ 6.2 in 2021)

2,081.6 668.6

Notes payable (net of debt issuance costs of $ 22.9 in 2022 and $ 7.6 in 2021)

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150.0 shares authorized;

38.1 shares issued and outstanding in 2021 and 39.5 shares in 2020

37.4 shares issued and outstanding December 31, 2022 and 38.1 shares at December 31, 2021

Retained earnings

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Balance, December 31, 2019 39.7 $ — $ 509.2 $ ( 0.9 ) $ 2.7 $ 511.0

Net income 137.5 ( 0.3 ) 137.2

Contributions from non-controlling interest 3.0 3.0

Net loss ( 81.9 ) ( 0.2 ) ( 82.1 )

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

Issuance of common stock 0.1 2.4 2.4

Repurchase of common stock ( 0.2 ) ( 4.3 ) ( 23.6 ) ( 27.9 )

Cash settlement of stock awards ( 12.7 ) ( 12.7 )

Taxes paid related to net share settlement of stock awards ( 0.1 ) ( 3.6 ) ( 15.1 ) ( 18.7 )

Issuance of restricted stock awards, net of forfeitures 0.1 — —

Stock-based compensation 23.7 23.7

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

Net loss ( 81.9 ) ( 0.2 ) ( 82.1 )

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

Net income 249.1 249.1

Issuance of common stock 0.2 2.5 2.5

Repurchase of common stock ( 1.5 ) ( 48.5 ) ( 249.0 ) ( 297.5 )

Cash settlement of stock awards ( 12.7 ) ( 12.7 )

Taxes paid related to net share settlement of stock awards ( 0.1 ) ( 16.1 ) ( 16.1 )

Stock-based compensation 27.8 27.8

Adoption of ASC 326 ( 0.5 ) ( 0.5 )

Cash dividends ($ 0.667 per share)

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Income from continuing operations, net of tax $ 439.4 $ 249.1 $ 13.3

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

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

Depreciation and amortization 113.7 103.2 92.9

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Amortization of operating lease assets 5.3 5.3 5.0

Gain on Calder land sale ( 274.6 ) — —

Other 7.4 5.3 4.5

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Acquisition of businesses, net of cash acquired ( 2,918.5 ) — —

Investments in and advances to unconsolidated affiliates — — ( 410.1 )

Acquisition of other intangible assets — — ( 32.1 )

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

Proceeds from the Calder land sale 279.0 — —

Other ( 7.4 ) ( 8.6 ) ( 5.2 )

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Other 2.3 2.2 2.1

Net cash (used in) provided by financing activities ( 0.5 ) 76.0 460.8

Net cash provided by (used in) financing activities 2,416.0 ( 0.5 ) 76.0

Cash flows from discontinued operations:

Operating activities of discontinued operations ( 124.0 ) ( 1.3 ) ( 2.9 )

Net increase (decrease) in cash, cash equivalents and restricted cash 234.6 ( 21.5 ) ( 30.8 )

Operating cash flows of discontinued operations 26.0 ( 124.0 ) ( 1.3 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 150.9 ) 234.6 ( 21.5 )

Cash, cash equivalents and restricted cash, beginning of year 355.6 121.0 142.5

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Interest $ 133.6 $ 77.5 $ 79.6

Income taxes 72.4 1.6 23.5

Cash paid for income taxes 68.6 72.4 1.6

Cash received from income tax refunds 61.6 — —

Schedule of non-cash investing and financing activities:

Dividends payable $ 27.0 $ 27.0 $ 25.8

Deferred tax liability assumed from equity investment — — 103.2

Deferred payment on gaming rights included in accounts payable and accrued expenses 50.6 — —

Property and equipment additions included in accounts payable and accrued expense and other current liabilities 51.3 18.7 12.9

Repurchase of common stock in payment of income taxes on stock-based compensation included in accrued expense and other current liabilities 1.7 3.2 —

Repurchase of common stock included in accrued expense and other current liabilities — — 0.5

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

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DESCRIPTION OF BUSINESS

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

We own and operate three pari-mutuel gaming entertainment venues with approximately 3,050 historical racing machines ("HRMs") in Kentucky.

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

and we have nine 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.

Churchill Downs Incorporated ("CDI" or the "Company") has been creating extraordinary entertainment experiences for nearly 150 years, beginning with the Company’s most iconic and enduring asset, the Kentucky Derby.

Headquartered in Louisville, Kentucky, CDI has expanded through the development of live and historical racing entertainment venues, the growth of the TwinSpires horse racing online wagering business and the operation and development of regional casino gaming properties.

We own and operate 13 live and historical racing entertainment venues in three states, one of the largest online horse racing wagering platforms in the U.S., twelve casino gaming properties in ten states and ten retail sportsbooks.

We were organized as a Kentucky corporation in 1928, and our principal executive offices are located in Louisville, Kentucky.

During the first quarter of 2021, we updated our operating segments to reflect the internal management reporting used by our chief operating decision maker to evaluate results of operations and to assess performance and allocate resources.

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

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

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

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

Live and Historical Racing, TwinSpires, and Gaming.

In 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.

During the first quarter of 2022, 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.

For additional information, refer to Note 21, Segment Information.

Acquisition of Peninsula Pacific Entertainment

On November 1, 2022, the Company completed the acquisition of substantially all of the ass ets of Peninsula Pacific Entertainment LLC ("P2E") with a base purchase price of $ 2.75 billion ("P2E Transaction") subject to working capital and other purchase price adjustments.

The P2E assets acquired included Colonial Downs Racetrack ("Colonial Downs") and six Historical Racing Machine ("HRM") entertainment venues in Virginia, del Lago Resort & Casino in New York ("del Lago"), and Hard Rock Hotel & Casino in Iowa ("Hard Rock Sioux City"), as well as the development rights for Dumfries and Emporia HRM facilities in Virginia, up to five additional HRM entertainment venues in Virginia, and the potential for ONE Casino and Resort in Virginia in collaboration with Urban One.

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

Acquisition of Ellis Park and Chasers Poker Room

Chasers Poker Room Acquisition

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

As part of the transaction, we made an initial payment to the sellers for rights to operate the poker room and to build an HRM venue.

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

The Company plans to develop an expanded charitable gaming facility in Salem to accommodate HRMs and table games.

Ellis Park Acquisition

On September 26, 2022, the Company completed the acquisition of Ellis Park Racing & 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 the COVID-19 Global Pandemic

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

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

Although vaccines are 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.

In March 2020, as a result of the COVID-19 outbreak, we temporarily suspended operations at our wholly owned and managed gaming properties, announced the temporary furlough of our employees at these properties and certain racing operations and implemented a temporary salary reduction for all remaining non-furloughed salaried employees based on a percentage that varied dependent upon the amount of each employee’s salary.

The most senior level of executive management received the largest salary decrease, based on both percentage and dollar amount.

In May 2020, we began to reopen our properties with patron restrictions and gaming limitations.

One property suspended operations again in July 2020 and reopened in August 2020, and three properties suspended operations in December 2020 and reopened in January 2021.

In March 2020, as a result of the COVID-19 outbreak, we temporarily suspended operations at our wholly-owned and managed gaming properties.

In May 2020, we began to reopen our properties with patron restrictions and gaming limitations, which fluctuated with the changing environment.

All of our gaming properties have remained open since January 2021.

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

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

Due to such restrictions, our revenues from the Kentucky Oaks and Derby in each year were significantly less than we would otherwise expect.

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") provided an employee retention credit ("CARES Employee Retention Credit"), which is a refundable tax credit against certain employment taxes of up to $5,000 per employee for eligible employers.

The tax credit is equal to 50% of qualified wages paid to employees during a quarter, capped at $10,000 of qualified wages per employee.

The Company qualified for the tax credit and received additional tax credits for qualified wages, and the Company recorded a $ 2.7 million benefit related to the CARES Employee Retention Credit in operating expense in the accompanying consolidated statement of comprehensive income (loss) for the year ended December 31, 2020.

The CARES Act also provided for deferred payment of the employer portion of social security taxes through December 31, 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022.

Approximately $ 5.3 million of deferred payments are recorded as liabilities within accrued expense and other current liabilities and other noncurrent liabilities in the accompanying consolidated balance sheet as of December 31, 2020.

The Company paid the $ 5.3 million of deferred payments during the year ended December 31, 2021.

The 148th Kentucky Oaks and Derby were held in the second quarter of 2022 without capacity restrictions.

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

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Exit of the Direct Online Sports and Casino Business

In 2022, the Company exited the direct online Sports and Casino business in every state except for Pennsylvania and Arizona.

The Company will maintain its retail Sports operations and has monetized two of its online market access licenses.

SIGNIFICANT ACCOUNTING POLICIES

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If the carrying amount of the gaming rights and trademark intangible assets exceed fair value, an impairment loss is recognized.

Property and Equipment

We review the carrying value of our property and equipment to be held and used in our operations whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable from estimated future undiscounted cash flows expected to result from the asset's use and eventual disposition.

Adverse industry or economic trends, lower projections of profitability, or a significant adverse change in legal factors or in the business climate, among other items, may be indications

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

of potential impairment issues.

Property and Equipment

Adverse industry or economic trends, lower projections of profitability, or a significant adverse change in legal factors or in the business climate, among other items, may be indications of potential impairment issues.

If the undiscounted cash flows exceed the carrying value, no impairment is indicated.

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We historically have had fewer live racing days during the first quarter of each year, and the majority of our live racing revenue occurs during the second quarter with the running of the Kentucky Oaks and Kentucky Derby.

For live races we present at our racetracks, we recognize revenue on wagers we accept from customers at our racetrack ("on-track revenue") and revenue we earn from exporting our live racing signals to other race tracks, off-track betting facilities ("OTBs"), and advance deposit wagering providers ("export revenue").

For live races we present at our racetracks, we recognize revenue on wagers we accept from customers at our racetrack ("on-track revenue") and revenue we earn from exporting our live racing signals to other racetracks, off-track betting facilities ("OTBs"), and advance deposit wagering providers ("export revenue").

For simulcast races we display at our racetracks, OTBs, and TwinSpires' platforms, we recognize revenue we earn from providing a wagering service to our customers on these imported live races ("import revenue").

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The transaction price for HRM revenue is based on the established commission rate we are entitled to retain for each wager on the HRM.

We recognize HRM revenue once the historical race has been completed on the historical racing machine, net of the liability to the pool.

We recognize HRM revenue once the historical race has been completed on the HRM, net of the liability to the pool.

