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Item 8. Financial Statements and Supplementary Data

2024-02-21 compared with 2023-02-22 · 422 added, 410 removed, 1089 unchanged (43% of the section changed)

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CHURCHILL DOWNS INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

for the years ended December 31,

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Asset impairments 24.6 38.3 15.3

Transaction expense 42.1 7.9 1.0

Transaction expense, net 4.8 42.1 7.9

Total operating expense 1,897.7 1,488.0 1,312.8

Operating income 564.0 321.8 284.4

Other income (expense):

Other (expense) income:

Interest expense, net ( 268.4 ) ( 147.3 ) ( 84.7 )

Equity in income of unconsolidated affiliates 146.3 152.7 143.2

Gain on Calder land sale 274.6 — —

Gain on the sale of assets 114.0 274.6 —

Miscellaneous, net 5.9 7.0 0.7

Total other income (expense) 287.0 59.2 ( 52.2 )

Income from continuing operations before provision for income taxes 608.8 343.6 8.0

Income tax (provision) benefit ( 169.4 ) ( 94.5 ) 5.3

Income from continued operations, net of tax 439.4 249.1 13.3

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

Net income (loss) 439.4 249.1 ( 82.1 )

Net loss attributable to noncontrolling interest — — ( 0.2 )

Net income (loss) and comprehensive income (loss) attributable to Churchill Downs Incorporated $ 439.4 $ 249.1 $ ( 81.9 )

Net income (loss) per common share data - basic:

Continuing operations $ 11.58 $ 6.45 $ 0.34

Discontinued operations $ — $ — $ ( 2.41 )

Net income (loss) per common share - basic $ 11.58 $ 6.45 $ ( 2.07 )

Net income (loss) per common share data - diluted:

Continuing operations $ 11.42 $ 6.35 $ 0.33

Discontinued operations $ — $ — $ ( 2.41 )

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

Total other (expense) income ( 2.2 ) 287.0 59.2

Income before provision for income taxes 561.8 608.8 343.6

Income tax provision ( 144.5 ) ( 169.4 ) ( 94.5 )

Net income $ 417.3 $ 439.4 $ 249.1

Net income per common share data:

Basic net income $ 5.55 $ 5.79 $ 3.22

Diluted net income $ 5.49 $ 5.71 $ 3.18

Weighted average shares outstanding:

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Accrued expenses and other current liabilities

Income taxes payable

Current deferred revenue

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Common Stock Retained

Earnings Accumulated Other Comprehensive Loss Noncontrolling Interest Total Shareholders' Equity

Earnings Accumulated Other Comprehensive Loss Total Shareholders' Equity

(in millions, except per common share data) Shares Amount

Balance, December 31, 2020 79.0 $ 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 0.4 2.5 2.5

Repurchase of common stock ( 3.0 ) ( 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 ( 0.2 ) ( 16.1 ) ( 16.1 )

Stock-based compensation 27.8 27.8

Adoption of ASC 842

( 0.5 ) ( 0.5 )

Cash dividends ($ 0.334 per share)

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( 28.5 ) ( 28.5 )

Other ( 0.9 ) ( 0.9 )

Balance, December 31, 2023 74.5 $ — $ 894.5 $ ( 0.9 ) $ 893.6

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Cash flows from operating activities:

Net income (loss) $ 439.4 $ 249.1 $ ( 82.1 )

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

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

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

Net income $ 417.3 $ 439.4 $ 249.1

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

Depreciation and amortization 169.0 113.7 103.2

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Amortization of operating lease assets 6.2 5.3 5.3

Gain on Calder land sale ( 274.6 ) — —

Gain on sale of assets ( 114.0 ) ( 274.6 ) —

Other 5.4 7.4 5.3

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

Proceeds from the Calder land sale 279.0 — —

Proceeds from sale of assets 195.7 279.0 —

Other 4.1 ( 7.4 ) ( 8.6 )

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Repurchase of common stock ( 55.9 ) ( 174.9 ) ( 297.5 )

Cash settlement of stock awards — — ( 12.7 )

Taxes paid related to net share settlement of stock awards ( 25.5 ) ( 28.4 ) ( 12.9 )

Proceeds from pending equity transaction 14.4 — —

Debt issuance costs ( 13.0 ) ( 27.3 ) ( 6.9 )

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Operating cash flows of discontinued operations 0.5 26.0 ( 124.0 )

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

Net increase (decrease) in cash, cash equivalents and restricted cash 17.1 ( 150.9 ) 234.6

Cash, cash equivalents and restricted cash, beginning of year 204.7 355.6 121.0

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Dividends payable $ 29.3 $ 27.0 $ 27.0

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

Deferred payment on gaming rights incurred during the period — 50.6 —

Deferred payments for acquisition of business included in other liabilities 4.9 — —

Property and equipment additions included in accounts payable and accrued expense and other current liabilities 95.1 51.3 18.7

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 —

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

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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.

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, expanded pari-mutuel content and technology services to B2C platforms, and the operation and development of regional casino gaming properties.

We own and operate 14 live and historical racing entertainment venues in three states, one of the largest online horse racing wagering platforms in the U.S., nine wholly owned casino gaming properties in eight states and 13 retail sports books.

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

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.

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 integrate the United Tote offering with TwinSpires Horse Racing.

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

Acquisition of Exacta Systems

On August 22, 2023, the Company completed its previously announced acquisition of Exacta Systems, LLC ("Exacta").

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

Effective May 22, 2023, the Company's common stock was split two -for-one (the "Stock Split") with a proportionate increase in the number of its authorized shares of common stock.

All share and per-share amounts have been retroactively adjusted to reflect the effects of the Stock Split.

Refer to Note 10, Shareholders' Equity for further information on the Stock Split.

Presque Isle Impairment

During the second quarter of 2023, we evaluated economic conditions subsequent to the date of our annual impairment assessment on April 1, 2023, including competition in the market and inflationary pressures, which increased during the second quarter of 2023, and impacted the performance and outlook of Presque Isle Downs and Casino ("Presque Isle").

As a result, 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 at the end of the second quarter.

Based on the 2023 trigger event, the Company evaluated and subsequently updated the projected cash flows and discount rate to reflect the economic environment at that time.

As a result, the Company recognized a non-cash impairment charge of $ 24.5 million in the second quarter of 2023 for the Presque Isle gaming rights and trademark.

Refer to Note 8, Asset Impairments for further information on the impairment .

Arlington Sale

On February 15, 2023, we closed on the sale of the Arlington International Racecourse property ("Arlington") located in Arlington Heights, Illinois.

We sold 326 -acres to the Chicago Bears for $ 197.2 million.

Refer to Note 4, Dispositions for further information on the transaction.

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.

On November 1, 2022, the Company completed the acquisition of substantially all of the assets 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 HRM development rights for Emporia, Virginia, and Dumfries, Virginia, and up to five additional HRM entertainment venues in Virginia.

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

Acquisition of Ellis Park and Chasers Poker Room

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").

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Chasers Poker Room Acquisition

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

Ellis Park Acquisition

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

Impact of the COVID-19 Global Pandemic

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.

The 146th Kentucky Oaks and Derby were held in the third quarter of 2020 without spectators.

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.