We evaluate our on-track revenue, export revenue, import revenue, and HRM revenue contracts in order to determine whether we are acting as the principal or as the agent when providing services, which we consider in determining if revenue should be reported gross or net.

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Our PSLs, sponsorships, and television rights contracts generally relate to multiple live racing event days.

Multiple day admission, PSLs, sponsorships, and television rights contracts contain a distinct series of services that form single performance obligations.

Sponsorships contracts generally include performance obligations related to admissions and advertising rights at our racetracks.

Television rights contracts contain a performance obligation related to the rights to distribute certain live racing events on media platforms.

The transaction prices for our admissions, PSLs, sponsorships, and television rights contracts are fixed.

We allocate the transaction

Multiple day admission, PSLs, sponsorships, and television

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

price to our sponsorship contract performance obligations based on the estimated relative standalone selling price of each distinct service.

rights contracts contain a distinct series of services that form single performance obligations.

Sponsorship contracts generally include performance obligations related to admissions and advertising rights at our racetracks.

Television rights contracts contain a performance obligation related to the rights to distribute certain live racing events on media platforms.

The transaction prices for our admissions, PSLs, sponsorships, and television rights contracts are fixed.

We allocate the transaction price to our sponsorship contract performance obligations based on the estimated relative standalone selling price of each distinct service.

The revenue we recognize for admissions to a live racing event day is recognized once the related event is complete.

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The primary purpose of our invoicing terms is to allow our customers to secure the right to the specific services provided under our contracts, not to receive financing from our customers.

Gaming revenue primarily consists of gaming wager transactions.

Gaming revenue primarily consists of gaming transactions.

Other operating revenue, such as food and beverage or hotel revenue, is recognized once delivery of the product or service has occurred.

The transaction price for gaming wager transactions is the difference between gaming wins and losses.

The transaction price for gaming transactions is the difference between gaming wins and losses.

Gaming wager revenue is recognized when the wager settles.

The majority of our HRM facilities and casinos offer loyalty programs that enable customers to earn loyalty points based on their play.

Gaming and HRM wager transactions involve two performance obligations for those customers earning loyalty points under the Company’s loyalty programs and a single performance obligation for customers who do not participate in the program.

The majority of our HRM facilities and gaming properties offer loyalty programs that enable customers to earn loyalty points based on their play.

HRM and gaming transactions involve two performance obligations for those customers earning loyalty points under the Company’s loyalty programs and a single performance obligation for customers who do not participate in the program.

Loyalty points are primarily redeemable for free wagering activities and food and beverage.

For purposes of allocating the transaction price in a gaming or HRM wagering transaction between the wagering performance obligation and the obligation associated with the loyalty points earned, the Company allocates an amount to the loyalty point contract liability based on the stand-alone selling price of the points earned, which is determined by the value of a loyalty point that can be redeemed for wagering activities or food and beverage.

For gaming wagering transactions, an amount is allocated to the gaming wager performance obligation using the residual approach as the stand-alone price for wagers is highly variable and no set established price exists for such wagers.

For HRM wagering transactions, the amount allocated to the HRM wager performance obligation is the commission rate we are entitled to retain.

For purposes of allocating the transaction price in an HRM and gaming transaction between the wagering performance obligation and the obligation associated with the loyalty points earned, the Company allocates an amount to the loyalty point contract liability based on the stand-alone selling price of the points earned, which is determined by the value of a loyalty point that can be redeemed for wagering activities or food and beverage.

For gaming transactions, an amount of the transaction price allocated to the gaming performance obligation using the residual approach as the stand-alone price for wagers is highly variable and no set established price exists for such wagers.

For HRM transactions, the amount of the transaction price allocated to the HRM performance obligation is the commission rate we are entitled to retain.

The loyalty point contract liability amount is deferred and recognized as revenue when the customer redeems the points for a wagering transaction or food and beverage, and such goods or services are delivered to the customer.

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Changes in current tax laws, enacted tax rates or the estimated level of taxable income or non-deductible expense could change the valuation of deferred tax assets and liabilities and affect the overall effective tax rate and tax provision.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

When tax returns are filed, it is highly certain that some positions taken will be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that will be ultimately sustained.

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Tax positions taken are not offset or aggregated with other positions.

Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority.

Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority.

The portion of the benefits associated with the tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying Consolidated Balance Sheets, along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

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Allowance for Doubtful Accounts Receivable

Upon our adoption of Accounting Standards Update ("ASU") No.

Upon our adoption of Accounting Standards Update ("ASU") of the Accounting Standards Codification ("ASC") No.

2016-13, Financial Instruments - Credit Losses ("ASC 326") on January 1, 2020, we maintain an allowance for doubtful accounts for current expected credit losses on our financial assets measured at amortized cost which are primarily included in Accounts receivable, net in the accompanying Consolidated Balance Sheets.

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Any subsequent recovery is recognized when it occurs.

Prior to adopting ASC 326, we maintained an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments.

The allowance is maintained at a level considered appropriate based on historical experience and other factors that affect our expectation of future collectability.

Uncollectible accounts receivable are written off against the allowance for doubtful accounts receivable when management determines that the probability of payment is remote and collection efforts have ceased.

Internal Use Software

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We evaluate our investments in unconsolidated affiliates for impairment whenever events or changes in circumstances indicate that the carrying value of the investment may have experienced an "other-than-temporary" decline in value.

If such conditions exist, we compare the estimated fair value of the investment to the investment's carrying value to determine if an impairment is indicated and determine whether the impairment is "other-than-temporary" based on an assessment of all relevant factors,

If such conditions exist, we compare the estimated fair value of the investment to the investment's carrying value to determine if an impairment is

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

including consideration of our intent and ability to retain our investment until the recovery of the unrealized loss.

indicated and determine whether the impairment is "other-than-temporary" based on an assessment of all relevant factors, including consideration of our intent and ability to retain our investment until the recovery of the unrealized loss.

We estimate fair value using a discounted cash flow analysis based on estimated future results of the investee.

On January 1, 2019, the Company adopted ASU No.

2016-02, Leases, and subsequently issued additional guidance (collectively, "ASC 842") using the modified transition method.

As part of the transition to ASC 842, we elected the package of practical expedients that allowed us to not reassess:

(1) whether any expired or existing contracts are or contain leases, (2) lease classification of any expired or existing leases and (3) initial direct costs of any expired or existing leases.

Due to the adoption of ASC 842, we recognize lease right-of-use assets ("ROUAs") and lease liabilities for our leases with lease terms greater than one year.

We do not have any material leases where we are the lessor.

Business Combinations

We account for acquisitions of businesses in accordance with ASC 805, Business Combinations .

We initially allocate the purchase price of an acquisition to the assets acquired and liabilities assumed based on their estimated fair values, with any excess of consideration transferred recorded as goodwill.

The results of operations of acquisitions are included in the consolidated financial statements from their respective dates of acquisition.

Costs incurred to complete the business combination are not considered part of consideration and are expensed as incurred.

Refer to Note 3, Acquisitions, for further information.

We determine if an arrangement is a lease at inception and categorize as either operating or finance based on the criteria of ASC 842.

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Accrued expense and Other current liabilities;

and other liabilities on our consolidated balance sheets.

and Other liabilities in the accompanying Consolidated Balance Sheets.

We generally do not separate lease and non-lease components for our lease contracts.

We do not apply the ROUA and leases liability recognition requirements to short-term leases.

We do not apply the right-of-use assets ("ROUA") and leases liability recognition requirements to short-term leases.

Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date.

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Interest expense on the finance lease liabilities is recorded separately using the interest method.

We do not have any material leases where we are the lessor.

Debt Issuance Costs and Loan Origination Fees

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Self-insurance Accruals

We are self-insured up to certain limits for costs associated with general liability, workers’ compensation and employee health coverage, and we purchase insurance for claims that exceed our self-insurance retention or deductible levels.

We are self-insured up to certain limits for costs associated with general liability, workers’ compensation and certain employee health coverage costs, and we purchase insurance for claims that exceed our self-insurance retention or deductible levels.

We record self-insurance reserves that include accruals of estimated settlements for known claims ("Case Reserves"), as well as accruals of third-party actuarial estimates for claims incurred but not yet reported ("IBNR").

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IBNR includes the provision for unreported claims, changes in case reserves and future payments on reopened claims.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Key variables and assumptions include, but are not limited to, loss development factors and trend factors such as changes in workers' compensation laws, medical care costs and wages.

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It is possible that reasonable alternative selections would produce different reserve estimates.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Advertising and Marketing

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The Company maintains insurance policies that provide coverage for property damages and business interruption.

Losses due to physical damages are recognized during the accounting period in which they occur, while the amount of monetary assets to be received from the insurance policy is recognized when receipt of insurance recoveries is probable.

Losses due to physical damages are recognized during the accounting period in which the loss occurs, while the amount of monetary assets to be received from the insurance policy is recognized when receipt of insurance recoveries is probable.

Losses, which are reduced by the related probable insurance recoveries, are recorded as operating expenses on the accompanying Consolidated Statements of Comprehensive Income (Loss).

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Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to applying the guidance on contract modifications, hedge accounting, and other transactions, and to simplify the accounting for transitioning from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates.

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

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

NATURAL DISASTER

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

All of the Fair Grounds and VSI operations were reopened as of December 31, 2021, with the exception of two OTBs.

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

As of December 31, 2021, the Company has recorded a reduction of property and equipment, net of $ 2.8 million and incurred

The guidance was effective upon issuance.

In December 2022, the FASB deferred the date for which this guidance can be applied from December 31, 2022 to December 31, 2024.

The use of LIBOR was phased out at the end of 2021, although the phase-out of U.S.

dollar LIBOR for existing agreements has been delayed until June 2023.

We continue to monitor developments related to the LIBOR transition and identification of an alternative, market-accepted rate.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

$ 2.5 million in operating expenses.

Through December 31, 2021, the Company has received $ 2.7 million in insurance recoveries from our carriers, and has an insurance recovery receivable of $ 2.6 million at December 31, 2021.

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.

On January 11, 2019, we completed the acquisition of Presque Isle Downs and Casino ("Presque Isle") located in Erie, Pennsylvania from Eldorado Resorts, Inc.

("ERI") for cash consideration of $ 178.9 million (the "Presque Isle Transaction") and $ 1.6 million of working capital and other purchase price adjustments.

The following table summarizes the final fair values of the assets acquired and liabilities assumed, net of cash acquired of $ 8.4 million, at the date of the acquisition.

Chasers Poker Room

On September 2, 2022, the Company completed the Chasers Transaction which was treated as an asset acquisition because substantially all the value of the gross assets acquired was concentrated in the gaming rights.

The Company made an initial payment at closing and recorded a liability for the remaining payments due on 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 or historical racing 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, working capital adjustments and the final amount of residual goodwill.

The Company expects to continue to obtain information to assist in determining fair values of 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 $ 1.4 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 $ 9.2 million, and net working capital of $ 1.6 million.

The Company has not included other disclosures regarding the Chasers or Ellis Park Transactions as they are immaterial to our business.

P2E Transaction

On November 1, 2022, the Company completed the acquisition of substantially all the ass ets of P2E for a preliminary purchase consideration of $ 2,835.9 million, net of cash acquired.

The P2E assets acquired included Colonial Downs and six HRM entertainment venues in Virginia, del Lago in New York, and Hard Rock Sioux City in Iowa, as well as the development rights for Dumfries and Emporia HRM facilities in Virginia, up to five additional HRM entertainment venues in Virginia, and ONE Casino & Resort in Virginia in collaboration with Urban One.

The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed, net of cash acquired of $ 126.4 million, as of November 1, 2022:

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

(in millions) Total

Current assets $ 2.1

Accounts receivable, net $ 9.8

Other current assets 7.2

Property and equipment 611.2

Goodwill 347.8

Intangible assets 71.2

Current liabilities ( 5.2 )

Non-current liabilities ( 0.6 )

Other intangible assets 1,941.5

Deferred taxes 20.8

Other assets 16.0

Total assets acquired $ 2,954.3

Accounts payable 4.0

Accrued expenses and other current liabilities 96.9

Other liabilities assumed 17.5

Total liabilities assumed $ 118.4

Net assets acquired (net of cash) $ 2,835.9

The fair value of the intangible assets consists of the following:

(in millions) Fair Value Recognized Weighted-Average Useful Life

Gaming rights $ 56.0 N/A

Trademark 15.2 N/A

(in millions) Fair Value Recognized

Gaming rights $ 1,865.6

Trademark 75.9

Total intangible assets $ 1,941.5

Current assets and current liabilities were valued at the existing carrying values as these items are short term in nature and represent management's estimated fair value of the respective items on January 11, 2019.

Current assets and current liabilities were valued at the existing carrying values, as these items are short term in nature and represent management's estimated fair value of the respective items at November 1, 2022.

The property and equipment acquired primarily relates to land, buildings, equipment, and furniture and fixtures.

The fair value of the land was determined using the market approach and the fair values of the remaining property and equipment were primarily determined using the cost replacement method which is based on replacement or reproduction costs of the assets.

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

This method assumes that the gaming rights intangible asset provides the opportunity to develop a casino 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.

The fair value of the gaming rights was determined using the Greenfield Method, which is an income approach methodology that calculates the present value of the overall business enterprise based on a projected cash flow stream.

This method assumes that the gaming rights intangible assets provide the opportunity to develop a casino or historical racing facility in a specified region, and that the present value of the projected cash flows are a result of the realization of advantages contained in these rights.

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

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

The renewal of the gaming rights in Pennsylvania is subject to various legal requirements.

However, the Company's historical experience has not indicated, nor does the Company expect any limitations regarding the Company's ability to continue to renew our gaming rights in Pennsylvania.

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

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

The trademark was assigned an indefinite useful life based on the Company’s intention to keep the Presque Isle name for an indefinite period of time.

Goodwill of $ 26.1 million was recognized due to the expected contribution of Presque Isle to the Company's overall business strategy.

The goodwill was assigned to the Gaming segment and is deductible for tax purposes.

The estimated future revenue and operating expenses, start-up costs, and discount rates were the primary assumptions and estimates in the valuation of the gaming rights.

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

The trademark intangible assets were valued using the relief-from-royalty method of the income approach, which estimates the fair value of the intangible assets by discounting the fair value of the hypothetical royalty payments a market participant would be willing to pay to enjoy the benefits of the assets.

The estimated future revenue, royalty rates, and discount rates were the primary assumptions and estimates in the valuation of the trademarks.

The trademarks were assigned an indefinite useful life based on the Company’s intention to keep the trademarks for an indefinite period of time.

Goodwill of $ 347.8 million was recognized due to the expected contribution of P2E to the Company's overall business strategy.

The goodwill was assigned to the Gaming segment in the amount of $ 129.1 million and to the Live and Historical Racing segment in the amount of $ 218.7 million and is mostly deductible for tax purposes.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Refer to Note 9, Asset Impairment, for information regarding intangible asset impairments recognized during the first quarter of 2020 related to the Presque Isle gaming rights and trademark.

For the period from the Presque Isle Transaction on January 11, 2019 through December 31, 2019, net revenue was $ 138.5 million and net income was not material.

The following unaudited pro forma consolidated financial information for the Company has been prepared assuming the Company's acquisition of Presque Isle occurred as of January 1, 2019.

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 preliminary purchase consideration is subject to adjustment upon finalization of customary post-closing adjustments related to working capital.

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

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

For the period November 1, 2022 through December 31, 2022, the operations of the properties acquired as part of the P2E Transaction, including the associated retail sportsbooks, generated net revenue of $ 109.7 million and net income of $ 42.9 million.

The following unaudited pro forma consolidated financial information for the Company has been prepared assuming the P2E Transaction had occurred as of January 1, 2021.

The unaudited pro forma financial information is not necessarily indicative of either future results of operations or results of operations that might have been achieved had the acquisition been consummated as of January 1, 2021.

The unaudited pro forma net income giving effect to the Presque Isle Transaction was not materially different than our historical net income.

(in millions) Year Ended December 31, 2019

(in millions) Year Ended December 31, 2022 Year Ended December 31, 2021

Net revenue $ 2,348.7 $ 2,153.6

Lady Luck Nemacolin

On March 8, 2019, the Company assumed management and acquired certain assets related to the management of Lady Luck Casino Nemacolin ("Lady Luck Nemacolin") in Farmington, Pennsylvania, from ERI for cash consideration of $ 100,000 (the "Lady Luck Nemacolin Transaction").

The Lady Luck Nemacolin Transaction did not meet the definition of a business and therefore was accounted for as an asset acquisition.

The net assets acquired in conjunction with the Lady Luck Nemacolin Transaction were not material.

On October 9, 2019, the Company completed the acquisition of Turfway Park from Jack Entertainment LLC ("JACK") and Hard Rock International (“Hard Rock”) for total consideration of $ 46.0 million in cash ("Turfway Park Acquisition").

Of the $ 46.0 million total consideration, $ 36.0 million, less $ 0.9 million of working capital and purchase price adjustments, was accounted for as a business combination.

The remaining $ 10.0 million was paid to Hard Rock for the assignment of the purchase and sale agreement rights and was accounted for separately from the business combination as an intangible asset and was amortized through expense in the fourth quarter of 2019.

The cash purchase price paid to JACK was $ 36.0 million, less $ 0.9 million of working capital and purchase price adjustments.

The preliminary fair values of the assets acquired and liabilities assumed, net of cash acquired of $ 0.6 million, at the date of acquisition were as follows:

property and equipment (primarily land) of $ 18.8 million, indefinite-lived gaming rights of $ 9.8 million, indefinite-lived trademark of $ 5.5 million, goodwill of $ 2.7 million, and current liabilities of $ 2.3 million.

DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

Net income $ 535.4 $ 205.1

DISPOSITIONS, ASSETS HELD FOR SALE & DISCONTINUED OPERATIONS

Calder Land Sale

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

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 (Loss).

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

The proceeds were held by a qualifying intermediary in an interest-bearing account until they could be utilized in a like-kind exchange.

The Company utilized proceeds and interest earned from the sale to purchase property as part of 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 completed one reverse like-kind exchange in June 2022 involving our $ 9.9 million investment in real property for the Derby City Gaming Downtown facility in Louisville, Kentucky, and one reverse like-kind exchange in December 2022 involving our $ 24.9 million investment in real property for the Terre Haute Casino Resort in Vigo County, Indiana ("Terre Haute").

The remaining proceeds were used to execute a forward like-kind exchange with the P2E Transaction to purchase real property associated with del Lago in November 2022.

As of December 31, 2022, the Company recorded a $ 76.0 million deferred tax liability on the Condensed Consolidated Balance Sheets.

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.

Assets Held for Sale

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

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

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

The Company executed a forward like-kind exchange transaction by purchasing certain property as part of the P2E Transaction for $ 197.2 million.

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

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 Sheets.

On February 15, 2023, the Company closed on the sale and fully realized all the planned tax savings.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Discontinued Operations

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The Consolidated Statements of Comprehensive Income (Loss), Consolidated Statements of Cash Flows, and the Notes to Consolidated Financial Statements reflect Big Fish Games as discontinued operations for all periods presented.

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

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

On May 22, 2020, we entered into an agreement in principle to settle Cheryl Kater v.

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

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

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

Years Ended December 31,

(in millions) 2021 2020 2019

Net revenue $ — $ — $ —

Operating expenses — — —

Selling, general and administrative expense — 0.1 3.5

Research and development — — —

Legal settlement — 124.0 —

Total operating expense — 124.1 3.5

Operating loss — ( 124.1 ) ( 3.5 )

Loss from discontinued operations before provision for income taxes — ( 124.1 ) ( 3.5 )

Income tax benefit — 28.7 1.1

Loss from discontinued operations, net of tax $ — $ ( 95.4 ) $ ( 2.4 )

Assets Held for Sale

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

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

Subject to the satisfaction of the various closing conditions, the Company anticipates closing the sale of the Arlington Property in early 2023.

The Company has classified certain assets of Arlington International Racecourse ("Arlington") totaling $ 81.5 million as held for sale as of December 31, 2021, on the accompanying consolidated balance sheets.

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

During the year ended December 31, 2021, the Company recorded $ 1.4 million of severance costs and $ 3.9 million related to our multi-employer pension liability in conjunction with the announced sale of the Arlington Property, which is included in transaction expense, net in the accompanying consolidated statements of comprehensive income (loss).

On November 22, 2021, the Company announced an agreement to sell 115.7 acres of land near Calder Casino and Racing ("Calder") for $ 291.0 million or approximately $ 2.5 million per acre to Link Logistics Real Estate, a Blackstone portfolio company.

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

The Company anticipates closing the sale of the property in the first half of 2022.