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

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

The extent to which the COVID-19 pandemic, including the emergence of variant strains, will continue to impact the Company remains uncertain and will depend on many factors that are not within our control.

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

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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Actual results may differ from those initial estimates.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill and Other Intangible Assets

Goodwill and indefinite-lived intangible assets are required to be tested annually or more frequently if events or changes in circumstances indicate that it is more likely than not that an asset is impaired.

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Changes in estimates or the application of alternative assumptions could produce significantly different results.

We perform our annual review for impairment of goodwill and indefinite-lived intangible assets on April 1 of each fiscal year, or more frequently if events or changes in circumstances indicate that it is more likely than not the relevant asset is impaired.

We perform our annual review for impairment of goodwill and indefinite-lived intangible assets on April 1 st of each fiscal year, or more frequently if events or changes in circumstances indicate that it is more likely than not the relevant asset is impaired.

Adverse industry or economic trends, lower projections of profitability, or a sustained decline in our market capitalization, among other items, may be indications of potential impairment issues, which are triggering events requiring the testing of an asset’s carrying value for recoverability.

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We are required to aggregate the components of an operating segment into one reporting unit if they have similar economic characteristics.

Our gaming rights and trademarks are considered indefinite-lived intangible assets that do not require amortization based on our future expectations to operate our gaming facilities and use the trademarks indefinitely and our historical experience in renewing these intangible assets at minimal cost with various state gaming commissions.

The indefinite lived-intangible assets carrying value are tested annually, or more frequently, if indicators of impairment exist, by comparing the fair value of the recorded assets to the associated carrying amount.

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

Our gaming rights and certain trademarks are considered indefinite-lived intangible assets that do not require amortization based on our future expectations to operate our gaming facilities and use certain trademarks indefinitely and our historical

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

experience in renewing these intangible assets at minimal cost with various state gaming commissions.

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

Other definite-lived intangible assets, consisting primarily of customer relationships and technology assets, are amortized over periods from seven to 15 years.

Amortization expense related to the definite-lived intangible assets is provided on a straight-line basis, as it approximates the economic benefit over the estimated useful lives of the assets.

With respect to definite-lived intangible assets, we periodically evaluate whether events and circumstances have occurred that may affect the estimated useful life or the recoverability of the remaining balance of such assets.

If such events or circumstances indicate that the carrying amount of these assets may not be recoverable, we would estimate the future cash flows expected to result from the use of the assets and their eventual disposition.

If the sum of the expected future cash flows were less than the carrying amount of the assets, we would recognize an impairment charge to reduce such assets to their fair value.

Property and Equipment

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Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets as follows:

10 to 40 years for grandstands and buildings, 2 to 10 years for equipment, 2 to 10 years for furniture and fixtures and 10 to 20 years for tracks and other improvements.

10 to 40 years for grandstands and buildings, two to 10 years for equipment, two to 10 years for furniture and fixtures and 10 to 20 years for tracks and other improvements.

Our capital maintenance expenditures relate to the replacement of existing fixed assets with a useful life greater than one year that are obsolete, exhausted, or no longer cost effective to repair.

Our capital project expenditures represent fixed asset additions related to land or building improvements to new or existing assets or purchases of new (non-replacement) equipment or software related to specific projects deemed necessary expenditures.

Revenue Recognition

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Our live racetracks' revenue and income are influenced by our racing calendar.

Similarly, TwinSpires Horse Racing revenue and income is influenced by racing calendars.

Similarly, TwinSpires advance deposit wagering ("ADW") and United Tote revenue and income is influenced by racing calendars.

Therefore, revenue and operating results for any interim quarter are not generally indicative of the revenue and operating results for the year and may not be comparable with results for the corresponding period of the previous year.

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 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").

TwinSpires import revenue is generated through advance deposit wagering which consists of patrons wagering through an advance deposit account.

TwinSpires import revenue is generated through ADW which consists of patrons wagering through an advance deposit account.

Each wagering contract for on-track revenue, and import revenue contains a single performance obligation and our export revenue contracts contain a series of distinct services that form a single performance obligation.

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As a result, we have elected to use the practical expedient to omit disclosure related to remaining performance obligations for our export revenue contracts.

We recognize on-track revenue, export revenue, and import revenue once the live race event is made official by the relevant racing regulatory body.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

recognize on-track revenue, export revenue, and import revenue once the live race event is made official by the relevant racing regulatory body.

We recognize revenue we earn from providing a wagering service to our customers on historical races at our HRM facilities.

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therefore, any charges, including any applicable simulcast fees, we incur for delivering the wagering service are presented as operating expenses.

For export revenue, our customer is the third-party wagering site such as a racetrack, OTB, or advance deposit wagering provider.

For export revenue, our customer is the third-party wagering site such as a racetrack, OTB, or ADW provider.

Therefore, the revenue we recognize for export revenue is the simulcast host fee we earn for exporting our racing signal to the third-party wagering site.

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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

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

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

Multiple day admission, PSLs, sponsorships, and television 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.

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

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.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

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.

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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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Restricted cash includes deposits collected from our TwinSpires' customers.

Other amounts included in restricted cash represent amounts due to horsemen for purses, stakes and awards that are paid in accordance with the terms of our contractual agreements or statutory requirements.

Other amounts included in restricted cash represent amounts due to horsemen for purses, stakes, and awards that are paid in accordance with the terms of our contractual agreements or statutory requirements, and other escrow deposits.

Allowance for Doubtful Accounts Receivable

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.

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.

The Company evaluates current expected credit losses on a collective (pool) basis when similar risk characteristics exist.

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Internal Use Software

Internal use software costs for our TwinSpires' segment software are capitalized in Property and equipment, net in the accompanying Consolidated Balance Sheets, in accordance with accounting guidance governing computer software developed or obtained for internal use.

Internal use software costs for our TwinSpires' segment are capitalized in property and equipment, net in the accompanying Consolidated Balance Sheets, in accordance with accounting guidance governing computer software developed or obtained for internal use.

Once the software is placed in operation, we amortize the capitalized software over the software's estimated economic useful life, which is generally three years .

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Assets and liabilities that are carried at fair value are classified and disclosed in one of the following three categories:

Unadjusted quoted market prices in active markets for identical assets or liabilities;

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

quoted market prices in active markets for identical assets or liabilities;

Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability;

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Distributions in excess of equity method income are recognized as a return of investment and recorded as investing cash inflows in the accompanying Consolidated Statements of Cash Flows.

We classify income and losses as well as gains and impairments related to our investments in unconsolidated affiliates as a component of Other income (expense) in the accompanying Consolidated Statements of Comprehensive Income (Loss).

We classify income and losses as well as gains and impairments related to our investments in unconsolidated affiliates as a component of other (expense) income in the accompanying Consolidated Statements of Comprehensive Income.

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

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

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.

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, 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.

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Debt Issuance Costs and Loan Origination Fees

Debt issuance costs and loan origination fees associated with our term debt, revolver, and notes payable are amortized as interest expense over the term of each respective financial instrument.

Debt issuance costs and loan origination fees associated with our term debt, Revolver (as defined in Note 12, Debt), and notes payable are amortized as interest expense over the term of each respective financial instrument.

Debt issuance costs and loan origination fees associated with our term debt and notes payable are presented as a direct deduction from the carrying amount of the related liability.

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We recognize casino and pari-mutuel tax expense based on the statutory requirements of the federal, state, and local jurisdictions in which we conduct business.

All of our casino taxes and the majority of our pari-mutuel taxes are gross receipts taxes levied on the gaming entity.

We recognize these taxes as Live and Historical Racing, TwinSpires, Gaming, and All Other operating expenses in our Consolidated Statements of Comprehensive Income (Loss).

All our casino taxes and the majority of our pari-mutuel taxes are gross receipts taxes levied on the gaming entity.

We recognize these taxes as Live and Historical Racing, TwinSpires, Gaming, and All Other

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

operating expenses in our Consolidated Statements of Comprehensive Income.

In certain jurisdictions governing our pari-mutuel contracts with customers, there are specific pari-mutuel taxes that are assessed on winning wagers from our customers, which we collect and remit to the government.

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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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We expense the costs of general advertising, marketing, and associated promotional expenditures at the time the costs are incurred.

We incurred advertising and marketing expense of approximately $ 52.9 million in 2022, $ 74.5 million in 2021, and $ 31.4 million in 2020 in our accompanying Consolidated Statements of Comprehensive Income (Loss).

We incurred advertising and marketing expense of approximately $ 83.4 million in 2023, $ 52.9 million in 2022, and $ 74.5 million in 2021 in our accompanying Consolidated Statements of Comprehensive Income.

Stock-Based Compensation

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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).

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

Anticipated proceeds in excess of recognized losses would be considered a gain contingency and recognized when the contingency related to the insurance claim has been resolved.

Recent Accounting Pronouncements - Adopted on January 1, 2021

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, Income Taxes.

The amendments also clarify and amend existing guidance to improve consistent application of and simplify GAAP for other areas of Topic 740.

This ASU was effective for public business entities for fiscal years and interim periods beginning after December 15, 2020.

The adoption of this ASU did not have a material impact on our business.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Recent Accounting Pronouncements -effective in 2023 or thereafter

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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

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.

During the second quarter of 2023, the Company completed the transition of its financing from LIBOR to the Secured Overnight Financing Rate ("SOFR").

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

Recent Accounting Pronouncements - effective in 2024 or thereafter

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, to amend certain disclosure and presentation requirements for a variety of topics within the ASC.

These amendments align the requirements in the ASC to the removal of certain disclosure requirements set out in Regulation S-X and Regulation S-K, announced by the SEC.

The effective date for each amended topic in the ASC is either the date on which the SEC’s removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or on June 30, 2027, if the SEC has not removed the requirements by that date.

Early adoption is prohibited.

The Company is currently evaluating the impact of this standard on the consolidated financial statements and related disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which enhances the disclosures required for operating segments in the Company’s annual and interim consolidated financial statements.

The amendments are effective for the Company in fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption of the amendment is permitted, including adoption in any interim periods for which financial statements have not been issued.

The Company is currently evaluating the impact of this standard on the consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures.

The amendments address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information.

Early adoption is permitted.

The amendments should be applied prospectively to all annual periods beginning after December 15, 2024.

The Company is currently evaluating the impact of this standard on the consolidated financial statements and related disclosures.

Exacta Systems

On August 22, 2023, the Company completed its acquisition of Exacta for preliminary purchase consideration of $ 248.2 million, net of cash acquired, consisting of a $ 241.3 million cash payment and $ 6.9 million of deferred payments, which is payable over two years (the "Exacta Transaction").

The preliminary purchase consideration is subject to working capital and other purchase price adjustments.

Exacta is a leading provider of central determinate system technology in HRMs across the country.

The Exacta Transaction is expected to enable the Company to realize significant and immediate synergies related to the Company’s Virginia operations.

The Company also expects to realize additional operational improvements over time through the diversification of games available at its HRM facilities.

Exacta will operate within the Company’s TwinSpires segment and will continue to service its growing portfolio of third-party HRM operators in Kentucky, Wyoming, and New Hampshire.

The Company recorded the fair values of the assets of the Exacta Transaction as of August 22, 2023 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 areas of the preliminary valuations that are not yet finalized relate to the amounts for adjustments to working capital, final value of intangible assets, final amount of residual goodwill, and final allocation of goodwill between segments.

The residual goodwill will be allocated between the TwinSpires and the Live and Historical Racing segments based upon the projected future benefits to be realized as a result of the Exacta Transaction.

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.

The following table summarizes the preliminary fair value of the assets acquired and liabilities assumed, net of cash acquired of $ 1.8 million, as of August 22, 2023:

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

(in millions) Total

Accounts receivable $ 9.0

Other current assets 3.0

Property and equipment 9.0

Goodwill 177.1

Other intangible assets 54.3

Other assets 0.9

Total assets acquired $ 253.3

Accounts payable 2.7

Accrued expenses and other current liabilities 1.8

Other liabilities assumed 0.6

Total liabilities assumed $ 5.1

Net assets acquired (net of cash) $ 248.2

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

(in millions) Fair Value Recognized Estimated Useful Life

Technology asset $ 23.9 7.0 years

Customer relationships 21.3 15.0 years

Trademark 8.7 10.0 years

Other 0.4 5.0 years

Total intangible assets $ 54.3

Goodwill of $ 177.1 million related to the Exacta Transaction was recognized, of which $ 95.9 million was preliminarily allocated to the Live and Historical Racing segment and $ 81.2 million was preliminarily allocated to the TwinSpires segment.

The goodwill related to the Exacta Transaction is deductible for tax purposes.

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:

On November 1, 2022, the Company completed the acquisition of substantially all the ass ets of P2E for a 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, and up to five additional HRM entertainment venues in Virginia.

The following table summarizes the 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

1 unchanged sentence

(in millions) Total

Accounts receivable, net $ 9.8

Accounts receivable $ 9.8

Other current assets 7.2

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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 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 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 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.

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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

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.

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 sports books, 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.

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Net income $ 535.4 $ 205.1

DISPOSITIONS, ASSETS HELD FOR SALE & DISCONTINUED OPERATIONS

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 purchase price adjustments.

The fair values of the assets acquired and liabilities assumed, net of cash acquired of $ 1.4 million, are as follows:

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Chasers Poker Room

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.

Valuation Techniques

For these transactions any 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.

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

The fair value of 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.

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

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 Company has not included other disclosures regarding the Exacta, Chasers, or Ellis Park Transactions as these transactions are immaterial to our business.

Lady Luck Casino Nemacolin

On June 26, 2023, the Company's management agreement for Lady Luck Casino Nemacolin ("Lady Luck") in Farmington, Pennsylvania expired and was not renewed.

The Company completed the sale of substantially all its assets at Lady Luck for an immaterial amount.

On February 15, 2023, we closed on the sale of the Arlington property in Arlington Heights, Illinois, to the Chicago Bears for $ 197.2 million.

We received net proceeds of $ 195.7 million for the 326 -acres and recognized a gain of $ 114.0 million on the sale, which is included in other (expense) income in the accompanying Consolidated Statements of Comprehensive Income.

Certain assets of Arlington totaling $ 82.0 million were classified held for sale as of December 31, 2022 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, which qualified as an Internal Revenue Code §1031 transaction.

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 Consolidated Balance Sheets.