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

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

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

During 2022, the Company received a $ 26.0 million tax refund related to the capital loss associated with this settlement.

PROPERTY AND EQUIPMENT

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

Balances as of December 31, 2019 $ 52.7 $ 152.2 $ 161.2 $ 1.0 $ 367.1

Adjustments ( 0.3 ) — — — ( 0.3 )

Balances as of December 31, 2020 52.4 152.2 161.2 1.0 366.8

Balance, December 31, 2020 $ 52.4 $ 152.2 $ 161.2 $ 1.0 $ 366.8

Adjustments — — — — —

Balances as of December 31, 2021 $ 52.4 $ 152.2 $ 161.2 $ 1.0 $ 366.8

In 2019, we established goodwill of $ 26.1 million related to the Presque Isle Transaction, and $ 3.0 million related to the Turfway Park Acquisition.

Balance, December 31, 2021 52.4 152.2 161.2 1.0 366.8

Additions 227.9 — 129.1 — 357.0

Balance, December 31, 2022 $ 280.3 $ 152.2 $ 290.3 $ 1.0 $ 723.8

In 2022, we established goodwill of $ 9.2 million related to the Ellis Park Transaction and $ 347.8 million related to the P2E Transaction.

Refer to Note 3 - Acquisitions for more information on the Ellis Park and P2E Transactions.

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

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Based on the results of these analyses, no goodwill impairments were identified in connection with our annual impairment testing.

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

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

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

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

Churchill Downs Incorporated

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Gaming rights 2,256.5 288.2

Other 0.1 0.1

Total $ 2,391.8 $ 348.1

In 2019, we established indefinite-lived intangible assets of $ 56.0 million for gaming rights and $ 15.2 million for trademarks related to the Presque Isle Transaction.

We also acquired indefinite-lived intangible assets of $ 8.0 million for online gaming rights in Pennsylvania related to our TwinSpires operations, $ 10.0 million for retail sports betting gaming rights at Presque Isle and online sports betting gaming rights in Pennsylvania, as well as $ 3.0 million for other gaming rights at Presque Isle.

We also established indefinite-lived intangible assets of $ 5.5 million for trademarks and $ 9.8 million for gaming rights related to the Turfway Park acquisition.

During 2022 we established indefinite-lived intangibles assets of $ 5.0 million for gaming rights associated with the planned development of Terre Haute.

We also established indefinite-lived intangible assets of $ 82.2 million for the gaming rights related to the Chasers Transaction, as well as, $ 47.4 million for gaming rights and $ 3.6 million for trademarks related to the Ellis Park Transaction.

We also established indefinite-lived intangible assets of $ 1.9 billion for the gaming rights and $ 75.9 million for the trademarks related to the P2E Transaction.

Refer to Note 3 - Acquisitions for more information on the Chasers, Ellis Park and P2E Transactions.

Amortization expense for definite-lived intangible assets was $ 4.7 million in 2022, $ 4.8 million in 2021, and $ 4.9 million in 2020, and is classified in operating expense in the accompanying Consolidated Statements of Comprehensive Income (Loss).

As described further in Note 4 , Acquisitions, we expensed the Turfway Park Acquisition purchase and sale agreement rights of $ 10.0 million in the fourth quarter of 2019, which is included in Live and Historical Racing in the accompanying consolidated statements of comprehensive income (loss).

We submitted payments of $ 2.3 million in 2022 and 2021 for annual license fees for Calder, which are being amortized to expense over the annual license period.

Indefinite-lived intangible assets consist primarily of trademarks and state gaming rights in Maine, Maryland, Mississippi, Louisiana, Pennsylvania and Kentucky.

Refer to Note 9 , Asset Impairment s, for information regarding intangible asset impairments recognized during the first quarter of 2020.

Indefinite-lived intangible assets consist primarily of trademarks and state gaming rights in Indiana, Maine, Maryland, Mississippi, Louisiana, Pennsylvania, Kentucky, New Hampshire, New York, Iowa, and Virginia.

Refer to Note 8, Asset Impairments, for information regarding intangible asset impairments recognized during 2022.

We performed our annual indefinite-lived intangible assets impairment analysis as of April 1, 2022, which included an assessment of qualitative and quantitative factors to determine whether it is more likely than not that the fair values of the indefinite-lived intangible assets are less than the carrying amount.

We concluded that the fair values of our indefinite-lived intangible assets exceeded their carrying value.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

We concluded that the fair values of our indefinite-lived intangible assets exceeded their carrying value other than impairments described in Note 8, Assets Impairments.

Future estimated aggregate amortization expense on existing definite-lived intangible assets for each of the next five fiscal years is as follows (in millions):

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ASSET IMPAIRMENTS

During the quarter ended December 31, 2021, the Company recorded a $ 4.1 million non-cash impairment charge related to certain assets in the TwinSpires segment.

This impairment was due to changes in expectations of future realization of certain third party market access royalty prepayments related to our New Jersey sports betting and iGaming that resulted in projected future cash flows being less than carrying value in the fourth quarter of 2021.

Presque Isle Impairment 2022

During the quarter ended December 31, 2022, the Company evaluated whether it was more likely than not that any of the Company's intangible assets, goodwill, or property and equipment, were impaired.

The Company concluded that a trigger event for impairment testing occurred related to the Presque Isle Downs and Casino ("Presque Isle") gaming rights, trademark, and the reporting unit's goodwill due to the impact and uncertainty of current negative economic trends.

Factors considered in this evaluation included, among other things, the amount of the fair value over carrying value from the annual impairment testing performed as of April 1, 2022, changes in carrying values, changes in discount rates, and the impact of negative economic trends on cash flows.

Based on the 2022 trigger event, the Company updated the discount rate to reflect the increased uncertainty of the cash flows and updated the projected cash flow stream.

As a result, the Company recognized an impairment of $ 33.4 million in the fourth quarter of 2022 for the Presque Isle gaming rights and trademark.

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

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

Based on the trigger event, the Company updated the discount rate to reflect the increased uncertainty of the cash flows and updated the project cash flow stream.

As a result, the Company did not recognize an impairment for Presque Isle goodwill in the fourth quarter of 2022 because the fair value exceeded the carrying value.

Other Impairments

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

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

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

Based on the Company’s evaluation, the Company concluded that a trigger event for impairment testing 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.

During the quarter ended December 31, 2021, the Company recorded a $ 4.1 million non-cash impairment charge related to certain assets in the TwinSpires segment due to changes in expectations of future realization of certain third-party market access royalty prepayments related to our New Jersey sports betting and iGaming that resulted in projected future cash flows being less than carrying value in the fourth quarter of 2021.

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

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

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

Factors considered in this evaluation included, among other things, the amount of the fair value over carrying value from the annual impairment testing performed as of April 1, 2019, changes in carrying values, changes in discount rates, and the impact of temporary property closures due to the COVID-19 global pandemic on cash flows.

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

Presque Isle Impairment 2020

The Company concluded that a trigger event for impairment testing occurred related to the Presque Isle gaming rights, trademark, and the reporting unit's goodwill due to the impact and uncertainty of the COVID-19 global pandemic.

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

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Based on the trigger event, the Company updated the discount rate to reflect the increased uncertainty of the cash flows and updated the projected cash flow stream.

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

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

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

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

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

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

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

As a result, the Company recognized an impairment of $ 15.0 million in first quarter of 2020 for the Presque Isle gaming rights.

Churchill Downs Incorporated

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Due to the higher statutory rate applied to this net operating loss, the Company recognized an income tax benefit of $ 13.3 million for the year ended December 31, 2020.

The Company recognized income tax expense of $ 8.3 million during 2019 from the re-measurement of our net deferred tax liabilities based on an increase in income attributable to states with higher tax rates compared to the prior period.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

The Company reclassified a $ 29.0 million deferred tax asset related to the capital loss associated with the Kater litigation as a tax receivable due to the settlement payment made in 2021.

We fully expect to be able to offset the capital loss with previously recognized capital gains.

Components of our deferred tax assets and liabilities were as follows:

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Deferred tax assets:

§ 163(j) interest expense limitation carryforward $ 18.2 $ —

Lease liabilities 12.6 10.2

Net operating losses and credits carryforward 8.1 8.8

Deferred liabilities 7.4 5.1

Deferred compensation plans 7.0 6.9

Deferred income 3.6 4.7

Deferred liabilities 3.8 2.8

Allowance for uncollectible receivables 1.3 1.2

Capital loss — 29.0

Research and experimental expenditures 3.0 —

Deferred tax assets 59.9 35.7

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Deferred tax liabilities:

Property and equipment in excess of tax basis 158.7 69.7

Equity investments in excess of tax basis 141.6 128.9

Intangible assets in excess of tax basis 78.1 74.1

Property and equipment in excess of tax basis 69.7 77.9

Right-of-use assets 12.3 9.9

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Tax years 2019 and after are open to examination.

Tax year 2015 is open to examination as a result of the Company's claim for refund of 2015 tax from carrying back its 2020 net operating loss pursuant to the CARES Act.

Tax year 2015 and 2018 are open to examination as a result of the Company's claim for refund of 2015 and 2018 tax from carrying back its 2020 net operating loss and 2021 capital loss pursuant to the CARES Act.

As of December 31, 2022, we had approximately $ 6.4 million of total gross unrecognized tax benefits, excluding interest of $ 0.5 million.

If the total gross unrecognized tax benefits were recognized, there would be a $ 5.8 million effect to the annual effective tax rate.

We anticipate a decrease in our unrecognized tax positions of approximately $ 0.7 million during the next twelve months primarily due to the expiration of statutes of limitation.

We anticipate a decrease in our unrecognized tax positions of approximately $ 2.8 million during the next twelve months primarily due to expected settlements with tax authorities and the expiration of statutes of limitation.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

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Stock Repurchase Programs

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

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

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

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

We had $ 445.6 million of repurchase authority remaining under this program at December 31, 2021.

We had $ 270.2 million of repurchase authority remaining under this program on December 31, 2022.

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

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Our total compensation expense, which includes expense related to restricted stock awards, restricted stock unit awards, performance share unit awards, and stock options associated with our employee stock purchase plan, was $ 31.8 million in 2022, $ 27.8 million in 2021, and $ 23.7 million in 2020.

We recorded a deferred tax asset related to stock-based compensation expense of $ 1.5 million in 2021, $ 1.9 million in 2020, and $ 2.1 million in 2019.

We recorded a tax benefit related to stock-based compensation expense of $ 1.6 million in 2022, $ 1.5 million in 2021, and $ 1.9 million in 2020.