As of December 31, 2023, the Company has a $ 27.8 million deferred tax liability related to the Arlington sale on the Consolidated Balance Sheets.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Calder Land Sale

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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).

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

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

The 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 proceeds were held by a qualifying intermediary in an interest-bearing account until they were utilized 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

As of December 31, 2023, the Company has a $ 76.0 million deferred tax liability related to the Calder land sale on the Consolidated Balance Sheets.

Discontinued Operations

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The Big Fish Games business met the criteria for discontinued operation presentation.

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.

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.

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

During 2023 and 2022, the Company received tax refunds of $ 0.5 million and $ 26.0 million, respectively related to the capital loss associated with this settlement.

PROPERTY AND EQUIPMENT

12 unchanged sentences

Total $ 2,561.2 $ 1,978.3

Depreciation expense was $ 109.0 million in 2022, $ 98.4 million in 2021 and $ 88.0 million in 2020 and is classified in operating expense in the accompanying Consolidated Statements of Comprehensive Income (Loss) .

Depreciation expense was $ 161.8 million in 2023, $ 109.0 million in 2022 and $ 98.4 million in 2021 and is classified in operating expense in the accompanying Consolidated Statements of Comprehensive Income .

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Goodwill, by segment, is comprised of the following:

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Balance, December 31, 2021 $ 52.4 $ 152.2 $ 161.2 $ 1.0 $ 366.8

Adjustments — — — — —

Additions 227.9 — 129.1 — 357.0

Balance, December 31, 2022 280.3 152.2 290.3 1.0 723.8

Additions 95.9 81.2 — — 177.1

Adjustments — — — ( 1.0 ) ( 1.0 )

Balance, December 31, 2023 $ 376.2 $ 233.4 $ 290.3 $ — $ 899.9

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.

The goodwill established as part of the P2E Transaction 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.

In 2023, we established goodwill of $ 177.1 million related to the Exacta Transaction.

The goodwill was assigned to the Live and Historical Racing segment in the amount of $ 95.9 million and to the TwinSpires segment in the amount of $ 81.2 million.

Refer to Note 3, Acquisitions for more information on these transactions.

We performed our annual goodwill impairment analysis as of April 1, 2023.

1 unchanged sentence

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

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

OTHER INTANGIBLE ASSETS

10 unchanged sentences

Customer relationships 26.0 ( 3.9 ) 22.1 4.7 ( 3.3 ) 1.4

Technology asset 23.9 ( 2.0 ) 21.9 — — —

Gaming licenses 6.9 ( 3.2 ) 3.7 5.1 ( 2.5 ) 2.6

7 unchanged sentences

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).

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 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.

During 2023, we established definite-lived intangible assets of $ 54.3 million for the technology asset, customer relationships, trademark, and other intangibles related to the Exacta Transaction.

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

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Amortization expense for definite-lived intangible assets was $ 7.2 million in 2023, $ 4.7 million in 2022, and $ 4.8 million in 2021, and is classified in operating expense in the accompanying Consolidated Statements of Comprehensive Income.

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

Refer to Note 8, Asset Impairments for information regarding intangible asset impairments recognized during 2022 and 2023.

We performed our annual indefinite-lived intangible assets impairment analysis as of April 1, 2023, 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 other than impairments described in Note 8, Assets Impairments.

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

Years Ended December 31, Estimated Amortization Expense

Future estimated amortization expense does not include additional payments of $ 2.3 million in 2023 and in each year thereafter for the ongoing amortization of future expected annual Calder license fees not yet incurred or paid.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

ASSET IMPAIRMENTS

Presque Isle Impairment

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.

During the quarter ended December 31, 2022, 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 negative economic trends ("2022 Trigger Event").

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.

As a result, the Company recognized a $ 33.4 million non-cash impairment charge in the fourth quarter of 2022 for the Presque Isle gaming rights and trademark, which are included in the Gaming segment.

We performed our annual goodwill and indefinite-lived intangible assets impairment analysis for Presque Isle as of April 1, 2023.

Based on the results of this analysis, no impairments for Presque Isle were identified.

Subsequent to the annual test, we continued to evaluate economic conditions, including competition in the market and inflationary pressures, which increased during the second quarter of 2023, and impacted the performance and outlook of Presque Isle.

Based on the 2023 Trigger Event, the Company evaluated and subsequently updated the projected cash flows and discount rate to reflect the economic environment at that time.

As a result, the Company recognized a $ 24.5 million non-cash impairment charge in the second quarter of 2023 for the Presque Isle gaming rights and trademark.

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

The fair value of the trademark was determined by using the relief-from-royalty method of the income approach.

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.

In accordance with ASC 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 events described above, 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 any impairment for Presque Isle goodwill in 2022 or 2023 because the fair value exceeded the carrying value.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

The Company continues to monitor the competitive environment and the impacts on the results of Presque Isle's operations.

Future economic conditions and increased competition could have a negative impact on the estimates and assumptions utilized in our asset impairment assessments.

These potential impacts could increase the risk of a future impairment of assets at Presque Isle.

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.

Based on the 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.

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

Presque Isle Impairment 2020

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.

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.

This method assumes that the Presque Isle gaming rights provide the opportunity to develop a casino and online wagering platform 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, operating expenses, start-up costs, and discount rate were the primary inputs in the valuation.

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

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Components of the provision (benefit) for income taxes are as follows:

Components of the provision for income taxes are as follows:

Years Ended December 31,

(in millions) 2023 2022 2021

Current provision (benefit):

Current provision:

Federal $ 74.4 $ 41.0 $ 66.1

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47.4 108.7 9.8

Income tax provision (benefit) $ 169.4 $ 94.5 $ ( 5.3 )

Income from continuing operations before provision for income taxes were as follows:

Income tax provision $ 144.5 $ 169.4 $ 94.5

Income before provision for income taxes were as follows:

Years Ended December 31,

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Foreign — ( 0.1 ) ( 0.1 )

Income from continuing operations before provision for income taxes $ 608.8 $ 343.6 $ 8.0

Our income tax provision (benefit) is different from the amount computed by applying the federal statutory income tax rate to income from continuing operations before taxes as follows:

Income before provision for income taxes $ 561.8 $ 608.8 $ 343.6

Our income tax provision is different from the amount computed by applying the federal statutory income tax rate to income before taxes as follows:

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Years Ended December 31,

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Non-deductible officer's compensation 6.1 7.6 6.4

Valuation allowance - state and foreign net operating losses 2.5 1.8 1.1

Uncertain tax positions 2.3 0.1 1.7

Re-measurement of deferred taxes 1.3 ( 1.5 ) 1.9

Windfall deduction from equity compensation ( 2.3 ) ( 1.4 ) ( 1.3 )

Net operating loss carry back - CARES Act — — ( 13.3 )

Other ( 1.1 ) 1.3 0.2

Income tax provision (benefit) $ 169.4 $ 94.5 $ ( 5.3 )

The CARES Act provided, among other things, that any net operating loss arising in a tax year beginning in 2018, 2019 or 2020 may be carried back five years or carried forward indefinitely, offsetting up to 100 % of taxable income in tax years beginning before 2021.

The Company filed a refund claim in 2021 from carrying back our 2020 net operating loss to a year before the statutory corporate tax rate was reduced from 35% to 21% by the Tax Act.

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.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Income tax provision $ 144.5 $ 169.4 $ 94.5

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

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Tax years 2020 and after are open to examination.

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.

Tax years 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, 2023, we had approximately $ 4.8 million of total gross unrecognized tax benefits, excluding interest of $ 0.4 million.

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We anticipate a decrease in our unrecognized tax positions of approximately $ 0.8 million during the next twelve months primarily due to expected settlements with tax authorities and the expiration of statutes of limitation.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

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

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Balance as of December 31 $ 4.8 $ 6.4 $ 3.9

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

SHAREHOLDERS' EQUITY

3 unchanged sentences

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

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

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

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

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

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

3 unchanged sentences

(in millions, except share data) 2023 2022 2021

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

Repurchase Program (1)

Shares Aggregate Purchase Price Shares Aggregate Purchase Price Shares Aggregate Purchase Price

2021 Stock Repurchase Program 461,761 $ 55.3 1,747,844 $ 175.5 452,464 $ 54.4

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Total 461,761 $ 55.3 1,747,844 $ 175.5 942,728 $ 103.6

The Duchossois Group ("TDG") Share Repurchase

(1) Number of shares have been adjusted for the Stock Split.

On April 25, 2023, the Company’s Board of Directors approved a two -for-one Stock Split and an amendment to the Company’s Articles of Incorporation to increase the number of shares of common stock the Company is authorized to issue from 150,000,000 shares, no par value, to 300,000,000 shares, no par value.

This amendment to the Company’s Articles of Incorporation became effective on May 19, 2023 and our common stock began trading at the split-adjusted price on May 22, 2023.

All share and per-share amounts in the Company’s consolidated financial statements and related notes have been retroactively adjusted to reflect the effects of the Stock Split.

The Duchossois Group ("TDG") Share Repurchases

On February 1, 2021, the Company entered into an agreement (the "2021 Stock Repurchase Agreement") with an affiliate of TDG to repurchase 1,000,000 shares of the Company’s common stock for $ 193.94 per share in a privately negotiated transaction for an aggregate purchase price of $ 193.9 million.

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The Company repurchased the shares using available cash and borrowings under the Revolver (as defined in Note 12, Debt).

On December 18, 2023, the Company entered into an agreement (the “2023 Stock Repurchase Agreement”) with an affiliate of TDG to repurchase 1,000,000 shares of the Company’s common stock, for $ 123.75 per share in a privately negotiated transaction, for an aggregate purchase price of $ 123.8 million.

The repurchase of the shares of Company's common stock pursuant to the 2023 Stock Repurchase Agreement closed on January 2, 2024, and contained customary representations, warranties, and covenants of the parties.

The repurchase of shares of common stock from TDG pursuant to the 2023 Stock Repurchase Agreement was approved by the Company's Board of Directors separately from, and did not reduce the authorized

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

amount remaining under, the existing common stock repurchase program.

The repurchase of the shares was funded using available cash and borrowings under the Company's senior secured credit facility.

STOCK-BASED COMPENSATION PLANS

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

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.

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.

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The maximum number of PSU Awards, including the impact of the TSR performance, that can be earned for a performance period is 250 % of the original award.

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 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.

In October 2018, the Company granted a special equity award to two NEOs (" 7 -Year Grant") consisting of PSU Awards that could 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 %.

The total compensation cost recognized for PSU Awards is determined using the Monte Carlo valuation methodology, which factors in the value of the TSR when determining the grant date fair value of the award.

Compensation cost for the PSU Awards is recognized during the three-year performance and service period based on the probable achievement of the two performance criteria, with the exception of the 7-Year Grant, which compensation cost is recognized during the seven-year service period.

Compensation cost for the PSU Awards is recognized during the three-year performance and service period based on the probable achievement of the two performance

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

criteria, with the exception of the 7-Year Grant, which compensation cost is recognized during the seven-year service period.

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

A summary of the 2022 RSUs, and PSUs granted to certain NEOs, employees, and the Board of Directors is presented below (shares/units in thousands):

A summary of the 2023 RSUs, RSAs, and PSUs granted to certain NEOs, employees, and the Board of Directors is presented below (shares/units in thousands):

Grant Year Award Type Number of Units Awarded (1)(2)

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2023 PSU 62 Three -year performance and service period ending in 2025

2023 RSU 10 Three -year service period ending in 2024

2023 RSU 6 One year service period ending in 2024

2023 RSA 4 One year service period ending in 2024

(1) PSUs presented are based on the target number of units for the original PSU grant.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

(2) Number of units awarded have been adjusted for the Stock Split.

Activity for our RSAs, RSUs, and PSUs is presented below (shares/units in thousands):

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(in thousands, except grant date values) Number of

Shares / Units Weighted

Shares / Units (1)(2)

Fair Value Number of

Shares / Units Weighted

Shares / Units (1)(2)

Fair Value Number of

Shares / Units Weighted

Shares / Units (1)(2)

Balance, December 31, 2020 604 $ 41.70 470 $ 53.95 1,074 $ 47.07

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

(2) Number of shares and weighted average grant date fair values have been adjusted for the Stock Split.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

The fair value of shares and units vested was $ 55.0 million in 2023, $ 56.9 million in 2022, and $ 45.4 million in 2021.

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Unrecognized expense:

RSU $ 8.8 1.52

RSU & RSA $ 10.1 1.89

PSU 13.1 1.36

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Each period commences on August 1 and ends on the following July 31.

Compensation expense related to the ESP Plan was not material for any year included in our accompanying Consolidated Statements of Comprehensive Income (Loss).

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Compensation expense related to the ESP Plan was not material for any year included in our accompanying Consolidated Statements of Comprehensive Income.

The following table presents our total debt outstanding:

December 31, 2022

(in millions) Outstanding Principal Issuance Costs and Fees Long-Term Debt, Net

(in millions) December 31, 2023 December 31, 2022

Term Loan B due 2024 $ — $ 380.0

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2030 Senior Notes 1,200.0 1,200.0

Total debt 4,638.8 33.1 4,605.7

Current maturities of long-term debt 47.0 — 47.0

Total debt, net of current maturities $ 4,591.8 $ 33.1 $ 4,558.7

December 31, 2021

(in millions) Outstanding Principal Issuance Costs and Fees Long-Term Debt, Net

Term Loan B due 2024 $ 384.0 $ 2.4 $ 381.6

Term Loan B-1 due 2028 297.8 3.8 294.0

2031 Senior Notes 600.0 —

2028 Senior Notes 700.0 1.9 698.1

Total debt 4,874.0 4,638.8

Current maturities of long-term debt ( 68.0 ) ( 47.0 )

Total debt, net of current maturities $ 1,974.8 $ 13.8 $ 1,961.0

Unamortized premium and deferred finance charges ( 37.7 ) ( 33.1 )

Total debt, net of current maturities and costs $ 4,768.3 $ 4,558.7

Credit Agreement

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.

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

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

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.

At December 31, 2023, the Company’s senior secured credit facility (as amended from time to time, the “Credit Agreement") consisted of a $ 1.2 billion revolving credit facility (the "Revolver"), $ 300.0 million senior secured term loan B-1 due 2028 (the "Term Loan B-1"), $ 1.3 billion senior secured term loan A due 2027 (the "Term Loan A"), and $ 100.0 million swing line commitment.