Our stock-based employee compensation plans are described below.

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The fair value of RSAs and RSUs that vest solely based on continued service under the Plan is determined by the product of the number of shares granted and the grant date market price of our common stock.

RSAs and RSUs granted to employees under the 2016 Plan generally vests either in full upon three years from the date of grant or on a pro rata basis over a three -year term.

RSAs and RSUs granted to employees under the 2016 Plan generally vest either in full upon three years from the date of grant or on a pro rata basis over a three-year term.

RSAs are legally issued common stock at the time of grant, with certain restrictions placed on them.

RSUs granted to employees are converted into shares of our common stock at vesting.

The RSUs granted to directors under the 2016 Plan generally vests in full upon one year from the date of grant.

RSUs granted to directors are converted into shares of our common stock at the time of the director's retirement.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

granted to directors under the 2016 Plan generally vests in full upon one year from the date of grant.

RSUs granted to directors are converted into shares of our common stock at the time of the director's retirement.

In 2020, 2021, and 2022, the Company granted three-year performance and total shareholder return ("TSR") PSU awards (the "PSU Awards") to certain named executive officers ("NEOs").

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Measurement against these criteria will be determined against a payout curve which provides up to 200 % of performance share units based on the original award.

The PSU Awards may be adjusted based on the Company’s TSR performance relative to the TSR performance during the performance period of the Companies remaining in the Russell 2000 index at the end of the performance period as follows:

The PSU Awards may be adjusted based on the Company’s TSR performance relative to the TSR performance during the performance period of the companies remaining in the Russell 2000 index and Russell 1000 index beginning with 2022 grants at the end of the performance period as follows:

The PSU Awards will increase by 25 % if the Company’s TSR is in the top quartile;

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

In October 2018, the Company granted a special equity award to two NEOs (" 7 -Year Grant") consisting of PSU Awards that may be adjusted up to 200 % based on the Company's relative TSR performance versus the Russell 2000 over a three -year period ended October 29, 2021, and service-based RSU awards, both of which vest in 25 % annual increments over four years beginning on the fourth anniversary of the grant date, totaling seven years to be fully vested.

In October 2018, the Company granted a special equity award to two NEOs (" 7 -Year Grant") consisting of PSU Awards that may be adjusted up to 200 % based on the Company's relative TSR performance versus the Russell 2000 over a three-year period ending October 29, 2021, and service-based RSU awards, both of which vest in 25 % annual increments over four years beginning on the fourth anniversary of the grant date, totaling seven years to be fully vested.

The performance period ended on October 29, 2021, and the TSR performance was 200 %.

19 unchanged sentences

Shares / Units Weighted

Balance as of December 31, 2018 321 $ 65.77 275 $ 72.03 596 $ 68.66

Balance, December 31, 2019 314 $ 72.84 265 $ 85.07 579 $ 78.45

Granted 37 $ 182.45 94 $ 150.12 131 $ 159.30

3 unchanged sentences

Canceled/forfeited — $ — ( 3 ) $ 121.39 ( 3 ) $ 121.39

Balance as of December 31, 2019 314 $ 72.84 265 $ 85.07 579 $ 78.45

Balance, December 31, 2020 302 $ 83.40 235 $ 107.90 537 $ 94.14

Granted 27 $ 254.29 68 $ 211.11 95 $ 223.25

3 unchanged sentences

Canceled/forfeited — $ — ( 12 ) $ 160.42 ( 12 ) $ 160.42

Balance as of December 31, 2020 302 $ 83.40 235 $ 107.90 537 $ 94.14

Balance, December 31, 2021 479 $ 82.99 179 $ 135.01 658 $ 90.27

Granted 34 $ 220.25 67 $ 222.16 101 $ 221.52

3 unchanged sentences

Canceled/forfeited ( 6 ) $ 213.8 ( 6 ) $ 204.71 ( 12 ) $ 208.82

Balance as of December 31, 2021 479 $ 82.99 179 $ 135.01 658 $ 90.27

Balance, December 31, 2022 370 $ 90.07 148 $ 160.18 518 $ 110.13

(1) Adjustment to number of target units awarded for PSUs based on achievement of underlying performance goals.

The fair value of shares and units vested was $ 45.4 million in 2021, and $ 36.9 million in 2020 and 2019.

A summary of total unrecognized stock-based compensation expense related to RSAs, RSUs, and PSUs (based on current performance estimates), at December 31, 2021 is presented below:

The fair value of shares and units vested was $ 56.9 million in 2022, $ 45.4 million in 2021, and $ 36.9 million in 2020.

A summary of total unrecognized stock-based compensation expense related to RSAs, RSUs, and PSUs (based on current performance estimates), on December 31, 2022, is presented below:

(in millions, except years) December 31, 2022 Weighted Average Remaining Vesting Period (Years)

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Term Loan B-1 due 2028 294.7 3.1 291.6

Term Loan A due 2027 800.0 5.5 794.5

Revolver 664.1 — 664.1

2027 Senior Notes 600.0 4.7 595.3

2028 Senior Notes 700.0 1.6 698.4

2030 Senior Notes 1,200.0 16.6 1,183.4

Total debt 4,638.8 33.1 4,605.7

4 unchanged sentences

Term Loan B due 2024 $ 384.0 $ 2.4 $ 381.6

Revolver 149.7 — 149.7

Term Loan B-1 due 2028 297.8 3.8 294.0

2027 Senior Notes 600.0 5.7 594.3

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Credit Agreement

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

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

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

The Company had $ 695.4 million available borrowing capacity, after consideration of $ 4.6 million in outstanding letters of credit, under the Revolver as of December 31, 2021.

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

The Company capitalized $ 1.6 million of debt issuance costs associated with the Revolver which is being amortized as interest expense over the shorter of the respective debt period or 5 years.

The Company also capitalized $ 5.1 million of debt issuance costs associated with the Term Loan B portion of the Credit Agreement which is being amortized as interest expense over the shorter of the respective debt period or 7 years.

The interest rates applicable to the Company’s borrowings under the Credit Agreement are LIBOR-based plus a spread, as determined by the Company's consolidated total net leverage ratio.

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

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

The 2017 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 Term Loan B bears interest at LIBOR plus 200 basis points and 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.

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For the period ended December 31, 2022, the Company's commitment fee rate was 0.175 %.

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 ( 4.0 to 1.0 or 4.5 to 1.0 for the year following any permitted acquisition greater than $ 100.0 million) and the maintenance of a minimum consolidated interest coverage ratio of 2.5 to 1.0.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

On March 16, 2020, the Company entered into the First Amendment to the Credit Agreement (the “First Amendment”).

The First Amendment extended the maturity for the Company’s Revolver from December 27, 2022 to at least September 27, 2024, which is 91 days prior to the latest maturity date of the Company’s term loan facility on December 27, 2024.

The First Amendment also lowered the upper limit of the applied spreads with respect to revolving loans from 2.25 % to 1.75 % and for commitment fees with respect thereto from 0.35 % to 0.30 % and provides a reduced pricing schedule for outstanding borrowings and commitment fees with respect to the Revolver across all other leverage pricing levels.

The First Amendment did not alter the Company’s borrowing capacity.

The Company capitalized $ 2.0 million of debt issuance costs associated with the First Amendment which will be amortized as interest expense over the remaining duration of the Revolver.

On April 28, 2020, the Company entered into a Second Amendment to the Credit Agreement (the “Second Amendment”).

The Second Amendment (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 ending 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.

During the Financial Covenant Relief Period, the Company was not required to comply with the consolidated total secured net leverage ratio financial covenant and the interest coverage ratio financial covenant.

The Company agreed to a minimum liquidity financial covenant that required the Company and restricted subsidiaries to maintain liquidity of at least $ 150.0 million during the Financial Covenant Relief Period.

While the Second Amendment was in effect, the Company agreed to limit restricted payments to $ 26.0 million.

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, as defined in the Second Amendment, from $ 26.0 million to $ 226.0 million to accommodate a share repurchase from an affiliate of The Duchossois Group, Inc.

The Company repurchased the shares using available cash and borrowings under the Company's Revolver.

On April 28, 2020, the Company entered into an amendment to the 2017 Credit Agreement (as amended, the "Credit Agreement"), which 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").

On February 1, 2021, the Company entered into an amendment to increase the amount of certain otherwise restricted payments permitted from $ 26.0 million to $ 226.0 million during the Financial Covenant Relief Period.

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.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

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

The 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.

The interest rate on the Revolver on December 31, 2021 was LIBOR plus 137.5 points based on the Revolver pricing grid in the Second Amendment and the Company's net leverage ratio as of September 30, 2021.

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

On April 13, 2022, the Company amended the Credit Agreement to extend the maturity date of its existing Revolver to April 13, 2027, to increase the commitments under the existing Revolver from $ 700.0 million to $ 1.2 billion, and to increase the swing line commitment from $ 50.0 million to $ 100.0 million.

The amendment also provides for a senior secured Delayed Draw Term Loan A due April 13, 2027 in the amount of $ 800.0 million, which was drawn on November 1, 2022 as part of the financing for the P2E Transaction.

Refer to Note 3, Acquisitions for more information regarding the P2E Transaction.

The Company capitalized $ 3.2 million of debt issuance costs associated with the Revolver commitment increase and $ 6.4 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 the Secured Overnight Financing Rate ("SOFR") plus 10 basis points, plus a variable applicable margin which is determined by the Company's net leverage ratio.

As of December 31, 2022, that applicable margin was 125 basis points which was based on the pricing grid in the Credit Agreement.

During 2022, we have borrowed $ 664.1 million on our Revolver which provided the Company with financing for the Chasers, Ellis Park, and P2E Transactions.

Refer to Note 3, Acquisitions for more regarding the Chasers, Ellis Park and P2E Transactions.

The Company had $ 524.8 million available borrowing capacity, after consideration of $ 11.1 million in outstanding letters of credit, under the Revolver as of December 31, 2022.

The phase-out of LIBOR in existing debt agreements is set for June 30, 2023.

The Credit Agreement includes a general process for establishing an alternative reference rate to the extent LIBOR is phased out.

The Company is in the process of transitioning its financing from LIBOR to alternative reference rates.

These transition activities are not expected to have a material impact on the Company’s financial statements.

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

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.

December 31, 2022 Requirement

Interest coverage ratio 6.6 to 1.0

Consolidated total secured net leverage ratio 0.9 to 1.0

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

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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 Credit Agreement.