Certain amendments to the Credit Agreement entered into during 2022 and 2023 are described below.

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 provided for a senior secured 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 $ 3.5 million of debt issuance costs associated with the Revolver commitment increase and $ 6.4 million of debt issuance costs associated with the Term Loan A which are being amortized as interest expense over the 5-year term.

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.

On February 24, 2023, we amended our Credit Agreement to increase the loans under the Term Loan A due 2027 from $ 800.0 million to $ 1.3 billion and made certain other changes to the existing credit agreement.

The Company used the net proceeds from the borrowings under the increased Term Loan A to repay outstanding loans under its Revolver, pay related transaction fees and expenses, and for general corporate purposes.

The Company capitalized $ 2.6 million of debt issuance costs associated with the increased Term Loan A which are being amortized as interest expense over the remainder of the 5-year term.

Term Loan B-1 bears interest at SOFR plus 210 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 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.

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

As of December 31, 2023, that applicable margin was 150 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 $ 947.6 million available borrowing capacity, after consideration of $ 5.3 million in outstanding letters of credit, under the Revolver as of December 31, 2023.

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

For the period ended December 31, 2023, the Company's commitment fee rate was 0.25 %.

The Company completed the transition of its financing from LIBOR to SOFR during the second quarter of 2023.

These transition activities did not 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.

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persons in accordance with Regulation S under the Securities Act.

The 2027 Senior Notes were issued at par, with interest payable on April 1 st and October 1 st of each year, commencing on October 1, 2019.

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

The 2027 Senior Notes were issued pursuant to an indenture, dated March 25, 2019 (the "2027 Indenture"), among the Company, certain subsidiaries of the Company as guarantors (the "2027 Guarantors"), and U.S.

Bank National Association, as trustee.

The Company may redeem some or all of the 2027 Senior Notes at any time at redemption prices set forth in the 2027 Indenture.

The terms of the 2027 Indenture, among other things, limit the ability of the Company to:

(i) incur additional debt and issue preferred stock, (ii) pay dividends or make other restricted payments, (iii) make certain investments, (iv) create liens, (v) allow restrictions on the ability of certain of our subsidiaries to pay dividends or make other payments, (vi) sell assets, (vii) merge or consolidate with other entities, and (viii) enter into transactions with affiliates.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

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.

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.

T he 2027 Senior Notes will vote as one class under the indenture governing the 2027 Senior Notes.

The Company may redeem some or all of the 2027 Senior Notes at redemption prices set forth in the 2027 Indenture.

2028 Senior Notes

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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.

On March 17, 2021, the Company completed an offering of $ 200.0 million in aggregate principal amount of 4.75 % Senior Unsecured Notes that mature on January 15, 2028 (the "Additional 2028 Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the Securities Act, and to certain non-U.S.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

buyers pursuant to Rule 144A that is exempt from registration under the Securities Act, and to certain non-U.S.

persons in accordance with Regulation S under the Securities Act.

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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 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:

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

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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.

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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.

2031 Senior Notes

On April 25, 2023, the Company completed an offering of $ 600.0 million in aggregate principal amount of 6.750 % senior unsecured notes that mature on April 25, 2031 (the "2031 Senior Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A that is exempt from registration under the Securities Act, and to certain non-U.S.

persons in accordance with Regulation S under the Securities Act.

The Company used a portion of the net proceeds from the offering to repay indebtedness outstanding under its Term Loan B Facility due 2024 and to fund related transaction fees and expenses, working capital, and other general corporate purposes.

The Company recognized a loss on extinguishment on Term Loan B of $ 1.3 million, which is included in miscellaneous, net in the accompanying Consolidated Statements of Comprehensive Income.

The Company capitalized $ 10.5 million of debt issuance costs associated with the 2031 Senior Notes which are being amortized as interest expense over the remainder of the 8-year term.

The 2031 Senior Notes were issued at 100 % of the principal amount, plus interest deemed to have accrued from April 25, 2023, with interest payable in arrears on May 1 st and November 1 st of each year, commencing on November 1, 2023.

The 2031 Senior Notes will vote as one class under the indenture governing the 2031 Senior Notes.

The Company may redeem some or all of the 2031 Senior Notes at any time prior to April 25, 2025, at redemption prices set forth in the 2031 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):

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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.

The increase in contract liabilities from December 31, 2022 to December 31, 2023 was due to increased advanced ticket sales for the 150 th Kentucky Derby week.

We recognized $ 39.4 million of revenue during the year ended December 31, 2023 that was included in the contract liabilities balance on December 31, 2022.

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OTHER BALANCE SHEET ITEMS

Accounts receivable

Accounts receivable, net

Accounts receivable is comprised of the following:

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Other receivables 24.4 20.6

Allowance for doubtful accounts ( 5.7 ) ( 5.4 )

Allowance for credit losses ( 5.0 ) ( 5.7 )

Total $ 106.9 $ 81.5

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Accrued fixed assets 88.6 39.5

Accrued gaming liabilities 29.5 26.3

Deferred payment on gaming rights 50.6 50.6

Other 69.7 55.4

Total $ 426.8 $ 363.1

INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

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.

INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES

Investments in and advances to unconsolidated affiliates as of December 31, 2023 and 2022 primarily consisted of interests in Rivers Casino Des Plaines ("Rivers Des Plaines") and Miami Valley Gaming and Racing ("MVG").

Rivers Des Plaines

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").

Following the closing of the Sale Transaction, the parties completed a recapitalization transaction on March 6, 2019 (the "Recapitalization"), pursuant to which Midwest Gaming used approximately $ 300.0 million in proceeds from amended and extended credit facilities to redeem, on a pro rata basis, additional Midwest Gaming units held by High Plaines and Casino Investors.

As a result of the Recapitalization, the Company's ownership of Midwest Gaming increased to 61.3 %.

High Plaines retained ownership of 36.0 % of Midwest Gaming and Casino Investors retained ownership of 2.7 % of Midwest Gaming.

We also recognized a $ 103.2 million deferred tax liability and a corresponding increase in our investment in unconsolidated affiliates related to an entity we acquired in conjunction with our acquisition of the Clairvest ownership stake in Midwest Gaming.

A new limited liability company agreement was entered into by the members of Midwest Gaming as a result of the change in ownership structure.

Under the new limited liability company agreement, both the Company and High Plaines have participating rights over Midwest Gaming, and both must consent to Midwest Gaming's operating, investing and financing decisions.

As a result, we account for Midwest Gaming using the equity method.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

The ownership of Rivers Des Plaines is comprised of the following:

(1) the Company owns 61.3 % interest in Midwest Gaming Holdings, LLC ("Midwest Gaming"), the parent company of Rivers Des Plaines, (2) High Plaines Gaming, LLC ("High Plaines"), an affiliate of Rush Street Gaming, LLC owns of 36.0 % of Midwest Gaming, and (3) Casino Investors, LLC own 2.7 % of Midwest Gaming.

Both the Company and High Plaines have participating rights over Rivers Des Plaines, and both must consent to certain operating, investing, and financing decisions.

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

The Company’s investment in Midwest Gaming is presented at our initial cost of investment plus the Company's accumulated proportional share of income or loss, including depreciation/accretion of the difference in the historical basis of the Company’s contribution, less any distributions it has received.

Following the Sale Transaction and Recapitalization, the carrying value of the Company’s investment in Midwest Gaming was $ 835.0 million higher than the Company’s underlying equity in the net assets of Midwest Gaming.

Following the point at which the Company gained 61.3 % of Midwest Gaming, the carrying value of the Company’s investment was $ 835.0 million higher than the Company’s underlying equity in the net assets of Midwest Gaming.

This equity method basis difference was comprised of $ 853.7 million related to goodwill and indefinite-lived intangible assets, $( 13.7 ) million related to non-depreciable land, $( 9.5 ) million related to buildings that will be accreted into income over a weighted average useful life of 35.3 years, and $ 4.5 million related to personal property that will be depreciated over a weighted average useful life of 3.7 years.

As of December 31, 2023 , the net aggregate basis difference between the Company’s investment in Midwest Gaming and the amounts of the underlying equity in net assets was $ 832.6 million.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

Our investment in Rivers Des Plaines was $ 541.2 million as of December 31, 2023 and $ 544.9 million as of December 31, 2022.

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Miami Valley Gaming

Delaware North Companies Gaming & Entertainment Inc.

("DNC") owns the remaining 50 % interest in MVG.

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

The Company owns 50 % interest in MVG and Delaware North Companies Gaming & Entertainment Inc.

("DNC") owns the remaining 50 % interest.

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

Our investment in MVG was $ 114.6 million as of December 31, 2023 and $ 114.4 million as of December 31, 2022.

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The summarized income statement information for 2023 and 2022 and summarized balance sheet information as of December 31, 2023 and 2022 includes the following equity investments:

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

MVG and Rivers Des Plaines.

(in millions) 2023 2022

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Net income $ 263.1 $ 265.8 $ 249.6

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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The estimated discount rate for each of our leases is determined based on adjustments made to our secured debt borrowing rate.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

The components of total lease cost were as follows:

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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 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 fair value of the Company’s 2031 Senior Notes, 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 fair values of the Company's 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 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-1 289.2 291.8 — 291.8 —

Term Loan B-1 291.6 294.8 — 294.8 —

Term Loan A 1,228.7 1,235.0 — 1,235.0 —

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2030 Senior Notes 1,185.6 1,171.5 — 1,171.5 —

2031 Senior Notes 590.4 611.2 — 611.2 —

December 31, 2022

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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 —

CONTINGENCIES

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In accordance with current accounting standards for loss contingencies and based upon information currently known to us, we establish reserves for litigation when it is probable that a loss associated with a claim or proceeding has been incurred and the amount of the loss or range of loss can be reasonably estimated.

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

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

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.

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.

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.

NET INCOME (LOSS) PER COMMON SHARE COMPUTATIONS

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

NET INCOME PER COMMON SHARE COMPUTATION

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

Years Ended December 31,

(in millions, except per share data) 2023 2022 2021

Numerator for basic net income (loss) per common share:

Net income from continuing operations $ 439.4 $ 249.1 $ 13.3

Net loss attributable to noncontrolling interest — — ( 0.2 )

Net income from continuing operations, net of loss attributable to noncontrolling interests 439.4 249.1 13.5

Net loss from discontinued operations — — ( 95.4 )

Numerator for basic net income (loss) per common share $ 439.4 $ 249.1 $ ( 81.9 )

Numerator for diluted net income from continuing operations per common share $ 439.4 $ 249.1 $ 13.5

Numerator for diluted net income (loss) per common share $ 439.4 $ 249.1 $ ( 81.9 )

Denominator for net income (loss) per common share:

Numerator for basic net income per common share:

Net income $ 417.3 $ 439.4 $ 249.1

Denominator for net income per common share:

Basic 75.2 75.9 77.2

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Diluted 76.1 77.0 78.4

Net income (loss) per common share data:

Continuing operations $ 11.58 $ 6.45 $ 0.34

Discontinued operations — — ( 2.41 )

Net income (loss) per common share - basic $ 11.58 $ 6.45 $ ( 2.07 )

Continuing operations $ 11.42 $ 6.35 $ 0.33

Discontinued operations (1)

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

(1) Amounts exclude all potential common equivalent shares for periods when there is a net loss from discontinued operations.

Net income per common share data:

Basic net income $ 5.55 $ 5.79 $ 3.22

Diluted net income $ 5.49 $ 5.71 $ 3.18

All share and per-share amounts have been retroactively adjusted to reflect the effects of the Stock Split.

Refer to Note 10, Shareholders' Equity for further information on the Stock Split.

SEGMENT INFORMATION

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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 quarters of 2021 and 2022.

Refer to Note 1, Description of Business for additional information regarding the changes we made to our segments during the first quarter of 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 and our historical racing properties in Kentucky, Virginia, and New Hampshire.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

The Live and Historical Racing segment primarily 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.

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;

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

The TwinSpires segment includes the revenue and expenses from our TwinSpires horse racing business, our TwinSpires sports betting business, United Tote, and Exacta.

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

facilitates high dollar wagering by certain customers;

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

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.

TwinSpires accepts pari-mutuel wagers from customers residing in certain states who establish and fund an account from which these customers may place wagers via telephone, mobile applications, or through the Internet.

Our TwinSpires sports betting business includes the results of our retail sports books at our wholly owned gaming properties, our retail sports books in Kentucky, and our monetized online sports wagering licenses in Pennsylvania and

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

The retail and online sports books, if applicable, related to Rivers Des Plaines and MVG are included in the Gaming segment.

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

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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:

◦ 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:

◦ 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.

On August 22, 2023, the Company completed the acquisition of Exacta.

Exacta is a leading provider of central determinate system technology in HRMs across the country.

Exacta's system architecture supports multiple game vendors and virtually unlimited math modeling capabilities on a single system enabling Exacta to deliver a diverse gaming library to Company owned and third-party HRM entertainment venues in Kentucky, Virginia, Wyoming, and New Hampshire.

The Gaming segment includes revenue and expenses for the wholly owned casino properties and associated racetrack facilities which support the casino license in Florida, Iowa, Louisiana, Maine, Maryland, Mississippi, New York, and Pennsylvania.

The Gaming segment also includes our share of our equity investments in Illinois and Ohio.

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.

On June 26, 2023, the Company's management agreement for Lady Luck expired and was not renewed.

The Company completed the sale of substantially all its assets at Lady Luck for an immaterial amount.

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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• Transaction expense, net which includes:

– Acquisition, disposition, and land sale related charges;

– Acquisition, disposition, and property sale related charges;

– Direct online Sports and Casino business exit costs;

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• Asset impairments;

• Gain on Calder Land sale;

• Gain on sales of assets;

• Legal reserves;

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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.

Refer to Note 4, Dispositions for additional information.

Arlington's results and exit costs in 2022 and 2023 are treated as an adjustment to EBITDA.

Churchill Downs Incorporated

Notes to Consolidated Financial Statements

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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Our calculation of Adjusted EBITDA may be different from the calculation used by other companies and, therefore, comparability may be limited.