The Company used the net proceeds from the offering to repay the then-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.

1 unchanged sentence

Bank National Association, as trustee.

The Company may redeem some or all of the 2027 Senior Notes at any time prior to April 1, 2022, at a price equal to 100 % of the principal amount of the 2027 Senior Notes redeemed plus an applicable make-whole premium.

On or after such date, the Company may redeem some or all of the 2027 Senior Notes at redemption prices set forth in the 2027 Indenture.

At any time prior to April 1, 2022, the Company may redeem up to 40 % of the aggregate principal amount of the 2027 Senior Notes at a redemption price equal to 105.5 % of the principal amount thereof with the net cash proceeds of one or more equity

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.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

offerings provided that certain conditions are met.

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.

In connection with the issuance of the 2027 Senior Notes, the Company and the 2027 Guarantors entered into a Registration Rights Agreement to register any 2027 Senior Notes under the Securities Act for resale that are not freely tradable 366 days from March 25, 2019.

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The Existing 2028 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 (the "2021 Senior Notes").

The Company used the net proceeds from the offering to repay a portion of our $ 600.0 million 5.375 % Senior Unsecured Notes due in 2021.

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 Notes.

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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 $ 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.

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 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.

2 unchanged sentences

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 3.25 % premium is being 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 Revolver, (ii) to fund related transaction fees and expenses, and (iii) for working capital and other general corporate purposes.

The 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 2028 Senior Notes at any time prior to January 15, 2023, at a price equal to 100 % of the principal amount of the Existing 2028 Notes redeemed plus an applicable make-whole premium.

On or after such date, the Company may redeem some or all of the Existing 2028 Notes at redemption prices set forth in the 2028 Indenture.

The Company may redeem some or all the 2028 Senior Notes 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.

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, a wholly-owned subsidiary of the Company completed an offering of $ 1.2 billion in aggregate principal amount of 5.75 % Senior Unsecured Notes that mature on April 13, 2030 (the "2030 Senior Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that was exempt from registration under the Securities Act, and to certain non-U.S.

persons in accordance with Regulation S under the Securities Act.

The offering of the 2030 Senior Notes was part of the financing utilized for the P2E Transaction.

In connection with the offering, we capitalized $ 18.3 million of debt issuance costs which are being amortized as interest expense over the term of the 2030 Senior Notes.

The Company held the net proceeds of this transaction of $ 1.2 billion in escrow until the proceeds were utilized to complete the P2E Transaction on November 1, 2022, at which time CDI assumed the obligation and became the Issuer.

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

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

In connection with the issuance of the 2030 Senior Notes, the Escrow Issuer and the guarantors of the 2030 Senior Notes 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.

Future aggregate maturities of total debt are as follows (in millions):

11 unchanged sentences

Contract liabilities are included in current deferred revenue, non-current deferred revenue, and accrued expense and other current liabilities in the accompanying Consolidated Balance Sheets.

Contract liabilities primarily relate to our Live and Historical Racing segment and the increase was primarily due to 2022 Oaks and Derby ticket sales revenue.

We recognized $ 33.0 million of revenue during the year ended December 31, 2021 that was included in the contract liabilities balance at December 31, 2020.

We recognized $ 6.7 million of revenue during the year ended December 31, 2020 that was included in the contract liabilities balance at January 1, 2020.

Contract liabilities primarily relate to our Live and Historical Racing segment.

The decrease in contract liabilities from December 31, 2021 to December 31, 2022 was due to the recognition of revenue for fulfilled performance obligations.

We recognized $ 49.9 million of revenue during the year ended December 31, 2022 that was included in the contract liabilities balance on December 31, 2021.

We recognized $ 33.0 million of revenue during the year ended December 31, 2021 that was included in the contract liabilities balance on December 31, 2020.

Disaggregation of Revenue

In Note 22, Segment Information, the Company has included its disaggregated revenue disclosures as follows:

• For the Live and Historical Racing segment, revenue is disaggregated between racing facilities and HRM facilities given that our racing facilities revenues primarily revolve around live racing events while our HRM facilities revenues primarily revolve around historical racing events.

The Company has included its disaggregated revenue disclosures as follows:

• For the Live and Historical Racing segment, revenue is disaggregated between Churchill Downs Racetrack and historical racing properties given that our racing facilities revenues primarily revolve around live racing events while our historical racing properties revenues primarily revolve around historical racing.

This segment is also disaggregated by location given the geographic economic factors that affect the revenue of service offerings.

Within the Live and Historical racing segment, revenue is further disaggregated between live and simulcast racing, historical racing, racing event-related services, and other services.

• For the TwinSpires segment, revenue is disaggregated between Horse Racing and Sports and Casino given that Horse Racing revenue is primarily related to online pari-mutuel wagering on live race events while Sports and Casino revenue relates to casino gaming service offerings.

Within the TwinSpires segment, revenue is further disaggregated between live and simulcast racing, gaming, and other services.

• For the TwinSpires segment, revenue is disaggregated between live and simulcast racing, gaming, and other services.

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

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

The tables below present net revenue from external customers and intercompany revenue from each of our segments:

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Years Ended December 31,

(in millions) 2022 2021 2020

Net revenue from external customers:

Live and Historical Racing:

Churchill Downs Racetrack $ 196.8 $ 128.1 $ 63.3

Louisville 169.9 154.3 79.5

Northern Kentucky 46.1 26.0 10.2

Southwestern Kentucky 131.4 100.7 16.6

Western Kentucky 4.5 — —

Virginia 62.4 — —

New Hampshire 3.5 — —

Total Live and Historical Racing $ 614.6 $ 409.1 $ 169.6

$ 436.4 $ 451.4 $ 430.1

Florida $ 106.2 $ 100.0 $ 51.8

Iowa 15.6 — —

Louisiana 140.8 133.6 97.6

Maine 114.4 99.8 44.9

Maryland 105.3 100.6 60.2

Mississippi 101.8 117.3 87.0

New York 30.9 — —

Pennsylvania 140.9 144.1 93.8

Total Gaming $ 755.9 $ 695.4 $ 435.3

All Other 2.9 41.3 19.0

Net revenue from external customers $ 1,809.8 $ 1,597.2 $ 1,054.0

Intercompany net revenues:

Live and Historical Racing $ 31.8 $ 21.5 $ 19.2

TwinSpires 5.2 6.4 5.5

Gaming 5.9 3.0 2.5

All Other 0.4 7.9 7.8

Eliminations ( 43.3 ) ( 38.8 ) ( 35.0 )

Intercompany net revenue $ — $ — $ —

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Year Ended December 31, 2022

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

Net revenue from external customers

Live and simulcast racing $ 66.8 $ 367.4 $ 28.1 $ 462.3 $ — $ 462.3

Historical racing (a)

374.1 — 9.8 383.9 — 383.9

Racing event-related services 129.8 — 1.8 131.6 — 131.6

3.5 28.2 647.4 679.1 — 679.1

40.4 40.8 68.8 150.0 2.9 152.9

Total $ 614.6 $ 436.4 $ 755.9 $ 1,806.9 $ 2.9 $ 1,809.8

Year Ended December 31, 2021

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

Net revenue from external customers

Live and simulcast racing $ 64.0 $ 380.7 $ 28.2 $ 472.9 $ 29.7 $ 502.6

Historical racing (a)

253.0 — — 253.0 — 253.0

Racing event-related services 68.5 — 1.2 69.7 7.0 76.7

— 34.8 622.0 656.8 — 656.8

23.6 35.9 44.0 103.5 4.6 108.1

Total $ 409.1 $ 451.4 $ 695.4 $ 1,555.9 $ 41.3 $ 1,597.2

Year Ended December 31, 2020

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

Net revenue from external customers

Live and simulcast racing $ 46.5 $ 387.5 $ 22.9 $ 456.9 $ 18.2 $ 475.1

Historical racing (a)

93.6 — — 93.6 — 93.6

Racing event-related services 21.0 — 3.4 24.4 0.3 24.7

— 11.3 381.3 392.6 — 392.6

8.5 31.3 27.7 67.5 0.5 68.0

Total $ 169.6 $ 430.1 $ 435.3 $ 1,035.0 $ 19.0 $ 1,054.0

(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 racing pari-mutuel revenue for HRMs or gaming revenue for our casino properties.

These amounts were $ 33.9 million in 2022, $ 20.9 million in 2021, and $ 13.1 million in 2020 .

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

OTHER BALANCE SHEET ITEMS

15 unchanged sentences

Accrued interest 47.8 23.9

Accrued fixed assets 39.5 17.1

Other 130.2 74.7

1 unchanged sentence

INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

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

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

Rivers Des Plaines

On March 5, 2019, the Company completed the acquisition of certain ownership interests of Midwest Gaming, the parent company of Rivers Casino Des Plaines ("Rivers Des Plaines") to acquire approximately 42 % of Midwest Gaming from affiliates and co-investors of Clairvest Group Inc.

On March 5, 2019, the Company completed the acquisition of certain ownership interests of Midwest Gaming, the parent company of Rivers Des Plaines to acquire approximately 42 % of Midwest Gaming from affiliates and co-investors of Clairvest Group Inc.

("Clairvest") and members of High Plaines Gaming, LLC ("High Plaines"), an affiliate of Rush Street Gaming, LLC and Casino Investors, LLC ("Casino Investors") for cash consideration of approximately $ 406.6 million and $ 3.5 million of certain transaction costs and working capital adjustments (the "Sale Transaction").

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The Company received distributions from MVG of $ 33.0 million in 2022, $ 42.0 million in 2021 and $ 20.0 million in 2020.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Summarized Financial Results for our Unconsolidated Affiliates

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MVG, Rivers Des Plaines, and other immaterial joint ventures.

The summarized income statement information for 2019 includes the following equity investments:

MVG, Rivers Des Plaines from the transaction date of March 5, 2019, and other immaterial joint ventures.

(in millions) 2022 2021

17 unchanged sentences

Net income $ 265.8 $ 249.6 $ 54.1

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Our operating leases with terms greater than one year are primarily related to buildings and land.

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Short-term lease cost (a) (b)

$ 12.5 $ 11.1

Operating lease cost (b)

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Total lease cost $ 21.7 $ 19.7

(a) Includes leases with terms of one month or less.

(a) Includes leases with terms of one year or less.

(b) Includes variable lease costs, which were not material.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Supplemental cash flow information related to leases are as follows:

4 unchanged sentences

Operating cash flows from finance leases $ 0.5 $ 0.3

Financing cash flows from finance lease $ 0.2 $ 0.1

Financing cash flows from finance leases $ 0.4 $ 0.2

ROUAs obtained in exchange for lease obligations

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Finance leases 4.1 % 3.3 %

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

As of December 31, 2022, the future undiscounted cash flows associated with the Company's operating and financing lease liabilities were as follows:

10 unchanged sentences

Present value of lease liabilities $ 33.0 $ 16.1

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

BOARD OF DIRECTOR AND EMPLOYEE BENEFIT PLANS

12 unchanged sentences

Our cash contribution to the plan was $ 4.3 million in 2022, $ 4.1 million in 2021, and $ 3.7 million in 2020.

We are a member of a noncontributory defined benefit multi-employer retirement plan for all members of the Pari-mutuel Clerk’s Union of Kentucky and several other collectively bargained retirement plans, which are administered by unions.

Cash contributions are made in accordance with negotiated labor contracts.

Retirement plan expense was $ 0.7 million in 2021,$ 0.3 million in 2020, and $ 0.6 million in 2019.

Our policy is to fund this expense as accrued, and we currently estimate that future contributions to these plans will not increase significantly from prior years.

FAIR VALUE OF ASSETS AND LIABILITIES

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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:

Restricted Cash

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

The fair value of the Company’s 2028 Senior Notes and 2027 Senior Notes are estimated based on unadjusted quoted prices for identical or similar liabilities in markets that are not active and as such are Level 2 measurements.

The fair value of the Company's Senior Secured 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.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Restricted Cash

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

The fair value of the Company’s 2030 Senior Notes, 2028 Senior Notes and 2027 Senior Notes are estimated based on unadjusted quoted prices for identical or similar liabilities in markets that are not active and as such are Level 2 measurements.

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

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Term Loan B-1 291.6 294.8 — 294.8 —

Term Loan A 794.5 800.0 — 800.0 —

Revolver 664.1 664.1 — 664.1 —

2027 Senior Notes 595.3 574.5 — 574.5 —

2028 Senior Notes 698.4 626.5 — 626.5 —

2030 Senior Notes 1,183.4 1,079.4 — 1,079.4 —

December 31, 2021

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Term Loan B $ 381.6 $ 384.0 $ — $ 384.0 $ —

Revolver 149.7 149.7 — 149.7 —

Term Loan B-1 294.0 297.8 — 297.8 —

2027 Senior Notes 594.3 619.5 — 619.5 —

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When no amount within the range of loss is a better estimate than any other amount, we accrue the minimum amount of the estimable loss.

To the extent that such litigation against us may have an exposure to a loss in excess of the amount we have accrued, we believe that such excess would not be material to our consolidated financial condition, results of operations, or cash flows.

To the extent that such litigation against us may have an exposure to a loss in excess of

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

the amount we have accrued, we believe that such excess would not be material to our consolidated financial condition, results of operations, or cash flows.

Legal fees are expensed as incurred.

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

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

NET INCOME (LOSS) PER COMMON SHARE COMPUTATIONS

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Discontinued operations (1)

$ — $ ( 2.41 ) $ ( 0.06 )

Net income (loss) per common share - diluted $ 11.42 $ 6.35 $ ( 2.08 )

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Live and Historical Racing, TwinSpires, and Gaming.

Refer to Note 1, Description of Business, for additional information regarding the changes we made to our segments during the first quarter of 2021.

Refer to Note 1, Description of Business, for additional information regarding the changes we made to our segments during the first quarters of 2021 and 2022.

Prior year amounts have been reclassified to conform to this presentation.

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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.

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

Oak Grove conducts live harness racing during the year and operates an 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.

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

simulcast fees earned from other wagering sites;

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

The Live and Historical Racing segment includes live and historical pari-mutuel racing related revenue and expenses at Churchill Downs Racetrack and our historical racing properties in Kentucky, Virginia, and New Hampshire.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

The TwinSpires segment includes the revenue and expenses for the online horse racing and the online and retail sports betting and iGaming wagering business.

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

simulcast fees earned from other wagering sites, fees from racing event-related services including admissions, personal seat licenses, sponsorships, television rights, and other miscellaneous services, and revenue from food and beverage services.

The TwinSpires segment includes the revenue and expenses for TwinSpires Horse Racing, TwinSpires Sports and Casino and United Tote businesses and these businesses are headquartered in Louisville, Kentucky.

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

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

facilitates high dollar wagering by international customers;

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

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

Our TwinSpires Sports and Casino business operates our sports betting platform in multiple states, including Colorado, Indiana, Maryland, Michigan, Mississippi, New Jersey, Pennsylvania, Tennessee, and Arizona.

Our casino iGaming platform is operated in Michigan, New Jersey, and Pennsylvania.

The Sports and Casino business includes the results of mobile sports betting, online sports betting, casino iGaming, and our retail sportsbooks.

We operate eight retail sportsbooks in Colorado, Indiana, Maryland, Michigan, Arizona, Pennsylvania, and Mississippi, four of which operate under a third party’s casino license.

River Casino Des Plaines ("Rivers Des Plaines") retail and online BetRivers sportsbook is included in the Gaming segment.

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

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

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

Our TwinSpires Sports and Casino business includes the results of our nine retail sportsbooks at our wholly-owned gaming properties and our casino platform in Pennsylvania.

Rivers Des Plaines retail and online BetRivers sportsbook is included in the Gaming segment.

The Company exited the direct online Sports and Casino business during 2022 in every state except Pennsylvania and Arizona.

United Tote manufactures and operates pari-mutuel wagering systems for racetracks, OTBs and other pari-mutuel wagering businesses.

United Tote provides totalisator services which accumulate wagers, calculate payoffs and displays wagering data to patrons who wager on horse races.

United Tote has contracts to provide totalisator services to third-party racetracks, OTBs and other pari-mutuel wagering businesses and also provides these services at our facilities.

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

The Gaming segment has approximately 13,980 slot machines and video lottery terminals ("VLTs") and 358 table games located in ten states.

The Gaming segment revenue and expenses includes the following properties:

◦ Fair Grounds and VSI

◦ Lady Luck Casino Nemacolin management agreement

◦ Ocean Downs

◦ Oxford Casino and Hotel ("Oxford")

◦ Presque Isle

◦ Florida - Calder Casino ("Calder")

◦ Iowa - Hard Rock Hotel & Casino ("Hard Rock Sioux City")

◦ Louisiana - Fair Grounds Slots, Fair Grounds Race Course, and Video Services, LLC ("VSI") (collectively, "Fair Grounds and VSI")

◦ Maryland - Ocean Downs Casino & Racetrack ("Ocean Downs")

◦ Maine - Oxford Casino & Hotel ("Oxford")

◦ Mississippi

▪ Harlow’s Casino Resort and Spa ("Harlow's")

▪ Riverwalk Casino Hotel ("Riverwalk")

◦ New York - del Lago Resort & Casino ("del Lago")

◦ Pennsylvania

▪ Presque Isle Downs & Casino ("Presque Isle")

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

The Gaming segment also includes net income for our ownership portion of the Company’s equity investments in the following:

◦ 61.3 % equity investment in Midwest Gaming, the parent company of Rivers Des Plaines in Des Plaines, Illinois

◦ 50 % equity investment in MVG

The Gaming segment generates revenue and expenses from slot machines, table games, VLTs, video poker, ancillary food and beverage services, hotel services, commission on pari-mutuel wagering, racing event-related services, and / or other miscellaneous operations.

We have aggregated the following businesses as well as certain corporate operations, and other immaterial joint ventures in "All Other" to reconcile to consolidated results:

• United Tote

◦ Illinois - 61.3 % equity investment in Midwest Gaming, the parent company of Rivers Des Plaines

◦ Ohio - 50 % equity investment in MVG

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

The Gaming segment generates revenue and expenses from slot machines, table games, VLTs, video poker, HRMs, ancillary food and beverage services, hotel services, commission on pari-mutuel wagering, racing event-related services, and other miscellaneous operations.

We have aggregated Arlington as well as certain corporate operations, and other immaterial joint ventures in All Other to reconcile to consolidated results.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Eliminations include the elimination of intersegment transactions.

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Adjusted EBITDA includes our portion of EBITDA from our equity investments.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Adjusted EBITDA excludes:

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– Acquisition, disposition, and land sale related charges;

– Direct online Sports and Casino business exit costs;

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

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• Asset impairments;

• Gain on Calder Land sale;

• Legal reserves;

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• Other charges, recoveries, and expenses

As of December 31, 2021, Arlington ceased racing and simulcast operations.

On February 15, 2023, the Company closed on the sale of the property to the Chicago Bears.

Refer to Note 4, Dispositions and Assets Held for Sale for additional information.

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.

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

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The tables below present net revenue from external customers and intercompany revenue from each of our segments, Adjusted EBITDA by segment and reconciles comprehensive income to Adjusted EBITDA:

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Net revenue by segment is comprised of the following:

Years Ended December 31,

(in millions) 2022 2021 2020

Net revenue from external customers:

Live and Historical Racing $ 614.6 $ 409.1 $ 169.6

Churchill Downs Racetrack $ 128.1 $ 63.3 $ 187.6

Derby City Gaming 154.3 79.5 86.6

Oak Grove 100.7 16.6 —

Turfway Park 8.1 7.1 2.5

Newport 17.9 3.1 —

Total Live and Historical Racing 409.1 169.6 276.7

Horse Racing 396.9 403.2 289.9

Sports and Casino 34.8 11.3 5.7

Total TwinSpires 431.7 414.5 295.6

Fair Grounds and VSI 133.6 97.6 123.0

Presque Isle 119.6 73.1 137.5

Ocean Downs 100.6 60.2 85.9

Calder 100.0 51.8 99.8

Oxford Casino 99.8 44.9 101.7

Riverwalk Casino 61.2 46.3 56.1

Harlow’s Casino 56.1 40.7 54.0

Lady Luck Nemacolin 24.5 20.7 29.3

Total Gaming 695.4 435.3 687.3

All Other 61.0 34.6 70.1

Net revenue from external customers $ 1,597.2 $ 1,054.0 $ 1,329.7

Intercompany net revenues:

Live and Historical Racing:

Churchill Downs Racetrack $ 19.9 $ 17.8 $ 15.2

Turfway Park 1.6 1.4 0.3

Total Live and Historical Racing 21.5 19.2 15.5

TwinSpires 436.4 451.4 430.1

Fair Grounds and VSI 2.6 2.3 1.9

Presque Isle 0.3 0.2 0.4

Calder 0.1 — 0.1

Total Gaming 3.0 2.5 2.4

Gaming 755.9 695.4 435.3

All Other 2.9 41.3 19.0

Eliminations ( 38.8 ) ( 35.0 ) ( 30.3 )

Intercompany net revenue $ — $ — $ —

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Year Ended December 31, 2021

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

Net revenue from external customers

Live and simulcast racing $ 64.0 $ 380.7 $ 28.2 $ 472.9 $ 29.7 $ 502.6

Historical racing (a)

253.0 — — 253.0 — 253.0

Racing event-related services 68.5 — 1.2 69.7 7.0 76.7

— 34.8 622.0 656.8 — 656.8

23.6 16.2 44.0 83.8 24.3 108.1

Total $ 409.1 $ 431.7 $ 695.4 $ 1,536.2 $ 61.0 $ 1,597.2

Year Ended December 31, 2020

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

Net revenue from external customers

Live and simulcast racing $ 46.5 $ 387.5 $ 22.9 $ 456.9 $ 18.2 $ 475.1

Historical racing (a)

93.6 — — 93.6 — 93.6

Racing event-related services 21.0 — 3.4 24.4 0.3 24.7

— 11.3 381.3 392.6 — 392.6

8.5 15.7 27.7 51.9 16.1 68.0

Total $ 169.6 $ 414.5 $ 435.3 $ 1,019.4 $ 34.6 $ 1,054.0

Year Ended December 31, 2019

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

Net revenue from external customers

Live and simulcast racing $ 61.1 $ 277.1 $ 30.7 $ 368.9 $ 39.0 $ 407.9

Historical racing (a)

81.6 — — 81.6 — 81.6

Racing event-related services 118.6 — 4.1 122.7 5.7 128.4

— 5.7 580.1 585.8 — 585.8

15.4 12.8 72.4 100.6 25.4 126.0

Total $ 276.7 $ 295.6 $ 687.3 $ 1,259.6 $ 70.1 $ 1,329.7

These amounts were $ 20.9 million in 2021, $ 13.1 million in 2020, and $ 33.4 million in 2019.

Net Revenue $ 1,809.8 $ 1,597.2 $ 1,054.0

Churchill Downs Incorporated

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(in millions) Live and Historical Racing TwinSpires Gaming

Net revenue $ 430.6 $ 433.1 $ 698.4

Revenue $ 646.4 $ 441.6 $ 761.8

Taxes and purses ( 168.6 ) ( 27.0 ) ( 278.1 )

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(in millions) Live and Historical Racing TwinSpires Gaming

Net revenue $ 188.8 $ 416.0 $ 437.8

Revenue $ 430.6 $ 457.8 $ 698.4

Taxes and purses ( 126.3 ) ( 30.7 ) ( 264.4 )

Marketing and advertising ( 12.9 ) ( 49.4 ) ( 11.8 )

Salaries & benefits ( 32.5 ) ( 13.0 ) ( 75.9 )

Salaries and benefits ( 48.4 ) ( 27.0 ) ( 87.1 )

Content expense ( 2.5 ) ( 206.6 ) ( 4.7 )

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(in millions) Live and Historical Racing TwinSpires Gaming

Net revenue $ 292.2 $ 296.7 $ 689.7

Revenue $ 188.8 $ 435.6 $ 437.8

Taxes and purses ( 64.1 ) ( 25.1 ) ( 171.6 )

Marketing and advertising ( 6.2 ) ( 16.5 ) ( 7.5 )

Salaries & benefits ( 32.8 ) ( 11.4 ) ( 103.3 )

Salaries and benefits ( 32.5 ) ( 24.6 ) ( 75.9 )

Content expense ( 1.5 ) ( 202.7 ) ( 3.5 )

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Other charges and recoveries, net 1.0 — —

Gain on Calder land sale ( 274.6 ) — —

Transaction expense, net 42.1 7.9 1.0

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The Stock Repurchase Agreement contains customary representations, warranties and covenants of the parties.

The repurchase of shares of common stock from TDG pursuant to the Stock Repurchase Agreement was approved by the Company's Board of Directors separately from, and will not reduce the authorized amount remaining under, the existing common stock repurchase program from October 2018.

The repurchase of shares of common stock from TDG pursuant to the Stock Repurchase Agreement was approved by the Company's Board of Directors separately from, and did not reduce the authorized amount remaining under, the existing common stock repurchase program from October 2018.

The Company repurchased the shares using available cash and borrowings under the Revolver.

Amendment to Credit Agreement

Also, on February 1, 2021, the Company entered into an amendment (the “Third Amendment”) to the Credit Agreement.

The Third Amendment increased the amount of certain otherwise restricted payments permitted during the Financial Covenant Relief Period from $ 26.0 million to $ 226.0 million to accommodate the repurchase of shares of common stock from TDG described above.

Also, on February 1, 2021, the Company entered into an amendment to the Credit Agreement to increase the amount of certain otherwise restricted payments permitted during the Financial Covenant Relief Period from $ 26.0 million to $ 226.0 million to accommodate the repurchase of shares of common stock from TDG described above.

Churchill Downs Incorporated

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SUBSEQUENT EVENTS

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 "Purchase Agreement") (collectively, the "P2E Transaction").

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

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

Either the Company or P2E may terminate the Purchase Agreement if the closing has not occurred prior to the date that is nine months after signing the Purchase Agreement, 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 Purchase Agreement is terminated, the Company may have to pay a Regulatory Termination Fee of up to $ 137.5 million.

If the Company does not secure the financing required to fund the consideration payable under the Purchase Agreement and the Purchase Agreement is terminated, the Company may have to pay a Termination Fee of up to $ 330.0 million.

On February 15, 2023, we closed on the sale of 326 -acres of property in Arlington Heights, Illinois, to the Chicago Bears for $ 197.2 million per the agreement announced in September 2021.

Report of Independent Registered Public Accounting Firm

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

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We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded the properties acquired as part of the Peninsula Pacific Entertainment LLC (“P2E) acquisition and Ellis Park Racing & Gaming (“Ellis Park) from its assessment of internal control over financial reporting as of December 31, 2022, because they were acquired by the Company in purchase business combinations during 2022.

We have also excluded the properties acquired as part of the P2E acquisition and Ellis Park from our audit of internal control over financial reporting.

The properties acquired as part of the P2E acquisition and Ellis Park are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent approximately 11.3% and less than 1% of total assets, respectively and approximately 6.1% and less than 1% of total revenues, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

A company’s internal control over financial reporting includes those policies and procedures

that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Impairment Assessment for the Presque Isle Indefinite-Lived Gaming Rights Intangible Asset

As described in Notes 2, 8, and 9 to the consolidated financial statements, the Company’s indefinite-lived gaming rights intangible assets balance was $288.2 million as of December 31, 2021, of which $62.6 million relates to the Presque Isle indefinite-lived gaming rights intangible asset.

Management performs an annual review for impairment as of April 1 of each fiscal year for its indefinite-lived intangible assets, or more frequently if events or circumstances indicate that it is more likely than not the relevant asset may be impaired.

The fair value of the Presque Isle indefinite-lived gaming rights intangible asset was determined by management using the Greenfield Method, which is an income approach methodology that calculates the present value based on a projected cash flow stream.

The primary inputs used by management in the estimation of the fair value of the Presque Isle indefinite-lived gaming rights intangible asset included estimated future revenue, operating expenses, start-up costs, and discount rate.

The principal considerations for our determination that performing procedures relating to the impairment assessment for the Presque Isle indefinite-lived gaming rights intangible asset is a critical audit matter are (i) the high degree of auditor judgment and subjectivity in performing procedures relating to the fair value measurement of the gaming rights indefinite-lived intangible asset due to the significant judgment by management when developing the fair value estimate;

(ii) significant audit effort in evaluating the significant assumptions related to estimated future revenue and discount rate;

Acquisition of Peninsula Pacific Entertainment LLC – Valuation of Indefinite-Lived Gaming Rights Intangible Assets

As described in Notes 1 and 3 to the consolidated financial statements, on November 1, 2022, the Company completed the acquisition of substantially all of the assets of Peninsula Pacific Entertainment LLC (“P2E”) for a preliminary purchase consideration of $2.835.9 million, net of cash acquired, which resulted in $1,865.6 million of indefinite-lived gaming rights intangible assets being recorded.

The fair value of the gaming rights was determined using the Greenfield method, which is an income approach methodology.

In estimating the fair value of the indefinite-lived gaming rights intangible assets, management makes significant estimates and assumptions about future revenue and operating expenses, start-up costs, and the discount rates.

The principal considerations for our determination that performing procedures relating to the indefinite-lived gaming rights intangible assets acquired in the acquisition of P2E is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the indefinite-lived gaming rights, (ii) a high degree of auditor judgment, subjectivity, and effort in applying procedures and evaluating management’s significant assumptions related to estimated future revenue and operating expenses, start-up costs, and discount rates;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the intangible asset impairment assessment, including controls over management’s valuation of the Presque Isle indefinite-lived gaming rights intangible asset.

These procedures also included, among others, testing management’s process for developing the fair value of the Presque Isle indefinite-lived gaming rights intangible asset;

evaluating the appropriateness of the Greenfield Method;

testing the completeness and accuracy of underlying data used in the Greenfield Method;

and evaluating the reasonableness of significant assumptions used by management related to estimated future revenue and discount rate.

Evaluating management’s assumption related to estimated future revenue involved evaluating whether the assumption used was reasonable considering the current and past performance of Presque Isle and relevant third-party economic and industry data.

Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the Greenfield Method and evaluating the reasonableness of the discount rate assumption.

These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the gaming rights intangible assets.

These procedures also included, among others, (i) reading the purchase agreement, (ii) testing management’s process for developing the fair value estimate of the indefinite-lived gaming rights intangible assets, (iii) evaluating the appropriateness of the income approach methodology, (iv) testing the completeness and accuracy of the data used in the methodology, and (v) evaluating the reasonableness of significant assumptions related to the future revenue and operating expenses, start-up costs, and discount rates.

Evaluating the reasonableness of the future revenue and operating expenses and start-up costs involved considering the past performance of P2E, economic and industry forecasts, and whether the assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the Company's income approach methodology and the reasonableness of the discount rates assumption.

/s/ PricewaterhouseCoopers LLP

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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-K

Item 8. Financial Statements and Supplementary Data