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

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

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:

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Revenue $ 1,084.6 $ 458.4 $ 974.6

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

Gaming taxes and purses ( 267.7 ) ( 22.6 ) ( 322.8 )

Marketing and advertising ( 37.6 ) ( 9.8 ) ( 35.4 )

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Selling, general and administrative expense ( 31.9 ) ( 12.4 ) ( 42.7 )

Maintenance, insurance and utilities ( 43.2 ) ( 3.8 ) ( 40.0 )

Property and other taxes ( 6.0 ) ( 0.2 ) ( 13.5 )

Other operating expense ( 110.6 ) ( 44.1 ) ( 70.2 )

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Revenue $ 646.4 $ 441.6 $ 761.8

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

Gaming taxes and purses ( 168.6 ) ( 27.0 ) ( 278.1 )

Marketing and advertising ( 19.8 ) ( 13.0 ) ( 18.9 )

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Selling, general and administrative expense ( 18.6 ) ( 9.7 ) ( 31.3 )

Maintenance, insurance and utilities ( 24.3 ) ( 3.0 ) ( 31.1 )

Property and other taxes ( 2.6 ) ( 0.2 ) ( 10.5 )

Other operating expense ( 58.6 ) ( 44.6 ) ( 49.9 )

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Revenue $ 430.6 $ 457.8 $ 698.4

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

Gaming taxes and purses ( 126.3 ) ( 30.7 ) ( 264.4 )

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

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Selling, general and administrative expense ( 12.8 ) ( 11.0 ) ( 27.9 )

Maintenance, insurance and utilities ( 18.5 ) ( 2.5 ) ( 25.9 )

Property and other taxes ( 3.1 ) ( 0.2 ) ( 9.6 )

Other operating expense ( 31.4 ) ( 47.7 ) ( 36.8 )

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(in millions) 2023 2022 2021

Reconciliation of Comprehensive Income (Loss) to Adjusted EBITDA:

Net income (loss) and comprehensive income (loss) attributable to Churchill Downs Incorporated $ 439.4 $ 249.1 $ ( 81.9 )

Net loss attributable to noncontrolling interest — — 0.2

Net income (loss) 439.4 249.1 ( 82.1 )

Loss from discontinued operations, net of tax — — 95.4

Income from continuing operations, net of tax 439.4 249.1 13.3

Reconciliation of Comprehensive Income to Adjusted EBITDA:

Net income and comprehensive income $ 417.3 $ 439.4 $ 249.1

Depreciation and amortization 169.0 113.7 103.2

Interest expense 268.4 147.3 84.7

Income tax provision (benefit) 169.4 94.5 ( 5.3 )

Income tax provision 144.5 169.4 94.5

EBITDA $ 999.2 $ 869.8 $ 531.5

Adjustments to EBITDA:

Selling, general and administrative:

Stock-based compensation expense $ 32.9 $ 31.8 $ 27.8

Legal reserves ( 1.2 ) 3.8 —

Other charges 7.4 0.2 0.8

Pre-opening expense and other expense 13.2 5.8 11.2

Pre-opening expense 18.6 13.2 5.8

Arlington exit costs 9.4 5.7 5.3

Other expense, net 7.0 1.7 0.2

Transaction expense, net 4.8 42.1 2.6

Asset impairments 24.6 38.3 15.3

Other income, expense:

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Other charges and recoveries, net 2.4 1.0 —

Gain on Calder land sale ( 274.6 ) — —

Transaction expense, net 42.1 7.9 1.0

Asset impairments 38.3 15.3 17.5

Gain on sale of assets ( 114.0 ) ( 274.6 ) —

Total adjustments to EBITDA 24.7 ( 106.2 ) 95.5

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We believe that each such transaction has been on terms no less favorable for us than could have been obtained in a transaction with a third party, and no officer or director received any extra or special benefit in connection with such transactions.

Stock Repurchase Agreement

On February 1, 2021, the Company entered into an agreement (the "Stock Repurchase Agreement") with an affiliate of TDG to repurchase 1,000,000 shares of the Company’s common stock for $ 193.94 per share in a privately negotiated transaction.

Stock Repurchase Agreements

On February 1, 2021, the Company entered into the 2021 Stock Repurchase Agreement with an affiliate of TDG to repurchase 1,000,000 shares of the Company’s common stock for $ 193.94 per share in a privately negotiated transaction.

The aggregate purchase price was $ 193.9 million.

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 did 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 2021 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.

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 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.

On December 18, 2023, the Company entered into the 2023 Stock Repurchase Agreement with an affiliate of TDG to repurchase 1,000,000 shares of the Company’s common stock, for $ 123.75 per share representing a discount of 4.03 % to the closing price on December 15, 2023 of $ 128.95 for an aggregate purchase price of $ 123.8 million.

The repurchase of the shares of Company's common stock pursuant to the 2023 Stock Repurchase Agreement closed on January 2, 2024, and contains customary representations, warranties, and covenants of the parties.

The repurchase of shares of common stock from TDG pursuant to the 2023 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.

The repurchase of the shares was funded using available cash and borrowings under the Company’s senior secured credit facility.

Churchill Downs Incorporated

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SUBSEQUENT EVENTS

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.

On January 2, 2024, the Company closed on the repurchase of 1,000,000 shares of the Company’s common stock, for $ 123.75 per share in a privately negotiated transaction, for an aggregate purchase price of $ 123.8 million, pursuant to the 2023 Stock Repurchase Agreement.

The agreement contains customary representations, warranties, and covenants of the parties.

Refer to Note 10, Shareholders' Equity for additional information.

Report of Independent Registered Public Accounting Firm

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Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Churchill Downs Incorporated and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of comprehensive income (loss), of shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2022 appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of Churchill Downs Incorporated and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of comprehensive income, of shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2023 appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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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.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Exacta Systems, LLC ("Exacta") from its assessment of internal control over financial reporting as of December 31, 2023, because it was acquired by the Company in a purchase business combination during 2023.

We have also excluded Exacta from our audit of internal control over financial reporting.

Exacta is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent less than 1% of the related consolidated financial statement amounts as of and for the year ended December 31, 2023.

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.

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;

Acquisition of Exacta Systems LLC – Valuation of Technology Asset

As described in Note 3 to the consolidated financial statements, on August 22, 2023, the Company completed the acquisition of Exacta for preliminary purchase consideration of $248.2 million, net of cash acquired.

The Company recorded intangible assets of $54.3 million, which includes $23.9 million of a definite-lived technology asset.

As disclosed by management, the fair value of the technology asset was determined using the relief-from-royalty method of the income approach.

The estimated future revenue, royalty rate, and discount rate are the primary assumptions and estimates used in the valuation.

The principal considerations for our determination that performing procedures relating to the valuation of the technology asset acquired in the acquisition of Exacta is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the technology asset;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumption related to future revenue;

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 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.

These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation estimate of the technology asset acquired.

These procedures also included, among others, (i) reading the purchase agreement;

(ii) testing management’s process for developing the fair value estimate of the technology asset acquired;

(iii) evaluating the appropriateness of the relief-from-royalty method used by management;

(iv) testing the completeness and accuracy of the underlying data used in the relief-from-royalty method;

and (v) evaluating the reasonableness of the future revenue significant assumption used by management.

Evaluating the reasonableness of the future revenue assumption involved considering (i) the current and past performance of Exacta;

(ii) the consistency with economic and industry forecasts;

and (iii) whether the assumption was 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 relief-from-royalty method.

/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